关键词：Securities

121 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
(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) during the period beginning on the date
on which such associated person files an application
for registration with the State in which the
transaction is effected and ending on the earlier
of—
(aa) 60 days after the date on which the
application is filed; or
(bb) the date on which such State notifies
the associated person that it has denied the
application for registration or has stayed the
pendency of the application for cause.
(B) RULES OF CONSTRUCTION.—For purposes of subparagraph
(A)(i)(II)—
(i) each of up to 3 associated persons of a broker
or dealer who are designated to effect transactions
during the absence or unavailability of the principal
associated person for a customer may be treated as an
associated person to which such customer is assigned;
and
(ii) if the customer is present in another State for
30 or more consecutive days or has permanently
changed his or her residence to another State, a transaction
is not described in this paragraph, unless the
associated person of the broker or dealer files an application
for registration with such State not later than
10 business days after the later of the date of the
transaction, or the date of the discovery of the presence
of the customer in the other State for 30 or more
consecutive days or the change in the
customer’s residence.
(i) RULEMAKING TO EXTEND REQUIREMENTS TO NEW HYBRID
PRODUCTS.—
(1) CONSULTATION.—Prior to commencing a rulemaking
under this subsection, the Commission shall consult with and
seek the concurrence of the Board concerning the imposition of
broker or dealer registration requirements with respect to any
new hybrid product. In developing and promulgating rules
under this subsection, the Commission shall consider the views
of the Board, including views with respect to the nature of the
new hybrid product; the history, purpose, extent, and appropriateness
of the regulation of the new product under the Federal
banking laws; and the impact of the proposed rule on the
banking industry.
(2) LIMITATION.—The Commission shall not—
(A) require a bank to register as a broker or dealer
under this section because the bank engages in any transaction
in, or buys or sells, a new hybrid product; or
(B) bring an action against a bank for a failure to comply
with a requirement described in subparagraph (A),
unless the Commission has imposed such requirement by rule
or regulation issued in accordance with this section.
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 122
(3) CRITERIA FOR RULEMAKING.—The Commission shall not
impose a requirement under paragraph (2) of this subsection
with respect to any new hybrid product unless the Commission
determines that—
(A) the new hybrid product is a security; and
(B) imposing such requirement is necessary and
appropriate in the public interest and for the protection of
investors.
(4) CONSIDERATIONS.—In making a determination under
paragraph (3), the Commission shall consider—
(A) the nature of the new hybrid product; and
(B) the history, purpose, extent, and appropriateness
of the regulation of the new hybrid product under the Federal
securities laws and under the Federal banking laws.
(5) OBJECTION TO COMMISSION REGULATION.—
(A) FILING OF PETITION FOR REVIEW.—The Board may
obtain review of any final regulation described in paragraph
(2) in the United States Court of Appeals for the
District of Columbia Circuit by filing in such court, not
later than 60 days after the date of publication of the final
regulation, a written petition requesting that the regulation
be set aside. Any proceeding to challenge any such
rule shall be expedited by the Court of Appeals.
(B) TRANSMITTAL OF PETITION AND RECORD.—A copy of
a petition described in subparagraph (A) shall be transmitted
as soon as possible by the Clerk of the Court to an
officer or employee of the Commission designated for that
purpose. Upon receipt of the petition, the Commission
shall file with the court the regulation under review and
any documents referred to therein, and any other relevant
materials prescribed by the court.
(C) EXCLUSIVE JURISDICTION.—On the date of the filing
of the petition under subparagraph (A), the court has
jurisdiction, which becomes exclusive on the filing of the
materials set forth in subparagraph (B), to affirm and enforce
or to set aside the regulation at issue.
(D) STANDARD OF REVIEW.—The court shall determine
to affirm and enforce or set aside a regulation of the Commission
under this subsection, based on the determination
of the court as to whether—
(i) the subject product is a new hybrid product, as
defined in this subsection;
(ii) the subject product is a security; and
(iii) imposing a requirement to register as a
broker or dealer for banks engaging in transactions in
such product is appropriate in light of the history, purpose,
and extent of regulation under the Federal securities
laws and under the Federal banking laws, giving
deference neither to the views of the Commission nor
the Board.
(E) JUDICIAL STAY.—The filing of a petition by the
Board pursuant to subparagraph (A) shall operate as a judicial
stay, until the date on which the determination of
123 SECURITIES EXCHANGE ACT OF 1934 Sec. 15A
1 The Gramm-Leach-Bliley Act was enacted on November 12, 1999 (P.L. 106–102; 113 Stat.
1338).
2 Subsection (i), as added by section 303(f) of the Commodity Futures Modernization Act of
2000 (114 Stat. 2763A–455), as enacted into law by section 1(a)(5) of Public Law 106–554, probably
should have been designated as (j).
the court is final (including any appeal of such determination).
(F) OTHER AUTHORITY TO CHALLENGE.—Any aggrieved
party may seek judicial review of the Commission’s rulemaking
under this subsection pursuant to section 25 of
this title.
(6) DEFINITIONS.—For purposes of this subsection:
(A) NEW HYBRID PRODUCT.—The term ‘‘new hybrid
product’’ means a product that—
(i) was not subjected to regulation by the Commission
as a security prior to the date of the enactment
of the Gramm-Leach-Bliley Act 1;
(ii) is not an identified banking product as such
term is defined in section 206 of such Act; and
(iii) is not an equity swap within the meaning of
section 206(a)(6) of such Act.
(B) BOARD.—The term ‘‘Board’’ means the Board of
Governors of the Federal Reserve System.
(i) 2 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.
REGISTERED SECURITIES ASSOCIATIONS
SEC. 15A. ø78o–3¿ (a) An association of brokers and dealers
may be registered as a national securities association pursuant to
subsection (b), or as an affiliated securities association pursuant to
subsection (d), under the terms and conditions hereinafter provided
in this section and in accordance with the provisions of 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 association 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 association of brokers and dealers shall not be registered
as a national securities association unless the Commission
determines that—
(1) By reason of the number and geographical distribution
of its members and the scope of their transactions, such association
will be able to carry out the purposes of this section.
(2) Such association 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,
the rules of the Municipal Securities Rulemaking
Board, and the rules of the association.
Sec. 15A SECURITIES EXCHANGE ACT OF 1934 124
(3) Subject to the provisions of subsection (g) of this section,
the rules of the association provide that any registered
broker or dealer may become a member of such association and
any person may become associated with a member thereof.
(4) The rules of the association 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 association, broker, or dealer.
(5) The rules of the association provide for the equitable
allocation of reasonable dues, fees, and other charges among
members and issuers and other persons using any facility or
system which the association operates or controls.
(6) The rules of the association 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, to fix
minimum profits, to impose any schedule or fix rates of commissions,
allowances, discounts, or other fees to be charged by
its members, 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 association.
(7) The rules of the association 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
any provision of this title, the rules or regulations thereunder,
the rules of the Municipal Securities Rulemaking Board, or the
rules of the association, 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.
(8) The rules of the association are in accordance with the
provisions of subsection (h) 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
any person seeking membership therein, the barring of any
person from becoming associated with a member thereof, and
the prohibition or limitation by the association of any person
with respect to access to services offered by the association or
a member thereof.
(9) The rules of the association do not impose any burden
on competition not necessary or appropriate in furtherance of
the purposes of this title.
(10) The requirements of subsection (c), insofar as these
may be applicable, are satisfied.
(11) The rules of the association include provisions governing
the form and content of quotations relating to securities
125 SECURITIES EXCHANGE ACT OF 1934 Sec. 15A
sold otherwise than on a national securities exchange which
may be distributed or published by any member or person
associated with a member, and the persons to whom such
quotations may be supplied. Such rules relating to quotations
shall be designed to produce fair and informative quotations,
to prevent fictitious or misleading quotations, and to promote
orderly procedures for collecting, distributing, and publishing
quotations.
(12) The rules of the association to promote just and equitable
principles of trade, as required by paragraph (6), include
rules to prevent members of the association from participating
in any 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 that is independent, as
determined in accordance with rules prescribed by the
association, of the general partner or sponsor, that has
been approved by a majority of the outstanding securities
of each of the participating 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 association 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. 15A SECURITIES EXCHANGE ACT OF 1934 126
association, except that for purposes of an exchange or tender
offer, such person shall file an objection in writing under the
rules of the association during the period in which the offer is
outstanding.
(13) The rules of the association prohibit the authorization
for quotation on an automated interdealer quotation system
sponsored by the association of any security designated by the
Commission as a national market system security resulting
from 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 that is independent, as
determined in accordance with rules prescribed by the
association, of the general partner or sponsor, that has
been approved by a majority of the outstanding securities
of each of the participating 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 association 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
association, except that for purposes of an exchange or tender
offer, such person shall file an objection in writing under the
127 SECURITIES EXCHANGE ACT OF 1934 Sec. 15A
rules of the association during the period during which the
offer is outstanding.
(c) The Commission may permit or require the rules of an association
applying for registration pursuant to subsection (b) of this
section, to provide for the admission of an association registered as
an affiliated securities association pursuant to subsection (d) of this
section, to participation in said applicant association as an affiliate
thereof, under terms permitting such powers and responsibilities to
such affiliate, and under such other appropriate terms and conditions,
as may be provided by the rules of said applicant association,
if such rules appear to the Commission to be necessary or appropriate
in the public interest or for the protection of investors and
to carry out the purposes of this section. The duties and powers of
the Commission with respect to any national securities association
or any affiliated securities association shall in no way be limited
by reason of any such affiliation.
(d) An applicant association shall not be registered as an affiliated
securities association unless it appears to the Commission
that—
(1) such association, notwithstanding that it does not satisfy
the requirements set forth in paragraph (1) of subsection
(b) of this section, will, forthwith upon the registration thereof,
be admitted to affiliation with an association registered as a
national securities association pursuant to subsection (b) of
this section, in the manner and under the terms and conditions
provided by the rules of said national securities association in
accordance with subsection (c) of this section; and
(2) such association and its rules satisfy the requirements
set forth in paragraphs (2) to (10), inclusive, and paragraph
(12), of subsection (b) of this section; except that in the case of
any such association any restrictions upon membership therein
of the type authorized by paragraph (3) of subsection (b) of this
section shall not be less stringent than in the case of the national
securities association with which such association is to
be affiliated.
(e)(1) The rules of a registered securities association may provide
that no member thereof shall deal with any nonmember professional
(as defined in paragraph (2) of this subsection) except at
the same prices, for the same commissions or fees, and on the same
terms and conditions as are by such member accorded to the general
public.
(2) For the purposes of this subsection, the term ‘‘nonmember
professional’’ shall include (A) with respect to transactions in securities
other than municipal securities, any registered broker or
dealer who is not a member of any registered securities association,
except such a broker or dealer who deals exclusively in commercial
paper, bankers’ acceptances, and commercial bills, and (B) with respect
to transactions in municipal securities, any municipal securities
dealer (other than a bank or division or department of a bank)
who is not a member of any registered securities association and
any municipal securities broker who is not a member of any such
association.
(3) Nothing in this subsection shall be so construed or applied
as to prevent (A) any member of any registered securities associaSec.
15A SECURITIES EXCHANGE ACT OF 1934 128
tion from granting to any other member of any registered securities
association any dealer’s discount, allowance, commission, or special
terms, in connection with the purchase or sale of securities, or (B)
any member of a registered securities association or any municipal
securities dealer which is a bank or a division or department of a
bank from granting to any member of any registered securities
association or any such municipal securities dealer any dealer’s discount,
allowance, commission, or special terms in connection with
the purchase or sale of municipal securities: Provided, however,
That the granting of any such discount, allowance, commission, or
special terms in connection with the purchase or sale of municipal
securities shall be subject to rules of the Municipal Securities Rulemaking
Board adopted pursuant to section 15B(b)(2)(K) of this
title.
(f) Nothing in subsection (b)(6) or (b)(11) of this section shall
be construed to permit a registered securities association to make
rules concerning any transaction by a registered broker or dealer
in a municipal security.
(g)(1) A registered securities association shall deny membership
to any person who is not a registered broker or dealer.
(2) A registered securities association 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, and bar from
becoming associated with a member any person, who is subject to
a statutory disqualification. A registered securities association shall
file notice with the Commission not less than thirty days prior to
admitting any registered broker or dealer to membership or permitting
any person to become associated with a member, if the association
knew, or in the exercise of reasonable care should have known,
that such broker or dealer or 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 registered securities association 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 association or (ii) such
broker or dealer or person associated with such broker or dealer
has engaged and there is a reasonable likelihood he will again engage
in acts or practices inconsistent with just and equitable principles
of trade. A registered securities association 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 association.
(B) A registered securities association may bar a natural person
from becoming associated with a member or condition the 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 association or (ii) has
129 SECURITIES EXCHANGE ACT OF 1934 Sec. 15A
engaged and there is a reasonable likelihood he will again engage
in acts or practices inconsistent with just and equitable principles
of trade. A registered securities association 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 association and require a natural person associated
with a member, or any class of such natural persons, to be registered
with the association in accordance with procedures so established.
(C) A registered securities association may bar any person
from becoming associated with a member if such person does not
agree (i) to supply the association with such information with respect
to its relationship and dealings with the member as may be
specified in the rules of the association and (ii) to permit examination
of its books and records to verify the accuracy of any information
so supplied.
(D) Nothing in subparagraph (A), (B), or (C) of this paragraph
shall be construed to permit a registered securities association to
deny membership to or condition the membership of, or bar any
person from becoming associated with or condition the association
of any person with, a broker or dealer that engages exclusively in
transactions in municipal securities.
(4) A registered securities association may deny membership to
a registered broker or dealer not engaged in a type of business in
which the rules of the association require members to be engaged:
Provided, however, That no registered securities association may
deny membership to a registered broker or dealer by reason of the
amount of such type of business done by such broker or dealer or
the other types of business in which he is engaged.
(h)(1) In any proceeding by a registered securities association
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 association 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 association 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, the rules of the Municipal Securities Rulemaking
Board, or the rules of the association which any such
act or practice, or omission to act, is deemed to violate; and
(C) the sanction imposed and the reason therefor.
(2) In any proceeding by a registered securities association 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 association or a
member thereof (other than a summary proceeding pursuant to
paragraph (3) of this subsection), the association 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 association to
Sec. 15A SECURITIES EXCHANGE ACT OF 1934 130
1 The Gramm-Leach-Bliley Act was enacted on November 12, 1999 (P.L. 106–102; 113 Stat.
1338).
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 association 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.
(3) A registered securities association 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 association 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 association, or (C) limit
or prohibit any person with respect to access to services offered by
the association 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 association 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
association. Any person aggrieved by any such summary action
shall be promptly afforded an opportunity for a hearing by the
association in accordance with the provisions of paragaph (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.
(i) A registered securities association shall, within one year
from the date of enactment of this section, (1) establish and maintain
a toll-free telephone listing to receive inquiries regarding disciplinary
actions involving its members and their associated persons,
and (2) promptly respond to such inquiries in writing. Such
association may charge persons, other than individual investors,
reasonable fees for written responses to such inquiries. Such an
association shall not have any liability to any person for any actions
taken or omitted in good faith under this paragraph.
(j) REGISTRATION FOR SALES OF PRIVATE SECURITIES OFFERINGS.—
A registered securities association shall create a limited
qualification category for any associated person of a member who
effects sales as part of a primary offering of securities not involving
a public offering, pursuant to section 3(b), 4(2), or 4(6) of the Securities
Act of 1933 and the rules and regulations thereunder, and
shall deem qualified in such limited qualification category, without
testing, any bank employee who, in the six month period preceding
the date of the enactment of the Gramm-Leach-Bliley Act 1, engaged
in effecting such sales.
(k) LIMITED PURPOSE NATIONAL SECURITIES ASSOCIATION.—

131 SECURITIES EXCHANGE ACT OF 1934 Sec. 15A
(1) REGULATION OF MEMBERS WITH RESPECT TO SECURITY
FUTURES PRODUCTS.—A futures association registered under
section 17 of the Commodity Exchange Act shall be a registered
national securities association for the limited purpose
of regulating the activities of members who are registered as
brokers or dealers in security futures products pursuant to section
15(b)(11).
(2) REQUIREMENTS FOR REGISTRATION.—Such a securities
association shall—
(A) be so organized and have the capacity to carry out
the purposes of the securities laws applicable to security
futures products and to comply, and (subject to any rule or
order of the Commission pursuant to section 19(g)(2)) to
enforce compliance by its members and persons associated
with its members, with the provisions of the securities
laws applicable to security futures products, the rules and
regulations thereunder, and its rules;
(B) have rules that—
(i) are designed to prevent fraudulent and
manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect
investors and the public interest, including rules
governing sales practices and the advertising of security
futures products reasonably comparable to those
of other national securities associations registered pursuant
to subsection (a) that are applicable to security
futures products; and
(ii) are not designed 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
association;
(C) have rules that provide that (subject to any rule or
order of the Commission pursuant to section 19(g)(2)) its
members and persons associated with its members shall be
appropriately disciplined for violation of any provision of
the securities laws applicable to security futures products,
the rules or regulations thereunder, or the rules of the
association, 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; and
(D) have rules that ensure that members and natural
persons associated with members meet such standards of
training, experience, and competence necessary to effect
transactions in security futures products and are tested for
their knowledge of securities and security futures products.
(3) EXEMPTION FROM RULE CHANGE SUBMISSION.—Such a
securities association shall be exempt from submitting proposed
rule changes pursuant to section 19(b) of this title, except
that—
(A) the association shall file proposed rule changes related
to higher margin levels, fraud or manipulation, recordkeeping,
reporting, listing standards, or decimal pricing
Sec. 15B SECURITIES EXCHANGE ACT OF 1934 132
for security futures products, sales practices for, advertising
of, or standards of training, experience, competence,
or other qualifications for security futures products for persons
who effect transactions in security futures products,
or rules effectuating the association’s obligation to enforce
the securities laws pursuant to section 19(b)(7);
(B) the association 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
(C) the association 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).
(4) OTHER EXEMPTIONS.—Such a securities association
shall be exempt from and shall not be required to enforce compliance
by its members, and its members shall not, solely with
respect to their transactions effected in security futures products,
be required to comply, with the following provisions of
this title and the rules thereunder:
(A) Section 8.
(B) Subsections (b)(1), (b)(3), (b)(4), (b)(5), (b)(8),
(b)(10), (b)(11), (b)(12), (b)(13), (c), (d), (e), (f ), (g), (h), and
(i) of this section.
(C) Subsections (d), (f ), and (k) of section 17.
(D) Subsections (a), (f ), and (h) of section 19.
(l) Consistent with this title, each national securities association
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
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 association of the type
specified in section 15(c)(3)(B) involving security futures products;
and
(2) similar rules of national securities associations registered
pursuant to subsection (k) of this section and national
securities exchanges registered pursuant to section 6(g) involving
security futures products.
(m) PROCEDURES AND RULES FOR SECURITY FUTURE PRODUCTS.—
A national securities association registered pursuant to subsection
(a) shall, not later than 8 months after the date of the
enactment of the Commodity Futures Modernization Act of 2000,
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.
MUNICIPAL SECURITIES
SEC. 15B. ø78o–4¿ (a)(1) It shall be unlawful for any municipal
securities dealer (other than one registered as a broker or dealer
under section 15 of this title) to 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
133 SECURITIES EXCHANGE ACT OF 1934 Sec. 15B
sale of, any municipal security unless such municipal securities
dealer is registered in accordance with this subsection.
(2) A municipal securities dealer may be registered by filing
with the Commission an application for registration in such form
and containing such information and documents concerning such
municipal securities dealer and any person associated with such
municipal securities dealer as 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 Commission
may extend the time for the 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 the registration of a municipal securities
dealer 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 subsection (c) of this section.
(3) Any provision of this title (other than section 5 or paragraph
(1) of this subsection) 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
municipal securities dealer or any person acting on behalf of such
municipal securities dealer, irrespective of any use of the mails or
any means or instrumentality of interstate commerce in connection
therewith.
(4) The Commission, by rule or order, upon its own motion or
upon application, may conditionally or unconditionally exempt any
broker, dealer, or municipal securities dealer or class of brokers,
dealers, or municipal securities dealers 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.
(b)(1) Not later than one hundred twenty days after the date
of enactment of the Securities Acts Amendments of 1975, the Commission
shall establish a Municipal Securities Rulemaking Board
(hereinafter in this section referred to as the ‘‘Board’’), to be composed
initially of fifteen members appointed by the Commission,
which shall perform the duties set forth in this section. The initial
members of the Board shall serve as members for a term of two
years, and shall consist of (A) five individuals who are not associated
with any broker, dealer, or municipal securities dealer (other
Sec. 15B SECURITIES EXCHANGE ACT OF 1934 134
than by reason of being under common control with, or indirectly
controlling, any broker or dealer which is not a municipal securities
broker or municipal securities dealer), at least one of whom shall
be representative of investors in municipal securities, and at least
one of whom shall be representative of issuers of municipal securities
(which members are hereinafter referred to as ‘‘public representatives’’);
(B) five individuals who are associated with and representative
of municipal securities brokers and municipal securities
dealers which are not banks or subsidiaries or departments or divisions
of banks (which members are hereinafter referred to as
‘‘broker-dealer representatives’’); and (C) five individuals who are
associated with and representative of municipal securities dealers
which are banks or subsidiaries or departments or divisions of
banks (which members are hereinafter referred to as ‘‘bank representatives’’).
Prior to the expiration of the terms of office of the
initial members of the Board, an election shall be held under rules
adopted by the Board (pursuant to subsection (b)(2)(B) of this section)
of the members to succeed such initial members.
(2) The Board shall propose and adopt rules to effect the purposes
of this title with respect to transactions in municipal securities
effected by brokers, dealers, and municipal securities dealers.
(Such rules are hereinafter collectively referred to in this title as
‘‘rules of the Board’’.) The rules of the Board, as a minimum, shall:
(A) provide that no municipal securities broker or municipal
securities dealer shall effect any transaction in, or induce
or attempt to induce the purchase or sale of, any municipal
security unless such municipal securities broker or municipal
securities dealer meets such standards of operational capability
and such municipal securities broker or municipal securities
dealer and every natural person associated with such municipal
securities broker or municipal securities dealer meets such
standards of training, experience, competence, and such other
qualifications as the Board finds necessary or appropriate in
the public interest or for the protection of investors. In connection
with the definition and application of such standards the
Board may—
(i) appropriately classify municipal securities brokers
and municipal securities dealers (taking into account relevant
matters, including types of business done, nature of
securities other than municipal securities sold, and character
of business organization), and persons associated
with municipal securities brokers and municipal securities
dealers;
(ii) specify that all or any portion of such standards
shall be applicable to any such class;
(iii) require persons in any such class to pass tests
administered in accordance with subsection (c)(7) of this
section; and
(iv) provide that persons in any such class other than
municipal securities brokers and municipal securities dealers
and partners, officers, and supervisory employees of
municipal securities brokers or municipal securities dealers,
may be qualified solely on the basis of compliance with
135 SECURITIES EXCHANGE ACT OF 1934 Sec. 15B
such standards of training and such other qualifications as
the Board finds appropriate.
(B) establish fair procedures for the nomination and election
of members of the Board and assure fair representation in
such nominations and elections of municipal securities brokers
and municipal securities dealers. Such rules shall provide that
the membership of the Board shall at all times be equally divided
among public representatives, broker-dealer representatives,
and bank representatives, and that the public representatives
shall be subject to approval by the Commission to assure
that no one of them is associated with any broker, dealer, or
municipal securities dealer (other than by reason of being
under common control with, or indirectly controlling, any
broker or dealer which is not a municipal securities broker or
municipal securities dealer) and that at least one is representative
of investors in municipal securities and at least one is
representative of issuers of municipal securities. Such rules
shall also specify the term members shall serve and may increase
the number of members which shall constitute the
whole Board provided that such number is an odd number.
(C) be 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 municipal securities,
to remove impediments to and perfect the mechanism of
a free and open market in municipal securities, and, in general,
to protect investors and the public interest; and not be designed
to permit unfair discrimination between customers,
issuers, municipal securities brokers, or municipal securities
dealers, to fix minimum profits, to impose any schedule or fix
rates of commissions, allowances, discounts, or other fees to be
charged by municipal securities brokers or municipal securities
dealers, to regulate by virtue of any authority conferred by this
title matters not related to the purpose of this title or the
administration of the Board, or to impose any burden on competition
not necessary or appropriate in furtherance of the purposes
of this title.
(D) if the Board deems appropriate, provide for the arbitration
of claims, disputes, and controversies relating to transactions
in municipal securities: Provided, however, That no
person other than a municipal securities broker, municipal
securities dealer, or person associated with such a municipal
securities broker or municipal securities dealer may be compelled
to submit to such arbitration except at his instance and
in accordance with section 29 of this title.
(E) provide for the periodic examination in accordance with
subsection (c)(7) of this section of municipal securities brokers
and municipal securities dealers to determine compliance with
applicable provisions of this title, the rules and regulations
thereunder, and the rules of the Board. Such rules shall specify
the minimum scope and frequency of such examinations and
shall be designed to avoid unnecessary regulatory duplication
Sec. 15B SECURITIES EXCHANGE ACT OF 1934 136
1 The definition promulgated pursuant to this provision is printed in the appendix to this
compilation.
or undue regulatory burdens for any such municipal securities
broker or municipal securities dealer.
(F) include provisions governing the form and content of
quotations relating to municipal securities which may be distributed
or published by any municipal securities broker, municipal
securities dealer, or person associated with such a municipal
securities broker or municipal securities dealer, and the
persons to whom such quotations may be supplied. Such rules
relating to quotations shall be designed to produce fair and
informative quotations, to prevent fictitious or misleading
quotations, and to promote orderly procedures for collecting,
distributing, and publishing quotations.
(G) prescribe records to be made and kept by municipal
securities brokers and municipal securities dealers and the periods
for which such records shall be preserved.
(H) define the term ‘‘separately identifiable department or
division’’, as that term is used in section 3(a)(30) of this title,
in accordance with specified and appropriate standards to assure
that a bank is not deemed to be engaged in the business
of buying and selling municipal securities through a separately
identifiable department or division unless such department or
division is organized and administered so as to permit independent
examination and enforcement of applicable provisions
of this title, the rules and regulations thereunder, and the
rules of the Board. A separately identifiable department or
division of a bank may be engaged in activities other than
those relating to municipal securities.1
(I) provide for the operation and administration of the
Board, including the selection of a Chairman from among the
members of the Board, the compensation of the members of the
Board, and the appointment and compensation of such employees,
attorneys, and consultants as may be necessary or appropriate
to carry out the Board’s functions under this section.
(J) provide that each municipal securities broker and each
municipal securities dealer shall pay to the Board such reasonable
fees and charges as may be necessary or appropriate to
defray the costs and expenses of operating and administering
the Board. Such rules shall specify the amount of such fees
and charges.
(K) establish the terms and conditions under which any
municipal securities dealer may sell, or prohibit any municipal
securities dealer from selling, any part of a new issue of municipal
securities to a municipal securities investment portfolio
during the underwriting period.
(3) Nothing in this section shall be construed to impair or limit
the power of the Commission under this title.
(c)(1) No broker, dealer, or 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 contravention
of any rule of the Board.
137 SECURITIES EXCHANGE ACT OF 1934 Sec. 15B
(2) The Commission, by order, shall censure, place limitations
on the activities, functions, or operations, suspend for a period not
exceeding twelve months, or revoke the registration of any municipal
securities dealer, if it finds, on the record after notice and
opportunity for hearing, that such censure, placing of limitations,
denial, suspension, or revocation, is in the public interest and that
such municipal securities dealer 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 section 15(b) of this
title, has been convicted of any offense specified in subparagraph
(B) of such paragraph (4) within ten years of the commencement
of the proceedings under this paragraph, or is enjoined from any
action, conduct, or practice specified in subparagraph (C) or such
paragraph (4).
(3) Pending final determination whether any registration
under this section 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 municipal securities dealer may, upon such
terms and conditions as the Commission may deem necessary 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 municipal
securities dealer is no longer in existence or has ceased to do business
as a municipal securities dealer, the Commission, by order,
shall cancel the registration of such municipal securities dealer.
(4) The Commission, by order, shall censure or place limitations
on the activities or functions of any person associated, seeking
to become associated, or, at the time of the alleged misconduct,
associated or seeking to become associated with a municipal securities
dealer, or suspend for a period not exceeding twelve months or
bar any such person from being associated with a municipal securities
dealer, if the Commission finds, on the record after notice and
opportunity for hearing, that such censure, placing of limitations,
suspension, or bar is in the public interest and that such person
has committed any act, or is subject to an order or finding, enumerated
in subparagraph (A), (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) within 10 years of
the commencement of the proceedings under this paragraph, or is
enjoined from any action, conduct, or practice specified in subparagraph
(C) of such paragraph (4). It shall be unlawful for any person
as to whom an order entered pursuant to this paragraph or paragraph
(5) of this subsection suspending or barring him from being
associated with a municipal securities dealer is in effect willfully
to become, or to be, associated with a municipal securities dealer
without the consent of the Commission, and it shall be unlawful for
any municipal securities dealer to permit such a person to become,
or remain, a person associated with him without the consent of the
Commission, if such municipal securities dealer knew, or, in the
exercise of reasonable care should have known, of such order.
(5) With respect to any municipal securities dealer for which
the Commission is not the appropriate regulatory agency, the
Sec. 15B SECURITIES EXCHANGE ACT OF 1934 138
appropriate regulatory agency for such municipal securities dealer
may sanction any such municipal securities dealer in the manner
and for the reasons specified in paragraph (2) of this subsection
and any person associated with such municipal securities dealer in
the manner and for the reasons specified in paragraph (4) of this
subsection. In addition, such appropriate regulatory agency may, in
accordance with section 8 of the Federal Deposit Insurance Act (12
U.S.C. 1818), enforce compliance by such municipal securities
dealer or any person associated with such municipal securities
dealer with the provisions of this section, section 17 of this title,
the rules of the Board, and the rules of the Commission pertaining
to municipal securities dealers, persons associated with municipal
securities dealers, and transactions in municipal securities. For
purposes of the preceding sentence, any violation of any such provision
shall constitute adequate basis for the issuance of any order
under section 8(b) or 8(c) of the Federal Deposit Insurance Act, and
the customers of any such municipal securities dealer shall be
deemed to be ‘‘depositors’’ as that term is used in section 8(c) of
that Act. Nothing in this paragraph shall be construed to affect in
any way the powers of such appropriate regulatory agency to proceed
against such municipal securities dealer under any other provision
of law.
(6)(A) The Commission, prior to the entry of an order of investigation,
or commencement of any proceedings, against any municipal
securities dealer, or person associated with any municipal
securities dealer, for which the Commission is not the appropriate
regulatory agency, for violation of any provision of this section, section
15(c)(1) or 15(c)(2) of this title, any rule or regulation under
any such section or any rule of the Board, shall (i) give notice to
the appropriate regulatory agency for such municipal securities
dealer of the identity of such municipal securities dealer or person
associated with such municipal securities dealer, the nature of and
basis for such proposed action, and whether the Commission is
seeking a monetary penalty against such municipal securities
dealer or such associated person pursuant to section 21B of this
title; and (ii) consult with such appropriate regulatory agency concerning
the effect of such proposed action on sound banking practices
and the feasibility and desirability of coordinating such action
with any proceeding or proposed proceeding by such appropriate
regulatory agency against such municipal securities dealer or associated
person.
(B) The appropriate regulatory agency for a municipal securities
dealer (if other than the Commission), prior to the entry of an
order of investigation, or commencement of any proceedings,
against such municipal securities dealer or person associated with
such municipal securities dealer, for violation of any provision of
this section, the rules of the Board, or the rules or regulations of
the Commission pertaining to municipal securities dealers, persons
associated with municipal securities dealers, or transactions in municipal
securities shall (i) give notice to the Commission of the
identity of such municipal securities dealer or person associated
with such municipal securities dealer and the nature of and basis
for such proposed action and (ii) consult with the Commission concerning
the effect of such proposed action on the protection of
139 SECURITIES EXCHANGE ACT OF 1934 Sec. 15B
investors and the feasibility and desirability of coordinating such
action with any proceeding or proposed proceeding by the Commission
against such municipal securities dealer or associated person.
(C) Nothing in this paragraph shall be construed to impair or
limit (other than by the requirement of prior consultation) the
power of the Commission or the appropriate regulatory agency for
a municipal securities dealer to initiate any action of a class described
in this paragraph or to affect in any way the power of the
Commission or such appropriate regulatory agency to initiate any
other action pursuant to this title or any other provision of law.
(7)(A) Tests required pursuant to subsection (b)(2)(A)(iii) of this
section shall be administered by or on behalf of and periodic examinations
pursuant to subsection (b)(2)(E) of this section shall be conducted
by—
(i) a registered securities association, in the case of municipal
securities brokers and municipal securities dealers who
are members of such association; and
(ii) the appropriate regulatory agency for any municipal
securities broker or municipal securities dealer, in the case of
all other municipal securities brokers and municipal securities
dealers.
(B) A registered securities association shall make a report of
any examination conducted pursuant to subsection (b)(2)(E) of this
section and promptly furnish the Commission a copy thereof and
any data supplied to it in connection with such examination. Subject
to such limitations as the Commission, by rule, determines to
be necessary or appropriate in the public interest or for the protection
of investors, the Commission shall, on request, make available
to the Board a copy of any report of an examination of a municipal
securities broker or municipal securities dealer made by or furnished
to the Commission pursuant to this paragraph or section
17(c)(3) of this title.
(8) The Commission is authorized, by order, if in its opinion
such action is necessary or appropriate in the public interest, for
the protection of investors, or otherwise, in furtherance of the purposes
of this title, to remove from office or censure any member or
employee of the Board, who, the Commission finds, on the record
after notice and opportunity for hearing, has willfully (A) violated
any provision of this title, the rules and regulations thereunder, or
the rules of the Board or (B) abused his authority.
(d)(1) Neither the Commission nor the Board is authorized
under this title, by rule or regulation, to require any issuer of municipal
securities, directly or indirectly through a purchaser or prospective
purchaser of securities from the issuer, to file with the
Commission or the Board prior to the sale of such securities by the
issuer any application, report, or document in connection with the
issuance, sale, or distribution of such securities.
(2) The Board is not authorized under this title to require any
issuer of municipal securities, directly or indirectly through a municipal
securities broker or municipal securities dealer or otherwise,
to furnish to the Board or to a purchaser or a prospective
purchaser of such securities any application, report, document, or
information with respect to such issuer: Provided, however, That
the Board may require municipal securities brokers and municipal
Sec. 15C SECURITIES EXCHANGE ACT OF 1934 140
1 P.L. 99–571, which added section 15C, also contained the following:
SEC. 1. (a) * * *
(b) ø15 U.S.C. 78o-5 note¿ FINDINGS.—The Congress finds that transactions in government
securities are affected with a public interest which makes it necessary—
(1) to provide for the integrity, stability, and efficiency of such transactions and of matters
and practices related thereto;
(2) to impose adequate regulation of government securities brokers and government securities
dealers generally; and
(3) to require appropriate financial responsibility, recordkeeping, reporting, and related
regulatory requirements;
in order to protect investors and to insure the maintenance of fair, honest, and liquid markets
in such securities.
2 Title I of P.L. 103–202 which added subsections (a)(4), (b)(3), (d)(3), and (f) of section 15C
and contained other amendments to that section and sections 3(a), 15(b), 15(c), 15A(f), and 23(b)
of the Act, also contained the following provision:
SEC. 111. ø15 U.S.C. 78o-5 note¿ RULE OF CONSTRUCTION.
(a) IN GENERAL.—No provision of, or amendment made by, this title may be construed—
(1) to govern the initial issuance of any public debt obligation, or
(2) to grant any authority to (or extend any authority of) the Securities and Exchange
Commission, any appropriate regulatory agency, or a self-regulatory organization—
(A) to prescribe any procedure, term, or condition of such initial issuance,
(B) to promulgate any rule or regulation governing such initial issuance, or
(C) to otherwise regulate in any manner such initial issuance.
(b) EXCEPTION.—Subsection (a) of this section shall not apply to the amendment made by section
110 of this Act.
(c) PUBLIC DEBT OBLIGATION.—For purposes of this section, the term ‘‘public debt obligation’’
means an obligation subject to the public debt limit established in section 3101 of title 31,
United States Code.

141 SECURITIES EXCHANGE ACT OF 1934 Sec. 15C
1 So in law. Clauses (i) and (ii) probably should be subparagraphs (A) and (B).
associated with such government securities broker or government
securities dealer as the Board of Governors of the Federal Reserve
System shall, by rule, after consultation with each appropriate regulatory
agency (including the Commission), prescribe as necessary
or appropriate in the public interest or for the protection of investors.
Such notices shall be in such form and contain such information
concerning a government securities broker or government
securities dealer that is a registered broker or dealer and any persons
associated with such government securities broker or government
securities dealer as the Commission shall, by rule, prescribe
as necessary or appropriate in the public interest or for the protection
of investors.
(iii) Each appropriate regulatory agency (other than the Commission)
shall make available to the Commission the notices which
have been filed with it under this subparagraph, and the Commission
shall maintain and make available to the public such notices
and the notices it receives under this subparagraph.
(2) A government securities broker or a government securities
dealer subject to the registration requirement of paragraph (1)(A)
of this subsection may be registered by filing with the Commission
an application for registration in such form and containing such
information and documents concerning such government securities
broker or government securities dealer and any persons associated
with such government securities broker or government securities
dealer as the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of investors.
Within 45 days of the date of filing of such application (or within
such longer period as to which the applicant consents), the Commission
shall—
(i) 1 by order grant registration, or
(ii) 1 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 120 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 government securities broker or government
securities dealer has become a member of a national
securities exchange registered under section 6 of this title, or
a securities association registered under section 15A of this
title, unless the Commission has exempted such government
securities broker or government securities dealer, by rule or
order, from such membership. The Commission may extend the
time for the conclusion of such proceedings for up to 90 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 the registration of a government securities
broker or a government securities dealer 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
Sec. 15C SECURITIES EXCHANGE ACT OF 1934 142
finding or if it finds that if the applicant were so registered, its registration
would be subject to suspension or revocation under subsection
(c) of this section.
(3) Any provision of this title (other than section 5 or paragraph
(1) of this subsection) 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 government
securities broker or government securities dealer registered
or having filed notice under paragraph (1) of this subsection or any
person acting on behalf of such government securities broker or
government securities dealer, irrespective of any use of the mails
or any means or instrumentality of interstate commerce in connection
therewith.
(4) No government securities broker or government securities
dealer that is required to register under paragraph (1)(A) and that
is not a member of the Securities Investor Protection Corporation
shall effect any transaction in any security in contravention of such
rules as the Commission shall prescribe pursuant to this subsection
to assure that its customers receive complete, accurate, and timely
disclosure of the inapplicability of Securities Investor Protection
Corporation coverage to their accounts.
(5) The Secretary of the Treasury (hereinafter in this section
referred to as the ‘‘Secretary’’), by rule or order, upon the Secretary’s
own motion or upon application, may conditionally or unconditionally
exempt any government securities broker or government
securities dealer, or class of government securities brokers or
government securities dealers, from any provision of subsection (a),
(b), or (d) of this section, other than subsection (d)(3), or the rules
thereunder, if the Secretary finds that such exemption is consistent
with the public interest, the protection of investors, and the purposes
of this title.
(b)(1) The Secretary shall propose and adopt rules to effect the
purposes of this title with respect to transactions in government
securities effected by government securities brokers and government
securities dealers as follows:
(A) Such rules shall provide safeguards with respect to the
financial responsibility and related practices of government
securities brokers and government securities dealers including,
but not limited to, capital adequacy standards, the acceptance
of custody and use of customers’ securities, the carrying and
use of customers’ deposits or credit balances, and the transfer
and control of government securities subject to repurchase
agreements and in similar transactions.
(B) Such rules shall require every government securities
broker and government securities dealer to make reports to
and furnish copies of records to the appropriate regulatory
agency, and to file with the appropriate regulatory agency, annually
or more frequently, a balance sheet and income statement
certified by an independent public accountant, prepared
on a calendar or fiscal year basis, and such other financial
statements (which shall, as the Secretary specifies, be certified)
and information concerning its financial condition as required
by such rules.
143 SECURITIES EXCHANGE ACT OF 1934 Sec. 15C
(C) Such rules shall require records to be made and kept
by government securities brokers and government securities
dealers and shall specify the periods for which such records
shall be preserved.
(2) RISK ASSESSMENT FOR HOLDING COMPANY SYSTEMS.—
(A) OBLIGATIONS TO OBTAIN, MAINTAIN, AND REPORT INFORMATION.—
Every person who is registered as a government
securities broker or government securities dealer under this
section shall obtain such information and make and keep such
records as the Secretary by rule prescribes concerning the registered
person’s policies, procedures, or systems for monitoring
and controlling financial and operational risks to it resulting
from the activities of any of its associated persons, other than
a natural person. Such records shall describe, in the aggregate,
each of the financial and securities activities conducted by, and
customary sources of capital and funding of, those of its associated
persons whose business activities are reasonably likely to
have a material impact on the financial or operational condition
of such registered person, including its capital, its liquidity,
or its ability to conduct or finance its operations. The Secretary,
by rule, may require summary reports of such information
to be filed with the registered person’s appropriate regulatory
agency no more frequently than quarterly.
(B) AUTHORITY TO REQUIRE ADDITIONAL INFORMATION.—If,
as a result of adverse market conditions or based on reports
provided pursuant to subparagraph (A) of this paragraph or
other available information, the appropriate regulatory agency
reasonably concludes that it has concerns regarding the financial
or operational condition of any government securities
broker or government securities dealer registered under this
section, such agency may require the registered person to
make reports concerning the financial and securities activities
of any of such person’s associated persons, other than a natural
person, whose business activities are reasonably likely to have
a material impact on the financial or operational condition of
such registered person. The appropriate regulatory agency, in
requiring reports pursuant to this subparagraph, shall specify
the information required, the period for which it is required,
the time and date on which the information must be furnished,
and whether the information is to be furnished directly to the
appropriate regulatory agency or to a self-regulatory organization
with primary responsibility for examining the registered
person’s financial and operational condition.
(C) SPECIAL PROVISIONS WITH RESPECT TO ASSOCIATED PERSONS
SUBJECT TO FEDERAL BANKING AGENCY REGULATION.—
(i) COOPERATION IN IMPLEMENTATION.—In developing
and implementing reporting requirements pursuant to
subparagraph (A) of this paragraph with respect to associated
persons subject to examination by or reporting
requirements of a Federal banking agency, the Secretary
shall consult with and consider the views of each such
Federal banking agency. If a Federal banking agency comments
in writing on a proposed rule of the Secretary under
this paragraph that has been published for comment, the
Sec. 15C SECURITIES EXCHANGE ACT OF 1934 144
Secretary shall respond in writing to such written comment
before adopting the proposed rule. The Secretary
shall, at the request of a Federal banking agency, publish
such comment and response in the Federal Register at the
time of publishing the adopted rule.
(ii) USE OF BANKING AGENCY REPORTS.—A registered
government securities broker or government securities
dealer shall be in compliance with any recordkeeping or reporting
requirement adopted pursuant to subparagraph (A)
of this paragraph concerning an associated person that is
subject to examination by or reporting requirements of a
Federal banking agency if such government securities
broker or government securities dealer utilizes for such
recordkeeping or reporting requirement copies of reports
filed by the associated person with the Federal banking
agency pursuant to section 5211 of the Revised Statutes,
section 9 of the Federal Reserve Act, section 7(a) of the
Federal Deposit Insurance Act, section 10(b) of the Home
Owners’ Loan Act, or section 8 of the Bank Holding Company
Act of 1956. The Secretary may, however, by rule
adopted pursuant to subparagraph (A), require any registered
government securities broker or government securities
dealer filing such reports with the appropriate regulatory
agency to obtain, maintain, or report supplemental
information if the Secretary makes an explicit finding,
based on information provided by the appropriate regulatory
agency, that such supplemental information is necessary
to inform the appropriate regulatory agency regarding
potential risks to such government securities broker or
government securities dealer. Prior to requiring any such
supplemental information, the Secretary shall first request
the Federal banking agency to expand its reporting
requirements to include such information.
(iii) PROCEDURE FOR REQUIRING ADDITIONAL INFORMATION.—
Prior to making a request pursuant to subparagraph
(B) of this paragraph for information with respect to
an associated person that is subject to examination by or
reporting requirements of a Federal banking agency, the
appropriate regulatory agency shall—
(I) notify such banking agency of the information
required with respect to such associated person; and
(II) consult with such agency to determine
whether the information required is available from
such agency and for other purposes, unless the appropriate
regulatory agency determines that any delay resulting
from such consultation would be inconsistent
with ensuring the financial and operational condition
of the government securities broker or government
securities dealer or the stability or integrity of the
securities markets.
(iv) EXCLUSION FOR EXAMINATION REPORTS.—Nothing
in this subparagraph shall be construed to permit the Secretary
or an appropriate regulatory agency to require any
registered government securities broker or government
145 SECURITIES EXCHANGE ACT OF 1934 Sec. 15C
securities dealer to obtain, maintain, or furnish any examination
report of any Federal banking agency or any supervisory
recommendations or analysis contained therein.
(v) CONFIDENTIALITY OF INFORMATION PROVIDED.—No
information provided to or obtained by an appropriate regulatory
agency from any Federal banking agency pursuant
to a request under clause (iii) of this subparagraph regarding
any associated person which is subject to examination
by or reporting requirements of a Federal banking agency
may be disclosed to any other person (other than a selfregulatory
organization), without the prior written approval
of the Federal banking agency. Nothing in this
clause shall authorize the Secretary or any appropriate
regulatory agency to withhold information from Congress,
or prevent the Secretary or any appropriate regulatory
agency from complying with a request for information from
any other Federal department or agency requesting the
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.
(vi) NOTICE TO BANKING AGENCIES CONCERNING FINANCIAL
AND OPERATIONAL CONDITION CONCERNS.—The Secretary
or appropriate regulatory agency shall notify the
Federal banking agency of any concerns of the Secretary or
the appropriate regulatory agency regarding significant
financial or operational risks resulting from the activities
of any government securities broker or government securities
dealer to any associated person thereof which is subject
to examination by or reporting requirements of the
Federal banking agency.
(vii) DEFINITION.—For purposes of this subparagraph,
the term ‘‘Federal banking agency’’ shall have the same
meaning as the term ‘‘appropriate Federal banking
agency’’ in section 3(q) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(q)).
(D) EXEMPTIONS.—The Secretary by rule or order may
exempt any person or class of persons, under such terms and
conditions and for such periods as the Secretary shall provide
in such rule or order, from the provisions of this paragraph,
and the rules thereunder. In granting such exemptions, the
Secretary shall consider, among other factors—
(i) whether information of the type required under this
paragraph is available from a supervisory agency (as defined
in section 1101(6) of the Right to Financial Privacy
Act of 1978 (12 U.S.C. 3401(6))), a State insurance commission
or similar State agency, the Commodity Futures
Trading Commission, or a similar foreign regulator;
(ii) the primary business of any associated person;
(iii) the nature and extent of domestic or foreign regulation
of the associated person’s activities;
(iv) the nature and extent of the registered person’s
securities transactions; and
Sec. 15C SECURITIES EXCHANGE ACT OF 1934 146
(v) with respect to the registered person and its associated
persons, on a consolidated basis, the amount and proportion
of assets devoted to, and revenues derived from,
activities in the United States securities markets.
(E) CONFORMITY WITH REQUIREMENTS UNDER SECTION
17(h).—In exercising authority pursuant to subparagraph (A)
of this paragraph concerning information with respect to associated
persons of government securities brokers and government
securities dealers who are also associated persons of registered
brokers or dealers reporting to the Commission pursuant
to section 17(h) of this title, the requirements relating to
such associated persons shall conform, to the greatest extent
practicable, to the requirements under section 17(h).
(F) AUTHORITY TO LIMIT DISCLOSURE OF INFORMATION.—
Notwithstanding any other provision of law, the Secretary and
any appropriate regulatory agency shall not be compelled to
disclose any information required to be reported under this
paragraph, or any information supplied to the Secretary or any
appropriate regulatory agency by any domestic or foreign regulatory
agency that relates to the financial or operational condition
of any associated person of a registered government securities
broker or a government securities dealer. Nothing in this
paragraph shall authorize the Secretary or any appropriate
regulatory agency to withhold information from Congress, or
prevent the Secretary or any appropriate regulatory agency
from complying with a request for information from any other
Federal department or agency requesting the 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 paragraph shall be
considered a statute described in subsection (b)(3)(B) of such
section 552.
(3)(A) With respect to any financial institution that has filed
notice as a government securities broker or government securities
dealer or that is required to file notice under subsection (a)(1)(B),
the appropriate regulatory agency for such government securities
broker or government securities dealer may issue such rules and
regulations with respect to transactions in government securities
as may be necessary to prevent fraudulent and manipulative acts
and practices and to promote just and equitable principles of trade.
If the Secretary of the Treasury determines, and notifies the appropriate
regulatory agency, 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 appropriate regulatory
agency 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.
(B) The appropriate regulatory agency shall consult with and
consider the views of the Secretary prior to approving or amending
a rule or regulation under this paragraph, except where the appro147
SECURITIES EXCHANGE ACT OF 1934 Sec. 15C
priate regulatory agency determines that an emergency exists requiring
expeditious and summary action and publishes its reasons
therefor. If the Secretary comments in writing to the appropriate
regulatory agency on a proposed rule or regulation that has been
published for comment, the appropriate regulatory agency shall respond
in writing to such written comment before approving the
proposed rule or regulation.
(C) In promulgating rules under this section, the appropriate
regulatory agency shall consider the sufficiency and appropriateness
of then existing laws and rules applicable to government securities
brokers, government securities dealers, and persons associated
with government securities brokers and government securities
dealers.
(4) Rules promulgated and orders issued under this section
shall—
(A) be designed to prevent fraudulent and manipulative
acts and practices and to protect the integrity, liquidity, and
efficiency of the market for government securities, investors,
and the public interest; and
(B) not be designed to permit unfair discrimination between
customers, issuers, government securities brokers, or
government securities dealers, or to impose any burden on
competition not necessary or appropriate in furtherance of the
purposes of this title.
(5) In promulgating rules and issuing orders under this section,
the Secretary—
(A) may appropriately classify government securities brokers
and government securities dealers (taking into account
relevant matters, including types of business done, nature of
securities other than government securities purchased or sold,
and character of business organization) and persons associated
with government securities brokers and government securities
dealers;
(B) may determine, to the extent consistent with paragraph
(2) of this subsection and with the public interest, the
protection of investors, and the purposes of this title, not to
apply, in whole or in part, certain rules under this section, or
to apply greater, lesser, or different standards, to certain
classes of government securities brokers, government securities
dealers, or persons associated with government securities brokers
or government securities dealers;
(C) shall consider the sufficiency and appropriateness of
then existing laws and rules applicable to government securities
brokers, government securities dealers, and persons associated
with government securities brokers and government securities
dealers; and
(D) shall consult with and consider the views of the Commission
and the Board of Governors of the Federal Reserve
System, except where the Secretary determines that an emergency
exists requiring expeditious or summary action and publishes
its reasons for such determination.
(6) If the Commission or the Board of Governors of the Federal
Reserve System comments in writing on a proposed rule of the Secretary
that has been published for comment, the Secretary shall reSec.
15C SECURITIES EXCHANGE ACT OF 1934 148
spond in writing to such written comment before approving the
proposed rule.
(7) 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
attempt to induce the purchase or sale of, any government security
in contravention of any rule under this section.
(c)(1) With respect to any government securities broker or government
securities dealer registered or required to register under
subsection (a)(1)(A) of this section—
(A) The Commission, by order, shall censure, place limitations
on the activities, functions, or operations of, suspend for
a period not exceeding 12 months, or revoke the registration of
such government securities broker or government securities
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 government
securities broker or government securities dealer, or any
person associated with such government securities broker or
government securities dealer (whether prior or subsequent to
becoming so associated), 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 section 15(b) of this
title, 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 is enjoined
from any action, conduct, or practice specified in subparagraph
(C) of such paragraph (4).
(B) Pending final determination whether registration of
any government securities broker or government securities
dealer 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 government securities broker
or registered government securities dealer may, upon such
terms and conditions as the Commission may deem necessary
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
government securities broker or registered government
securities dealer is no longer in existence or has ceased to do
business as a government securities broker or government
securities dealer, the Commission, by order, shall cancel the
registration of such government securities broker or government
securities dealer.
(C) The Commission, by order, shall censure or place limitations
on the activities or functions of any person associated,
or seeking to become associated, with a government securities
broker or government securities dealer registered or required
to register under subsection (a)(1)(A) of this section or suspend
for a period not exceeding 12 months or bar any such person
from being associated with such a government securities
broker or government securities dealer, if the Commission
149 SECURITIES EXCHANGE ACT OF 1934 Sec. 15C
finds, on the record after notice and opportunity for hearing,
that such censure, placing of limitations, suspension, or bar is
in the public interest and that such person 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 section 15(b) of this title, 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 is enjoined from any action, conduct, or practice
specified in subparagraph (C) of such paragraph (4).
(2)(A) With respect to any government securities broker or government
securities dealer which is not registered or required to
register under subsection (a)(1)(A) of this section, the appropriate
regulatory agency for such government securities broker or government
securities dealer may, in the manner and for the reasons
specified in paragraph (1)(A) of this subsection, censure, place limitations
on the activities, functions, or operations of, suspend for a
period not exceeding 12 months, or bar from acting as a government
securities broker or government securities dealer any such
government securities broker or government securities dealer, and
may sanction any person associated with such government securities
broker or government securities dealer in the manner and for
the reasons specified in paragraph (1)(C) of this subsection.
(B) In addition, where applicable, such appropriate regulatory
agency may, in accordance with section 8 of the Federal Deposit
Insurance Act (12 U.S.C. 1818), section 5 of the Home Owners’
Loan Act of 1933 (12 U.S.C. 1464), or section 407 of the National
Housing Act (12 U.S.C. 1730), enforce compliance by such government
securities broker or government securities dealer or any person
associated with such government securities broker or government
securities dealer with the provisions of this section and the
rules thereunder.
(C) For purposes of subparagraph (B) of this paragraph, any
violation of any such provision shall constitute adequate basis for
the issuance of any order under section 8(b) or 8(c) of the Federal
Deposit Insurance Act, section 5(d)(2) or 5(d)(3) of the Home Owners’
Loan Act of 1933, or section 407(e) or 407(f) of the National
Housing Act, and the customers of any such government securities
broker or government securities dealer shall be deemed, respectively,
‘‘depositors’’ as that term is used in section 8(c) of the Federal
Deposit Insurance Act, ‘‘savings account holders’’ as that term
is used in section 5(d)(3) of the Home Owners’ Loan Act of 1933,
or ‘‘insured members’’ as that term is used in section 407(f) of the
National Housing Act.
(D) Nothing in this paragraph shall be construed to affect in
any way the powers of such appropriate regulatory agency to proceed
against such government securities broker or government
securities dealer under any other provision of law.
(E) Each appropriate regulatory agency (other than the Commission)
shall promptly notify the Commission after it has imposed
any sanction under this paragraph on a government securities
broker or government securities dealer, or a person associated with
a government securities broker or government securities dealer,
and the Commission shall maintain, and make available to the
Sec. 15C SECURITIES EXCHANGE ACT OF 1934 150
public, a record of such sanctions and any sanctions imposed by it
under this subsection.
(3) It shall be unlawful for any person as to whom an order entered
pursuant to paragraph (1) or (2) of this subsection suspending
or barring him from being associated with a government
securities broker or government securities dealer is in effect willfully
to become, or to be, associated with a government securities
broker or government securities dealer without the consent of the
appropriate regulatory agency, and it shall be unlawful for any government
securities broker or government securities dealer to permit
such a person to become, or remain, a person associated with
it without the consent of the appropriate regulatory agency, if such
government securities broker or government securities dealer
knew, or, in the exercise of reasonable care should have known, of
such order.
(d)(1) All records of a government securities broker or government
securities dealer are subject at any time, or from time to
time, to such reasonable periodic, special, or other examinations by
representatives of the appropriate regulatory agency for such government
securities broker or government securities dealer as such
appropriate regulatory agency deems necessary or appropriate in
the public interest, for the protection of investors, or otherwise in
furtherance of the purposes of this title.
(2) Information received by an appropriate regulatory agency,
the Secretary, or the Commission from or with respect to any government
securities broker, government securities dealer, any person
associated with a government securities broker or government
securities dealer, or any other person subject to this section or
rules promulgated thereunder, may be made available by the Secretary
or the recipient agency to the Commission, the Secretary,
the Department of Justice, the Commodity Futures Trading Commission,
any appropriate regulatory agency, any self-regulatory
organization, or any Federal Reserve Bank.
(3) GOVERNMENT SECURITIES TRADE RECONSTRUCTION.—
(A) FURNISHING RECORDS.—Every government securities
broker and government securities dealer shall furnish to the
Commission on request such records of government securities
transactions, including records of the date and time of execution
of trades, as the Commission may require to reconstruct
trading in the course of a particular inquiry or investigation
being conducted by the Commission for enforcement or surveillance
purposes. In requiring information pursuant to this paragraph,
the Commission shall specify the information required,
the period for which it is required, the time and date on which
the information must be furnished, and whether the information
is to be furnished directly to the Commission, to the Federal
Reserve Bank of New York, or to an appropriate regulatory
agency or self-regulatory organization with responsibility
for examining the government securities broker or government
securities dealer. The Commission may require that
such information be furnished in machine readable form notwithstanding
any limitation in subparagraph (B). In utilizing
its authority to require information in machine readable form,

151 SECURITIES EXCHANGE ACT OF 1934 Sec. 15C
the Commission shall minimize the burden such requirement
may place on small government securities brokers and dealers.
(B) LIMITATION; CONSTRUCTION.—The Commission shall
not utilize its authority under this paragraph to develop regular
reporting requirements, except that the Commission may
require information to be furnished under this paragraph as
frequently as necessary for particular inquiries or investigations
for enforcement or surveillance purposes. This paragraph
shall not be construed as requiring, or as authorizing the Commission
to require, any government securities broker or government
securities dealer to obtain or maintain any information
for purposes of this paragraph which is not otherwise
maintained by such broker or dealer in accordance with any
other provision of law or usual and customary business practice.
The Commission shall, where feasible, avoid requiring any
information to be furnished under this paragraph that the
Commission may obtain from the Federal Reserve Bank of
New York.
(C) PROCEDURES FOR REQUIRING INFORMATION.—At the
time the Commission requests any information pursuant to
subparagraph (A) with respect to any government securities
broker or government securities dealer for which the Commission
is not the appropriate regulatory agency, the Commission
shall notify the appropriate regulatory agency for such government
securities broker or government securities dealer and,
upon request, furnish to the appropriate regulatory agency any
information supplied to the Commission.
(D) CONSULTATION.—Within 90 days after the date of
enactment of this paragraph, and annually thereafter, or upon
the request of any other appropriate regulatory agency, the
Commission shall consult with the other appropriate regulatory
agencies to determine the availability of records that
may be required to be furnished under this paragraph and, for
those records available directly from the other appropriate regulatory
agencies, to develop a procedure for furnishing such
records expeditiously upon the Commission’s request.
(E) EXCLUSION FOR EXAMINATION REPORTS.—Nothing in
this paragraph shall be construed so as to permit the Commission
to require any government securities broker or government
securities dealer to obtain, maintain, or furnish any
examination report of any appropriate regulatory agency other
than the Commission or any supervisory recommendations or
analysis contained in any such examination report.
(F) AUTHORITY TO LIMIT DISCLOSURE OF INFORMATION.—
Notwithstanding any other provision of law, the Commission
and the appropriate regulatory agencies shall not be compelled
to disclose any information required or obtained under this
paragraph. Nothing in this paragraph shall authorize the Commission
or any appropriate regulatory agency to withhold information
from Congress, or prevent the Commission or any
appropriate regulatory agency 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 from complying with an order of a court of the
Sec. 15C SECURITIES EXCHANGE ACT OF 1934 152
United States in an action brought by the United States, the
Commission, or the appropriate regulatory agency. For purposes
of section 552 of title 5, United States Code, this subparagraph
shall be considered a statute described in subsection
(b)(3)(B) of such section 552.
(e)(1) It shall be unlawful for any government securities broker
or government securities dealer registered or required to register
with the Commission under subsection (a)(1)(A) to effect any transaction
in, or induce or attempt to induce the purchase or sale of,
any government security, unless such government securities broker
or government securities dealer is a member of a national securities
exchange registered under section 6 of this title or a securities
association registered under section 15A of this title.
(2) The Commission, after consultation with the Secretary, 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 government securities
broker or government securities dealer or class of government
securities brokers or government securities dealers specified in
such rule or order.
(f) LARGE POSITION REPORTING.—
(1) REPORTING REQUIREMENTS.—The Secretary may adopt
rules to require specified persons holding, maintaining, or controlling
large positions in to-be-issued or recently issued Treasury
securities to file such reports regarding such positions as
the Secretary determines to be necessary and appropriate for
the purpose of monitoring the impact in the Treasury securities
market of concentrations of positions in Treasury securities
and for the purpose of otherwise assisting the Commission
in the enforcement of this title, taking into account any impact
of such rules on the efficiency and liquidity of the Treasury
securities market and the cost to taxpayers of funding the Federal
debt. Unless otherwise specified by the Secretary, reports
required under this subsection shall be filed with the Federal
Reserve Bank of New York, acting as agent for the Secretary.
Such reports shall, on a timely basis, be provided directly to
the Commission by the person with whom they are filed.
(2) RECORDKEEPING REQUIREMENTS.—Rules under this subsection
may require persons holding, maintaining, or controlling
large positions in Treasury securities to make and keep for
prescribed periods such records as the Secretary determines
are necessary or appropriate to ensure that such persons can
comply with reporting requirements under this subsection.
(3) AGGREGATION RULES.—Rules under this subsection—
(A) may prescribe the manner in which positions and
accounts shall be aggregated for the purpose of this subsection,
including aggregation on the basis of common
ownership or control; and
(B) may define which persons (individually or as a
group) hold, maintain, or control large positions.
(4) DEFINITIONAL AUTHORITY; DETERMINATION OF REPORTING
THRESHOLD.—
(A) In prescribing rules under this subsection, the Secretary
may, consistent with the purpose of this subsection,
153 SECURITIES EXCHANGE ACT OF 1934 Sec. 15C
define terms used in this subsection that are not otherwise
defined in section 3 of this title.
(B) Rules under this subsection shall specify—
(i) the minimum size of positions subject to reporting
under this subsection, which shall be no less than
the size that provides the potential for manipulation
or control of the supply or price, or the cost of financing
arrangements, of an issue or the portion thereof
that is available for trading;
(ii) the types of positions (which may include financing
arrangements) to be reported;
(iii) the securities to be covered; and
(iv) the form and manner in which reports shall
be transmitted, which may include transmission in
machine readable form.
(5) EXEMPTIONS.—Consistent with the public interest and
the protection of investors, the Secretary by rule or order may
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.
(6) LIMITATION ON DISCLOSURE OF INFORMATION.—Notwithstanding
any other provision of law, the Secretary and 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 Secretary or the Commission
to withhold information from Congress, or prevent the
Secretary or 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 from complying with an order of a court of the
United States in an action brought by the United States, the
Secretary, or the Commission. For purposes of section 552 of
title 5, United States Code, this paragraph shall be considered
a statute described in subsection (b)(3)(B) of such section 552.
(g)(1) Nothing in this section except paragraph (2) of this subsection
shall be construed to impair or limit the authority under
any other provision of law of the Commission, the Secretary of the
Treasury, the Board of Governors of the Federal Reserve System,
the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Director of the Office of Thrift Supervision, the
Federal Savings and Loan Insurance Corporation, the Secretary of
Housing and Urban Development, and the Government National
Mortgage Association.
(2) Notwithstanding any other provision of this title, the Commission
shall not have any authority to make investigations of, require
the filing of a statement by, or take any other action under
this title against a government securities broker or government
securities dealer, or any person associated with a government securities
broker or government securities dealer, for any violation or
threatened violation of the provisions of this section, other than
subsection (d)(3) or the rules or regulations thereunder, unless the
Commission is the appropriate regulatory agency for such government
securities broker or government securities dealer. Nothing in
the preceding sentence shall be construed to limit the authority of
Sec. 15D SECURITIES EXCHANGE ACT OF 1934 154
the Commission with respect to violations or threatened violations
of any provision of this title other than this section (except subsection
(d)(3)), the rules or regulations under any such other provision,
or investigations pursuant to section 21(a)(2) of this title to
assist a foreign securities authority.
SEC. 15D. ø78o–6¿ SECURITIES ANALYSTS AND RESEARCH REPORTS.
(a) ANALYST PROTECTIONS.—The Commission, or upon the
authorization and direction of the Commission, a registered securities
association or national securities exchange, shall have adopted,
not later than 1 year after the date of enactment of this section,
rules reasonably designed to address conflicts of interest that can
arise when securities analysts recommend equity securities in research
reports and public appearances, in order to improve the
objectivity of research and provide investors with more useful and
reliable information, including rules designed—
(1) to foster greater public confidence in securities research,
and to protect the objectivity and independence of securities
analysts, by—
(A) restricting the prepublication clearance or approval
of research reports by persons employed by the broker or
dealer who are engaged in investment banking activities,
or persons not directly responsible for investment research,
other than legal or compliance staff;
(B) limiting the supervision and compensatory evaluation
of securities analysts to officials employed by the
broker or dealer who are not engaged in investment banking
activities; and
(C) requiring that a broker or dealer and persons employed
by a broker or dealer who are involved with investment
banking activities may not, directly or indirectly, retaliate
against or threaten to retaliate against any securities
analyst employed by that broker or dealer or its affiliates
as a result of an adverse, negative, or otherwise unfavorable
research report that may adversely affect the
present or prospective investment banking relationship of
the broker or dealer with the issuer that is the subject of
the research report, except that such rules may not limit
the authority of a broker or dealer to discipline a securities
analyst for causes other than such research report in
accordance with the policies and procedures of the firm;
(2) to define periods during which brokers or dealers who
have participated, or are to participate, in a public offering of
securities as underwriters or dealers should not publish or otherwise
distribute research reports relating to such securities or
to the issuer of such securities;
(3) to establish structural and institutional safeguards
within registered brokers or dealers to assure that securities
analysts are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of those
whose involvement in investment banking activities might
potentially bias their judgment or supervision; and
(4) to address such other issues as the Commission, or
such association or exchange, determines appropriate.
155 SECURITIES EXCHANGE ACT OF 1934 Sec. 16
(b) DISCLOSURE.—The Commission, or upon the authorization
and direction of the Commission, a registered securities association
or national securities exchange, shall have adopted, not later than
1 year after the date of enactment of this section, rules reasonably
designed to require each securities analyst to disclose in public
appearances, and each registered broker or dealer to disclose in
each research report, as applicable, conflicts of interest that are
known or should have been known by the securities analyst or the
broker or dealer, to exist at the time of the appearance or the date
of distribution of the report, including—
(1) the extent to which the securities analyst has debt or
equity investments in the issuer that is the subject of the
appearance or research report;
(2) whether any compensation has been received by the
registered broker or dealer, or any affiliate thereof, including
the securities analyst, from the issuer that is the subject of the
appearance or research report, subject to such exemptions as
the Commission may determine appropriate and necessary to
prevent disclosure by virtue of this paragraph of material nonpublic
information regarding specific potential future investment
banking transactions of such issuer, as is appropriate in
the public interest and consistent with the protection of investors;
(3) whether an issuer, the securities of which are recommended
in the appearance or research report, currently is,
or during the 1-year period preceding the date of the appearance
or date of distribution of the report has been, a client of
the registered broker or dealer, and if so, stating the types of
services provided to the issuer;
(4) whether the securities analyst received compensation
with respect to a research report, based upon (among any other
factors) the investment banking revenues (either generally or
specifically earned from the issuer being analyzed) of the registered
broker or dealer; and
(5) such other disclosures of conflicts of interest that are
material to investors, research analysts, or the broker or dealer
as the Commission, or such association or exchange, determines
appropriate.
(c) DEFINITIONS.—In this section—
(1) the term ‘‘securities analyst’’ means any associated person
of a registered broker or dealer that is principally responsible
for, and any associated person who reports directly or indirectly
to a securities analyst in connection with, the preparation
of the substance of a research report, whether or not any
such person has the job title of ‘‘securities analyst’’; and
(2) the term ‘‘research report’’ means a written or electronic
communication that includes an analysis of equity securities
of individual companies or industries, and that provides
information reasonably sufficient upon which to base an investment
decision.
SEC. 16. ø78p¿ DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS.
(a) DISCLOSURES REQUIRED.—
Sec. 16 SECURITIES EXCHANGE ACT OF 1934 156
1 So in law. Probably should be ‘‘section 206B’’.
(1) DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS
REQUIRED TO FILE.—Every person who is directly or indirectly
the beneficial owner of more than 10 percent of any class of
any equity security (other than an exempted security) which is
registered pursuant to section 12, or who is a director or an officer
of the issuer of such security, shall file the statements required
by this subsection with the Commission (and, if such
security is registered on a national securities exchange, also
with the exchange).
(2) TIME OF FILING.—The statements required by this subsection
shall be filed—
(A) at the time of the registration of such security on
a national securities exchange or by the effective date of
a registration statement filed pursuant to section 12(g);
(B) within 10 days after he or she becomes such beneficial
owner, director, or officer;
(C) if there has been a change in such ownership, or
if such person shall have purchased or sold a securitybased
swap agreement (as defined in section 206(b) 1 of the
Gramm-Leach-Bliley Act (15 U.S.C. 78c note)) involving
such equity security, before the end of the second business
day following the day on which the subject transaction has
been executed, or at such other time as the Commission
shall establish, by rule, in any case in which the Commission
determines that such 2-day period is not feasible.
(3) CONTENTS OF STATEMENTS.—A statement filed—
(A) under subparagraph (A) or (B) of paragraph (2)
shall contain a statement of the amount of all equity securities
of such issuer of which the filing person is the beneficial
owner; and
(B) under subparagraph (C) of such paragraph shall
indicate ownership by the filing person at the date of filing,
any such changes in such ownership, and such purchases
and sales of the security-based swap agreements as
have occurred since the most recent such filing under such
subparagraph.
(4) ELECTRONIC FILING AND AVAILABILITY.—Beginning not
later than 1 year after the date of enactment of the Sarbanes-
Oxley Act of 2002—
(A) a statement filed under subparagraph (C) of paragraph
(2) shall be filed electronically;
(B) the Commission shall provide each such statement
on a publicly accessible Internet site not later than the end
of the business day following that filing; and
(C) the issuer (if the issuer maintains a corporate
website) shall provide that statement on that corporate
website, not later than the end of the business day following
that filing.
(b) For the purpose of preventing the unfair use of information
which may have been obtained by such beneficial owner, director,
or officer by reason of his relationship to the issuer, any profit realized
by him from any purchase and sale, or any sale and purchase,
157 SECURITIES EXCHANGE ACT OF 1934 Sec. 16
of any equity security of such issuer (other than an exempted security)
or a security-based swap agreement (as defined in section
206B of the Gramm-Leach-Bliley Act) involving any such equity
security within any period of less than six months, unless such
security or security-based swap agreement was acquired in good
faith in connection with a debt previously contracted, shall inure
to and be recoverable by the issuer, irrespective of any intention on
the part of such beneficial owner, director, or officer in entering
into such transaction of holding the security or security-based swap
agreement purchased or of not repurchasing the security or security-
based swap agreement sold for a period exceeding six months.
Suit to recover such profit may be instituted at law or in equity in
any court of competent jurisdiction by the issuer, or by the owner
of any security of the issuer in the name and in behalf of the issuer
if the issuer shall fail or refuse to bring such suit within sixty days
after request or shall fail diligently to prosecute the same thereafter;
but no such suit shall be brought more than two years after
the date such profit was realized. This subsection shall not be construed
to cover any transaction where such beneficial owner was
not such both at the time of the purchase and sale, or the sale and
purchase, of the security or security-based swap agreement (as defined
in section 206B of the Gramm-Leach-Bliley Act) involved, or
any transaction or transactions which the Commission by rules and
regulations may exempt as not comprehended within the purpose
of this subsection.
(c) It shall be unlawful for any such beneficial owner, director,
or officer, directly or indirectly, to sell any equity security of such
issuer (other than an exempted security), if the person selling the
security or his principal (1) does not own the security sold, or (2)
if owning the security, does not deliver it against such sale within
twenty days thereafter, or does not within five days after such sale
deposit it in the mails or other usual channels of transportation;
but no person shall be deemed to have violated this subsection if
he proves that notwithstanding the exercise of good faith he was
unable to make such delivery or deposit within such time, or that
to do so would cause undue inconvenience or expense.
(d) The provisions of subsection (b) of this section shall not
apply to any purchase and sale, or sale and purchase, and the provisions
of subsection (c) of this section shall not apply to any sale,
of an equity security not then or theretofore held by him in an
investment account, by a dealer in the ordinary course of his business
and incident to the establishment or maintenance by him of
a primary or secondary market (otherwise than on a national securities
exchange or an exchange exempted from registration under
section 5 of this title) for such security. The Commission may, by
such rules and regulations as it deems necessary or appropriate in
the public interest, define and prescribe terms and conditions with
respect to securities held in an investment account and transactions
made in the ordinary course of business and incident to the
establishment or maintenance of a primary or secondary market.
(e) The provisions of this section shall not apply to foreign or
domestic arbitrage transactions unless made in contravention of
such rules and regulations as the Commission may adopt in order
to carry out the purposes of this section.
Sec. 17 SECURITIES EXCHANGE ACT OF 1934 158
1 For applicability of this provision to the Public Company Accounting Oversight Board, see
section 107 of the Sarbanes-Oxley Act of 2002, printed elsewhere in this volume.
(f ) TREATMENT OF TRANSACTIONS IN SECURITY FUTURES PRODUCTS.—
The provisions of this section shall apply to ownership of
and transactions in security futures products.
(g) 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.
ACCOUNTS AND RECORDS, EXAMINATIONS OF EXCHANGES, MEMBERS,
AND OTHERS
SEC. 17. ø78q¿ (a)(1) 1 Every national securities exchange,
member thereof, broker or dealer who transacts a business in securities
through the medium of any such member, registered securities
association, registered broker or dealer, registered municipal
securities dealer, registered securities information processor, registered
transfer agent, and registered clearing agency and the Municipal
Securities Rulemaking Board shall make and keep for prescribed
periods such records, furnish such copies thereof, and make
and disseminate such reports as the Commission, by rule, prescribes
as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes
of this title.
(2) Every registered clearing agency shall also make and keep
for prescribed periods such records, furnish such copies thereof,
and make and disseminate such reports, as the appropriate regulatory
agency for such clearing agency, by rule, prescribes as necessary
or appropriate for the safeguarding of securities and funds
in the custody or control of such clearing agency or for which it is
responsible.
(3) Every registered transfer agent shall also make and keep
for prescribed periods such records, furnish such copies thereof,
and make such reports as the appropriate regulatory agency for
such transfer agent, by rule, prescribes as necessary or appropriate
in furtherance of the purposes of section 17A of this title.
(b) RECORDS SUBJECT TO EXAMINATION.—
(1) 1 PROCEDURES FOR COOPERATION WITH OTHER AGENCIES.—
All records of persons described in subsection (a) of this
section are subject at any time, or from time to time, to such
reasonable periodic, special, or other examinations by representatives
of the Commission and the appropriate regulatory
agency for such persons as the Commission or the appropriate
regulatory agency for such persons deems necessary or appropriate
in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title: Provided,
however, That the Commission shall, prior to conducting any
such examination of a—
(A) registered clearing agency, registered transfer
agent, or registered municipal securities dealer for which
it is not the appropriate regulatory agency, give notice to
the appropriate regulatory agency for such clearing
agency, transfer agent, or municipal securities dealer of
159 SECURITIES EXCHANGE ACT OF 1934 Sec. 17
1 So in law. Should be ‘‘give’’.
such proposed examination and consult with such appropriate
regulatory agency concerning the feasibility and
desirability of coordinating such examination with examinations
conducted by such appropriate regulatory agency
with a view to avoiding unnecessary regulatory duplication
or undue regulatory burdens for such clearing agency,
transfer agent, or municipal securities dealer; or
(B) broker or dealer registered pursuant to section
15(b)(11), exchange registered pursuant to section 6(g), or
national securities association registered pursuant to section
15A(k) gives 1 notice to the Commodity Futures Trading
Commission of such proposed examination and
consults with the Commodity Futures Trading Commission
concerning the feasibility and desirability of coordinating
such examination with examinations conducted by the
Commodity Futures Trading Commission in order to avoid
unnecessary regulatory duplication or undue regulatory
burdens for such broker or dealer or exchange.
(2) FURNISHING DATA AND REPORTS TO CFTC.—The Commission
shall notify the Commodity Futures Trading Commission
of any examination conducted of any broker or dealer registered
pursuant to section 15(b)(11), exchange registered pursuant
to section 6(g), or national securities association registered
pursuant to section 15A(k) and, upon request, furnish
to the Commodity Futures Trading Commission any examination
report and data supplied to, or prepared by, the Commission
in connection with such examination.
(3) USE OF CFTC REPORTS.—Prior to conducting an examination
under paragraph (1), the Commission shall use the reports
of examinations, if the information available therein is
sufficient for the purposes of the examination, of—
(A) any broker or dealer registered pursuant to section
15(b)(11);
(B) exchange registered pursuant to section 6(g); or
(C) national securities association registered pursuant
to section 15A(k);
that is made by the Commodity Futures Trading Commission,
a national securities association registered pursuant to section
15A(k), or an exchange registered pursuant to section 6(g).
(4) RULES OF CONSTRUCTION.—
(A) Notwithstanding any other provision of this subsection,
the records of a broker or dealer registered pursuant
to section 15(b)(11), an exchange registered pursuant
to section 6(g), or a national securities association registered
pursuant to section 15A(k) described in this subparagraph
shall not be subject to routine periodic examinations
by the Commission.
(B) Any recordkeeping rules adopted under this subsection
for a broker or dealer registered pursuant to section
15(b)(11), an exchange registered pursuant to section
6(g), or a national securities association registered pursuant
to section 15A(k) shall be limited to records with reSec.
17 SECURITIES EXCHANGE ACT OF 1934 160
2 This compilation reflects the apparent intention with respect to the location and indentation
of section 17(b)(4)(C) of this Act. See section 204(3) and (5) of the Commodity Futures Modernization
Act of 2000 (114 Stat. 2763A–424, 425), as enacted in to law by section 1(a)(5) of Public
Law 106–554.
spect to persons, accounts, agreements, contracts, and
transactions involving security futures products.
(C) 2 Nothing in the proviso in paragraph (1) shall be
construed to impair or limit (other than by the requirement
of prior consultation) the power of the Commission
under this subsection to examine any clearing agency,
transfer agent, or municipal securities dealer or to affect
in any way the power of the Commission under any other
provision of this title or otherwise to inspect, examine, or
investigate any such clearing agency, transfer agent, or
municipal securities dealer.
(c)(1) Every clearing agency, transfer agent, and municipal
securities dealer for which the Commission is not the appropriate
regulatory agency shall (A) file with the appropriate regulatory
agency for such clearing agency, transfer agent, or municipal securities
dealer a copy of any application, notice, proposal, report, or
document filed with the Commission by reason of its being a clearing
agency, transfer agent, or municipal securities dealer and (B)
file with the Commission a copy of any application, notice, proposal,
report, or document filed with such appropriate regulatory
agency by reason of its being a clearing agency, transfer agent, or
municipal securities dealer. The Municipal Securities Rulemaking
Board shall file with each agency enumerated in section 3(a)(34)(A)
of this title copies of every proposed rule change filed with the
Commission pursuant to section 19(b) of this title.
(2) The appropriate regulatory agency for a clearing agency,
transfer agent, or municipal securities dealer for which the Commission
is not the appropriate regulatory agency shall file with the
Commission notice of the commencement of any proceeding and a
copy of any order entered by such appropriate regulatory agency
against any clearing agency, transfer agent, municipal securities
dealer, or person associated with a transfer agent or municipal
securities dealer, and the Commission shall file with such appropriate
regulatory agency, if any, notice of the commencement of any
proceeding and a copy of any order entered by the Commission
against the clearing agency, transfer agent, or municipal securities
dealer, or against any person associated with a transfer agent or
municipal securities dealer for which the agency is the appropriate
regulatory agency.
(3) The Commission and the appropriate regulatory agency for
a clearing agency, transfer agent, or municipal securities dealer for
which the Commission is not the appropriate regulatory agency
shall each notify the other and make a report of any examination
conducted by it of such clearing agency, transfer agent, or municipal
securities dealer, and, upon request, furnish to the other a
copy of such report and any data supplied to it in connection with
such examination.
(4) The Commission or the appropriate regulatory agency may
specify that documents required to be filed pursuant to this subsection
with the Commission or such agency, respectively, may be

161 SECURITIES EXCHANGE ACT OF 1934 Sec. 17
retained by the originating clearing agency, transfer agent, or municipal
securities dealer, or filed with another appropriate regulatory
agency. The Commission or the appropriate regulatory
agency (as the case may be) making such a specification shall continue
to have access to the document on request.
(d)(1) The Commission, by rule or order, as it deems necessary
or appropriate in the public interest and for the protection of investors,
to foster cooperation and coordination among self-regulatory
organizations, or to remove impediments to and foster the development
of a national market system and national system for the
clearance and settlement of securities transactions, may—
(A) with respect to any person who is a member of or participant
in more than one self-regulatory organization, relieve
any such self-regulatory organization of any responsibility
under this title (i) to receive regulatory reports from such person,
(ii) to examine such person for compliance, or to enforce
compliance by such person, with specified provisions of this
title, the rules and regulations thereunder, and its own rules,
or (iii) to carry out other specified regulatory functions with respect
to such person, and
(B) allocate among self-regulatory organizations the authority
to adopt rules with respect to matters as to which, in
the absence of such allocation, such self-regulatory organizations
share authority under this title.
In making any such rule or entering any such order, the Commission
shall take into consideration the regulatory capabilities and
procedures of the self-regulatory organizations, availability of staff,
convenience of location, unnecessary regulatory duplication, and
such other factors as the Commission may consider germane to the
protection of investors, cooperation and coordination among selfregulatory
organizations, and the development of a national market
system and a national system for the clearance and settlement of
securities transactions. The Commission, by rule or order, as it
deems necessary or appropriate in the public interest and for the
protection of investors, may require any self-regulatory organization
relieved of any responsibility pursuant to this paragraph, and
any person with respect to whom such responsibility relates, to
take such steps as are specified in any such rule or order to notify
customers of, and persons doing business with, such person of the
limited nature of such self-regulatory organization’s responsibility
for such person’s acts, practices, and course of business.
(2) A self-regulatory organization shall furnish copies of any report
of examination of any person who is a member of or a participant
in such self-regulatory organization to any other self-regulatory
organization of which such person is a member or in which
such person is a participant upon the request of such person, such
other self-regulatory organization, or the Commission.
(e)(1)(A) Every registered broker or dealer shall annually file
with the Commission a balance sheet and income statement certified
by a registered public accounting firm, prepared on a calendar
or fiscal year basis, and such other financial statements
(which shall, as the Commission specifies, be certified) and information
concerning its financial condition as the Commission, by
Sec. 17 SECURITIES EXCHANGE ACT OF 1934 162
rule may prescribe as necessary or appropriate in the public interest
or for the protection of investors.
(B) Every registered broker and dealer shall annually send to
its customers its certified balance sheet and such other financial
statements and information concerning its financial condition as
the Commission, by rule, may prescribe pursuant to subsection (a)
of this section.
(C) The Commission, by rule or order, may conditionally or unconditionally
exempt any registered broker or dealer, or class of
such brokers or dealers, from any provision of this paragraph if the
Commission determines that such exemption is consistent with the
public interest and the protection of investors.
(2) The Commission, by rule, as it deems necessary or appropriate
in the public interest or for the protection of investors, may
prescribe the form and content of financial statements filed pursuant
to this title and the accounting principles and accounting
standards used in their preparation.
(f)(1) Every national securities exchange, member thereof, registered
securities association, broker, dealer, municipal securities
dealer, government securities broker, government securities dealer,
registered transfer agent, registered clearing agency, participant
therein, member of the Federal Reserve System, and bank whose
deposits are insured by the Federal Deposit Insurance Corporation
shall—
(A) report to the Commission or other person designated
by the Commission and, in the case of securities issued pursuant
to chapter 31 of title 31, United States Code, to the Secretary
of the Treasury such information about missing, lost,
counterfeit, or stolen securities, in such form and within such
time as the Commission, by rule, determines is necessary or
appropriate in the public interest or for the protection of investors;
such information shall be available on request for a reasonable
fee, to any such exchange, member, association,
broker, dealer, municipal securities dealer, transfer agent,
clearing agency, participant, member of the Federal Reserve
System, or insured bank, and such other persons as the Commission,
by rule, designates; and
(B) make such inquiry with respect to information reported
pursuant to this subsection as the Commission, by rule, prescribes
as necessary or appropriate in the public interest or for
the protection of investors, to determine whether securities in
their custody or control, for which they are responsible, or in
which they are effecting, clearing, or settling a transaction
have been reported as missing, lost, counterfeit, or stolen.
(2) Every member of a national securities exchange, broker,
dealer, registered transfer agent, and registered clearing agency,
shall require that each of its partners, directors, officers, and employees
be fingerprinted and shall submit such fingerprints, or
cause the same to be submitted, to the Attorney General of the
United States for identification and appropriate processing. The
Commission, by rule, may exempt from the provisions of this paragraph
upon specified terms, conditions, and periods, any class of
partners, directors, officers, or employees of any such member,
broker, dealer, transfer agent, or clearing agency, if the Commis163
SECURITIES EXCHANGE ACT OF 1934 Sec. 17
sion finds that such action is not inconsistent with the public interest
or the protection of investors. Notwithstanding any other provision
of law, in providing identification and processing functions, the
Attorney General shall provide the Commission and self-regulatory
organizations designated by the Commission with access to all
criminal history record information.
(3)(A) In order to carry out the authority under paragraph (1)
above, the Commission or its designee may enter into agreement
with the Attorney General to use the facilities of the National
Crime Information Center (‘‘NCIC’’) to receive, store, and disseminate
information in regard to missing, lost, counterfeit, or stolen
securities and to permit direct inquiry access to NCIC’s file on such
securities for the financial community.
(B) In order to carry out the authority under paragraph (1) of
this subsection, the Commission or its designee and the Secretary
of the Treasury shall enter into an agreement whereby the Commission
or its designee will receive, store, and disseminate information
in the possession, and which comes into the possession, of the
Department of the Treasury in regard to missing, lost, counterfeit,
or stolen securities.
(4) In regard to paragraphs (1), (2), and (3), above insofar as
such paragraphs apply to any bank or member of the Federal Reserve
System, the Commission may delegate its authority to:
(A) the Comptroller of the Currency as to national banks
and banks operating under the Code of Law for the District of
Columbia;
(B) the Federal Reserve Board in regard to any member of
the Federal Reserve System which is not a national bank or a
bank operating under the Code of Law for the District of Columbia;
and
(C) the Federal Deposit Insurance Corporation for any
State bank which is insured by the Federal Deposit Insurance
Corporation but which is not a member of the Federal Reserve
System.
(5) The Commission shall encourage the insurance industry to
require their insured to report expeditiously instances of missing,
lost, counterfeit, or stolen securities to the Commission or to such
other person as the Commission may, by rule, designate to receive
such information.
(g) Any broker, dealer, or other person extending credit who is
subject to the rules and regulations prescribed by the Board of Governors
of the Federal Reserve System pursuant to this title shall
make such reports to the Board as it may require as necessary or
appropriate to enable it to perform the functions conferred upon it
by this title. If any such broker, dealer, or other person shall fail
to make any such report or fail to furnish full information therein,
or, if in the judgment of the Board it is otherwise necessary, such
broker, dealer, or other person shall permit such inspections to be
made by the Board with respect to the business operations of such
broker, dealer, or other person as the Board may deem necessary
to enable it to obtain the required information.
(h) RISK ASSESSMENT FOR HOLDING COMPANY SYSTEMS.—
(1) OBLIGATIONS TO OBTAIN, MAINTAIN, AND REPORT INFORMATION.—
Every person who is (A) a registered broker or
Sec. 17 SECURITIES EXCHANGE ACT OF 1934 164
dealer, or (B) a registered municipal securities dealer for which
the Commission is the appropriate regulatory agency, shall obtain
such information and make and keep such records as the
Commission by rule prescribes concerning the registered person’s
policies, procedures, or systems for monitoring and controlling
financial and operational risks to it resulting from the
activities of any of its associated persons, other than a natural
person. Such records shall describe, in the aggregate, each of
the financial and securities activities conducted by, and the
customary sources of capital and funding of, those of its associated
persons whose business activities are reasonably likely to
have a material impact on the financial or operational condition
of such registered person, including its net capital, its liquidity,
or its ability to conduct or finance its operations. The
Commission, by rule, may require summary reports of such
information to be filed with the Commission no more frequently
than quarterly.
(2) AUTHORITY TO REQUIRE ADDITIONAL INFORMATION.—If,
as a result of adverse market conditions or based on reports
provided to the Commission pursuant to paragraph (1) of this
subsection or other available information, the Commission reasonably
concludes that it has concerns regarding the financial
or operational condition of (A) any registered broker or dealer,
or (B) any registered municipal securities dealer, government
securities broker, or government securities dealer for which the
Commission is the appropriate regulatory agency, the Commission
may require the registered person to make reports concerning
the financial and securities activities of any of such
person’s associated persons, other than a natural person,
whose business activities are reasonably likely to have a material
impact on the financial or operational condition of such
registered person. The Commission, in requiring reports pursuant
to this paragraph, shall specify the information required,
the period for which it is required, the time and date on which
the information must be furnished, and whether the information
is to be furnished directly to the Commission or to a selfregulatory
organization with primary responsibility for examining
the registered person’s financial and operational condition.
(3) SPECIAL PROVISIONS WITH RESPECT TO ASSOCIATED PERSONS
SUBJECT TO FEDERAL BANKING AGENCY REGULATION.—
(A) COOPERATION IN IMPLEMENTATION.—In developing
and implementing reporting requirements pursuant to
paragraph (1) of this subsection with respect to associated
persons subject to examination by or reporting requirements
of a Federal banking agency, the Commission shall
consult with and consider the views of each such Federal
banking agency. If a Federal banking agency comments in
writing on a proposed rule of the Commission under this
subsection that has been published for comment, the Commission
shall respond in writing to such written comment
before adopting the proposed rule. The Commission shall,
at the request of the Federal banking agency, publish such
165 SECURITIES EXCHANGE ACT OF 1934 Sec. 17
comment and response in the Federal Register at the time
of publishing the adopted rule.
(B) USE OF BANKING AGENCY REPORTS.—A registered
broker, dealer, or municipal securities dealer shall be in
compliance with any recordkeeping or reporting requirement
adopted pursuant to paragraph (1) of this subsection
concerning an associated person that is subject to examination
by or reporting requirements of a Federal banking
agency if such broker, dealer, or municipal securities
dealer utilizes for such recordkeeping or reporting requirement
copies of reports filed by the associated person with
the Federal banking agency pursuant to section 5211 of
the Revised Statutes, section 9 of the Federal Reserve Act,
section 7(a) of the Federal Deposit Insurance Act, section
10(b) of the Home Owners’ Loan Act, or section 8 of the
Bank Holding Company Act of 1956. The Commission may,
however, by rule adopted pursuant to paragraph (1), require
any broker, dealer, or municipal securities dealer filing
such reports with the Commission to obtain, maintain,
or report supplemental information if the Commission
makes an explicit finding that such supplemental information
is necessary to inform the Commission regarding
potential risks to such broker, dealer, or municipal securities
dealer. Prior to requiring any such supplemental information,
the Commission shall first request the Federal
banking agency to expand its reporting requirements to include
such information.
(C) PROCEDURE FOR REQUIRING ADDITIONAL INFORMATION.—
Prior to making a request pursuant to paragraph
(2) of this subsection for information with respect to an
associated person that is subject to examination by or reporting
requirements of a Federal banking agency, the
Commission shall—
(i) notify such agency of the information required
with respect to such associated person; and
(ii) consult with such agency to determine whether
the information required is available from such agency
and for other purposes, unless the Commission determines
that any delay resulting from such consultation
would be inconsistent with ensuring the financial and
operational condition of the broker, dealer, municipal
securities dealer, government securities broker, or government
securities dealer or the stability or integrity
of the securities markets.
(D) EXCLUSION FOR EXAMINATION REPORTS.—Nothing
in this subsection shall be construed to permit the Commission
to require any registered broker or dealer, or any
registered municipal securities dealer, government securities
broker, or government securities dealer for which the
Commission is the appropriate regulatory agency, to obtain,
maintain, or furnish any examination report of any
Federal banking agency or any supervisory recommendations
or analysis contained therein.
Sec. 17 SECURITIES EXCHANGE ACT OF 1934 166
(E) CONFIDENTIALITY OF INFORMATION PROVIDED.—No
information provided to or obtained by the Commission
from any Federal banking agency pursuant to a request by
the Commission under subparagraph (C) of this paragraph
regarding any associated person which is subject to examination
by or reporting requirements of a Federal banking
agency may be disclosed to any other person (other than
a self-regulatory organization), without the prior written
approval of the Federal banking agency. 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 the 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.
(F) NOTICE TO BANKING AGENCIES CONCERNING FINANCIAL
AND OPERATIONAL CONDITION CONCERNS.—The Commission
shall notify the Federal banking agency of any
concerns of the Commission regarding significant financial
or operational risks resulting from the activities of any
registered broker or dealer, or any registered municipal
securities dealer, government securities broker, or government
securities dealer for which the Commission is the
appropriate regulatory agency, to any associated person
thereof which is subject to examination by or reporting
requirements of the Federal banking agency.
(G) DEFINITION.—For purposes of this paragraph, the
term ‘‘Federal banking agency’’ shall have the same meaning
as the term ‘‘appropriate Federal bank agency’’ in section
3(q) of the Federal Deposit Insurance Act (12 U.S.C.
1813(q)).
(4) EXEMPTIONS.—The Commission by rule or order may
exempt any person or class of persons, under such terms and
conditions and for such periods as the Commission shall provide
in such rule or order, from the provisions of this subsection,
and the rules thereunder. In granting such exemptions,
the Commission shall consider, among other factors—
(A) whether information of the type required under
this subsection is available from a supervisory agency (as
defined in section 1101(6) of the Right to Financial Privacy
Act of 1978 (12 U.S.C. 3401(6))), a State insurance commission
or similar State agency, the Commodity Futures
Trading Commission, or a similar foreign regulator;
(B) the primary business of any associated person;
(C) the nature and extent of domestic or foreign regulation
of the associated person’s activities;
(D) the nature and extent of the registered person’s
securities activities; and
(E) with respect to the registered person and its associated
persons, on a consolidated basis, the amount and
proportion of assets devoted to, and revenues derived from,
activities in the United States securities markets.
167 SECURITIES EXCHANGE ACT OF 1934 Sec. 17
(5) AUTHORITY TO LIMIT DISCLOSURE OF INFORMATION.—
Notwithstanding any other provision of law, the Commission
shall not be compelled to disclose any information required to
be reported under this subsection, or any information supplied
to the Commission by any domestic or foreign regulatory
agency that relates to the financial or operational condition of
any associated person of a registered broker, dealer, government
securities broker, government securities dealer, or municipal
securities dealer. 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
the 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. In prescribing
regulations to carry out the requirements of this subsection,
the Commission shall designate information described
in or obtained pursuant to subparagraph (B) or (C) of paragraph
(3) of this subsection as confidential information for purposes
of section 24(b)(2) of this title.
(i) INVESTMENT BANK HOLDING COMPANIES.—
(1) ELECTIVE SUPERVISION OF AN INVESTMENT BANK HOLDING
COMPANY NOT HAVING A BANK OR SAVINGS ASSOCIATION
AFFILIATE.—
(A) IN GENERAL.—An investment bank holding company
that is not—
(i) an affiliate of an insured bank (other than 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), or a savings
association;
(ii) a foreign bank, foreign company, or company
that is described in section 8(a) of the International
Banking Act of 1978; or
(iii) a foreign bank that controls, directly or indirectly,
a corporation chartered under section 25A of
the Federal Reserve Act,
may elect to become supervised by filing with the Commission
a notice of intention to become supervised, pursuant
to subparagraph (B) of this paragraph. Any investment
bank holding company filing such a notice shall be supervised
in accordance with this section and comply with the
rules promulgated by the Commission applicable to supervised
investment bank holding companies.
(B) NOTIFICATION OF STATUS AS A SUPERVISED INVESTMENT
BANK HOLDING COMPANY.—An investment bank holding
company that elects under subparagraph (A) to become
supervised by the Commission shall file with the Commission
a written notice of intention to become supervised by
the Commission in such form and containing such information
and documents concerning such investment bank
Sec. 17 SECURITIES EXCHANGE ACT OF 1934 168
holding company as the Commission, by rule, may prescribe
as necessary or appropriate in furtherance of the
purposes of this section. Unless the Commission finds that
such supervision is not necessary or appropriate in furtherance
of the purposes of this section, such supervision
shall become effective 45 days after the date of receipt of
such written notice by the Commission or within such
shorter time period as the Commission, by rule or order,
may determine.
(2) ELECTION NOT TO BE SUPERVISED BY THE COMMISSION
AS AN INVESTMENT BANK HOLDING COMPANY.—
(A) VOLUNTARY WITHDRAWAL.—A supervised investment
bank holding company that is supervised pursuant to
paragraph (1) may, upon such terms and conditions as the
Commission deems necessary or appropriate, elect not to
be supervised by the Commission by filing a written notice
of withdrawal from Commission supervision. Such notice
shall not become effective until 1 year after receipt by the
Commission, or such shorter or longer period as the Commission
deems necessary or appropriate to ensure effective
supervision of the material risks to the supervised investment
bank holding company and to the affiliated broker or
dealer, or to prevent evasion of the purposes of this section.
(B) DISCONTINUATION OF COMMISSION SUPERVISION.—If
the Commission finds that any supervised investment
bank holding company that is supervised pursuant to
paragraph (1) is no longer in existence or has ceased to be
an investment bank holding company, or if the Commission
finds that continued supervision of such a supervised
investment bank holding company is not consistent with
the purposes of this section, the Commission may discontinue
the supervision pursuant to a rule or order, if
any, promulgated by the Commission under this section.
(3) SUPERVISION OF INVESTMENT BANK HOLDING COMPANIES.—
(A) RECORDKEEPING AND REPORTING.—
(i) IN GENERAL.—Every supervised investment
bank holding company and each affiliate thereof shall
make and keep for prescribed periods such records,
furnish copies thereof, and make such reports, as the
Commission may require by rule, in order to keep the
Commission informed as to—
(I) the company’s or affiliate’s activities,
financial condition, policies, systems for monitoring
and controlling financial and operational
risks, and transactions and relationships between
any broker or dealer affiliate of the supervised
investment bank holding company; and
(II) the extent to which the company or affiliate
has complied with the provisions of this Act
and regulations prescribed and orders issued
under this Act.
169 SECURITIES EXCHANGE ACT OF 1934 Sec. 17
(ii) FORM AND CONTENTS.—Such records and reports
shall be prepared in such form and according to
such specifications (including certification by a registered
public accounting firm), as the Commission
may require and shall be provided promptly at any
time upon request by the Commission. Such records
and reports may include—
(I) a balance sheet and income statement;
(II) an assessment of the consolidated capital
of the supervised investment bank holding company;
(III) an independent auditor’s report attesting
to the supervised investment bank holding company’s
compliance with its internal risk management
and internal control objectives; and
(IV) reports concerning the extent to which
the company or affiliate has complied with the
provisions of this title and any regulations prescribed
and orders issued under this title.
(B) USE OF EXISTING REPORTS.—
(i) IN GENERAL.—The Commission shall, to the
fullest extent possible, accept reports in fulfillment of
the requirements under this paragraph that the supervised
investment bank holding company or its affiliates
have been required to provide to another appropriate
regulatory agency or self-regulatory organization.
(ii) AVAILABILITY.—A supervised investment bank
holding company or an affiliate of such company shall
provide to the Commission, at the request of the Commission,
any report referred to in clause (i).
(C) EXAMINATION AUTHORITY.—
(i) FOCUS OF EXAMINATION AUTHORITY.—The Commission
may make examinations of any supervised
investment bank holding company and any affiliate of
such company in order to—
(I) inform the Commission regarding—
(aa) the nature of the operations and
financial condition of the supervised investment
bank holding company and its affiliates;
(bb) the financial and operational risks
within the supervised investment bank holding
company that may affect any broker or
dealer controlled by such supervised investment
bank holding company; and
(cc) the systems of the supervised investment
bank holding company and its affiliates
for monitoring and controlling those risks;
and
(II) monitor compliance with the provisions of
this subsection, provisions governing transactions
and relationships between any broker or dealer
affiliated with the supervised investment bank
holding company and any of the company’s other
Sec. 17 SECURITIES EXCHANGE ACT OF 1934 170
affiliates, and applicable provisions of subchapter
II of chapter 53, title 31, United States Code (commonly
referred to as the ‘‘Bank Secrecy Act’’) and
regulations thereunder.
(ii) RESTRICTED FOCUS OF EXAMINATIONS.—The
Commission shall limit the focus and scope of any
examination of a supervised investment bank holding
company to—
(I) the company; and
(II) any affiliate of the company that, because
of its size, condition, or activities, the nature or
size of the transactions between such affiliate and
any affiliated broker or dealer, or the centralization
of functions within the holding company system,
could, in the discretion of the Commission,
have a materially adverse effect on the operational
or financial condition of the broker or
dealer.
(iii) DEFERENCE TO OTHER EXAMINATIONS.—For
purposes of this subparagraph, the Commission shall,
to the fullest extent possible, use the reports of examination
of 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 made
by the appropriate regulatory agency, or of a licensed
insurance company made by the appropriate State
insurance regulator.
(4) FUNCTIONAL REGULATION OF BANKING AND INSURANCE
ACTIVITIES OF SUPERVISED INVESTMENT BANK HOLDING COMPANIES.—
The Commission shall defer to—
(A) the appropriate regulatory agency with regard to
all interpretations of, and the enforcement of, applicable
banking laws relating to the activities, conduct, ownership,
and operations of banks, and institutions described in subparagraph
(D), (F), and (G) of section 2(c)(2), or held under
section 4(f), of the Bank Holding Company Act of 1956;
and
(B) the appropriate State insurance regulators with regard
to all interpretations of, and the enforcement of, applicable
State insurance laws relating to the activities, conduct,
and operations of insurance companies and insurance
agents.
(5) DEFINITIONS.—For purposes of this subsection:
(A) The term ‘‘investment bank holding company’’
means—
(i) any person other than a natural person that
owns or controls one or more brokers or dealers; and
(ii) the associated persons of the investment bank
holding company.
(B) The term ‘‘supervised investment bank holding
company’’ means any investment bank holding company
that is supervised by the Commission pursuant to this
subsection.

171 SECURITIES EXCHANGE ACT OF 1934 Sec. 17
(C) The terms ‘‘affiliate’’, ‘‘bank’’, ‘‘bank holding company’’,
‘‘company’’, ‘‘control’’, and ‘‘savings association’’ have
the same meanings as given in section 2 of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841).
(D) The term ‘‘insured bank’’ has the same meaning as
given in section 3 of the Federal Deposit Insurance Act.
(E) The term ‘‘foreign bank’’ has the same meaning as
given in section 1(b)(7) of the International Banking Act of
1978.
(F) The terms ‘‘person associated with an investment
bank holding company’’ and ‘‘associated person of an
investment bank holding company’’ mean any person directly
or indirectly controlling, controlled by, or under common
control with, an investment bank holding company.
(j) AUTHORITY TO LIMIT DISCLOSURE OF INFORMATION.—Notwithstanding
any other provision of law, the Commission shall not
be compelled to disclose any information required to be reported
under subsection (h) or (i) or any information supplied to the Commission
by any domestic or foreign regulatory agency that relates
to the financial or operational condition of any associated person of
a broker or dealer, investment bank holding company, or any affiliate
of an investment bank holding company. 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 or any self-regulatory organization requesting the 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.
In prescribing regulations to carry out the requirements of this
subsection, the Commission shall designate information described
in or obtained pursuant to subparagraphs (A), (B), and (C) of subsection
(i)(5) as confidential information for purposes of section
24(b)(2) of this title.
(k) COORDINATION OF EXAMINING AUTHORITIES.—
(1) ELIMINATION OF DUPLICATION.—The Commission and
the examining authorities, through cooperation and coordination
of examination and oversight activities, shall eliminate
any unnecessary and burdensome duplication in the examination
process.
(2) COORDINATION OF EXAMINATIONS.—The Commission
and the examining authorities shall share such information,
including reports of examinations, customer complaint information,
and other nonpublic regulatory information, as appropriate
to foster a coordinated approach to regulatory oversight
of brokers and dealers that are subject to examination by more
than one examining authority.
(3) EXAMINATIONS FOR CAUSE.—At any time, any examining
authority may conduct an examination for cause of any
broker or dealer subject to its jurisdiction.
(4) CONFIDENTIALITY.—
Sec. 17A SECURITIES EXCHANGE ACT OF 1934 172
(A) IN GENERAL.—Section 24 shall apply to the sharing
of information in accordance with this subsection. The
Commission shall take appropriate action under section
24(c) to ensure that such information is not inappropriately
disclosed.
(B) APPROPRIATE DISCLOSURE NOT PROHIBITED.—Nothing
in this paragraph authorizes the Commission or any
examining authority to withhold information from the
Congress, or prevent the Commission or any examining
authority from complying with a request for information
from any other Federal department or agency requesting
the 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.
(5) DEFINITION.—For purposes of this subsection, the term
‘‘examining authority’’ means a self-regulatory organization
registered with the Commission under this title (other than a
registered clearing agency) with the authority to examine, inspect,
and otherwise oversee the activities of a registered
broker or dealer.
NATIONAL SYSTEM FOR CLEARANCE AND SETTLEMENT OF SECURITIES
TRANSACTIONS
SEC. 17A. ø78q–1¿ (a)(1) The Congress finds that—
(A) The prompt and accurate clearance and settlement of
securities transactions, including the transfer of record ownership
and the safeguarding of securities and funds related
thereto, are necessary for the protection of investors and persons
facilitating transactions by and acting on behalf of investors.
(B) Inefficient procedures for clearance and settlement impose
unnecessary costs on investors and persons facilitating
transactions by and acting on behalf of investors.
(C) New data processing and communications techniques
create the opportunity for more efficient, effective, and safe
procedures for clearance and settlement.
(D) The linking of all clearance and settlement facilities
and the development of uniform standards and procedures for
clearance and settlement will reduce unnecessary costs and increase
the protection of investors and persons facilitating
transactions by and acting on behalf of investors.
(2)(A) The Commission is directed, therefore, having due regard
for the public interest, the protection of investors, the safeguarding
of securities and funds, and maintenance of fair competition
among brokers and dealers, clearing agencies, and transfer
agents, to use its authority under this title—
(i) to facilitate the establishment of a national system for
the prompt and accurate clearance and settlement of transactions
in securities (other than exempt securities); and
(ii) to facilitate the establishment of linked or coordinated
facilities for clearance and settlement of transactions in securities,
securities options, contracts of sale for future delivery and
options thereon, and commodity options;
173 SECURITIES EXCHANGE ACT OF 1934 Sec. 17A
in accordance with the findings and to carry out the objectives set
forth in paragraph (1) of this subsection.
(B) The Commission shall use its authority under this title to
assure equal regulation under this title of registered clearing agencies
and registered transfer agents. In carrying out its responsibilities
set forth in subparagraph (A)(ii) of this paragraph, the Commission
shall coordinate with the Commodity Futures Trading
Commission and consult with the Board of Governors of the Federal
Reserve System.
(b)(1) Except as otherwise provided in this section, it shall be
unlawful for any clearing agency, 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 clearing agency with respect to any security
(other than an exempted security). The Commission, by rule or
order, upon its own motion or upon application, may conditionally
or unconditionally exempt any clearing agency or security or any
class of clearing agencies or securities from any provisions 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 prompt and accurate clearance and settlement of securities
transactions and the safeguarding of securities and funds. A clearing
agency or transfer agent shall not perform the functions of both
a clearing agency and a transfer agent unless such clearing agency
or transfer agent is registered in accordance with this subsection
and subsection (c) of this section.
(2) A clearing agency may be registered under the terms and
conditions hereinafter provided in this subsection and in accordance
with the provisions of 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
clearing agency and such other information and documents as the
Commission, by rule, may prescribe as necessary or appropriate in
the public interest or for the prompt and accurate clearance and
settlement of securities transactions.
(3) A clearing agency shall not be registered unless the Commission
determines that—
(A) Such clearing agency is so organized and has the capacity
to be able to facilitate the prompt and accurate clearance
and settlement of securities transactions and derivative
agreements, contracts, and transactions for which it is responsible,
to safeguard securities and funds in its custody or control
or for which it is responsible, to comply with the provisions of
this title and the rules and regulations thereunder, to enforce
(subject to any rule or order of the Commission pursuant to
section 17(d) or 19(g)(2) of this title) compliance by its participants
with the rules of the clearing agency, and to carry out
the purposes of this section.
(B) Subject to the provisions of paragraph (4) of this subsection,
the rules of the clearing agency provide that any (i)
registered broker or dealer, (ii) other registered clearing
agency, (iii) registered investment company, (iv) bank, (v)
insurance company, or (vi) other person or class of persons as
Sec. 17A SECURITIES EXCHANGE ACT OF 1934 174
the Commission, by rule, may from time to time designate as
appropriate to the development of a national system or the
prompt and accurate clearance and settlement of securities
transactions may become a participant in such clearing agency.
(C) The rules of the clearing agency assure a fair representation
of its shareholders (or members) and participants in the
selection of its directors and administration of its affairs. (The
Commission may determine that the representation of participants
is fair if they are afforded a reasonable opportunity to
acquire voting stock of the clearing agency, directly or indirectly,
in reasonable proportion to their use of such clearing
agency.)
(D) The rules of the clearing agency provide for the equitable
allocation of reasonable dues, fees, and other charges
among its participants.
(E) The rules of the clearing agency do not impose any
schedule of prices, or fix rates or other fees, for services rendered
by its participants.
(F) The rules of the clearing agency are designed to promote
the prompt and accurate clearance and settlement of
securities transactions and, to the extent applicable, derivative
agreements, contracts, and transactions, to assure the safeguarding
of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, to
foster cooperation and coordination with persons engaged in
the clearance and settlement of securities transactions, to remove
impediments to and perfect the mechanism of a national
system for the prompt and accurate clearance and settlement
of securities transactions, and, in general, to protect investors
and the public interest; and are not designed to permit unfair
discrimination in the admission of participants or among participants
in the use of the clearing agency, or to regulate by
virtue of any authority conferred by this title matters not related
to the purposes of this section or the administration of
the clearing agency.
(G) The rules of the clearing agency provide that (subject
to any rule or order of the Commission pursuant to section
17(d) or 19(g)(2) of this title) its participants shall be appropriately
disciplined for violation of any provision of the rules
of the clearing agency by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, or any other
fitting sanction.
(H) The rules of the clearing agency are in accordance with
the provisions of paragraph (5) of this subsection, and, in general,
provide a fair procedure with respect to the disciplining
of participants, the denial of participation to any persons seeking
participation therein, and the prohibition or limitation by
the clearing agency of any person with respect to access to
services offered by the clearing agency.
(I) The rules of the clearing agency do not impose any burden
on competition not necessary or appropriate in furtherance
of the purposes of this title.
(4)(A) A registered clearing agency may, and in cases in which
the Commission, by order, directs as appropriate in the public in175
SECURITIES EXCHANGE ACT OF 1934 Sec. 17A
terest shall, deny participation to any person subject to a statutory
disqualification. A registered clearing agency shall file notice with
the Commission not less than thirty days prior to admitting any
person to participation, if the clearing agency 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.
(B) A registered clearing agency may deny participation to, or
condition the participation of, any person if such person does not
meet such standards of financial responsibility, operational capability,
experience, and competence as are prescribed by the rules of
the clearing agency. A registered clearing agency may examine and
verify the qualifications of an applicant to be a participant in
accordance with procedures established by the rules of the clearing
agency.
(5)(A) In any proceeding by a registered clearing agency to
determine whether a participant should be disciplined (other than
a summary proceeding pursuant to subparagraph (C) of this paragraph),
the clearing agency shall bring specific charges, notify such
participant of, and give him an opportunity to defend against such
charges, and keep a record. A determination by the clearing agency
to impose a disciplinary sanction shall be supported by a statement
setting forth—
(i) any act or practice in which such participant has been
found to have engaged, or which such participant has been
found to have omitted;
(ii) the specific provisions of the rules of the clearing
agency which any such act or practice, or omission to act, is
deemed to violate; and
(iii) the sanction imposed and the reasons therefor.
(B) In any proceeding by a registered clearing agency to determine
whether a person shall be denied participation or prohibited
or limited with respect to access to services offered by the clearing
agency, the clearing agency shall notify such person of, and give
him an opportunity to be heard upon, the specific grounds for denial
or prohibition or limitation under consideration and keep a
record. A determination by the clearing agency to deny participation
or prohibit or limit a person with respect to access to services
offered by the clearing agency shall be supported by a statement
setting forth the specific grounds on which the denial or prohibition
or limitation is based.
(C) A registered clearing agency may summarily suspend and
close the accounts of a participant who (i) has been and is expelled
or suspended from any self-regulatory organization, (ii) is in default
of any delivery of funds or securities to the clearing agency, or (iii)
is in such financial or operating difficulty that the clearing agency
determines and so notifies the appropriate regulatory agency for
such participant that such suspension and closing of accounts are
necessary for the protection of the clearing agency, its participants,
creditors, or investors. A participant so summarily suspended shall
be promptly afforded an opportunity for a hearing by the clearing
agency in accordance with the provisions of subparagraph (A) of
Sec. 17A SECURITIES EXCHANGE ACT OF 1934 176
this paragraph. The appropriate regulatory agency for such participant,
by order, may stay any such summary suspension on its own
motion or upon application by any person aggrieved thereby, if
such appropriate regulatory agency 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
protection of investors.
(6) No registered clearing agency shall prohibit or limit access
by any person to services offered by any participant therein.
(7)(A) A clearing agency that is regulated directly or indirectly
by the Commodity Futures Trading Commission through its association
with a designated contract market for security futures products
that is a national securities exchange registered pursuant to
section 6(g), and that would be required to register pursuant to
paragraph (1) of this subsection only because it performs the functions
of a clearing agency with respect to security futures products
effected pursuant to the rules of the designated contract market
with which such agency is associated, is exempted from the provisions
of this section and the rules and regulations thereunder, except
that if such a clearing agency performs the functions of a
clearing agency with respect to a security futures product that is
not cash settled, it must have arrangements in place with a registered
clearing agency to effect the payment and delivery of the
securities underlying the security futures product.
(B) Any clearing agency that performs the functions of a clearing
agency with respect to security futures products must coordinate
with and develop fair and reasonable links with any and all
other clearing agencies that perform the functions of a clearing
agency with respect to security futures products, in order to permit,
as of the compliance date (as defined in section 6(h)(6)(C)), security
futures products to be purchased on one market and offset on another
market that trades such products.
(8) A registered clearing agency shall be permitted to provide
facilities for the clearance and settlement of any derivative agreements,
contracts, or transactions that are excluded from the Commodity
Exchange Act, subject to the requirements of this section
and to such rules and regulations as the Commission may prescribe
as necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of this
title.
(c)(1) Except as otherwise provided in this section, it shall be
unlawful for any transfer agent, unless registered in accordance
with this section, directly or indirectly, to make use of the mails
or any means or instrumentality of interstate commerce to perform
the function of a transfer agent with respect to any security registered
under section 12 of this title or which would be required to
be registered except for the exemption from registration provided
by subsection (g)(2)(B) or (g)(2)(G) of that section. The appropriate
regulatory agency, by rule or order, upon its own motion or upon
application, may conditionally or unconditionally exempt any person
or security or class of persons or securities from any provision
of this section or any rule or regulation prescribed under this section,
if the appropriate regulatory agency finds (A) that such
177 SECURITIES EXCHANGE ACT OF 1934 Sec. 17A
exemption is in the public interest and consistent with the protection
of investors and the purposes of this section, including the
prompt and accurate clearance and settlement of securities transactions
and the safeguarding of securities and funds, and (B) the
Commission does not object to such exemption.
(2) A transfer agent may be registered by filing with the appropriate
regulatory agency for such transfer agent an application for
registration in such form and containing such information and documents
concerning such transfer agent and any persons associated
with the transfer agent as such appropriate regulatory agency may
prescribe as necessary or appropriate in furtherance of the purposes
of this section. Except as hereinafter provided, such registration
shall become effective 45 days after receipt of such application
by such appropriate regulatory agency or within such shorter period
of time as such appropriate regulatory agency may determine.
(3) The appropriate regulatory agency for a transfer agent, by
order, shall deny registration to, censure, place limitations on the
activities, functions, or operations of, suspend for a period not exceeding
12 months, or revoke the registration of such transfer
agent, if such appropriate regulatory agency finds, on the record
after notice and opportunity for hearing, that such denial, censure,
placing of limitations, suspension, or revocation is in the public interest
and that such transfer agent, whether prior or subsequent
to becoming such, or any person associated with such transfer
agent, whether prior or subsequent to becoming so associated—
(A) 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 section 15(b) of this title, has been
convicted of any offense specified in subparagraph (B) of such
paragraph (4) within ten years of the commencement of the
proceedings under this paragraph, or is enjoined from any action,
conduct, or practice specified in subparagraph (C) of such
paragraph (4); or
(B) is subject to an order entered pursuant to subparagraph
(C) of paragraph (4) of this subsection barring or suspending
the right of such person to be associated with a transfer
agent.
(4)(A) Pending final determination whether any registration by
a transfer agent under this subsection shall be denied, the appropriate
regulatory agency for such transfer agent, by order, may
postpone the effective date of such registration for a period not to
exceed fifteen days, but if, after notice and opportunity for hearing
(which may consist solely of affidavits and oral arguments), it shall
appear to such appropriate regulatory agency to be necessary or
appropriate in the public interest or for the protection of investors
to postpone the effective date of such registration until final determination,
such appropriate regulatory agency shall so order. Pending
final determination whether any registration under this subsection
shall be revoked, such appropriate regulatory agency, by
order, may suspend such registration, if such suspension appears
to such appropriate regulatory agency, after notice and opportunity
for hearing, to be necessary or appropriate in the public interest or
for the protection of investors.
Sec. 17A SECURITIES EXCHANGE ACT OF 1934 178
(B) A registered transfer agent may, upon such terms and conditions
as the appropriate regulatory agency for such transfer
agent deems necessary or appropriate in the public interest, for the
protection of investors, or in furtherance of the purposes of this section,
withdraw from registration by filing a written notice of withdrawal
with such appropriate regulatory agency. If such appropriate
regulatory agency finds that any transfer agent for which it
is the appropriate regulatory agency, is no longer in existence or
has ceased to do business as a transfer agent, such appropriate regulatory
agency, by order, shall cancel or deny the registration.
(C) The appropriate regulatory agency for a transfer agent, by
order, shall censure or place limitations on the activities or functions
of any person associated, seeking to become associated, or, at
the time of the alleged misconduct, associated or seeking to become
associated with the transfer agent, or suspend for a period not exceeding
twelve months or bar any such person from being associated
with the transfer agent, if the appropriate regulatory agency
finds, on the record after notice and opportunity for hearing, that
such censure, placing of limitations, suspension, or bar is in the
public interest and that such person has committed or omitted any
act, or is subject to an order or finding, enumerated in subparagraph
(A), (D), (E), (H), or (G) or paragraph (4) of section 15(b) of
this title, has been convicted of any offense specified in subparagraph
(B) of such paragraph (4) within ten years of the commencement
of the proceedings under this paragraph, or is enjoined from
any action, conduct, or practice specified in subparagraph (C) of
such paragraph (4). It shall be unlawful for any person as to whom
such an order suspending or barring him from being associated
with a transfer agent is in effect willfully to become, or to be, associated
with a transfer agent without the consent of the appropriate
regulatory agency that entered the order and the appropriate regulatory
agency for that transfer agent. It shall be unlawful for any
transfer agent to permit such a person to become, or remain, a person
associated with it without the consent of such appropriate regulatory
agencies, if the transfer agent knew, or in the exercise of
reasonable care should have known, of such order. The Commission
may establish, by rule, procedures by which a transfer agent reasonably
can determine whether a person associated or seeking to
become associated with it is subject to any such order, and may require,
by rule, that any transfer agent comply with such procedures.
(d)(1) No registered clearing agency or registered transfer
agent shall, directly or indirectly, engage in any activity as clearing
agency or transfer agent in contravention of such rules and regulations
(A) as the Commission may prescribe as necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this title, or (B) as the
appropriate regulatory agency for such clearing agency or transfer
agent may prescribe as necessary or appropriate for the safeguarding
of securities and funds.
(2) With respect to any clearing agency or transfer agent for
which the Commission is not the appropriate regulatory agency,
the appropriate regulatory agency for such clearing agency or
transfer agent may, in accordance with section 8 of the Federal De179
SECURITIES EXCHANGE ACT OF 1934 Sec. 17A
posit Insurance Act (12 U.S.C. 1818), enforce compliance by such
clearing agency or transfer agent with the provisions of this section,
sections 17 and 19 of this title, and the rules and regulations
thereunder. For purposes of the preceding sentence, any violation
of any such provision shall constitute adequate basis for the
issuance of an order under section 8(b) or 8(c) of the Federal Deposit
Insurance Act, and the participants in any such clearing
agency and the persons doing business with any such transfer
agent shall be deemed to be ‘‘depositors’’ as that term is used in
section 8(c) of that Act.
(3)(A) With respect to any clearing agency or transfer agent for
which the Commission is not the appropriate regulatory agency,
the Commission and the appropriate regulatory agency for such
clearing agency or transfer agent shall consult and cooperate with
each other, and, as may be appropriate, with State banking
authorities having supervision over such clearing agency or transfer
agent toward the end that, to the maximum extent practicable,
their respective regulatory responsibilities may be fulfilled and the
rules and regulations applicable to such clearing agency or transfer
agent may be in accord with both sound banking practices and a
national system for the prompt and accurate clearance and settlement
of securities transactions. In accordance with this objective—
(i) the Commission and such appropriate regulatory agency
shall, at least fifteen days prior to the issuance for public comment
of any proposed rule or regulation or adoption of any rule
or regulation concerning such clearing agency or transfer
agent, consult and request the views of the other; and
(ii) such appropriate regulatory agency shall assume primary
responsibility to examine and enforce compliance by such
clearing agency or transfer agent with the provisions of this
section and sections 17 and 19 of this title.
(B) Nothing in the preceding subparagraph or elsewhere in this
title shall be construed to impair or limit (other than by the
requirement of notification) the Commission’s authority to make
rules under any provision of this title or to enforce compliance pursuant
to any provision of this title by any clearing agency, transfer
agent, or person associated with a transfer agent with the provisions
of this title and the rules and regulations thereunder.
(4) Nothing in this section shall be construed to impair the authority
of any State banking authority or other State or Federal
regulatory authority having jurisdiction over a person registered as
a clearing agency, transfer agent, or person associated with a
transfer agent, to make and enforce rules governing such person
which are not inconsistent with this title and the rules and regulations
thereunder.
(5) A registered transfer agent may not, directly or indirectly,
engage in any activity in connection with the guarantee of a signature
of an endorser of a security, including the acceptance or rejection
of such guarantee, in contravention of such rules and regulations
as the Commission may prescribe as necessary or appropriate
in the public interest, for the protection of investors, to facilitate
the equitable treatment of financial institutions which issue such
guarantees, or otherwise in furtherance of the purposes of this
title.
Sec. 17A SECURITIES EXCHANGE ACT OF 1934 180
(e) The Commission shall use its authority under this title to
end the physical movement of securities certificates in connection
with the settlement among brokers and dealers of transactions in
securities consummated by means of the mails or any means or
instrumentalities of interstate commerce.
(f)(1) Notwithstanding any provision of State law, except as
provided in paragraph (3), if the Commission makes each of the
findings described in paragraph (2)(A), the Commission may adopt
rules concerning—
(A) the transfer of certificated or uncertificated securities
(other than government securities issued pursuant to chapter
31 of title 31, United States Code, or securities otherwise processed
within a book-entry system operated by the Federal Reserve
banks pursuant to a Federal book-entry regulation) or
limited interests (including security interests) therein; and
(B) rights and obligations of purchasers, sellers, owners,
lenders, borrowers, and financial intermediaries (including brokers,
dealers, banks, and clearing agencies) involved in or affected
by such transfers, and the rights of third parties whose
interests in such securities devolve from such transfers.
(2)(A) The findings described in this paragraph are findings by
the Commission that—
(i) such rule is necessary or appropriate for the protection
of investors or in the public interest and is reasonably designed
to promote the prompt, accurate, and safe clearance and settlement
of securities transactions;
(ii) in the absence of a uniform rule, the safe and efficient
operation of the national system for clearance and settlement
of securities transactions will be, or is, substantially impeded;
and
(iii) to the extent such rule will impair or diminish, directly
or indirectly, rights of persons specified in paragraph
(1)(B) under State law concerning transfers of securities (or
limited interests therein), the benefits of such rule outweigh
such impairment or diminution of rights.
(B) In making the findings described in subparagraph (A), the
Commission shall give consideration to the recommendations of the
Advisory Committee established under paragraph (4), and it shall
consult with and consider the views of the Secretary of the Treasury
and the Board of Governors of the Federal Reserve System. If
the Secretary of the Treasury objects, in writing, to any proposed
rule of the Commission on the basis of the Secretary’s view on the
issues described in clauses (i), (ii), and (iii) of subparagraph (A), the
Commission shall consider all feasible alternatives to the proposed
rule, and it shall not adopt any such rule unless the Commission
makes an explicit finding that the rule is the most practicable
method for achieving safe and efficient operation of the national
clearance and settlement system.
(3) Any State may, prior to the expiration of 2 years after the
Commission adopts a rule under this subsection, enact a statute
that specifically refers to this subsection and the specific rule
thereunder and establishes, prospectively from the date of enactment
of the State statute, a provision that differs from that applicable
under the Commission’s rule.

181 SECURITIES EXCHANGE ACT OF 1934 17B
(4)(A) Within 90 days after the date of enactment of this subsection,
the Commission shall (and at such times thereafter as the
Commission may determine, the Commission may), after consultation
with the Secretary of the Treasury and the Board of Governors
of the Federal Reserve System, establish an advisory committee
under the Federal Advisory Committee Act (5 U.S.C. App.). The
Advisory Committee shall be directed to consider and report to the
Commission on such matters as the Commission, after consultation
with the Secretary of the Treasury and the Board of Governors of
the Federal Reserve System, determines, including the areas, if
any, in which State commercial laws and related Federal laws concerning
the transfer of certificated or uncertificated securities, limited
interests (including security interests) in such securities, or
the creation or perfection of security interests in such securities do
not provide the necessary certainty, uniformity, and clarity for purchasers,
sellers, owners, lenders, borrowers, and financial intermediaries
concerning their respective rights and obligations.
(B) The Advisory Committee shall consist of 15 members, of
which—
(i) 11 shall be designated by the Commission in accordance
with the Federal Advisory Committee Act; and
(ii) 2 each shall be designated by the Board of Governors
of the Federal Reserve System and the Secretary of the Treasury.
(C) The Advisory Committee shall conduct its activities in
accordance with the Federal Advisory Committee Act. Within 6
months of its designation, or such longer time as the Commission
may designate, the Advisory Committee shall issue a report to the
Commission, and shall cause copies of that report to be delivered
to the Secretary of the Treasury and the Chairman of the Board
of Governors of the Federal Reserve System.
AUTOMATED QUOTATION SYSTEMS FOR PENNY STOCKS
SEC. 17B. ø78q–2¿ (a) FINDINGS.—The Congress finds that—
(1) the market for penny stocks suffers from a lack of reliable
and accurate quotation and last sale information available
to investors and regulators;
(2) it is in the public interest and appropriate for the protection
of investors and the maintenance of fair and orderly
markets to improve significantly the information available to
brokers, dealers, investors, and regulators with respect to
quotations for and transactions in penny stocks; and
(3) a fully implemented automated quotation system for
penny stocks would meet the information needs of investors
and market participants and would add visibility and regulatory
and surveillance data to that market.
(b) MANDATE TO FACILITATE THE ESTABLISHMENT OF AUTOMATED
QUOTATION SYSTEMS.—
(1) IN GENERAL.—The Commission shall facilitate the
widespread dissemination of reliable and accurate last sale and
quotation information with respect to penny stocks in accordance
with the findings set forth in subsection (a), with a view
toward establishing, at the earliest feasible time, one or more
Sec. 18 SECURITIES EXCHANGE ACT OF 1934 182
automated quotation systems that will collect and disseminate
information regarding all penny stocks.
(2) CHARACTERISTICS OF SYSTEMS.—Each such automated
quotation system shall—
(A) be operated by a registered securities association
or a national securities exchange in accordance with such
rules as the Commission and these entities shall prescribe;
(B) collect and disseminate quotation and transaction
information;
(C) except as provided in subsection (c), provide bid
and ask quotations of participating brokers or dealers, or
comparably accurate and reliable pricing information,
which shall constitute firm bids or offers for at least such
minimum numbers of shares or minimum dollar amounts
as the Commission and the registered securities association
or national securities exchange shall require; and
(D) provide for the reporting of the volume of penny
stock transactions, including last sale reporting, when the
volume reaches appropriate levels that the Commission
shall specify by rule or order.
(c) EXEMPTIVE AUTHORITY.—The Commission may, by rule or
order, grant such exemptions, in whole or in part, conditionally or
unconditionally, to any penny stock or class of penny stocks from
the requirements of subsection (b) as the Commission determines
to be consistent with the public interest, the protection of investors,
and the maintenance of fair and orderly markets.
(d) COMMISSION REPORTING REQUIREMENTS.—The Commission
shall, in each of the first 5 annual reports (under section 23(b)(1)
of this title) submitted more than 12 months after the date of
enactment of this section, include a description of the status of the
penny stock automated quotation system or systems required by
subsection (b). Such description shall include—
(1) a review of the development, implementation, and
progress of the project, including achievement of significant
milestones and current project schedule; and
(2) a review of the activities of registered securities associations
and national securities exchanges in the development
of the system.
LIABILITY FOR MISLEADING STATEMENTS
SEC. 18. ø78r¿ (a) Any person who shall make or cause to be
made any statement in any application, report, or document filed
pursuant to this title or any rule or regulation thereunder or any
undertaking contained in a registration statement as provided in
subsection (d) of section 15 of this title, which statement 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, shall
be liable to any person (not knowing that such statement was false
or misleading) who, in reliance upon such statement shall have
purchased or sold a security at a price which was affected by such
statement, for damages caused by such reliance, unless the person
sued shall prove that he acted in good faith and had no knowledge
that such statement was false or misleading. A person seeking to
enforce such liability may sue at law or in equity in any court of
183 SECURITIES EXCHANGE ACT OF 1934 Sec. 19
competent jurisdiction. 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.
(b) Every person who becomes liable to make payment under
this section 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.
(c) 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 cause of action and within
three years after such cause of action accrued.
REGISTRATION, RESPONSIBILITIES, AND OVERSIGHT OF SELFREGULATORY
ORGANIZATIONS
SEC. 19. ø78s¿ (a)(1) The Commission shall, upon the filing of
an application for registration as a national securities exchange,
registered securities association, or registered clearing agency, pursuant
to section 6, 15A, or 17A of this title, respectively, publish
notice of such filing and afford interested persons an opportunity
to submit written data, views, and arguments concerning such application.
Within ninety days of the date of 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 a 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 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 it finds that the
requirements of this title and the rules and regulations thereunder
with respect to the applicant are satisfied. The Commission shall
deny such registration if it does not make such finding.
(2) With respect to an application for registration filed by a
clearing agency for which the Commission is not the appropriate
regulatory agency—
(A) The Commission shall not grant registration prior to
the sixtieth day after the date of publication of notice of the filing
of such application unless the appropriate regulatory
agency for such clearing agency has notified the Commission of
such appropriate regulatory agency’s determination that such
clearing agency is so organized and has the capacity to be able
to safeguard securities and funds in its custody or control or
for which it is responsible and that the rules of such clearing
agency are designed to assure the safeguarding of such securities
and funds.
Sec. 19 SECURITIES EXCHANGE ACT OF 1934 184
1 For applicability of this provision to the Public Company Accounting Oversight Board, see
section 107 of the Sarbanes-Oxley Act of 2002, printed elsewhere in this volume.
(B) The Commission shall institute proceedings in accordance
with paragraph (1)(B) of this subsection to determine
whether registration should be denied if the appropriate regulatory
agency for such clearing agency notifies the Commission
within sixty days of the date of publication of notice of the filing
of such application of such appropriate regulatory agency’s
(i) determination that such clearing agency may not be so organized
or have the capacity to be able to safeguard securities or
funds in its custody or control or for which it is responsible or
that the rules of such clearing agency may not be designed to
assure the safeguarding of such securities and funds and (ii)
reasons for such determination.
(C) The Commission shall deny registration if the appropriate
regulatory agency for such clearing agency notifies the
Commission prior to the conclusion of proceedings instituted in
accordance with paragraph (1)(B) of this subsection of such
appropriate regulatory agency’s (i) determination that such
clearing agency is not so organized or does not have the capacity
to be able to safeguard securities or funds in its custody or
control or for which it is responsible or that the rules of such
clearing agency are not designed to assure the safeguarding of
such securities or funds and (ii) reasons for such determination.
(3) A self-regulatory organization may, upon such terms and
conditions as the Commission, by rule, 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 self-regulatory
organization 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 its registration. Upon the withdrawal
of a national securities association from registration or the
cancellation, suspension, or revocation of the registration of a national
securities association, the registration of any association
affiliated therewith shall automatically terminate.
(b)(1) 1 Each self-regulatory organization shall file with the
Commission, in accordance with such rules as the Commission may
prescribe, copies of any proposed rule or any proposed change in,
addition to, or deletion from the rules of such self-regulatory organization
(hereinafter in this subsection collectively referred to as a
‘‘proposed rule change’’) accompanied by a concise general statement
of the basis and purpose of such proposed rule change. The
Commission shall, upon the filing of any proposed rule change,
publish notice thereof together with the terms of substance of the
proposed rule change or a description of the subjects and issues involved.
The Commission shall give interested persons an opportunity
to submit written data, views, and arguments concerning
such proposed rule change. No proposed rule change shall take effect
unless approved by the Commission or otherwise permitted in
accordance with the provisions of this subsection.
185 SECURITIES EXCHANGE ACT OF 1934 Sec. 19
(2) Within thirty-five days of the date of publication of notice
of the filing of a proposed rule change in accordance with paragraph
(1) of this subsection, or within such longer period as the
Commission may designate up to ninety days of such date if it
finds such longer period to be appropriate and publishes its reasons
for so finding or as to which the self-regulatory organization consents,
the Commission shall—
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed
rule change should be disapproved. Such proceedings
shall include notice of the grounds for disapproval under consideration
and opportunity for hearing and be concluded within
one hundred eighty days of the date of publication of notice of
the filing of the proposed rule change. At the conclusion of
such proceedings the Commission, by order, shall approve or
disapprove such proposed rule change. The Commission may
extend the time for 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 period as to
which the self-regulatory organization consents.
The Commission shall approve a proposed rule change of a self-regulatory
organization if it finds that such proposed rule change is
consistent with the requirements of this title and the rules and regulations
thereunder applicable to such organization. The Commission
shall disapprove a proposed rule change of a self-regulatory
organization if it does not make such finding. The Commission
shall not approve any proposed rule change prior to the thirtieth
day after the date of publication of notice of the filing thereof, unless
the Commission finds good cause for so doing and publishes its
reasons for so finding.
(3)(A) 1 Notwithstanding the provisions of paragraph (2) of this
subsection, a proposed rule change may take effect upon filing with
the Commission if designated by the self-regulatory organization as
(i) constituting a stated policy, practice, or interpretation with respect
to the meaning, administration, or enforcement of an existing
rule of the self-regulatory organization, (ii) establishing or changing
a due, fee, or other charged imposed by the self-regulatory
organization, or (iii) concerned solely with the administration of the
self-regulatory organization or other matters which the Commission,
by rule, consistent with the public interest and the purposes
of this subsection, may specify as without the provisions of such
paragraph (2).
(B) Notwithstanding any other provision of this subsection, a
proposed rule change may be put into effect summarily if it appears
to the Commission that such action is necessary for the protection
of investors, the maintenance of fair and orderly markets,
or the safeguarding of securities or funds. Any proposed rule
change so put into effect shall be filed promptly thereafter in
accordance with the provisions of paragraph (1) of this subsection.
(C) Any proposed rule change of a self-regulatory organization
which has taken effect pursuant to subparagraph (A) or (B) of this
paragraph may be enforced by such organization to the extent it is
not inconsistent with the provisions of this title, the rules and regulations
thereunder, and applicable Federal and State law. At any
Sec. 19 SECURITIES EXCHANGE ACT OF 1934 186
time within sixty days of the date of filing of such a proposed rule
change in accordance with the provisions of paragraph (1) of this
subsection, the Commission summarily may abrogate the change in
the rules of the self-regulatory organization made thereby and require
that the proposed rule change be refiled in accordance with
the provisions of paragraph (1) of this subsection and reviewed in
accordance with the provisions of paragraph (2) of this subsection,
if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title. Commission
action pursuant to the preceding sentence shall not affect the validity
or force of the rule change during the period it was in effect and
shall not be reviewable under section 25 of this title, nor deemed
to be ‘‘final agency action’’ for purposes of section 704 of title 5,
United States Code.
(4) With respect to a proposed rule changed filed by a registered
clearing agency for which the Commission is not the appropriate
regulatory agency—
(A) The Commission shall not approve any such proposed
rule change prior to the thirtieth day after the date of publication
of notice of the filing thereof unless the appropriate regulatory
agency for such clearing agency has notified the Commission
of such appropriate regulatory agency’s determination
that the proposed rule change is consistent with the safeguarding
of securities and funds in the custody or control of
such clearing agency or for which it is responsible.
(B) The Commission shall institute proceedings in accordance
with paragraph (2)(B) of this subsection to determine
whether any such proposed rule change should be disapproved,
if the appropriate regulatory agency for such clearing agency
notifies the Commission within thirty days of the date of publication
of notice of the filing of the proposed rule change of such
appropriate regulatory agency’s (i) determination that the proposed
rule change may be inconsistent with the safeguarding
of securities or funds in the custody or control of such clearing
agency or for which it is responsible and (ii) reasons for such
determination.
(C) The Commission shall disapprove any such proposed
rule change if the appropriate regulatory agency for such clearing
agency notifies the Commission prior to the conclusion of
proceedings instituted in accordance with paragraph (2)(B) of
this subsection of such appropriate regulatory agency’s (i)
determination that the proposed rule change is inconsistent
with the safeguarding of securities or funds in the custody or
control of such clearing agency or for which it is responsible
and (ii) reasons for such determination.
(D) The Commission shall abrogate any change in the
rules of such a clearing agency made by a proposed rule
change which has taken effect pursuant to paragraph (3) of
this subsection, require that the proposed rule change be
refiled in accordance with the provisions of paragraph (1) of
this subsection, and reviewed in accordance with the provisions
of paragraph (2) of this subsection, if the appropriate regulatory
agency for such clearing agency notifies the Commission
187 SECURITIES EXCHANGE ACT OF 1934 Sec. 19
1 Margin so in law.
within thirty days of the date of filing of such proposed rule
change of such appropriate regulatory agency’s (i) determination
that the rules of such clearing agency as so changed may
be inconsistent with the safeguarding of securities or funds in
the custody or control of such clearing agency or for which it
is responsible and (ii) reasons for such determination.
(5) The Commission shall consult with and consider the views
of the Secretary of the Treasury prior to approving a proposed rule
filed by a registered securities association that primarily concerns
conduct related to transactions in government securities, except
where the Commission determines that an emergency exists requiring
expeditious or summary action and publishes its reasons therefor.
If the Secretary of the Treasury comments in writing to the
Commission on a proposed rule that has been published for comment,
the Commission shall respond in writing to such written
comment before approving the proposed rule. If the Secretary of the
Treasury determines, and notifies the Commission, that such rule,
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, find that such rule is
necessary and appropriate in furtherance of the purposes of this
section notwithstanding the Secretary’s determination.
(6) In approving rules described in paragraph (5), the Commission
shall consider the sufficiency and appropriateness of then existing
laws and rules applicable to government securities brokers,
government securities dealers, and persons associated with government
securities brokers and government securities dealers.
(7) 1 SECURITY FUTURES PRODUCT RULE CHANGES.—
(A) FILING REQUIRED.—A self-regulatory organization
that is an exchange registered with the Commission pursuant
to section 6(g) of this title or that is a national securities
association registered pursuant to section 15A(k) of
this title shall file with the Commission, in accordance
with such rules as the Commission may prescribe, copies
of any proposed rule change or any proposed change in,
addition to, or deletion from the rules of such self-regulatory
organization (hereinafter in this paragraph collectively
referred to as a ‘‘proposed rule change’’) that relates
to higher margin levels, fraud or manipulation, recordkeeping,
reporting, listing standards, or decimal pricing for
security futures products, sales practices for security futures
products for persons who effect transactions in security
futures products, or rules effectuating such self-regulatory
organization’s obligation to enforce the securities
laws. Such proposed rule change shall be accompanied by
a concise general statement of the basis and purpose of
such proposed rule change. The Commission shall, upon
the filing of any proposed rule change, promptly publish
notice thereof together with the terms of substance of the
proposed rule change or a description of the subjects and
Sec. 19 SECURITIES EXCHANGE ACT OF 1934 188
issues involved. The Commission shall give interested persons
an opportunity to submit data, views, and arguments
concerning such proposed rule change.
(B) FILING WITH CFTC.—A proposed rule change filed
with the Commission pursuant to subparagraph (A) shall
be filed concurrently with the Commodity Futures Trading
Commission. Such proposed rule change may take effect
upon filing of a written certification with the Commodity
Futures Trading Commission under section 5c(c) of the
Commodity Exchange Act, upon a determination by the
Commodity Futures Trading Commission that review of
the proposed rule change is not necessary, or upon approval
of the proposed rule change by the Commodity Futures
Trading Commission.
(C) ABROGATION OF RULE CHANGES.—Any proposed
rule change of a self-regulatory organization that has
taken effect pursuant to subparagraph (B) may be enforced
by such self-regulatory organization to the extent such rule
is not inconsistent with the provisions of this title, the
rules and regulations thereunder, and applicable Federal
law. At any time within 60 days of the date of the filing
of a written certification with the Commodity Futures
Trading Commission under section 5c(c) of the Commodity
Exchange Act, the date the Commodity Futures Trading
Commission determines that review of such proposed rule
change is not necessary, or the date the Commodity Futures
Trading Commission approves such proposed rule
change, the Commission, after consultation with the Commodity
Futures Trading Commission, may summarily
abrogate the proposed rule change and require that the
proposed rule change be refiled in accordance with the provisions
of paragraph (1), if it appears to the Commission
that such proposed rule change unduly burdens competition
or efficiency, conflicts with the securities laws, or is
inconsistent with the public interest and the protection of
investors. Commission action pursuant to the preceding
sentence shall not affect the validity or force of the rule
change during the period it was in effect and shall not be
reviewable under section 25 of this title nor deemed to be
a final agency action for purposes of section 704 of title 5,
United States Code.
(D) REVIEW OF RESUBMITTED ABROGATED RULES.—
(i) PROCEEDINGS.—Within 35 days of the date of
publication of notice of the filing of a proposed rule
change that is abrogated in accordance with subparagraph
(C) and refiled in accordance with paragraph
(1), or within such longer period as the Commission
may designate up to 90 days after such date if the
Commission finds such longer period to be appropriate
and publishes its reasons for so finding or as to which
the self-regulatory organization consents, the Commission
shall—
(I) by order approve such proposed rule
change; or
189 SECURITIES EXCHANGE ACT OF 1934 Sec. 19
(II) after consultation with the Commodity
Futures Trading Commission, institute proceedings
to determine whether the proposed rule
change should be disapproved. Proceedings under
subclause (II) shall include notice of the grounds
for disapproval under consideration and opportunity
for hearing and be concluded within 180
days after the date of publication of notice of the
filing of the proposed rule change. At the conclusion
of such proceedings, the Commission, by
order, shall approve or disapprove such proposed
rule change. The Commission may extend the
time for conclusion of such proceedings for up to
60 days if the Commission finds good cause for
such extension and publishes its reasons for so
finding or for such longer period as to which the
self-regulatory organization consents.
(ii) GROUNDS FOR APPROVAL.—The Commission
shall approve a proposed rule change of a self-regulatory
organization under this subparagraph if the
Commission finds that such proposed rule change does
not unduly burden competition or efficiency, does not
conflict with the securities laws, and is not inconsistent
with the public interest or the protection of
investors. The Commission shall disapprove such a
proposed rule change of a self-regulatory organization
if it does not make such finding. The Commission
shall not approve any proposed rule change prior to
the 30th day after the date of publication of notice of
the filing thereof, unless the Commission finds good
cause for so doing and publishes its reasons for so
finding.
(8) DECIMAL PRICING.—Not later than 9 months after the
date on which trading in any security futures product commences
under this title, all self-regulatory organizations listing
or trading security futures products shall file proposed rule
changes necessary to implement decimal pricing of security futures
products. The Commission may not require such rules to
contain equal minimum increments in such decimal pricing.
(9) CONSULTATION WITH CFTC.—
(A) CONSULTATION REQUIRED.—The Commission shall
consult with and consider the views of the Commodity Futures
Trading Commission prior to approving or disapproving
a proposed rule change filed by a national securities
association registered pursuant to section 15A(a) or
a national securities exchange subject to the provisions of
subsection (a) that primarily concerns conduct related to
transactions in security futures products, except where the
Commission determines that an emergency exists requiring
expeditious or summary action and publishes its reasons
therefor.
(B) RESPONSES TO CFTC COMMENTS AND FINDINGS.—If
the Commodity Futures Trading Commission comments in
writing to the Commission on a proposed rule that has
Sec. 19 SECURITIES EXCHANGE ACT OF 1934 190
1 For applicability of this provision to the Public Company Accounting Oversight Board, see
section 107 of the Sarbanes-Oxley Act of 2002, printed elsewhere in this volume.
been published for comment, the Commission shall respond
in writing to such written comment before approving
or disapproving the proposed rule. If the Commodity
Futures Trading Commission determines, and notifies the
Commission, that such rule, if implemented or as applied,
would—
(i) adversely affect the liquidity or efficiency of the
market for security futures products; or
(ii) impose any burden on competition not necessary
or appropriate in furtherance of the purposes of
this section,
the Commission shall, prior to approving or disapproving
the proposed rule, find that such rule is necessary and
appropriate in furtherance of the purposes of this section
notwithstanding the Commodity Futures Trading Commission’s
determination.
(c) 1 The Commission, by rule, may abrogate, add to, and delete
from (hereinafter in this subsection collectively referred to as
‘‘amend’’) the rules of a self-regulatory organization (other than a
registered clearing agency) as the Commission deems necessary or
appropriate to insure the fair administration of the self-regulatory
organization, to conform its rules to requirements of this title and
the rules and regulations thereunder applicable to such organization,
or otherwise in furtherance of the purposes of this title, in the
following manner:
(1) The Commission shall notify the self-regulatory organization
and publish notice of the proposed rulemaking in the
Federal Register. The notice shall include the text of the proposed
amendment to the rules of the self-regulatory organization
and a statement of the Commission’s reasons, including
any pertinent facts, for commencing such proposed rulemaking.
(2) The Commission shall give interested persons an opportunity
for the oral presentation of data, views, and arguments,
in addition to an opportunity to make written submissions. A
transcript shall be kept of any oral presentation.
(3) A rule adopted pursuant to this subsection shall incorporate
the text of the amendment to the rules of the self-regulatory
organization and a statement of the Commission’s basis
for and purpose in so amending such rules. This statement
shall include an identification of any facts on which the Commission
considers its determination so to amend the rules of
the self-regulatory agency to be based, including the reasons
for the Commission’s conclusions as to any of such facts which
were disputed in the rulemaking.
(4)(A) Except as provided in paragraphs (1) through (3) of
this subsection, rulemaking under this subsection shall be in
accordance with the procedures specified in section 553 of title
5, United States Code, for rulemaking not on the record.
(B) Nothing in this subsection shall be construed to impair
or limit the Commission’s power to make, or to modify or alter
the procedures the Commission may follow in making, rules

191 SECURITIES EXCHANGE ACT OF 1934 Sec. 19
1 For applicability of this provision to the Public Company Accounting Oversight Board, see
section 107 of the Sarbanes-Oxley Act of 2002, printed elsewhere in this volume.
and regulations pursuant to any other authority under this
title.
(C) Any amendment to the rules of a self-regulatory organization
made by the Commission pursuant to this subsection
shall be considered for all purposes of this title to be part of
the rules of such self-regulatory organization and shall not be
considered to be a rule of the Commission.
(5) With respect to rules described in subsection (b)(5), the
Commission shall consult with and consider the views of the
Secretary of the Treasury before abrogating, adding to, and deleting
from such rules, except where the Commission determines
that an emergency exists requiring expeditious or summary
action and publishes its reasons therefor.
(d)(1) If any self-regulatory organization imposes any final disciplinary
sanction on any member thereof or participant therein,
denies membership or participation to any applicant, or prohibits
or limits any person in respect to access to services offered by such
organization or member thereof or if any self-regulatory organization
(other than a registered clearing agency) imposes any final disciplinary
sanction on any person associated with a member or bars
any person from becoming associated with a member, the self-regulatory
organization shall promptly file notice thereof with the
appropriate regulatory agency for the self-regulatory organization
and (if other than the appropriate regulatory agency for the selfregulatory
organization) the appropriate regulatory agency for such
member, participant, applicant, or other person. The notice shall be
in such form and contain such information as the appropriate regulatory
agency for the self-regulatory organization, by rule, may prescribe
as necessary or appropriate in furtherance of the purposes
of this title.
(2) 1 Any action with respect to which a self-regulatory organization
is required by paragraph (1) of this subsection to file notice
shall be subject to review by the appropriate regulatory agency for
such member, participant, applicant, or other person, on its own
motion, or upon application by any person aggrieved thereby filed
within thirty days after the date such notice was filed with such
appropriate regulatory agency and received by such aggrieved person,
or within such longer period as such appropriate regulatory
agency may determine. Application to such appropriate regulatory
agency for review, or the institution of review by such appropriate
regulatory agency on its own motion, shall not operate as a stay
of such action unless such appropriate regulatory agency 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). Each
appropriate regulatory agency shall establish for appropriate cases
an expedited procedure for consideration and determination of the
question of a stay.
(3) The provisions of this subsection shall apply to an exchange
registered pursuant to section 6(g) of this title or a national securities
association registered pursuant to section 15A(k) of this title
Sec. 19 SECURITIES EXCHANGE ACT OF 1934 192
1 For applicability of this provision to the Public Company Accounting Oversight Board, see
section 107 of the Sarbanes-Oxley Act of 2002, printed elsewhere in this volume.
only to the extent that such exchange or association imposes any
final disciplinary sanction for—
(A) a violation of the Federal securities laws or the rules
and regulations thereunder; or
(B) a violation of a rule of such exchange or association, as
to which a proposed change would be required to be filed under
section 19 of this title, except that, to the extent that the exchange
or association rule violation relates to any account,
agreement, contract, or transaction, this subsection shall apply
only to the extent such violation involves a security futures
product.
(e)(1) 1 In any proceeding to review a final disciplinary sanction
imposed by a self-regulatory organization on a member thereof or
participant therein or a person associated with such a member,
after notice and opportunity for hearing (which hearing may consist
solely of consideration of the record before the self-regulatory
organization and opportunity for the presentation of supporting
reasons to affirm, modify, or set aside the sanction)—
(A) if the appropriate regulatory agency for such member,
participant, or person associated with a member finds that
such member, participant, or person associated with a member
has engaged in such acts or practices, or has omitted such acts,
as the self-regulatory organization has found him to have engaged
in or omitted, that such acts or practices, or omissions
to act, are in violation of such provisions of this title, the rules
or regulations thereunder, the rules of the self-regulatory organization,
or, in the case of a registered securities association,
the rules of the Municipal Securities Rulemaking Board as
have been specified in the determination of the self-regulatory
organization, and that such provisions are, and were applied in
a manner, consistent with the purposes of this title, such
appropriate regulatory agency, by order, shall so declare and,
as appropriate, affirm the sanction imposed by the self-regulatory
organization, modify the sanction in accordance with
paragraph (2) of this subsection, or remand to the self-regulatory
organization for further proceedings; or
(B) if such appropriate regulatory agency does not make
any such finding it shall, by order, set aside the sanction imposed
by the self-regulatory organization and, if appropriate,
remand to the self-regulatory organization for further proceedings.
(2) If the appropriate regulatory agency for a member, participant,
or person associated with a member, having due regard for
the public interest and the protection of investors, finds after a proceeding
in accordance with paragraph (1) of this subsection that a
sanction imposed by a self-regulatory organization upon such member,
participant, or person associated with a member imposes any
burden on competition not necessary or appropriate in furtherance
of the proposes of this title or is excessive or oppressive, the appropriate
regulatory agency may cancel, reduce, or require the remission
of such sanction.
193 SECURITIES EXCHANGE ACT OF 1934 Sec. 19
(f) In any proceeding to review the denial of membership or
participation in a self-regulatory organization to any applicant, the
barring of any person from becoming associated with a member of
a self-regulatory organization, or the prohibition or limitation by a
self-regulatory organization of any person with respect to access to
services offered by the self-regulatory organization or any member
thereof, if the appropriate regulatory agency for such applicant or
person, after notice and opportunity for hearing (which hearing
may consist solely of consideration of the record before the self-regulatory
organization and opportunity for the presentation of supporting
reasons to dismiss the proceeding or set aside the action of
the self-regulatory organization) finds that the specific grounds on
which such denial, bar, or prohibition or limitation is based exist
in fact, that such denial, bar, or prohibition or limitation is in
accordance with the rules of the self-regulatory organization, and
that such rules are, and were applied in a manner, consistent with
the purposes of this title, such appropriate regulatory agency, by
order, shall dismiss the proceeding. If such appropriate regulatory
agency does not make any such finding or if it finds that such denial,
bar, or prohibition or limitation imposes any burden on competition
not necessary or appropriate in furtherance of the purposes
of this title, such appropriate regulatory agency, by order, shall set
aside the action of the self-regulatory organization and require it
to admit such applicant to membership or participation, permit
such person to become associated with a member, or grant such
person access to services offered by the self-regulatory organization
or member thereof.
(g)(1) Every self-regulatory organization shall comply with the
provisions of this title, the rules and regulations thereunder, and
its own rules, and (subject to the provisions of section 17(d) of this
title, paragraph (2) of this subsection, and the rules thereunder)
absent reasonable justification or excuse enforce compliance—
(A) in the case of a national securities exchange, with such
provisions by its members and persons associated with its
members;
(B) in the case of a registered securities association, with
such provisions and the provisions of the rules of the Municipal
Securities Rulemaking Board by its members and persons associated
with its members; and
(C) in the case of a registered clearing agency, with its own
rules by its participants.
(2) The Commission, by rule, consistent with the public interest,
the protection of investors, and the other purposes of this title,
may relieve any self-regulatory organization of any responsibility
under this title to enforce compliance with any specified provision
of this title or the rules or regulations thereunder by any member
of such organization or person associated with such a member, or
any class of such members or persons associated with a member.
(h)(1) The appropriate regulatory agency for a self-regulatory
organization is authorized, by order, if in its opinion such action is
necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of this title
to suspend for a period not exceeding twelve months or revoke the
registration of such self-regulatory organization, or to censure or
Sec. 19 SECURITIES EXCHANGE ACT OF 1934 194
impose limitations upon the activities, functions, and operations of
such self-regulatory organization, if such appropriate regulatory
agency finds, on the record after notice and opportunity for hearing,
that such self-regulatory organization has violated or is unable
to comply with any provision of this title, the rules or regulations
thereunder, or its own rules or without reasonable justification or
excuse has failed to enforce compliance—
(A) in the case of a national securities exchange, with any
such provision by a member thereof or a person associated
with a member thereof;
(B) in the case of a registered securities association, with
any such provision or any provision of the rules of the Municipal
Securities Rulemaking Board by a member thereof or a
person associated with a member thereof; or
(C) in the case of a registered clearing agency, with any
provision of its own rules by a participant therein.
(2) The appropriate regulatory agency for a self-regulatory
organization is authorized, by order, if in its opinion such action is
necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of this
title, to suspend for a period not exceeding twelve months or expel
from such self-regulatory organization any member thereof or participant
therein, if such member or participant is subject to an
order of the Commission pursuant to section 15(b)(4) of this title
or if such appropriate regulatory agency finds, on the record after
notice and opportunity for hearing, that such member or participant
has willfully violated or has effected any transaction for any
other person who, such member or participant had reason to believe,
was violating with respect to such transaction—
(A) in the case of a national securities exchange, any provision
of the Securities Act of 1933, the Investment Advisers Act
of 1940, the Investment Company Act of 1940, this title, or the
rules or regulations under any of such statutes;
(B) in the case of a registered securities association, any
provision of the Securities Act of 1933, the Investment Advisers
Act of 1940, the Investment Company Act of 1940, this
title, the rules or regulations under any of such statutes, or the
rules of the Municipal Securities Rulemaking Board; or
(C) in the case of a registered clearing agency, any provision
of the rules of the clearing agency.
(3) The appropriate regulatory agency for a national securities
exchange or registered securities association is authorized, by
order, if in its opinion such action is necessary or appropriate in
the public interest, for the protection of investors, or otherwise in
furtherance of the purposes of this title, to suspend for a period not
exceeding twelve months or to bar any person from being associated
with a member of such national securities exchange or registered
securities association, if such person is subject to an order
of the Commission pursuant to section 15(b)(6) or if such appropriate
regulatory agency finds, on the record after notice and
opportunity for hearing, that such person has willfully violated or
has effected any transaction for any other person who, such person
associated with a member had reason to believe, was violating with
respect to such transaction—
195 SECURITIES EXCHANGE ACT OF 1934 Sec. 20
(A) in the case of a national securities exchange, any provision
of the Securities Act of 1933, the Investment Advisers Act
of 1940, the Investment Company Act of 1940, this title, or the
rules or regulations under any of such statutes; or
(B) in the case of a registered securities association, any
provision of the Securities Act of 1933, the Investment Advisers
Act of 1940, the Investment Company Act of 1940, this
title, the rules or regulations under any of the statutes, or the
rules of the Municipal Securities Rulemaking Board.
(4) The appropriate regulatory agency for a self-regulatory
organization is authorized, by order, if in its opinion such action is
necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of this
title, to remove from office or censure any officer or director of such
self-regulatory organization, if such appropriate regulatory agency
finds, on the record after notice and opportunity for hearing, that
such officer or director has willfully violated any provision of this
title, the rules or regulations thereunder, or the rules of such selfregulatory
organization, willfully abused his authority, or without
reasonable justification or excuse has failed to enforce compliance—
(A) in the case of a national securities exchange, with any
such provision by any member or person associated with a
member;
(B) in the case of a registered securities association, with
any such provision or any provision of the rules of the Municipal
Securities Rulemaking Board by any member or person
associated with a member; or
(C) in the case of a registered clearing agency, with any
provision of the rules of the clearing agency by any participant.
(i) If a proceeding under subsection (h)(1) of this section results
in the suspension or revocation of the registration of a clearing
agency, the appropriate regulatory agency for such clearing agency
may, upon notice to such clearing agency, apply to any court of
competent jurisdiction specified in section 21(d) or 27 of this title
for the appointment of a trustee. In the event of such an application,
the court may, to the extent it deems necessary or appropriate,
take exclusive jurisdiction of such clearing agency and the
records and assets thereof, wherever located; and the court shall
appoint the appropriate regulatory agency for such clearing agency
or a person designated by such appropriate regulatory agency as
trustee with power to take possession and continue to operate or
terminate the operations of such clearing agency in an orderly
manner for the protection of participants and investors, subject to
such terms and conditions as the court may prescribe.
LIABILITY OF CONTROLLING PERSONS AND PERSONS WHO AID AND
ABET VIOLATIONS
SEC. 20. ø78t¿ (a) Every person who, directly or indirectly, controls
any person liable under any provision of this title or of any
rule or regulation thereunder shall also be liable jointly and severally
with and to the same extent as such controlled person to any
person to whom such controlled person is liable, unless the controlling
person acted in good faith and did not directly or indirectly induce
the act or acts constituting the violation or cause of action.
Sec. 20A SECURITIES EXCHANGE ACT OF 1934 196
1 Sections 205(a)(3) and 303(i) of the Commodity Futures Modernization Act of 2000 (114 Stat.
2763A-426, 2763A-526), as enacted in to law by section 1(a)(5) of Public Law 106-554, both
amended section 20(d) of the Securities Exchange Act of 1934. Section 203(a)(3) amended section
20(d) by striking ‘‘, or privilege’’ and inserting ‘‘, privilege, or security future product’’. Section
303(i) amended section 20(d) to read in the form in which it appears in this compilation. Apparent
intention of the combined amendments would be to insert references to both securities futures
products and security-based swap agreements after the reference to ‘‘privilege’’.
(b) It shall be unlawful for any person, directly or indirectly,
to do any act or thing which it would be unlawful for such person
to do under the provisions of this title or any rule or regulation
thereunder through or by means of any other person.
(c) It shall be unlawful for any director or officer of, or any
owner of any securities issued by, any issuer required to file any
document, report, or information under this title or any rule or regulation
thereunder without just cause to hinder, delay, or obstruct
the making or filing of any such document, report, or information.
(d) Wherever communicating, or purchasing or selling a security
while in possession of, material nonpublic information would
violate, or result in liability to any purchaser or seller of the security
under any provisions of this title, or any rule or regulation
thereunder, such conduct in connection with a purchase or sale of
a put, call, straddle, option, privilege 1 or security-based swap
agreement (as defined in section 206B of the Gramm-Leach-Bliley
Act) with respect to such security or with respect to a group or
index of securities including such security, shall also violate and result
in comparable liability to any purchaser or seller of that security
under such provision, rule, or regulation.
(e) PROSECUTION OF PERSONS WHO AID AND ABET VIOLATIONS.—
For purposes of any action brought by the Commission
under paragraph (1) or (3) of section 21(d), any person that knowingly
provides substantial assistance to another person in violation
of a provision of this title, or of any rule or regulation issued under
this title, shall be deemed to be in violation of such provision to the
same extent as the person to whom such assistance is provided.
(f ) 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.
LIABILITY TO CONTEMPORANEOUS TRADERS FOR INSIDER TRADING
SEC. 20A. ø78t–1¿ (a) PRIVATE RIGHTS OF ACTION BASED ON
CONTEMPORANEOUS TRADING.—Any person who violates any provision
of this title or the rules or regulations thereunder by purchasing
or selling a security while in possession of material, nonpublic
information shall be liable in an action in any court of competent
jurisdiction to any person who, contemporaneously with the
purchase or sale of securities that is the subject of such violation,
has purchased (where such violation is based on a sale of securities)
or sold (where such violation is based on a purchase of securities)
securities of the same class.
(b) LIMITATIONS ON LIABILITY.—
(1) CONTEMPORANEOUS TRADING ACTIONS LIMITED TO
PROFIT GAINED OR LOSS AVOIDED.—The total amount of damages
imposed under subsection (a) shall not exceed the profit
197 SECURITIES EXCHANGE ACT OF 1934 Sec. 21
gained or loss avoided in the transaction or transactions that
are the subject of the violation.
(2) OFFSETTING DISGORGEMENTS AGAINST LIABILITY.—The
total amount of damages imposed against any person under
subsection (a) shall be diminished by the amounts, if any, that
such person may be required to disgorge, pursuant to a court
order obtained at the instance of the Commission, in a proceeding
brought under section 21(d) of this title relating to the
same transaction or transactions.
(3) CONTROLLING PERSON LIABILITY.—No person shall be
liable under this section solely by reason of employing another
person who is liable under this section, but the liability of a
controlling person under this section shall be subject to section
20(a) of this title.
(4) STATUTE OF LIMITATIONS.—No action may be brought
under this section more than 5 years after the date of the last
transaction that is the subject of the violation.
(c) JOINT AND SEVERAL LIABILITY FOR COMMUNICATING.—Any
person who violates any provision of this title or the rules or regulations
thereunder by communicating material, nonpublic information
shall be jointly and severally liable under subsection (a) with,
and to the same extent as, any person or persons liable under subsection
(a) to whom the communication was directed.
(d) AUTHORITY NOT TO RESTRICT OTHER EXPRESS OR IMPLIED
RIGHTS OF ACTION.—Nothing in this section shall be construed to
limit or condition the right of any person to bring an action to enforce
a requirement of this title or the availability of any cause of
action implied from a provision of this title.
(e) PROVISIONS NOT TO AFFECT PUBLIC PROSECUTIONS.—This
section shall not be construed to bar or limit in any manner any
action by the Commission or the Attorney General under any other
provision of this title, nor shall it bar or limit in any manner any
action to recover penalties, or to seek any other order regarding
penalties.
INVESTIGATIONS; INJUNCTIONS AND PROSECUTION OF OFFENSES
SEC. 21. ø78u¿ (a)(1) The Commission may, in its discretion,
make such investigations as it deems necessary to determine
whether any person has violated, is violating, or is about to violate
any provision of this title, the rules or regulations thereunder, the
rules of a national securities exchange or registered securities association
of which such person is a member or a person associated
with a member, the rules of a registered clearing agency in which
such person is a participant, the rules of the Public Company Accounting
Oversight Board, of which such person is a registered
public accounting firm or a person associated with such a firm, or
the rules of the Municipal Securities Rulemaking Board, and may
require or permit any person to file with it a statement in writing,
under oath or otherwise as the Commission shall determine, as to
all the facts and circumstances concerning the matter to be investigated.
The Commission is authorized in its discretion, to publish
information concerning any such violations, and to investigate any
facts, conditions, practices, or matters which it may deem necessary
or proper to aid in the enforcement of such provisions, in the
Sec. 21 SECURITIES EXCHANGE ACT OF 1934 198
prescribing of rules and regulations under this title, or in securing
information to serve as a basis for recommending further legislation
concerning the matters to which this title relates.
(2) On request from a foreign securities authority, the Commission
may provide assistance in accordance with this paragraph if
the requesting authority states that the requesting authority is
conducting an investigation which it deems necessary to determine
whether any person has violated, is violating, or is about to violate
any laws or rules relating to securities matters that the requesting
authority administers or enforces. The Commission may, in its discretion,
conduct such investigation as the Commission deems necessary
to collect information and evidence pertinent to the request
for assistance. Such assistance may be provided without regard to
whether the facts stated in the request would also constitute a violation
of the laws of the United States. In deciding whether to provide
such assistance, the Commission shall consider whether (A)
the requesting authority has agreed to provide reciprocal assistance
in securities matters to the Commission; and (B) compliance with
the request would prejudice the public interest of the United
States.
(b) For the purpose of any such investigation, or any other proceeding
under this title, any member of the Commission or any officer
designated by it is empowered to administer oaths and affirmations,
subpoena witnesses, compel their attendance, take evidence,
and require the production of any books, papers, correspondence,
memoranda, or other records which the Commission deems relevant
or material to the inquiry. Such attendance of witnesses and
the production of any such records may be required from any place
in the United States or any State at any designated place of
hearing.
(c) In case of contumacy by, or refusal to obey a subpoena
issued to, any person, the Commission may invoke the aid of any
court of the United States within the jurisdiction of which such
investigation or proceeding is carried on, or where such person resides
or carries on business, in requiring the attendance and testimony
of witnesses and the production of books, papers, correspondence,
memoranda, and other records. And such court may issue an
order requiring such person to appear before the Commission or
member or officer designated by the Commission, there to produce
records, if so ordered, or to give testimony touching the matter
under investigation or in question; and any failure to obey such
order of the court may be punished by such court as a contempt
thereof. All process in any such case may be served in the judicial
district whereof such person is an inhabitant or wherever he may
be found. Any person who shall, without just cause, fail or refuse
to attend and testify or to answer any lawful inquiry or to produce
books, papers, correspondence, memoranda, and other records, if in
his power so to do, in obedience to the subpoena of the Commission,
shall be guilty of a misdemeanor and, upon conviction, shall
be subject to a fine of not more than $1,000 or to imprisonment for
a term of not more than one year, or both.
(d)(1) Whenever it shall appear to the Commission that any
person is engaged or is about to engage in acts or practices constituting
a violation of any provision of this title, the rules or regula199
SECURITIES EXCHANGE ACT OF 1934 Sec. 21
tions thereunder, the rules of a national securities exchange or registered
securities association of which such person is a member or
a person associated with a member, the rules of a registered clearing
agency in which such person is a participant, the rules of the
Public Company Accounting Oversight Board, of which such person
is a registered public accounting firm or a person associated with
such a firm, or the rules of the Muncipal Securities Rulemaking
Board, it may in its discretion bring an action in the proper district
court of the United States, the United States District Court for the
District of Columbia, or the United States courts of any territory
or other place subject to the jurisdiction of the United States, to enjoin
such acts or practices, and upon a proper showing a permanent
or temporary injunction or restraining order shall be granted without
bond. The Commission may transmit such evidence as may be
available concerning such acts or practices as may constitute a violation
of any provision of this title or the rules or regulations thereunder
to the Attorney General, who may, in his discretion, institute
the necessary criminal proceedings under this title.
(2) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM SERVING
AS OFFICERS AND DIRECTORS.—In any proceeding under paragraph
(1) of this subsection, the court may prohibit, conditionally
or unconditionally, and permanently or for such period of time as
it shall determine, any person who violated section 10(b) of this
title or the rules or regulations thereunder from acting as an officer
or director of any issuer that has a class of securities registered
pursuant to section 12 of this title or that is required to file reports
pursuant to section 15(d) of this title if the person’s conduct demonstrates
unfitness to serve as an officer or director of any such
issuer.
(3) MONEY PENALTIES IN CIVIL ACTIONS.—
(A) AUTHORITY OF COMMISSION.—Whenever it shall appear
to the Commission that any person has violated any provision
of this title, the rules or regulations thereunder, or a ceaseand-
desist order entered by the Commission pursuant to section
21C of this title, other than by committing a violation subject
to a penalty pursuant to section 21A, the Commission may
bring an action in a United States district court to seek, and
the court shall have jurisdiction to impose, upon a proper
showing, a civil penalty to be paid by the person who committed
such violation.
(B) AMOUNT OF PENALTY.—
(i) FIRST TIER.—The amount of the penalty shall be
determined by the court in light of the facts and circumstances.
For each violation, the amount of the penalty
shall not exceed the greater of (I) $5,000 for a natural person
or $50,000 for any other person, or (II) the gross
amount of pecuniary gain to such defendant as a result of
the violation.
(ii) SECOND TIER.—Notwithstanding clause (i), the
amount of penalty for each such violation shall not exceed
the greater of (I) $50,000 for a natural person or $250,000
for any other person, or (II) the gross amount of pecuniary
gain to such defendant as a result of the violation, if the
violation described in subparagraph (A) involved fraud, deSec.
21 SECURITIES EXCHANGE ACT OF 1934 200
1 Indentation so in original (Public Law 104–67; 109 Stat 756).
ceit, manipulation, or deliberate or reckless disregard of a
regulatory requirement.
(iii) THIRD TIER.—Notwithstanding clauses (i) and (ii),
the amount of penalty for each such violation shall not exceed
the greater of (I) $100,000 for a natural person or
$500,000 for any other person, or (II) the gross amount of
pecuniary gain to such defendant as a result of the violation,
if—
(aa) the violation described in subparagraph (A)
involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement; and
(bb) such violation directly or indirectly resulted
in substantial losses or created a significant risk of
substantial losses to other persons.
(C) PROCEDURES FOR COLLECTION.—
(i) PAYMENT OF PENALTY TO TREASURY.—A penalty imposed
under this section shall be payable into the Treasury
of the United States, except as otherwise provided in section
308 of the Sarbanes-Oxley Act of 2002.
(ii) COLLECTION OF PENALTIES.—If a person upon
whom such a penalty is imposed shall fail to pay such penalty
within the time prescribed in the court’s order, the
Commission may refer the matter to the Attorney General
who shall recover such penalty by action in the appropriate
United States district court.
(iii) REMEDY NOT EXCLUSIVE.—The actions authorized
by this paragraph may be brought in addition to any other
action that the Commission or the Attorney General is
entitled to bring.
(iv) JURISDICTION AND VENUE.—For purposes of section
27 of this title, actions under this paragraph shall be actions
to enforce a liability or a duty created by this title.
(D) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A
CEASE-AND-DESIST ORDER.—In an action to enforce a cease-anddesist
order entered by the Commission pursuant to section
21C, each separate violation of such order shall be a separate
offense, except that in the case of a violation through a continuing
failure to comply with the order, each day of the failure
to comply shall be deemed a separate offense.
(4) 1 PROHIBITION OF ATTORNEYS’ FEES PAID FROM COMMISSION
DISGORGEMENT FUNDS.—Except as otherwise ordered by
the court upon motion by the Commission, or, in the case of
an administrative action, as otherwise ordered by the Commission,
funds disgorged as the result of an action brought by the
Commission in Federal court, or as a result of any Commission
administrative action, shall not be distributed as payment for
attorneys’ fees or expenses incurred by private parties seeking
distribution of the disgorged funds.
(5) EQUITABLE RELIEF.—In any action or proceeding brought or
instituted by the Commission under any provision of the securities
laws, the Commission may seek, and any Federal court may grant,

201 SECURITIES EXCHANGE ACT OF 1934 Sec. 21
any equitable relief that may be appropriate or necessary for the
benefit of investors.
(6) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM PARTICIPATING
IN AN OFFERING OF PENNY STOCK.—
(A) IN GENERAL.—In any proceeding under paragraph (1)
against any person participating in, or, at the time of the
alleged misconduct who was participating in, an offering of
penny stock, the court may prohibit that person from participating
in an offering of penny stock, conditionally or unconditionally,
and permanently or for such period of time as the
court shall determine.
(B) DEFINITION.—For purposes of this paragraph, the term
‘‘person participating in an offering of penny stock’’ includes
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, 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 inclusion in such term.
(e) Upon application of the Commission the district courts of
the United States and the United States courts of any territory or
other place subject to the jurisdiction of the United States shall
have jurisdiction to issue writs of mandamus, injunctions, and orders
commanding (1) any person to comply with the provisions of
this title, the rules, regulations, and orders thereunder, the rules
of a national securities exchange or registered securities association
of which such person is a member or person associated with a
member, the rules of a registered clearing agency in which such
person is a participant, the rules of the Public Company Accounting
Oversight Board, of which such person is a registered public accounting
firm or a person associated with such a firm, the rules of
the Municipal Securities Rulemaking Board, or any undertaking
contained in a registration statement as provided in subsection (d)
of section 15 of this title, (2) any national securities exchange or
registered securities association to enforce compliance by its members
and persons associated with its members with the provisions
of this title, the rules, regulations, and orders thereunder, and the
rules of such exchange or association, or (3) any registered clearing
agency to enforce compliance by its participants with the provisions
of the rules of such clearing agency.
(f) Notwithstanding any other provision of this title, the Commission
shall not bring any action pursuant to subsection (d) or (e)
of this section against any person for violation of, or to command
compliance with, the rules of a self-regulatory organization or the
Public Company Accounting Oversight Board unless it appears to
the Commission that (1) such self-regulatory organization or the
Public Company Accounting Oversight Board is unable or unwilling
to take appropriate action against such person in the public interest
and for the protection of investors, or (2) such action is otherwise
necessary or appropriate in the public interest or for the protection
of investors.
(g) Notwithstanding the provisions of section 1407(a) of title
28, United States Code, or any other provision of law, no action for
Sec. 21 SECURITIES EXCHANGE ACT OF 1934 202
1 12 U.S.C. 3401–3422. [Printed in appendix to this volume.]
2 12 U.S.C. 3405, 3407. [Printed in appendix to this volume.]
equitable relief instituted by the Commission pursuant to the securities
laws shall be consolidated or coordinated with other actions
not brought by the Commission, even though such other actions
may involve common questions of fact, unless such consolidation is
consented to by the Commission.
(h)(1) The Right to Financial Privacy Act of 1978 1 shall apply
with respect to the Commission, except as otherwise provided in
this subsection.
(2) Notwithstanding section 1105 or 1107 of the Right to
Financial Privacy Act of 1978,2 the Commission may have access
to and obtain copies of, or the information contained in financial
records of a customer from a financial institution without prior notice
to the customer upon an ex parte showing to an appropriate
United States district court that the Commission seeks such financial
records pursuant to a subpoena issued in conformity with the
requirements of section 19(b) of the Securities Act of 1933, section
21(b) of the Securities Exchange Act of 1934, section 18(c) of the
Public Utility Holding Company Act of 1935, section 42(b) of the
Investment Company Act of 1940, or section 209(b) of the Investment
Advisers Act of 1940, and that the Commission has reason to
believe that—
(A) delay in obtaining access to such financial records, or
the required notice, will result in—
(i) flight from prosecution;
(ii) destruction of or tampering with evidence;
(iii) transfer of assets or records outside the territorial
limits of the United States;
(iv) improper conversion of investor assets; or
(v) impeding the ability of the Commission to identify
or trace the source or disposition of funds involved in any
securities transaction;
(B) such financial records are necessary to identify or trace
the record or beneficial ownership interest in any security;
(C) the acts, practices or course of conduct under investigation
involve—
(i) the dissemination of materially false or misleading
information concerning any security, issuer, or market, or
the failure to make disclosures required under the securities
laws, which remain uncorrected; or
(ii) a financial loss to investors or other persons protected
under the securities laws which remains substantially
uncompensated; or
(D) the acts, practices or course of conduct under
investigation—
(i) involve significant financial speculation in securities;
or
(ii) endanger the stability of any financial or investment
intermediary.
(3) Any application under paragraph (2) for a delay in notice
shall be made with reasonable specificity.
203 SECURITIES EXCHANGE ACT OF 1934 Sec. 21
1 12 U.S.C. 3409(a), (b)(1), (b)(2). [Printed in appendix to this volume.]
2 12 U.S.C. 3421(b). [Printed in appendix to this volume.]
(4)(A) Upon a showing described in paragraph (2), the presiding
judge or magistrate shall enter an ex parte order granting
the requested delay for a period not to exceed ninety days and an
order prohibiting the financial institution involved from disclosing
that records have been obtained or that a request for records has
been made.
(B) Extensions of the period of delay of notice provided in subparagraph
(A) of up to ninety days each may be granted by the
court upon application, but only in accordance with this subsection
or section 1109(a), (b)(1), or (b)(2) of the Right to Financial Privacy
Act of 1978.1
(C) Upon expiration of the period of delay of notification ordered
under subparagraph (A) or (B), the customer shall be served
with or mailed a copy of the subpena insofar as it applies to the
customer together with the following notice which shall describe
with reasonable specificity the nature of the investigation for which
the Commission sought the financial records:
‘‘Records or information concerning your transactions which
are held by the financial institution named in the attached subpena
were supplied to the Securities and Exchange Commission on
(date). Notification was withheld pursuant to a determination by
the (title of court so ordering) under section 21(h) of the Securities
Exchange Act of 1934 that (state reason). The purpose of the investigation
or official proceeding was (state purpose).’’
(5) Upon application by the Commission, all proceedings pursuant
to paragraphs (2) and (4) shall be held in camera and the
records thereof sealed until expiration of the period of delay or such
other date as the presiding judge or magistrate may permit.
(6) The Commission shall compile an annual tabulation of the
occasions on which the Commission used each separate subparagraph
or clause of paragraph (2) of this subsection or the provisions
of the Right to Financial Privacy Act of 1978 to obtain access to
financial records of a customer and include it in its annual report
to the Congress. Section 1121(b) of the Right to Financial Privacy
Act of 1978 2 shall not apply with respect to the Commission.
(7)(A) Following the expiration of the period of delay of notification
ordered by the court pursuant to paragraph (4) of this subsection,
the customer may, upon motion, reopen the proceeding in
the district court which issued the order. If the presiding judge or
magistrate finds that the movant is the customer to whom the
records obtained by the Commission pertain, and that the Commission
has obtained financial records or information contained
therein in violation of this subsection, other than paragraph (1), it
may order that the customer be granted civil penalties against the
Commission in an amount equal to the sum of—
(i) $100 without regard to the volume of records involved;
(ii) any out-of-pocket damages sustained by the customer
as a direct result of the disclosure; and
(iii) if the violation is found to have been willful, intentional,
and without good faith, such punitive damages as the
Sec. 21 SECURITIES EXCHANGE ACT OF 1934 204
1 12 U.S.C. 3412. [Printed in appendix to this volume.]
court may allow, together with the costs of the action and reasonable
attorney’s fees as determined by the court.
(B) Upon a finding that the Commission has obtained financial
records or information contained therein in violation of this subsection,
other than paragraph (1), the court, in its discretion, may
also or in the alternative issue injunctive relief to require the Commission
to comply with this subsection with respect to any subpena
which the Commission issues in the future for financial records of
such customer for purposes of the same investigation.
(C) Whenever the court determines that the Commission has
failed to comply with this subsection, other than paragraph (1), and
the court finds that the circumstances raise questions of whether
an officer or employee of the Commission acted in a willful and
intentional manner and without good faith with respect to the violation,
the Office of Personnel Management shall promptly initiate
a proceeding to determine whether disciplinary action is warranted
against the agent or employee who was primarily responsible for
the violation. After investigating and considering the evidence submitted,
the Office of Personnel Management shall submit its findings
and recommendations to the Commission and shall send copies
of the findings and recommendations to the officer or employee
or his representative. The Commission shall take the corrective action
that the Office of Personnel Management recommends.
(8) The relief described in paragraphs (7) and (10) shall be the
only remedies or sanctions available to a customer for a violation
of this subsection, other than paragraph (1), and nothing herein or
in the Right to Financial Privacy Act of 1978 shall be deemed to
prohibit the use in any investigation or proceeding of financial
records, or the information contained therein, obtained by a subpena
issued by the Commission. In the case of an unsuccessful action
under paragraph (7), the court shall award the costs of the action
and attorney’s fees to the Commission if the presiding judge
or magistrate finds that the customer’s claims were made in bad
faith.
(9)(A) The Commission may transfer financial records or the
information contained therein to any government authority if the
Commission proceeds as a transferring agency in accordance with
section 1112 of the Right to Financial Privacy Act of 1978,1 except
that the customer notice required under section 1112(b) or (c) of
such Act may be delayed upon a showing by the Commission, in
accordance with the procedure set forth in paragraphs (4) and (5),
that one or more of subparagraphs (A) through (D) of paragraph (2)
apply.
(B) The Commission may, without notice to the customer pursuant
to section 1112 of the Right to Financial Privacy Act of 1978,
transfer financial records or the information contained therein to a
State securities agency or to the Department of Justice. Financial
records or information transferred by the Commission to the
Department of Justice or to a State securities agency pursuant to
the provisions of this subparagraph may be disclosed or used only
in an administrative, civil, or criminal action or investigation by
the Department of Justice or the State securities agency which
205 SECURITIES EXCHANGE ACT OF 1934 Sec. 21A
1 12 U.S.C. 3409. [Printed in appendix to this volume.]
2 The Insider Trading and Securities Fraud Enforcement Act of 1988 (P.L. 100–704; 102 Stat.
4677), which added section 21A to the Securities Exchange Act of 1934, contained the following
additional provisions:
SEC. 2. ø15 U.S.C. 78u–1 note¿ FINDINGS.
The Congress finds that—
(1) the rules and regulations of the Securities and Exchange Commisison under the Securities
Exchange Act of 1934 governing trading while in possession of material, nonpublic information
are, as required by such Act, necessary and appropriate in the public interest and
for the protection of investors;
(2) the Commission has, within the limits of accepted administrative and judicial construction
of such rules and regulations, enforced such rules and regulations vigorously, effectively,
and fairly; and
(3) nonetheless, additional methods are appropriate to deter and prosecute violations of
such rules and regulations.
* * * * * * *
SEC. 3. CIVIL PENALTIES OF CONTROLLING PERSONS FOR ILLEGAL INSIDER
TRADING BY CONTROLLED PERSONS.
(a) AMENDMENT.—* * *
* * * * * * *
(c) ø15 U.S.C. 78u–1 note¿ COMMISSION RECOMMENDATIONS FOR ADDITIONAL CIVIL PENALTY
AUTHORITY REQUIRED.—The Securities and Exchange Commission shall, within 60 days after
Continued
arises out of or relates to the acts, practices, or courses of conduct
investigated by the Commission, except that if the Department of
Justice or the State securities agency determines that the information
should be disclosed or used for any other purpose, it may do
so if it notifies the customer, except as otherwise provided in the
Right to Financial Privacy Act of 1978, within 30 days of its determination,
or complies with the requirements of section 1109 of such
Act regarding delay of notice.1
(10) Any government authority violating paragraph (9) shall be
subject to the procedures and penalties applicable to the Commission
under paragraph (7)(A) with respect to a violation by the Commission
in obtaining financial records.
(11) Notwithstanding the provisions of this subsection, the
Commission may obtain financial records from a financial institution
or transfer such records in accordance with provisions of the
Right to Financial Privacy Act of 1978.
(12) Nothing in this subsection shall enlarge or restrict any
rights of a financial institution to challenge requests for records
made by the Commission under existing law. Nothing in this subsection
shall entitle a customer to assert any rights of a financial
institution.
(13) Unless the context otherwise requires, all terms defined in
the Right to Financial Privacy Act of 1978 which are common to
this subsection shall have the same meaning as in such Act.
(i) INFORMATION TO CFTC.—The Commission shall provide the
Commodity Futures Trading Commission with notice of the commencement
of any proceeding and a copy of any order entered by
the Commission against any broker or dealer registered pursuant
to section 15(b)(11), any exchange registered pursuant to section
6(g), or any national securities association registered pursuant to
section 15A(k).
CIVIL PENALTIES FOR INSIDER TRADING 2
SEC. 21A. (a) AUTHORITY TO IMPOSE CIVIL PENALTIES.—
Sec. 21A SECURITIES EXCHANGE ACT OF 1934 206
the date of enactment of this Act, submit to each House of the Congress any recommendations
the Commission considers appropriate with respect to the extension of the Commission’s authority
to seek civil penalties or impose administrative fines for violations other than those described
in section 21A of the Securities Exchange Act of 1934 (as added by this section).
(1) JUDICIAL ACTIONS BY COMMISSION AUTHORIZED.—Whenever
it shall appear to the Commission that any person has
violated any provision of this title or the rules or regulations
thereunder by purchasing or selling a security or securitybased
swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act) while in possession of material, nonpublic
information in, or has violated any such provision by
communicating such information in connection with, a transaction
on or through the facilities of a national securities exchange
or from or through a broker or dealer, and which is not
part of a public offering by an issuer of securities other than
standardized options or security futures products, the
Commission—
(A) may bring an action in a United States district
court to seek, and the court shall have jurisdiction to impose,
a civil penalty to be paid by the person who committed
such violation; and
(B) may, subject to subsection (b)(1), bring an action in
a United States district court to seek, and the court shall
have jurisdiction to impose, a civil penalty to be paid by
a person who, at the time of the violation, directly or indirectly
controlled the person who committed such violation.
(2) AMOUNT OF PENALTY FOR PERSON WHO COMMITTED VIOLATION.—
The amount of the penalty which may be imposed on
the person who committed such violation shall be determined
by the court in light of the facts and circumstances, but shall
not exceed three times the profit gained or loss avoided as a
result of such unlawful purchase, sale, or communication.
(3) AMOUNT OF PENALTY FOR CONTROLLING PERSON.—The
amount of the penalty which may be imposed on any person
who, at the time of the violation, directly or indirectly controlled
the person who committed such violation, shall be
determined by the court in light of the facts and circumstances,
but shall not exceed the greater of $1,000,000, or three times
the amount of the profit gained or loss avoided as a result of
such controlled person’s violation. If such controlled person’s
violation was a violation by communication, the profit gained
or loss avoided as a result of the violation shall, for purposes
of this paragraph only, be deemed to be limited to the profit
gained or loss avoided by the person or persons to whom the
controlled person directed such communication.
(b) LIMITATIONS ON LIABILITY.—
(1) LIABILITY OF CONTROLLING PERSONS.—No controlling
person shall be subject to a penalty under subsection (a)(1)(B)
unless the Commission establishes that—
(A) such controlling person knew or recklessly disregarded
the fact that such controlled person was likely to
engage in the act or acts constituting the violation and
failed to take appropriate steps to prevent such act or acts
before they occurred; or
207 SECURITIES EXCHANGE ACT OF 1934 Sec. 21A
(B) such controlling person knowingly or recklessly
failed to establish, maintain, or enforce any policy or procedure
required under section 15(f) of this title or section
204A of the Investment Advisers Act of 1940 and such failure
substantially contributed to or permitted the occurrence
of the act or acts constituting the violation.
(2) ADDITIONAL RESTRICTIONS ON LIABILITY.—No person
shall be subject to a penalty under subsection (a) solely by reason
of employing another person who is subject to a penalty
under such subsection, unless such employing person is liable
as a controlling person under paragraph (1) of this subsection.
Section 20(a) of this title shall not apply to actions under subsection
(a) of this section.
(c) AUTHORITY OF COMMISSION.—the Commission, by such
rules, regulations, and orders as it considers necessary or appropriate
in the public interest or for the protection of investors, may
exempt, in whole or in part, either unconditionally or upon specific
terms and conditions, any person or transaction or class of persons
or transactions from this section.
(d) PROCEDURES FOR COLLECTION.—
(1) PAYMENT OF PENALTY TO TREASURY.—A penalty imposed
under this section shall (subject to subsection (e)) be payable
into the Treasury of the United States, except as otherwise
provided in section 308 of the Sarbanes-Oxley Act of 2002.
(2) COLLECTION OF PENALTIES.—If a person upon whom
such a penalty is imposed shall fail to pay such penalty within
the time prescribed in the court’s order, the Commission may
refer the matter to the Attorney General who shall recover
such penalty by action in the appropriate United States district
court.
(3) REMEDY NOT EXCLUSIVE.—The actions authorized by
this section may be brought in addition to any other actions
that the Commission or the Attorney General are entitled to
bring.
(4) JURISDICTION AND VENUE.—For purposes of section 27
of this title, actions under this section shall be actions to enforce
a liability or a duty created by this title.
(5) STATUTE OF LIMITATIONS.—No action may be brought
under this section more than 5 years after the date of the purchase
or sale. This section shall not be construed to bar or
limit in any manner any action by the Commission or the Attorney
General under any other provision of this title, nor shall
it bar or limit in any manner any action to recover penalties,
or to seek any other order regarding penalties, imposed in an
action commenced within 5 years of such transaction.
(e) AUTHORITY TO AWARD BOUNTIES TO INFORMANTS.—Notwithstanding
the provisions of subsection (d)(1), there shall be paid
from amounts imposed as a penalty under this section and recovered
by the Commission or the Attorney General, such sums, not
to exceed 10 percent of such amounts, as the Commission deems
appropriate, to the person or persons who provide information leading
to the imposition of such penalty. Any determinations under
this subsection, including whether, to whom, or in what amount to
make payments, shall be in the sole discretion of the Commission,
Sec. 21B SECURITIES EXCHANGE ACT OF 1934 208
except that no such payment shall be made to any member, officer,
or employee of any appropriate regulatory agency, the Department
of Justice, or a self-regulatory organization. Any such determination
shall be final and not subject to judicial review.
(f) DEFINITION.—For purposes of this section, ‘‘profit gained’’ or
‘‘loss avoided’’ is the difference between the purchase or sale price
of the security and the value of that security as measured by the
trading price of the security a reasonable period after public dissemination
of the nonpublic information.
(g) 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.
CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS
SEC. 21B. ø78u–2¿ (a) COMMISSION AUTHORITY TO ASSESS
MONEY PENALTIES.—In any proceeding instituted pursuant to sections
15(b)(4), 15(b)(6), 15D, 15B, 15C, or 17A of this title against
any person, the Commission or the appropriate regulatory agency
may impose a civil penalty if it finds, on the record after notice and
opportunity for hearing, that such person—
(1) has willfully violated any provision of the Securities Act
of 1933, the Investment Company Act of 1940, the Investment
Advisers Act of 1940, or this title, or the rules or regulations
thereunder, or the rules of the Municipal Securities Rulemaking
Board;
(2) has willfully aided, abetted, counseled, commanded, induced,
or procured such a violation by any other person;
(3) 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; or
(4) has failed reasonably to supervise, within the meaning
of section 15(b)(4)(E) of this title, 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;
and that such penalty is in the public interest.
(b) MAXIMUM AMOUNT OF PENALTY.—
(1) FIRST TIER.—The maximum amount of penalty for each
act or omission described in subsection (a) shall be $5,000 for
a natural person or $50,000 for any other person.
(2) SECOND TIER.—Notwithstanding paragraph (1), the
maximum amount of penalty for each such act or omission
shall be $50,000 for a natural person or $250,000 for any other
person if the act or omission described in subsection (a) involved
fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement.
209 SECURITIES EXCHANGE ACT OF 1934 Sec. 21B
(3) THIRD TIER.—Notwithstanding paragraphs (1) and (2),
the maximum amount of penalty for each such act or omission
shall be $100,000 for a natural person or $500,000 for any
other person if—
(A) the act or omission described in subsection (a) involved
fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement; and
(B) such act or omission directly or indirectly resulted
in substantial losses or created a significant risk of substantial
losses to other persons or resulted in substantial
pecuniary gain to the person who committed the act or
omission.
(c) DETERMINATION OF PUBLIC INTEREST.—In considering under
this section whether a penalty is in the public interest, the Commission
or the appropriate regulatory agency may consider—
(1) whether the act or omission for which such penalty is
assessed involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement;
(2) the harm to other persons resulting either directly or
indirectly from such act or omission;
(3) the extent to which any person was unjustly enriched,
taking into account any restitution made to persons injured by
such behavior;
(4) whether such person previously has been found by the
Commission, another appropriate regulatory agency, or a selfregulatory
organization to have violated the Federal securities
laws, State securities laws, or the rules of a self-regulatory
organization, has been enjoined by a court of competent jurisdiction
from violations of such laws or rules, or has been convicted
by a court of competent jurisdiction of violations of such
laws or of any felony or misdemeanor described in section
15(b)(4)(B) of this title;
(5) the need to deter such person and other persons from
committing such acts or omissions; and
(6) such other matters as justice may require.
(d) EVIDENCE CONCERNING ABILITY TO PAY.—In any proceeding
in which the Commission or the appropriate regulatory
agency may impose a penalty under this section, a respondent may
present evidence of the respondent’s ability to pay such penalty.
The Commission or the appropriate regulatory agency may, in its
discretion, consider such evidence in determining whether such
penalty is in the public interest. Such evidence may relate to the
extent of such person’s ability to continue in business and the collectability
of a penalty, taking into account any other claims of the
United States or third parties upon such person’s assets and the
amount of such person’s assets.
(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING
AND DISGORGEMENT.—In any proceeding in which the Commission
or the appropriate regulatory agency may impose a penalty
under this section, the Commission or the appropriate regulatory
agency may enter an order requiring accounting and disgorgement,
including reasonable interest. The Commission is authorized to
adopt rules, regulations, and orders concerning payments to invesSec.
21C SECURITIES EXCHANGE ACT OF 1934 210
tors, rates of interest, periods of accrual, and such other matters
as it deems appropriate to implement this subsection.
CEASE-AND-DESIST PROCEEDINGS
SEC. 21C. ø78u–3¿ (a) AUTHORITY OF THE COMMISSION.—If the
Commission finds, after notice and opportunity for hearing, that
any person is violating, has violated, or is about to violate any provision
of this title, or any rule or regulation thereunder, the Commission
may publish its findings and enter an order requiring such
person, and any other person that is, was, or would be a cause of
the violation, due to an act or omission the person knew or should
have known would contribute to such violation, to cease and desist
from committing or causing such violation and any future violation
of the same provision, rule, or regulation. Such order may, in addition
to requiring a person to cease and desist from committing or
causing a violation, require such person to comply, or to take steps
to effect compliance, with such provision, rule, or regulation, upon
such terms and conditions and within such time as the Commission
may specify in such order. Any such order may, as the Commission
deems appropriate, require future compliance or steps to effect future
compliance, either permanently or for such period of time as
the Commission may specify, with such provision, rule, or regulation
with respect to any security, any issuer, or any other person.
(b) HEARING.—The notice instituting proceedings pursuant to
subsection (a) shall fix a hearing date not earlier than 30 days nor
later than 60 days after service of the notice unless an earlier or
a later date is set by the Commission with the consent of any respondent
so served.
(c) TEMPORARY ORDER.—
(1) IN GENERAL.—Whenever the Commission determines
that the alleged violation or threatened violation specified in
the notice instituting proceedings pursuant to subsection (a), or
the continuation thereof, is likely to result in significant dissipation
or conversion of assets, significant harm to investors,
or substantial harm to the public interest, including, but not
limited to, losses to the Securities Investor Protection Corporation,
prior to the completion of the proceedings, the Commission
may enter a temporary order requiring the respondent to
cease and desist from the violation or threatened violation and
to take such action to prevent the violation or threatened violation
and to prevent dissipation or conversion of assets, significant
harm to investors, or substantial harm to the public interest
as the Commission deems appropriate pending completion
of such proceedings. Such an order shall be entered only after
notice and opportunity for a hearing, unless the Commission
determines that notice and hearing prior to entry would be
impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent
and, unless set aside, limited, or suspended by the Commission
or a court of competent jurisdiction, shall remain effective and
enforceable pending the completion of the proceedings.

211 SECURITIES EXCHANGE ACT OF 1934 Sec. 21C
1 So in law. Probably should read ‘‘Paragraph (1) shall apply...’’. See the amendment made by
section 1103(b) of the Sarbanes-Oxley Act of 2002 (116 Stat. 808).
(2) APPLICABILITY.—paragraph (1) subsection 1 shall apply
only to a respondent that acts, or, at the time of the alleged
misconduct acted, as a broker, dealer, investment adviser,
investment company, municipal securities dealer, government
securities broker, government securities dealer, registered public
accounting firm (as defined in section 2 of the Sarbanes-
Oxley Act of 2002), or transfer agent, or is, or was at the time
of the alleged misconduct, an associated person of, or a person
seeking to become associated with, any of the foregoing.
(3) TEMPORARY FREEZE.—
(A) IN GENERAL.—
(i) ISSUANCE OF TEMPORARY ORDER.—Whenever,
during the course of a lawful investigation involving
possible violations of the Federal securities laws by an
issuer of publicly traded securities or any of its directors,
officers, partners, controlling persons, agents, or
employees, it shall appear to the Commission that it
is likely that the issuer will make extraordinary payments
(whether compensation or otherwise) to any of
the foregoing persons, the Commission may petition a
Federal district court for a temporary order requiring
the issuer to escrow, subject to court supervision,
those payments in an interest-bearing account for 45
days.
(ii) STANDARD.—A temporary order shall be entered
under clause (i), only after notice and opportunity
for a hearing, unless the court determines that
notice and hearing prior to entry of the order would be
impracticable or contrary to the public interest.
(iii) EFFECTIVE PERIOD.—A temporary order issued
under clause (i) shall—
(I) become effective immediately;
(II) be served upon the parties subject to it;
and
(III) unless set aside, limited or suspended by
a court of competent jurisdiction, shall remain
effective and enforceable for 45 days.
(iv) EXTENSIONS AUTHORIZED.—The effective period
of an order under this subparagraph may be extended
by the court upon good cause shown for not
longer than 45 additional days, provided that the combined
period of the order shall not exceed 90 days.
(B) PROCESS ON DETERMINATION OF VIOLATIONS.—
(i) VIOLATIONS CHARGED.—If the issuer or other
person described in subparagraph (A) is charged with
any violation of the Federal securities laws before the
expiration of the effective period of a temporary order
under subparagraph (A) (including any applicable
extension period), the order shall remain in effect, subject
to court approval, until the conclusion of any legal
proceedings related thereto, and the affected issuer or
Sec. 21C SECURITIES EXCHANGE ACT OF 1934 212
other person, shall have the right to petition the court
for review of the order.
(ii) VIOLATIONS NOT CHARGED.—If the issuer or
other person described in subparagraph (A) is not
charged with any violation of the Federal securities
laws before the expiration of the effective period of a
temporary order under subparagraph (A) (including
any applicable extension period), the escrow shall terminate
at the expiration of the 45-day effective period
(or the expiration of any extension period, as applicable),
and the disputed payments (with accrued interest)
shall be returned to the issuer or other affected
person.
(d) REVIEW OF TEMPORARY ORDERS.—
(1) COMMISSION REVIEW.—At any time after the respondent
has been served with a temporary cease-and-desist order
pursuant to subsection (c), the respondent may apply to the
Commission to have the order set aside, limited, or suspended.
If the respondent has been served with a temporary cease-anddesist
order entered without a prior Commission hearing, the
respondent may, within 10 days after the date on which the
order was served, request a hearing on such application and
the Commission shall hold a hearing and render a decision on
such application at the earliest possible time.
(2) JUDICIAL REVIEW.—Within—
(A) 10 days after the date the respondent was served
with a temporary cease-and-desist order entered with a
prior Commission hearing, or
(B) 10 days after the Commission renders a decision
on an application and hearing under paragraph (1), with
respect to any temporary cease-and-desist order entered
without a prior Commission hearing,
the respondent may apply to the United States district court
for the district in which the respondent resides or has its principal
place of business, or for the District of Columbia, for an
order setting aside, limiting, or suspending the effectiveness or
enforcement of the order, and the court shall have jurisdiction
to enter such an order. A respondent served with a temporary
cease-and-desist order entered without a prior Commission
hearing may not apply to the court except after hearing and
decision by the Commission on the respondent’s application
under paragraph (1) of this subsection.
(3) NO AUTOMATIC STAY OF TEMPORARY ORDER.—The commencement
of proceedings under paragraph (2) of this subsection
shall not, unless specifically ordered by the court, operate
as a stay of the Commission’s order.
(4) EXCLUSIVE REVIEW.—Section 25 of this title shall not
apply to a temporary order entered pursuant to this section.
(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING
AND DISGORGEMENT.—In any cease-and-desist proceeding
under subsection (a), the Commission may enter an order requiring
accounting and disgorgement, including reasonable interest. The
Commission is authorized to adopt rules, regulations, and orders
concerning payments to investors, rates of interest, periods of ac213
SECURITIES EXCHANGE ACT OF 1934 Sec. 21D
crual, and such other matters as it deems appropriate to implement
this subsection.
(f) AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.—In any cease-and-desist proceeding
under subsection (a), the Commission may issue an order
to prohibit, conditionally or unconditionally, and permanently or
for such period of time as it shall determine, any person who has
violated section 10(b) or the rules or regulations thereunder, from
acting as an officer or director of any issuer that has a class of
securities registered pursuant to section 12, or that is required to
file reports pursuant to section 15(d), if the conduct of that person
demonstrates unfitness to serve as an officer or director of any
such issuer.
SEC. 21D. ø78u–4¿ PRIVATE SECURITIES LITIGATION.
(a) PRIVATE CLASS ACTIONS.—
(1) IN GENERAL.—The provisions of this subsection shall
apply in each private action arising under this title that is
brought as a plaintiff class action pursuant to the Federal
Rules of Civil Procedure.
(2) CERTIFICATION FILED WITH COMPLAINT.—
(A) IN GENERAL.—Each plaintiff seeking to serve as a
representative party on behalf of a class shall provide a
sworn certification, which shall be personally signed by
such plaintiff and filed with the complaint, that—
(i) states that the plaintiff has reviewed the complaint
and authorized its filing;
(ii) states that the plaintiff did not purchase the
security that is the subject of the complaint at the
direction of plaintiff’s counsel or in order to participate
in any private action arising under this title;
(iii) states that the plaintiff is willing to serve as
a representative party on behalf of a class, including
providing testimony at deposition and trial, if necessary;
(iv) sets forth all of the transactions of the plaintiff
in the security that is the subject of the complaint
during the class period specified in the complaint;
(v) identifies any other action under this title,
filed during the 3-year period preceding the date on
which the certification is signed by the plaintiff, in
which the plaintiff has sought to serve as a representative
party on behalf of a class; and
(vi) states that the plaintiff will not accept any
payment for serving as a representative party on behalf
of a class beyond the plaintiff’s pro rata share of
any recovery, except as ordered or approved by the
court in accordance with paragraph (4).
(B) NONWAIVER OF ATTORNEY-CLIENT PRIVILEGE.—The
certification filed pursuant to subparagraph (A) shall not
be construed to be a waiver of the attorney-client privilege.
(3) APPOINTMENT OF LEAD PLAINTIFF.—
(A) EARLY NOTICE TO CLASS MEMBERS.—
Sec. 21D SECURITIES EXCHANGE ACT OF 1934 214
(i) IN GENERAL.—Not later than 20 days after the
date on which the complaint is filed, the plaintiff or
plaintiffs shall cause to be published, in a widely circulated
national business-oriented publication or wire
service, a notice advising members of the purported
plaintiff class—
(I) of the pendency of the action, the claims
asserted therein, and the purported class period;
and
(II) that, not later than 60 days after the date
on which the notice is published, any member of
the purported class may move the court to serve
as lead plaintiff of the purported class.
(ii) MULTIPLE ACTIONS.—If more than one action
on behalf of a class asserting substantially the same
claim or claims arising under this title is filed, only
the plaintiff or plaintiffs in the first filed action shall
be required to cause notice to be published in accordance
with clause (i).
(iii) ADDITIONAL NOTICES MAY BE REQUIRED UNDER
FEDERAL RULES.—Notice required under clause (i)
shall be in addition to any notice required pursuant to
the Federal Rules of Civil Procedure.
(B) APPOINTMENT OF LEAD PLAINTIFF.—
(i) IN GENERAL.—Not later than 90 days after the
date on which a notice is published under subparagraph
(A)(i), the court shall consider any motion made
by a purported class member in response to the notice,
including any motion by a class member who is not
individually named as a plaintiff in the complaint or
complaints, and shall appoint as lead plaintiff the
member or members of the purported plaintiff class
that the court determines to be most capable of adequately
representing the interests of class members
(hereafter in this paragraph referred to as the ‘‘most
adequate plaintiff’’) in accordance with this subparagraph.
(ii) CONSOLIDATED ACTIONS.—If more than one action
on behalf of a class asserting substantially the
same claim or claims arising under this title has been
filed, and any party has sought to consolidate those
actions for pretrial purposes or for trial, the court
shall not make the determination required by clause
(i) until after the decision on the motion to consolidate
is rendered. As soon as practicable after such decision
is rendered, the court shall appoint the most adequate
plaintiff as lead plaintiff for the consolidated actions
in accordance with this paragraph.
(iii) REBUTTABLE PRESUMPTION.—
(I) IN GENERAL.—Subject to subclause (II), for
purposes of clause (i), the court shall adopt a presumption
that the most adequate plaintiff in any
private action arising under this title is the person
or group of persons that—
215 SECURITIES EXCHANGE ACT OF 1934 Sec. 21D
(aa) has either filed the complaint or
made a motion in response to a notice under
subparagraph (A)(i);
(bb) in the determination of the court, has
the largest financial interest in the relief
sought by the class; and
(cc) otherwise satisfies the requirements
of Rule 23 of the Federal Rules of Civil Procedure.
(II) REBUTTAL EVIDENCE.—The presumption
described in subclause (I) may be rebutted only
upon proof by a member of the purported plaintiff
class that the presumptively most adequate
plaintiff—
(aa) will not fairly and adequately protect
the interests of the class; or
(bb) is subject to unique defenses that
render such plaintiff incapable of adequately
representing the class.
(iv) DISCOVERY.—For purposes of this subparagraph,
discovery relating to whether a member or
members of the purported plaintiff class is the most
adequate plaintiff may be conducted by a plaintiff only
if the plaintiff first demonstrates a reasonable basis
for a finding that the presumptively most adequate
plaintiff is incapable of adequately representing the
class.
(v) SELECTION OF LEAD COUNSEL.—The most adequate
plaintiff shall, subject to the approval of the
court, select and retain counsel to represent the class.
(vi) RESTRICTIONS ON PROFESSIONAL PLAINTIFFS.—
Except as the court may otherwise permit, consistent
with the purposes of this section, a person may be a
lead plaintiff, or an officer, director, or fiduciary of a
lead plaintiff, in no more than 5 securities class actions
brought as plaintiff class actions pursuant to the
Federal Rules of Civil Procedure during any 3-year period.
(4) RECOVERY BY PLAINTIFFS.—The share of any final judgment
or of any settlement that is awarded to a representative
party serving on behalf of a class shall be equal, on a per share
basis, to the portion of the final judgment or settlement
awarded to all other members of the class. Nothing in this
paragraph shall be construed to limit the award of reasonable
costs and expenses (including lost wages) directly relating to
the representation of the class to any representative party
serving on behalf of a class.
(5) RESTRICTIONS ON SETTLEMENTS UNDER SEAL.—The
terms and provisions of any settlement agreement of a class
action shall not be filed under seal, except that on motion of
any party to the settlement, the court may order filing under
seal for those portions of a settlement agreement as to which
good cause is shown for such filing under seal. For purposes of
this paragraph, good cause shall exist only if publication of a
Sec. 21D SECURITIES EXCHANGE ACT OF 1934 216
term or provision of a settlement agreement would cause direct
and substantial harm to any party.
(6) RESTRICTIONS ON PAYMENT OF ATTORNEYS’ FEES AND
EXPENSES.—Total attorneys’ fees and expenses awarded by the
court to counsel for the plaintiff class shall not exceed a reasonable
percentage of the amount of any damages and prejudgment
interest actually paid to the class.
(7) DISCLOSURE OF SETTLEMENT TERMS TO CLASS MEMBERS.—
Any proposed or final settlement agreement that is
published or otherwise disseminated to the class shall include
each of the following statements, along with a cover page summarizing
the information contained in such statements:
(A) STATEMENT OF PLAINTIFF RECOVERY.—The amount
of the settlement proposed to be distributed to the parties
to the action, determined in the aggregate and on an average
per share basis.
(B) STATEMENT OF POTENTIAL OUTCOME OF CASE.—
(i) AGREEMENT ON AMOUNT OF DAMAGES.—If the
settling parties agree on the average amount of damages
per share that would be recoverable if the plaintiff
prevailed on each claim alleged under this title, a
statement concerning the average amount of such
potential damages per share.
(ii) DISAGREEMENT ON AMOUNT OF DAMAGES.—If
the parties do not agree on the average amount of
damages per share that would be recoverable if the
plaintiff prevailed on each claim alleged under this
title, a statement from each settling party concerning
the issue or issues on which the parties disagree.
(iii) INADMISSIBILITY FOR CERTAIN PURPOSES.—A
statement made in accordance with clause (i) or (ii)
concerning the amount of damages shall not be admissible
in any Federal or State judicial action or administrative
proceeding, other than an action or proceeding
arising out of such statement.
(C) STATEMENT OF ATTORNEYS’ FEES OR COSTS
SOUGHT.—If any of the settling parties or their counsel intend
to apply to the court for an award of attorneys’ fees
or costs from any fund established as part of the settlement,
a statement indicating which parties or counsel intend
to make such an application, the amount of fees and
costs that will be sought (including the amount of such
fees and costs determined on an average per share basis),
and a brief explanation supporting the fees and costs
sought. Such information shall be clearly summarized on
the cover page of any notice to a party of any proposed or
final settlement agreement.
(D) IDENTIFICATION OF LAWYERS’ REPRESENTATIVES.—
The name, telephone number, and address of one or more
representatives of counsel for the plaintiff class who will
be reasonably available to answer questions from class
members concerning any matter contained in any notice of
settlement published or otherwise disseminated to the
class.
217 SECURITIES EXCHANGE ACT OF 1934 Sec. 21D
(E) REASONS FOR SETTLEMENT.—A brief statement explaining
the reasons why the parties are proposing the settlement.
(F) OTHER INFORMATION.—Such other information as
may be required by the court.
(8) SECURITY FOR PAYMENT OF COSTS IN CLASS ACTIONS.—
In any private action arising under this title that is certified
as a class action pursuant to the Federal Rules of Civil Procedure,
the court may require an undertaking from the attorneys
for the plaintiff class, the plaintiff class, or both, or from the
attorneys for the defendant, the defendant, or both, in such
proportions and at such times as the court determines are just
and equitable, for the payment of fees and expenses that may
be awarded under this subsection.
(9) ATTORNEY CONFLICT OF INTEREST.—If a plaintiff class
is represented by an attorney who directly owns or otherwise
has a beneficial interest in the securities that are the subject
of the litigation, the court shall make a determination of
whether such ownership or other interest constitutes a conflict
of interest sufficient to disqualify the attorney from representing
the plaintiff class.
(b) REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.—
(1) MISLEADING STATEMENTS AND OMISSIONS.—In any private
action arising under this title in which the plaintiff
alleges that the defendant—
(A) made an untrue statement of a material fact; or
(B) omitted to state a material fact necessary in order
to make the statements made, in the light of the circumstances
in which they were made, not misleading;
the complaint shall specify each statement alleged to have
been misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or
omission is made on information and belief, the complaint shall
state with particularity all facts on which that belief is formed.
(2) REQUIRED STATE OF MIND.—In any private action arising
under this title in which the plaintiff may recover money
damages only on proof that the defendant acted with a particular
state of mind, the complaint shall, with respect to each
act or omission alleged to violate this title, state with particularity
facts giving rise to a strong inference that the defendant
acted with the required state of mind.
(3) MOTION TO DISMISS; STAY OF DISCOVERY.—
(A) DISMISSAL FOR FAILURE TO MEET PLEADING
REQUIREMENTS.—In any private action arising under this
title, the court shall, on the motion of any defendant, dismiss
the complaint if the requirements of paragraphs (1)
and (2) are not met.
(B) STAY OF DISCOVERY.—In any private action arising
under this title, all discovery and other proceedings shall
be stayed during the pendency of any motion to dismiss,
unless the court finds upon the motion of any party that
particularized discovery is necessary to preserve evidence
or to prevent undue prejudice to that party.
(C) PRESERVATION OF EVIDENCE.—
Sec. 21D SECURITIES EXCHANGE ACT OF 1934 218
(i) IN GENERAL.—During the pendency of any stay
of discovery pursuant to this paragraph, unless otherwise
ordered by the court, any party to the action with
actual notice of the allegations contained in the complaint
shall treat all documents, data compilations (including
electronically recorded or stored data), and
tangible objects that are in the custody or control of
such person and that are relevant to the allegations,
as if they were the subject of a continuing request for
production of documents from an opposing party under
the Federal Rules of Civil Procedure.
(ii) SANCTION FOR WILLFUL VIOLATION.—A party
aggrieved by the willful failure of an opposing party to
comply with clause (i) may apply to the court for an
order awarding appropriate sanctions.
(D) CIRCUMVENTION OF STAY OF DISCOVERY.—Upon a
proper showing, a court may stay discovery proceedings in
any private action in a State court, as necessary in aid of
its jurisdiction, or to protect or effectuate its judgments, in
an action subject to a stay of discovery pursuant to this
paragraph.
(4) LOSS CAUSATION.—In any private action arising under
this title, the plaintiff shall have the burden of proving that
the act or omission of the defendant alleged to violate this title
caused the loss for which the plaintiff seeks to recover damages.
(c) SANCTIONS FOR ABUSIVE LITIGATION.—
(1) MANDATORY REVIEW BY COURT.—In any private action
arising under this title, upon final adjudication of the action,
the court shall include in the record specific findings regarding
compliance by each party and each attorney representing any
party with each requirement of Rule 11(b) of the Federal Rules
of Civil Procedure as to any complaint, responsive pleading, or
dispositive motion.
(2) MANDATORY SANCTIONS.—If the court makes a finding
under paragraph (1) that a party or attorney violated any
requirement of Rule 11(b) of the Federal Rules of Civil Procedure
as to any complaint, responsive pleading, or dispositive
motion, the court shall impose sanctions on such party or attorney
in accordance with Rule 11 of the Federal Rules of Civil
Procedure. Prior to making a finding that any party or attorney
has violated Rule 11 of the Federal Rules of Civil Procedure,
the court shall give such party or attorney notice and an
opportunity to respond.
(3) PRESUMPTION IN FAVOR OF ATTORNEYS’ FEES AND
COSTS.—
(A) IN GENERAL.—Subject to subparagraphs (B) and
(C), for purposes of paragraph (2), the court shall adopt a
presumption that the appropriate sanction—
(i) for failure of any responsive pleading or dispositive
motion to comply with any requirement of
Rule 11(b) of the Federal Rules of Civil Procedure is
an award to the opposing party of the reasonable
219 SECURITIES EXCHANGE ACT OF 1934 Sec. 21D
attorneys’ fees and other expenses incurred as a direct
result of the violation; and
(ii) for substantial failure of any complaint to comply
with any requirement of Rule 11(b) of the Federal
Rules of Civil Procedure is an award to the opposing
party of the reasonable attorneys’ fees and other expenses
incurred in the action.
(B) REBUTTAL EVIDENCE.—The presumption described
in subparagraph (A) may be rebutted only upon proof by
the party or attorney against whom sanctions are to be imposed
that—
(i) the award of attorneys’ fees and other expenses
will impose an unreasonable burden on that party or
attorney and would be unjust, and the failure to make
such an award would not impose a greater burden on
the party in whose favor sanctions are to be imposed;
or
(ii) the violation of Rule 11(b) of the Federal Rules
of Civil Procedure was de minimis.
(C) SANCTIONS.—If the party or attorney against
whom sanctions are to be imposed meets its burden under
subparagraph (B), the court shall award the sanctions that
the court deems appropriate pursuant to Rule 11 of the
Federal Rules of Civil Procedure.
(d) DEFENDANT’S RIGHT TO WRITTEN INTERROGATORIES.—In
any private action arising under this title in which the plaintiff
may recover money damages, the court shall, when requested by a
defendant, submit to the jury a written interrogatory on the issue
of each such defendant’s state of mind at the time the alleged violation
occurred.
(e) LIMITATION ON DAMAGES.—
(1) IN GENERAL.—Except as provided in paragraph (2), in
any private action arising under this title in which the plaintiff
seeks to establish damages by reference to the market price of
a security, the award of damages to the plaintiff shall not exceed
the difference between the purchase or sale price paid or
received, as appropriate, by the plaintiff for the subject security
and the mean trading price of that security during the 90-
day period beginning on the date on which the information correcting
the misstatement or omission that is the basis for the
action is disseminated to the market.
(2) EXCEPTION.—In any private action arising under this
title in which the plaintiff seeks to establish damages by reference
to the market price of a security, if the plaintiff sells or
repurchases the subject security prior to the expiration of the
90-day period described in paragraph (1), the plaintiff’s damages
shall not exceed the difference between the purchase or
sale price paid or received, as appropriate, by the plaintiff for
the security and the mean trading price of the security during
the period beginning immediately after dissemination of information
correcting the misstatement or omission and ending on
the date on which the plaintiff sells or repurchases the security.
Sec. 21D SECURITIES EXCHANGE ACT OF 1934 220
(3) DEFINITION.—For purposes of this subsection, the
‘‘mean trading price’’ of a security shall be an average of the
daily trading price of that security, determined as of the close
of the market each day during the 90-day period referred to in
paragraph (1).
(f) PROPORTIONATE LIABILITY.—
(1) APPLICABILITY.—Nothing in this subsection shall be
construed to create, affect, or in any manner modify, the standard
for liability associated with any action arising under the
securities laws.
(2) LIABILITY FOR DAMAGES.—
(A) JOINT AND SEVERAL LIABILITY.—Any covered person
against whom a final judgment is entered in a private
action shall be liable for damages jointly and severally
only if the trier of fact specifically determines that such
covered person knowingly committed a violation of the
securities laws.
(B) PROPORTIONATE LIABILITY.—
(i) IN GENERAL.—Except as provided in subparagraph
(A), a covered person against whom a final judgment
is entered in a private action shall be liable
solely for the portion of the judgment that corresponds
to the percentage of responsibility of that covered person,
as determined under paragraph (3).
(ii) RECOVERY BY AND COSTS OF COVERED PERSON.—
In any case in which a contractual relationship
permits, a covered person that prevails in any private
action may recover the attorney’s fees and costs of that
covered person in connection with the action.
(3) DETERMINATION OF RESPONSIBILITY.—
(A) IN GENERAL.—In any private action, the court shall
instruct the jury to answer special interrogatories, or if
there is no jury, shall make findings, with respect to each
covered person and each of the other persons claimed by
any of the parties to have caused or contributed to the loss
incurred by the plaintiff, including persons who have entered
into settlements with the plaintiff or plaintiffs,
concerning—
(i) whether such person violated the securities
laws;
(ii) the percentage of responsibility of such person,
measured as a percentage of the total fault of all persons
who caused or contributed to the loss incurred by
the plaintiff; and
(iii) whether such person knowingly committed a
violation of the securities laws.
(B) CONTENTS OF SPECIAL INTERROGATORIES OR FINDINGS.—
The responses to interrogatories, or findings, as
appropriate, under subparagraph (A) shall specify the total
amount of damages that the plaintiff is entitled to recover
and the percentage of responsibility of each covered person
found to have caused or contributed to the loss incurred by
the plaintiff or plaintiffs.