Government Securities Brokers and Dealers

Page 163 TITLE 15—COMMERCE AND TRADE § 77bbbb chapter. For complete classification of this Act to the Sec. Code, see section 77a of this title and Tables. 78e. Transactions on unregistered exchanges. The Securities Exchange Act of 1934, referred to in 78f. National securities exchanges. text, is act June 6, 1934, ch. 404, 48 Stat. 881, which is 78g. Margin requirements. classified principally to chapter 2B (§ 78a et seq.) of this 78h. Restrictions on borrowing and lending by title. For complete classification of this Act to the members, brokers, and dealers. Code, see section 78a of this title and Tables. 78i. Manipulation of security prices. 78j. Manipulative and deceptive devices. AMENDMENTS 78j–1. Audit requirements. 2010—Pub. L. 111–203 substituted ‘‘Securities Act of 78j–2. Position limits and position accountability 1933 or the Securities Exchange Act of 1934’’ for ‘‘Secu- for security-based swaps and large trader rities Act of 1933, or the Securities Exchange Act of reporting. 1934, or the Public Utility Holding Company Act of 78j–3. Compensation committees. 1935,’’. 78j–4. Recovery of erroneously awarded compensation policy. EFFECTIVE DATE OF 2010 AMENDMENT 78k. Trading by members of exchanges, brokers, and dealers. Amendment by Pub. L. 111–203 effective 1 day after 78k–1. National market system for securities; secu- July 21, 2010, except as otherwise provided, see section rities information processors. 4 of Pub. L. 111–203, set out as an Effective Date note 78l. Registration requirements for securities. under section 5301 of Title 12, Banks and Banking. 78l–1. Applications for unlisted trading privileges deemed filed under section 78l of this title. TRANSFER OF FUNCTIONS 78m. Periodical and other reports. For transfer of functions of Securities and Exchange 78m–1. Reporting and recordkeeping for certain secu- Commission, with certain exceptions, to Chairman of rity-based swaps. such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, 78m–2. Reporting requirements regarding coal or eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under other mine safety. section 78d of this title. 78n. Proxies. 78n–1. Shareholder approval of executive compensa- § 77aaaa. Contrary stipulations void tion. 78n–2. Corporate governance. Any condition, stipulation, or provision bind- 78o. Registration and regulation of brokers and ing any person to waive compliance with any dealers. provision of this subchapter or with any rule, 78o–1. Brokers deemed to be registered. regulation, or order thereunder shall be void. 78o–2. Liabilities arising prior to amendment unaffected. (May 27, 1933, ch. 38, title III, § 327, as added Aug. 78o–3. Registered securities associations. 3, 1939, ch. 411, 53 Stat. 1177.) 78o–4. Municipal securities. 78o–4a. Commission Office of Municipal Securities. § 77bbbb. Separability 78o–5. Government securities brokers and dealers. 78o–6. Securities analysts and research reports. If any provision of this subchapter or the ap- 78o–7. Registration of nationally recognized statis- plication of such provision to any person or cir- tical rating organizations. cumstance shall be held invalid, the remainder 78o–8. Universal ratings symbols. of the subchapter and the application of such 78o–9. Study and rulemaking on assigned credit rat- provision to persons or circumstances other ings. than those as to which it is held invalid shall 78o–10. Registration and regulation of security-based not be affected thereby. swap dealers and major security-based swap participants. (May 27, 1933, ch. 38, title III, § 328, as added Aug. 78o–11. Credit risk retention. 3, 1939, ch. 411, 53 Stat. 1177.) 78p. Directors, officers, and principal stockholders. CHAPTER 2B—SECURITIES EXCHANGES 78q. Records and reports. 78q–1. National system for clearance and settlement Sec. of securities transactions. 78a. Short title. 78q–2. Automated quotation systems for penny 78b. Necessity for regulation. stocks. 78c. Definitions and application. 78r. Liability for misleading statements. 78c–1. Swap agreements. 78s. Registration, responsibilities, and oversight 78c–2. Securities-related derivatives. of self-regulatory organizations. 78c–3. Clearing for security-based swaps. 78t. Liability of controlling persons and persons 78c–4. Security-based swap execution facilities. who aid and abet violations. 78c–5. Segregation of assets held as collateral in se- 78t–1. Liability to contemporaneous traders for in- curity-based swap transactions. sider trading. 78d. Securities and Exchange Commission. 78u. Investigations and actions. 78d–1. Delegation of functions by Commission. 78u–1. Civil penalties for insider trading. 78d–2. Transfer of functions with respect to assign- 78u–2. Civil remedies in administrative proceedings. ment of personnel to chairman. 78u–3. Cease-and-desist proceedings. 78d–3. Appearance and practice before the Commis- 78u–4. Private securities litigation. sion. 78u–5. Application of safe harbor for forward-look- 78d–4. Additional duties of Inspector General. ing statements. 78d–5. Deadline for completing enforcement inves- 78u–6. Securities whistleblower incentives and pro- tigations and compliance examinations and tection. inspections. 78u–7. Implementation and transition provisions for 78d–6. Report and certification of internal super- whistleblower protection. visory controls. 78v. Hearings by Commission. 78d–7. Triennial report on personnel management. 78w. Rules, regulations, and orders; annual re- 78d–8. Annual financial controls audit. ports. 78d–9. Report on oversight of national securities as- 78x. Public availability of information. sociations. 78y. Court review of orders and rules. § 78a TITLE 15—COMMERCE AND TRADE Page 164

Sec. 78u–3, and 78ff of this title and sections 1512 and 1513 of 78z. Unlawful representations. Title 18, Crimes and Criminal Procedure, and enacting 78aa. Jurisdiction of offenses and suits. provisions set out as a note under section 994 of Title 78aa–1. Special provision relating to statute of limi- 28, Judiciary and Judicial Procedure] may be cited as tations on private causes of action. the ‘Corporate Fraud Accountability Act of 2002’.’’ 78bb. Effect on existing law. Pub. L. 107–123, § 1, Jan. 16, 2002, 115 Stat. 2390, pro- 78cc. Validity of contracts. vided that: ‘‘This Act [enacting chapter 48 of Title 5, 78dd. Foreign securities exchanges. 78dd–1. Prohibited foreign trade practices by issuers. Government Organization and Employees, amending 78dd–2. Prohibited foreign trade practices by domes- sections 77f, 77ggg, 78d, 78m, 78n, and 78ee of this title, tic concerns. sections 3132 and 5373 of Title 5, and section 1833b of 78dd–3. Prohibited foreign trade practices by persons Title 12, Banks and Banking, and enacting provisions other than issuers or domestic concerns. set out as notes under section 78ee of this title and sec- 78ee. Transaction fees. tion 4802 of Title 5] may be cited as the ‘Investor and 78ff. Penalties. Capital Markets Fee Relief Act’.’’ 78gg. Separability. 78hh. Effective date. SHORT TITLE OF 1998 AMENDMENTS 78hh–1. Effective date of certain sections. Pub. L. 105–366, § 1, Nov. 10, 1998, 112 Stat. 3302, pro- 78ii, 78jj. Omitted or Repealed. vided that: ‘‘This Act [enacting section 78dd–3 of this 78kk. Authorization of appropriations. title, amending sections 78dd–1, 78dd–2, and 78ff of this ll. 78 Requirements for the EDGAR system. title, and enacting provisions set out as notes under 78mm. General exemptive authority. 78nn. Tennessee Valley Authority. section 78dd–1 of this title] may be cited as the ‘Inter- 78oo. Federal National Mortgage Association, Fed- national Anti-Bribery and Fair Competition Act of eral Home Loan Mortgage Corporation, 1998’.’’ Federal Home Loan Banks. Pub. L. 105–353, § 1, Nov. 3, 1998, 112 Stat. 3227, pro- 78pp. Investor Advisory Committee. vided that: ‘‘This Act [amending sections 77b, 77k, 77m, 77p, 77r, 77v, 77z–1 to 77z–3, 77aa, 77ccc, 77ddd, 77mmm, § 78a. Short title 77sss, 78c, 78d, 78g, 78n, 78o, 78o–4, 78o–5, 78q, 78s, 78t, 78u–4, 78z, 78bb, 78ee, 78kk, 78ll, 80a–2, 80a–3, 80a–12, This chapter may be cited as the ‘‘Securities 80a–18, 80a–29, 80a–30, 80b–3, and 80b–18a of this title and Exchange Act of 1934.’’ enacting provisions set out as notes under this section (June 6, 1934, ch. 404, title I, § 1, 48 Stat. 881.) and sections 77p and 78u of this title] may be cited as the ‘Securities Litigation Uniform Standards Act of REFERENCES IN TEXT 1998’.’’

This chapter, referred to in text, was in the original SHORT TITLE OF 1996 AMENDMENT ‘‘This Act’’ meaning the Securities Exchange Act of 1934, act June 6, 1934, ch. 404. The act was divided into Pub. L. 104–290, § 1(a), Oct. 11, 1996, 110 Stat. 3416, pro- two titles as follows: ‘‘Title I—Regulation of Securities vided that: ‘‘This Act [enacting sections 77z–3, 78mm, Exchanges’’ and ‘‘Title II—Amendments to Securities and 80b–3a of this title, amending sections 77b, 77c, 77f, Act of 1933.’’ This section was section 1 of title I of the 77r, 77ddd, 78c, 78d, 78g, 78h, 78o, 78q, 78bb, 78ee, 78kk, Act, which title, as amended, is set out as sections 78a 80a–2, 80a–3, 80a–6, 80a–12, 80a–24, 80a–26, 80a–27, 80a–29, to 78d–5, 78e to 78l, 78m, 78m–1, 78n to 78o, 78o–3, 78o–4, 80a–30, 80a–34, 80a–54, 80a–60, 80a–63, 80b–2, 80b–3, 80b–5, 78o–5 to 78o–7, 78o–10 to 78u–6, 78v to 78dd–1, 78ee to 78hh, and 80b–18a of this title and section 1002 of Title 29, 78mm, and 78pp of this title. Sections 78kk, 78ll, 78nn, Labor, and enacting provisions set out as notes under and 78oo of this title, which were directed to be added this section, sections 77e, 77r, 78b, 78n, 78o, 78ee, 80a–2, at the end of the Securities Exchange Act of 1934, have 80a–3, 80a–24, 80a–51, 80b–2, 80b–3a, 80b–10, and 80b–20 of been treated in the Code as added to title I of the Act this title, and section 1002 of Title 29] may be cited as to reflect the probable intent of Congress. See Codifica- the ‘National Securities Markets Improvement Act of tion notes set out under those sections. Title II of the 1996’.’’ act amended or repealed sections 77b to 77e, 77j, 77k, Pub. L. 104–290, title I, § 101, Oct. 11, 1996, 110 Stat. 77m, 77o, and 77s, and added former sections 78ii and 78jj 3417, provided that: ‘‘This title [enacting sections 77z–3 of this title. For complete classification of this Act to and 78mm of this title, amending sections 77b, 77r, 78c, the Code, see Tables. 78g, 78h, 78o, 78q, 78bb, and 80a–2 of this title, and enacting provisions set out as notes under sections 77e and SHORT TITLE OF 2010 AMENDMENT 77r of this title] may be cited as the ‘Capital Markets Pub. L. 111–203, title IX, § 901, July 21, 2010, 124 Stat. Efficiency Act of 1996’.’’ 1822, provided that: ‘‘This title [see Tables for classi- Pub. L. 104–290, title IV, § 401, Oct. 11, 1996, 110 Stat. fication] may be cited as the ‘Investor Protection and 3441, provided that: ‘‘This title [amending sections 77f, Securities Reform Act of 2010’.’’ 78d, 78ee, and 78kk of this title and enacting provisions set out as notes under this section and section 78ee of SHORT TITLE OF 2006 AMENDMENT this title] may be cited as the ‘Securities and Exchange Pub. L. 109–291, § 1, Sept. 29, 2006, 120 Stat. 1327, pro- Commission Authorization Act of 1996’.’’ vided that: ‘‘This Act [enacting section 78o–7 of this SHORT TITLE OF 1995 AMENDMENT title, amending sections 78c, 78o, 78q, 78u–2, 80a–2, 80a–9, 80b–2, and 80b–3 of this title, section 4519 of Title 12, Pub. L. 104–67, § 1(a), Dec. 22, 1995, 109 Stat. 737, pro- Banks and Banking, section 1087–2 of Title 20, Edu- vided that: ‘‘This Act [enacting sections 77z–1, 77z–2, cation, and section 181 of Title 23, Highways, and enact- 78j–1, 78u–4, and 78u–5 of this title, amending sections ing provisions set out as notes under section 78o–7 of 77k, 77l, 77t, 78o, 78t, 78u, and 78u–4 of this title and sec- this title] may be cited as the ‘Credit Rating Agency tion 1964 of Title 18, Crimes and Criminal Procedure, Reform Act of 2006’.’’ and enacting provisions set out as notes under sections 77k, 77l, and 78j–1 of this title] may be cited as the ‘Pri- SHORT TITLE OF 2004 AMENDMENT vate Securities Litigation Reform Act of 1995’.’’ Pub. L. 108–458, title VII, § 7803(a), Dec. 17, 2004, 118 SHORT TITLE OF 1994 AMENDMENTS Stat. 3861, provided that: ‘‘This section [amending sections 78l and 78o–5 of this title] may be cited as the Pub. L. 103–389, § 1, Oct. 22, 1994, 108 Stat. 4081, pro- ‘Emergency Securities Response Act of 2004’.’’ vided that: ‘‘This Act [amending section 78l of this title] may be cited as the ‘Unlisted Trading Privileges SHORT TITLE OF 2002 AMENDMENTS Act of 1994’.’’ Pub. L. 107–204, title XI, § 1101, July 30, 2002, 116 Stat. Pub. L. 103–325, title II, § 201, Sept. 23, 1994, 108 Stat. 807, provided that: ‘‘This title [amending sections 77h–1, 2198, provided that: ‘‘This subtitle [subtitle A Page 165 TITLE 15—COMMERCE AND TRADE § 78a

(§§ 201–210) of title II of Pub. L. 103–325 enacting section out as notes under sections 78b, 78o, and 78u–1 of this 1835 of Title 12, Banks and Banking, amending sections title] may be cited as the ‘Insider Trading and Securi- 77r–1, 78c, 78g, 78h, and 78k of this title and sections 24, ties Fraud Enforcement Act of 1988’.’’ 1464, and 1757 of Title 12, and enacting provisions set Pub. L. 100–418, title V, § 5001, Aug. 23, 1988, 102 Stat. out as notes under section 78b of this title and section 1415, provided that: ‘‘This part [part I (§§ 5001–5003) of 3305 of Title 12] may be cited as the ‘Small Business subtitle A of title I of Pub. L. 100–418, amending sec- Loan Securitization and Secondary Market Enhance- tions 78m, 78dd–1, 78dd–2, and 78ff of this title and en- ment Act of 1994’.’’ acting provisions set out as a note under section 78dd–1 of this title] may be cited as the ‘Foreign Corrupt Prac- SHORT TITLE OF 1993 AMENDMENT tices Act Amendments of 1988’.’’ Pub. L. 103–202, § 1(a), Dec. 17, 1993, 107 Stat. 2344, pro- SHORT TITLE OF 1987 AMENDMENT vided that: ‘‘This Act [enacting section 3130 of Title 31, Money and Finance, amending sections 78c, 78f, 78n, Pub. L. 100–181, § 1, Dec. 4, 1987, 101 Stat. 1249, provided 78o, 78o–3, 78o–5, 78s, and 78w of this title, and enacting that: ‘‘This Act [enacting sections 78d–1, 78d–2, and 78ll provisions set out as notes under this section, sections of this title, amending sections 77b, 77c, 77f, 77i, 77s, 77t, 78f, 78n, and 78o–5 of this title, and section 3121 of Title 77v, 77ccc, 78c, 78d, 78f, 78k–1, 78l, 78m, 78o, 78o–4, 78o–5, 31] may be cited as the ‘Government Securities Act 78q, 78q–1, 78u, 78w, 78aa, 78bb, 78kk, 78lll, 79h, 79r, 79x, Amendments of 1993’.’’ 79y, 79z–4, 80a–2, 80a–3, 80a–5, 80a–6, 80a–9, 80a–12, 80a–15, Pub. L. 103–202, title III, § 301, Dec. 17, 1993, 107 Stat. 80a–17, 80a–18, 80a–20, 80a–21, 80a–22, 80a–24, 80a–26, 2359, provided that: ‘‘This title [amending sections 78f, 80a–28, 80a–35, 80a–41, 80a–52, 80a–53, 80a–54, 80a–56, 80b–2, 78n, and 78o–3 of this title and enacting provisions set 80b–3, 80b–5, 80b–9, 80b–11, 80b–13, and 80b–14 of this title, out as notes under sections 78f and 78n of this title] and repealing sections 78d–1, 78d–2, and 78jj of this title] may be cited as the ‘Limited Partnership Rollup Re- may be cited as the ‘Securities and Exchange Commis- form Act of 1993’.’’ sion Authorization Act of 1987’.’’

SHORT TITLE OF 1990 AMENDMENTS SHORT TITLE OF 1986 AMENDMENT Pub. L. 101–550, § 1, Nov. 15, 1990, 104 Stat. 2713, pro- Pub. L. 99–571, § 1(a), Oct. 28, 1986, 100 Stat. 3208, provided that: ‘‘This Act [amending sections 77ccc to vided that: ‘‘This Act [enacting section 78o–5 of this 77eee, 77iii to 77rrr, 77uuu, 77vvv, 78c, 78d, 78n, 78o, title and section 9110 of Title 31, Money and Finance, 78o–4, 78o–5, 78q–1, 78x, 78kk, 79z–5, 80a–2, 80a–9, 80a–44, amending sections 78c, 78o, 78o–3, 78q, 78w, 78y, 80a–9, 80a–45, 80b–2, 80b–3, 80b–10, and 80b–18 of this title and and 80b–3 of this title and section 3121 of Title 31, and enacting provisions set out as notes under this section enacting provisions set out as notes under section 78o–5 and sections 77aaa and 78n of this title] may be cited as of this title] may be cited as the ‘Government Securi- the ‘Securities Acts Amendments of 1990’.’’ ties Act of 1986’.’’ Pub. L. 101–550, title I, § 101, Nov. 15, 1990, 104 Stat. SHORT TITLE OF 1985 AMENDMENT 2713, provided that: ‘‘This title [amending sections 77uuu, 78d, 78kk, 79z–5, 80a–45, and 80b–18 of this title] Pub. L. 99–222, § 1, Dec. 28, 1985, 99 Stat. 1737, provided may be cited as the ‘Securities and Exchange Commis- that: ‘‘This Act [amending section 78n of this title and sion Authorization Act of 1990’.’’ enacting a provision set out as a note under section 78n Pub. L. 101–550, title II, § 201, Nov. 15, 1990, 104 Stat. of this title] may be cited as the ‘Shareholder Commu- 2714, provided that: ‘‘This title [amending sections 78c, nications Act of 1985’.’’ 78d, 78o, 78o–4, 78o–5, 78q–1, 78x, 80a–2, 80a–9, 80a–44, SHORT TITLE OF 1984 AMENDMENT 80b–2, 80b–3, and 80b–10 of this title] may be cited as the ‘International Securities Enforcement Cooperation Act Pub. L. 98–376, § 1, Aug. 10, 1984, 98 Stat. 1264, provided of 1990’.’’ that: ‘‘This Act [amending sections 78c, 78o, 78t, 78u, Pub. L. 101–550, title III, § 301, Nov. 15, 1990, 104 Stat. and 78ff of this title and enacting provisions set out as 2721, provided that: ‘‘This title [amending section 78n of a note under section 78c of this title] may be cited as this title and enacting provisions set out as a note the ‘Insider Trading Sanctions Act of 1984’.’’ under section 78n of this title] may be cited as the SHORT TITLE OF 1977 AMENDMENT ‘Shareholder Communications Improvement Act of 1990’.’’ Pub. L. 95–213, title I, § 101, Dec. 19, 1977, 91 Stat. 1494, Pub. L. 101–432, § 1, Oct. 16, 1990, 104 Stat. 963, provided provided that: ‘‘This title [enacting sections 78dd–1 and that: ‘‘This Act [enacting section 1831l of Title 12, 78dd–2 of this title and amending sections 78m and 78ff Banks and Banking, amending sections 78i, 78l, 78m, of this title] may be cited as the ‘Foreign Corrupt Prac- 78o–5, 78q, 78q–1, and 78y of this title, and enacting pro- tices Act of 1977’.’’ visions set out as notes under sections 78b and 78q–1 of Pub. L. 95–213, title II, § 201, Dec. 19, 1977, 91 Stat. 1498, this title] may be cited as the ‘Market Reform Act of provided that: ‘‘This title [amending sections 78m and 1990’.’’ 78o of this title] may be cited as the ‘Domestic and For- Pub. L. 101–429, § 1(a), Oct. 15, 1990, 104 Stat. 931, pro- eign Investment Improved Disclosure Act of 1977’.’’ vided that: ‘‘This Act [enacting sections 77h–1, 78q–2, SHORT TITLE OF 1975 AMENDMENT 78u–2, and 78u–3 of this title, amending sections 77g, 77t, 78c, 78o, 78o–3, 78o–4, 78q–1, 78u, 78u–1, 78w, 78cc, 80a–9, Pub. L. 94–29, § 1, June 4, 1975, 89 Stat. 97, provided: 80a–41, 80b–3, 80b–9, and 80b–14 of this title, and enacting ‘‘That this Act [enacting sections 78k–1, 78o–4, 78q–1, provisions set out as notes under this section and sec- and 78kk of this title, amending sections 77d, 77x, tions 77g, 78o, and 78s of this title] may be cited as the 77yyy, 78b, 78c, 78d–1, 78f, 78h, 78k, 78l, 78m, 78o, 78o–3, ‘Securities Enforcement Remedies and Penny Stock 78q, 78s, 78u, 78w, 78x, 78y, 78bb, 78ee, 78ff, 78iii, 79z–3, Reform Act of 1990’.’’ 80a–9, 80a–10, 80a–13, 80a–15, 80a–16, 80a–18, 80a–31, 80a–35, Pub. L. 101–429, title V, § 501, Oct. 15, 1990, 104 Stat. 80a–48, 80b–3, 80b–4, and 80b–17 of this title, and enacting 951, provided that: ‘‘This title [enacting section 78q–2 of provisions set out as notes under sections 78b and 78f of this title, amending sections 77g, 78c, 78o, 78o–3, and this title] may be cited as the ‘Securities Acts Amend- 78cc of this title, and enacting provisions set out as ments of 1975’.’’ notes under sections 78o and 78s of this title] may be cited as the ‘Penny Stock Reform Act of 1990’.’’ SHORT TITLE OF 1964 AMENDMENT Pub. L. 88–467, § 1, Aug. 20, 1964, 78 Stat. 565, provided: SHORT TITLE OF 1988 AMENDMENTS ‘‘That this Act [amending sections 77d, 78c, 78l to 78o, Pub. L. 100–704, § 1, Nov. 19, 1988, 102 Stat. 4677, pro- 78o–3, 78p, 78t, 78w, and 78ff of this title and enacting vided that: ‘‘This Act [enacting sections 78t–1, 78u–1, provisions set out as a note under section 78c of this and 80b–4a of this title, amending sections 78c, 78o, 78u, title] may be cited as the ‘Securities Acts Amendments 78ff, and 78kk of this title, and enacting provisions set of 1964’.’’ § 78b TITLE 15—COMMERCE AND TRADE Page 166

SHORT TITLE OF 1936 AMENDMENT tional market system for securities and a na- Act May 27, 1936, ch. 462, 49 Stat. 1375, enacting sec- tional system for the clearance and settlement tions 78l–1, 78o–1, 78o–2, and 78hh–1 of this title, and of securities transactions and the safeguarding amending sections 78l, 78o, 78q, 78r, 78t, 78u, 78w, and of securities and funds related thereto, and to 78ff of this title, is popularly known as the Unlisted Se- impose requirements necessary to make such curities Trading Act. regulation and control reasonably complete and effective, in order to protect interstate com- SEVERABILITY merce, the national credit, the Federal taxing Pub. L. 104–290, § 3, Oct. 11, 1996, 110 Stat. 3417, pro- power, to protect and make more effective the vided: ‘‘If any provision of this Act [see Short Title of national banking system and Federal Reserve 1996 Amendment note above], an amendment made by System, and to insure the maintenance of fair this Act, or the application of such provision or amendment to any person or circumstance is held to be un- and honest markets in such transactions: constitutional, the remainder of this Act, the amend- (1) Such transactions (a) are carried on in ments made by this Act, and the application of the pro- large volume by the public generally and in visions of such to any person or circumstance shall not large part originate outside the States in be affected thereby.’’ which the exchanges and over-the-counter markets are located and/or are effected by CONGRESSIONAL FINDINGS OF 1998 AMENDMENT means of the mails and instrumentalities of Pub. L. 105–353, § 2, Nov. 3, 1998, 112 Stat. 3227, pro- interstate commerce; (b) constitute an impor- vided that: ‘‘The Congress finds that— tant part of the current of interstate com- ‘‘(1) the Private Securities Litigation Reform Act merce; (c) involve in large part the securities of 1995 [see Short Title of 1995 Amendment note of issuers engaged in interstate commerce; (d) above] sought to prevent abuses in private securities fraud lawsuits; involve the use of credit, directly affect the fi- ‘‘(2) since enactment of that legislation, consider- nancing of trade, industry, and transportation able evidence has been presented to Congress that a in interstate commerce, and directly affect number of securities class action lawsuits have shift- and influence the volume of interstate com- ed from Federal to State courts; merce; and affect the national credit. ‘‘(3) this shift has prevented that Act from fully (2) The prices established and offered in such achieving its objectives; transactions are generally disseminated and ‘‘(4) State securities regulation is of continuing im- quoted throughout the United States and for- portance, together with Federal regulation of securi- eign countries and constitute a basis for deter- ties, to protect investors and promote strong finan- mining and establishing the prices at which cial markets; and ‘‘(5) in order to prevent certain State private secu- securities are bought and sold, the amount of rities class action lawsuits alleging fraud from being certain taxes owing to the United States and used to frustrate the objectives of the Private Securi- to the several States by owners, buyers, and ties Litigation Reform Act of 1995, it is appropriate sellers of securities, and the value of collateral to enact national standards for securities class action for bank loans. lawsuits involving nationally traded securities, while (3) Frequently the prices of securities on preserving the appropriate enforcement powers of such exchanges and markets are susceptible to State securities regulators and not changing the cur- manipulation and control, and the dissemina- rent treatment of individual lawsuits.’’ tion of such prices gives rise to excessive spec- PURPOSES OF 1996 AMENDMENT ulation, resulting in sudden and unreasonable fluctuations in the prices of securities which Pub. L. 104–290, title IV, § 402, Oct. 11, 1996, 110 Stat. (a) cause alternately unreasonable expansion 3441, provided: ‘‘The purposes of this title [see Short Title of 1996 Amendment note above] are— and unreasonable contraction of the volume of ‘‘(1) to authorize appropriations for the Commission credit available for trade, transportation, and for fiscal year 1997; and industry in interstate commerce, (b) hinder ‘‘(2) to reduce over time the rates of fees charged the proper appraisal of the value of securities under the Federal securities laws.’’ and thus prevent a fair calculation of taxes owing to the United States and to the several DEFINITIONS States by owners, buyers, and sellers of securi- Pub. L. 104–290, § 2, Oct. 11, 1996, 110 Stat. 3417, pro- ties, and (c) prevent the fair valuation of col- vided: ‘‘For purposes of this Act [see Short Title of 1996 lateral for bank loans and/or obstruct the ef- Amendment note above]— ‘‘(1) the term ‘Commission’ means the Securities fective operation of the national banking sys- and Exchange Commission; and tem and Federal Reserve System. ‘‘(2) the term ‘State’ has the same meaning as in (4) National emergencies, which produce section 3 of the Securities Exchange Act of 1934 [15 widespread unemployment and the dislocation U.S.C. 78c].’’ of trade, transportation, and industry, and which burden interstate commerce and ad- § 78b. Necessity for regulation versely affect the general welfare, are precip- For the reasons hereinafter enumerated, itated, intensified, and prolonged by manipu- transactions in securities as commonly con- lation and sudden and unreasonable fluctua- ducted upon securities exchanges and over-the- tions of security prices and by excessive specu- counter markets are effected with a national lation on such exchanges and markets, and to public interest which makes it necessary to pro- meet such emergencies the Federal Govern- vide for regulation and control of such trans- ment is put to such great expense as to burden actions and of practices and matters related the national credit. thereto, including transactions by officers, di- (June 6, 1934, ch. 404, title I, § 2, 48 Stat. 881; Pub. rectors, and principal security holders, to re- L. 94–29, § 2, June 4, 1975, 89 Stat. 97; Pub. L. quire appropriate reports, to remove impedi- 111–203, title IX, § 985(b)(1), July 21, 2010, 124 Stat. ments to and perfect the mechanisms of a na- 1933.) Page 167 TITLE 15—COMMERCE AND TRADE § 78b

AMENDMENTS ‘‘(v) the relationship of the Commission with 2010—Pub. L. 111–203 substituted ‘‘effected’’ for ‘‘af- State regulatory authorities and organizations to fected’’ in introductory provisions. improve coordination and cooperation. 1975—Pub. L. 94–29 inserted ‘‘to remove impediments ‘‘(2) REPORT.—Not later than 1 year after the date of to and perfect the mechanisms of a national market enactment of this Act [Oct. 11, 1996], the Commission system for securities and a national system for the shall submit a report to the Congress on the results of clearance and settlement of securities transactions and the study conducted under paragraph (1).’’ the safeguarding of securities and funds related there- JOINT STUDY ON IMPACT OF ADDITIONAL SECURITIES to,’’ after ‘‘require appropriate reports,’’ in introduc- BASED ON POOLED OBLIGATIONS tory provisions. Pub. L. 103–325, title II, § 209, Sept. 23, 1994, 108 Stat. EFFECTIVE DATE OF 2010 AMENDMENT 2202, provided that: Amendment by Pub. L. 111–203 effective 1 day after ‘‘(a) JOINT STUDY REQUIRED.—The Board and the Com- July 21, 2010, except as otherwise provided, see section mission shall conduct a joint study of the impact of the 4 of Pub. L. 111–203, set out as an Effective Date note provisions of this subtitle [subtitle A [§§ 201–210 of title under section 5301 of Title 12, Banks and Banking. II of Pub. L. 103–325], see Short Title of 1994 Amend- ment note set out under section 78a of this title] (in- EFFECTIVE DATE OF 1975 AMENDMENT cluding the amendments made by this subtitle) on the Pub. L. 94–29, § 31(a), June 4, 1975, 89 Stat. 170, pro- credit and securities markets. Such study shall evalu- vided that: ‘‘This Act [enacting sections 78k–1, 78o–4, ate— 78q–1, and 78kk of this title, amending this section and ‘‘(1) the impact of the provisions of this subtitle on sections 77d, 77x, 77yyy, 78c, 78d–1, 78f, 78h, 78k, 78l, 78m, the availability of credit for business and commercial 78o, 78o–3, 78q, 78s, 78u, 78w, 78x, 78y, 78bb, 78ee, 78ff, enterprises in general, and the availability of credit 78iii, 79z–3, 80a–9, 80a–10, 80a–13, 80a–15, 80a–16, 80a–18, in particular for— 80a–31, 80a–35, 80a–48, 80b–3, 80b–4, and 80b–17 of this ‘‘(A) businesses in low- and moderate-income title, and enacting provisions set out as notes under areas; sections 78a and 78f of this title] shall become effective ‘‘(B) businesses owned by women and minorities; on the date of its enactment [June 4, 1975] except as ‘‘(C) community development efforts; hereinafter provided. The amendments made by this ‘‘(D) community development financial institu- Act to sections 3(a)(12), 6(a) through (d), 11A(b), 15(a), tions; 15A, 15B(a), 17A(b), and (c), and 19(g) of the Securities ‘‘(E) businesses in different geographical regions; Exchange Act of 1934 [sections 78c(a)(12), 78f(a) through and (d), 78k–1(b), 78o(a), 78o–3, 78o–4(a), 78q–1(b) and (c), and ‘‘(F) a diversity of types of businesses; 78s(g) of this title] shall become effective one hundred ‘‘(2) the structure and operation of the markets eighty days after the date of enactment of this Act that develop for small business related securities and [June 4, 1975], and the amendments made by this Act to commercial mortgage related securities, including section 31 of the Securities Exchange Act of 1934 [sec- the types of entities (such as pension funds and insur- tion 78ee of this title] shall become effective on Janu- ance companies) that are significant purchasers of ary 1, 1976. Neither the provisions of section 3(a)(3), such securities, the extent to which such entities are 6(b)(2), or 6(c)(1) of the Securities Exchange Act of 1934 sophisticated investors, the use of credit enhance- (as amended by this Act) [section 78c(a)(3), 78f(b)(2), or ments in obtaining investment-grade ratings, any 78f(c)(1) of this title] nor any rule or regulation there- conflicts of interest that arise in such markets, and under shall apply so as to deprive any person of mem- any adverse effects of such markets on commercial bership in any national securities exchange (or its suc- real estate ventures, pension funds, or pension fund cessor) of which such person was, on the date of enact- beneficiaries; ment of this Act [June 4, 1975], a member or a member ‘‘(3) the extent to which the provisions of this sub- firm as defined in the constitution of such exchange or title with regard to margin requirements, the number so as to deny membership in any such exchange (or its of eligible investment rating categories, preemption successor) to any natural person who is or becomes as- of State law, and the treatment of such securities as sociated with such member or member firm.’’ government securities for the purpose of State investment limitations, affect the structure and oper- STUDY AND REPORT ON IMPACT OF TECHNOLOGICAL ation of such markets; and ADVANCES ON SECURITIES MARKETS ‘‘(4) in view of the findings made pursuant to para- Pub. L. 104–290, title V, § 510(a), Oct. 11, 1996, 110 Stat. graphs (2) and (3), any additional suitability or disclo- 3450, provided that: sure requirements or other investor protections that ‘‘(1) STUDY.— should be required. ‘‘(A) IN GENERAL.—The Commission shall conduct a ‘‘(b) REPORTS.— study of— ‘‘(1) IN GENERAL.—The Board and the Commission ‘‘(i) the impact of technological advances and the shall submit to the Congress a report on the results use of on-line information systems on the securities of the study required by subsection (a) before the end markets, including steps that the Commission has of— taken to facilitate the electronic delivery of pro- ‘‘(A) the 2-year period beginning on the date of spectuses to institutional and other investors; enactment of this Act [Sept. 23, 1994]; ‘‘(ii) how such technologies have changed the way ‘‘(B) the 4-year period beginning on such date of in which the securities markets operate; and enactment; and ‘‘(iii) any steps taken by the Commission to ad- ‘‘(C) the 6-year period beginning on such date of dress such changes. enactment. ‘‘(B) CONSIDERATIONS.—In conducting the study under subparagraph (A), the Commission shall con- ‘‘(2) CONTENTS OF REPORT.—Each report required sider how the Commission has adapted its enforce- under paragraph (1) shall contain or be accompanied ment policies and practices in response to techno- by such recommendations for administrative or legis- logical developments with regard to— lative action as the Board and the Commission con- ‘‘(i) disclosure, prospectus delivery, and other sider appropriate and may include recommendations customer protection regulations; regarding the need to develop a system for reporting ‘‘(ii) intermediaries and exchanges in the domes- additional information concerning investments by tic and international financial services industry; the entities described in subsection (a)(2). ‘‘(iii) reporting by issuers, including communica- ‘‘(c) DEFINITIONS.—As used in this section— tions with holders of securities; ‘‘(1) the term ‘Board’ means the Board of Governors ‘‘(iv) the relationship of the Commission with of the Federal Reserve System; and other national regulatory authorities and organiza- ‘‘(2) the term ‘Commission’ means the Securities tions to improve coordination and cooperation; and and Exchange Commission.’’ § 78c TITLE 15—COMMERCE AND TRADE Page 168

INTERMARKET COORDINATION; REPORTS TO CONGRESS (1) the major issues raised by the numerous studies Pub. L. 101–432, § 8(a), Oct. 16, 1990, 104 Stat. 976, pro- on the events in the financial markets surrounding Oc- vided that: ‘‘The Secretary of the Treasury, the Chair- tober 19, 1987, and any of those recommendations that man of the Board of Governors of the Federal Reserve have the potential to achieve the goals noted above; System, the Chairman of the Securities and Exchange and (2) the actions, including governmental actions under Commission, and the Chairman of the Commodity Fu- existing laws and regulations (such as policy coordina- tures Trading Commission, shall report to the Congress tion and contingency planning), that are appropriate to not later than May 31, 1991, and annually thereafter carry out these recommendations. until May 31, 1995, on the following: (b) The Working Group shall consult, as appropriate, ‘‘(1) the efforts their respective agencies have made with representatives of the various exchanges, clear- relating to the coordination of regulatory activities inghouses, self-regulatory bodies, and with major mar- to ensure the integrity and competitiveness of United ket participants to determine private sector solutions States financial markets; ‘‘(2) the efforts their respective agencies have made wherever possible. to formulate coordinated mechanisms across market- (c) The Working Group shall report to the President places to protect the payments and market systems initially within 60 days (and periodically thereafter) on during market emergencies; its progress and, if appropriate, its views on any rec- ‘‘(3) the views of their respective agencies with re- ommended legislative changes. spect to the adequacy of margin levels and use of le- SEC. 3. Administration. (a) The heads of Executive de- verage by market participants; and partments, agencies, and independent instrumental- ‘‘(4) such other issues and concerns relating to the ities shall, to the extent permitted by law, provide the soundness, stability, and integrity of domestic and Working Group such information as it may require for international capital markets as may be appropriate. the purpose of carrying out this Order. The agencies shall cooperate in the development of (b) Members of the Working Group shall serve with- their reports, and prior to submitting its report to Con- out additional compensation for their work on the gress, each agency shall provide copies to the other Working Group. agencies.’’ (c) To the extent permitted by law and subject to the availability of funds therefor, the Department of the SECURITIES LAWS STUDY Treasury shall provide the Working Group with such Pub. L. 100–704, § 7, Nov. 19, 1988, 102 Stat. 4682, di- administrative and support services as may be nec- rected Securities and Exchange Commission to study essary for the performance of its functions. and investigate adequacy of Federal securities laws and RONALD REAGAN. regulations for protection of the public interest and interests of investors, specified subjects for the study and § 78c. Definitions and application investigation and authority of Commission in conduct- (a) Definitions ing the study and investigation, directed Commission to supply interim information to Congress on the When used in this chapter, unless the context progress of, and any impediments to completing, the otherwise requires— study and investigation, directed Commission to report (1) The term ‘‘exchange’’ means any organi- to Congress on results of the study and investigation zation, association, or group of persons, within 18 months after the date funds are appropriated whether incorporated or unincorporated, for the study and investigation, including in such re- which constitutes, maintains, or provides a port the Commission’s recommendations. market place or facilities for bringing to- FOREIGN INVESTMENT STUDY gether purchasers and sellers of securities or Pub. L. 93–479, Oct. 26, 1974, 88 Stat. 1450, directed Sec- for otherwise performing with respect to secu- retary of the Treasury and Secretary of Commerce to rities the functions commonly performed by a conduct a comprehensive, overall study of foreign di- stock exchange as that term is generally un- rect and portfolio investments in the United States and derstood, and includes the market place and submit to Congress an interim report twelve months the market facilities maintained by such ex- after Oct. 26, 1974, and not later than one and one-half change. years after Oct. 26, 1974, a full and complete report of (2) The term ‘‘facility’’ when used with re- the findings made under the study authorized, together spect to an exchange includes its premises, with such recommendations as they considered appropriate. tangible or intangible property whether on the premises or not, any right to the use of such EX. ORD. NO. 12631. WORKING GROUP ON FINANCIAL premises or property or any service thereof for MARKETS the purpose of effecting or reporting a trans- Ex. Ord. No. 12631, Mar. 18, 1988, 53 F.R. 9421, provided: action on an exchange (including, among other By virtue of the authority vested in me as President things, any system of communication to or by the Constitution and laws of the United States of from the exchange, by ticker or otherwise, America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows: maintained by or with the consent of the ex- SECTION 1. Establishment. (a) There is hereby estab- change), and any right of the exchange to the lished a Working Group on Financial Markets (Working use of any property or service. Group). The Working Group shall be composed of: (3)(A) The term ‘‘member’’ when used with (1) the Secretary of the Treasury, or his designee; respect to a national securities exchange (2) the Chairman of the Board of Governors of the means (i) any natural person permitted to ef- Federal Reserve System, or his designee; (3) the Chairman of the Securities and Exchange fect transactions on the floor of the exchange Commission, or his designee; and without the services of another person acting (4) the Chairman of the Commodity Futures Trading as broker, (ii) any registered broker or dealer Commission, or her designee. with which such a natural person is associ- (b) The Secretary of the Treasury, or his designee, ated, (iii) any registered broker or dealer per- shall be the Chairman of the Working Group. mitted to designate as a representative such a SEC. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderli- natural person, and (iv) any other registered ness, and competitiveness of our Nation’s financial broker or dealer which agrees to be regulated markets and maintaining investor confidence, the by such exchange and with respect to which Working Group shall identify and consider: the exchange undertakes to enforce compli- Page 169 TITLE 15—COMMERCE AND TRADE § 78c

ance with the provisions of this chapter, the (VI) bank employees do not receive in- rules and regulations thereunder, and its own centive compensation for any brokerage rules. For purposes of sections 78f(b)(1), transaction unless such employees are 78f(b)(4), 78f(b)(6), 78f(b)(7), 78f(d), 78q(d), 78s(d), associated persons of a broker or dealer 78s(e), 78s(g), 78s(h), and 78u of this title, the and are qualified pursuant to the rules of term ‘‘member’’ when used with respect to a a self-regulatory organization, except national securities exchange also means, to that the bank employees may receive the extent of the rules of the exchange speci- compensation for the referral of any cus- fied by the Commission, any person required tomer if the compensation is a nominal by the Commission to comply with such rules one-time cash fee of a fixed dollar pursuant to section 78f(f) of this title. amount and the payment of the fee is (B) The term ‘‘member’’ when used with re- not contingent on whether the referral spect to a registered securities association results in a transaction; means any broker or dealer who agrees to be (VII) such services are provided by the regulated by such association and with respect broker or dealer on a basis in which all to whom the association undertakes to enforce customers that receive any services are compliance with the provisions of this chap- fully disclosed to the broker or dealer; ter, the rules and regulations thereunder, and (VIII) the bank does not carry a securi- its own rules. ties account of the customer except as (4) BROKER.— permitted under clause (ii) or (viii) of (A) IN GENERAL.—The term ‘‘broker’’ this subparagraph; and means any person engaged in the business of (IX) the bank, broker, or dealer in- effecting transactions in securities for the forms each customer that the brokerage account of others. services are provided by the broker or (B) EXCEPTION FOR CERTAIN BANK ACTIVI- dealer and not by the bank and that the TIES.—A bank shall not be considered to be a securities are not deposits or other obli- broker because the bank engages in any one gations of the bank, are not guaranteed or more of the following activities under the by the bank, and are not insured by the conditions described: Federal Deposit Insurance Corporation. (i) THIRD PARTY BROKERAGE ARRANGE- (ii) TRUST ACTIVITIES.—The bank effects MENTS.—The bank enters into a contrac- transactions in a trustee capacity, or ef- tual or other written arrangement with a fects transactions in a fiduciary capacity broker or dealer registered under this in its trust department or other depart- chapter under which the broker or dealer ment that is regularly examined by bank offers brokerage services on or off the examiners for compliance with fiduciary premises of the bank if— principles and standards, and— (I) such broker or dealer is clearly (I) is chiefly compensated for such identified as the person performing the transactions, consistent with fiduciary brokerage services; principles and standards, on the basis of (II) the broker or dealer performs bro- an administration or annual fee (payable kerage services in an area that is clearly on a monthly, quarterly, or other basis), marked and, to the extent practicable, a percentage of assets under manage- physically separate from the routine de- ment, or a flat or capped per order proc- posit-taking activities of the bank; essing fee equal to not more than the (III) any materials used by the bank to cost incurred by the bank in connection advertise or promote generally the avail- with executing securities transactions ability of brokerage services under the for trustee and fiduciary customers, or arrangement clearly indicate that the any combination of such fees; and brokerage services are being provided by (II) does not publicly solicit brokerage the broker or dealer and not by the business, other than by advertising that bank; it effects transactions in securities in (IV) any materials used by the bank to conjunction with advertising its other advertise or promote generally the avail- trust activities. ability of brokerage services under the (iii) PERMISSIBLE SECURITIES TRANS- arrangement are in compliance with the ACTIONS.—The bank effects transactions Federal securities laws before distribu- in— tion; (I) commercial paper, bankers accept- (V) bank employees (other than associ- ances, or commercial bills; ated persons of a broker or dealer who (II) exempted securities; are qualified pursuant to the rules of a (III) qualified Canadian government self-regulatory organization) perform obligations as defined in section 24 of only clerical or ministerial functions in title 12, in conformity with section 78o–5 connection with brokerage transactions of this title and the rules and regula- including scheduling appointments with tions thereunder, or obligations of the the associated persons of a broker or North American Development Bank; or dealer, except that bank employees may (IV) any standardized, credit enhanced forward customer funds or securities and debt security issued by a foreign govern- may describe in general terms the types ment pursuant to the March 1989 plan of of investment vehicles available from then Secretary of the Treasury Brady, the bank and the broker or dealer under used by such foreign government to re- the arrangement; tire outstanding commercial bank loans. § 78c TITLE 15—COMMERCE AND TRADE Page 170

(iv) CERTAIN STOCK PURCHASE PLANS.— (II) an affiliate that is engaged in mer- (I) EMPLOYEE BENEFIT PLANS.—The chant banking, as described in section bank effects transactions, as part of its 1843(k)(4)(H) of title 12. transfer agency activities, in the securi- (vii) PRIVATE SECURITIES OFFERINGS.— ties of an issuer as part of any pension, The bank— retirement, profit-sharing, bonus, thrift, (I) effects sales as part of a primary of- savings, incentive, or other similar bene- fering of securities not involving a pub- fit plan for the employees of that issuer lic offering, pursuant to section 3(b), 4(2), or its affiliates (as defined in section 1841 or 4(5) of the Securities Act of 1933 [15 of title 12), if the bank does not solicit U.S.C. 77c(b), 77d(2), 77d(5)] or the rules transactions or provide investment ad- and regulations issued thereunder; vice with respect to the purchase or sale (II) at any time after the date that is of securities in connection with the plan. 1 year after November 12, 1999, is not af- (II) DIVIDEND REINVESTMENT PLANS.— filiated with a broker or dealer that has The bank effects transactions, as part of been registered for more than 1 year in its transfer agency activities, in the se- accordance with this chapter, and en- curities of an issuer as part of that issu- gages in dealing, market making, or un- er’s dividend reinvestment plan, if— derwriting activities, other than with re- (aa) the bank does not solicit trans- spect to exempted securities; and actions or provide investment advice (III) if the bank is not affiliated with a with respect to the purchase or sale of broker or dealer, does not effect any pri- securities in connection with the plan; mary offering described in subclause (I) and the aggregate amount of which exceeds (bb) the bank does not net sharehold- 25 percent of the capital of the bank, ex- ers’ buy and sell orders, other than for cept that the limitation of this sub- programs for odd-lot holders or plans clause shall not apply with respect to registered with the Commission. any sale of government securities or mu- (III) ISSUER PLANS.—The bank effects nicipal securities. transactions, as part of its transfer agen- (viii) SAFEKEEPING AND CUSTODY ACTIVI- cy activities, in the securities of an is- TIES.— suer as part of a plan or program for the (I) IN GENERAL.—The bank, as part of purchase or sale of that issuer’s shares, customary banking activities— if— (aa) provides safekeeping or custody (aa) the bank does not solicit trans- services with respect to securities, in- actions or provide investment advice cluding the exercise of warrants and with respect to the purchase or sale of other rights on behalf of customers; securities in connection with the plan (bb) facilitates the transfer of funds or program; and or securities, as a custodian or a clear- (bb) the bank does not net sharehold- ing agency, in connection with the ers’ buy and sell orders, other than for clearance and settlement of its cus- programs for odd-lot holders or plans tomers’ transactions in securities; registered with the Commission. (cc) effects securities lending or bor- (IV) PERMISSIBLE DELIVERY OF MATE- rowing transactions with or on behalf RIALS.—The exception to being consid- of customers as part of services pro- ered a broker for a bank engaged in ac- vided to customers pursuant to divi- tivities described in subclauses (I), (II), sion (aa) or (bb) or invests cash collat- and (III) will not be affected by delivery eral pledged in connection with such of written or electronic plan materials transactions; by a bank to employees of the issuer, (dd) holds securities pledged by a shareholders of the issuer, or members of customer to another person or securi- affinity groups of the issuer, so long as ties subject to purchase or resale such materials are— agreements involving a customer, or (aa) comparable in scope or nature to facilitates the pledging or transfer of that permitted by the Commission as such securities by book entry or as of November 12, 1999; or otherwise provided under applicable (bb) otherwise permitted by the Com- law, if the bank maintains records sep- mission. arately identifying the securities and the customer; or (v) SWEEP ACCOUNTS.—The bank effects (ee) serves as a custodian or provider transactions as part of a program for the of other related administrative serv- investment or reinvestment of deposit ices to any individual retirement ac- funds into any no-load, open-end manage- count, pension, retirement, profit shar- ment investment company registered ing, bonus, thrift savings, incentive, or under the Investment Company Act of 1940 other similar benefit plan. [15 U.S.C. 80a–1 et seq.] that holds itself out as a money market fund. (II) EXCEPTION FOR CARRYING BROKER (vi) AFFILIATE TRANSACTIONS.—The bank ACTIVITIES.—The exception to being con- effects transactions for the account of any sidered a broker for a bank engaged in affiliate of the bank (as defined in section activities described in subclause (I) shall 1841 of title 12) other than— not apply if the bank, in connection with (I) a registered broker or dealer; or such activities, acts in the United States Page 171 TITLE 15—COMMERCE AND TRADE § 78c

as a carrying broker (as such term, and (F) JOINT RULEMAKING REQUIRED.—The different formulations thereof, are used Commission and the Board of Governors of in section 78o(c)(3) of this title and the the Federal Reserve System shall jointly rules and regulations thereunder) for any adopt a single set of rules or regulations to broker or dealer, unless such carrying implement the exceptions in subparagraph broker activities are engaged in with re- (B). spect to government securities (as de- (5) DEALER.— fined in paragraph (42) of this sub- (A) IN GENERAL.—The term ‘‘dealer’’ means section). any person engaged in the business of buying (ix) IDENTIFIED BANKING PRODUCTS.—The and selling securities (not including secu- bank effects transactions in identified rity-based swaps, other than security-based banking products as defined in section 206 swaps with or for persons that are not eligi- of the Gramm-Leach-Bliley Act. ble contract participants) for such person’s (x) MUNICIPAL SECURITIES.—The bank ef- own account through a broker or otherwise. fects transactions in municipal securities. (B) EXCEPTION FOR PERSON NOT ENGAGED IN (xi) DE MINIMIS EXCEPTION.—The bank ef- THE BUSINESS OF DEALING.—The term ‘‘deal- fects, other than in transactions referred er’’ does not include a person that buys or to in clauses (i) through (x), not more than sells securities (not including security-based 500 transactions in securities in any cal- swaps, other than security-based swaps with endar year, and such transactions are not or for persons that are not eligible contract effected by an employee of the bank who is participants) for such person’s own account, also an employee of a broker or dealer. either individually or in a fiduciary capacity, but not as a part of a regular business. (C) EXECUTION BY BROKER OR DEALER.—The (C) EXCEPTION FOR CERTAIN BANK ACTIVI- exception to being considered a broker for a TIES.—A bank shall not be considered to be a bank engaged in activities described in dealer because the bank engages in any of clauses (ii), (iv), and (viii) of subparagraph the following activities under the conditions (B) shall not apply if the activities described described: in such provisions result in the trade in the (i) PERMISSIBLE SECURITIES TRANS- United States of any security that is a pub- ACTIONS.—The bank buys or sells— licly traded security in the United States, (I) commercial paper, bankers accept- unless— ances, or commercial bills; (i) the bank directs such trade to a reg- (II) exempted securities; istered broker or dealer for execution; (III) qualified Canadian government (ii) the trade is a cross trade or other obligations as defined in section 24 of substantially similar trade of a security title 12, in conformity with section 78o–5 that— of this title and the rules and regula- (I) is made by the bank or between the tions thereunder, or obligations of the bank and an affiliated fiduciary; and North American Development Bank; or (II) is not in contravention of fiduciary (IV) any standardized, credit enhanced principles established under applicable debt security issued by a foreign govern- Federal or State law; or ment pursuant to the March 1989 plan of (iii) the trade is conducted in some other then Secretary of the Treasury Brady, manner permitted under rules, regula- used by such foreign government to re- tions, or orders as the Commission may tire outstanding commercial bank loans. prescribe or issue. (ii) INVESTMENT, TRUSTEE, AND FIDUCIARY (D) FIDUCIARY CAPACITY.—For purposes of TRANSACTIONS.—The bank buys or sells se- subparagraph (B)(ii), the term ‘‘fiduciary ca- curities for investment purposes— pacity’’ means— (I) for the bank; or (i) in the capacity as trustee, executor, (II) for accounts for which the bank administrator, registrar of stocks and acts as a trustee or fiduciary. bonds, transfer agent, guardian, assignee, (iii) ASSET-BACKED TRANSACTIONS.—The receiver, or custodian under a uniform gift bank engages in the issuance or sale to to minor act, or as an investment adviser qualified investors, through a grantor if the bank receives a fee for its invest- trust or other separate entity, of securities ment advice; backed by or representing an interest in (ii) in any capacity in which the bank notes, drafts, acceptances, loans, leases, possesses investment discretion on behalf receivables, other obligations (other than of another; or securities of which the bank is not the is- (iii) in any other similar capacity. suer), or pools of any such obligations pre- (E) EXCEPTION FOR ENTITIES SUBJECT TO dominantly originated by— SECTION 78o(e).1 —The term ‘‘broker’’ does not (I) the bank; include a bank that— (II) an affiliate of any such bank other (i) was, on the day before November 12, than a broker or dealer; or 1999, subject to section 78o(e) 1 of this title; (III) a syndicate of banks of which the and bank is a member, if the obligations or (ii) is subject to such restrictions and re- pool of obligations consists of mortgage quirements as the Commission considers obligations or consumer-related receiv- appropriate. ables. (iv) IDENTIFIED BANKING PRODUCTS.—The 1 See References in Text note below. bank buys or sells identified banking prod- § 78c TITLE 15—COMMERCE AND TRADE Page 172

ucts, as defined in section 206 of the or interim certificate for, receipt for, or war- Gramm-Leach-Bliley Act. rant or right to subscribe to or purchase, any (6) The term ‘‘bank’’ means (A) a banking in- of the foregoing; but shall not include cur- stitution organized under the laws of the rency or any note, draft, bill of exchange, or United States or a Federal savings associa- banker’s acceptance which has a maturity at tion, as defined in section 1462(5) 1 of title 12, the time of issuance of not exceeding nine (B) a member bank of the Federal Reserve months, exclusive of days of grace, or any renewal thereof the maturity of which is like- System, (C) any other banking institution or wise limited. savings association, as defined in section 1 (11) The term ‘‘equity security’’ means any 1462(4) of title 12, whether incorporated or stock or similar security; or any security fu- not, doing business under the laws of any ture on any such security; or any security con- State or of the United States, a substantial vertible, with or without consideration, into portion of the business of which consists of re- such a security, or carrying any warrant or ceiving deposits or exercising fiduciary powers right to subscribe to or purchase such a secu- similar to those permitted to national banks rity; or any such warrant or right; or any under the authority of the Comptroller of the other security which the Commission shall Currency pursuant to section 92a of title 12, deem to be of similar nature and consider nec- and which is supervised and examined by essary or appropriate, by such rules and regu- State or Federal authority having supervision lations as it may prescribe in the public inter- over banks or savings associations, and which est or for the protection of investors, to treat is not operated for the purpose of evading the as an equity security. provisions of this chapter, and (D) a receiver, (12)(A) The term ‘‘exempted security’’ or conservator, or other liquidating agent of any ‘‘exempted securities’’ includes— institution or firm included in clauses (A), (B), (i) government securities, as defined in or (C) of this paragraph. paragraph (42) of this subsection; (7) The term ‘‘director’’ means any director (ii) municipal securities, as defined in of a corporation or any person performing paragraph (29) of this subsection; similar functions with respect to any organi- (iii) any interest or participation in any zation, whether incorporated or unincor- common trust fund or similar fund that is porated. excluded from the definition of the term ‘‘in- (8) The term ‘‘issuer’’ means any person who vestment company’’ under section 3(c)(3) of issues or proposes to issue any security; except the Investment Company Act of 1940 [15 that with respect to certificates of deposit for U.S.C. 80a–3(c)(3)]; securities, voting-trust certificates, or collat- (iv) any interest or participation in a sin- eral-trust certificates, or with respect to cer- gle trust fund, or a collective trust fund tificates of interest or shares in an unincor- maintained by a bank, or any security aris- porated investment trust not having a board ing out of a contract issued by an insurance of directors or of the fixed, restricted manage- company, which interest, participation, or ment, or unit type, the term ‘‘issuer’’ means security is issued in connection with a quali- the person or persons performing the acts and fied plan as defined in subparagraph (C) of assuming the duties of depositor or manager this paragraph; pursuant to the provisions of the trust or (v) any security issued by or any interest other agreement or instrument under which or participation in any pooled income fund, such securities are issued; and except that collective trust fund, collective investment with respect to equipment-trust certificates or fund, or similar fund that is excluded from like securities, the term ‘‘issuer’’ means the the definition of an investment company person by whom the equipment or property is, under section 3(c)(10)(B) of the Investment or is to be, used. Company Act of 1940 [15 U.S.C. (9) The term ‘‘person’’ means a natural per- 80a–3(c)(10)(B)]; son, company, government, or political sub- (vi) solely for purposes of sections 78l, 78m, division, agency, or instrumentality of a gov- 78n, and 78p of this title, any security issued ernment. by or any interest or participation in any (10) The term ‘‘security’’ means any note, church plan, company, or account that is ex- stock, treasury stock, security future, secu- cluded from the definition of an investment rity-based swap, bond, debenture, certificate company under section 3(c)(14) of the Invest- of interest or participation in any profit-shar- ment Company Act of 1940 [15 U.S.C. ing agreement or in any oil, gas, or other min- 80a–3(c)(14)]; and eral royalty or lease, any collateral-trust cer- (vii) such other securities (which may in- tificate, preorganization certificate or sub- clude, among others, unregistered securities, scription, transferable share, investment con- the market in which is predominantly intra- tract, voting-trust certificate, certificate of state) as the Commission may, by such rules deposit for a security, any put, call, straddle, and regulations as it deems consistent with option, or privilege on any security, certifi- the public interest and the protection of in- cate of deposit, or group or index of securities vestors, either unconditionally or upon spec- (including any interest therein or based on the ified terms and conditions or for stated peri- value thereof), or any put, call, straddle, op- ods, exempt from the operation of any one or tion, or privilege entered into on a national more provisions of this chapter which by securities exchange relating to foreign cur- their terms do not apply to an ‘‘exempted se- rency, or in general, any instrument com- curity’’ or to ‘‘exempted securities’’. monly known as a ‘‘security’’; or any certifi- (B)(i) Notwithstanding subparagraph (A)(i) cate of interest or participation in, temporary of this paragraph, government securities shall Page 173 TITLE 15—COMMERCE AND TRADE § 78c

not be deemed to be ‘‘exempted securities’’ for any State and any place or ship outside there- the purposes of section 78q–1 of this title. of. The term also includes intrastate use of (A) (ii) Notwithstanding subparagraph (A)(ii) of any facility of a national securities exchange this paragraph, municipal securities shall not or of a telephone or other interstate means of be deemed to be ‘‘exempted securities’’ for the communication, or (B) any other interstate in- purposes of sections 78o and 78q–1 of this title. strumentality. (C) For purposes of subparagraph (A)(iv) of (18) The term ‘‘person associated with a this paragraph, the term ‘‘qualified plan’’ broker or dealer’’ or ‘‘associated person of a means (i) a stock bonus, pension, or profit- broker or dealer’’ means any partner, officer, sharing plan which meets the requirements for director, or branch manager of such broker or qualification under section 401 of title 26, (ii) dealer (or any person occupying a similar an annuity plan which meets the requirements status or performing similar functions), any for the deduction of the employer’s contribu- person directly or indirectly controlling, con- tion under section 404(a)(2) of title 26, (iii) a trolled by, or under common control with such governmental plan as defined in section 414(d) broker or dealer, or any employee of such of title 26 which has been established by an broker or dealer, except that any person asso- employer for the exclusive benefit of its em- ciated with a broker or dealer whose functions ployees or their beneficiaries for the purpose are solely clerical or ministerial shall not be of distributing to such employees or their included in the meaning of such term for pur- beneficiaries the corpus and income of the poses of section 78o(b) of this title (other than funds accumulated under such plan, if under paragraph (6) thereof). such plan it is impossible, prior to the satis- (19) The terms ‘‘investment company’’, ‘‘af- faction of all liabilities with respect to such filiated person’’, ‘‘insurance company’’, ‘‘sepa- employees and their beneficiaries, for any part rate account’’, and ‘‘company’’ have the same of the corpus or income to be used for, or di- meanings as in the Investment Company Act verted to, purposes other than the exclusive of 1940 [15 U.S.C. 80a–1 et seq.]. benefit of such employees or their bene- (20) The terms ‘‘investment adviser’’ and ficiaries, or (iv) a church plan, company, or ac- ‘‘underwriter’’ have the same meanings as in count that is excluded from the definition of the Investment Advisers Act of 1940 [15 U.S.C. an investment company under section 3(c)(14) 80b–1 et seq.]. of the Investment Company Act of 1940 [15 (21) The term ‘‘person associated with a U.S.C. 80a–3(c)(14)], other than any plan de- member’’ or ‘‘associated person of a member’’ scribed in clause (i), (ii), or (iii) of this sub- when used with respect to a member of a na- paragraph which (I) covers employees some or tional securities exchange or registered securi- all of whom are employees within the meaning ties association means any partner, officer, di- of section 401(c) of title 26, or (II) is a plan rector, or branch manager of such member (or funded by an annuity contract described in any person occupying a similar status or per- section 403(b) of title 26. forming similar functions), any person di- (13) The terms ‘‘buy’’ and ‘‘purchase’’ each rectly or indirectly controlling, controlled by, include any contract to buy, purchase, or or under common control with such member, otherwise acquire. For security futures prod- or any employee of such member. ucts, such term includes any contract, agree- (22)(A) The term ‘‘securities information ment, or transaction for future delivery. For processor’’ means any person engaged in the security-based swaps, such terms include the business of (i) collecting, processing, or pre- execution, termination (prior to its scheduled paring for distribution or publication, or as- maturity date), assignment, exchange, or sisting, participating in, or coordinating the similar transfer or conveyance of, or extin- distribution or publication of, information guishing of rights or obligations under, a secu- with respect to transactions in or quotations rity-based swap, as the context may require. for any security (other than an exempted secu- (14) The terms ‘‘sale’’ and ‘‘sell’’ each in- rity) or (ii) distributing or publishing (whether clude any contract to sell or otherwise dispose by means of a ticker tape, a communications of. For security futures products, such term network, a terminal display device, or other- includes any contract, agreement, or trans- wise) on a current and continuing basis, infor- action for future delivery. For security-based mation with respect to such transactions or swaps, such terms include the execution, ter- quotations. The term ‘‘securities information mination (prior to its scheduled maturity processor’’ does not include any bona fide date), assignment, exchange, or similar trans- newspaper, news magazine, or business or fi- fer or conveyance of, or extinguishing of nancial publication of general and regular cir- rights or obligations under, a security-based culation, any self-regulatory organizations, swap, as the context may require. any bank, broker, dealer, building and loan, (15) The term ‘‘Commission’’ means the Se- savings and loan, or homestead association, or curities and Exchange Commission established cooperative bank, if such bank, broker, dealer, by section 78d of this title. association, or cooperative bank would be (16) The term ‘‘State’’ means any State of deemed to be a securities information proc- the United States, the District of Columbia, essor solely by reason of functions performed Puerto Rico, the Virgin Islands, or any other by such institutions as part of customary possession of the United States. banking, brokerage, dealing, association, or (17) The term ‘‘interstate commerce’’ means cooperative bank activities, or any common trade, commerce, transportation, or commu- carrier, as defined in section 153 of title 47, nication among the several States, or between subject to the jurisdiction of the Federal Com- any foreign country and any State, or between munications Commission or a State commis- § 78c TITLE 15—COMMERCE AND TRADE Page 174

sion, as defined in section 153 of title 47, unless settlement of securities transactions or to pre- the Commission determines that such carrier vent evasion of this chapter; (iv) any life in- is engaged in the business of collecting, proc- surance company, its registered separate ac- essing, or preparing for distribution or publi- counts, or a subsidiary of such insurance com- cation, information with respect to trans- pany solely by reason of functions commonly actions in or quotations for any security. performed by such entities in connection with (B) The term ‘‘exclusive processor’’ means variable annuity contracts or variable life any securities information processor or self- policies issued by such insurance company or regulatory organization which, directly or in- its separate accounts; (v) any registered open- directly, engages on an exclusive basis on be- end investment company or unit investment half of any national securities exchange or trust solely by reason of functions commonly registered securities association, or any na- performed by it in connection with shares in tional securities exchange or registered securi- such registered open-end investment company ties association which engages on an exclusive or unit investment trust, or (vi) any person basis on its own behalf, in collecting, process- solely by reason of its performing functions ing, or preparing for distribution or publica- described in paragraph (25)(E) of this sub- tion any information with respect to (i) trans- section. actions or quotations on or effected or made (24) The term ‘‘participant’’ when used with by means of any facility of such exchange or respect to a clearing agency means any person (ii) quotations distributed or published by who uses a clearing agency to clear or settle means of any electronic system operated or securities transactions or to transfer, pledge, controlled by such association. lend, or hypothecate securities. Such term (23)(A) The term ‘‘clearing agency’’ means does not include a person whose only use of a any person who acts as an intermediary in clearing agency is (A) through another person making payments or deliveries or both in con- who is a participant or (B) as a pledgee of se- nection with transactions in securities or who curities. provides facilities for comparison of data re- (25) The term ‘‘transfer agent’’ means any specting the terms of settlement of securities person who engages on behalf of an issuer of transactions, to reduce the number of settle- securities or on behalf of itself as an issuer of ments of securities transactions, or for the al- securities in (A) countersigning such securi- location of securities settlement responsibil- ties upon issuance; (B) monitoring the issu- ities. Such term also means any person, such ance of such securities with a view to prevent- as a securities depository, who (i) acts as a ing unauthorized issuance, a function com- custodian of securities in connection with a monly performed by a person called a reg- system for the central handling of securities istrar; (C) registering the transfer of such se- whereby all securities of a particular class or curities; (D) exchanging or converting such se- series of any issuer deposited within the sys- curities; or (E) transferring record ownership tem are treated as fungible and may be trans- of securities by bookkeeping entry without ferred, loaned, or pledged by bookkeeping physical issuance of securities certificates. entry without physical delivery of securities The term ‘‘transfer agent’’ does not include certificates, or (ii) otherwise permits or facili- any insurance company or separate account tates the settlement of securities transactions which performs such functions solely with re- or the hypothecation or lending of securities spect to variable annuity contracts or variable without physical delivery of securities certifi- life policies which it issues or any registered cates. clearing agency which performs such functions (B) The term ‘‘clearing agency’’ does not in- solely with respect to options contracts which clude (i) any Federal Reserve bank, Federal it issues. home loan bank, or Federal land bank; (ii) any (26) The term ‘‘self-regulatory organization’’ national securities exchange or registered se- means any national securities exchange, reg- curities association solely by reason of its pro- istered securities association, or registered viding facilities for comparison of data re- clearing agency, or (solely for purposes of sec- specting the terms of settlement of securities tions 78s(b), 78s(c), and 78w(b) 1 of this title) transactions effected on such exchange or by the Municipal Securities Rulemaking Board means of any electronic system operated or established by section 78o–4 of this title. controlled by such association; (iii) any bank, (27) The term ‘‘rules of an exchange’’, ‘‘rules broker, dealer, building and loan, savings and of an association’’, or ‘‘rules of a clearing loan, or homestead association, or cooperative agency’’ means the constitution, articles of in- bank if such bank, broker, dealer, association, corporation, bylaws, and rules, or instruments or cooperative bank would be deemed to be a corresponding to the foregoing, of an ex- clearing agency solely by reason of functions change, association of brokers and dealers, or performed by such institution as part of cus- clearing agency, respectively, and such of the tomary banking, brokerage, dealing, associa- stated policies, practices, and interpretations tion, or cooperative banking activities, or of such exchange, association, or clearing solely by reason of acting on behalf of a clear- agency as the Commission, by rule, may deter- ing agency or a participant therein in connec- mine to be necessary or appropriate in the tion with the furnishing by the clearing agen- public interest or for the protection of inves- cy of services to its participants or the use of tors to be deemed to be rules of such exchange, services of the clearing agency by its partici- association, or clearing agency. pants, unless the Commission, by rule, other- (28) The term ‘‘rules of a self-regulatory or- wise provides as necessary or appropriate to ganization’’ means the rules of an exchange assure the prompt and accurate clearance and which is a national securities exchange, the Page 175 TITLE 15—COMMERCE AND TRADE § 78c

rules of an association of brokers and dealers (A) When used with respect to a municipal which is a registered securities association, securities dealer: the rules of a clearing agency which is a reg- (i) the Comptroller of the Currency, in istered clearing agency, or the rules of the the case of a national bank, a subsidiary or Municipal Securities Rulemaking Board. a department or division of any such bank, (29) The term ‘‘municipal securities’’ means a Federal savings association (as defined securities which are direct obligations of, or in section 3(b)(2) of the Federal Deposit In- obligations guaranteed as to principal or insurance Act (12 U.S.C. 1813(b)(2))), the de- terest by, a State or any political subdivision posits of which are insured by the Federal thereof, or any agency or instrumentality of a Deposit Insurance Corporation, or a sub- State or any political subdivision thereof, or sidiary or department or division of any any municipal corporate instrumentality of such Federal savings association; one or more States, or any security which is (ii) the Board of Governors of the Fed- an industrial development bond (as defined in eral Reserve System, in the case of a State 1 section 103(c)(2) of title 26) the interest on member bank of the Federal Reserve Sys- which is excludable from gross income under tem, a subsidiary or a department or divi- section 103(a)(1) 1 of title 26 if, by reason of the sion thereof, a bank holding company, a application of paragraph (4) or (6) of section subsidiary of a bank holding company 103(c) 1 of title 26 (determined as if paragraphs which is a bank other than a bank speci- (4)(A), (5), and (7) were not included in such fied in clause (i), (iii), or (iv) of this subsection 103(c)),1 paragraph (1) of such section 103(c) 1 does not apply to such security. paragraph, a subsidiary or a department or (30) The term ‘‘municipal securities dealer’’ division of such subsidiary, or a savings means any person (including a separately and loan holding company; identifiable department or division of a bank) (iii) the Federal Deposit Insurance Cor- engaged in the business of buying and selling poration, in the case of a bank insured by municipal securities for his own account, the Federal Deposit Insurance Corporation through a broker or otherwise, but does not (other than a member of the Federal Re- include— serve System), a subsidiary or department (A) any person insofar as he buys or sells or division of any such bank, a State sav- such securities for his own account, either ings association (as defined in section individually or in some fiduciary capacity, 3(b)(3) of the Federal Deposit Insurance but not as a part of a regular business; or Act (12 U.S.C. 1813(b)(3))), the deposits of (B) a bank, unless the bank is engaged in which are insured by the Federal Deposit the business of buying and selling municipal Insurance Corporation, or a subsidiary or a securities for its own account other than in department or division of any such State a fiduciary capacity, through a broker or savings association; and otherwise: Provided, however, That if the (iv) the Commission in the case of all bank is engaged in such business through a other municipal securities dealers. separately identifiable department or division (as defined by the Municipal Securities (B) When used with respect to a clearing Rulemaking Board in accordance with sec- agency or transfer agent: tion 78o–4(b)(2)(H) of this title), the depart- (i) the Comptroller of the Currency, in ment or division and not the bank itself the case of a national bank, a subsidiary of shall be deemed to be the municipal securi- any such bank, a Federal savings associa- ties dealer. tion (as defined in section 3(b)(2) of the Federal Deposit Insurance Act (12 U.S.C. (31) The term ‘‘municipal securities broker’’ 1813(b)(2))), the deposits of which are in- means a broker engaged in the business of ef- sured by the Federal Deposit Insurance fecting transactions in municipal securities Corporation, or a subsidiary of any such for the account of others. (32) The term ‘‘person associated with a mu- Federal savings association; nicipal securities dealer’’ when used with re- (ii) the Board of Governors of the Fed- spect to a municipal securities dealer which is eral Reserve System, in the case of a State a bank or a division or department of a bank member bank of the Federal Reserve Sys- means any person directly engaged in the tem, a subsidiary thereof, a bank holding management, direction, supervision, or per- company, a subsidiary of a bank holding formance of any of the municipal securities company that is a bank other than a bank dealer’s activities with respect to municipal specified in clause (i) or (iii) of this sub- securities, and any person directly or indi- paragraph, or a savings and loan holding rectly controlling such activities or controlled company; by the municipal securities dealer in connec- (iii) the Federal Deposit Insurance Cor- tion with such activities. poration, in the case of a bank insured by (33) The term ‘‘municipal securities invest- the Federal Deposit Insurance Corporation ment portfolio’’ means all municipal securi- (other than a member of the Federal Re- ties held for investment and not for sale as serve System), a subsidiary of any such part of a regular business by a municipal secu- bank, a State savings association (as de- rities dealer or by a person, directly or indi- fined in section 3(b)(3) of the Federal De- rectly, controlling, controlled by, or under posit Insurance Act (12 U.S.C. 1813(b)(3))), common control with a municipal securities the deposits of which are insured by the dealer. Federal Deposit Insurance Corporation, or (34) The term ‘‘appropriate regulatory agen- a subsidiary of any such State savings as- cy’’ means— sociation; and § 78c TITLE 15—COMMERCE AND TRADE Page 176

(iv) the Commission in the case of all association, member thereof, person associ- other clearing agencies and transfer ated with a member thereof, applicant to be- agents. come a member thereof or to become associ- (C) When used with respect to a partici- ated with a member thereof, or person re- pant or applicant to become a participant in questing or having access to services offered a clearing agency or a person requesting or by such exchange or association or member having access to services offered by a clear- thereof, or the Municipal Securities Rule- ing agency: making Board, the Commission. (i) The Comptroller of the Currency, in (F) When used with respect to a person ex- the case of a national bank or a Federal ercising investment discretion with respect savings association (as defined in section to an account; 5 3(b)(2) of the Federal Deposit Insurance (i) the Comptroller of the Currency, in Act (12 U.S.C. 1813(b)(2))), the deposits of the case of a national bank or a Federal which are insured by the Federal Deposit savings association (as defined in section Insurance Corporation 2 when the appro- 3(b)(2) of the Federal Deposit Insurance priate regulatory agency for such clearing Act (12 U.S.C. 1813(b)(2))), the deposits of agency is not the Commission; which are insured by the Federal Deposit (ii) the Board of Governors of the Fed- Insurance Corporation; eral Reserve System in the case of a State (ii) the Board of Governors of the Fed- member bank of the Federal Reserve Sys- eral Reserve System in the case of any tem, a bank holding company, or a subsidi- other member bank of the Federal Reserve ary of a bank holding company, a subsidi- System; ary of a bank holding company that is a (iii) the Federal Deposit Insurance Cor- bank other than a bank specified in clause poration, in the case of any other bank the (i) or (iii) of this subparagraph, or a sav- deposits of which are insured in accord- ings and loan holding company when the ance with the Federal Deposit Insurance appropriate regulatory agency for such Act [12 U.S.C. 1811 et seq.] or a State sav- clearing agency is not the Commission; ings association (as defined in section (iii) the Federal Deposit Insurance Cor- 3(b)(3) of the Federal Deposit Insurance poration, in the case of a bank insured by Act (12 U.S.C. 1813(b)(3))), the deposits of the Federal Deposit Insurance Corporation which are insured by the Federal Deposit (other than a member of the Federal Re- Insurance Corporation; and serve System) or a State savings associa- (iv) the Commission in the case of all tion (as defined in section 3(b)(3) of the other such persons. Federal Deposit Insurance Act (12 U.S.C. (G) When used with respect to a govern- 1813(b)(3))), the deposits of which are in- ment securities broker or government secu- sured by the Federal Deposit Insurance rities dealer, or person associated with a Corporation; and 3 when the appropriate government securities broker or government regulatory agency for such clearing agen- securities dealer: cy is not the Commission; 4 (i) the Comptroller of the Currency, in (iv) the Commission in all other cases. the case of a national bank, a Federal sav- (D) When used with respect to an institu- ings association (as defined in section tional investment manager which is a bank 3(b)(2) of the Federal Deposit Insurance the deposits of which are insured in accord- Act [12 U.S.C. 1813(b)(2)]), the deposits of ance with the Federal Deposit Insurance Act which are insured by the Federal Deposit [12 U.S.C. 1811 et seq.]: Insurance Corporation, or a Federal (i) the Comptroller of the Currency, in branch or Federal agency of a foreign bank the case of a national bank or a Federal (as such terms are used in the Inter- savings association (as defined in section national Banking Act of 1978 [12 U.S.C. 3101 3(b)(2) of the Federal Deposit Insurance et seq.]); Act (12 U.S.C. 1813(b)(2))), the deposits of (ii) the Board of Governors of the Fed- which are insured by the Federal Deposit eral Reserve System, in the case of a State Insurance Corporation; member bank of the Federal Reserve Sys- (ii) the Board of Governors of the Fed- tem, a foreign bank, an uninsured State eral Reserve System, in the case of any branch or State agency of a foreign bank, other member bank of the Federal Reserve a commercial lending company owned or System; and controlled by a foreign bank (as such (iii) the Federal Deposit Insurance Cor- terms are used in the International Bank- poration, in the case of any other insured ing Act of 1978), or a corporation organized bank or a State savings association (as de- or having an agreement with the Board of fined in section 3(b)(3) of the Federal De- Governors of the Federal Reserve System posit Insurance Act (12 U.S.C. 1813(b)(3))), pursuant to section 25 or section 25A of the the deposits of which are insured by the Federal Reserve Act [12 U.S.C. 601 et seq., Federal Deposit Insurance Corporation. 611 et seq.]; (E) When used with respect to a national (iii) the Federal Deposit Insurance Cor- securities exchange or registered securities poration, in the case of a bank insured by the Federal Deposit Insurance Corporation 2 So in original. Probably should be followed by a comma. (other than a member of the Federal Re- 3 So in original. The ‘‘; and’’ probably should be a comma. 4 So in original. Probably should be followed by ‘‘and’’. 5 So in original. The semicolon probably should be a colon. Page 177 TITLE 15—COMMERCE AND TRADE § 78c

serve System or a Federal savings bank), a dealer acting in the capacity of block posi- State savings association (as defined in tioner, and any dealer who, with respect to a section 3(b)(3) of the Federal Deposit In- security, holds himself out (by entering surance Act [12 U.S.C. 1813(b)(3)]), the de- quotations in an inter-dealer communications posits of which are insured by the Federal system or otherwise) as being willing to buy Deposit Insurance Corporation, or an in- and sell such security for his own account on sured State branch of a foreign bank (as a regular or continuous basis. such terms are used in the International (39) A person is subject to a ‘‘statutory dis- Banking Act of 1978); and qualification’’ with respect to membership or (iv) the Commission, in the case of all participation in, or association with a member other government securities brokers and of, a self-regulatory organization, if such per- government securities dealers. son— (A) has been and is expelled or suspended (H) When used with respect to an institu- from membership or participation in, or tion described in subparagraph (D), (F), or barred or suspended from being associated (G) of section 1841(c)(2), or held under sec- with a member of, any self-regulatory orga- tion 1843(f) of title 12— (i) the Comptroller of the Currency, in nization, foreign equivalent of a self-regu- the case of a national bank; latory organization, foreign or international (ii) the Board of Governors of the Fed- securities exchange, contract market des- eral Reserve System, in the case of a State ignated pursuant to section 5 of the Com- member bank of the Federal Reserve Sys- modity Exchange Act (7 U.S.C. 7), or any tem or any corporation chartered under substantially equivalent foreign statute or section 25A of the Federal Reserve Act [12 regulation, or futures association registered U.S.C. 611 et seq.]; under section 17 of such Act (7 U.S.C. 21), or (iii) the Federal Deposit Insurance Cor- any substantially equivalent foreign statute poration, in the case of any other bank the or regulation, or has been and is denied trad- deposits of which are insured in according privileges on any such contract market ance with the Federal Deposit Insurance or foreign equivalent; Act [12 U.S.C. 1811 et seq.]; or (B) is subject to— (iv) the Commission in the case of all (i) an order of the Commission, other ap- other such institutions. propriate regulatory agency, or foreign financial regulatory authority— As used in this paragraph, the terms ‘‘bank (I) denying, suspending for a period not holding company’’ and ‘‘subsidiary of a bank exceeding 12 months, or revoking his holding company’’ have the meanings given registration as a broker, dealer, munici- them in section 1841 of title 12. As used in this pal securities dealer, government securi- paragraph, the term ‘‘savings and loan holding ties broker, government securities deal- company’’ has the same meaning as in section er, security-based swap dealer, or major 1467a(a) of title 12. security-based swap participant or limit- (35) A person exercises ‘‘investment discre- ing his activities as a foreign person per- tion’’ with respect to an account if, directly or forming a function substantially equiva- indirectly, such person (A) is authorized to de- lent to any of the above; or termine what securities or other property (II) barring or suspending for a period shall be purchased or sold by or for the ac- not exceeding 12 months his being asso- count, (B) makes decisions as to what securi- ciated with a broker, dealer, municipal ties or other property shall be purchased or securities dealer, government securities sold by or for the account even though some broker, government securities dealer, se- other person may have responsibility for such curity-based swap dealer, major secu- investment decisions, or (C) otherwise exer- rity-based swap participant, or foreign cises such influence with respect to the pur- person performing a function substan- chase and sale of securities or other property tially equivalent to any of the above; by or for the account as the Commission, by rule, determines, in the public interest or for (ii) an order of the Commodity Futures the protection of investors, should be subject Trading Commission denying, suspending, to the operation of the provisions of this chap- or revoking his registration under the ter and the rules and regulations thereunder. Commodity Exchange Act (7 U.S.C. 1 et (36) A class of persons or markets is subject seq.); or (iii) an order by a foreign financial regu- to ‘‘equal regulation’’ if no member of the latory authority denying, suspending, or class has a competitive advantage over any revoking the person’s authority to engage other member thereof resulting from a dispar- in transactions in contracts of sale of a ity in their regulation under this chapter commodity for future delivery or other in- which the Commission determines is unfair struments traded on or subject to the rules and not necessary or appropriate in further- of a contract market, board of trade, or ance of the purposes of this chapter. (37) The term ‘‘records’’ means accounts, foreign equivalent thereof; correspondence, memorandums, tapes, discs, (C) by his conduct while associated with a papers, books, and other documents or tran- broker, dealer, municipal securities dealer, scribed information of any type, whether ex- government securities broker, government pressed in ordinary or machine language. securities dealer, security-based swap dealer, (38) The term ‘‘market maker’’ means any or major security-based swap participant, or specialist permitted to act as a dealer, any while associated with an entity or person re- § 78c TITLE 15—COMMERCE AND TRADE Page 178

quired to be registered under the Commodity two highest rating categories by at least one Exchange Act, has been found to be a cause nationally recognized statistical rating orga- of any effective suspension, expulsion, or nization, and either: order of the character described in subpara- (A) represents ownership of one or more graph (A) or (B) of this paragraph, and in en- promissory notes or certificates of interest tering such a suspension, expulsion, or order, or participation in such notes (including any the Commission, an appropriate regulatory rights designed to assure servicing of, or the agency, or any such self-regulatory organi- receipt or timeliness of receipt by the hold- zation shall have jurisdiction to find wheth- ers of such notes, certificates, or participa- er or not any person was a cause thereof; tions of amounts payable under, such notes, (D) by his conduct while associated with certificates, or participations), which notes: any broker, dealer, municipal securities (i) are directly secured by a first lien on dealer, government securities broker, gov- a single parcel of real estate, including ernment securities dealer, security-based stock allocated to a dwelling unit in a res- swap dealer, major security-based swap par- idential cooperative housing corporation, ticipant, or any other entity engaged in upon which is located a dwelling or mixed transactions in securities, or while associ- residential and commercial structure, on a ated with an entity engaged in transactions residential manufactured home as defined in contracts of sale of a commodity for fu- in section 5402(6) of title 42, whether such ture delivery or other instruments traded on manufactured home is considered real or or subject to the rules of a contract market, personal property under the laws of the board of trade, or foreign equivalent thereof, State in which it is to be located, or on has been found to be a cause of any effective one or more parcels of real estate upon suspension, expulsion, or order by a foreign which is located one or more commercial or international securities exchange or for- structures; and eign financial regulatory authority empow- (ii) were originated by a savings and loan ered by a foreign government to administer association, savings bank, commercial or enforce its laws relating to financial bank, credit union, insurance company, or transactions as described in subparagraph similar institution which is supervised and (A) or (B) of this paragraph; examined by a Federal or State authority, (E) has associated with him any person or by a mortgagee approved by the Sec- who is known, or in the exercise of reason- retary of Housing and Urban Development able care should be known, to him to be a pursuant to sections 1709 and 1715b of title person described by subparagraph (A), (B), 12, or, where such notes involve a lien on (C), or (D) of this paragraph; or the manufactured home, by any such insti- (F) has committed or omitted any act, or tution or by any financial institution ap- is subject to an order or finding, enumerated proved for insurance by the Secretary of in subparagraph (D), (E), (H), or (G) of para- Housing and Urban Development pursuant graph (4) of section 78o(b) of this title, has to section 1703 of title 12; or been convicted of any offense specified in subparagraph (B) of such paragraph (4) or (B) is secured by one or more promissory any other felony within ten years of the date notes or certificates of interest or participa- of the filing of an application for member- tions in such notes (with or without recourse ship or participation in, or to become associ- to the issuer thereof) and, by its terms, pro- ated with a member of, such self-regulatory vides for payments of principal in relation to organization, is enjoined from any action, payments, or reasonable projections of pay- conduct, or practice specified in subpara- ments, on notes meeting the requirements of graph (C) of such paragraph (4), has willfully subparagraphs (A)(i) and (ii) or certificates made or caused to be made in any applica- of interest or participations in promissory tion for membership or participation in, or notes meeting such requirements. to become associated with a member of, a For the purpose of this paragraph, the term self-regulatory organization, report required ‘‘promissory note’’, when used in connection to be filed with a self-regulatory organiza- with a manufactured home, shall also include tion, or proceeding before a self-regulatory a loan, advance, or credit sale as evidence 6 by organization, any statement which was at a retail installment sales contract or other in- the time, and in the light of the circum- strument. stances under which it was made, false or (42) The term ‘‘government securities’’ misleading with respect to any material means— fact, or has omitted to state in any such ap- (A) securities which are direct obligations plication, report, or proceeding any material of, or obligations guaranteed as to principal fact which is required to be stated therein. or interest by, the United States; (40) The term ‘‘financial responsibility (B) securities which are issued or guaran- rules’’ means the rules and regulations of the teed by the Tennessee Valley Authority or Commission or the rules and regulations pre- by corporations in which the United States scribed by any self-regulatory organization re- has a direct or indirect interest and which lating to financial responsibility and related are designated by the Secretary of the practices which are designated by the Com- Treasury for exemption as necessary or ap- mission, by rule or regulation, to be financial propriate in the public interest or for the responsibility rules. protection of investors; (41) The term ‘‘mortgage related security’’ means a security that is rated in one of the 6 So in original. Probably should be ‘‘evidenced’’. Page 179 TITLE 15—COMMERCE AND TRADE § 78c

(C) securities issued or guaranteed as to the Commission, after consultation with the principal or interest by any corporation the Commodity Futures Trading Commission, securities of which are designated, by stat- has determined by rule or order to be inci- ute specifically naming such corporation, to dental to such person’s futures-related busi- constitute exempt securities within the ness. meaning of the laws administered by the (45) The term ‘‘person associated with a gov- Commission; ernment securities broker or government se- (D) for purposes of sections 78o–5 and 78q–1 curities dealer’’ means any partner, officer, di- of this title, any put, call, straddle, option, rector, or branch manager of such government or privilege on a security described in sub- securities broker or government securities paragraph (A), (B), or (C) other than a put, dealer (or any person occupying a similar call, straddle, option, or privilege— status or performing similar functions), and (i) that is traded on one or more national any other employee of such government secu- securities exchanges; or (ii) for which quotations are dissemi- rities broker or government securities dealer nated through an automated quotation who is engaged in the management, direction, system operated by a registered securities supervision, or performance of any activities association; or relating to government securities, and any person directly or indirectly controlling, con- (E) for purposes of sections 78o, 78o–5, and trolled by, or under common control with such 78q–1 of this title as applied to a bank, a government securities broker or government qualified Canadian government obligation as securities dealer. defined in section 24 of title 12. (46) The term ‘‘financial institution’’ (43) The term ‘‘government securities means— broker’’ means any person regularly engaged (A) a bank (as defined in paragraph (6) of in the business of effecting transactions in this subsection); government securities for the account of oth- (B) a foreign bank (as such term is used in ers, but does not include— the International Banking Act of 1978); and (A) any corporation the securities of which (C) a savings association (as defined in sec- are government securities under subpara- tion 3(b) of the Federal Deposit Insurance graph (B) or (C) of paragraph (42) of this sub- Act [12 U.S.C. 1813(b)]) the deposits of which section; or are insured by the Federal Deposit Insurance (B) any person registered with the Com- Corporation. modity Futures Trading Commission, any (47) The term ‘‘securities laws’’ means the contract market designated by the Commod- Securities Act of 1933 (15 U.S.C. 77a et seq.), ity Futures Trading Commission, such con- the Securities Exchange Act of 1934 (15 U.S.C. tract market’s affiliated clearing organiza- 78a et seq.), the Sarbanes-Oxley Act of 2002 [15 tion, or any floor trader on such contract U.S.C. 7201 et seq.], the Trust Indenture Act of market, solely because such person effects 1939 (15 U.S.C. 77aaa et seq.), the Investment transactions in government securities that Company Act of 1940 (15 U.S.C. 80a–1 et seq.), the Commission, after consultation with the the Investment Advisers Act of 1940 (15 U.S.C. Commodity Futures Trading Commission, 80b et seq.) [15 U.S.C. 80b–1 et seq.], and the Se- has determined by rule or order to be inci- curities Investor Protection Act of 1970 (15 dental to such person’s futures-related busi- U.S.C. 78aaa et seq.). ness. (48) The term ‘‘registered broker or dealer’’ (44) The term ‘‘government securities deal- means a broker or dealer registered or re- er’’ means any person engaged in the business quired to register pursuant to section 78o or of buying and selling government securities 78o–4 of this title, except that in paragraph (3) for his own account, through a broker or of this subsection and sections 78f and 78o–3 of otherwise, but does not include— this title the term means such a broker or (A) any person insofar as he buys or sells dealer and a government securities broker or such securities for his own account, either government securities dealer registered or re- individually or in some fiduciary capacity, quired to register pursuant to section but not as a part of a regular business; 78o–5(a)(1)(A) of this title. (B) any corporation the securities of which (49) The term ‘‘person associated with a are government securities under subpara- transfer agent’’ and ‘‘associated person of a graph (B) or (C) of paragraph (42) of this sub- transfer agent’’ mean any person (except an section; employee whose functions are solely clerical (C) any bank, unless the bank is engaged or ministerial) directly engaged in the man- in the business of buying and selling govern- agement, direction, supervision, or perform- ment securities for its own account other ance of any of the transfer agent’s activities than in a fiduciary capacity, through a with respect to transfer agent functions, and broker or otherwise; or any person directly or indirectly controlling (D) any person registered with the Com- such activities or controlled by the transfer modity Futures Trading Commission, any agent in connection with such activities. contract market designated by the Commod- (50) The term ‘‘foreign securities authority’’ ity Futures Trading Commission, such con- means any foreign government, or any govern- tract market’s affiliated clearing organiza- mental body or regulatory organization em- tion, or any floor trader on such contract powered by a foreign government to admin- market, solely because such person effects ister or enforce its laws as they relate to secu- transactions in government securities that rities matters. § 78c TITLE 15—COMMERCE AND TRADE Page 180

(51)(A) The term ‘‘penny stock’’ means any (ii) is secured by an interest in 1 or more equity security other than a security that is— promissory notes or leases of personal prop- (i) registered or approved for registration erty (with or without recourse to the issuer and traded on a national securities exchange or lessee) and provides for payments of prin- that meets such criteria as the Commission cipal in relation to payments, or reasonable shall prescribe by rule or regulation for pur- projections of payments, on notes or leases poses of this paragraph; described in clause (i). (ii) authorized for quotation on an auto- (B) For purposes of this paragraph— mated quotation system sponsored by a reg- (i) an ‘‘interest in a promissory note or a istered securities association, if such system lease of personal property’’ includes owner- (I) was established and in operation before ship rights, certificates of interest or par- January 1, 1990, and (II) meets such criteria ticipation in such notes or leases, and rights as the Commission shall prescribe by rule or designed to assure servicing of such notes or regulation for purposes of this paragraph; leases, or the receipt or timely receipt of (iii) issued by an investment company reg- amounts payable under such notes or leases; istered under the Investment Company Act (ii) the term ‘‘small business concern’’ of 1940 [15 U.S.C. 80a–1 et seq.]; means a business that meets the criteria for (iv) excluded, on the basis of exceeding a a small business concern established by the minimum price, net tangible assets of the is- Small Business Administration under sec- suer, or other relevant criteria, from the def- tion 632(a) of this title; inition of such term by rule or regulation (iii) the term ‘‘insured depository institu- which the Commission shall prescribe for tion’’ has the same meaning as in section 3 purposes of this paragraph; or of the Federal Deposit Insurance Act [12 (v) exempted, in whole or in part, condi- U.S.C. 1813]; and tionally or unconditionally, from the defini- (iv) the term ‘‘insured credit union’’ has tion of such term by rule, regulation, or the same meaning as in section 1752 of title order prescribed by the Commission. 12. (B) The Commission may, by rule, regula- (54) QUALIFIED INVESTOR.— tion, or order, designate any equity security (A) DEFINITION.—Except as provided in sub- or class of equity securities described in clause paragraph (B), for purposes of this chapter, (i) or (ii) of subparagraph (A) as within the the term ‘‘qualified investor’’ means— meaning of the term ‘‘penny stock’’ if such se- (i) any investment company registered curity or class of securities is traded other with the Commission under section 8 of than on a national securities exchange or the Investment Company Act of 1940 [15 through an automated quotation system de- U.S.C. 80a–8]; scribed in clause (ii) of subparagraph (A). (ii) any issuer eligible for an exclusion (C) In exercising its authority under this from the definition of investment company paragraph to prescribe rules, regulations, and pursuant to section 3(c)(7) of the Invest- orders, the Commission shall determine that ment Company Act of 1940 [15 U.S.C. such rule, regulation, or order is consistent 80a–3(c)(7)]; with the public interest and the protection of (iii) any bank (as defined in paragraph investors. (6) of this subsection), savings association (52) The term ‘‘foreign financial regulatory (as defined in section 3(b) of the Federal authority’’ means any (A) foreign securities Deposit Insurance Act [12 U.S.C. 1813(b)]), authority, (B) other governmental body or for- broker, dealer, insurance company (as de- eign equivalent of a self-regulatory organiza- fined in section 2(a)(13) of the Securities tion empowered by a foreign government to Act of 1933 [15 U.S.C. 77b(a)(13)]), or busi- administer or enforce its laws relating to the ness development company (as defined in regulation of fiduciaries, trusts, commercial section 2(a)(48) of the Investment Company lending, insurance, trading in contracts of sale Act of 1940 [15 U.S.C. 80a–2(a)(48)]); of a commodity for future delivery, or other (iv) any small business investment com- instruments traded on or subject to the rules pany licensed by the United States Small of a contract market, board of trade, or for- Business Administration under section eign equivalent, or other financial activities, 301(c) [15 U.S.C. 681(c)] or (d) 1 of the Small or (C) membership organization a function of Business Investment Act of 1958; which is to regulate participation of its mem- (v) any State sponsored employee benefit bers in activities listed above. plan, or any other employee benefit plan, (53)(A) The term ‘‘small business related se- within the meaning of the Employee Re- curity’’ means a security that is rated in 1 of tirement Income Security Act of 1974 [29 the 4 highest rating categories by at least 1 U.S.C. 1001 et seq.], other than an individ- nationally recognized statistical rating orga- ual retirement account, if the investment nization, and either— decisions are made by a plan fiduciary, as (i) represents an interest in 1 or more defined in section 3(21) of that Act [29 promissory notes or leases of personal prop- U.S.C. 1002(21)], which is either a bank, erty evidencing the obligation of a small savings and loan association, insurance business concern and originated by an in- company, or registered investment ad- sured depository institution, insured credit viser; union, insurance company, or similar insti- (vi) any trust whose purchases of securi- tution which is supervised and examined by ties are directed by a person described in a Federal or State authority, or a finance clauses (i) through (v) of this subpara- company or leasing company; or graph; Page 181 TITLE 15—COMMERCE AND TRADE § 78c

(vii) any market intermediary exempt 25 percent of the index’s weighting have an under section 3(c)(2) of the Investment aggregate dollar value of average daily trad- Company Act of 1940 [15 U.S.C. 80a–3(c)(2)]; ing volume of less than $50,000,000 (or in the (viii) any associated person of a broker case of an index with 15 or more component or dealer other than a natural person; securities, $30,000,000), except that if there (ix) any foreign bank (as defined in sec- are two or more securities with equal tion 1(b)(7) of the International Banking weighting that could be included in the cal- Act of 1978 [12 U.S.C. 3101(7)]); culation of the lowest weighted component (x) the government of any foreign coun- securities comprising, in the aggregate, 25 try; percent of the index’s weighting, such secu- (xi) any corporation, company, or part- rities shall be ranked from lowest to highest nership that owns and invests on a discre- dollar value of average daily trading volume tionary basis, not less than $25,000,000 in and shall be included in the calculation investments; based on their ranking starting with the (xii) any natural person who owns and lowest ranked security. invests on a discretionary basis, not less than $25,000,000 in investments; (C) Notwithstanding subparagraph (B), an (xiii) any government or political sub- index is not a narrow-based security index if— division, agency, or instrumentality of a (i)(I) it has at least nine component securi- government who owns and invests on a dis- ties; cretionary basis not less than $50,000,000 in (II) no component security comprises more investments; or than 30 percent of the index’s weighting; and (xiv) any multinational or supranational (III) each component security is— entity or any agency or instrumentality (aa) registered pursuant to section 78l of thereof. this title; (bb) one of 750 securities with the largest (B) ALTERED THRESHOLDS FOR ASSET- market capitalization; and BACKED SECURITIES AND LOAN PARTICIPA- (cc) one of 675 securities with the largest TIONS.—For purposes of subsection dollar value of average daily trading vol- (a)(5)(C)(iii) of this section and section ume; 206(a)(5) of the Gramm-Leach-Bliley Act, the (ii) a board of trade was designated as a term ‘‘qualified investor’’ has the meaning contract market by the Commodity Futures given such term by subparagraph (A) of this Trading Commission with respect to a con- paragraph except that clauses (xi) and (xii) tract of sale for future delivery on the index, shall be applied by substituting ‘‘$10,000,000’’ before December 21, 2000; for ‘‘$25,000,000’’. (iii)(I) a contract of sale for future delivery (C) ADDITIONAL AUTHORITY.—The Commis- sion may, by rule or order, define a ‘‘quali- on the index traded on a designated contract fied investor’’ as any other person, taking market or registered derivatives transaction into consideration such factors as the finan- execution facility for at least 30 days as a cial sophistication of the person, net worth, contract of sale for future delivery on an and knowledge and experience in financial index that was not a narrow-based security matters. index; and (II) it has been a narrow-based security (55)(A) The term ‘‘security future’’ means a index for no more than 45 business days over contract of sale for future delivery of a single 3 consecutive calendar months; security or of a narrow-based security index, (iv) a contract of sale for future delivery including any interest therein or based on the on the index is traded on or subject to the value thereof, except an exempted security rules of a foreign board of trade and meets under paragraph (12) of this subsection as in such requirements as are jointly established effect on January 11, 1983 (other than any mu- by rule or regulation by the Commission and nicipal security as defined in paragraph (29) of the Commodity Futures Trading Commis- this subsection as in effect on January 11, sion; 1983). The term ‘‘security future’’ does not in- (v) no more than 18 months have passed clude any agreement, contract, or transaction since December 21, 2000, and— excluded from the Commodity Exchange Act [7 (I) it is traded on or subject to the rules U.S.C. 1 et seq.] under section 2(c), 2(d), 2(f), or of a foreign board of trade; 2(g) of the Commodity Exchange Act [7 U.S.C. (II) the offer and sale in the United 2(c), (d), (f), (g)] (as in effect on December 21, States of a contract of sale for future de- 2000) or sections 27 to 27f of title 7. livery on the index was authorized before (B) The term ‘‘narrow-based security index’’ December 21, 2000; and means an index— (III) the conditions of such authorization (i) that has 9 or fewer component securi- continue to be met; or ties; (vi) a contract of sale for future delivery (ii) in which a component security com- on the index is traded on or subject to the prises more than 30 percent of the index’s rules of a board of trade and meets such re- weighting; quirements as are jointly established by (iii) in which the five highest weighted rule, regulation, or order by the Commission component securities in the aggregate com- and the Commodity Futures Trading Com- prise more than 60 percent of the index’s mission. weighting; or (iv) in which the lowest weighted compo- (D) Within 1 year after December 21, 2000, nent securities comprising, in the aggregate, the Commission and the Commodity Futures § 78c TITLE 15—COMMERCE AND TRADE Page 182

Trading Commission jointly shall adopt rules (61) CREDIT RATING AGENCY.—The term ‘‘cred- or regulations that set forth the requirements it rating agency’’ means any person— under clause (iv) of subparagraph (C). (A) engaged in the business of issuing cred- (E) An index that is a narrow-based security it ratings on the Internet or through an- index solely because it was a narrow-based se- other readily accessible means, for free or curity index for more than 45 business days for a reasonable fee, but does not include a over 3 consecutive calendar months pursuant commercial credit reporting company; to clause (iii) of subparagraph (C) shall not be (B) employing either a quantitative or a narrow-based security index for the 3 follow- qualitative model, or both, to determine ing calendar months. credit ratings; and (F) For purposes of subparagraphs (B) and (C) receiving fees from either issuers, in- (C) of this paragraph— vestors, or other market participants, or a (i) the dollar value of average daily trad- combination thereof. ing volume and the market capitalization (62) NATIONALLY RECOGNIZED STATISTICAL shall be calculated as of the preceding 6 full RATING ORGANIZATION.—The term ‘‘nationally calendar months; and recognized statistical rating organization’’ (ii) the Commission and the Commodity means a credit rating agency that— Futures Trading Commission shall, by rule (A) issues credit ratings certified by quali- or regulation, jointly specify the method to fied institutional buyers, in accordance with be used to determine market capitalization section 78o–7(a)(1)(B)(ix) of this title, with and dollar value of average daily trading respect to— volume. (i) financial institutions, brokers, or dealers; (56) The term ‘‘security futures product’’ (ii) insurance companies; means a security future or any put, call, strad- (iii) corporate issuers; dle, option, or privilege on any security fu- (iv) issuers of asset-backed securities (as ture. that term is defined in section 1101(c) of (57)(A) The term ‘‘margin’’, when used with part 229 of title 17, Code of Federal Regula- respect to a security futures product, means tions, as in effect on September 29, 2006); the amount, type, and form of collateral re- (v) issuers of government securities, mu- quired to secure any extension or maintenance nicipal securities, or securities issued by a of credit, or the amount, type, and form of col- foreign government; or lateral required as a performance bond related (vi) a combination of one or more cat- to the purchase, sale, or carrying of a security egories of obligors described in any of futures product. clauses (i) through (v); and (B) The terms ‘‘margin level’’ and ‘‘level of (B) is registered under section 78o–7 of this margin’’, when used with respect to a security title. futures product, mean the amount of margin required to secure any extension or mainte- (63) PERSON ASSOCIATED WITH A NATIONALLY nance of credit, or the amount of margin re- RECOGNIZED STATISTICAL RATING ORGANIZA- quired as a performance bond related to the TION.—The term ‘‘person associated with’’ a purchase, sale, or carrying of a security fu- nationally recognized statistical rating orga- tures product. nization means any partner, officer, director, (C) The terms ‘‘higher margin level’’ and or branch manager of a nationally recognized ‘‘higher level of margin’’, when used with re- statistical rating organization (or any person spect to a security futures product, mean a occupying a similar status or performing simi- margin level established by a national securi- lar functions), any person directly or indi- ties exchange registered pursuant to section rectly controlling, controlled by, or under 78f(g) of this title that is higher than the mini- common control with a nationally recognized mum amount established and in effect pursu- statistical rating organization, or any em- ant to section 78g(c)(2)(B) of this title. ployee of a nationally recognized statistical (58) AUDIT COMMITTEE.—The term ‘‘audit rating organization. committee’’ means— (64) QUALIFIED INSTITUTIONAL BUYER.—The (A) a committee (or equivalent body) es- term ‘‘qualified institutional buyer’’ has the tablished by and amongst the board of direc- meaning given such term in section 230.144A(a) tors of an issuer for the purpose of over- of title 17, Code of Federal Regulations, or any seeing the accounting and financial report- successor thereto. ing processes of the issuer and audits of the (65) ELIGIBLE CONTRACT PARTICIPANT.—The financial statements of the issuer; and term ‘‘eligible contract participant’’ has the (B) if no such committee exists with re- same meaning as in section 1a of the Commod- spect to an issuer, the entire board of direc- ity Exchange Act (7 U.S.C. 1a). tors of the issuer. (66) MAJOR SWAP PARTICIPANT.—The term ‘‘major swap participant’’ has the same mean- (59) REGISTERED PUBLIC ACCOUNTING FIRM.— ing as in section 1a of the Commodity Ex- The term ‘‘registered public accounting firm’’ change Act (7 U.S.C. 1a). has the same meaning as in section 2 of the (67) MAJOR SECURITY-BASED SWAP PARTICI- Sarbanes-Oxley Act of 2002 [15 U.S.C. 7201]. PANT.— (60) CREDIT RATING.—The term ‘‘credit rat- (A) IN GENERAL.—The term ‘‘major secu- ing’’ means an assessment of the creditworthi- rity-based swap participant’’ means any per- ness of an obligor as an entity or with respect son— to specific securities or money market instru- (i) who is not a security-based swap deal- ments. er; and Page 183 TITLE 15—COMMERCE AND TRADE § 78c

(ii)(I) who maintains a substantial posi- (III) the occurrence, nonoccurrence, or tion in security-based swaps for any of the extent of the occurrence of an event re- major security-based swap categories, as lating to a single issuer of a security or such categories are determined by the the issuers of securities in a narrow- Commission, excluding both positions held based security index, provided that such for hedging or mitigating commercial risk event directly affects the financial state- and positions maintained by any employee ments, financial condition, or financial benefit plan (or any contract held by such obligations of the issuer. a plan) as defined in paragraphs (3) and (32) (B) RULE OF CONSTRUCTION REGARDING MAS- of section 3 of the Employee Retirement TER AGREEMENTS.—The term ‘‘security-based Income Security Act of 1974 (29 U.S.C. 1002) swap’’ shall be construed to include a master for the primary purpose of hedging or agreement that provides for an agreement, mitigating any risk directly associated contract, or transaction that is a security- with the operation of the plan; based swap pursuant to subparagraph (A), (II) whose outstanding security-based together with all supplements to any such swaps create substantial counterparty ex- master agreement, without regard to wheth- posure that could have serious adverse ef- er the master agreement contains an agree- fects on the financial stability of the ment, contract, or transaction that is not a United States banking system or financial security-based swap pursuant to subpara- markets; or graph (A), except that the master agreement (III) that is a financial entity that— shall be considered to be a security-based (aa) is highly leveraged relative to the swap only with respect to each agreement, amount of capital such entity holds and contract, or transaction under the master that is not subject to capital require- agreement that is a security-based swap pur- ments established by an appropriate suant to subparagraph (A). Federal banking agency; and (C) EXCLUSIONS.—The term ‘‘security- (bb) maintains a substantial position based swap’’ does not include any agree- in outstanding security-based swaps in ment, contract, or transaction that meets any major security-based swap category, the definition of a security-based swap only as such categories are determined by the because such agreement, contract, or trans- Commission. action references, is based upon, or settles (B) DEFINITION OF SUBSTANTIAL POSITION.— through the transfer, delivery, or receipt of For purposes of subparagraph (A), the Com- an exempted security under paragraph (12), mission shall define, by rule or regulation, as in effect on January 11, 1983 (other than the term ‘‘substantial position’’ at the any municipal security as defined in para- threshold that the Commission determines graph (29) as in effect on January 11, 1983), to be prudent for the effective monitoring, unless such agreement, contract, or trans- management, and oversight of entities that action is of the character of, or is commonly are systemically important or can signifi- known in the trade as, a put, call, or other cantly impact the financial system of the option. United States. In setting the definition (D) MIXED SWAP.—The term ‘‘security- under this subparagraph, the Commission based swap’’ includes any agreement, con- shall consider the person’s relative position tract, or transaction that is as described in in uncleared as opposed to cleared security- subparagraph (A) and also is based on the based swaps and may take into consider- value of 1 or more interest or other rates, ation the value and quality of collateral held currencies, commodities, instruments of in- against counterparty exposures. debtedness, indices, quantitative measures, (C) SCOPE OF DESIGNATION.—For purposes other financial or economic interest or prop- of subparagraph (A), a person may be des- erty of any kind (other than a single secu- ignated as a major security-based swap par- rity or a narrow-based security index), or ticipant for 1 or more categories of security- the occurrence, non-occurrence, or the ex- based swaps without being classified as a tent of the occurrence of an event or contin- major security-based swap participant for gency associated with a potential financial, all classes of security-based swaps. economic, or commercial consequence (other (68) SECURITY-BASED SWAP.— than an event described in subparagraph (A) IN GENERAL.—Except as provided in (A)(ii)(III)). subparagraph (B), the term ‘‘security-based (E) RULE OF CONSTRUCTION REGARDING USE swap’’ means any agreement, contract, or OF THE TERM INDEX.—The term ‘‘index’’ transaction that— means an index or group of securities, in- (i) is a swap, as that term is defined cluding any interest therein or based on the under section 1a of the Commodity Ex- value thereof. change Act [7 U.S.C. 1a] (without regard to (69) SWAP.—The term ‘‘swap’’ has the same paragraph (47)(B)(x) of such section); and meaning as in section 1a of the Commodity (ii) is based on— Exchange Act (7 U.S.C. 1a). (I) an index that is a narrow-based se- (70) PERSON ASSOCIATED WITH A SECURITY- curity index, including any interest BASED SWAP DEALER OR MAJOR SECURITY-BASED therein or on the value thereof; SWAP PARTICIPANT.— (II) a single security or loan, including (A) IN GENERAL.—The term ‘‘person associ- any interest therein or on the value ated with a security-based swap dealer or thereof; or major security-based swap participant’’ or § 78c TITLE 15—COMMERCE AND TRADE Page 184

‘‘associated person of a security-based swap (73) BOARD.—The term ‘‘Board’’ means the dealer or major security-based swap partici- Board of Governors of the Federal Reserve pant’’ means— System. (i) any partner, officer, director, or (74) PRUDENTIAL REGULATOR.—The term branch manager of such security-based ‘‘prudential regulator’’ has the same meaning swap dealer or major security-based swap as in section 1a of the Commodity Exchange participant (or any person occupying a Act (7 U.S.C. 1a). similar status or performing similar func- (75) SECURITY-BASED SWAP DATA REPOSI- tions); TORY.—The term ‘‘security-based swap data re- (ii) any person directly or indirectly con- pository’’ means any person that collects and trolling, controlled by, or under common maintains information or records with respect control with such security-based swap to transactions or positions in, or the terms dealer or major security-based swap par- and conditions of, security-based swaps en- ticipant; or tered into by third parties for the purpose of (iii) any employee of such security-based providing a centralized recordkeeping facility swap dealer or major security-based swap for security-based swaps. participant. (76) SWAP DEALER.—The term ‘‘swap dealer’’ (B) EXCLUSION.—Other than for purposes of has the same meaning as in section 1a of the section 78o–10(l)(2) of this title, the term Commodity Exchange Act (7 U.S.C. 1a). ‘‘person associated with a security-based (77) 6 SECURITY-BASED SWAP EXECUTION FACIL- swap dealer or major security-based swap ITY.—The term ‘‘security-based swap execu- participant’’ or ‘‘associated person of a secu- tion facility’’ means a trading system or plat- rity-based swap dealer or major security- form in which multiple participants have the based swap participant’’ does not include ability to execute or trade security-based any person associated with a security-based swaps by accepting bids and offers made by swap dealer or major security-based swap multiple participants in the facility or sys- participant whose functions are solely cleri- tem, through any means of interstate com- cal or ministerial. merce, including any trading facility, that— (A) facilitates the execution of security- (71) SECURITY-BASED SWAP DEALER.— based swaps between persons; and (A) IN GENERAL.—The term ‘‘security-based (B) is not a national securities exchange. swap dealer’’ means any person who— (i) holds themself out as a dealer in secu- (78) SECURITY-BASED SWAP AGREEMENT.— rity-based swaps; (A) IN GENERAL.—For purposes of sections (ii) makes a market in security-based 78i, 78j, 78p, 78t, and 78u–1 of this title, and swaps; section 17 of the Securities Act of 1933 (15 (iii) regularly enters into security-based U.S.C. 77q), the term ‘‘security-based swap swaps with counterparties as an ordinary agreement’’ means a swap agreement as de- course of business for its own account; or fined in section 206A of the Gramm-Leach- (iv) engages in any activity causing it to Bliley Act (15 U.S.C. 78c note) of which a ma- be commonly known in the trade as a deal- terial term is based on the price, yield, er or market maker in security-based value, or volatility of any security or any swaps. group or index of securities, or any interest (B) DESIGNATION BY TYPE OR CLASS.—A per- therein. son may be designated as a security-based (B) EXCLUSIONS.—The term ‘‘security- swap dealer for a single type or single class based swap agreement’’ does not include any or category of security-based swap or activi- security-based swap. ties and considered not to be a security- (77) 7 ASSET-BACKED SECURITY.—The term based swap dealer for other types, classes, or ‘‘asset-backed security’’— categories of security-based swaps or activi- (A) means a fixed-income or other security ties. collateralized by any type of self-liquidating (C) EXCEPTION.—The term ‘‘security-based financial asset (including a loan, a lease, a swap dealer’’ does not include a person that mortgage, or a secured or unsecured receiv- enters into security-based swaps for such able) that allows the holder of the security person’s own account, either individually or to receive payments that depend primarily in a fiduciary capacity, but not as a part of on cash flow from the asset, including— regular business. (i) a collateralized mortgage obligation; (D) DE MINIMIS EXCEPTION.—The Commis- (ii) a collateralized debt obligation; sion shall exempt from designation as a se- (iii) a collateralized bond obligation; curity-based swap dealer an entity that en- (iv) a collateralized debt obligation of gages in a de minimis quantity of security- asset-backed securities; based swap dealing in connection with trans- (v) a collateralized debt obligation of actions with or on behalf of its customers. collateralized debt obligations; and The Commission shall promulgate regula- (vi) a security that the Commission, by tions to establish factors with respect to the rule, determines to be an asset-backed se- making of any determination to exempt. curity for purposes of this section; and (72) APPROPRIATE FEDERAL BANKING AGEN- (B) does not include a security issued by a CY.—The term ‘‘appropriate Federal banking finance subsidiary held by the parent com- agency’’ has the same meaning as in section 3(q) of the Federal Deposit Insurance Act (12 6 So in original. Another par. (77) follows par. (78). U.S.C. 1813(q)). 7 So in original. Another par. (77) precedes par. (78). Page 185 TITLE 15—COMMERCE AND TRADE § 78c

pany or a company controlled by the parent nization, or any trustee, director, officer, em- company, if none of the securities issued by ployee, or volunteer of such a charitable orga- the finance subsidiary are held by an entity nization, unless each person who, on or after that is not controlled by the parent com- 90 days after December 8, 1995, solicits dona- pany. tions on behalf of such charitable organization (b) Power to define technical, trade, accounting, from any donor to a fund that is excluded from and other terms the definition of an investment company under section 3(c)(10)(B) of the Investment The Commission and the Board of Governors Company Act of 1940 [15 U.S.C. 80a–3(c)(10)(B)], of the Federal Reserve System, as to matters is either a volunteer or is engaged in the over- within their respective jurisdictions, shall have all fund raising activities of a charitable orga- power by rules and regulations to define tech- nization and receives no commission or other nical, trade, accounting, and other terms used in special compensation based on the number or this chapter, consistently with the provisions the value of donations collected for the fund. and purposes of this chapter. (f) Consideration of promotion of efficiency, com- (c) Application to governmental departments or petition, and capital formation agencies Whenever pursuant to this chapter the Com- No provision of this chapter shall apply to, or mission is engaged in rulemaking, or in the re- be deemed to include, any executive department view of a rule of a self-regulatory organization, or independent establishment of the United and is required to consider or determine whether States, or any lending agency which is wholly an action is necessary or appropriate in the pub- owned, directly or indirectly, by the United lic interest, the Commission shall also consider, States, or any officer, agent, or employee of any in addition to the protection of investors, such department, establishment, or agency, act- whether the action will promote efficiency, ing in the course of his official duty as such, un- competition, and capital formation. less such provision makes specific reference to (g) Church plans such department, establishment, or agency. No church plan described in section 414(e) of (d) Issuers of municipal securities title 26, no person or entity eligible to establish No issuer of municipal securities or officer or and maintain such a plan under title 26, no com- employee thereof acting in the course of his offi- pany or account that is excluded from the defi- cial duties as such shall be deemed to be a nition of an investment company under section ‘‘broker’’, ‘‘dealer’’, or ‘‘municipal securities 3(c)(14) of the Investment Company Act of 1940 dealer’’ solely by reason of buying, selling, or ef- [15 U.S.C. 80a–3(c)(14)], and no trustee, director, fecting transactions in the issuer’s securities. officer or employee of or volunteer for such (e) Charitable organizations plan, company, account, person, or entity, acting within the scope of that person’s employ- (1) Exemption ment or activities with respect to such plan, Notwithstanding any other provision of this shall be deemed to be a ‘‘broker’’, ‘‘dealer’’, chapter, but subject to paragraph (2) of this ‘‘municipal securities broker’’, ‘‘municipal secu- subsection, a charitable organization, as de- rities dealer’’, ‘‘government securities broker’’, fined in section 3(c)(10)(D) of the Investment ‘‘government securities dealer’’, ‘‘clearing agen- Company Act of 1940 [15 U.S.C. 80a–3(c)(10)(D)], cy’’, or ‘‘transfer agent’’ for purposes of this or any trustee, director, officer, employee, or chapter— volunteer of such a charitable organization (1) solely because such plan, company, per- acting within the scope of such person’s em- son, or entity buys, holds, sells, trades in, or ployment or duties with such organization, transfers securities or acts as an intermediary shall not be deemed to be a ‘‘broker’’, ‘‘deal- in making payments in connection with trans- er’’, ‘‘municipal securities broker’’, ‘‘munici- actions in securities for its own account in its pal securities dealer’’, ‘‘government securities capacity as trustee or administrator of, or broker’’, or ‘‘government securities dealer’’ for otherwise on behalf of, or for the account of, purposes of this chapter solely because such any church plan, company, or account that is organization or person buys, holds, sells, or excluded from the definition of an investment trades in securities for its own account in its company under section 3(c)(14) of the Invest- capacity as trustee or administrator of, or ment Company Act of 1940 [15 U.S.C. otherwise on behalf of or for the account of— 80a–3(c)(14)]; and (A) such a charitable organization; (2) if no such person or entity receives a (B) a fund that is excluded from the defini- commission or other transaction-related sales tion of an investment company under sec- compensation in connection with any activi- tion 3(c)(10)(B) of the Investment Company ties conducted in reliance on the exemption Act of 1940 [15 U.S.C. 80a–3(c)(10)(B)]; or provided by this subsection. (C) a trust or other donative instrument described in section 3(c)(10)(B) of the Invest- (June 6, 1934, ch. 404, title I, § 3, 48 Stat. 882; Aug. ment Company Act of 1940 [15 U.S.C. 23, 1935, ch. 614, § 203(a), 49 Stat. 704; Proc. No. 80a–3(c)(10)(B)], or the settlors (or potential 2695, eff. July 4, 1946, 11 F.R. 7517, 60 Stat. 1352; settlors) or beneficiaries of any such trust or Pub. L. 86–70, § 12(b), June 25, 1959, 73 Stat. 143; other instrument. Pub. L. 86–624, § 7(b), July 12, 1960, 74 Stat. 412; Pub. L. 88–467, § 2, Aug. 20, 1964, 78 Stat. 565; Pub. (2) Limitation on compensation L. 91–373, title IV, § 401(b), Aug. 10, 1970, 84 Stat. The exemption provided under paragraph (1) 718; Pub. L. 91–547, § 28(a), (b), Dec. 14, 1970, 84 shall not be available to any charitable orga- Stat. 1435; Pub. L. 91–567, § 6(b), Dec. 22, 1970, 84 § 78c TITLE 15—COMMERCE AND TRADE Page 186

Stat. 1499; Pub. L. 94–29, § 3, June 4, 1975, 89 Stat. REFERENCES IN TEXT 97; Pub. L. 95–283, § 16, May 21, 1978, 92 Stat. 274; This chapter, referred to in subsecs. (a), (b), (c), (e)(1), Pub. L. 96–477, title VII, § 702, Oct. 21, 1980, 94 (f), and (g), was in the original ‘‘this title’’. See Ref- Stat. 2295; Pub. L. 97–303, § 2, Oct. 13, 1982, 96 erences in Text note set out under section 78a of this Stat. 1409; Pub. L. 98–376, § 6(a), Aug. 10, 1984, 98 title. Stat. 1265; Pub. L. 98–440, title I, § 101, Oct. 3, The Investment Company Act of 1940, referred to in 1984, 98 Stat. 1689; Pub. L. 99–514, § 2, Oct. 22, 1986, subsec. (a)(4)(B)(v), (19), (47), (51)(A)(iii), is title I of act Aug. 20, 1940, ch. 686, 54 Stat. 789, which is classified 100 Stat. 2095; Pub. L. 99–571, title I, § 102(a)–(d), generally to subchapter I (§ 80a–1 et seq.) of chapter 2D Oct. 28, 1986, 100 Stat. 3214–3216; Pub. L. 100–181, of this title. For complete classification of this Act to title III, §§ 301–306, Dec. 4, 1987, 101 Stat. 1253, the Code, see section 80a–51 of this title and Tables. 1254; Pub. L. 100–704, § 6(a), Nov. 19, 1988, 102 Stat. This chapter, referred to in subsec. (a)(4)(B)(vii)(II), 4681; Pub. L. 101–73, title VII, § 744(u)(1), Aug. 9, was in the original ‘‘this Act’’. See References in Text 1989, 103 Stat. 441; Pub. L. 101–429, title V, § 503, note set out under section 78a of this title. Oct. 15, 1990, 104 Stat. 952; Pub. L. 101–550, title Section 206 of the Gramm-Leach-Bliley Act, referred II, §§ 203(b), 204, Nov. 15, 1990, 104 Stat. 2717, 2718; to in subsec. (a)(4)(B)(ix), (5)(C)(iv), (54)(B), is section 206 of Pub. L. 106–102, which is set out as a note below. Pub. L. 103–202, title I, §§ 106(b)(2)(A), 109(a), Dec. Subsec. (e) of section 78o of this title, referred to in 17, 1993, 107 Stat. 2350, 2352; Pub. L. 103–325, title subsec. (a)(4)(E), was redesignated (f) by Pub. L. 111–203, II, § 202, title III, § 347(a), Sept. 23, 1994, 108 Stat. title IX, § 929X(c)(1), July 21, 2010, 124 Stat. 1870. 2198, 2241; Pub. L. 104–62, § 4(a), (b), Dec. 8, 1995, Section 1462 of title 12, referred to in subsec. (a)(6)(A), 109 Stat. 684; Pub. L. 104–290, title I, § 106(b), title (C), was amended by Pub. L. 111–203, title III, § 369(2)(C), V, § 508(c), Oct. 11, 1996, 110 Stat. 3424, 3447; Pub. July 21, 2010, 124 Stat. 1557, by redesignating pars. (4) L. 105–353, title III, § 301(b)(1)–(4), Nov. 3, 1998, 112 and (5) as (2) and (3), respectively. The Investment Advisers Act of 1940, referred to in Stat. 3235, 3236; Pub. L. 106–102, title II, §§ 201, subsec. (a)(20), (47), is title II of act Aug. 20, 1940, ch. 202, 207, 208, 221(b), 231(b)(1), Nov. 12, 1999, 113 686, 54 Stat. 847, which is classified generally to sub- Stat. 1385, 1390, 1394, 1395, 1401, 1406; Pub. L. chapter II (§ 80b–1 et seq.) of chapter 2D of this title. 106–554, § 1(a)(5) [title II, § 201], Dec. 21, 2000, 114 For complete classification of this Act to the Code, see Stat. 2763, 2763A–413; Pub. L. 107–204, § 2(b), title section 80b–20 of this title and Tables. II, § 205(a), title VI, § 604(c)(1)(A), July 30, 2002, Section 78w(b) of this title, referred to in subsec. 116 Stat. 749, 773, 796; Pub. L. 108–359, § 1(c)(1), (a)(26), was omitted from the Code. Section 103 of title 26, referred to in subsec. (a)(29), Oct. 25, 2004, 118 Stat. 1666; Pub. L. 108–386, which related to interest on certain governmental obli- § 8(f)(1)–(3), Oct. 30, 2004, 118 Stat. 2232; Pub. L. gations, was amended generally by Pub. L. 99–514, title 108–447, div. H, title V, § 520(1), Dec. 8, 2004, 118 XIII, § 1301(a), Oct. 22, 1986, 100 Stat. 2602, and, as so Stat. 3267; Pub. L. 109–291, § 3(a), Sept. 29, 2006, amended, relates to interest on State and local bonds. 120 Stat. 1328; Pub. L. 109–351, title I, § 101(a)(1), Section 103(b)(2) (formerly section 103(c)(2)), which title IV, § 401(a)(1), (2), Oct. 13, 2006, 120 Stat. prior to the general amendment defined industrial de- 1968, 1971, 1972; Pub. L. 111–203, title III, § 376(1), velopment bond, relates to the applicability of the in- title VII, § 761(a), title IX, §§ 932(b), 939(e), 941(a), terest exclusion to arbitrage bonds. The Federal Deposit Insurance Act, referred to in 944(b), 985(b)(2), 986(a)(1), July 21, 2010, 124 Stat. subsec. (a)(34)(D), (F)(iii), (H)(iii), is act Sept. 21, 1950, 1566, 1754, 1883, 1886, 1890, 1898, 1933, 1935.) ch. 967, § 2, 64 Stat. 873, which is classified generally to AMENDMENT OF SECTION chapter 16 (§ 1811 et seq.) of Title 12, Banks and Bank- ing. For complete classification of this Act to the Code, Unless otherwise provided, amendment by see Short Title note set out under section 1811 of Title subtitle B (§§ 761–774) of title VII of Pub. L. 12 and Tables. 111–203 effective on the later of 360 days after The International Banking Act of 1978, referred to in July 21, 2010, or, to the extent a provision of subsec. (a)(34)(G)(i) to (iii), (46)(B), is Pub. L. 95–369, subtitle B requires a rulemaking, not less than Sept. 17, 1978, 92 Stat. 607, which enacted chapter 32 60 days after publication of the final rule or (§ 3101 et seq.) and sections 347d and 611a of Title 12, regulation implementing such provision of sub- Banks and Banking, amended sections 72, 378, 614, 615, 618, 619, 1813, 1815, 1817, 1818, 1820, 1821, 1822, 1823, 1828, title B, see 2010 Amendment notes and Effective 1829b, 1831b, and 1841 of Title 12, and enacted provisions Date of 2010 Amendment note below. set out as notes under sections 247, 611a, and 3101 of AMENDMENT OF SUBSECTION (a)(41) Title 12 and formerly set out as notes under sections 36, 247, and 601 of Title 12. For complete classification of Pub. L. 111–203, title IX, § 939(e)(1), (g), July this Act to the Code, see Short Title note set out under 21, 2010, 124 Stat. 1886, 1887, provided that, ef- section 3101 of Title 12 and Tables. fective 2 years after July 21, 2010, subsection Section 25 of the Federal Reserve Act, referred to in (a)(41) of this section is amended by striking ‘‘is subsec. (a)(34)(G)(ii), is classified to subchapter I (§ 601 rated in one of the two highest rating categories et seq.) of chapter 6 of Title 12, Banks and Banking. by at least one nationally recognized statistical Section 25A of the Federal Reserve Act, referred to in subsec. (a)(34)(G)(ii), (H)(ii), is classified to subchapter rating organization’’ and inserting ‘‘meets II (§ 611 et seq.) of chapter 6 of Title 12. standards of credit-worthiness as established by The Commodity Exchange Act, referred to in subsec. the Commission’’. (a)(39)(B)(ii), (C), (55)(A), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, which is classified generally to chapter 1 (§ 1 AMENDMENT OF SUBSECTION (a)(53)(A) et seq.) of Title 7, Agriculture. For complete classifica- Pub. L. 111–203, title IX, § 939(e)(2), (g), July tion of this Act to the Code, see section 1 of Title 7 and 21, 2010, 124 Stat. 1886, 1887, provided that, ef- Tables. fective 2 years after July 21, 2010, subsection The Securities Act of 1933, referred to in subsec. (a)(53)(A) of this section is amended by striking (a)(47), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, ‘‘is rated in 1 of the 4 highest rating categories which is classified generally to subchapter I (§ 77a et by at least 1 nationally recognized statistical seq.) of chapter 2A of this title. For complete classification of this Act to the Code, see section 77a of this title rating organization’’ and inserting ‘‘meets and Tables. standards of credit-worthiness as established by The Securities Exchange Act of 1934, referred to in the Commission’’. subsec. (a)(47), is act June 6, 1934, ch. 404, 48 Stat. 881, Page 187 TITLE 15—COMMERCE AND TRADE § 78c which is classified generally to this chapter (§ 78a et sured by the Federal Deposit Insurance Corporation, or seq.). For complete classification of this Act to the a subsidiary or department or division of any such Fed- Code, see section 78a of this title and Tables. eral savings association’’ for ‘‘or a subsidiary or a de- The Sarbanes-Oxley Act of 2002, referred to in subsec. partment or division of any such bankor a subsidiary or (a)(47), is Pub. L. 107–204, July 30, 2002, 116 Stat. 745. a department or division of any such bank’’. Section 2 of the Act enacted section 7201 of this title Subsec. (a)(34)(A)(ii). Pub. L. 111–203, § 376(1)(A)(ii), and amended this section. For complete classification substituted ‘‘a subsidiary or a department or division of this Act to the Code, see Short Title note set out of such subsidiary, or a savings and loan holding com- under section 7201 of this title and Tables. pany’’ for ‘‘or a subsidiary or a department or division The Trust Indenture Act of 1939, referred to in subsec. of such subsidiary’’. (a)(47), is title III of act May 27, 1933, ch. 38, as added Subsec. (a)(34)(A)(iii). Pub. L. 111–203, § 376(1)(A)(iii), Aug. 3, 1939, ch. 411, 53 Stat. 1149, which is classified substituted ‘‘a subsidiary or department or division of generally to subchapter III (§ 77aaa et seq.) of chapter any such bank, a State savings association (as defined 2A of this title. For complete classification of this Act in section 3(b)(3) of the Federal Deposit Insurance Act to the Code, see section 77aaa of this title and Tables. (12 U.S.C. 1813(b)(3))), the deposits of which are insured The Securities Investor Protection Act of 1970, re- by the Federal Deposit Insurance Corporation, or a sub- ferred to in subsec. (a)(47), is Pub. L. 91–598, Dec. 30, sidiary or a department or division of any such State 1970, 84 Stat. 1636, which is classified generally to chap- savings association; and’’ for ‘‘or a subsidiary or deter 2B–1 (§ 78aaa et seq.) of this title. For complete clas- partment or division thereof;’’. Subsec. (a)(34)(A)(iv), (v). Pub. L. 111–203, sification of this Act to the Code, see section 78aaa of § 376(1)(A)(iv), (v), redesignated cl. (v) as (iv) and struck this title and Tables. out former cl. (iv) which read as follows: ‘‘the Director Section 301(d) of the Small Business Investment Act of the Office of Thrift Supervision, in the case of a sav- of 1958, referred to in subsec. (a)(54)(A)(iv), was classi- ings association (as defined in section 3(b) of the Fed- fied to section 681(d) of this title and was repealed by eral Deposit Insurance Act (12 U.S.C. 1813(b))), the de- Pub. L. 104–208, div. D, title II, § 208(b)(3)(A), Sept. 30, posits of which are insured by the Federal Deposit In- 1996, 110 Stat. 3009–742. surance Corporation, a subsidiary or a department or The Employee Retirement Income Security Act of division of any such savings association, or a savings 1974, referred to in subsec. (a)(54)(A)(v), is Pub. L. and loan holding company; and’’. 93–406, Sept. 2, 1974, 88 Stat. 832, which is classified prin- Subsec. (a)(34)(B)(i). Pub. L. 111–203, § 376(1)(B)(i), sub- cipally to chapter 18 (§ 1001 et seq.) of Title 29, Labor. stituted ‘‘a subsidiary of any such bank, a Federal sav- For complete classification of this Act to the Code, see ings association (as defined in section 3(b)(2) of the Short Title note set out under section 1001 of Title 29 Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2))), and Tables. the deposits of which are insured by the Federal De- Section 206A of the Gramm-Leach-Bliley Act, re- posit Insurance Corporation, or a subsidiary of any ferred to in subsec. (a)(78)(A), is section 206A of Pub. L. such Federal savings association’’ for ‘‘or a subsidiary 106–102, which is set out as a note below. of any such bank’’. Subsec. (a)(34)(B)(ii). Pub. L. 111–203, § 376(1)(B)(ii), CODIFICATION substituted ‘‘a subsidiary of a bank holding company Words ‘‘Philippine Islands’’ deleted from definition of that is a bank other than a bank specified in clause (i) term ‘‘State’’ in subsec. (a)(16) under authority of Proc. or (iii) of this subparagraph, or a savings and loan hold- No. 2695, which granted independence to the Philippine ing company’’ for ‘‘or a subsidiary of a bank holding Islands. Proc. No. 2695 was issued pursuant to section company which is a bank other than a bank specified 1394 of Title 22, Foreign Relations and Intercourse, and in clause (i), (iii), or (iv) of this subparagraph’’. is set out as a note under that section. Subsec. (a)(34)(B)(iii). Pub. L. 111–203, § 376(1)(B)(iii), substituted ‘‘a subsidiary of any such bank, a State AMENDMENTS savings association (as defined in section 3(b)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3))), 2010—Subsec. (a)(4)(B)(vii)(I). Pub. L. 111–203, § 944(b), the deposits of which are insured by the Federal De- substituted ‘‘4(5)’’ for ‘‘4(6)’’. posit Insurance Corporation, or a subsidiary of any Subsec. (a)(5)(A), (B). Pub. L. 111–203, § 761(a)(1), in- such State savings association; and’’ for ‘‘or a subsidi- serted ‘‘(not including security-based swaps, other than ary thereof;’’. security-based swaps with or for persons that are not Subsec. (a)(34)(B)(iv), (v). Pub. L. 111–203, eligible contract participants)’’ after ‘‘securities’’. § 376(1)(B)(iv), (v), redesignated cl. (v) as (iv) and struck Subsec. (a)(10). Pub. L. 111–203, § 761(a)(2), inserted out former cl. (iv) which read as follows: ‘‘the Director ‘‘security-based swap,’’ after ‘‘security future,’’. of the Office of Thrift Supervision, in the case of a sav- Subsec. (a)(13). Pub. L. 111–203, § 761(a)(3), inserted at ings association (as defined in section 3(b) of the Fed- end ‘‘For security-based swaps, such terms include the eral Deposit Insurance Act (12 U.S.C. 1813(b))), the de- execution, termination (prior to its scheduled maturity posits of which are insured by the Federal Deposit In- date), assignment, exchange, or similar transfer or con- surance Corporation, or a subsidiary of any such sav- veyance of, or extinguishing of rights or obligations ings association, or a savings and loan holding com- under, a security-based swap, as the context may re- pany; and’’. quire.’’ Subsec. (a)(34)(C)(i). Pub. L. 111–203, § 376(1)(C)(i), in- Subsec. (a)(14). Pub. L. 111–203, § 761(a)(4), inserted at serted ‘‘or a Federal savings association (as defined in end ‘‘For security-based swaps, such terms include the section 3(b)(2) of the Federal Deposit Insurance Act (12 execution, termination (prior to its scheduled maturity U.S.C. 1813(b)(2))), the deposits of which are insured by date), assignment, exchange, or similar transfer or con- the Federal Deposit Insurance Corporation’’ after veyance of, or extinguishing of rights or obligations ‘‘bank’’. under, a security-based swap, as the context may re- Subsec. (a)(34)(C)(ii). Pub. L. 111–203, § 376(1)(C)(ii), quire.’’ substituted ‘‘a subsidiary of a bank holding company Subsec. (a)(34). Pub. L. 111–203, § 376(1)(G), struck out that is a bank other than a bank specified in clause (i) ‘‘, and the term ‘District of Columbia savings and loan or (iii) of this subparagraph, or a savings and loan hold- association’ means any association subject to examina- ing company’’ for ‘‘or a subsidiary of a bank holding tion and supervision by the Office of Thrift Supervision company which is a bank other than a bank specified under section 1466a of title 12’’ after ‘‘section 1841 of in clause (i), (iii), or (iv) of this subparagraph’’. title 12’’ in concluding provisions. Subsec. (a)(34)(C)(iii). Pub. L. 111–203, § 376(1)(C)(iii), Subsec. (a)(34)(A)(i). Pub. L. 111–203, § 376(1)(A)(i), sub- inserted ‘‘or a State savings association (as defined in stituted ‘‘a subsidiary or a department or division of section 3(b)(3) of the Federal Deposit Insurance Act (12 any such bank, a Federal savings association (as de- U.S.C. 1813(b)(3))), the deposits of which are insured by fined in section 3(b)(2) of the Federal Deposit Insurance the Federal Deposit Insurance Corporation; and’’ after Act (12 U.S.C. 1813(b)(2))), the deposits of which are in- ‘‘System)’’. § 78c TITLE 15—COMMERCE AND TRADE Page 188

Subsec. (a)(34)(C)(iv), (v). Pub. L. 111–203, Subsec. (a)(39)(D). Pub. L. 111–203, § 761(a)(5)(C), in- § 376(1)(C)(iv), (v), redesignated cl. (v) as (iv) and struck serted ‘‘security-based swap dealer, major security- out former cl. (iv) which read as follows: ‘‘the Director based swap participant,’’ after ‘‘government securities of the Office of Thrift Supervision, in the case of a sav- dealer,’’. ings association (as defined in section 3(b) of the Fed- Subsec. (a)(47). Pub. L. 111–203, § 986(a)(1), struck out eral Deposit Insurance Act (12 U.S.C. 1813(b))), the de- ‘‘the Public Utility Holding Company Act of 1935,’’ be- posits of which are insured by the Federal Deposit In- fore ‘‘the Trust Indenture Act of 1939’’. surance Corporation, a savings and loan holding com- Subsec. (a)(55)(A). Pub. L. 111–203, § 985(b)(2)(A), made pany, or a subsidiary of a savings and loan holding technical amendment to reference in original act which company when the appropriate regulatory agency for appears in text as reference to paragraph (12) of this such clearing agency is not the Commission; and’’. subsection. Subsec. (a)(34)(D)(i). Pub. L. 111–203, § 376(1)(D)(i), in- Subsec. (a)(62). Pub. L. 111–203, § 932(b), redesignated serted ‘‘or a Federal savings association (as defined in subpars. (B) and (C) as (A) and (B), respectively, and section 3(b)(2) of the Federal Deposit Insurance Act (12 struck out former subpar. (A) which read as follows: U.S.C. 1813(b)(2))), the deposits of which are insured by ‘‘has been in business as a credit rating agency for at the Federal Deposit Insurance Corporation’’ after least the 3 consecutive years immediately preceding ‘‘bank’’. the date of its application for registration under sec- Subsec. (a)(34)(D)(ii) to (iv). Pub. L. 111–203, tion 78o–7 of this title;’’. § 376(1)(D)(ii)–(v), in cl. (ii), inserted ‘‘and’’ at end, re- Subsec. (a)(65) to (76). Pub. L. 111–203, § 761(a)(6), added designated cl. (iv) as (iii), in cl. (iii), inserted ‘‘or a pars. (65) to (76). State savings association (as defined in section 3(b)(3) Subsec. (a)(77). Pub. L. 111–203, § 941(a), which directed of the Federal Deposit Insurance Act (12 U.S.C. amendment of subsec. (a) by adding par. (77) relating to 1813(b)(3))), the deposits of which are insured by the asset-backed security ‘‘at the end’’, was executed by Federal Deposit Insurance Corporation’’ after ‘‘bank’’, making the addition after par. (78) to reflect the prob- and struck out former cl. (iii) which read as follows: able intent of Congress. See Effective Date of 2010 ‘‘the Director of the Office of Thrift Supervision, in the Amendment note below. case of a savings association (as defined in section 3(b) Pub. L. 111–203, § 761(a)(6), added par. (77) relating to of the Federal Deposit Insurance Act (12 U.S.C. 1813(b))) security-based swap execution facility. the deposits of which are insured by the Federal De- Subsec. (a)(78). Pub. L. 111–203, § 761(a)(6), added par. posit Insurance Corporation; and’’. (78). Subsec. (a)(34)(F)(i). Pub. L. 111–203, § 376(1)(E)(i), in- Subsec. (g). Pub. L. 111–203, § 985(b)(2)(B), substituted serted ‘‘or a Federal savings association (as defined in ‘‘account, person’’ for ‘‘account person’’ in introduc- section 3(b)(2) of the Federal Deposit Insurance Act (12 tory provisions. 2006—Subsec. (a)(4)(F). Pub. L. 109–351, § 101(a)(1), U.S.C. 1813(b)(2))), the deposits of which are insured by added subpar. (F). the Federal Deposit Insurance Corporation’’ after Subsec. (a)(6)(A). Pub. L. 109–351, § 401(a)(1)(A), in- ‘‘bank’’. serted ‘‘or a Federal savings association, as defined in Subsec. (a)(34)(F)(ii) to (v). Pub. L. 111–203, section 1462(5) of title 12’’ after ‘‘a banking institution § 376(1)(E)(ii)–(iv), redesignated cls. (iii) to (v) as (ii) to organized under the laws of the United States’’. (iv), respectively, in cl. (iii), inserted ‘‘or a State sav- Subsec. (a)(6)(C). Pub. L. 109–351, § 401(a)(1)(B), in- ings association (as defined in section 3(b)(3) of the serted ‘‘or savings association, as defined in section Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3))), 1462(4) of title 12’’ after ‘‘other banking institution’’ the deposits of which are insured by the Federal De- and ‘‘or savings associations’’ after ‘‘having supervision posit Insurance Corporation’’ before semicolon, and over banks’’. struck out former cl. (ii) which read as follows: ‘‘the Subsec. (a)(34). Pub. L. 109–351, § 401(a)(2)(G), inserted Director of the Office of Thrift Supervision, in the case at end of concluding provisions ‘‘As used in this para- of a savings association (as defined in section 3(b) of graph, the term ‘savings and loan holding company’ has the Federal Deposit Insurance Act (12 U.S.C. 1813(b))), the same meaning as in section 1467a(a) of title 12.’’ the deposits of which are insured by the Federal De- Subsec. (a)(34)(A)(ii). Pub. L. 109–351, § 401(a)(2)(A)(i), posit Insurance Corporation; and’’. substituted ‘‘clause (i), (iii), or (iv)’’ for ‘‘clause (i) or Subsec. (a)(34)(G)(i). Pub. L. 111–203, § 376(1)(F)(i), in- (iii)’’. serted ‘‘, a Federal savings association (as defined in Subsec. (a)(34)(A)(iv), (v). Pub. L. 109–351, section 3(b)(2) of the Federal Deposit Insurance Act), § 401(a)(2)(A)(ii)–(iv), added cl. (iv) and redesignated the deposits of which are insured by the Federal De- former cl. (iv) as (v). posit Insurance Corporation,’’ after ‘‘national bank’’. Subsec. (a)(34)(B)(ii). Pub. L. 109–351, § 401(a)(2)(B)(i), Subsec. (a)(34)(G)(iii). Pub. L. 111–203, § 376(1)(F)(ii), substituted ‘‘clause (i), (iii), or (iv)’’ for ‘‘clause (i) or inserted ‘‘, a State savings association (as defined in (iii)’’. section 3(b)(3) of the Federal Deposit Insurance Act), Subsec. (a)(34)(B)(iv), (v). Pub. L. 109–351, the deposits of which are insured by the Federal De- § 401(a)(2)(B)(ii)–(iv), added cl. (iv) and redesignated posit Insurance Corporation,’’ after ‘‘savings bank)’’ former cl. (iv) as (v). and inserted ‘‘and’’ at end. Subsec. (a)(34)(C)(ii). Pub. L. 109–351, § 401(a)(2)(C)(i), Subsec. (a)(34)(G)(iv), (v). Pub. L. 111–203, substituted ‘‘clause (i), (iii), or (iv)’’ for ‘‘clause (i) or § 376(1)(F)(iii), (iv), redesignated cl. (v) as (iv) and (iii)’’. struck out former cl. (iv) which read as follows: ‘‘the Subsec. (a)(34)(C)(iv), (v). Pub. L. 109–351, Director of the Office of Thrift Supervision, in the case § 401(a)(2)(C)(ii)–(iv), added cl. (iv) and redesignated of a savings association (as defined in section 3(b) of former cl. (iv) as (v). the Federal Deposit Insurance Act) the deposits of Subsec. (a)(34)(D)(iii), (iv). Pub. L. 109–351, which are insured by the Federal Deposit Insurance § 401(a)(2)(D), added cl. (iii) and redesignated former cl. Corporation;’’. (iii) as (iv). Subsec. (a)(39)(B)(i)(I). Pub. L. 111–203, § 761(a)(5)(A)(i), Subsec. (a)(34)(F)(ii) to (v). Pub. L. 109–351, substituted ‘‘government securities dealer, security- § 401(a)(2)(E), added cl. (ii) and redesignated former cls. based swap dealer, or major security-based swap par- (ii) to (iv) as (iii) to (v), respectively. ticipant’’ for ‘‘or government securities dealer’’. Subsec. (a)(34)(H). Pub. L. 109–351, § 401(a)(2)(F), moved Subsec. (a)(39)(B)(i)(II). Pub. L. 111–203, subpar. (H) and inserted it immediately after subpar. § 761(a)(5)(A)(ii), inserted ‘‘security-based swap dealer, (G). major security-based swap participant,’’ after ‘‘govern- Subsec. (a)(60) to (64). Pub. L. 109–291 added pars. (60) ment securities dealer,’’. to (64). Subsec. (a)(39)(C). Pub. L. 111–203, § 761(a)(5)(B), sub- 2004—Subsec. (a)(12)(C)(iv). Pub. L. 108–359 added cl. stituted ‘‘government securities dealer, security-based (iv). swap dealer, or major security-based swap participant’’ Subsec. (a)(34)(A)(i), (B)(i), (C)(i), (D)(i), (F)(i). Pub. L. for ‘‘or government securities dealer’’. 108–386, § 8(f)(1), struck out ‘‘or a bank operating under Page 189 TITLE 15—COMMERCE AND TRADE § 78c the Code of Law for the District of Columbia’’ after 1996—Subsec. (a)(12)(A)(vi), (vii). Pub. L. 104–290, ‘‘national bank’’. § 508(c)(1), added cl. (vi) and redesignated former cl. (vi) Subsec. (a)(34)(G)(i). Pub. L. 108–386, § 8(f)(2), struck as (vii). out ‘‘, a bank in the District of Columbia examined by Subsecs. (f), (g). Pub. L. 104–290, §§ 106(b), 508(c)(2), the Comptroller of the Currency,’’ after ‘‘national added subsecs. (f) and (g), respectively. bank’’. 1995—Subsec. (a)(12)(A)(iv) to (vi). Pub. L. 104–62, Subsec. (a)(34)(H)(i). Pub. L. 108–386, § 8(f)(3), struck § 4(a), struck out ‘‘and’’ at end of cl. (iv), added cl. (v), out ‘‘or a bank in the District of Columbia examined by and redesignated former cl. (v) as (vi). the Comptroller of the Currency’’ after ‘‘national Subsec. (e). Pub. L. 104–62, § 4(b), added subsec. (e). bank’’. 1994—Subsec. (a)(41)(A)(i). Pub. L. 103–325, § 347(a), Subsec. (a)(42)(B). Pub. L. 108–447 inserted ‘‘by the substituted ‘‘on a residential’’ for ‘‘or on a residential’’ Tennessee Valley Authority or’’ after ‘‘issued or guar- and inserted before semicolon ‘‘, or on one or more par- anteed’’. cels of real estate upon which is located one or more 2002—Subsec. (a)(39)(F). Pub. L. 107–204, § 604(c)(1)(A), commercial structures’’. inserted ‘‘, or is subject to an order or finding,’’ before Subsec. (a)(53). Pub. L. 103–325, § 202, added par. (53). ‘‘enumerated’’ and substituted ‘‘(H), or (G)’’ for ‘‘or 1993—Subsec. (a)(12)(B)(ii). Pub. L. 103–202, (G)’’. § 106(b)(2)(A), substituted ‘‘sections 78o and 78q–1’’ for Subsec. (a)(47). Pub. L. 107–204, § 2(b), inserted ‘‘the ‘‘sections 78o, 78o–3 (other than subsection (g)(3)), and Sarbanes-Oxley Act of 2002,’’ before ‘‘the Public Utility 78q–1’’. Holding Company Act of 1935’’. Subsec. (a)(34)(G)(ii) to (iv). Pub. L. 103–202, § 109(a)(1), Subsec. (a)(58), (59). Pub. L. 107–204, § 205(a), added amended cls. (ii) to (iv) generally. Prior to amendment, pars. (58) and (59). cls. (ii) to (iv) read as follows: 2000—Subsec. (a)(10). Pub. L. 106–554, § 1(a)(5) [title II, ‘‘(ii) the Board of Governors of the Federal Reserve § 201(1)], inserted ‘‘security future,’’ after ‘‘treasury System, in the case of a State member bank of the Fed- stock,’’. eral Reserve System, a foreign bank, a State branch or Subsec. (a)(11). Pub. L. 106–554, § 1(a)(5) [title II, a State agency of a foreign bank, or a commercial lend- § 201(2)], added par. (11) and struck out former par. (11) ing company owned or controlled by a foreign bank (as which read as follows: ‘‘The term ‘equity security’ such terms are used in the International Banking Act means any stock or similar security; or any security of 1978); convertible, with or without consideration, into such a ‘‘(iii) the Federal Deposit Insurance Corporation, in security, or carrying any warrant or right to subscribe the case of a bank insured by the Federal Deposit In- to or purchase such a security; or any such warrant or surance Corporation (other than a member of the Fed- right; or any other security which the Commission eral Reserve System or a Federal savings bank); shall deem to be of similar nature and consider nec- ‘‘(iv) the Director of the Office of Thrift Supervision, essary or appropriate, by such rules and regulations as in the case of a savings association the deposits of it may prescribe in the public interest or for the pro- which are insured by the Federal Deposit Insurance tection of investors, to treat as an equity security.’’ Corporation;’’. Subsec. (a)(13), (14). Pub. L. 106–554, § 1(a)(5) [title II, Subsec. (a)(46). Pub. L. 103–202, § 109(a)(2), amended § 201(3), (4)], inserted at end ‘‘For security futures prod- par. (46) generally. Prior to amendment, par. (46) read ucts, such term includes any contract, agreement, or as follows: ‘‘The term ‘financial institution’ means (A) transaction for future delivery.’’ a bank (as such term is defined in paragraph (6) of this Subsec. (a)(55) to (57). Pub. L. 106–554, § 1(a)(5) [title II, subsection), (B) a foreign bank, and (C) an insured in- § 201(5)], added pars. (55) to (57). stitution (as such term is defined in section 1724 of title 1999—Subsec. (a)(4). Pub. L. 106–102, § 201, inserted 12).’’ heading and amended text of par. (4) generally. Prior to Subsec. (a)(52). Pub. L. 103–202, § 109(a)(3), redesig- amendment, text read as follows: ‘‘The term ‘broker’ nated par. (51) defining ‘‘foreign financial regulatory means any person engaged in the business of effecting authority’’ as (52). transactions in securities for the account of others, but 1990—Subsec. (a)(39)(A). Pub. L. 101–550, § 203(b)(1), in- does not include a bank.’’ serted ‘‘foreign equivalent of a self-regulatory organi- Subsec. (a)(5). Pub. L. 106–102, § 202, inserted heading zation, foreign or international securities exchange,’’ and amended text of par. (5) generally. Prior to amend- after ‘‘self-regulatory organization,’’, ‘‘or any substan- ment, text read as follows: ‘‘The term ‘dealer’ means tially equivalent foreign statute or regulation,’’ after any person engaged in the business of buying and sell- ‘‘(7 U.S.C. 7),’’ and ‘‘(7 U.S.C. 21),’’, and ‘‘or foreign ing securities for his own account, through a broker or equivalent’’ after ‘‘contract market’’. otherwise, but does not include a bank, or any person Subsec. (a)(39)(B). Pub. L. 101–550, § 203(b)(2), added insofar as he buys or sells securities for his own ac- subpar. (B) and struck out former subpar. (B) which count, either individually or in some fiduciary capac- read as follows: ‘‘is subject to an order of the Commis- ity, but not as a part of a regular business.’’ sion or other appropriate regulatory agency denying, Subsec. (a)(12)(A)(iii). Pub. L. 106–102, § 221(b), amend- suspending for a period not exceeding twelve months, ed cl. (iii) generally. Prior to amendment, cl. (iii) read or revoking his registration as a broker, dealer, munic- as follows: ‘‘any interest or participation in any com- ipal securities dealer, government securities broker, or mon trust fund or similar fund maintained by a bank government securities dealer, or barring or suspending exclusively for the collective investment and reinvest- for a period not exceeding 12 months his being associ- ment of assets contributed thereto by such bank in its ated with a broker, dealer, municipal securities dealer, capacity as trustee, executor, administrator, or guard- government securities broker, or government securities ian;’’. dealer, or is subject to an order of the Commodity Fu- Subsec. (a)(34)(H). Pub. L. 106–102, § 231(b)(1), added tures Trading Commission denying, suspending, or re- subpar. (H) at end of par. (34). voking his registration under the Commodity Exchange Subsec. (a)(42)(E). Pub. L. 106–102, § 208, added subpar. Act (7 U.S.C. 1 et seq.);’’. (E). Subsec. (a)(39)(D). Pub. L. 101–550, § 203(b)(4), added Subsec. (a)(54). Pub. L. 106–102, § 207, added par. (54). subpar. (D). Former subpar. (D) redesignated (E). 1998—Subsec. (a)(10). Pub. L. 105–353, § 301(b)(1), sub- Subsec. (a)(39)(E). Pub. L. 101–550, § 203(b)(3), (5), re- stituted ‘‘deposit for’’ for ‘‘deposit, for’’. designated subpar. (D) as (E) and substituted ‘‘(A), (B), Subsec. (a)(12)(A)(vi). Pub. L. 105–353, § 301(b)(2), re- (C), or (D)’’ for ‘‘(A), (B), or (C)’’. Former subpar. (E) realigned margins. designated (F). Subsec. (a)(22)(A). Pub. L. 105–353, § 301(b)(3), sub- Subsec. (a)(39)(F). Pub. L. 101–550, § 203(b)(3), (6), re- stituted ‘‘section 153’’ for ‘‘section 153(h)’’ and for ‘‘sec- designated subpar. (E) as (F), substituted ‘‘(D), (E), or tion 153(t)’’. (G)’’ for ‘‘(D) or (E)’’, and inserted ‘‘or any other fel- Subsec. (a)(39)(B)(i). Pub. L. 105–353, § 301(b)(4), sub- ony’’ before ‘‘within ten years’’. stituted ‘‘of the Commission’’ for ‘‘to the Commission’’ Subsec. (a)(51). Pub. L. 101–550, § 204, added par. (51) in introductory provisions. defining ‘‘foreign financial regulatory authority’’. § 78c TITLE 15—COMMERCE AND TRADE Page 190

Pub. L. 101–429 added par. (51) defining ‘‘penny 1984—Subsec. (a)(39)(A). Pub. L. 98–376, § 6(a)(1), in- stock’’. serted ‘‘, contract market designated pursuant to sec- 1989—Subsec. (a)(34). Pub. L. 101–73, § 744(u)(1)(B), sub- tion 5 of the Commodity Exchange Act (7 U.S.C. 7), or stituted ‘‘Office of Thrift Supervision’’ for ‘‘Federal futures association registered under section 17 of such Home Loan Bank Board’’ in concluding provisions. Act (7 U.S.C. 21), or has been and is denied trading Subsec. (a)(34)(G)(iv) to (vi). Pub. L. 101–73, privileges on any such contract market’’. § 744(u)(1)(A), added cl. (iv), redesignated cl. (vi) as (v), Subsec. (a)(39)(B). Pub. L. 98–376, § 6(a)(2), inserted and struck out former cls. (iv) and (v) which read as fol- ‘‘, or is subject to an order of the Commodity Futures lows: Trading Commission denying, suspending, or revoking ‘‘(iv) the Federal Home Loan Bank Board, in the case his registration under the Commodity Exchange Act (7 of a Federal savings and loan association, Federal sav- U.S.C. 1 et seq.)’’. ings bank, or District of Columbia savings and loan as- Subsec. (a)(39)(C). Pub. L. 98–376, § 6(a)(3), inserted ‘‘or sociation; while associated with an entity or person required to be ‘‘(v) the Federal Savings and Loan Insurance Cor- registered under the Commodity Exchange Act,’’. poration, in the case of an institution insured by the Subsec. (a)(41). Pub. L. 98–440 added par. (41). Federal Savings and Loan Insurance Corporation (other 1982—Subsec. (a)(10). Pub. L. 97–303 inserted ‘‘any put, than a Federal savings and loan association, Federal call, straddle, option, or privilege on any security, cer- savings bank, or District of Columbia savings and loan tificate of deposit, or group or index of securities (in- association);’’. cluding any interest therein or based on the value 1988—Subsec. (a)(50). Pub. L. 100–704 added par. (50). thereof), or any put, call, straddle, option, or privilege 1987—Subsec. (a)(6)(C). Pub. L. 100–181, § 301, sub- entered into on a national securities exchange relating stituted ‘‘under the authority of the Comptroller of the to foreign currency,’’ after ‘‘for a security,’’. Currency pursuant to section 92a of title 12’’ for ‘‘under 1980—Subsec. (a)(12). Pub. L. 96–477 included within section 11(k) of the Federal Reserve Act, as amended’’. definition of ‘‘exempted security’’ interests or partici- Subsec. (a)(16). Pub. L. 100–181, § 302, struck out ref- pation in single trust funds, provided that qualifying erence to Canal Zone. interests, participation, or securities could be issued in Subsec. (a)(22)(B). Pub. L. 100–181, § 303, substituted connection with certain governmental plans as defined ‘‘association, or any’’ and ‘‘own behalf, in’’ for ‘‘asso- in section 414(d) of title 26, substituted provisions relat- ciation or any’’ and ‘‘own behalf in’’, respectively. ing to securities arising out of contracts issued by in- Subsec. (a)(34)(C)(ii). Pub. L. 100–181, § 304, substituted surance companies for provisions relating to separate ‘‘State’’ for ‘‘state’’. accounts maintained by insurance companies, and ex- Subsec. (a)(39)(B). Pub. L. 100–181, § 305, substituted cluded from definition of ‘‘exempted security’’ any ‘‘months, or revoking’’ for ‘‘months, revoking’’ and plans described in cls. (A), (B), or (C) of par. (12) which ‘‘barring or suspending for a period not exceeding 12 were funded by annuity contracts described in section months his’’ for ‘‘barring his’’. Subsec. (a)(47). Pub. L. 100–181, § 306(1), added par. (47). 403(b) of title 26. Subsec. (a)(49). Pub. L. 100–181, § 306(2), added par. (49). 1978—Subsec. (a)(40). Pub. L. 95–283 added par. (40). 1986—Subsec. (a)(12). Pub. L. 99–571, § 102(a), in amend- 1975—Subsec. (a)(3). Pub. L. 94–29, § 3(1), redefined ing par. (12) generally, expanded definition of ‘‘exempt- term ‘‘member’’ to recognize the elimination of fixed ed security’’ or ‘‘exempted securities’’ to include gov- commission rates in the case of exchanges, inserted ernment securities as defined in par. (42) of this sub- definition of term when used in the case of registered section, provided that such securities not be deemed securities associations, expanded definition of term exempt for purposes of section 78q–1 of this title, sub- when used with respect to an exchange to include any stituted section 78o–3(g)(3) of this title for section natural person permitted to effect transactions on the 78o–3(b)(6), (11), and (g)(2) of this title in provision re- floor of an exchange without the services of another lating to municipal securities as not being ‘‘exempted person acting as broker, any registered broker or dealer securities’’ and defined ‘‘qualified plan’’ to mean quali- with which such natural person is associated, any reg- fied stock bonus, pension, or profit-sharing plan, quali- istered broker or dealer permitted to designate a natu- fied annuity plan, or governmental plan. ral person as its representative on the floor of an ex- Pub. L. 99–514 substituted ‘‘Internal Revenue Code of change, and any other registered broker or dealer 1986’’ for ‘‘Internal Revenue Code of 1954’’, which for which agrees to be regulated by an exchange and with purposes of codification was translated as ‘‘title 26’’ respect to whom the exchange has undertaken to en- thus requiring no change in text. force compliance with its rules, this chapter, and the Subsec. (a)(29). Pub. L. 99–514 substituted ‘‘Internal rules and regulations thereunder, introduced the con- Revenue Code of 1986’’ for ‘‘Internal Revenue Code of cept of including among members any person required 1954’’, which for purposes of codification was translated to comply with the rules of an exchange to the extent as ‘‘title 26’’ thus requiring no change in text. specified by the Commission in accordance with section Subsec. (a)(34). Pub. L. 99–571, § 102(b)(2), inserted 78f(f) of this title, and expanded definition of term ‘‘, and the term ‘District of Columbia savings and loan when used with respect to a registered securities asso- association’ means any association subject to examina- ciation to include any broker or dealer who has agreed tion and supervision by the Federal Home Loan Bank to be regulated and with respect to whom the associa- Board under section 1466a of title 12’’ in concluding pro- tion undertakes to enforce compliance with its own visions. rules, this chapter, and the rules and regulations there- Subsec. (a)(34)(G). Pub. L. 99–571, § 102(b)(1), added under. subpar. (G). Subsec. (a)(9). Pub. L. 94–29, § 3(2), substituted ‘‘a nat- Subsec. (a)(39)(B). Pub. L. 99–571, § 102(c)(1)(A), which ural person, company, government, or political subdivi- directed insertion of ‘‘or other appropriate regulatory sion, agency, or instrumentality of a government’’ for agency’’ after ‘‘Commission’’ was executed by making ‘‘an individual, a corporation, a partnership, an asso- the insertion after ‘‘Commission’’ the first place ap- ciation, a joint-stock company, a business trust, or an pearing as the probable intent of Congress. unincorporated organization’’. Pub. L. 99–571, § 102(c)(1)(B), substituted ‘‘municipal Subsec. (a)(12). Pub. L. 94–29, § 3(3), brought brokers securities dealer, government securities broker, or gov- and dealers engaged exclusively in municipal securities ernment securities dealer’’ for ‘‘or municipal securities business within the registration provisions of this dealer’’ in two places. chapter by transferring the existing description of mu- Subsec. (a)(39)(C). Pub. L. 99–571, § 102(c)(2), sub- nicipal securities to subsec. (a)(29) and by inserting in stituted ‘‘municipal securities dealer, government se- its place provisions revoking the exempt status of mu- curities broker, or government securities dealer’’ for nicipal securities for purposes of sections 78o, 78o–3 (ex- ‘‘or municipal securities dealer’’ and inserted ‘‘, an ap- cept subsections (b)(6), (b)(11), and (g)(2) thereof) and propriate regulatory agency,’’ after ‘‘the Commission’’. 78q–1 of this title. Subsec. (a)(42) to (46), (48). Pub. L. 99–571, § 102(d), Subsec. (a)(17). Pub. L. 94–29, § 3(4), expanded defini- added pars. (42) to (46) and (48). tion of ‘‘interstate commerce’’ to establish that the Page 191 TITLE 15—COMMERCE AND TRADE § 78c intrastate use of any facility of an exchange, any tele- Amendment by section 376(1) of Pub. L. 111–203 effec- phones or other interstate means of communication, or tive on the transfer date, see section 351 of Pub. L. any other interstate instrumentality constitutes a use 111–203, set out as a note under section 906 of Title 2, of the jurisdictional means for purposes of this chapter. The Congress. Subsec. (a)(18). Pub. L. 94–29, § 3(4), expanded defini- Amendment by section 761(a) of Pub. L. 111–203 effec- tion to include persons under common control with the tive on the later of 360 days after July 21, 2010, or, to broker or dealer and struck out references to the classi- the extent a provision of subtitle B (§§ 761–774) of title fication of the persons, including employees, controlled VII of Pub. L. 111–203 requires a rulemaking, not less by a broker or a dealer. than 60 days after publication of the final rule or regu- Subsec. (a)(19). Pub. L. 94–29, § 3(4), substituted ‘‘ ‘sep- lation implementing such provision of subtitle B, see arate account’, and ‘company’ ’’ for ‘‘and ‘separate ac- section 774 of Pub. L. 111–203, set out as a note under count’.’’ section 77b of this title. Subsec. (a)(21). Pub. L. 94–29, § 3(5), broadened defini- Amendment by section 939(e) of Pub. L. 111–203 effec- tion of term ‘‘person associated with a member’’ to en- tive 2 years after July 21, 2010, see section 939(g) of Pub. compass a person associated with a broker or dealer L. 111–203, set out as a note under section 24a of Title which is a member of an exchange by restating directly 12, Banks and Banking. the definition of a ‘‘person associated with a broker or dealer’’ in subsec. (a)(18). EFFECTIVE DATE OF 2004 AMENDMENT Subsec. (a)(22) to (39). Pub. L. 94–29, § 3(6), added pars. Amendment by Pub. L. 108–386 effective Oct. 30, 2004, (22) to (39). and, except as otherwise provided, applicable with re- Subsec. (b). Pub. L. 94–29, § 3(7), substituted ‘‘account- spect to fiscal year 2005 and each succeeding fiscal ing, and other terms used in this chapter, consistently year, see sections 8(i) and 9 of Pub. L. 108–386, set out with the provisions and purposes of this chapter’’ for as notes under section 321 of Title 12, Banks and Bank- ‘‘and accounting terms used in this chapter insofar as ing. such definitions are not inconsistent with the provisions of this chapter’’. EFFECTIVE DATE OF 1999 AMENDMENT Subsec. (d). Pub. L. 94–29, § 3(8), added subsec. (d). 1970—Subsec. (a)(12). Pub. L. 91–567 inserted provi- Amendment by sections 201, 202, 207, and 208 of Pub. sions which brought within definition of ‘‘exempted se- L. 106–102 effective at the end of the 18-month period curity’’ any security which is an industrial develop- beginning on Nov. 12, 1999, see section 209 of Pub. L. ment bond the interest on which is excludable from 106–102, set out as a note under section 1828 of Title 12, gross income under section 103(a)(1) of title 26 if, by Banks and Banking. reason of the application of section 103(c)(4) or (6) of Amendment by section 221(b) of Pub. L. 106–102 effec- title 26, section 103(c)(1) does not apply to such secu- tive 18 months after Nov. 12, 1999, see section 225 of rity. Such amendment was also made by Pub. L. 91–373. Pub. L. 106–102, set out as a note under section 77c of Pub. L. 91–547, § 28(a), struck out reference to indus- this title. trial development bonds the interest on which is ex- EFFECTIVE DATE OF 1995 AMENDMENT cludable from gross income under section 103(a)(1) of title 26; and included as exempted securities interests Amendment by Pub. L. 104–62 applicable as defense to or participations in common trust funds maintained by any claim in administrative and judicial actions pend- a bank for collective investment of assets held by it in ing on or commenced after Dec. 8, 1995, that any person, a fiduciary capacity; interests or participations in security, interest, or participation of type described in bank collective trust funds maintained for funding of Pub. L. 104–62 is subject to the Securities Act of 1933, employees’ stock-bonus, pension, or profit-sharing the Securities Exchange Act of 1934, the Investment plans; interests or participations in separate accounts Company Act of 1940, the Investment Advisers Act of maintained by insurance companies for funding certain 1940, or any State statute or regulation preempted as stock-bonus, pension, or profit-sharing plans which provided in section 80a–3a of this title, except as spe- meet the requirements for qualification under section cifically provided in such statutes, see section 7 of Pub. 401 of title 26; and such other securities as the Commis- L. 104–62, set out as a note under section 77c of this sion by rules and regulations deems necessary in the title. public interest. Pub. L. 91–373 inserted provisions which brought EFFECTIVE DATE OF 1994 AMENDMENT within definition of ‘‘exempted security’’ any security Amendment by section 347(a) of Pub. L. 103–325 effec- which is an industrial development bond the interest tive upon date of promulgation of final regulations on which is excludable from gross income under section under section 347(c) of Pub. L. 103–325, see section 347(d) 103(a)(1) of title 26 if, by reason of the application of of Pub. L. 103–325, set out as an Effective Date of 1994 section 103(c)(4) or (6) of title 26, section 103(c)(1) does Amendment note under section 24 of Title 12, Banks not apply to such security. Such amendment was also and Banking. made by Pub. L. 91–567. Subsec. (a)(19). Pub. L. 91–547, § 28(b), provided for EFFECTIVE DATE OF 1990 AMENDMENT term ‘‘separate account’’ the same meaning as in the Amendment by Pub. L. 101–429 effective 12 months Investment Company Act of 1940. after Oct. 15, 1990, with provision to commence rule- 1964—Subsec. (a)(18) to (21). Pub. L. 88–467 added pars. making proceedings to implement such amendment (18) to (21). 1960—Subsec. (a)(16). Pub. L. 86–624 struck out ref- note later than 180 days after Oct. 15, 1990, and with erence to Hawaii. provisions relating to civil penalties and accounting 1959—Subsec. (a)(16). Pub. L. 86–70 struck out ref- and disgorgement, see section 1(c)(2), (3)(A), (C) of Pub. erence to Alaska. L. 101–429, set out in a note under section 77g of this title. CHANGE OF NAME EFFECTIVE DATE OF 1988 AMENDMENT Act Aug. 23, 1935, substituted ‘‘Board of Governors of the Federal Reserve System’’ for ‘‘Federal Reserve Amendment by Pub. L. 100–704, except for amendment Board’’. by section 6, not applicable to actions occurring before Nov. 19, 1988, see section 9 of Pub. L. 100–704, set out as EFFECTIVE DATE OF 2010 AMENDMENT a note under section 78o of this title. Amendment by sections 932(b), 941(a), 944(b), 985(b)(2), EFFECTIVE DATE OF 1986 AMENDMENT and 986(a)(1) of Pub. L. 111–203 effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Amendment by Pub. L. 99–571 effective 270 days after Pub. L. 111–203, set out as an Effective Date note under Oct. 28, 1986, see section 401 of Pub. L. 99–571, set out as section 5301 Title 12, Banks and Banking. an Effective Date note under section 78o–5 of this title. § 78c TITLE 15—COMMERCE AND TRADE Page 192

EFFECTIVE DATE OF 1984 AMENDMENT section, the Commission and the Board shall consult with and seek the concurrence of the Federal banking Pub. L. 98–376, § 7, Aug. 10, 1984, 98 Stat. 1266, provided agencies concerning the content of such rulemaking in that: ‘‘The amendments made by this Act [amending implementing section 3(a)(4)(B) of the Securities Ex- this section and sections 78o, 78t, 78u, and 78ff of this change Act of 1934 [15 U.S.C. 78c(a)(4)(B)], as amended title] shall become effective immediately upon enact- by this section and section 201 of the Gramm-Leach- ment of this Act [Aug. 10, 1984].’’ Bliley Act [Pub. L. 106–102]. EFFECTIVE DATE OF 1975 AMENDMENT ‘‘(c) DEFINITION.—For purposes of this section, the term ‘Federal banking agencies’ means the Office of Amendment by Pub. L. 94–29 effective June 4, 1975, ex- the Comptroller of the Currency, the Office of Thrift cept for amendment of subsec. (a)(12) by Pub. L. 94–29 Supervision, and the Federal Deposit Insurance Cor- to be effective 180 days after June 4, 1975, with provi- poration.’’ sions of subsec. (a)(3), as amended by Pub. L. 94–29, or rules or regulations thereunder, not to apply in a way CONSTRUCTION OF 1993 AMENDMENT so as to deprive any person of membership in any national securities exchange (or its successor) of which Amendment by Pub. L. 103–202 not to be construed to such person was, on June 4, 1975, a member or a mem- govern initial issuance of any public debt obligation or ber firm as defined in the constitution of such ex- to grant any authority to (or extend any authority of) change, or so as to deny membership in any such ex- the Securities and Exchange Commission, any appro- change (or its successor) to any natural person who is priate regulatory agency, or a self-regulatory organiza- or becomes associated with such member or member tion to prescribe any procedure, term, or condition of firm, see section 31(a) of Pub. L. 94–29, set out as a note such initial issuance, to promulgate any rule or regula- under section 78b of this title. tion governing such initial issuance, or to otherwise regulate in any manner such initial issuance, see sec- EFFECTIVE DATE OF 1970 AMENDMENTS tion 111 of Pub. L. 103–202, set out as a note under sec- o For effective date of amendment by Pub. L. 91–567, tion 78 –5 of this title. see section 6(d) of Pub. L. 91–567, set out as a note under TRANSFER OF FUNCTIONS section 77c of this title. Amendment by Pub. L. 91–547 effective Dec. 14, 1970, For transfer of functions of Securities and Exchange see section 30 of Pub L. 91–547, set out as a note under Commission, with certain exceptions, to Chairman of section 80a–52 of this title. such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, For effective date of amendment by Pub. L. 91–373, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under see section 401(c) of Pub. L. 91–373, set out as a note section 78d of this title. under section 77c of this title. STATE OPT OUT EFFECTIVE DATE OF 1964 AMENDMENT Pub. L. 103–325, title III, § 347(e), Sept. 23, 1994, 108 Pub. L. 88–467, § 13, Aug. 20, 1964, 78 Stat. 580, provided Stat. 2241, provided that: ‘‘Notwithstanding the amend- that: ‘‘The amendments made by this Act shall take ef- ments made by this section [amending this section and fect as follows: section 24 of Title 12, Banks and Banking], a note that ‘‘(1) The effective date of section 12(g)(1) of the Secu- is directly secured by a first lien on one or more parcels rities Exchange Act of 1934, as added by section 3(c) of of real estate upon which is located one or more com- this Act [section 78l(g)(1) of this title], shall be July 1, mercial structures shall not be considered to be a mort- 1964. gage related security under section 3(a)(41) of the Secu- ‘‘(2) The effective date of the amendments to sections rities Exchange Act of 1934 [15 U.S.C. 78c(a)(41)] in any 12(b) and 15(a) of the Securities Exchange Act of 1934 State that, prior to the expiration of 7 years after the [sections 78l(b) and 78o(a) of this title], contained in date of enactment of this Act [Sept. 23, 1994], enacts a sections 3(a) and 6(a), respectively, of this Act shall be statute that specifically refers to this section and ei- July 1, 1964. ther prohibits or provides for a more limited authority ‘‘(3) All other amendments contained in this Act to purchase, hold, or invest in such securities by any [amending this section and sections 77d, 78l, 78m, 78n, person, trust, corporation, partnership, association, 78o, 78o–3, 78p, 78t, 78w, and 78ff of this title] shall take business trust, or business entity or class thereof than effect on the date of its enactment [Aug. 20, 1964].’’ is provided by the amendments made by this subsection. The enactment by any State of any statute of REGULATIONS the type described in the preceding sentence shall not Pub. L. 109–351, title I, § 101(a)(2)–(c), Oct. 13, 2006, 120 affect the validity of any contractual commitment to Stat. 1968, provided that: purchase, hold, or invest that was made prior thereto, ‘‘(2) TIMING.—Not later than 180 days after the date and shall not require the sale or other disposition of of the enactment of this Act [Oct. 13, 2006], the Secu- any securities acquired prior thereto.’’ rities and Exchange Commission (in this section [en- DEFINITIONS acting this note and amending 15 U.S.C. 78c] referred to as the ‘Commission’) and the Board of Governors Pub. L. 106–554, § 1(a)(5) [title III, § 301(b)], Dec. 21, of the Federal Reserve System (hereafter in this sec- 2000, 114 Stat. 2763, 2763A–451, provided that: ‘‘As used in tion referred to as the ‘Board’) shall jointly issue a the amendment made by subsection (a) [enacting sec- proposed single set of rules or regulations to define tions 206A to 206C of Pub. L. 106—102, set out below], the term ‘broker’ in accordance with section 3(a)(4) of the term ‘security’ has the same meaning as in section the Securities Exchange Act of 1934 [15 U.S.C. 2(a)(1) of the Securities Act of 1933 [15 U.S.C. 77b(a)(1)] 78c(a)(4)], as amended by this subsection. or section 3(a)(10) of the Securities Exchange Act of ‘‘(3) RULEMAKING SUPERSEDES PREVIOUS RULE- 1934 [15 U.S.C. 78c(a)(10)].’’ MAKING.—A final single set of rules or regulations Pub. L. 106–102, title II, § 206, Nov. 12, 1999, 113 Stat. jointly adopted in accordance with this section shall 1393, as amended by Pub. L. 111–203, title VII, § 742(b), supersede any other proposed or final rule issued by July 21, 2010, 124 Stat. 1733, provided that: the Commission on or after the date of enactment of ‘‘(a) DEFINITION OF IDENTIFIED BANKING PRODUCT.—Ex- section 201 of the Gramm-Leach-Bliley Act [Nov. 12, cept as provided in subsection (e) [sic], for purposes of 1999] with regard to the exceptions to the definition paragraphs (4) and (5) of section 3(a) of the Securities of a broker under section 3(a)(4)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4), (5)), the term Exchange Act of 1934. No such other rule, whether or ‘identified banking product’ means— not issued in final form, shall have any force or effect ‘‘(1) a deposit account, savings account, certificate on or after that date of enactment. of deposit, or other deposit instrument issued by a ‘‘(b) CONSULTATION.—Prior to jointly adopting the bank; single set of final rules or regulations required by this ‘‘(2) a banker’s acceptance; Page 193 TITLE 15—COMMERCE AND TRADE § 78c

‘‘(3) a letter of credit issued or loan made by a interest or other rates, currencies, commodities, se- bank; curities, instruments of indebtedness, indices, quan- ‘‘(4) a debit account at a bank arising from a credit titative measures, or other financial or economic in- card or similar arrangement; terests or property of any kind, or any interest there- ‘‘(5) a participation in a loan which the bank or an in or based on the value thereof, and that transfers, affiliate of the bank (other than a broker or dealer) as between the parties to the transaction, in whole or funds, participates in, or owns that is sold— in part, the financial risk associated with a future ‘‘(A) to qualified investors; or change in any such value or level without also con- ‘‘(B) to other persons that— veying a current or future direct or indirect owner- ‘‘(i) have the opportunity to review and assess ship interest in an asset (including any enterprise or any material information, including information investment pool) or liability that incorporates the fi- regarding the borrower’s creditworthiness; and nancial risk so transferred, including any such agree- ‘‘(ii) based on such factors as financial sophis- ment, contract, or transaction commonly known as tication, net worth, and knowledge and experi- an interest rate swap, including a rate floor, rate cap, ence in financial matters, have the capability to rate collar, cross-currency rate swap, basis swap, cur- evaluate the information available, as determined rency swap, equity index swap, equity swap, debt under generally applicable banking standards or index swap, debt swap, credit spread, credit default guidelines; or swap, credit swap, weather swap, or commodity swap; ‘‘(6) any swap agreement, including credit and eq- ‘‘(4) provides for the purchase or sale, on a fixed or uity swaps, except that an equity swap that is sold di- contingent basis, of any commodity, currency, in- rectly to any person other than a qualified investor strument, interest, right, service, good, article, or (as defined in section 3(a)(54) of the Securities Act of property of any kind; or 1934 [15 U.S.C. 78c(a)(54)]) shall not be treated as an ‘‘(5) is any combination or permutation of, or op- identified banking product. tion on, any agreement, contract, or transaction de- ‘‘(b) DEFINITION OF SWAP AGREEMENT.—For purposes scribed in any of paragraphs (1) through (4). of subsection (a)(6), the term ‘swap agreement’ means ‘‘(b) EXCLUSIONS.—The term ‘swap agreement’ does any individually negotiated contract, agreement, war- not include— rant, note, or option that is based, in whole or in part, ‘‘(1) any put, call, straddle, option, or privilege on on the value of, any interest in, or any quantitative any security, certificate of deposit, or group or index measure or the occurrence of any event relating to, one of securities, including any interest therein or based or more commodities, securities, currencies, interest or on the value thereof; other rates, indices, or other assets, but does not in- ‘‘(2) any put, call, straddle, option, or privilege en- clude any other identified banking product, as defined tered into on a national securities exchange reg- in paragraphs (1) through (5) of subsection (a). istered pursuant to section 6(a) of the Securities Ex- ‘‘(c) CLASSIFICATION LIMITED.—Classification of a par- change Act of 1934 [15 U.S.C. 78f(a)] relating to foreign ticular product as an identified banking product pursu- currency; ant to this section shall not be construed as finding or ‘‘(3) any agreement, contract, or transaction pro- implying that such product is or is not a security for viding for the purchase or sale of one or more securi- any purpose under the securities laws, or is or is not an ties on a fixed basis; account, agreement, contract, or transaction for any ‘‘(4) any agreement, contract, or transaction pro- purpose under the Commodity Exchange Act [7 U.S.C. viding for the purchase or sale of one or more securi- 1 et seq.]. ties on a contingent basis, unless such agreement, ‘‘(d) INCORPORATED DEFINITIONS.—For purposes of this contract, or transaction predicates such purchase or section, the terms ‘bank’ and ‘qualified investor’ have sale on the occurrence of a bona fide contingency the same meanings as given in section 3(a) of the Secu- that might reasonably be expected to affect or be af- rities Exchange Act of 1934 [15 U.S.C. 78c(a)], as amend- fected by the creditworthiness of a party other than ed by this Act.’’ a party to the agreement, contract, or transaction; Pub. L. 106–102, title II, §§ 206A—206C, as added by ‘‘(5) any note, bond, or evidence of indebtedness Pub. L. 106–554, § 1(a)(5) [title III, § 301(a)], Dec. 21, 2000, that is a security as defined in section 2(a)(1) of the 114 Stat. 2763, 2763A–449, and amended by Pub. L. Securities Act of 1933 [15 U.S.C. 77b(a)(1)] or section 111–203, title VII, § 762(a), (b), July 21, 2010, 124 Stat. 3(a)(10) of the Securities Exchange Act of 1934 [15 1759, provided that: U.S.C. 78c(a)(10)]; or ‘‘SEC. 206A. SWAP AGREEMENT. ‘‘(6) any agreement, contract, or transaction that is— ‘‘(a) IN GENERAL.—Except as provided in subsection (b), as used in this section, the term ‘swap agreement’ ‘‘(A) based on a security; and means any agreement, contract, or transaction be- ‘‘(B) entered into directly or through an under- tween eligible contract participants (as defined in sec- writer (as defined in section 2(a) of the Securities tion 1a(12) of the Commodity Exchange Act [7 U.S.C. Act of 1933 [15 U.S.C. 77b(a)]) by the issuer of such 1a(12)] as in effect on the date of the enactment of this security for the purposes of raising capital, unless section [Dec. 21, 2000]), other than a person that is an such agreement, contract, or transaction is entered eligible contract participant under section 1a(12)(C) of into to manage a risk associated with capital rais- the Commodity Exchange Act, the material terms of ing. which (other than price and quantity) are subject to in- ‘‘(c) RULE OF CONSTRUCTION REGARDING MASTER dividual negotiation, and that— AGREEMENTS.—As used in this section, the term ‘swap ‘‘(1) is a put, call, cap, floor, collar, or similar op- agreement’ shall be construed to include a master tion of any kind for the purchase or sale of, or based agreement that provides for an agreement, contract, or on the value of, one or more interest or other rates, transaction that is a swap agreement pursuant to sub- currencies, commodities, indices, quantitative meas- sections (a) and (b), together with all supplements to ures, or other financial or economic interests or prop- any such master agreement, without regard to whether erty of any kind; the master agreement contains an agreement, contract, ‘‘(2) provides for any purchase, sale, payment or de- or transaction that is not a swap agreement pursuant livery (other than a dividend on an equity security) to subsections (a) and (b), except that the master agree- that is dependent on the occurrence, non-occurrence, ment shall be considered to be a swap agreement only or the extent of the occurrence of an event or contin- with respect to each agreement, contract, or trans- gency associated with a potential financial, eco- action under the master agreement that is a swap nomic, or commercial consequence; agreement pursuant to subsections (a) and (b). ‘‘(3) provides on an executory basis for the ex- ‘‘SEC. 206B. SECURITY-BASED SWAP AGREEMENT. change, on a fixed or contingent basis, of one or more ‘‘As used in this section, the term ‘security-based payments based on the value or level of one or more swap agreement’ means a swap agreement (as defined § 78c–1 TITLE 15—COMMERCE AND TRADE Page 194 in section 206A) of which a material term is based on July 21, 2010, or, to the extent a provision of the price, yield, value, or volatility of any security or subtitle B requires a rulemaking, not less than any group or index of securities, or any interest there- 60 days after publication of the final rule or in. regulation implementing such provision of sub- ‘‘SEC. 206C. NON-SECURITY-BASED SWAP AGREE- title B, see 2010 Amendment notes and Effective MENT. Date of 2010 Amendment note below. ‘‘As used in this section, the term ‘non-security-based swap agreement’ means any swap agreement (as de- REFERENCES IN TEXT fined in section 206A) that is not a security-based swap agreement (as defined in section 206B).’’ This chapter, referred to in subsec. (b)(2) to (4), was [Pub. L. 111–203, title VII, §§ 762(a), (b), 774, July 21, 2010, in the original ‘‘this title’’. See References in Text note 124 Stat. 1759, 1802, provided that, effective on the later of set out under section 78a of this title. 360 days after July 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203 requires AMENDMENTS a rulemaking, not less than 60 days after publication of the final rule or regulation implementing such provision of sub- 2010—Subsec. (a). Pub. L. 111–203, § 762(d)(1)(A), struck title B, Pub. L. 106–102, §§ 206A–206C, set out above, is out subsec. (a) and reserved that subsec.. Prior to amended: (1) in section 206A(a) in the material preceding amendment, text read as follows: ‘‘The definition of ‘se- paragraph (1), by striking ‘‘Except as’’ and all that follows curity’ in section 78c(a)(10) of this title does not include through ‘‘that—’’ and inserting the following: ‘‘Except as any non-security-based swap agreement (as defined in provided in subsection (b), as used in this section, the term section 206C of the Gramm-Leach-Bliley Act).’’ ‘swap agreement’ means any agreement, contract, or trans- Subsec. (b). Pub. L. 111–203, § 762(d)(1)(B), struck out action that—’’; and (2) by repealing sections 206B and ‘‘(as defined in section 206B of the Gramm-Leach-Bliley 206C.] Act)’’ after ‘‘security-based swap agreement’’ wherever appearing. § 78c–1. Swap agreements EFFECTIVE DATE OF 2010 AMENDMENT (a) [Reserved] Amendment by Pub. L. 111–203 effective on the later (b) Security-based swap agreements of 360 days after July 21, 2010, or, to the extent a provi- (1) The definition of ‘‘security’’ in section sion of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203 requires a rulemaking, not less than 60 days 78c(a)(10) of this title does not include any secu- after publication of the final rule or regulation imple- rity-based swap agreement. menting such provision of subtitle B, see section 774 of (2) The Commission is prohibited from reg- Pub. L. 111–203, set out as a note under section 77b of istering, or requiring, recommending, or sug- this title. gesting, the registration under this chapter of any security-based swap agreement. If the Com- § 78c–2. Securities-related derivatives mission becomes aware that a registrant has filed a registration application with respect to (a) Any agreement, contract, or transaction such a swap agreement, the Commission shall (or class thereof) that is exempted by the Com- promptly so notify the registrant. Any such reg- modity Futures Trading Commission pursuant istration with respect to such a swap agreement to section 6(c)(1) of title 7 with the condition shall be void and of no force or effect. that the Commission exercise concurrent juris- (3) Except as provided in section 78p(a) of this diction over such agreement, contract, or trans- title with respect to reporting requirements, the action (or class thereof) shall be deemed a secu- Commission is prohibited from— rity for purposes of the securities laws. (A) promulgating, interpreting, or enforcing (b) With respect to any agreement, contract, rules; or or transaction (or class thereof) that is exempt- (B) issuing orders of general applicability; ed by the Commodity Futures Trading Commis- sion pursuant to section 6(c)(1) of title 7 with under this chapter in a manner that imposes or the condition that the Commission exercise con- specifies reporting or recordkeeping require- current jurisdiction over such agreement, con- ments, procedures, or standards as prophylactic tract, or transaction (or class thereof), ref- measures against fraud, manipulation, or insider erences in the securities laws to the ‘‘purchase’’ trading with respect to any security-based swap or ‘‘sale’’ of a security shall be deemed to in- agreement. clude the execution, termination (prior to its (4) References in this chapter to the ‘‘pur- scheduled maturity date), assignment, ex- chase’’ or ‘‘sale’’ of a security-based swap agree- change, or similar transfer or conveyance of, or ment shall be deemed to mean the execution, extinguishing of rights or obligations under termination (prior to its scheduled maturity such agreement, contract, or transaction, as the date), assignment, exchange, or similar transfer context may require. or conveyance of, or extinguishing of rights or obligations under, a security-based swap agree- (June 6, 1934, ch. 404, title I, § 3B, as added Pub. ment, as the context may require. L. 111–203, title VII, § 717(b), July 21, 2010, 124 Stat. 1651.) (June 6, 1934, ch. 404, title I, § 3A, as added Pub. L. 106–554, § 1(a)(5) [title III, § 303(a)], Dec. 21, EFFECTIVE DATE 2000, 114 Stat. 2763, 2763A–452; amended Pub. L. 111–203, title VII, § 762(d)(1), July 21, 2010, 124 Section effective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle A Stat. 1760.) (§§ 711–754) of title VII of Pub. L. 111–203 requires a rule- AMENDMENT OF SECTION making, not less than 60 days after publication of the final rule or regulation implementing such provision of Unless otherwise provided, amendment by subtitle A, see section 754 of Pub. L. 111–203, set out as subtitle B (§§ 761–774) of title VII of Pub. L. an Effective Date of 2010 Amendment note under sec- 111–203 effective on the later of 360 days after tion 1a of Title 7, Agriculture. Page 195 TITLE 15—COMMERCE AND TRADE § 78c–3

§ 78c–3. Clearing for security-based swaps days after receiving a submission made under paragraphs (2)(A) and (2)(B), unless the sub- (a) In general mitting clearing agency agrees to an exten- (1) Standard for clearing sion for the time limitation established under It shall be unlawful for any person to engage this paragraph. in a security-based swap unless that person (4) Determination submits such security-based swap for clearing (A) In reviewing a submission made under to a clearing agency that is registered under paragraph (2), the Commission shall review this chapter or a clearing agency that is ex- whether the submission is consistent with sec- empt from registration under this chapter if tion 78q–1 of this title. the security-based swap is required to be (B) In reviewing a security-based swap, cleared. group of security-based swaps or class of secu- (2) Open access rity-based swaps pursuant to paragraph (1) or a submission made under paragraph (2), the The rules of a clearing agency described in Commission shall take into account the fol- paragraph (1) shall— lowing factors: (A) prescribe that all security-based swaps (i) The existence of significant outstanding submitted to the clearing agency with the notional exposures, trading liquidity and same terms and conditions are economically adequate pricing data. equivalent within the clearing agency and (ii) The availability of rule framework, ca- may be offset with each other within the pacity, operational expertise and resources, clearing agency; and and credit support infrastructure to clear (B) provide for non-discriminatory clear- the contract on terms that are consistent ing of a security-based swap executed bilat- with the material terms and trading conven- erally or on or through the rules of an unaf- tions on which the contract is then traded. filiated national securities exchange or secu- (iii) The effect on the mitigation of sys- rity-based swap execution facility. temic risk, taking into account the size of (b) Commission review the market for such contract and the resources of the clearing agency available to (1) Commission-initiated review clear the contract. (A) The Commission on an ongoing basis (iv) The effect on competition, including shall review each security-based swap, or any appropriate fees and charges applied to group, category, type, or class of security- clearing. based swaps to make a determination that (v) The existence of reasonable legal cer- such security-based swap, or group, category, tainty in the event of the insolvency of the type, or class of security-based swaps should relevant clearing agency or 1 or more of its be required to be cleared. clearing members with regard to the treat- (B) The Commission shall provide at least a ment of customer and security-based swap 30-day public comment period regarding any counterparty positions, funds, and property. determination under subparagraph (A). (C) In making a determination under sub- (2) Swap submissions section (b)(1) or paragraph (2)(C) that the clearing requirement shall apply, the Commis- (A) A clearing agency shall submit to the sion may require such terms and conditions to Commission each security-based swap, or any the requirement as the Commission deter- group, category, type, or class of security- mines to be appropriate. based swaps that it plans to accept for clearing and provide notice to its members (in a (5) Rules manner to be determined by the Commission) Not later than 1 year after July 21, 2010, the of such submission. Commission shall adopt rules for a clearing (B) Any security-based swap or group, cat- agency’s submission for review, pursuant to egory, type, or class of security-based swaps this subsection, of a security-based swap, or a listed for clearing by a clearing agency as of group, category, type, or class of security- July 21, 2010, shall be considered submitted to based swaps, that it seeks to accept for clear- the Commission. ing. Nothing in this paragraph limits the Com- (C) The Commission shall— mission from making a determination under (i) make available to the public any subparagraph (2)(C) for security-based swaps de- mission received under subparagraphs (A) scribed in paragraph (2)(B). and (B); (c) Stay of clearing requirement (ii) review each submission made under (1) In general subparagraphs (A) and (B), and determine After making a determination pursuant to whether the security-based swap, or group, subsection (b)(2), the Commission, on applica- category, type, or class of security-based tion of a counterparty to a security-based swaps, described in the submission is re- swap or on its own initiative, may stay the quired to be cleared; and clearing requirement of subsection (a)(1) until (iii) provide at least a 30-day public com- the Commission completes a review of the ment period regarding its determination terms of the security-based swap (or the whether the clearing requirement under sub- group, category, type, or class of security- section (a)(1) shall apply to the submission. based swaps) and the clearing arrangement. (3) Deadline (2) Deadline The Commission shall make its determina- The Commission shall complete a review tion under paragraph (2)(C) not later than 90 undertaken pursuant to paragraph (1) not § 78c–3 TITLE 15—COMMERCE AND TRADE Page 196

later than 90 days after issuance of the stay, security-based swaps would threaten the fi- unless the clearing agency that clears the se- nancial integrity of the clearing agency; and curity-based swap, or group, category, type, or (B) affects the authority of the Commis- class of security-based swaps, agrees to an ex- sion to enforce the open access provisions of tension of the time limitation established subsection (a)(2) with respect to a security- under this paragraph. based swap or the group, category, type, or (3) Determination class of security-based swaps that is listed for clearing by a clearing agency. Upon completion of the review undertaken pursuant to paragraph (1), the Commission (e) Reporting transition rules may— Rules adopted by the Commission under this (A) determine, unconditionally or subject section shall provide for the reporting of data, to such terms and conditions as the Commis- as follows: sion determines to be appropriate, that the (1) Security-based swaps entered into before security-based swap, or group, category, July 21, 2010, shall be reported to a registered type, or class of security-based swaps, must security-based swap data repository or the be cleared pursuant to this subsection if it Commission no later than 180 days after the finds that such clearing is consistent with effective date of this section. subsection (b)(4); or (2) Security-based swaps entered into on or (B) determine that the clearing require- after July 21, 2010, shall be reported to a reg- ment of subsection (a)(1) shall not apply to istered security-based swap data repository or the security-based swap, or group, category, the Commission no later than the later of— type, or class of security-based swaps. (A) 90 days after such effective date; or (4) Rules (B) such other time after entering into the security-based swap as the Commission may Not later than 1 year after July 21, 2010, the prescribe by rule or regulation. Commission shall adopt rules for reviewing, pursuant to this subsection, a clearing agen- (f) Clearing transition rules cy’s clearing of a security-based swap, or a (1) Security-based swaps entered into before group, category, type, or class of security- July 21, 2010, are exempt from the clearing re- based swaps, that it has accepted for clearing. quirements of this subsection if reported pursu- (d) Prevention of evasion ant to subsection (e)(1). (2) Security-based swaps entered into before (1) In general application of the clearing requirement pursu- The Commission shall prescribe rules under ant to this section are exempt from the clearing this section (and issue interpretations of rules requirements of this section if reported pursu- prescribed under this section), as determined ant to subsection (e)(2). by the Commission to be necessary to prevent (g) Exceptions evasions of the mandatory clearing require- (1) In general ments under this chapter. The requirements of subsection (a)(1) shall (2) Duty of Commission to investigate and take not apply to a security-based swap if 1 of the certain actions counterparties to the security-based swap— To the extent the Commission finds that a (A) is not a financial entity; particular security-based swap or any group, (B) is using security-based swaps to hedge category, type, or class of security-based or mitigate commercial risk; and swaps that would otherwise be subject to man- (C) notifies the Commission, in a manner datory clearing but no clearing agency has set forth by the Commission, how it gener- listed the security-based swap or the group, ally meets its financial obligations associ- category, type, or class of security-based ated with entering into non-cleared secu- swaps for clearing, the Commission shall— rity-based swaps. (A) investigate the relevant facts and cir- (2) Option to clear cumstances; (B) within 30 days issue a public report The application of the clearing exception in containing the results of the investigation; paragraph (1) is solely at the discretion of the and counterparty to the security-based swap that (C) take such actions as the Commission meets the conditions of subparagraphs (A) determines to be necessary and in the public through (C) of paragraph (1). interest, which may include requiring the (3) Financial entity definition retaining of adequate margin or capital by (A) In general parties to the security-based swap or the group, category, type, or class of security- For the purposes of this subsection, the based swaps. term ‘‘financial entity’’ means— (i) a swap dealer; (3) Effect on authority (ii) a security-based swap dealer; Nothing in this subsection— (iii) a major swap participant; (A) authorizes the Commission to adopt (iv) a major security-based swap partici- rules requiring a clearing agency to list for pant; clearing a security-based swap or any group, (v) a commodity pool as defined in sec- category, type, or class of security-based tion 1a(10) of title 7; swaps if the clearing of the security-based (vi) a private fund as defined in section swap or the group, category, type, or class of 80b–2(a) of this title; Page 197 TITLE 15—COMMERCE AND TRADE § 78c–3

(vii) an employee benefit plan as defined major security-based swap participant with in paragraphs (3) and (32) of section 1002 of a counterparty that is not a swap dealer, title 29; major swap participant, security-based swap (viii) a person predominantly engaged in dealer, or major security-based swap partici- activities that are in the business of bank- pant, the counterparty shall have the sole ing or financial in nature, as defined in right to select the clearing agency at which section 1843(k) of title 12. the security-based swap will be cleared. (B) Exclusion (B) Security-based swaps not required to be The Commission shall consider whether to cleared exempt small banks, savings associations, With respect to any security-based swap farm credit system institutions, and credit that is not subject to the mandatory clear- unions, including— ing requirement under subsection (a) and en- (i) depository institutions with total as- tered into by a security-based swap dealer or sets of $10,000,000,000 or less; a major security-based swap participant (ii) farm credit system institutions with with a counterparty that is not a swap deal- total assets of $10,000,000,000 or less; or er, major swap participant, security-based (iii) credit unions with total assets of swap dealer, or major security-based swap $10,000,000,000 or less. participant, the counterparty— (4) Treatment of affiliates (i) may elect to require clearing of the security-based swap; and (A) In general (ii) shall have the sole right to select the An affiliate of a person that qualifies for clearing agency at which the security- an exception under this subsection (includ- based swap will be cleared. ing affiliate entities predominantly engaged (6) Abuse of exception in providing financing for the purchase of the merchandise or manufactured goods of The Commission may prescribe such rules or the person) may qualify for the exception issue interpretations of the rules as the Com- only if the affiliate, acting on behalf of the mission determines to be necessary to prevent person and as an agent, uses the security- abuse of the exceptions described in this sub- based swap to hedge or mitigate the com- section. The Commission may also request in- mercial risk of the person or other affiliate formation from those persons claiming the of the person that is not a financial entity. clearing exception as necessary to prevent abuse of the exceptions described in this sub- (B) Prohibition relating to certain affiliates section. The exception in subparagraph (A) shall not apply if the affiliate is— (h) Trade execution (i) a swap dealer; (1) In general (ii) a security-based swap dealer; With respect to transactions involving secu- (iii) a major swap participant; rity-based swaps subject to the clearing re- (iv) a major security-based swap partici- quirement of subsection (a)(1), counterparties pant; shall— (v) an issuer that would be an invest- (A) execute the transaction on an ex- ment company, as defined in section 80a–3 change; or of this title, but for paragraph (1) or (7) of (B) execute the transaction on a security- subsection (c) of that section; based swap execution facility registered (vi) a commodity pool; or under section 78c–4 of this title or a secu- (vii) a bank holding company with over rity-based swap execution facility that is ex- $50,000,000,000 in consolidated assets. empt from registration under section (C) Transition rule for affiliates 78c–4(e) of this title. An affiliate, subsidiary, or a wholly owned (2) Exception entity of a person that qualifies for an ex- The requirements of subparagraphs (A) and ception under subparagraph (A) and is pre- (B) of paragraph (1) shall not apply if no ex- dominantly engaged in providing financing change or security-based swap execution facil- for the purchase or lease of merchandise or ity makes the security-based swap available to manufactured goods of the person shall be trade or for security-based swap transactions exempt from the margin requirement de- subject to the clearing exception under sub- scribed in section 78o–10(e) of this title and section (g). the clearing requirement described in subsection (a) with regard to security-based (i) Board approval swaps entered into to mitigate the risk of Exemptions from the requirements of this sec- the financing activities for not less than a 2- tion to clear a security-based swap or execute a year period beginning on July 21, 2010. security-based swap through a national securi- (5) Election of counterparty ties exchange or security-based swap execution facility shall be available to a counterparty that (A) Security-based swaps required to be is an issuer of securities that are registered cleared under section 78l of this title or that is required With respect to any security-based swap to file reports pursuant to section 78o(d) of this that is subject to the mandatory clearing re- title, only if an appropriate committee of the is- quirement under subsection (a) and entered suer’s board or governing body has reviewed and into by a security-based swap dealer or a approved the issuer’s decision to enter into secu- § 78c–4 TITLE 15—COMMERCE AND TRADE Page 198 rity-based swaps that are subject to such exemp- ferred to in subsec. (j)(2)(D), (3)(A)(i), was in the origi- tions. nal ‘‘this title’’. See References in Text note set out under section 78a of this title. (j) Designation of chief compliance officer For the effective date of this section, referred to in (1) In general subsec. (e), see section 774 of Pub. L. 111–203, set out as Each registered clearing agency shall des- an Effective Date of 2010 Amendment note under sec- ignate an individual to serve as a chief compli- tion 77b of this title. ance officer. Subsection (c) of that section, referred to in subsec. (g)(4)(B)(v), was in the original ‘‘subsection (c) of that (2) Duties Act’’, and was translated as meaning subsec. (c) of sec- The chief compliance officer shall— tion 3 of act Aug. 22, 1940, ch. 686, to reflect the prob- (A) report directly to the board or to the able intent of Congress. senior officer of the clearing agency; EFFECTIVE DATE (B) in consultation with its board, a body performing a function similar thereto, or the Section effective on the later of 360 days after July senior officer of the registered clearing agen- 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- cy, resolve any conflicts of interest that making, not less than 60 days after publication of the may arise; final rule or regulation implementing such provision of (C) be responsible for administering each subtitle B, see section 774 of Pub. L. 111–203, set out as policy and procedure that is required to be an Effective Date of 2010 Amendment note under sec- established pursuant to this section; tion 77b of this title. (D) ensure compliance with this chapter (including regulations issued under this § 78c–4. Security-based swap execution facilities chapter) relating to agreements, contracts, (a) Registration or transactions, including each rule pre- (1) In general scribed by the Commission under this section; No person may operate a facility for the (E) establish procedures for the remedi- trading or processing of security-based swaps, ation of noncompliance issues identified by unless the facility is registered as a security- the compliance officer through any— based swap execution facility or as a national (i) compliance office review; securities exchange under this section. (ii) look-back; (2) Dual registration (iii) internal or external audit finding; (iv) self-reported error; or Any person that is registered as a security- (v) validated complaint; and based swap execution facility under this section shall register with the Commission re- (F) establish and follow appropriate proce- gardless of whether the person also is reg- dures for the handling, management re- istered with the Commodity Futures Trading sponse, remediation, retesting, and closing Commission as a swap execution facility. of noncompliance issues. (b) Trading and trade processing (3) Annual reports (A) In general A security-based swap execution facility that is registered under subsection (a) may— In accordance with rules prescribed by the (1) make available for trading any security- Commission, the chief compliance officer based swap; and shall annually prepare and sign a report that (2) facilitate trade processing of any secu- contains a description of— rity-based swap. (i) the compliance of the registered clearing agency or security-based swap (c) Identification of facility used to trade secu- execution facility of the compliance offi- rity-based swaps by national securities ex- cer with respect to this chapter (including changes regulations under this chapter); and A national securities exchange shall, to the (ii) each policy and procedure of the reg- extent that the exchange also operates a secu- istered clearing agency of the compliance rity-based swap execution facility and uses the officer (including the code of ethics and same electronic trade execution system for list- conflict of interest policies of the reg- ing and executing trades of security-based swaps istered clearing agency). on or through the exchange and the facility, (B) Requirements identify whether electronic trading of such secu- A compliance report under subparagraph rity-based swaps is taking place on or through (A) shall— the national securities exchange or the security- (i) accompany each appropriate financial based swap execution facility. report of the registered clearing agency (d) Core principles for security-based swap exe- that is required to be furnished to the cution facilities Commission pursuant to this section; and (1) Compliance with core principles (ii) include a certification that, under penalty of law, the compliance report is (A) In general accurate and complete. To be registered, and maintain registration, as a security-based swap execution fa- (June 6, 1934, ch. 404, title I, § 3C, as added Pub. cility, the security-based swap execution fa- L. 111–203, title VII, § 763(a), July 21, 2010, 124 cility shall comply with— Stat. 1762.) (i) the core principles described in this REFERENCES IN TEXT subsection; and This chapter, referred to in subsecs. (a)(1) and (d)(1), (ii) any requirement that the Commis- was in the original ‘‘this Act’’, and this chapter, re- sion may impose by rule or regulation. Page 199 TITLE 15—COMMERCE AND TRADE § 78c–4

(B) Reasonable discretion of security-based (A) establish and enforce rules that will swap execution facility allow the facility to obtain any necessary Unless otherwise determined by the Com- information to perform any of the functions mission, by rule or regulation, a security- described in this subsection; based swap execution facility described in (B) provide the information to the Com- mission on request; and subparagraph (A) shall have reasonable dis- (C) have the capacity to carry out such cretion in establishing the manner in which international information-sharing agree- it complies with the core principles de- ments as the Commission may require. scribed in this subsection. (6) Financial integrity of transactions (2) Compliance with rules The security-based swap execution facility A security-based swap execution facility shall establish and enforce rules and proce- shall— dures for ensuring the financial integrity of (A) establish and enforce compliance with security-based swaps entered on or through any rule established by such security-based the facilities of the security-based swap execu- swap execution facility, including— tion facility, including the clearance and set- (i) the terms and conditions of the secu- tlement of security-based swaps pursuant to rity-based swaps traded or processed on or section 78c–3(a)(1) of this title. through the facility; and (7) Emergency authority (ii) any limitation on access to the facility; The security-based swap execution facility shall adopt rules to provide for the exercise of (B) establish and enforce trading, trade emergency authority, in consultation or co- processing, and participation rules that will operation with the Commission, as is nec- deter abuses and have the capacity to de- essary and appropriate, including the author- tect, investigate, and enforce those rules, in- ity to liquidate or transfer open positions in cluding means— any security-based swap or to suspend or cur- (i) to provide market participants with tail trading in a security-based swap. impartial access to the market; and (8) Timely publication of trading information (ii) to capture information that may be used in establishing whether rule viola- (A) In general tions have occurred; and The security-based swap execution facility shall make public timely information on (C) establish rules governing the operation price, trading volume, and other trading of the facility, including rules specifying data on security-based swaps to the extent trading procedures to be used in entering prescribed by the Commission. and executing orders traded or posted on the (B) Capacity of security-based swap execu- facility, including block trades. tion facility (3) Security-based swaps not readily suscep- The security-based swap execution facility tible to manipulation shall be required to have the capacity to The security-based swap execution facility electronically capture and transmit and dis- shall permit trading only in security-based seminate trade information with respect to swaps that are not readily susceptible to ma- transactions executed on or through the fa- nipulation. cility. (4) Monitoring of trading and trade processing (9) Recordkeeping and reporting The security-based swap execution facility (A) In general shall— A security-based swap execution facility (A) establish and enforce rules or terms shall— and conditions defining, or specifications de- (i) maintain records of all activities re- tailing— lating to the business of the facility, in- (i) trading procedures to be used in en- cluding a complete audit trail, in a form tering and executing orders traded on or and manner acceptable to the Commission through the facilities of the security-based for a period of 5 years; and swap execution facility; and (ii) report to the Commission, in a form (ii) procedures for trade processing of se- and manner acceptable to the Commission, curity-based swaps on or through the fa- such information as the Commission deter- cilities of the security-based swap execu- mines to be necessary or appropriate for tion facility; and the Commission to perform the duties of (B) monitor trading in security-based the Commission under this chapter. swaps to prevent manipulation, price distor- (B) Requirements tion, and disruptions of the delivery or cash The Commission shall adopt data collec- settlement process through surveillance, tion and reporting requirements for secu- compliance, and disciplinary practices and rity-based swap execution facilities that are procedures, including methods for conduct- comparable to corresponding requirements ing real-time monitoring of trading and for clearing agencies and security-based comprehensive and accurate trade recon- swap data repositories. structions. (10) Antitrust considerations (5) Ability to obtain information Unless necessary or appropriate to achieve The security-based swap execution facility the purposes of this chapter, the security- shall— based swap execution facility shall not— § 78c–4 TITLE 15—COMMERCE AND TRADE Page 200

(A) adopt any rules or taking 1 any actions (iv) maintenance of a comprehensive and that result in any unreasonable restraint of accurate audit trail. trade; or (14) Designation of chief compliance officer (B) impose any material anticompetitive (A) In general burden on trading or clearing. Each security-based swap execution facil- (11) Conflicts of interest ity shall designate an individual to serve as The security-based swap execution facility a chief compliance officer. shall— (B) Duties (A) establish and enforce rules to minimize The chief compliance officer shall— conflicts of interest in its decision-making (i) report directly to the board or to the process; and senior officer of the facility; (B) establish a process for resolving the (ii) review compliance with the core conflicts of interest. principles in this subsection; (12) Financial resources (iii) in consultation with the board of (A) In general the facility, a body performing a function similar to that of a board, or the senior of- The security-based swap execution facility ficer of the facility, resolve any conflicts shall have adequate financial, operational, of interest that may arise; and managerial resources to discharge each (iv) be responsible for establishing and responsibility of the security-based swap administering the policies and procedures execution facility, as determined by the required to be established pursuant to this Commission. section; (B) Determination of resource adequacy (v) ensure compliance with this chapter The financial resources of a security-based and the rules and regulations issued under swap execution facility shall be considered this chapter, including rules prescribed by to be adequate if the value of the financial the Commission pursuant to this section; resources— (vi) establish procedures for the remedi- (i) enables the organization to meet its ation of noncompliance issues found dur- financial obligations to its members and ing— participants notwithstanding a default by (I) compliance office reviews; the member or participant creating the (II) look backs; largest financial exposure for that organi- (III) internal or external audit find- zation in extreme but plausible market ings; conditions; and (IV) self-reported errors; or (ii) exceeds the total amount that would (V) through validated complaints; and enable the security-based swap execution (vii) establish and follow appropriate facility to cover the operating costs of the procedures for the handling, management security-based swap execution facility for response, remediation, retesting, and clos- a 1-year period, as calculated on a rolling ing of noncompliance issues. basis. (C) Annual reports (13) System safeguards (i) In general The security-based swap execution facility In accordance with rules prescribed by shall— the Commission, the chief compliance offi- (A) establish and maintain a program of cer shall annually prepare and sign a re- risk analysis and oversight to identify and port that contains a description of— minimize sources of operational risk, (I) the compliance of the security- through the development of appropriate con- based swap execution facility with this trols and procedures, and automated sys- chapter; and tems, that— (II) the policies and procedures, includ- (i) are reliable and secure; and ing the code of ethics and conflict of in- (ii) have adequate scalable capacity; terest policies, of the security-based se- 2 (B) establish and maintain emergency pro- curity-based swap execution facility. cedures, backup facilities, and a plan for dis- (ii) Requirements aster recovery that allow for— The chief compliance officer shall— (i) the timely recovery and resumption (I) submit each report described in of operations; and clause (i) with the appropriate financial (ii) the fulfillment of the responsibilities report of the security-based swap execu- and obligations of the security-based swap tion facility that is required to be sub- execution facility; and mitted to the Commission pursuant to (C) periodically conduct tests to verify this section; and (II) include in the report a certifi- that the backup resources of the security- cation that, under penalty of law, the re- based swap execution facility are sufficient port is accurate and complete. to ensure continued— (i) order processing and trade matching; (e) Exemptions (ii) price reporting; The Commission may exempt, conditionally or (iii) market surveillance; and unconditionally, a security-based swap execu-

1 So in original. Probably should be ‘‘take’’. 2 So in original. Page 201 TITLE 15—COMMERCE AND TRADE § 78c–5 tion facility from registration under this section (c) Exceptions if the Commission finds that the facility is subject to comparable, comprehensive supervision (1) Use of funds and regulation on a consolidated basis by the Commodity Futures Trading Commission. (A) In general (f) Rules Notwithstanding subsection (b), money, securities, and property of a security-based The Commission shall prescribe rules govern- swaps customer of a broker, dealer, or secu- ing the regulation of security-based swap execu- rity-based swap dealer described in sub- tion facilities under this section. section (b) may, for convenience, be com- (June 6, 1934, ch. 404, title I, § 3D, as added Pub. mingled and deposited in the same 1 or more L. 111–203, title VII, § 763(c), July 21, 2010, 124 accounts with any bank or trust company or Stat. 1769.) with a clearing agency.

REFERENCES IN TEXT (B) Withdrawal This chapter, referred to in subsec. (d)(9)(A)(ii), (10), Notwithstanding subsection (b), such share (14)(B)(v), (C)(i)(I), was in the original ‘‘this title’’. See of the money, securities, and property de- References in Text note set out under section 78a of this title. scribed in subparagraph (A) as in the normal course of business shall be necessary to mar- EFFECTIVE DATE gin, guarantee, secure, transfer, adjust, or Section effective on the later of 360 days after July settle a cleared security-based swap with a 21, 2010, or, to the extent a provision of subtitle B clearing agency, or with any member of the (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- clearing agency, may be withdrawn and ap- making, not less than 60 days after publication of the plied to such purposes, including the pay- final rule or regulation implementing such provision of ment of commissions, brokerage, interest, subtitle B, see section 774 of Pub. L. 111–203, set out as taxes, storage, and other charges, lawfully an Effective Date of 2010 Amendment note under section 77b of this title. accruing in connection with the cleared security-based swap. § 78c–5. Segregation of assets held as collateral in security-based swap transactions (2) Commission action (a) Registration requirement Notwithstanding subsection (b), in accordance with such terms and conditions as the It shall be unlawful for any person to accept Commission may prescribe by rule, regulation, any money, securities, or property (or to extend or order, any money, securities, or property of any credit in lieu of money, securities, or prop- the security-based swaps customer of a broker, erty) from, for, or on behalf of a security-based dealer, or security-based swap dealer described swaps customer to margin, guarantee, or secure in subsection (b) may be commingled and de- a security-based swap cleared by or through a posited as provided in this section with any clearing agency (including money, securities, or other money, securities, or property received property accruing to the customer as the result by the broker, dealer, or security-based swap of such a security-based swap), unless the person dealer and required by the Commission to be shall have registered under this chapter with separately accounted for and treated and dealt the Commission as a broker, dealer, or security- with as belonging to the security-based swaps based swap dealer, and the registration shall not customer of the broker, dealer, or security- have expired nor been suspended nor revoked. based swap dealer. (b) Cleared security-based swaps (1) Segregation required (d) Permitted investments A broker, dealer, or security-based swap Money described in subsection (b) may be in- dealer shall treat and deal with all money, se- vested in obligations of the United States, in curities, and property of any security-based general obligations of any State or of any politi- swaps customer received to margin, guaran- cal subdivision of a State, and in obligations tee, or secure a security-based swap cleared by fully guaranteed as to principal and interest by or though 1 a clearing agency (including the United States, or in any other investment money, securities, or property accruing to the that the Commission may by rule or regulation security-based swaps customer as the result of prescribe, and such investments shall be made in such a security-based swap) as belonging to accordance with such rules and regulations and the security-based swaps customer. subject to such conditions as the Commission may prescribe. (2) Commingling prohibited Money, securities, and property of a secu- (e) Prohibition rity-based swaps customer described in para- It shall be unlawful for any person, including graph (1) shall be separately accounted for and any clearing agency and any depository institu- shall not be commingled with the funds of the tion, that has received any money, securities, or broker, dealer, or security-based swap dealer property for deposit in a separate account or ac- or be used to margin, secure, or guarantee any counts as provided in subsection (b) to hold, dis- trades or contracts of any security-based pose of, or use any such money, securities, or swaps customer or person other than the per- property as belonging to the depositing broker, son for whom the same are held. dealer, or security-based swap dealer or any person other than the swaps customer of the 1 So in original. Probably should be ‘‘through’’. broker, dealer, or security-based swap dealer. § 78d TITLE 15—COMMERCE AND TRADE Page 202

(f) Segregation requirements for uncleared secu- counterparty of the security-based swap dealer rity-based swaps or major security-based swap participant on a (1) Segregation of assets held as collateral in quarterly basis that the back office procedures uncleared security-based swap trans- of the security-based swap dealer or major se- actions curity-based swap participant relating to margin and collateral requirements are in compli- (A) Notification ance with the agreement of the A security-based swap dealer or major se- counterparties. curity-based swap participant shall be re- (g) Bankruptcy quired to notify the counterparty of the security-based swap dealer or major security- A security-based swap, as defined in section based swap participant at the beginning of a 78c(a)(68) of this title shall be considered to be a security-based swap transaction that the security as such term is used in section 2 counterparty has the right to require seg- 101(53A)(B) and subchapter III of title 11. An ac- regation of the funds of other property sup- count that holds a security-based swap, other plied to margin, guarantee, or secure the ob- than a portfolio margining account referred to ligations of the counterparty. in section 78o(c)(3)(C) of this title shall be considered to be a securities account, as that term (B) Segregation and maintenance of funds is defined in section 741 of title 11. The defini- At the request of a counterparty to a secu- tions of the terms ‘‘purchase’’ and ‘‘sale’’ in sec- rity-based swap that provides funds or other tion 78c(a)(13) and (14) of this title shall be ap- property to a security-based swap dealer or plied to the terms ‘‘purchase’’ and ‘‘sale’’, as major security-based swap participant to used in section 741 of title 11. The term ‘‘cus- margin, guarantee, or secure the obligations tomer’’, as defined in section 741 of title 11, ex- of the counterparty, the security-based swap cludes any person, to the extent that such per- dealer or major security-based swap partici- son has a claim based on any open repurchase pant shall— agreement, open reverse repurchase agreement, (i) segregate the funds or other property stock borrowed agreement, non-cleared option, for the benefit of the counterparty; and or non-cleared security-based swap except to the (ii) in accordance with such rules and extent of any margin delivered to or by the cus- regulations as the Commission may pro- tomer with respect to which there is a customer mulgate, maintain the funds or other prop- protection requirement under section 78o(c)(3) of erty in a segregated account separate from this title or a segregation requirement. the assets and other interests of the secu- (June 6, 1934, ch. 404, title I, § 3E, as added Pub. rity-based swap dealer or major security- L. 111–203, title VII, § 763(d), July 21, 2010, 124 based swap participant. Stat. 1774.) (2) Applicability REFERENCES IN TEXT The requirements described in paragraph (1) shall— This chapter, referred to in subsec. (a), was in the (A) apply only to a security-based swap be- original ‘‘this title’’. See References in Text note set out under section 78a of this title. tween a counterparty and a security-based swap dealer or major security-based swap EFFECTIVE DATE participant that is not submitted for clear- Section effective on the later of 360 days after July ing to a clearing agency; and 21, 2010, or, to the extent a provision of subtitle B (B)(i) not apply to variation margin pay- (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- ments; or making, not less than 60 days after publication of the (ii) not preclude any commercial arrange- final rule or regulation implementing such provision of ment regarding— subtitle B, see section 774 of Pub. L. 111–203, set out as (I) the investment of segregated funds or an Effective Date of 2010 Amendment note under sec- other property that may only be invested tion 77b of this title. in such investments as the Commission § 78d. Securities and Exchange Commission may permit by rule or regulation; and (II) the related allocation of gains and (a) Establishment; composition; limitations on losses resulting from any investment of commissioners; terms of office the segregated funds or other property. There is hereby established a Securities and (3) Use of independent third-party custodians Exchange Commission (hereinafter referred to as the ‘‘Commission’’) to be composed of five The segregated account described in para- commissioners to be appointed by the President graph (1) shall be— by and with the advice and consent of the Sen- (A) carried by an independent third-party ate. Not more than three of such commissioners custodian; and shall be members of the same political party, (B) designated as a segregated account for and in making appointments members of dif- and on behalf of the counterparty. ferent political parties shall be appointed alter- (4) Reporting requirement nately as nearly as may be practicable. No com- If the counterparty does not choose to re- missioner shall engage in any other business, quire segregation of the funds or other prop- vocation, or employment than that of serving as erty supplied to margin, guarantee, or secure commissioner, nor shall any commissioner par- the obligations of the counterparty, the secu- ticipate, directly or indirectly, in any stock- rity-based swap dealer or major security-based swap participant shall report to the 2 So in original. Page 203 TITLE 15—COMMERCE AND TRADE § 78d market operations or transactions of a char- diem amounts established in official travel regu- acter subject to regulation by the Commission lations, but the Commission may include in its pursuant to this chapter. Each commissioner regulations under this subsection a limitation shall hold office for a term of five years and on such amounts. until his successor is appointed and has quali- (d) Acceptance of relocation expenses from fied, except that he shall not so continue to former employers by professional fellows serve beyond the expiration of the next session program participants of Congress subsequent to the expiration of said Notwithstanding any other provision of law, fixed term of office, and except (1) any commis- former employers of participants in the Com- sioner appointed to fill a vacancy occurring mission’s professional fellows programs may pay prior to the expiration of the term for which his such participants their actual expenses for relo- predecessor was appointed shall be appointed for cation to Washington, District of Columbia, to the remainder of such term, and (2) the terms of facilitate their participation in such programs, office of the commissioners first taking office and program participants may accept such pay- after June 6, 1934, shall expire as designated by ments. the President at the time of nomination, one at (e) Fee payments the end of one year, one at the end of two years, one at the end of three years, one at the end of Notwithstanding any other provision of law, four years, and one at the end of five years, after whenever any fee is required to be paid to the June 6, 1934. Commission pursuant to any provision of the securities laws or any other law, the Commission (b) Appointment and compensation of staff and may provide by rule that such fee shall be paid leasing authority in a manner other than in cash and the Commis- (1) Appointment and compensation sion may also specify the time that such fee The Commission shall appoint and com- shall be determined and paid relative to the fil- pensate officers, attorneys, economists, exam- ing of any statement or document with the iners, and other employees in accordance with Commission. section 4802 of title 5. (f) Reimbursement of expenses for assisting for- (2) Reporting of information eign securities authorities In establishing and adjusting schedules of Notwithstanding any other provision of law, compensation and benefits for officers, attor- the Commission may accept payment and reim- neys, economists, examiners, and other em- bursement, in cash or in kind, from a foreign se- ployees of the Commission under applicable curities authority, or made on behalf of such au- provisions of law, the Commission shall in- thority, for necessary expenses incurred by the form the heads of the agencies referred to Commission, its members, and employees in car- under section 1833b of title 12 and Congress of rying out any investigation pursuant to section such compensation and benefits and shall seek 78u(a)(2) of this title or in providing any other to maintain comparability with such agencies assistance to a foreign securities authority. Any regarding compensation and benefits. payment or reimbursement accepted shall be considered a reimbursement to the appropriated (3) Leasing authority funds of the Commission. Nothwithstanding 1 any other provision of (g) Office of the Investor Advocate law, the Commission is authorized to enter di- (1) Office established rectly into leases for real property for office, meeting, storage, and such other space as is There is established within the Commission necessary to carry out its functions, and shall the Office of the Investor Advocate (in this be exempt from any General Services Adminis- subsection referred to as the ‘‘Office’’). tration space management regulations or di- (2) Investor Advocate rectives. (A) In general (c) Acceptance of travel support for Commission The head of the Office shall be the Investor activities from non-Federal sources; regula- Advocate, who shall— tions (i) report directly to the Chairman; and (ii) be appointed by the Chairman, in Notwithstanding any other provision of law, in consultation with the Commission, from accordance with regulations which the Commis- among individuals having experience in sion shall prescribe to prevent conflicts of inter- advocating for the interests of investors in est, the Commission may accept payment and securities and investor protection issues, reimbursement, in cash or in kind, from non- from the perspective of investors. Federal agencies, organizations, and individuals for travel, subsistence, and other necessary ex- (B) Compensation penses incurred by Commission members and The annual rate of pay for the Investor Ad- employees in attending meetings and con- vocate shall be equal to the highest rate of ferences concerning the functions or activities annual pay for other senior executives who of the Commission. Any payment or reimburse- report to the Chairman of the Commission. ment accepted shall be credited to the appro- (C) Limitation on service priated funds of the Commission. The amount of An individual who serves as the Investor travel, subsistence, and other necessary ex- Advocate may not be employed by the Com- penses for members and employees paid or reim- mission— bursed under this subsection may exceed per (i) during the 2-year period ending on the date of appointment as Investor Advocate; 1 So in original. Probably should be ‘‘Notwithstanding’’. or § 78d TITLE 15—COMMERCE AND TRADE Page 204

(ii) during the 5-year period beginning on the activities of the Investor Advocate the date on which the person ceases to during the immediately preceding fiscal serve as the Investor Advocate. year. (3) Staff of Office (ii) Contents The Investor Advocate, after consultation Each report required under clause (i) with the Chairman of the Commission, may shall include— retain or employ independent counsel, re- (I) appropriate statistical information search staff, and service staff, as the Investor and full and substantive analysis; Advocate deems necessary to carry out the (II) information on steps that the In- functions, powers, and duties of the Office. vestor Advocate has taken during the reporting period to improve investor serv- (4) Functions of the Investor Advocate ices and the responsiveness of the Com- The Investor Advocate shall— mission and self-regulatory organiza- (A) assist retail investors in resolving sig- tions to investor concerns; nificant problems such investors may have (III) a summary of the most serious with the Commission or with self-regulatory problems encountered by investors dur- organizations; ing the reporting period; (B) identify areas in which investors would (IV) an inventory of the items de- benefit from changes in the regulations of scribed in subclause (III) that includes— the Commission or the rules of self-regu- (aa) identification of any action latory organizations; taken by the Commission or the self- (C) identify problems that investors have regulatory organization and the result with financial service providers and invest- of such action; ment products; (bb) the length of time that each (D) analyze the potential impact on inves- item has remained on such inventory; tors of— and (i) proposed regulations of the Commis- (cc) for items on which no action has sion; and been taken, the reasons for inaction, (ii) proposed rules of self-regulatory or- and an identification of any official ganizations registered under this chapter; who is responsible for such action; and (V) recommendations for such adminis- (E) to the extent practicable, propose to trative and legislative actions as may be the Commission changes in the regulations appropriate to resolve problems encoun- or orders of the Commission and to Congress tered by investors; and any legislative, administrative, or personnel (VI) any other information, as deter- changes that may be appropriate to mitigate mined appropriate by the Investor Advo- problems identified under this paragraph cate. and to promote the interests of investors. (iii) Independence (5) Access to documents Each report required under this paragraph shall be provided directly to the The Commission shall ensure that the Inves- Committees listed in clause (i) without tor Advocate has full access to the documents any prior review or comment from the of the Commission and any self-regulatory or- Commission, any commissioner, any other ganization, as necessary to carry out the func- officer or employee of the Commission, or tions of the Office. the Office of Management and Budget. (6) Annual reports (iv) Confidentiality (A) Report on objectives No report required under clause (i) may (i) In general contain confidential information. Not later than June 30 of each year after (7) Regulations 2010, the Investor Advocate shall submit to The Commission shall, by regulation, estab- the Committee on Banking, Housing, and lish procedures requiring a formal response to Urban Affairs of the Senate and the Com- all recommendations submitted to the Com- mittee on Financial Services of the House mission by the Investor Advocate, not later of Representatives a report on the objec- than 3 months after the date of such submis- tives of the Investor Advocate for the fol- sion. lowing fiscal year. (8) Ombudsman (ii) Contents (A) Appointment Each report required under clause (i) Not later than 180 days after the date on shall contain full and substantive analysis which the first Investor Advocate is ap- and explanation. pointed under paragraph (2)(A)(i),2 the Inves- (B) Report on activities tor Advocate shall appoint an Ombudsman, (i) In general who shall report directly to the Investor Ad- vocate. Not later than December 31 of each year after 2010, the Investor Advocate shall sub- (B) Duties mit to the Committee on Banking, Hous- The Ombudsman appointed under subpara- ing, and Urban Affairs of the Senate and graph (A) shall— the Committee on Financial Services of the House of Representatives a report on 2 So in original. Probably should be ‘‘(2)(A)(ii),’’. Page 205 TITLE 15—COMMERCE AND TRADE § 78d

(i) act as a liaison between the Commis- (B) Limitations sion and any retail investor in resolving For any 1 fiscal year— problems that retail investors may have (i) the amount deposited in the Fund with the Commission or with self-regu- may not exceed $50,000,000; and latory organizations; (ii) the balance in the Fund may not ex- (ii) review and make recommendations ceed $100,000,000. regarding policies and procedures to en- (C) Excess fees courage persons to present questions to the Investor Advocate regarding compli- Any amounts in excess of the limitations ance with the securities laws; and described in subparagraph (B) that the Com- (iii) establish safeguards to maintain the mission collects from registration fees under confidentiality of communications be- section 77f(b) of this title or section 80a–24(f) tween the persons described in clause (ii) of this title shall be deposited in the General and the Ombudsman. Fund of the Treasury of the United States and shall not be available for obligation by (C) Limitation the Commission. In carrying out the duties of the Ombuds- (3) Use of amounts in Reserve Fund man under subparagraph (B), the Ombuds- man shall utilize personnel of the Commis- The Commission may obligate amounts in sion to the extent practicable. Nothing in the Reserve Fund, not to exceed a total of this paragraph shall be construed as replac- $100,000,000 in any 1 fiscal year, as the Commis- ing, altering, or diminishing the activities of sion determines is necessary to carry out the any ombudsman or similar office of any functions of the Commission. Any amounts in other agency. the reserve fund shall remain available until expended. Not later than 10 days after the date (D) Report on which the Commission obligates amounts The Ombudsman shall submit a semi- under this paragraph, the Commission shall annual report to the Investor Advocate that notify Congress of the date, amount, and pur- describes the activities and evaluates the ef- pose of the obligation. fectiveness of the Ombudsman during the (4) Rule of construction preceding year. The Investor Advocate shall include the reports required under this sec- Amounts collected and deposited in the Re- tion in the reports required to be submitted serve Fund shall not be construed to be Gov- by the Inspector Advocate under paragraph ernment funds or appropriated monies and (6). shall not be subject to apportionment for the purpose of chapter 15 of title 31 or under any (h) Examiners other authority. (1) Division of Trading and Markets (June 6, 1934, ch. 404, title I, § 4, 48 Stat. 885; Oct. The Division of Trading and Markets of the 28, 1949, ch. 782, title XI, § 1106(a), 63 Stat. 972; Commission, or any successor organizational Pub. L. 86–619, § 3, July 12, 1960, 74 Stat. 408; Pub. unit, shall have a staff of examiners who L. 86–771, Sept. 13, 1960, 74 Stat. 913; Pub. L. shall— 88–426, title III, § 305(20), Aug. 14, 1964, 78 Stat. (A) perform compliance inspections and 425; Pub. L. 98–38, § 1, June 6, 1983, 97 Stat. 205; examinations of entities under the jurisdic- Pub. L. 100–181, title III, § 307, Dec. 4, 1987, 101 tion of that Division; and Stat. 1254; Pub. L. 101–550, title I, § 103, title II, (B) report to the Director of that Division. § 207, Nov. 15, 1990, 104 Stat. 2713, 2721; Pub. L. (2) Division of Investment Management 104–290, title IV, § 406, Oct. 11, 1996, 110 Stat. 3444; The Division of Investment Management of Pub. L. 105–353, title II, § 203, Nov. 3, 1998, 112 the Commission, or any successor organiza- Stat. 3234; Pub. L. 107–123, § 8(d)(2), Jan. 16, 2002, tional unit, shall have a staff of examiners 115 Stat. 2399; Pub. L. 111–203, title IX, §§ 915, who shall— 919D, 965, 991(e)(1), July 21, 2010, 124 Stat. 1830, (A) perform compliance inspections and 1840, 1911, 1954.) examinations of entities under the jurisdic- REFERENCES IN TEXT tion of that Division; and (B) report to the Director of that Division. This chapter, referred to in subsecs. (a) and (g)(4)(D)(ii), was in the original ‘‘this title’’. See Ref- (i) Securities and Exchange Commission Reserve erences in Text note set out under section 78a of this Fund title.

(1) Reserve Fund established AMENDMENTS There is established in the Treasury of the 2010—Subsec. (g). Pub. L. 111–203, § 915, added subsec. United States a separate fund, to be known as (g). the ‘‘Securities and Exchange Commission Re- Subsec. (g)(8). Pub. L. 111–203, § 919D, added par. (8). serve Fund’’ (referred to in this subsection as Subsec. (h). Pub. L. 111–203, § 965, added subsec. (h). the ‘‘Reserve Fund’’). Subsec. (i). Pub. L. 111–203, § 991(e)(1), added subsec. (i). (2) Reserve Fund amounts 2002—Subsec. (b)(1), (2). Pub. L. 107–123 added pars. (1) (A) In general and (2) and struck out former pars. (1) and (2), which Except as provided in subparagraph (B), authorized the Commission to appoint and compensate officers, attorneys, examiners, and other experts as any registration fees collected by the Com- needed, and to select, appoint, and compensate profes- mission under section 77f(b) of this title or sional economists. section 80a–24(f) of this title shall be depos- 1998—Subsec. (b)(2), (3). Pub. L. 105–353 added par. (2) ited into the Reserve Fund. and redesignated former par. (2) as (3). § 78d–1 TITLE 15—COMMERCE AND TRADE Page 206

1996—Subsec. (e). Pub. L. 104–290 inserted before pe- SECURITIES AND EXCHANGE COMMISSION riod at end ‘‘and the Commission may also specify the time that such fee shall be determined and paid rel- SECTION 1. TRANSFER OF FUNCTIONS TO THE CHAIRMAN ative to the filing of any statement or document with (a) Subject to the provisions of subsection (b) of this the Commission’’. section there are hereby transferred from the Securi- 1990—Subsec. (b). Pub. L. 101–550, § 103, inserted head- ties and Exchange Commission, hereinafter referred to ing, designated existing provision as par. (1) and in- as the Commission, to the Chairman of the Commis- serted heading, and added par. (2). sion, hereinafter referred to as the Chairman, the exec- Subsec. (f). Pub. L. 101–550, § 207, added subsec. (f). utive and administrative functions of the Commission, 1987—Subsec. (e). Pub. L. 100–181 added subsec. (e). including functions of the Commission with respect to 1983—Subsecs. (c), (d). Pub. L. 98–38 added subsecs. (c) (1) the appointment and supervision of personnel em- and (d). ployed under the Commission, (2) the distribution of 1964—Subsec. (a). Pub. L. 88–426 repealed provisions business among such personnel and among administra- which prescribed the compensation of the Chairman tive units of the Commission, and (3) the use and ex- and the Commissioners. penditure of funds. 1960—Subsec. (a). Pub. L. 86–771 authorized the chair- (b)(1) In carrying out any of his functions under the man to receive an additional $500 a year. provisions of this section the Chairman shall be gov- Pub. L. 86–619 increased the salary of each commis- erned by general policies of the Commission and by sioner from $15,000 to $20,000 a year, and provided for such regulatory decisions, findings, and determinations continuation in office of a commissioner upon termi- as the Commission may by law be authorized to make. nation of his term until a successor is appointed and (2) The appointment by the Chairman of the heads of has qualified, not beyond expiration of next session of major administrative units under the Commission shall Congress subsequent to the expiration of said fixed be subject to the approval of the Commission. term of office. (3) Personnel employed regularly and full time in the 1949—Subsec. (b). Act Oct. 28, 1949, substituted ‘‘Clas- immediate offices of Commissioners other than the sification Act of 1949’’ for ‘‘Classification Act of 1923’’. Chairman shall not be affected by the provisions of this reorganization plan. EFFECTIVE DATE OF 2010 AMENDMENT (4) There are hereby reserved to the Commission its Amendment by sections 915, 919D, and 965 of Pub. L. functions with respect to revising budget estimates and 111–203 effective 1 day after July 21, 2010, except as with respect to determining upon the distribution of otherwise provided, see section 4 of Pub. L. 111–203, set appropriated funds according to major programs and out as an Effective Date note under section 5301 of Title purposes. 12, Banks and Banking. SEC. 2. PERFORMANCE OF TRANSFERRED FUNCTIONS Pub. L. 111–203, title IX, § 991(e)(2), July 21, 2010, 124 Stat. 1955, provided that: ‘‘The amendment made by The Chairman may from time to time make such pro- this subsection [amending this section] shall take ef- visions as he shall deem appropriate authorizing the fect on October 1, 2011.’’ performance by any officer, employee, or administrative unit under his jurisdiction of any function trans- EFFECTIVE DATE OF 2002 AMENDMENT ferred to the Chairman by the provisions of section 1 of this reorganization plan. Amendment by Pub. L. 107–123 effective Oct. 1, 2001, see section 11 of Pub. L. 107–123, set out as a note under SEC. 3. DESIGNATION OF CHAIRMAN section 78ee of this title. The functions of the Commission with respect to EFFECTIVE DATE OF 1964 AMENDMENT choosing a Chairman from among the Commissioners composing the Commission are hereby transferred to For effective date of amendment by Pub. L. 88–426, the President. see section 501 of Pub. L. 88–426. MESSAGE OF THE PRESIDENT REPEALS To the Congress of the United States: Act Oct. 28, 1949, ch. 782, set out in the credit of this I transmit herewith Reorganization Plan No. 10 of section, was repealed (subject to a savings clause) by 1950, prepared in accordance with the Reorganization Pub. L. 89–554, Sept. 6, 1966, § 8, 80 Stat. 632, 655. Act of 1949 and providing for reorganizations in the Se- curities and Exchange Commission. My reasons for TRANSFER OF FUNCTIONS transmitting this plan are stated in an accompanying For transfer of functions of Securities and Exchange general message. Commission, with certain exceptions, to Chairman of After investigation I have found and hereby declare such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, that each reorganization included in Reorganization eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out Plan No. 10 of 1950 is necessary to accomplish one or below. more of the purposes set forth in section 2(a) of the Re- organization Act of 1949. PAY AUTHORITY FOR EMPLOYMENT OF EXPERTS AND The taking effect of the reorganizations included in CONSULTANTS this plan may not in itself result in substantial immediate savings. However, many benefits in improved op- Pub. L. 111–203, title IX, § 929G(c), July 21, 2010, 124 erations are probable during the next years which will Stat. 1856, provided that: ‘‘The [Securities and Ex- result in a reduction in expenditures as compared with change] Commission may set the rate of pay for experts those that would be otherwise necessary. An itemiza- and consultants appointed under the authority of section of these reductions in advance of actual experience tion 3109 of title 5, United States Code, in the same under this plan is not practicable. manner in which it sets the rate of pay for employees HARRY S. TRUMAN. of the Commission.’’ § 78d–1. Delegation of functions by Commission 1950 REORGANIZATION PLAN NO. 10 (a) Authorization; functions delegable; eligible 15 F.R. 3175, 64 Stat. 1265 persons; application of other laws Prepared by the President and transmitted to the Sen- ate and the House of Representatives in Congress as- In addition to its existing authority, the Secu- sembled, March 13, 1950, pursuant to the provisions of rities and Exchange Commission shall have the the Reorganization Act of 1949, approved June 20, 1949 authority to delegate, by published order or [see 5 U.S.C. 901 et seq.]. rule, any of its functions to a division of the Page 207 TITLE 15—COMMERCE AND TRADE § 78d–4

Commission, an individual Commissioner, an ad- the Commission the functions of the Commis- ministrative law judge, or an employee or em- sion with respect to the assignment of Commis- ployee board, including functions with respect sion personnel, including Commissioners, to per- to hearing, determining, ordering, certifying, reform such functions as may have been delegated porting, or otherwise acting as to any work, by the Commission to the Commission person- business, or matter. Nothing in this section nel, including Commissioners, pursuant to sec- shall be deemed to supersede the provisions of tion 78d–1 of this title. section 556(b) of title 5, or to authorize the dele- (June 6, 1934, ch. 404, title I, § 4B, as added Pub. gation of the function of rulemaking as defined L. 100–181, title III, § 308(a), Dec. 4, 1987, 101 Stat. in subchapter II of chapter 5 of title 5, with ref- 1255.) erence to general rules as distinguished from rules of particular applicability, or of the mak- REFERENCES IN TEXT ing of any rule pursuant to section 78s(c) of this Reorganization Plan Numbered 10 of 1950 (64 Stat. title. 1265), referred to in text, is set out as a note under section 78d of this title. (b) Right of review; procedure With respect to the delegation of any of its PRIOR PROVISIONS functions, as provided in subsection (a) of this A prior section 78d–2, Pub. L. 87–592, § 2, Aug. 20, 1962, section, the Commission shall retain a discre- 76 Stat. 395, provided for subject matter similar to the tionary right to review the action of any such provisions comprising this section, prior to repeal by section 308(b) of Pub. L. 100–181. division of the Commission, individual Commis- sioner, administrative law judge, employee, or § 78d–3. Appearance and practice before the employee board, upon its own initiative or upon Commission petition of a party to or intervenor in such ac- (a) Authority to censure tion, within such time and in such manner as the Commission by rule shall prescribe. The The Commission may censure any person, or vote of one member of the Commission shall be deny, temporarily or permanently, to any per- sufficient to bring any such action before the son the privilege of appearing or practicing be- Commission for review. A person or party shall fore the Commission in any way, if that person be entitled to review by the Commission if he or is found by the Commission, after notice and op- it is adversely affected by action at a delegated portunity for hearing in the matter— (1) not to possess the requisite qualifications level which (1) denies any request for action pur- to represent others; suant to section 77h(a) or section 77h(c) of this (2) to be lacking in character or integrity, or title or the first sentence of section 78l(d) of this to have engaged in unethical or improper pro- title; (2) suspends trading in a security pursuant fessional conduct; or to section 78l(k) of this title; or (3) is pursuant (3) to have willfully violated, or willfully to any provision of this chapter in a case of ad- aided and abetted the violation of, any provi- judication, as defined in section 551 of title 5, sion of the securities laws or the rules and reg- not required by this chapter to be determined on ulations issued thereunder. the record after notice and opportunity for hear- (b) Definition ing (except to the extent there is involved a matter described in section 554(a)(1) through (6) With respect to any registered public account- of such title 5). ing firm or associated person, for purposes of this section, the term ‘‘improper professional (c) Finality of delegated action conduct’’ means— If the right to exercise such review is declined, (1) intentional or knowing conduct, includ- or if no such review is sought within the time ing reckless conduct, that results in a viola- stated in the rules promulgated by the Commis- tion of applicable professional standards; and sion, then the action of any such division of the (2) negligent conduct in the form of— Commission, individual Commissioner, adminis- (A) a single instance of highly unreason- trative law judge, employee, or employee board, able conduct that results in a violation of shall, for all purposes, including appeal or re- applicable professional standards in circum- view thereof, be deemed the action of the Com- stances in which the registered public ac- mission. counting firm or associated person knows, or (June 6, 1934, ch. 404, title I, § 4A, as added Pub. should know, that heightened scrutiny is L. 100–181, title III, § 308(a), Dec. 4, 1987, 101 Stat. warranted; or (B) repeated instances of unreasonable 1254.) conduct, each resulting in a violation of ap- PRIOR PROVISIONS plicable professional standards, that indi- A prior section 78d–1, Pub. L. 87–592, § 1, Aug. 20, 1962, cate a lack of competence to practice before 76 Stat. 394; Pub. L. 94–29, § 25, June 4, 1975, 89 Stat. 163; the Commission. Pub. L. 95–251, § 2(a)(4), Mar. 27, 1978, 92 Stat. 183, pro- (June 6, 1934, ch. 404, title I, § 4C, as added Pub. vided for subject matter similar to the provisions comprising this section, prior to repeal by section 308(b) of L. 107–204, title VI, § 602, July 30, 2002, 116 Stat. Pub. L. 100–181. 794.) § 78d–2. Transfer of functions with respect to as- § 78d–4. Additional duties of Inspector General signment of personnel to chairman (a) Suggestion submissions by Commission em- In addition to the functions transferred by the ployees provisions of Reorganization Plan Numbered 10 (1) Hotline established of 1950 (64 Stat. 1265), there are hereby trans- The Inspector General of the Commission ferred from the Commission to the Chairman of shall establish and maintain a telephone hot- § 78d–5 TITLE 15—COMMERCE AND TRADE Page 208

line or other electronic means for the receipt § 78d–5. Deadline for completing enforcement in- of— vestigations and compliance examinations (A) suggestions by employees of the Com- and inspections mission for improvements in the work effi- (a) Enforcement investigations ciency, effectiveness, and productivity, and the use of the resources, of the Commission; (1) In general and Not later than 180 days after the date on (B) allegations by employees of the Com- which Commission staff provide 1 a written mission of waste, abuse, misconduct, or mis- Wells notification to any person, the Commis- management within the Commission. sion staff shall either file an action against such person or provide notice to the Director (2) Confidentiality of the Division of Enforcement of its intent to The Inspector General shall maintain as not file an action. confidential— (2) Exceptions for certain complex actions (A) the identity of any individual who provides information by the means established Notwithstanding paragraph (1), if the Direc- under paragraph (1), unless the individual re- tor of the Division of Enforcement of the Com- quests otherwise, in writing; and mission or the Director’s designee determines (B) at the request of any such individual, that a particular enforcement investigation is any specific information provided by the in- sufficiently complex such that a determina- dividual. tion regarding the filing of an action against a person cannot be completed within the dead- (b) Consideration of reports line specified in paragraph (1), the Director of The Inspector General shall consider any sug- the Division of Enforcement of the Commis- gestions or allegations received by the means es- sion or the Director’s designee may, after pro- tablished under subsection (a)(1), and shall rec- viding notice to the Chairman of the Commis- ommend appropriate action in relation to such sion, extend such deadline as needed for one suggestions or allegations. additional 180-day period. If after the additional 180-day period the Director of the Divi- (c) Recognition sion of Enforcement of the Commission or the The Inspector General may recognize any em- Director’s designee determines that a particu- ployee who makes a suggestion under subsection lar enforcement investigation is sufficiently (a)(1) (or by other means) that would or does— complex such that a determination regarding (1) increase the work efficiency, effective- the filing of an action against a person cannot ness, or productivity of the Commission; or be completed within the additional 180-day pe- (2) reduce waste, abuse, misconduct, or mis- riod, the Director of the Division of Enforce- management within the Commission. ment of the Commission or the Director’s designee may, after providing notice to and re- (d) Report ceiving approval of the Commission, extend The Inspector General of the Commission shall such deadline as needed for one or more addi- submit to Congress an annual report containing tional successive 180-day periods. a description of— (b) Compliance examinations and inspections (1) the nature, number, and potential bene- (1) In general fits of any suggestions received under subsection (a); Not later than 180 days after the date on (2) the nature, number, and seriousness of which Commission staff completes the on-site any allegations received under subsection (a); portion of its compliance examination or in- (3) any recommendations made or actions spection or receives all records requested from taken by the Inspector General in response to the entity being examined or inspected, which- substantiated allegations received under sub- ever is later, Commission staff shall provide section (a); and the entity being examined or inspected with (4) any action the Commission has taken in written notification indicating either that the response to suggestions or allegations received examination or inspection has concluded, has under subsection (a). concluded without findings, or that the staff requests the entity undertake corrective ac- (e) Funding tion. The activities of the Inspector General under (2) Exception for certain complex actions this subsection shall be funded by the Securities Notwithstanding paragraph (1), if the head of and Exchange Commission Investor Protection any division or office within the Commission Fund established under section 78u–6 of this responsible for compliance examinations and title. inspections or his designee determines that a (June 6, 1934, ch. 404, title I, § 4D, as added Pub. particular compliance examination or inspec- L. 111–203, title IX, § 966, July 21, 2010, 124 Stat. tion is sufficiently complex such that a deter- 1912.) mination regarding concluding the examination or inspection, or regarding the staff re- EFFECTIVE DATE quests the entity undertake corrective action, Section effective 1 day after July 21, 2010, except as cannot be completed within the deadline speci- otherwise provided, see section 4 of Pub. L. 111–203, set fied in paragraph (1), the head of any division out as a note under section 5301 of Title 12, Banks and Banking. 1 So in original. Probably should be ‘‘provides’’. Page 209 TITLE 15—COMMERCE AND TRADE § 78d–6

or office within the Commission responsible (C) has evaluated the effectiveness of the for compliance examinations and inspections internal supervisory controls during the 90- or his designee may, after providing notice to day period ending on the final day of the fis- the Chairman of the Commission, extend such cal year to which the report relates; and deadline as needed for one additional 180-day (D) has disclosed to the Commission any period. significant deficiencies in the design or operation of internal supervisory controls that (June 6, 1934, ch. 404, title I, § 4E, as added Pub. could adversely affect the ability of the Di- L. 111–203, title IX, § 929U, July 21, 2010, 124 Stat. vision or Office to consistently conduct in- 1867.) spections, or investigations, or reviews of EFFECTIVE DATE filings with professional competence and in- Section effective 1 day after July 21, 2010, except as tegrity. otherwise provided, see section 4 of Pub. L. 111–203, set (d) New Director or Acting Director out as a note under section 5301 of Title 12, Banks and Notwithstanding subsection (a), if the Direc- Banking. tor of the Division of Enforcement, the Director § 78d–6. Report and certification of internal su- of the Division of Corporate Finance, or the Di- pervisory controls rector of the Office of Compliance Inspections and Examinations has served as Director of the (a) Annual reports and certification Division or Office for less than 90 days on the Not later than 90 days after the end of each date on which a report is required to be submit- fiscal year, the Commission shall submit a re- ted under subsection (a), the Commission may port to the Committee on Banking, Housing, and submit the report on the date on which the Di- Urban Affairs of the Senate and the Committee rector has served as Director for 90 days. If there on Financial Services of the House of Represent- is no Director of the Division of Enforcement, atives on the conduct by the Commission of ex- the Division of Corporate Finance, or the Office aminations of registered entities, enforcement of Compliance Inspections and Examinations, on investigations, and review of corporate financial the date on which a report is required to be sub- securities filings. mitted under subsection (a), the Acting Director (b) Contents of reports of the Division or Office may make the certification required under subsection (c). Each report under subsection (a) shall contain— (e) Review by the Comptroller General (1) an assessment, as of the end of the most (1) Report recent fiscal year, of the effectiveness of— The Comptroller General of the United (A) the internal supervisory controls of the States shall submit to the Committee on Commission; and Banking, Housing, and Urban Affairs of the (B) the procedures of the Commission ap- Senate and the Committee on Financial Serv- plicable to the staff of the Commission who ices of the House of Representatives a report perform examinations of registered entities, that contains a review of the adequacy and ef- enforcement investigations, and reviews of fectiveness of the internal supervisory control corporate financial securities filings; structure and procedures described in sub- (2) a certification that the Commission has section (b)(1), not less frequently than once adequate internal supervisory controls to every 3 years, at a time to coincide with the carry out the duties of the Commission de- publication of the reports of the Commission scribed in paragraph (1)(B); and under this section. (3) a summary by the Comptroller General of (2) Authority to hire experts the United States of the review carried out The Comptroller General of the United under subsection (d).1 States may hire independent consultants with (c) Certification specialized expertise in any area relevant to (1) Signature the duties of the Comptroller General described in this section, in order to assist the The certification under subsection (b)(2) Comptroller General in carrying out such du- shall be signed by the Director of the Division ties. of Enforcement, the Director of the Division of Corporation Finance, and the Director of the (Pub. L. 111–203, title IX, § 961, July 21, 2010, 124 Office of Compliance Inspections and Exami- Stat. 1907.) nations (or the head of any successor division CODIFICATION or office). Section was enacted as part of the Investor Protec- (2) Content of certification tion and Securities Reform Act of 2010 and also as part Each individual described in paragraph (1) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and not as part of the Securities Ex- shall certify that the individual— change Act of 1934 which comprises this chapter. (A) is directly responsible for establishing and maintaining the internal supervisory EFFECTIVE DATE controls of the Division or Office of which Section effective 1 day after July 21, 2010, except as the individual is the head; otherwise provided, see section 4 of Pub. L. 111–203, set (B) is knowledgeable about the internal su- out as a note under section 5301 of Title 12, Banks and pervisory controls of the Division or Office Banking. of which the individual is the head; DEFINITIONS For definitions of terms used in this section, see sec- 1 So in original. Probably should be ‘‘(e).’’ tion 5301 of Title 12, Banks and Banking. § 78d–7 TITLE 15—COMMERCE AND TRADE Page 210

§ 78d–7. Triennial report on personnel manage- sultants, academics, and any other source that ment the Comptroller General deems appropriate. (a) Triennial report required (d) Report by Commission Once every 3 years, the Comptroller General of Not later than 90 days after the date on which the United States shall submit a report to the the Comptroller General submits each report Committee on Banking, Housing, and Urban Af- under subsection (a), the Commission shall sub- fairs of the Senate and the Committee on Finan- mit to the Committee on Banking, Housing, and cial Services of the House of Representatives on Urban Affairs of the Senate and the Committee the quality of personnel management by the on Financial Services of the House of Represent- Commission. atives a report describing the actions taken by the Commission in response to the recommenda- (b) Contents of report tions contained in the report under subsection Each report under subsection (a) shall in- (a). clude— (e) Reimbursements for cost of reports (1) an evaluation of— (A) the effectiveness of supervisors in (1) Reimbursements required using the skills, talents, and motivation of The Commission shall reimburse the Gov- the employees of the Commission to achieve ernment Accountability Office for the full cost the goals of the Commission; of making the reports under this section, as (B) the criteria for promoting employees of billed therefor by the Comptroller General. the Commission to supervisory positions; (2) Crediting and use of reimbursements (C) the fairness of the application of the promotion criteria to the decisions of the Such reimbursements shall— Commission; (A) be credited to the appropriation ac- (D) the competence of the professional count ‘‘Salaries and Expenses, Government staff of the Commission; Accountability Office’’ current when the (E) the efficiency of communication be- payment is received; and tween the units of the Commission regarding (B) remain available until expended. the work of the Commission (including com- (f) Authority to hire experts munication between divisions and between The Comptroller General of the United States subunits of a division) and the efforts by the may hire independent consultants with special- Commission to promote such communica- ized expertise in any area relevant to the duties tion; of the Comptroller General described in this sec- (F) the turnover within subunits of the tion, in order to assist the Comptroller General Commission, including the consideration of in carrying out such duties. supervisors whose subordinates have an unusually high rate of turnover; (Pub. L. 111–203, title IX, § 962, July 21, 2010, 124 (G) whether there are excessive numbers of Stat. 1908.) low-level, mid-level, or senior-level man- CODIFICATION agers; Section was enacted as part of the Investor Protec- (H) any initiatives of the Commission that tion and Securities Reform Act of 2010 and also as part increase the competence of the staff of the of the Dodd-Frank Wall Street Reform and Consumer Commission; Protection Act, and not as part of the Securities Ex- (I) the actions taken by the Commission change Act of 1934 which comprises this chapter. regarding employees of the Commission who have failed to perform their duties and cir- EFFECTIVE DATE cumstances under which the Commission Section effective 1 day after July 21, 2010, except as has issued to employees a notice of termi- otherwise provided, see section 4 of Pub. L. 111–203, set nation; and out as a note under section 5301 of Title 12, Banks and (J) such other factors relating to the man- Banking. agement of the Commission as the Comp- DEFINITION troller General determines are appropriate; For definition of ‘‘Commission’’ as used in this sec- (2) an evaluation of any improvements made tion, see section 5301 of Title 12, Banks and Banking. with respect to the areas described in paragraph (1) since the date of submission of the § 78d–8. Annual financial controls audit previous report; and (a) Reports of Commission (3) recommendations for how the Commis- (1) Annual reports required sion can use the human resources of the Com- mission more effectively and efficiently to Not later than 6 months after the end of carry out the mission of the Commission. each fiscal year, the Commission shall publish and submit to Congress a report that— (c) Consultation (A) describes the responsibility of the In preparing the report under subsection (a), management of the Commission for estab- the Comptroller General shall consult with cur- lishing and maintaining an adequate inter- rent employees of the Commission, retired em- nal control structure and procedures for fi- ployees and other former employees of the Com- nancial reporting; and mission, the Inspector General of the Commis- (B) contains an assessment of the effec- sion, persons that have business before the Com- tiveness of the internal control structure mission, any union representing the employees and procedures for financial reporting of the of the Commission, private management con- Commission during that fiscal year. Page 211 TITLE 15—COMMERCE AND TRADE § 78d–9

(2) Attestation and management of conflicts of interest by The reports required under paragraph (1) such national securities associations, together shall be attested to by the Chairman and chief with an analysis of the impact of any conflicts financial officer of the Commission. of interest on the regulatory enforcement or rulemaking by such national securities asso- (b) Report by Comptroller General ciations; (1) Report required (2) the examinations carried out by the na- Not later than 6 months after the end of the tional securities associations, including the first fiscal year after July 21, 2010, the Comp- expertise of the examiners; troller General of the United States shall sub- (3) the executive compensation practices of mit a report to Congress that assesses— such national securities associations; (4) the arbitration services provided by the (A) the effectiveness of the internal con- national securities associations; trol structure and procedures of the Com- (5) the review performed by national securi- mission for financial reporting; and ties associations of advertising by the mem- (B) the assessment of the Commission bers of the national securities associations; under subsection (a)(1)(B). (6) the cooperation with and assistance to (2) Attestation State securities administrators by the na- The Comptroller General shall attest to, and tional securities associations to promote in- report on, the assessment made by the Com- vestor protection; mission under subsection (a). (7) how the funding of national securities associations is used to support the mission of (c) Reimbursements for cost of reports the national securities associations, includ- (1) Reimbursements required ing— The Commission shall reimburse the Gov- (A) the methods of funding; ernment Accountability Office for the full cost (B) the sufficiency of funds; of making the reports under subsection (b), as (C) how funds are invested by the national billed therefor by the Comptroller General. securities association pending use; and (D) the impact of the methods, sufficiency, (2) Crediting and use of reimbursements and investment of funds on regulatory en- Such reimbursements shall— forcement by the national securities associa- (A) be credited to the appropriation actions; count ‘‘Salaries and Expenses, Government (8) the policies regarding the employment of Accountability Office’’ current when the former employees of national securities asso- payment is received; and ciations by regulated entities; (B) remain available until expended. (9) the ongoing effectiveness of the rules of (Pub. L. 111–203, title IX, § 963, July 21, 2010, 124 the national securities associations in achiev- Stat. 1910.) ing the goals of the rules; (10) the transparency of governance and ac- CODIFICATION tivities of the national securities associations; Section was enacted as part of the Investor Protec- and tion and Securities Reform Act of 2010 and also as part (11) any other issue that has an impact, as of the Dodd-Frank Wall Street Reform and Consumer determined by the Comptroller General, on Protection Act, and not as part of the Securities Ex- the effectiveness of such national securities change Act of 1934 which comprises this chapter. associations in performing their mission and 1 EFFECTIVE DATE in dealing fairly with investors and members; (b) Reimbursements for cost of reports Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set (1) Reimbursements required out as a note under section 5301 of Title 12, Banks and The Commission shall reimburse the Gov- Banking. ernment Accountability Office for the full cost DEFINITION of making the reports under subsection (a), as billed therefor by the Comptroller General. For definition of ‘‘Commission’’ as used in this section, see section 5301 of Title 12, Banks and Banking. (2) Crediting and use of reimbursements Such reimbursements shall— § 78d–9. Report on oversight of national securi- (A) be credited to the appropriation ac- ties associations count ‘‘Salaries and Expenses, Government (a) Report required Accountability Office’’ current when the payment is received; and Not later than 2 years after July 21, 2010, and (B) remain available until expended. every 3 years thereafter, the Comptroller Gen- eral of the United States shall submit to the (Pub. L. 111–203, title IX, § 964, July 21, 2010, 124 Committee on Banking, Housing, and Urban Af- Stat. 1910.) fairs of the Senate and the Committee on Finan- CODIFICATION cial Services of the House of Representatives a Section was enacted as part of the Investor Protec- report that includes an evaluation of the over- tion and Securities Reform Act of 2010 and also as part sight by the Commission of national securities of the Dodd-Frank Wall Street Reform and Consumer associations registered under section 78o–3 of Protection Act, and not as part of the Securities Ex- this title with respect to— change Act of 1934 which comprises this chapter. (1) the governance of such national securities associations, including the identification 1 So in original. The semicolon probably should be a period. § 78e TITLE 15—COMMERCE AND TRADE Page 212

EFFECTIVE DATE natural person associated with a registered Section effective 1 day after July 21, 2010, except as broker or dealer may become a member of otherwise provided, see section 4 of Pub. L. 111–203, set such exchange and any person may become as- out as a note under section 5301 of Title 12, Banks and sociated with a member thereof. Banking. (3) The rules of the exchange assure a fair representation of its members in the selection DEFINITIONS of its directors and administration of its af- For definitions of terms used in this section, see sec- fairs and provide that one or more directors tion 5301 of Title 12, Banks and Banking. shall be representative of issuers and investors § 78e. Transactions on unregistered exchanges and not be associated with a member of the exchange, broker, or dealer. It shall be unlawful for any broker, dealer, or (4) The rules of the exchange provide for the exchange, directly or indirectly, to make use of equitable allocation of reasonable dues, fees, the mails or any means or instrumentality of and other charges among its members and is- interstate commerce for the purpose of using suers and other persons using its facilities. any facility of an exchange within or subject to (5) The rules of the exchange are designed to the jurisdiction of the United States to effect prevent fraudulent and manipulative acts and any transaction in a security, or to report any practices, to promote just and equitable prin- such transaction, unless such exchange (1) is ciples of trade, to foster cooperation and co- registered as national securities exchange under ordination with persons engaged in regulating, section 78f of this title, or (2) is exempted from clearing, settling, processing information with such registration upon application by the ex- respect to, and facilitating transactions in se- change because, in the opinion of the Commis- curities, to remove impediments to and per- sion, by reason of the limited volume of trans- fect the mechanism of a free and open market actions effected on such exchange, it is not prac- and a national market system, and, in general, ticable and not necessary or appropriate in the to protect investors and the public interest; public interest or for the protection of investors and are not designed to permit unfair dis- to require such registration. crimination between customers, issuers, bro- (June 6, 1934, ch. 404, title I, § 5, 48 Stat. 885.) kers, or dealers, or to regulate by virtue of any authority conferred by this chapter mat- TRANSFER OF FUNCTIONS ters not related to the purposes of this chapter For transfer of functions of Securities and Exchange or the administration of the exchange. Commission, with certain exceptions, to Chairman of (6) The rules of the exchange provide that such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, (subject to any rule or order of the Commis- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under sion pursuant to section 78q(d) or 78s(g)(2) of section 78d of this title. this title) its members and persons associated with its members shall be appropriately dis- § 78f. National securities exchanges ciplined for violation of the provisions of this (a) Registration; application chapter, the rules or regulations thereunder, An exchange may be registered as a national or the rules of the exchange, by expulsion, sus- securities exchange under the terms and condi- pension, limitation of activities, functions, tions hereinafter provided in this section and in and operations, fine, censure, being suspended accordance with the provisions of section 78s(a) or barred from being associated with a mem- of this title, by filing with the Commission an ber, or any other fitting sanction. application for registration in such form as the (7) The rules of the exchange are in accord- Commission, by rule, may prescribe containing ance with the provisions of subsection (d) of the rules of the exchange and such other infor- this section, and in general, provide a fair pro- mation and documents as the Commission, by cedure for the disciplining of members and rule, may prescribe as necessary or appropriate persons associated with members, the denial in the public interest or for the protection of in- of membership to any person seeking member- vestors. ship therein, the barring of any person from becoming associated with a member thereof, (b) Determination by Commission requisite to and the prohibition or limitation by the ex- registration of applicant as a national securi- change of any person with respect to access to ties exchange services offered by the exchange or a member An exchange shall not be registered as a na- thereof. tional securities exchange unless the Commis- (8) The rules of the exchange do not impose sion determines that— any burden on competition not necessary or (1) Such exchange is so organized and has appropriate in furtherance of the purposes of the capacity to be able to carry out the pur- this chapter. poses of this chapter and to comply, and (sub- (9)(A) The rules of the exchange prohibit the ject to any rule or order of the Commission listing of any security issued in a limited part- pursuant to section 78q(d) or 78s(g)(2) of this nership rollup transaction (as such term is de- title) to enforce compliance by its members fined in paragraphs (4) and (5) of section 78n(h) and persons associated with its members, with of this title), unless such transaction was con- the provisions of this chapter, the rules and ducted in accordance with procedures designed regulations thereunder, and the rules of the to protect the rights of limited partners, in- exchange. cluding— (2) Subject to the provisions of subsection (c) (i) the right of dissenting limited partners of this section, the rules of the exchange pro- to one of the following: vide that any registered broker or dealer or (I) an appraisal and compensation; Page 213 TITLE 15—COMMERCE AND TRADE § 78f

(II) retention of a security under sub- (C) Nothing in this paragraph shall be con- stantially the same terms and conditions strued to prohibit a national securities ex- as the original issue; change from prohibiting a member that is not (III) approval of the limited partnership the beneficial owner of a security registered rollup transaction by not less than 75 per- under section 78l of this title from granting a cent of the outstanding securities of each proxy to vote the security in connection with of the participating limited partnerships; a shareholder vote not described in subpara- (IV) the use of a committee of limited graph (A). partners that is independent, as deter- (c) Denial of membership in national exchanges; mined in accordance with rules prescribed denial of association with member; condi- by the exchange, of the general partner or tions; limitation of membership sponsor, that has been approved by a majority of the outstanding units of each of (1) A national securities exchange shall deny the participating limited partnerships, and membership to (A) any person, other than a nat- that has such authority as is necessary to ural person, which is not a registered broker or protect the interest of limited partners, dealer or (B) any natural person who is not, or including the authority to hire independ- is not associated with, a registered broker or ent advisors, to negotiate with the general dealer. partner or sponsor on behalf of the limited (2) A national securities exchange may, and in partners, and to make a recommendation cases in which the Commission, by order, directs to the limited partners with respect to the as necessary or appropriate in the public inter- proposed transaction; or est or for the protection of investors shall, deny (V) other comparable rights that are pre- membership to any registered broker or dealer scribed by rule by the exchange and that or natural person associated with a registered are designed to protect dissenting limited broker or dealer, and bar from becoming associ- partners; ated with a member any person, who is subject (ii) the right not to have their voting to a statutory disqualification. A national secu- power unfairly reduced or abridged; rities exchange shall file notice with the Com- (iii) the right not to bear an unfair portion mission not less than thirty days prior to admit- of the costs of a proposed limited partner- ting any person to membership or permitting ship rollup transaction that is rejected; and any person to become associated with a member, (iv) restrictions on the conversion of con- if the exchange knew, or in the exercise of rea- tingent interests or fees into non-contingent sonable care should have known, that such per- interests or fees and restrictions on the re- son was subject to a statutory disqualification. ceipt of a non-contingent equity interest in The notice shall be in such form and contain exchange for fees for services which have not such information as the Commission, by rule, yet been provided. may prescribe as necessary or appropriate in the (B) As used in this paragraph, the term ‘‘dis- public interest or for the protection of investors. senting limited partner’’ means a person who, (3)(A) A national securities exchange may on the date on which soliciting material is deny membership to, or condition the member- mailed to investors, is a holder of a beneficial ship of, a registered broker or dealer if (i) such interest in a limited partnership that is the broker or dealer does not meet such standards of subject of a limited partnership rollup trans- financial responsibility or operational capabil- action, and who casts a vote against the trans- ity or such broker or dealer or any natural per- action and complies with procedures estab- son associated with such broker or dealer does lished by the exchange, except that for pur- not meet such standards of training, experience, poses of an exchange or tender offer, such per- and competence as are prescribed by the rules of son shall file an objection in writing under the the exchange or (ii) such broker or dealer or per- rules of the exchange during the period during son associated with such broker or dealer has which the offer is outstanding. engaged and there is a reasonable likelihood he (10)(A) The rules of the exchange prohibit may again engage in acts or practices inconsist- any member that is not the beneficial owner ent with just and equitable principles of trade. A of a security registered under section 78l of national securities exchange may examine and this title from granting a proxy to vote the se- verify the qualifications of an applicant to be- curity in connection with a shareholder vote come a member and the natural persons associ- described in subparagraph (B), unless the bene- ated with such an applicant in accordance with ficial owner of the security has instructed the procedures established by the rules of the ex- member to vote the proxy in accordance with change. the voting instructions of the beneficial (B) A national securities exchange may bar a owner. natural person from becoming a member or as- (B) A shareholder vote described in this sub- sociated with a member, or condition the mem- paragraph is a shareholder vote with respect bership of a natural person or association of a to the election of a member of the board of di- natural person with a member, if such natural rectors of an issuer, executive compensation, person (i) does not meet such standards of train- or any other significant matter, as determined ing, experience, and competence as are pre- by the Commission, by rule, and does not in- scribed by the rules of the exchange or (ii) has clude a vote with respect to the uncontested engaged and there is a reasonable likelihood he election of a member of the board of directors may again engage in acts or practices inconsist- of any investment company registered under ent with just and equitable principles of trade. A the Investment Company Act of 1940 [15 U.S.C. national securities exchange may examine and 80a–1 et seq.]. verify the qualifications of an applicant to be- § 78f TITLE 15—COMMERCE AND TRADE Page 214 come a person associated with a member in ac- (2) In any proceeding by a national securities cordance with procedures established by the exchange to determine whether a person shall be rules of the exchange and require any person as- denied membership, barred from becoming asso- sociated with a member, or any class of such ciated with a member, or prohibited or limited persons, to be registered with the exchange in with respect to access to services offered by the accordance with procedures so established. exchange or a member thereof (other than a (C) A national securities exchange may bar summary proceeding pursuant to paragraph (3) any person from becoming associated with a of this subsection), the exchange shall notify member if such person does not agree (i) to sup- such person of, and give him an opportunity to ply the exchange with such information with re- be heard upon, the specific grounds for denial, spect to its relationship and dealings with the bar, or prohibition or limitation under consider- member as may be specified in the rules of the ation and keep a record. A determination by the exchange and (ii) to permit the examination of exchange to deny membership, bar a person its books and records to verify the accuracy of from becoming associated with a member, or any information so supplied. prohibit or limit a person with respect to access (4) A national securities exchange may limit to services offered by the exchange or a member (A) the number of members of the exchange and thereof shall be supported by a statement set- (B) the number of members and designated rep- ting forth the specific grounds on which the de- resentatives of members permitted to effect nial, bar, or prohibition or limitation is based. transactions on the floor of the exchange with- (3) A national securities exchange may sum- out the services of another person acting as marily (A) suspend a member or person associ- broker: Provided, however, That no national se- ated with a member who has been and is ex- curities exchange shall have the authority to de- pelled or suspended from any self-regulatory or- crease the number of memberships in such ex- ganization or barred or suspended from being as- change, or the number of members and des- sociated with a member of any self-regulatory ignated representatives of members permitted organization, (B) suspend a member who is in to effect transactions on the floor of such ex- such financial or operating difficulty that the change without the services of another person exchange determines and so notifies the Com- acting as broker, below such number in effect on mission that the member cannot be permitted to May 1, 1975, or the date such exchange was reg- continue to do business as a member with safety istered with the Commission, whichever is later: to investors, creditors, other members, or the And provided further, That the Commission, in exchange, or (C) limit or prohibit any person accordance with the provisions of section 78s(c) with respect to access to services offered by the of this title, may amend the rules of any na- exchange if subparagraph (A) or (B) of this para- tional securities exchange to increase (but not graph is applicable to such person or, in the case to decrease) or to remove any limitation on the of a person who is not a member, if the exchange number of memberships in such exchange or the determines that such person does not meet the number of members or designated representa- qualification requirements or other pre- tives of members permitted to effect trans- requisites for such access and such person can- actions on the floor of the exchange without the not be permitted to continue to have such ac- services of another person acting as broker, if cess with safety to investors, creditors, mem- the Commission finds that such limitation im- bers, or the exchange. Any person aggrieved by poses a burden on competition not necessary or any such summary action shall be promptly af- appropriate in furtherance of the purposes of forded an opportunity for a hearing by the ex- this chapter. change in accordance with the provisions of (d) Discipline of national securities exchange paragraph (1) or (2) of this subsection. The Com- members and persons associated with mem- mission, by order, may stay any such summary bers; summary proceedings action on its own motion or upon application by any person aggrieved thereby, if the Commission (1) In any proceeding by a national securities determines summarily or after notice and oppor- exchange to determine whether a member or tunity for hearing (which hearing may consist person associated with a member should be dis- solely of the submission of affidavits or presen- ciplined (other than a summary proceeding pur- tation of oral arguments) that such stay is con- suant to paragraph (3) of this subsection), the sistent with the public interest and the protec- exchange shall bring specific charges, notify tion of investors. such member or person of, and give him an opportunity to defend against, such charges, and (e) Commissions, allowances, discounts, and keep a record. A determination by the exchange other fees to impose a disciplinary sanction shall be sup- (1) On and after June 4, 1975, no national secu- ported by a statement setting forth— rities exchange may impose any schedule or fix (A) any act or practice in which such mem- rates of commissions, allowances, discounts, or ber or person associated with a member has other fees to be charged by its members: Pro- been found to have engaged, or which such vided, however, That until May 1, 1976, the pre- member or person has been found to have ceding provisions of this paragraph shall not omitted; prohibit any such exchange from imposing or (B) the specific provision of this chapter, the fixing any schedule of commissions, allowances, rules or regulations thereunder, or the rules of discounts, or other fees to be charged by its the exchange which any such act or practice, members for acting as broker on the floor of the or omission to act, is deemed to violate; and exchange or as odd-lot dealer: And provided fur- (C) the sanction imposed and the reasons ther, That the Commission, in accordance with therefor. the provisions of section 78s(b) of this title as Page 215 TITLE 15—COMMERCE AND TRADE § 78f modified by the provisions of paragraph (3) of (C)(i) If any class of persons, the members of this subsection, may— which are entitled to conduct (or have con- (A) permit a national securities exchange, ducted) cross-examination under subparagraphs by rule, to impose a reasonable schedule or fix (A) and (B) of this paragraph and which have, in reasonable rates of commissions, allowances, the view of the Commission, the same or similar discounts, or other fees to be charged by its interests in the proceeding, cannot agree upon a members for effecting transactions on such ex- single representative of such interests for pur- change prior to November 1, 1976, if the Com- poses of cross-examination, the Commission mission finds that such schedule or fixed rates may make rules and rulings specifying the man- of commissions, allowances, discounts, or ner in which such interests shall be represented other fees are in the public interest; and and such cross-examination conducted. (B) permit a national securities exchange, by (ii) No member of any class of persons with re- rule, to impose a schedule or fix rates of com- spect to which the Commission has specified the missions, allowances, discounts, or other fees manner in which its interests shall be rep- to be charged by its members for effecting resented pursuant to clause (i) of this subpara- transactions on such exchange after November graph shall be denied, pursuant to such clause 1, 1976, if the Commission finds that such (i), the opportunity to conduct (or have con- schedule or fixed rates of commissions, allow- ducted) cross-examination as to issues affecting ances, discounts, or other fees (i) are reason- his particular interests if he satisfies the Com- able in relation to the costs of providing the mission that he has made a reasonable and good service for which such fees are charged (and faith effort to reach agreement upon group rep- the Commission publishes the standards employed in adjudging reasonableness) and (ii) do resentation and there are substantial and rel- not impose any burden on competition not evant issues which would not be presented ade- necessary or appropriate in furtherance of the quately by group representation. purposes of this chapter, taking into consider- (D) A transcript shall be kept of any oral pres- ation the competitive effects of permitting entation and cross-examination. such schedule or fixed rates weighed against (E) In addition to the bases specified in section the competitive effects of other lawful actions 78y(a) of this title, a reviewing Court may set which the Commission is authorized to take aside an order of the Commission under section under this chapter. 78s(b) of this title approving an exchange rule imposing a schedule or fixing rates of commis- (2) Notwithstanding the provisions of section sions, allowances, discounts, or other fees, if the 78s(c) of this title, the Commission, by rule, may Court finds— abrogate any exchange rule which imposes a (1) a Commission determination under sub- schedule or fixes rates of commissions, allow- paragraph (A) of this paragraph that an inter- ances, discounts, or other fees, if the Commis- ested person is not entitled to conduct cross- sion determines that such schedule or fixed examination or make rebuttal submissions, or rates are no longer reasonable, in the public in- (2) a Commission rule or ruling under sub- terest, or necessary to accomplish the purposes paragraph (B) of this paragraph limiting the of this chapter. petitioner’s cross-examination or rebuttal sub- (3)(A) Before approving or disapproving any missions, proposed rule change submitted by a national securities exchange which would impose a sched- has precluded full disclosure and proper resolu- ule or fix rates of commissions, allowances, dis- tion of disputed issues of material fact which counts, or other fees to be charged by its mem- were necessary for fair determination by the bers for effecting transactions on such exchange, Commission. the Commission shall afford interested persons (f) Compliance of non-members with exchange (i) an opportunity for oral presentation of data, rules views, and arguments and (ii) with respect to The Commission, by rule or order, as it deems any such rule concerning transactions effected necessary or appropriate in the public interest after November 1, 1976, if the Commission determines there are disputed issues of material fact, and for the protection of investors, to maintain to present such rebuttal submissions and to con- fair and orderly markets, or to assure equal reg- duct (or have conducted under subparagraph (B) ulation, may require— of this paragraph) such cross-examination as the (1) any person not a member or a designated Commission determines to be appropriate and representative of a member of a national secu- required for full disclosure and proper resolution rities exchange effecting transactions on such of such disputed issues of material fact. exchange without the services of another per- (B) The Commission shall prescribe rules and son acting as a broker, or make rulings concerning any proceeding in ac- (2) any broker or dealer not a member of a cordance with subparagraph (A) of this para- national securities exchange effecting trans- graph designed to avoid unnecessary costs or actions on such exchange on a regular basis, delay. Such rules or rulings may (i) impose rea- to comply with such rules of such exchange as sonable time limits on each interested person’s the Commission may specify. oral presentations, and (ii) require any cross-ex- (g) Notice registration of security futures prod- amination to which a person may be entitled uct exchanges under subparagraph (A) of this paragraph to be conducted by the Commission on behalf of that (1) Registration required person in such manner as the Commission deter- An exchange that lists or trades security fu- mines to be appropriate and required for full dis- tures products may register as a national se- closure and proper resolution of disputed issues curities exchange solely for the purposes of of material fact. trading security futures products if— § 78f TITLE 15—COMMERCE AND TRADE Page 216

(A) the exchange is a board of trade, as members shall not, solely with respect to that term is defined by the Commodity Ex- those transactions effected on such exchange change Act (7 U.S.C. 1a(2)) [7 U.S.C. 1 et in security futures products, be required to seq.], that has been designated a contract comply with, the following provisions of this market by the Commodity Futures Trading chapter and the rules thereunder: Commission and such designation is not sus- (i) Subsections (b)(2), (b)(3), (b)(4), (b)(7), pended by order of the Commodity Futures (b)(9), (c), (d), and (e) of this section. Trading Commission; and (ii) Section 78h of this title. (B) such exchange does not serve as a mar- (iii) Section 78k of this title. ket place for transactions in securities other (iv) Subsections (d), (f), and (k) 1 of sec- than— tion 78q of this title. (i) security futures products; or (v) Subsections (a), (f), and (h) of section (ii) futures on exempted securities or 78s of this title. groups or indexes of securities or options (B) Rule change exemptions thereon that have been authorized under An exchange that registered under para- section 2(a)(1)(C) of the Commodity Ex- graph (1) of this subsection shall also be exchange Act [7 U.S.C. 2(a)(1)(C)]. empt from submitting proposed rule changes (2) Registration by notice filing pursuant to section 78s(b) of this title, ex- (A) Form and content cept that— (i) such exchange shall file proposed rule An exchange required to register only be- changes related to higher margin levels, cause such exchange lists or trades security fraud or manipulation, recordkeeping, re- futures products may register for purposes of porting, listing standards, or decimal pric- this section by filing with the Commission a ing for security futures products, sales written notice in such form as the Commis- practices for security futures products for sion, by rule, may prescribe containing the persons who effect transactions in security rules of the exchange and such other infor- futures products, or rules effectuating mation and documents concerning such ex- such exchange’s obligation to enforce the change, comparable to the information and securities laws pursuant to section documents required for national securities 78s(b)(7) of this title; exchanges under subsection (a) of this sec- (ii) such exchange shall file pursuant to tion, as the Commission, by rule, may pre- sections 78s(b)(1) and 78s(b)(2) of this title scribe as necessary or appropriate in the proposed rule changes related to margin, public interest or for the protection of inves- except for changes resulting in higher tors. If such exchange has filed documents margin levels; and with the Commodity Futures Trading Com- (iii) such exchange shall file pursuant to mission, to the extent that such documents section 78s(b)(1) of this title proposed rule contain information satisfying the Commis- changes that have been abrogated by the sion’s informational requirements, copies of Commission pursuant to section such documents may be filed with the Com- 78s(b)(7)(C) of this title. mission in lieu of the required written notice. (5) Trading in security futures products (A) In general (B) Immediate effectiveness Subject to subparagraph (B), it shall be un- Such registration shall be effective con- lawful for any person to execute or trade a temporaneously with the submission of no- security futures product until the later of— tice, in written or electronic form, to the (i) 1 year after December 21, 2000; or Commission, except that such registration (ii) such date that a futures association shall not be effective if such registration registered under section 17 of the Commod- would be subject to suspension or revoca- ity Exchange Act [7 U.S.C. 21] has met the tion. requirements set forth in section (C) Termination 78o–3(k)(2) of this title. Such registration shall be terminated im- (B) Principal-to-principal transactions mediately if any of the conditions for reg- Notwithstanding subparagraph (A), a per- istration set forth in this subsection are no son may execute or trade a security futures longer satisfied. product transaction if— (3) Public availability (i) the transaction is entered into— The Commission shall promptly publish in (I) on a principal-to-principal basis be- the Federal Register an acknowledgment of tween parties trading for their own ac- receipt of all notices the Commission receives counts or as described in section under this subsection and shall make all such 1a(18)(B)(ii) of the Commodity Exchange notices available to the public. Act [7 U.S.C. 1a(18)(B)(ii)]; and (II) only between eligible contract par- (4) Exemption of exchanges from specified pro- ticipants (as defined in subparagraphs visions (A), (B)(ii), and (C) of such section 1a(18) (A) Transaction exemptions [7 U.S.C. 1a(18)(A), (B)(ii), (C)]) at the An exchange that is registered under para- time at which the persons enter into the graph (1) of this subsection shall be exempt agreement, contract, or transaction; and from, and shall not be required to enforce compliance by its members with, and its 1 See References in Text note below. Page 217 TITLE 15—COMMERCE AND TRADE § 78f

(ii) the transaction is entered into on or registered pursuant to section 78o–3(a) of after the later of— this title effect transactions in the security (I) 8 months after December 21, 2000; or futures product; (II) such date that a futures associa- (G) require that the security futures prod- tion registered under section 17 of the uct be subject to the prohibition against Commodity Exchange Act [7 U.S.C. 21] dual trading in section 4j of the Commodity has met the requirements set forth in Exchange Act (7 U.S.C. 6j) and the rules and section 78o–3(k)(2) of this title. regulations thereunder or the provisions of (h) Trading in security futures products section 78k(a) of this title and the rules and (1) Trading on exchange or association re- regulations thereunder, except to the extent quired otherwise permitted under this chapter and the rules and regulations thereunder; It shall be unlawful for any person to effect (H) require that trading in the security fu- transactions in security futures products that tures product not be readily susceptible to are not listed on a national securities ex- manipulation of the price of such security change or a national securities association futures product, nor to causing or being used registered pursuant to section 78o–3(a) of this in the manipulation of the price of any un- title. derlying security, option on such security, (2) Listing standards required or option on a group or index including such Except as otherwise provided in paragraph securities; (7), a national securities exchange or a na- (I) require that procedures be in place for tional securities association registered pursu- coordinated surveillance among the market ant to section 78o–3(a) of this title may trade on which the security futures product is only security futures products that (A) con- traded, any market on which any security form with listing standards that such ex- underlying the security futures product is change or association files with the Commis- traded, and other markets on which any re- sion under section 78s(b) of this title and (B) lated security is traded to detect manipula- meet the criteria specified in section tion and insider trading; 2(a)(1)(D)(i) of the Commodity Exchange Act [7 (J) require that the market on which the U.S.C. 2(a)(1)(D)(i)]. security futures product is traded has in (3) Requirements for listing standards and con- place audit trails necessary or appropriate ditions for trading to facilitate the coordinated surveillance required in subparagraph (I); Such listing standards shall— (K) require that the market on which the (A) except as otherwise provided in a rule, security futures product is traded has in regulation, or order issued pursuant to para- place procedures to coordinate trading halts graph (4), require that any security underly- between such market and any market on ing the security future, including each com- which any security underlying the security ponent security of a narrow-based security futures product is traded and other markets l index, be registered pursuant to section 78 on which any related security is traded; and of this title; (L) require that the margin requirements (B) require that if the security futures for a security futures product comply with product is not cash settled, the market on the regulations prescribed pursuant to sec- which the security futures product is traded tion 78g(c)(2)(B) of this title, except that have arrangements in place with a reg- nothing in this subparagraph shall be con- istered clearing agency for the payment and strued to prevent a national securities ex- delivery of the securities underlying the se- change or national securities association curity futures product; from requiring higher margin levels for a se- (C) be no less restrictive than comparable curity futures product when it deems such listing standards for options traded on a na- action to be necessary or appropriate. tional securities exchange or national securities association registered pursuant to sec- (4) Authority to modify certain listing standard tion 78o–3(a) of this title; requirements (D) except as otherwise provided in a rule, (A) Authority to modify regulation, or order issued pursuant to para- The Commission and the Commodity Fu- graph (4), require that the security future be tures Trading Commission, by rule, regula- based upon common stock and such other eq- tion, or order, may jointly modify the list- uity securities as the Commission and the ing standard requirements specified in sub- Commodity Futures Trading Commission paragraph (A) or (D) of paragraph (3) to the jointly determine appropriate; extent such modification fosters the devel- (E) require that the security futures prod- opment of fair and orderly markets in secu- uct is cleared by a clearing agency that has rity futures products, is necessary or appro- in place provisions for linked and coordi- priate in the public interest, and is consist- nated clearing with other clearing agencies ent with the protection of investors. that clear security futures products, which permits the security futures product to be (B) Authority to grant exemptions purchased on one market and offset on an- The Commission and the Commodity Fu- other market that trades such product; tures Trading Commission, by order, may (F) require that only a broker or dealer jointly exempt any person from compliance subject to suitability rules comparable to with the listing standard requirement speci- those of a national securities association fied in subparagraph (E) of paragraph (3) to § 78f TITLE 15—COMMERCE AND TRADE Page 218

the extent such exemption fosters the devel- (i) 180 days after the end of the first full opment of fair and orderly markets in secu- calendar month period in which the average rity futures products, is necessary or appro- aggregate comparable share volume for all priate in the public interest, and is consist- security futures products based on single eq- ent with the protection of investors. uity securities traded on all national securi- (5) Requirements for other persons trading se- ties exchanges, any national securities asso- curity future products ciations registered pursuant to section 78o–3(a) of this title, and all other persons It shall be unlawful for any person (other equals or exceeds 10 percent of the average than a national securities exchange or a na- aggregate comparable share volume of op- tional securities association registered pursu- tions on single equity securities traded on ant to section 78o–3(a) of this title) to con- all national securities exchanges and any stitute, maintain, or provide a marketplace or national securities associations registered facilities for bringing together purchasers and pursuant to section 78o–3(a) of this title; or sellers of security future products or to other- (ii) 2 years after the date on which trading wise perform with respect to security future in any security futures product commences products the functions commonly performed under this chapter. by a stock exchange as that term is generally understood, unless a national securities asso- (i) Rules to avoid duplicative regulation of dual ciation registered pursuant to section 78o–3(a) registrants of this title or a national securities exchange Consistent with this chapter, each national se- of which such person is a member— curities exchange registered pursuant to sub- (A) has in place procedures for coordinated section (a) of this section shall issue such rules surveillance among such person, the market as are necessary to avoid duplicative or conflict- trading the securities underlying the secu- ing rules applicable to any broker or dealer reg- rity future products, and other markets istered with the Commission pursuant to section trading related securities to detect manipu- 78o(b) of this title (except paragraph (11) there- lation and insider trading; of), that is also registered with the Commodity (B) has rules to require audit trails nec- Futures Trading Commission pursuant to sec- essary or appropriate to facilitate the coor- tion 4f(a) of the Commodity Exchange Act [7 dinated surveillance required in subpara- U.S.C. 6f(a)] (except paragraph (2) thereof), with graph (A); and respect to the application of— (C) has rules to require such person to (1) rules of such national securities exchange coordinate trading halts with markets trad- of the type specified in section 78o(c)(3)(B) of ing the securities underlying the security fu- this title involving security futures products; ture products and other markets trading re- and lated securities. (2) similar rules of national securities ex- (6) Deferral of options on security futures trad- changes registered pursuant to subsection (g) ing of this section and national securities associa- No person shall offer to enter into, enter tions registered pursuant to section 78o–3(k) of into, or confirm the execution of any put, call, this title involving security futures products. straddle, option, or privilege on a security fu- (j) Procedures and rules for security future prod- ture, except that, after 3 years after December ucts 21, 2000, the Commission and the Commodity A national securities exchange registered pur- Futures Trading Commission may by order suant to subsection (a) of this section shall im- jointly determine to permit trading of puts, plement the procedures specified in subsection calls, straddles, options, or privileges on any (h)(5)(A) of this section and adopt the rules spec- security future authorized to be traded under ified in subparagraphs (B) and (C) of subsection the provisions of this chapter and the Com- (h)(5) of this section not later than 8 months modity Exchange Act [7 U.S.C. 1 et seq.]. after the date of receipt of a request from an al- (7) Deferral of linked and coordinated clearing ternative trading system for such implementa- (A) Notwithstanding paragraph (2), until the tion and rules. compliance date, a national securities ex- (k) Rules relating to security futures products change or national securities association reg- traded on foreign boards of trade istered pursuant to section 78o–3(a) of this (1) To the extent necessary or appropriate in title may trade a security futures product that the public interest, to promote fair competition, does not— and consistent with the promotion of market ef- (i) conform with any listing standard pro- ficiency, innovation, and expansion of invest- mulgated to meet the requirement specified ment opportunities, the protection of investors, in subparagraph (E) of paragraph (3); or and the maintenance of fair and orderly mar- (ii) meet the criterion specified in section kets, the Commission and the Commodity Fu- 2(a)(1)(D)(i)(IV) of the Commodity Exchange tures Trading Commission shall jointly issue Act [7 U.S.C. 2(a)(1)(D)(i)(IV)]. such rules, regulations, or orders as are nec- (B) The Commission and the Commodity Fu- essary and appropriate to permit the offer and tures Trading Commission shall jointly pub- sale of a security futures product traded on or lish in the Federal Register a notice of the subject to the rules of a foreign board of trade to compliance date no later than 165 days before United States persons. the compliance date. (2) The rules, regulations, or orders adopted (C) For purposes of this paragraph, the term under paragraph (1) shall take into account, as ‘‘compliance date’’ means the later of— appropriate, the nature and size of the markets Page 219 TITLE 15—COMMERCE AND TRADE § 78f that the securities underlying the security fu- Subsec. (g)(5)(B)(i)(I). Pub. L. 111–203, § 721(e)(8)(A), tures product reflect. substituted ‘‘section 1a(18)(B)(ii)’’ for ‘‘section l 1a(12)(B)(ii)’’. ( ) Security-based swaps Subsec. (g)(5)(B)(i)(II). Pub. L. 111–203, § 721(e)(8)(B), It shall be unlawful for any person to effect a substituted ‘‘section 1a(18)’’ for ‘‘section 1a(12)’’. transaction in a security-based swap with or for Subsec. (l). Pub. L. 111–203, § 763(e), added subsec. (l). 2000—Subsec. (g). Pub. L. 106–554, § 1(a)(5) [title II, a person that is not an eligible contract partici- § 202(a)], added subsec. (g). pant, unless such transaction is effected on a na- Subsec. (h). Pub. L. 106–554, § 1(a)(5) [title II, § 206(a)], tional securities exchange registered pursuant added subsec. (h). to subsection (b). Subsec. (i). Pub. L. 106–554, § 1(a)(5) [title II, § 206(i)], added subsec. (i). (June 6, 1934, ch. 404, title I, § 6, 48 Stat. 885; Pub. Subsec. (j). Pub. L. 106–554, § 1(a)(5) [title II, L. 94–29, § 4, June 4, 1975, 89 Stat. 104; Pub. L. § 206(k)(2)], added subsec. (j). 100–181, title III, §§ 309–312, Dec. 4, 1987, 101 Stat. Subsec. (k). Pub. L. 106–554, § 1(a)(5) [title II, § 206(l)], 1255; Pub. L. 103–202, title III, § 303(b), Dec. 17, added subsec. (k). 1993—Subsec. (b)(9). Pub. L. 103–202 added par. (9). 1993, 107 Stat. 2365; Pub. L. 106–554, § 1(a)(5) [title 1987—Subsec. (c)(2). Pub. L. 100–181, § 309, substituted II, §§ 202(a), 206(a), (i), (k)(2), (l)], Dec. 21, 2000, 114 ‘‘protection of investors shall’’ for ‘‘protection shall’’. Stat. 2763, 2763A–416, 2763A–426, 2763A–433, Subsec. (c)(3)(A). Pub. L. 100–181, § 310, substituted 2763A–434; Pub. L. 111–203, title VII, §§ 721(e)(8), ‘‘associated’’ for ‘‘association’’. 734(b)(2), 763(e), title IX, § 957, July 21, 2010, 124 Subsec. (c)(4). Pub. L. 100–181, § 311, substituted ‘‘may limit (A)’’ for ‘‘may (A) limit’’. Stat. 1671, 1718, 1777, 1906.) Subsec. (e)(1). Pub. L. 100–181, § 312(1), substituted AMENDMENT OF SECTION ‘‘paragraph (3) of this subsection’’ for ‘‘paragraph (4) of this section’’. Unless otherwise provided, amendments by Subsec. (e)(3), (4). Pub. L. 100–181, § 312(2), (3), redesig- subtitle A (§§ 711–754) and subtitle B (§§ 761–774) nated par. (4) as (3) and, in subpar. (E), substituted ‘‘fix- of title VII of Pub. L. 111–203 effective on the ing’’ for ‘‘fixes’’ in introductory provisions, ‘‘subpara- later of 360 days after July 21, 2010, or, to the graph (A) of this paragraph’’ for ‘‘paragraph (4)(A) of extent a provision of either subtitle A or B re- this subsection’’ in cl. (1), and ‘‘subparagraph (B) of quires a rulemaking, not less than 60 days after this paragraph’’ for ‘‘paragraph (4)(B) of this sub- publication of the final rule or regulation imple- section’’ in cl. (2), and struck out former par. (3) which read as follows: ‘‘Until December 31, 1976, the Commis- menting such provision of subtitle A or B, see sion, on a regular basis, shall file with the Speaker of 2010 Amendment notes and Effective Date of the House and the President of the Senate information 2010 Amendment note below. concerning the effect on the public interest, protection of investors, and maintenance of fair and orderly mar- REFERENCES IN TEXT kets of the absence of any schedule or fixed rates of This chapter, referred to in subsecs. (b) to (e), commissions, allowances, discounts, or other fees to be (g)(4)(A), (h)(3)(G), (7)(C)(ii), and (i), was in the original charged by members of any national securities ex- ‘‘this title’’. This chapter, referred to in subsec. (h)(6), change for effecting transactions on such exchange.’’ was in the original ‘‘this Act’’. See References in Text 1975—Pub. L. 94–29 restructured the entire section note set out under section 78a of this title. and, in addition, authorized the Commission to require The Investment Company Act of 1940, referred to in an exchange to file such documents and information as subsec. (b)(10)(B), is title I of act Aug. 22, 1940, ch. 686, it deems necessary or appropriate in the public interest 54 Stat. 789, which is classified generally to subchapter or for the protection of investors and to prescribe the I (§ 80a–1 et seq.) of chapter 2D of this title. For com- form and substance of an exchange’s application for plete classification of this Act to the Code, see section registration, expanded to eight the number of explicit 80a–51 of this title and Tables. statutory requirements that must be satisfied before an The Commodity Exchange Act, referred to in subsecs. exchange may be registered as a national securities ex- (g)(1)(A) and (h)(6), is act Sept. 21, 1922, ch. 369, 42 Stat. change, set forth the authority of a national securities 998, which is classified generally to chapter 1 (§ 1 et exchange to admit or deny persons membership or asso- seq.) of Title 7, Agriculture. Section 1a(2) of Title 7 was ciation with members, prescribed exchange procedures redesignated section 1a(6) by Pub. L. 111–203, title VII, for instituting disciplinary actions, denying member- § 721(a)(1), July 21, 2010, 124 Stat. 1658. For complete ship, and summarily suspending members or persons classification of this Act to the Code, see section 1 of associated with members, specified the authority of na- Title 7 and Tables. tional securities exchanges to impose schedules or fix Subsection (k) of section 78q of this title, referred to rates of commissions, allowances, discounts, or other in subsec. (g)(4)(A)(iv), was redesignated subsec. (j) by fees to be charged by its members for transacting busi- Pub. L. 111–203, title VI, § 617(a)(2), July 21, 2010, 124 ness on the exchange, and empowered the Commission Stat. 1616. to regulate any broker or dealer who effects transactions on an exchange on a regular basis but who is AMENDMENTS not a member of that exchange and any person who ef- 2010—Subsec. (b)(9). Pub. L. 111–203, § 957(1), des- fects transactions on an exchange without the services ignated introductory provisions and subpars. (A) to (D) of another person acting as broker. as subpar. (A), redesignated former subpars. (A) to (D) as cls. (i) to (iv), respectively, of subpar. (A) and re- EFFECTIVE DATE OF 2010 AMENDMENT aligned margins, redesignated former cls. (i) to (v) of Amendment by section 957 of Pub. L. 111–203 effective subpar. (A) as subcls. (I) to (V), respectively, of cl. (i) 1 day after July 21, 2010, except as otherwise provided, and realigned margins, and designated concluding pro- see section 4 of Pub. L. 111–203, set out as an Effective visions as subpar. (B). Date note under section 5301 of Title 12, Banks and Subsec. (b)(10). Pub. L. 111–203, § 957(2), added par. (10). Banking. Subsec. (g)(1)(A). Pub. L. 111–203, § 734(b)(2), sub- Amendment by sections 721(e)(8) and 734(b)(2) of Pub. stituted ‘‘that has been designated’’ for ‘‘that—(i) has L. 111–203 effective on the later of 360 days after July 21, been designated’’ and ‘‘and’’ for ‘‘or’’ at end and struck 2010, or, to the extent a provision of subtitle A out cl. (ii) which read as follows: ‘‘is registered as a de- (§§ 711–754) of title VII of Pub. L. 111–203 requires a rule- rivative transaction execution facility under section 5a making, not less than 60 days after publication of the of the Commodity Exchange Act and such registration final rule or regulation implementing such provision of is not suspended by the Commodity Futures Trading subtitle A, see section 754 of Pub. L. 111–203, set out as Commission; and’’. a note under section 1a of Title 7, Agriculture. § 78g TITLE 15—COMMERCE AND TRADE Page 220

Amendment by section 763(e) of Pub. L. 111–203 effec- istered securities association registered with the Com- tive on the later of 360 days after July 21, 2010, or, to mission on the date of enactment of this Act [June 4, the extent a provision of subtitle B (§§ 761–774) of title 1975] do not comply with such Act as amended, the VII of Pub. L. 111–203 requires a rulemaking, not less Commission shall so notify such exchange or associa- than 60 days after publication of the final rule or regu- tion in writing, specifying the respects in which the ex- lation implementing such provision of subtitle B, see change or association is not in compliance with such section 774 of Pub. L. 111–203, set out as a note under Act. On and after the one hundred eightieth day follow- section 77b of this title. ing the date of receipt of such notice by a national securities exchange or registered securities association, EFFECTIVE DATE OF 1993 AMENDMENT the Commission, without regard to the provisions of Pub. L. 103–202, title III, § 304, Dec. 17, 1993, 107 Stat. section 19(h) of the Securities Exchange Act of 1934 2367, provided that: [section 78s(h) of this title], as amended by this Act, is ‘‘(a) EFFECTIVE DATE.— authorized by order, to suspend the registration of any ‘‘(1) IN GENERAL.—The amendments made by section such exchange or association or impose limitations on 303 [amending this section and section 78o–3 of this the activities, functions, and operations of any such ex- title] shall become effective 12 months after the date change or association, if the Commission finds, after of enactment of this Act [Dec. 17, 1993]. notice and opportunity for hearing, that the organiza- ‘‘(2) RULEMAKING AUTHORITY.—Notwithstanding tion or rules of such exchange or association do not paragraph (1), the authority of the Securities and Ex- comply with such Act. Any such suspension or limita- change Commission, a registered securities association shall continue in effect until the Commission, by tion, and a national securities exchange to commence order, declares that such exchange or association is in rulemaking proceedings for the purpose of issuing compliance with such requirements.’’ rules pursuant to the amendments made by section 303 is effective on the date of enactment of this Act. § 78g. Margin requirements ‘‘(3) REVIEW OF FILINGS PRIOR TO EFFECTIVE DATE.— (a) Rules and regulations for extension of credit; Prior to the effective date of regulations promulgated standard for initial extension; undermar- pursuant to this title [amending this section and sections 78n and 78o–3 of this title and enacting provi- gined accounts sions set out as notes under sections 78a and 78n of For the purpose of preventing the excessive this title], the Securities and Exchange Commission use of credit for the purchase or carrying of se- shall continue to review and declare effective reg- curities, the Board of Governors of the Federal istration statements and amendments thereto relat- Reserve System shall, prior to October 1, 1934, ing to limited partnership rollup transactions in ac- and from time to time thereafter, prescribe cordance with applicable regulations then in effect. rules and regulations with respect to the ‘‘(b) EFFECT ON EXISTING AUTHORITY.—The amendments made by this title [amending this section and amount of credit that may be initially extended sections 78n and 78o–3 of this title] shall not limit the and subsequently maintained on any security authority of the Securities and Exchange Commission, (other than an exempted security or a security a registered securities association, or a national securi- futures product). For the initial extension of ties exchange under any provision of the Securities Ex- credit, such rules and regulations shall be based change Act of 1934 [15 U.S.C. 78a et seq.], or preclude upon the following standard: An amount not the Commission or such association or exchange from greater than whichever is the higher of— imposing, under any other such provision, a remedy or (1) 55 per centum of the current market price procedure required to be imposed under such amendments.’’ of the security, or (2) 100 per centum of the lowest market price EFFECTIVE DATE OF 1975 AMENDMENT of the security during the preceding thirty-six Amendment by Pub. L. 94–29 effective June 4, 1975, ex- calendar months, but not more than 75 per cept for amendment of subsecs. (a) through (d) by Pub. centum of the current market price. L. 94–29 to be effective 180 days after June 4, 1975, with provisions of subsecs. (b)(2) and (c)(6), as amended by Such rules and regulations may make appro- Pub. L. 94–29, or rules or regulations thereunder, not to priate provision with respect to the carrying of apply in a way so as to deprive any person of member- undermargined accounts for limited periods and ship in any national securities exchange (or its succes- under specified conditions; the withdrawal of sor) of which such person was, on June 4, 1975, a mem- funds or securities; the substitution or addi- ber or a member firm as defined in the constitution of tional purchases of securities; the transfer of ac- such exchange, or so as to deny membership in any counts from one lender to another; special or such exchange (or its successor) to a natural person different margin requirements for delayed deliv- who is or becomes associated with such member or member firm, see section 31(a) of Pub. L. 94–29, set out eries, short sales, arbitrage transactions, and se- as a note under section 78b of this title. curities to which paragraph (2) of this subsection does not apply; the bases and the meth- TRANSFER OF FUNCTIONS ods to be used in calculating loans, and margins For transfer of functions of Securities and Exchange and market prices; and similar administrative Commission, with certain exceptions, to Chairman of adjustments and details. For the purposes of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, paragraph (2) of this subsection, until July 1, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under 1936, the lowest price at which a security has section 78d of this title. sold on or after July 1, 1933, shall be considered CHANGES IN ORGANIZATION AND RULES OF NATIONAL as the lowest price at which such security has SECURITIES EXCHANGES AND REGISTERED SECURITIES sold during the preceding thirty-six calendar ASSOCIATIONS months. Pub. L. 94–29, § 31(b), June 4, 1975, 89 Stat. 170, pro- (b) Lower and higher margin requirements vided that: ‘‘If it appears to the Commission at any Notwithstanding the provisions of subsection time within one year of the effective date of any amendment made by this Act [see Short Title of 1975 (a) of this section, the Board of Governors of the Amendment note under section 78a of this title] to the Federal Reserve System, may, from time to Securities Exchange Act of 1934 that the organization time, with respect to all or specified securities or rules of any national securities exchange or reg- or transactions, or classes of securities, or class- Page 221 TITLE 15—COMMERCE AND TRADE § 78g es of transactions, by such rules and regulations graph (A)(ii), the Commission and the Com- (1) prescribe such lower margin requirements for modity Futures Trading Commission shall the initial extension or maintenance of credit as jointly prescribe, such regulations to estab- it deems necessary or appropriate for the accom- lish margin requirements, including the es- modation of commerce and industry, having due tablishment of levels of margin (initial and regard to the general credit situation of the maintenance) for security futures products country, and (2) prescribe such higher margin under such terms, and at such levels, as the requirements for the initial extension or main- Board deems appropriate, or as the Commis- tenance of credit as it may deem necessary or sion and the Commodity Futures Trading appropriate to prevent the excessive use of cred- Commission jointly deem appropriate— it to finance transactions in securities. (i) to preserve the financial integrity of (c) Unlawful credit extension to customers markets trading security futures products; (1) Prohibition (ii) to prevent systemic risk; It shall be unlawful for any member of a na- (iii) to require that— tional securities exchange or any broker or (I) the margin requirements for a secu- dealer, directly or indirectly, to extend or rity future product be consistent with maintain credit or arrange for the extension the margin requirements for comparable or maintenance of credit to or for any cus- option contracts traded on any exchange tomer— registered pursuant to section 78f(a) of (A) on any security (other than an exempt- this title; and ed security), except as provided in paragraph (II) initial and maintenance margin (2), in contravention of the rules and regula- levels for a security future product not tions which the Board of Governors of the be lower than the lowest level of margin, Federal Reserve System (hereafter in this exclusive of premium, required for any section referred to as the ‘‘Board’’) shall pre- comparable option contract traded on scribe under subsections (a) and (b) of this any exchange registered pursuant to sec- section; or tion 78f(a) of this title, other than an op- (B) without collateral or on any collateral tion on a security future; other than securities, except in accordance except that nothing in this subparagraph with such rules and regulations as the Board shall be construed to prevent a national may prescribe— (i) to permit under specified conditions securities exchange or national securities and for a limited period any such member, association from requiring higher margin broker, or dealer to maintain a credit ini- levels for a security future product when it tially extended in conformity with the deems such action to be necessary or ap- rules and regulations of the Board; and propriate; and (ii) to permit the extension or mainte- (iv) to ensure that the margin require- nance of credit in cases where the exten- ments (other than levels of margin), in- sion or maintenance of credit is not for the cluding the type, form, and use of collat- purpose of purchasing or carrying securi- eral for security futures products, are and ties or of evading or circumventing the remain consistent with the requirements provisions of subparagraph (A). established by the Board, pursuant to sub- (2) Margin regulations paragraphs (A) and (B) of paragraph (1). (A) Compliance with margin rules required (3) Exception It shall be unlawful for any broker, dealer, This subsection and the rules and regula- or member of a national securities exchange tions issued under this subsection shall not to, directly or indirectly, extend or maintain apply to any credit extended, maintained, or credit to or for, or collect margin from any arranged by a member of a national securities customer on, any security futures product exchange or a broker or dealer to or for a unless such activities comply with the regu- member of a national securities exchange or a lations— registered broker or dealer— (i) which the Board shall prescribe pur- (A) a substantial portion of whose business suant to subparagraph (B); or consists of transactions with persons other (ii) if the Board determines to delegate than brokers or dealers; or the authority to prescribe such regula- (B) to finance its activities as a market tions, which the Commission and the Com- maker or an underwriter; modity Futures Trading Commission shall jointly prescribe pursuant to subparagraph except that the Board may impose such rules (B). and regulations, in whole or in part, on any credit otherwise exempted by this paragraph if If the Board delegates the authority to pre- the Board determines that such action is nec- scribe such regulations under clause (ii) and essary or appropriate in the public interest or the Commission and the Commodity Futures for the protection of investors. Trading Commission have not jointly prescribed such regulations within a reasonable (d) Unlawful credit extension in violation of period of time after the date of such delega- rules and regulations; exceptions to application, the Board shall prescribe such regulation of rules, etc. tions pursuant to subparagraph (B). (1) Prohibition (B) Criteria for issuance of rules It shall be unlawful for any person not sub- The Board shall prescribe, or, if the au- ject to subsection (c) of this section to extend thority is delegated pursuant to subpara- or maintain credit or to arrange for the exten- § 78g TITLE 15—COMMERCE AND TRADE Page 222

sion or maintenance of credit for the purpose whether the lender’s office or place of business of purchasing or carrying any security, in con- is in a State or the transaction occurred in travention of such rules and regulations as the whole or in part within a State) for the purpose Board shall prescribe to prevent the excessive of (A) purchasing or carrying United States se- use of credit for the purchasing or carrying of curities, or (B) purchasing or carrying within or trading in securities in circumvention of the United States of any other securities, if, the other provisions of this section. Such rules under this section or rules and regulations pre- and regulations may impose upon all loans scribed thereunder, the loan or other credit made for the purpose of purchasing or carry- transaction is prohibited or would be prohibited ing securities limitations similar to those im- if it had been made or the transaction had posed upon members, brokers, or dealers by otherwise occurred in a lender’s office or other subsection (c) of this section and the rules and place of business in a State. regulations thereunder. (2) For the purposes of this subsection— (2) Exceptions (A) The term ‘‘United States person’’ includes a person which is organized or exists This subsection and the rules and regula- under the laws of any State or, in the case of tions issued under this subsection shall not a natural person, a citizen or resident of the apply to any credit extended, maintained, or United States; a domestic estate; or a trust in arranged— which one or more of the foregoing persons has (A) by a person not in the ordinary course a cumulative direct or indirect beneficial in- of business; terest in excess of 50 per centum of the value (B) on an exempted security; of the trust. (C) to or for a member of a national securi- (B) The term ‘‘United States security’’ ties exchange or a registered broker or deal- means a security (other than an exempted se- er— curity) issued by a person incorporated under (i) a substantial portion of whose busi- the laws of any State, or whose principal place ness consists of transactions with persons of business is within a State. other than brokers or dealers; or (C) The term ‘‘foreign person controlled by a (ii) to finance its activities as a market United States person’’ includes any noncor- maker or an underwriter; porate entity in which United States persons (D) by a bank on a security other than an directly or indirectly have more than a 50 per equity security; or centum beneficial interest, and any corpora- (E) as the Board shall, by such rules, regu- tion in which one or more United States per- lations, or orders as it may deem necessary sons, directly or indirectly, own stock possess- or appropriate in the public interest or for ing more than 50 per centum of the total com- the protection of investors, exempt, either bined voting power of all classes of stock enti- unconditionally or upon specified terms and tled to vote, or more than 50 per centum of the conditions or for stated periods, from the op- total value of shares of all classes of stock. eration of this subsection and the rules and (3) The Board of Governors of the Federal Re- regulations thereunder. serve System may, in its discretion and with (3) Board authority due regard for the purposes of this section, by The Board may impose such rules and regu- rule or regulation exempt any class of United lations, in whole or in part, on any credit States persons or foreign persons controlled by a otherwise exempted by subparagraph (C) if it United States person from the application of determines that such action is necessary or this subsection. appropriate in the public interest or for the (g) Effect of bona fide agreement for delayed de- protection of investors. livery of mortgage related security (e) Effective date of this section and rules and Subject to such rules and regulations as the regulations Board of Governors of the Federal Reserve Sys- The provisions of this section or the rules and tem may adopt in the public interest and for the regulations thereunder shall not apply on or be- protection of investors, no member of a national fore July 1, 1937, to any loan or extension of securities exchange or broker or dealer shall be credit made prior to June 6, 1934, or to the main- deemed to have extended or maintained credit tenance, renewal, or extension of any such loan or arranged for the extension or maintenance of or credit, except to the extent that the Board of credit for the purpose of purchasing a security, Governors of the Federal Reserve System may within the meaning of this section, by reason of by rules and regulations prescribe as necessary a bona fide agreement for delayed delivery of a to prevent the circumvention of the provisions mortgage related security or a small business of this section or the rules and regulations related security against full payment of the pur- thereunder by means of withdrawals of funds or chase price thereof upon such delivery within securities, substitutions of securities, or addi- one hundred and eighty days after the purchase, tional purchases or by any other device. or within such shorter period as the Board of (f) Unlawful receipt of credit; exemptions Governors of the Federal Reserve System may prescribe by rule or regulation. (1) It is unlawful for any United States person, or any foreign person controlled by a United (June 6, 1934, ch. 404, title I, § 7, 48 Stat. 886; Aug. States person or acting on behalf of or in con- 23, 1935, ch. 614, § 203(a), 49 Stat. 704; Pub. L. junction with such person, to obtain, receive, or 90–437, July 29, 1968, 82 Stat. 452; Pub. L. 91–508, enjoy the beneficial use of a loan or other exten- title III, § 301(a), Oct. 26, 1970, 84 Stat. 1124; Pub. sion of credit from any lender (without regard to L. 98–440, title I, § 102, Oct. 3, 1984, 98 Stat. 1690; Page 223 TITLE 15—COMMERCE AND TRADE § 78h

Pub. L. 103–325, title II, § 203, Sept. 23, 1994, 108 empt, either unconditionally or upon specified terms Stat. 2199; Pub. L. 104–290, title I, § 104(a), Oct. 11, and conditions or for stated periods, from the operation 1996, 110 Stat. 3422; Pub. L. 105–353, title III, of this subsection and the rules and regulations there- § 301(b)(5), (6), Nov. 3, 1998, 112 Stat. 3236; Pub. L. under.’’ 1994—Subsec. (g). Pub. L. 103–325 inserted ‘‘or a small 106–554, § 1(a)(5) [title II, § 206(b)], Dec. 21, 2000, business related security’’ after ‘‘mortgage related se- 114 Stat. 2763, 2763A–429; Pub. L. 111–203, title IX, curity’’. § 929, July 21, 2010, 124 Stat. 1852.) 1984—Subsec. (g). Pub. L. 98–440 added subsec. (g). 1970—Subsec. (f). Pub. L. 91–508 added subsec. (f). AMENDMENTS 1968—Subsec. (a). Pub. L. 90–437, § 1(1), struck out 2010—Subsec. (c)(1)(A). Pub. L. 111–203 substituted ‘‘registered on a national securities exchange’’ after ‘‘; or’’ for ‘‘; and’’ at end. ‘‘(other than an exempted security)’’. 2000—Subsec. (a). Pub. L. 106–554, § 1(a)(5) [title II, Subsec. (c). Pub. L. 90–437, § 1(2), struck out ‘‘who § 206(b)(1)], inserted ‘‘or a security futures product’’ transacts a business in securities through the medium after ‘‘exempted security’’ in introductory provisions. of any such member’’ after ‘‘any broker or dealer’’, in Subsec. (c)(1)(A). Pub. L. 106–554, § 1(a)(5) [title II, par. (1) struck out ‘‘registered on a national securities § 206(b)(2)], inserted ‘‘except as provided in paragraph exchange’’ after ‘‘(other than an exempted security)’’, (2),’’ after ‘‘security),’’. and in par. (2) substituted ‘‘other than securities’’ for Subsec. (c)(2), (3). Pub. L. 106–554, § 1(a)(5) [title II, ‘‘other than exempted securities and/or securities reg- § 206(b)(3), (4)], added par. (2) and redesignated former istered upon a national securities exchange’’. par. (2) as (3). Subsec. (d). Pub. L. 90–437, § 1(3), struck out ‘‘reg- 1998—Subsecs. (a), (b). Pub. L. 105–353, § 301(b)(5), sub- istered on a national securities exchange’’ after ‘‘the stituted ‘‘Board of Governors of the Federal Reserve purpose of purchasing or carrying any security’’, and System’’ for ‘‘Federal Reserve Board’’. ‘‘registered on national securities exchanges’’ after Subsec. (d). Pub. L. 105–353, § 301(b)(6), substituted ‘‘the purpose of purchasing or carrying securities’’. ‘‘exceptions’’ for ‘‘exception’’ in heading. 1996—Subsec. (c). Pub. L. 104–290, § 104(a)(1), amended CHANGE OF NAME heading and text of subsec. (c) generally. Prior to Act Aug. 23, 1935, in subsec. (e), substituted ‘‘Board of amendment, text read as follows: ‘‘It shall be unlawful Governors of the Federal Reserve System’’ for ‘‘Federal for any member of a national securities exchange or Reserve Board’’. any broker or dealer, directly or indirectly, to extend or maintain credit or arrange for the extension or EFFECTIVE DATE OF 2010 AMENDMENT maintenance of credit to or for any customer— ‘‘(1) on any security (other than an exempted secu- Amendment by Pub. L. 111–203 effective 1 day after rity), in contravention of the rules and regulations July 21, 2010, except as otherwise provided, see section which the Board of Governors of the Federal Reserve 4 of Pub. L. 111–203, set out as an Effective Date note System shall prescribe under subsections (a) and (b) under section 5301 of Title 12, Banks and Banking. of this section; EFFECTIVE DATE OF 1970 AMENDMENT ‘‘(2) without collateral or on any collateral other than securities, except in accordance with such rules Amendment by Pub. L. 91–508 effective on first day of and regulations as the Board of Governors of the Fed- seventh calendar month which begins after Oct. 26, eral Reserve System may prescribe (A) to permit 1970, except as otherwise provided in section 401(c) of under specified conditions and for a limited period Pub. L. 91–508, see section 401(a) of Pub. L. 91–508, set any such member, broker, or dealer to maintain a out as a note under section 1951 of Title 12, Banks and credit initially extended in conformity with the rules Banking. and regulations of the Board of Governors of the Fed- Pub. L. 91–508, title IV, § 401(c), Oct. 26, 1970, 84 Stat. eral Reserve System, and (B) to permit the extension 1125, provided that: ‘‘The Board of Governors of the or maintenance of credit in cases where the extension Federal Reserve System may by regulation provide or maintenance of credit is not for the purpose of pur- that the amendment made by title III [amending this chasing or carrying securities or of evading or cir- section] shall be effective on any date not earlier than cumventing the provisions of paragraph (1) of this the publication of the regulation in the Federal Reg- subsection.’’ ister and not later than the first day of the thirteenth Subsec. (d). Pub. L. 104–290, § 104(a)(2), amended head- calendar month which begins after the date of enacting and text of subsec. (d) generally. Prior to amendment [Oct. 26, 1970].’’ ment, text read as follows: ‘‘It shall be unlawful for any VALIDITY OF RULES AND REGULATIONS person not subject to subsection (c) of this section to extend or maintain credit or to arrange for the exten- Pub. L. 91–508, title III, § 301(b), Oct. 26, 1970, 84 Stat. sion or maintenance of credit for the purpose of pur- 1125, provided that: ‘‘The amendment made by sub- chasing or carrying any security, in contravention of section (a) of this section [amending this section] does such rules and regulations as the Board of Governors of not affect the continuing validity of any rule or regula- the Federal Reserve System shall prescribe to prevent tion under section 7 of the Securities Exchange Act of the excessive use of credit for the purchasing or carry- 1934 [this section] in effect prior to the effective date of ing of or trading in securities in circumvention of the the amendment.’’ other provisions of this section. Such rules and regulations may impose upon all loans made for the purpose § 78h. Restrictions on borrowing and lending by of purchasing or carrying securities limitations similar members, brokers, and dealers to those imposed upon members, brokers, or dealers by subsection (c) of this section and the rules and regula- It shall be unlawful for any registered broker tions thereunder. This subsection and the rules and or dealer, member of a national securities ex- regulations thereunder shall not apply (A) to a loan change, or broker or dealer who transacts a made by a person not in the ordinary course of his busi- business in securities through the medium of ness, (B) to a loan on an exempted security, (C) to a any member of a national securities exchange, loan to a dealer to aid in the financing of the distribu- directly or indirectly— tion of securities to customers not through the medium (a) In contravention of such rules and regula- of a national securities exchange, (D) to a loan by a tions as the Commission shall prescribe for the bank on a security other than an equity security, or (E) to such other loans as the Board of Governors of the protection of investors to hypothecate or ar- Federal Reserve System shall, by such rules and regu- range for the hypothecation of any securities lations as it may deem necessary or appropriate in the carried for the account of any customer under public interest or for the protection of investors, ex- circumstances (1) that will permit the commin- § 78i TITLE 15—COMMERCE AND TRADE Page 224 gling of his securities without his written con- § 78i. Manipulation of security prices sent with the securities of any other customer, (a) Transactions relating to purchase or sale of (2) that will permit such securities to be com- security mingled with the securities of any person other than a bona fide customer, or (3) that will per- It shall be unlawful for any person, directly or mit such securities to be hypothecated, or sub- indirectly, by the use of the mails or any means jected to any lien or claim of the pledgee, for a or instrumentality of interstate commerce, or of sum in excess of the aggregate indebtedness of any facility of any national securities exchange, such customers in respect of such securities. or for any member of a national securities ex- (b) To lend or arrange for the lending of any change— securities carried for the account of any cus- (1) For the purpose of creating a false or tomer without the written consent of such cus- misleading appearance of active trading in any tomer or in contravention of such rules and reg- security other than a government security, or ulations as the Commission shall prescribe for a false or misleading appearance with respect the protection of investors. to the market for any such security, (A) to effect any transaction in such security which in- (June 6, 1934, ch. 404, title I, § 8, 48 Stat. 888; Aug. volves no change in the beneficial ownership 23, 1935, ch. 614, § 203(a), 49 Stat. 704; Pub. L. thereof, or (B) to enter an order or orders for 94–29, § 5, June 4, 1975, 89 Stat. 109; Pub. L. 98–440, the purchase of such security with the knowl- title I, § 103, Oct. 3, 1984, 98 Stat. 1690; Pub. L. edge that an order or orders of substantially 103–325, title II, § 204, Sept. 23, 1994, 108 Stat. 2199; the same size, at substantially the same time, Pub. L. 104–290, title I, § 104(b), Oct. 11, 1996, 110 and at substantially the same price, for the Stat. 3423.) sale of any such security, has been or will be entered by or for the same or different parties, AMENDMENTS or (C) to enter any order or orders for the sale 1996—Pub. L. 104–290 redesignated subsecs. (b) and (c) of any such security with the knowledge that as (a) and (b), respectively, and struck out former sub- an order or orders of substantially the same sec. (a) which related to borrowing in ordinary course size, at substantially the same time, and at of business as broker or dealer on any security, except substantially the same price, for the purchase exempted security, registered on national securities ex- of such security, has been or will be entered by change. or for the same or different parties. 1994—Subsec. (a). Pub. L. 103–325 inserted ‘‘or a small (2) To effect, alone or with 1 or more other business related security’’ after ‘‘mortgage related security’’ in last sentence. persons, a series of transactions in any secu- 1984—Subsec. (a). Pub. L. 98–440 inserted provision rity registered on a national securities ex- that no person shall be deemed to have borrowed within change, any security not so registered, or in the ordinary course of business, within the meaning of connection with any security-based swap or this subsection, by reason of a bona fide agreement for security-based swap agreement with respect to delayed delivery of a mortgage related security under such security creating actual or apparent ac- certain conditions. tive trading in such security, or raising or de- 1975—Pub. L. 94–29, § 5(1), substituted ‘‘any registered pressing the price of such security, for the pur- broker or dealer, member of a national securities exchange, or broker or dealer who transacts a business in pose of inducing the purchase or sale of such securities through the medium of any member of a na- security by others. tional securities exchange’’ for ‘‘any member of a na- (3) If a dealer, broker, security-based swap tional securities exchange, or any broker or dealer who dealer, major security-based swap participant, transacts a business in securities through the medium or other person selling or offering for sale or of any such member’’ in provisions preceding subsec. purchasing or offering to purchase the secu- (a). rity, a security-based swap, or a security- Subsecs. (b) to (d). Pub. L. 94–29, § 5(2), redesignated based swap agreement with respect to such se- subsecs. (c) and (d) as (b) and (c), respectively, and in subsec. (c) as so redesignated inserted ‘‘or in contraven- curity, to induce the purchase or sale of any tion of such rules and regulations as the Commissioner security registered on a national securities ex- shall prescribe for the protection of investors’’ after change, any security not so registered, any se- ‘‘written consent of such customer’’. Former subsec. curity-based swap, or any security-based swap (b), which covered the maximum allowable aggregate agreement with respect to such security by indebtedness of brokers, was struck out. the circulation or dissemination in the ordinary course of business of information to the CHANGE OF NAME effect that the price of any such security will Act Aug. 23, 1935, substituted ‘‘Board of Governors of or is likely to rise or fall because of market the Federal Reserve System’’ for ‘‘Federal Reserve operations of any 1 or more persons conducted Board’’. for the purpose of raising or depressing the price of such security. EFFECTIVE DATE OF 1975 AMENDMENT (4) If a dealer, broker, security-based swap Amendment by Pub. L. 94–29 effective June 4, 1975, dealer, major security-based swap participant, see section 31(a) of Pub. L. 94–29, set out as a note under or other person selling or offering for sale or section 78b of this title. purchasing or offering to purchase the security, a security-based swap, or security-based TRANSFER OF FUNCTIONS swap agreement with respect to such security, to make, regarding any security registered on For transfer of functions of Securities and Exchange Commission, with certain exceptions, to Chairman of a national securities exchange, any security such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, not so registered, any security-based swap, or eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under any security-based swap agreement with re- section 78d of this title. spect to such security, for the purpose of in- Page 225 TITLE 15—COMMERCE AND TRADE § 78i

ducing the purchase or sale of such security, (C) any security-based swap involving such such security-based swap, or such security- security or the issuer of such security. based swap agreement any statement which (c) Endorsement or guarantee of puts, calls, was at the time and in the light of the circum- straddles, or options stances under which it was made, false or mis- It shall be unlawful for any broker, dealer, or leading with respect to any material fact, and member of a national securities exchange di- which that person knew or had reasonable rectly or indirectly to endorse or guarantee the ground to believe was so false or misleading. performance of any put, call, straddle, option, or (5) For a consideration, received directly or privilege in relation to any security other than indirectly from a broker, dealer, security- a government security, in contravention of such based swap dealer, major security-based swap rules and regulations as the Commission may participant, or other person selling or offering prescribe as necessary or appropriate in the pub- for sale or purchasing or offering to purchase lic interest or for the protection of investors. the security, a security-based swap, or security-based swap agreement with respect to (d) Transactions relating to short sales of securi- such security, to induce the purchase of any ties security registered on a national securities ex- It shall be unlawful for any person, directly or change, any security not so registered, any se- indirectly, by the use of the mails or any means curity-based swap, or any security-based swap or instrumentality of interstate commerce, or of agreement with respect to such security by any facility of any national securities exchange, the circulation or dissemination of informa- or for any member of a national securities ex- tion to the effect that the price of any such se- change to effect, alone or with one or more curity will or is likely to rise or fall because other persons, a manipulative short sale of any of the market operations of any 1 or more per- security. The Commission shall issue such other sons conducted for the purpose of raising or rules as are necessary or appropriate to ensure depressing the price of such security. that the appropriate enforcement options and (6) To effect either alone or with one or more remedies are available for violations of this sub- other persons any series of transactions for section in the public interest or for the protec- the purchase and/or sale of any security other tion of investors. than a government security for the purpose of (e) Registered warrant, right, or convertible se- pegging, fixing, or stabilizing the price of such curity not included in ‘‘put’’, ‘‘call’’, ‘‘strad- security in contravention of such rules and dle’’, or ‘‘option’’ regulations as the Commission may prescribe The terms ‘‘put’’, ‘‘call’’, ‘‘straddle’’, ‘‘option’’, as necessary or appropriate in the public in- or ‘‘privilege’’ as used in this section shall not terest or for the protection of investors. include any registered warrant, right, or con- (b) Transactions relating to puts, calls, straddles, vertible security. options, futures, or security-based swaps (f) Persons liable; suits at law or in equity It shall be unlawful for any person to effect, in Any person who willfully participates in any contravention of such rules and regulations as act or transaction in violation of subsections the Commission may prescribe as necessary or (a), (b), or (c) of this section, shall be liable to appropriate in the public interest or for the pro- any person who shall purchase or sell any secu- tection of investors— rity at a price which was affected by such act or (1) any transaction in connection with any transaction, and the person so injured may sue security whereby any party to such trans- in law or in equity in any court of competent ju- action acquires— risdiction to recover the damages sustained as a (A) any put, call, straddle, or other option result of any such act or transaction. In any or privilege of buying the security from or such suit the court may, in its discretion, re- selling the security to another without being quire an undertaking for the payment of the bound to do so; costs of such suit, and assess reasonable costs, (B) any security futures product on the se- including reasonable attorneys’ fees, against ei- curity; or ther party litigant. Every person who becomes (C) any security-based swap involving the liable to make any payment under this sub- security or the issuer of the security; section may recover contribution as in cases of (2) any transaction in connection with any contract from any person who, if joined in the security with relation to which such person original suit, would have been liable to make has, directly or indirectly, any interest in the same payment. No action shall be main- any— tained to enforce any liability created under (A) such put, call, straddle, option, or this section, unless brought within one year privilege; after the discovery of the facts constituting the (B) such security futures product; or violation and within three years after such vio- (C) such security-based swap; or lation. (g) Subsection (a) not applicable to exempted se- (3) any transaction in any security for the curities account of any person who such person has reason to believe has, and who actually has, The provisions of subsection (a) of this section directly or indirectly, any interest in any— shall not apply to an exempted security. (A) such put, call, straddle, option, or (h) Foreign currencies and security futures prod- privilege; ucts (B) such security futures product with re- (1) Notwithstanding any other provision of lation to such security; or law, the Commission shall have the authority to § 78i TITLE 15—COMMERCE AND TRADE Page 226 regulate the trading of any put, call, straddle, fine, and prescribe means reasonably designed to option, or privilege on any security, certificate prevent, such transactions, acts, practices, and of deposit, or group or index of securities (in- courses of business as are fraudulent, deceptive, cluding any interest therein or based on the or manipulative, and such quotations as are fic- value thereof), or any put, call, straddle, option, titious. or privilege entered into on a national securities (June 6, 1934, ch. 404, title I, § 9, 48 Stat. 889; Pub. exchange relating to foreign currency (but not, L. 97–303, § 3, Oct. 13, 1982, 96 Stat. 1409; Pub. L. with respect to any of the foregoing, an option 101–432, § 6(a), Oct. 16, 1990, 104 Stat. 975; Pub. L. on a contract for future delivery other than a se- 106–554, § 1(a)(5) [title II, § 205(a)(1), (2), title III, curity futures product). § 303(b), (c)], Dec. 21, 2000, 114 Stat. 2763, (2) Notwithstanding the Commodity Exchange 2763A–425, 2763A–426, 2763A–453, 2763A–454; Pub. L. Act [7 U.S.C. 1 et seq.], the Commission shall 111–203, title VII, §§ 762(d)(2), 763(f), (g), title IX, have the authority to regulate the trading of §§ 929L(1), 929X(b), July 21, 2010, 124 Stat. 1760, any security futures product to the extent pro- 1777, 1861, 1870.) vided in the securities laws. AMENDMENT OF SECTION (i) Limitations on practices that affect market volatility Unless otherwise provided, amendment by subtitle B (§§ 761–774) of title VII of Pub. L. It shall be unlawful for any person, by the use 111–203 effective on the later of 360 days after of the mails or any means or instrumentality of July 21, 2010, or, to the extent a provision of interstate commerce or of any facility of any subtitle B requires a rulemaking, not less than national securities exchange, to use or employ 60 days after publication of the final rule or any act or practice in connection with the pur- regulation implementing such provision of sub- chase or sale of any equity security in con- title B, see 2010 Amendment notes and Effective travention of such rules or regulations as the Date of 2010 Amendment note below. Commission may adopt, consistent with the public interest, the protection of investors, and REFERENCES IN TEXT the maintenance of fair and orderly markets— The Commodity Exchange Act, referred to in subsec. (1) to prescribe means reasonably designed (h)(2), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, which is to prevent manipulation of price levels of the classified generally to chapter 1 (§ 1 et seq.) of Title 7, equity securities market or a substantial seg- Agriculture. For complete classification of this Act to ment thereof; and the Code, see section 1 of Title 7 and Tables. (2) to prohibit or constrain, during periods of AMENDMENTS extraordinary market volatility, any trading 2010—Subsec. (a). Pub. L. 111–203, § 929L(1)(A), sub- practice in connection with the purchase or stituted ‘‘other than a government security’’ for ‘‘reg- sale of equity securities that the Commission istered on a national securities exchange’’ wherever ap- determines (A) has previously contributed sig- pearing. nificantly to extraordinary levels of volatility Subsec. (a)(2) to (5). Pub. L. 111–203, § 762(d)(2)(A), that have threatened the maintenance of fair added pars. (2) to (5) and struck out former pars. (2) to and orderly markets; and (B) is reasonably (5) which prohibited certain actions in the purchase or certain to engender such levels of volatility if sale of a security or a security-based swap agreement, not prohibited or constrained. such as making false or misleading statements or creating conditions to raise or depress the price of such se- In adopting rules under paragraph (2), the Com- curity. mission shall, consistent with the purposes of Subsec. (b). Pub. L. 111–203, § 929L(1)(B), struck out this subsection, minimize the impact on the nor- ‘‘by use of any facility of a national securities ex- mal operations of the market and a natural per- change,’’ after ‘‘effect,’’ in introductory provisions. Subsec. (b)(1) to (3). Pub. L. 111–203, § 763(f), added son’s freedom to buy or sell any equity security. pars. (1) to (3) and struck out former pars. (1) to (3) (j) 1 Limitation on Commission authority which read as follows: ‘‘(1) any transaction in connection with any security The authority of the Commission under this whereby any party to such transaction acquires (A) any section with respect to security-based swap put, call, straddle, or other option or privilege of buy- agreements shall be subject to the restrictions ing the security from or selling the security to another and limitations of section 78c–1(b) of this title. without being bound to do so; or (B) any security futures product on the security; or (j) 1 Regulations relating to security-based swaps ‘‘(2) any transaction in connection with any security It shall be unlawful for any person, directly or with relation to which he has, directly or indirectly, indirectly, by the use of any means or instru- any interest in any (A) such put, call, straddle, option, mentality of interstate commerce or of the or privilege; or (B) such security futures product; or mails, or of any facility of any national securi- ‘‘(3) any transaction in any security for the account ties exchange, to effect any transaction in, or to of any person who he has reason to believe has, and who actually has, directly or indirectly, any interest in any induce or attempt to induce the purchase or sale (A) such put, call, straddle, option, or privilege; or (B) of, any security-based swap, in connection with such security futures product with relation to such se- which such person engages in any fraudulent, curity.’’ deceptive, or manipulative act or practice, Subsec. (c). Pub. L. 111–203, § 929L(1)(C), inserted makes any fictitious quotation, or engages in ‘‘broker, dealer, or’’ after ‘‘unlawful for any’’. any transaction, practice, or course of business Pub. L. 111–203, § 929L(1)(A), substituted ‘‘other than a which operates as a fraud or deceit upon any government security’’ for ‘‘registered on a national se- person. The Commission shall, for the purposes curities exchange’’. Subsecs. (d) to (i). Pub. L. 111–203, § 929X(b), added of this subsection, by rules and regulations de- subsec. (d) and redesignated former subsecs. (d) to (h) as (e) to (i), respectively. Former subsec. (i), relating to 1 So in original. Two subsecs. (j) have been enacted. limitation on Commission authority, redesignated (j). Page 227 TITLE 15—COMMERCE AND TRADE § 78j

Subsec. (j). Pub. L. 111–203, § 929X(b)(1), redesignated EFFECTIVE DATE OF 2010 AMENDMENT subsec. (i), relating to limitation on Commission au- Amendment by sections 929L(1) and 929X(b) of Pub. L. thority, as (j). 111–203 effective 1 day after July 21, 2010, except as Pub. L. 111–203, § 763(g), added subsec. (j) relating to otherwise provided, see section 4 of Pub. L. 111–203, set regulations relating to security-based swaps. out as an Effective Date note under section 5301 Title Pub. L. 111–203, § 762(d)(2)(B), which directed amend- 12, Banks and Banking. ment of subsec. (i) by striking out ‘‘(as defined in sec- Amendment by sections 762(d)(2) and 763(f), (g) of Pub. tion 206B of the Gramm-Leach-Bliley Act)’’, was exe- L. 111–203 effective on the later of 360 days after July 21, cuted by making the strike out after ‘‘security-based 2010, or, to the extent a provision of subtitle B swap agreements’’ in subsec. (j) relating to limitation (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- on Commission authority, to reflect the probable in- making, not less than 60 days after publication of the tent of Congress and the redesignation of subsec. (i) as final rule or regulation implementing such provision of (j) by Pub. L. 111–203, § 929X(b)(1). See above and Effec- subtitle B, see section 774 of Pub. L. 111–203, set out as tive Date of 2010 Amendment notes below. a note under section 77b of this title. 2000—Subsec. (a)(2) to (5). Pub. L. 106–554, § 1(a)(5) [title III, § 303(b)], amended pars. (2) to (5) generally. TRANSFER OF FUNCTIONS Prior to amendment, pars. (2) to (5) read as follows: For transfer of functions of Securities and Exchange ‘‘(2) To effect, alone or with one or more other per- Commission, with certain exceptions, to Chairman of sons, a series of transactions in any security registered such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, on a national securities exchange creating actual or ap- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under parent active trading in such security or raising or de- section 78d of this title. pressing the price of such security, for the purpose of inducing the purchase or sale of such security by oth- § 78j. Manipulative and deceptive devices ers. ‘‘(3) If a dealer or broker, or other person selling or It shall be unlawful for any person, directly or offering for sale or purchasing or offering to purchase indirectly, by the use of any means or instru- the security, to induce the purchase or sale of any secu- mentality of interstate commerce or of the rity registered on a national securities exchange by the mails, or of any facility of any national securi- circulation or dissemination in the ordinary course of ties exchange— business of information to the effect that the price of (a)(1) To effect a short sale, or to use or em- any such security will or is likely to rise or fall because ploy any stop-loss order in connection with of market operations of any one or more persons conducted for the purpose of raising or depressing the the purchase or sale, of any security other prices of such security. than a government security, in contravention ‘‘(4) If a dealer or broker, or other person selling or of such rules and regulations as the Commis- offering for sale or purchasing or offering to purchase sion may prescribe as necessary or appropriate the security, to make, regarding any security reg- in the public interest or for the protection of istered on a national securities exchange, for the pur- investors. pose of inducing the purchase or sale of such security, (2) Paragraph (1) of this subsection shall not any statement which was at the time and in the light apply to security futures products. of the circumstances under which it was made, false or (b) To use or employ, in connection with the misleading with respect to any material fact, and which he knew or had reasonable ground to believe was purchase or sale of any security registered on so false or misleading. a national securities exchange or any security ‘‘(5) For a consideration, received directly or indi- not so registered, or any securities-based swap rectly from a dealer or broker, or other person selling agreement 1 any manipulative or deceptive de- or offering for sale or purchasing or offering to pur- vice or contrivance in contravention of such chase the security, to induce the purchase or sale of rules and regulations as the Commission may any security registered on a national securities ex- prescribe as necessary or appropriate in the change by the circulation or dissemination of informa- public interest or for the protection of inves- tion to the effect that the price of any such security will or is likely to rise or fall because of the market op- tors. erations of any one or more persons conducted for the (c)(1) To effect, accept, or facilitate a trans- purpose of raising or depressing the price of such secu- action involving the loan or borrowing of security.’’ rities in contravention of such rules and regu- Subsec. (b)(1). Pub. L. 106–554, § 1(a)(5) [title II, lations as the Commission may prescribe as § 205(a)(1)(A)], inserted ‘‘(A)’’ after ‘‘acquires’’ and sub- necessary or appropriate in the public interest stituted ‘‘; or (B) any security futures product on the or for the protection of investors. security; or’’ for ‘‘; or’’. (2) Nothing in paragraph (1) may be con- Subsec. (b)(2). Pub. L. 106–554, § 1(a)(5) [title II, strued to limit the authority of the appro- § 205(a)(1)(B)], inserted ‘‘(A)’’ after ‘‘interest in any’’ and substituted ‘‘; or (B) such security futures product; priate Federal banking agency (as defined in or’’ for ‘‘; or’’. section 1813(q) of title 12), the National Credit Subsec. (b)(3). Pub. L. 106–554, § 1(a)(5) [title II, Union Administration, or any other Federal § 205(a)(1)(C)], inserted ‘‘(A)’’ after ‘‘interest in any’’ department or agency having a responsibility and ‘‘; or (B) such security futures product’’ after under Federal law to prescribe rules or regula- ‘‘privilege’’. tions restricting transactions involving the Subsec. (g). Pub. L. 106–554, § 1(a)(5) [title II, loan or borrowing of securities in order to pro- § 205(a)(2)], designated existing provisions as par. (1), in- tect the safety and soundness of a financial inserted ‘‘other than a security futures product’’ after ‘‘future delivery’’, and added par. (2). stitution or to protect the financial system Subsec. (i). Pub. L. 106–554, § 1(a)(5) [title III, § 303(c)], from systemic risk. added subsec. (i). Rules promulgated under subsection (b) of this 1990—Subsec. (h). Pub. L. 101–432 added subsec. (h). section that prohibit fraud, manipulation, or in- 1982—Subsec. (f). Pub. L. 97–303, § 3(1), substituted sider trading (but not rules imposing or specify- ‘‘The provisions of subsection (a) of this section shall not apply’’ for ‘‘The provisions of this section shall not ing reporting or recordkeeping requirements, apply’’. Subsec. (g). Pub. L. 97–303, § 3(2), added subsec. (g). 1 So in original. Probably should be followed by a comma. § 78j–1 TITLE 15—COMMERCE AND TRADE Page 228 procedures, or standards as prophylactic meas- see section 774 of Pub. L. 111–203, set out as a note ures against fraud, manipulation, or insider under section 77b of this title. trading), and judicial precedents decided under REGULATIONS subsection (b) of this section and rules promulgated thereunder that prohibit fraud, manipula- Pub. L. 111–203, title IX, § 984(b), July 21, 2010, 124 Stat. 1933, provided that: ‘‘Not later than 2 years after tion, or insider trading, shall apply to security- the date of enactment of this Act [July 21, 2010], the based swap agreements to the same extent as Commission shall promulgate rules that are designed they apply to securities. Judicial precedents de- to increase the transparency of information available cided under section 77q(a) of this title and sec- to brokers, dealers, and investors, with respect to the tions 78i, 78o, 78p, 78t, and 78u–1 of this title, and loan or borrowing of securities.’’ judicial precedents decided under applicable [For definitions of terms used in section 984(b) of Pub. rules promulgated under such sections, shall L. 111–203, set out above, see section 5301 of Title 12, apply to security-based swap agreements to the Banks and Banking.] same extent as they apply to securities. TRANSFER OF FUNCTIONS (June 6, 1934, ch. 404, title I, § 10, 48 Stat. 891; For transfer of functions of Securities and Exchange Pub. L. 106–554, § 1(a)(5) [title II, § 206(g), title III, Commission, with certain exceptions, to Chairman of § 303(d)], Dec. 21, 2000, 114 Stat. 2763, 2763A–432, such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, 2763A–454; Pub. L. 111–203, title VII, § 762(d)(3), eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under title IX, §§ 929L(2), 984(a), July 21, 2010, 124 Stat. section 78d of this title. 1761, 1861, 1932.) § 78j–1. Audit requirements AMENDMENT OF SECTION (a) In general Unless otherwise provided, amendment by Each audit required pursuant to this chapter subtitle B (§§ 761–774) of title VII of Pub. L. of the financial statements of an issuer by a reg- 111–203 effective on the later of 360 days after istered public accounting firm shall include, in July 21, 2010, or, to the extent a provision of accordance with generally accepted auditing subtitle B requires a rulemaking, not less than standards, as may be modified or supplemented 60 days after publication of the final rule or from time to time by the Commission— regulation implementing such provision of sub- (1) procedures designed to provide reasonable title B, see 2010 Amendment notes and Effective assurance of detecting illegal acts that would Date of 2010 Amendment note below. have a direct and material effect on the deter- AMENDMENTS mination of financial statement amounts; 2010—Pub. L. 111–203, § 762(d)(3)(B), which directed (2) procedures designed to identify related amendment of the matter following subsection (b) ‘‘by party transactions that are material to the fi- striking ‘(as defined in section 206B of the Gramm- nancial statements or otherwise require dis- Leach-Bliley Act), in each place that such terms ap- closure therein; and pear’ ’’, was executed by striking out ‘‘(as defined in (3) an evaluation of whether there is subsection 206B of the Gramm-Leach-Bliley Act)’’ after stantial doubt about the ability of the issuer ‘‘security-based swap agreements’’ in two places in con- to continue as a going concern during the en- cluding provisions following subsec. (c) to reflect the suing fiscal year. probable intent of Congress. Subsec. (a)(1). Pub. L. 111–203, § 929L(2), substituted (b) Required response to audit discoveries ‘‘other than a government security’’ for ‘‘registered on (1) Investigation and report to management a national securities exchange’’. Subsec. (b). Pub. L. 111–203, § 762(d)(3)(A), struck out If, in the course of conducting an audit pur- ‘‘(as defined in section 206B of the Gramm-Leach-Bliley suant to this chapter to which subsection (a) Act),’’ after ‘‘securities-based swap agreement’’. of this section applies, the registered public Subsec. (c). Pub. L. 111–203, § 984(a), which directed accounting firm detects or otherwise becomes amendment of this section by adding subsec. (c) at the aware of information indicating that an illegal end, was executed by adding subsec. (c) after subsec. (b) act (whether or not perceived to have a mate- to reflect the probable intent of Congress. 2000—Pub. L. 106–554, § 1(a)(5) [title III, § 303(d)(2)], in- rial effect on the financial statements of the serted concluding provisions at end. issuer) has or may have occurred, the firm Subsec. (a). Pub. L. 106–554, § 1(a)(5) [title II, § 206(g)], shall, in accordance with generally accepted designated existing provisions as par. (1) and added par. auditing standards, as may be modified or sup- (2). plemented from time to time by the Commis- Subsec. (b). Pub. L. 106–554, § 1(a)(5) [title III, sion— § 303(d)(1)], inserted ‘‘or any securities-based swap (A)(i) determine whether it is likely that agreement (as defined in section 206B of the Gramm- an illegal act has occurred; and Leach-Bliley Act),’’ before ‘‘any manipulative or deceptive device’’. (ii) if so, determine and consider the possible effect of the illegal act on the financial EFFECTIVE DATE OF 2010 AMENDMENT statements of the issuer, including any con- Amendment by sections 929L(2) and 984(a) of Pub. L. tingent monetary effects, such as fines, pen- 111–203 effective 1 day after July 21, 2010, except as alties, and damages; and otherwise provided, see section 4 of Pub. L. 111–203, set (B) as soon as practicable, inform the ap- out as an Effective Date note under section 5301 Title propriate level of the management of the is- 12, Banks and Banking. suer and assure that the audit committee of Amendment by section 762(d)(3) of Pub. L. 111–203 ef- the issuer, or the board of directors of the is- fective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of suer in the absence of such a committee, is title VII of Pub. L. 111–203 requires a rulemaking, not adequately informed with respect to illegal less than 60 days after publication of the final rule or acts that have been detected or have other- regulation implementing such provision of subtitle B, wise come to the attention of such firm in Page 229 TITLE 15—COMMERCE AND TRADE § 78j–1

the course of the audit, unless the illegal act violated paragraph (3) or (4) of subsection (b) of is clearly inconsequential. this section, the Commission may, in addition (2) Response to failure to take remedial action to entering an order under section 78u–3 of this title, impose a civil penalty against the reg- If, after determining that the audit commit- istered public accounting firm and any other tee of the board of directors of the issuer, or person that the Commission finds was a cause of the board of directors of the issuer in the ab- such violation. The determination to impose a sence of an audit committee, is adequately in- civil penalty and the amount of the penalty formed with respect to illegal acts that have shall be governed by the standards set forth in been detected or have otherwise come to the section 78u–2 of this title. attention of the firm in the course of the audit of such firm, the registered public accounting (e) Preservation of existing authority firm concludes that— Except as provided in subsection (d) of this (A) the illegal act has a material effect on section, nothing in this section shall be held to the financial statements of the issuer; limit or otherwise affect the authority of the (B) the senior management has not taken, Commission under this chapter. and the board of directors has not caused (f) Definitions senior management to take, timely and ap- As used in this section, the term ‘‘illegal act’’ propriate remedial actions with respect to means an act or omission that violates any law, the illegal act; and or any rule or regulation having the force of (C) the failure to take remedial action is law. As used in this section, the term ‘‘issuer’’ reasonably expected to warrant departure means an issuer (as defined in section 78c of this from a standard report of the auditor, when title), the securities of which are registered made, or warrant resignation from the audit under section 78l of this title, or that is required engagement; to file reports pursuant to section 78o(d) of this the registered public accounting firm shall, as title, or that files or has filed a registration soon as practicable, directly report its conclu- statement that has not yet become effective sions to the board of directors. under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn. (3) Notice to Commission; response to failure to notify (g) Prohibited activities An issuer whose board of directors receives a Except as provided in subsection (h) of this report under paragraph (2) shall inform the section, it shall be unlawful for a registered pub- Commission by notice not later than 1 busi- lic accounting firm (and any associated person ness day after the receipt of such report and of that firm, to the extent determined appro- shall furnish the registered public accounting priate by the Commission) that performs for any firm making such report with a copy of the no- issuer any audit required by this chapter or the tice furnished to the Commission. If the reg- rules of the Commission under this chapter or, istered public accounting firm fails to receive beginning 180 days after the date of commence- a copy of the notice before the expiration of ment of the operations of the Public Company the required 1-business-day period, the reg- Accounting Oversight Board established under istered public accounting firm shall— section 7211 of this title (in this section referred (A) resign from the engagement; or to as the ‘‘Board’’), the rules of the Board, to (B) furnish to the Commission a copy of its provide to that issuer, contemporaneously with report (or the documentation of any oral re- the audit, any non-audit service, including— port given) not later than 1 business day fol- (1) bookkeeping or other services related to lowing such failure to receive notice. the accounting records or financial statements of the audit client; (4) Report after resignation (2) financial information systems design and If a registered public accounting firm re- implementation; signs from an engagement under paragraph (3) appraisal or valuation services, fairness (3)(A), the firm shall, not later than 1 business opinions, or contribution-in-kind reports; day following the failure by the issuer to no- (4) actuarial services; tify the Commission under paragraph (3), fur- (5) internal audit outsourcing services; nish to the Commission a copy of the report of (6) management functions or human re- the firm (or the documentation of any oral resources; port given). (7) broker or dealer, investment adviser, or investment banking services; (c) Auditor liability limitation (8) legal services and expert services unre- No registered public accounting firm shall be lated to the audit; and liable in a private action for any finding, conclu- (9) any other service that the Board deter- sion, or statement expressed in a report made mines, by regulation, is impermissible. pursuant to paragraph (3) or (4) of subsection (b) (h) Preapproval required for non-audit services of this section, including any rule promulgated pursuant thereto. A registered public accounting firm may engage in any non-audit service, including tax (d) Civil penalties in cease-and-desist proceed- services, that is not described in any of para- ings graphs (1) through (9) of subsection (g) of this If the Commission finds, after notice and op- section for an audit client, only if the activity portunity for hearing in a proceeding instituted is approved in advance by the audit committee pursuant to section 78u–3 of this title, that a of the issuer, in accordance with subsection (i) registered public accounting firm has willfully of this section. § 78j–1 TITLE 15—COMMERCE AND TRADE Page 230

(i) Preapproval requirements audit, has performed audit services for that is- (1) In general suer in each of the 5 previous fiscal years of that issuer. (A) Audit committee action All auditing services (which may entail (k) Reports to audit committees providing comfort letters in connection with Each registered public accounting firm that securities underwritings or statutory audits performs for any issuer any audit required by required for insurance companies for pur- this chapter shall timely report to the audit poses of State law) and non-audit services, committee of the issuer— other than as provided in subparagraph (B), (1) all critical accounting policies and prac- provided to an issuer by the auditor of the tices to be used; issuer shall be preapproved by the audit (2) all alternative treatments of financial in- committee of the issuer. formation within generally accepted account- (B) De minimis exception ing principles that have been discussed with management officials of the issuer, ramifica- The preapproval requirement under sub- tions of the use of such alternative disclosures paragraph (A) is waived with respect to the and treatments, and the treatment preferred provision of non-audit services for an issuer, by the registered public accounting firm; and if— (3) other material written communications (i) the aggregate amount of all such non- between the registered public accounting firm audit services provided to the issuer con- and the management of the issuer, such as any stitutes not more than 5 percent of the management letter or schedule of unadjusted total amount of revenues paid by the is- differences. suer to its auditor during the fiscal year in which the non-audit services are provided; (l) Conflicts of interest (ii) such services were not recognized by It shall be unlawful for a registered public ac- the issuer at the time of the engagement counting firm to perform for an issuer any audit to be non-audit services; and service required by this chapter, if a chief execu- (iii) such services are promptly brought tive officer, controller, chief financial officer, to the attention of the audit committee of chief accounting officer, or any person serving the issuer and approved prior to the com- in an equivalent position for the issuer, was em- pletion of the audit by the audit commit- ployed by that registered independent public ac- tee or by 1 or more members of the audit counting firm and participated in any capacity committee who are members of the board in the audit of that issuer during the 1-year pe- of directors to whom authority to grant riod preceding the date of the initiation of the such approvals has been delegated by the audit. audit committee. (m) Standards relating to audit committees (2) Disclosure to investors (1) Commission rules Approval by an audit committee of an issuer under this subsection of a non-audit service to (A) In general be performed by the auditor of the issuer shall Effective not later than 270 days after July be disclosed to investors in periodic reports re- 30, 2002, the Commission shall, by rule, di- quired by section 78m(a) of this title. rect the national securities exchanges and (3) Delegation authority national securities associations to prohibit The audit committee of an issuer may dele- the listing of any security of an issuer that gate to 1 or more designated members of the is not in compliance with the requirements audit committee who are independent direc- of any portion of paragraphs (2) through (6). tors of the board of directors, the authority to (B) Opportunity to cure defects grant preapprovals required by this sub- The rules of the Commission under subsection. The decisions of any member to whom paragraph (A) shall provide for appropriate authority is delegated under this paragraph to procedures for an issuer to have an oppor- preapprove an activity under this subsection tunity to cure any defects that would be the shall be presented to the full audit committee basis for a prohibition under subparagraph at each of its scheduled meetings. (A), before the imposition of such prohibi- (4) Approval of audit services for other pur- tion. poses (2) Responsibilities relating to registered pub- In carrying out its duties under subsection lic accounting firms (m)(2) of this section, if the audit committee of an issuer approves an audit service within The audit committee of each issuer, in its the scope of the engagement of the auditor, capacity as a committee of the board of direc- such audit service shall be deemed to have tors, shall be directly responsible for the ap- been preapproved for purposes of this sub- pointment, compensation, and oversight of the section. work of any registered public accounting firm employed by that issuer (including resolution (j) Audit partner rotation of disagreements between management and It shall be unlawful for a registered public ac- the auditor regarding financial reporting) for counting firm to provide audit services to an is- the purpose of preparing or issuing an audit suer if the lead (or coordinating) audit partner report or related work, and each such reg- (having primary responsibility for the audit), or istered public accounting firm shall report di- the audit partner responsible for reviewing the rectly to the audit committee. Page 231 TITLE 15—COMMERCE AND TRADE § 78j–1

(3) Independence AMENDMENTS (A) In general 2010—Subsec. (i)(1)(B). Pub. L. 111–203 substituted Each member of the audit committee of ‘‘minimis’’ for ‘‘minimus’’ in heading and ‘‘the non- audit’’ for ‘‘the nonaudit’’ in cl. (i). the issuer shall be a member of the board of 2002—Subsec. (a). Pub. L. 107–204, § 205(b)(1), sub- directors of the issuer, and shall otherwise stituted ‘‘a registered public accounting firm’’ for ‘‘an be independent. independent public accountant’’ in introductory provi- (B) Criteria sions. Subsec. (b)(1). Pub. L. 107–204, § 205(b)(2), (4)(A), in in- In order to be considered to be independent troductory provisions, substituted ‘‘the registered pub- for purposes of this paragraph, a member of lic accounting firm’’ for ‘‘the independent public ac- an audit committee of an issuer may not, countant’’ and ‘‘the firm’’ for ‘‘the accountant’’. other than in his or her capacity as a mem- Subsec. (b)(1)(B). Pub. L. 107–204, § 205(b)(4)(B), sub- ber of the audit committee, the board of di- stituted ‘‘such firm’’ for ‘‘such accountant’’. rectors, or any other board committee— Subsec. (b)(2). Pub. L. 107–204, § 205(b)(2), (4)(A), (B), in introductory provisions, substituted ‘‘the firm’’ for (i) accept any consulting, advisory, or ‘‘the accountant’’, ‘‘such firm’’ for ‘‘such accountant’’, other compensatory fee from the issuer; or and ‘‘the registered public accounting firm’’ for ‘‘the (ii) be an affiliated person of the issuer independent public accountant’’ and, in concluding pro- or any subsidiary thereof. visions, substituted ‘‘the registered public accounting (C) Exemption authority firm’’ for ‘‘the independent public accountant’’. Subsec. (b)(3). Pub. L. 107–204, § 205(b)(2), substituted The Commission may exempt from the re- ‘‘the registered public accounting firm’’ for ‘‘the inde- quirements of subparagraph (B) a particular pendent public accountant’’ wherever appearing in in- relationship with respect to audit commit- troductory provisions. tee members, as the Commission determines Subsec. (b)(4). Pub. L. 107–204, § 205(b)(1), (4)(A), (C), appropriate in light of the circumstances. substituted ‘‘a registered public accounting firm’’ for ‘‘an independent public accountant’’, ‘‘the firm’’ for (4) Complaints ‘‘the accountant’’, and ‘‘the report of the firm’’ for ‘‘the Each audit committee shall establish proce- accountant’s report’’. dures for— Subsec. (c). Pub. L. 107–204, § 205(b)(3), substituted ‘‘No (A) the receipt, retention, and treatment registered public accounting firm’’ for ‘‘No independent public accountant’’. of complaints received by the issuer regard- Subsec. (d). Pub. L. 107–204, § 205(b)(1), (2), substituted ing accounting, internal accounting con- ‘‘a registered public accounting firm’’ for ‘‘an independ- trols, or auditing matters; and ent public accountant’’ and ‘‘the registered public ac- (B) the confidential, anonymous submis- counting firm’’ for ‘‘the independent public account- sion by employees of the issuer of concerns ant’’. regarding questionable accounting or audit- Subsec. (f). Pub. L. 107–204, § 205(d), substituted ‘‘Defi- ing matters. nitions’’ for ‘‘Definition’’ in heading and inserted at end ‘‘As used in this section, the term ‘issuer’ means an (5) Authority to engage advisers issuer (as defined in section 78c of this title), the secu- Each audit committee shall have the author- rities of which are registered under section 78l of this ity to engage independent counsel and other title, or that is required to file reports pursuant to sec- advisers, as it determines necessary to carry tion 78o(d) of this title, or that files or has filed a registration statement that has not yet become effective out its duties. under the Securities Act of 1933 (15 U.S.C. 77a et seq.), (6) Funding and that it has not withdrawn.’’ Each issuer shall provide for appropriate Subsecs. (g), (h). Pub. L. 107–204, § 201(a), added subsecs. (g) and (h). funding, as determined by the audit commit- Subsec. (i). Pub. L. 107–204, § 202, added subsec. (i). tee, in its capacity as a committee of the Subsec. (j). Pub. L. 107–204, § 203, added subsec. (j). board of directors, for payment of compensa- Subsec. (k). Pub. L. 107–204, § 204, added subsec. (k). tion— Subsec. (l). Pub. L. 107–204, § 206, added subsec. (l). (A) to the registered public accounting Subsec. (m). Pub. L. 107–204, § 301, added subsec. (m). firm employed by the issuer for the purpose EFFECTIVE DATE OF 2010 AMENDMENT of rendering or issuing an audit report; and Amendment by Pub. L. 111–203 effective 1 day after (B) to any advisers employed by the audit July 21, 2010, except as otherwise provided, see section committee under paragraph (5). 4 of Pub. L. 111–203, set out as an Effective Date note (June 6, 1934, ch. 404, title I, § 10A, as added Pub. under section 5301 of Title 12, Banks and Banking. L. 104–67, title III, § 301(a), Dec. 22, 1995, 109 Stat. EFFECTIVE DATE 762; amended Pub. L. 107–204, title II, §§ 201(a), Pub. L. 104–67, title III, § 301(a), Dec. 22, 1995, 109 Stat. 202–204, 205(b), (d), 206, title III, § 301, July 30, 764, provided that: ‘‘The amendment made by sub- 2002, 116 Stat. 771–775; Pub. L. 111–203, title IX, section (a) [enacting this section] shall apply to each § 985(b)(3), July 21, 2010, 124 Stat. 1933.) annual report— ‘‘(1) for any period beginning on or after January 1, REFERENCES IN TEXT 1996, with respect to any registrant that is required This chapter, referred to in subsecs. (a), (b)(1), (e), (g), to file selected quarterly financial data pursuant to (k), and (l), was in the original ‘‘this title’’. See Ref- the rules or regulations of the Securities and Ex- erences in Text note set out under section 78a of this change Commission; and title. ‘‘(2) for any period beginning on or after January 1, The Securities Act of 1933, referred to in subsec. (f), 1997, with respect to any other registrant.’’ is title I of act May 27, 1933, ch. 38, 48 Stat. 74, as CONSTRUCTION amended, which is classified generally to subchapter I (§ 77a et seq.) of chapter 2A of this title. For complete Pub. L. 104–67, title II, § 203, Dec. 22, 1995, 109 Stat. 762, classification of this Act to the Code, see section 77a of provided that: ‘‘Nothing in this Act [see Short Title of this title and Tables. 1995 Amendment note set out under section 78a of this § 78j–2 TITLE 15—COMMERCE AND TRADE Page 232 title] or the amendments made by this Act shall be scribed by the Commission under this sub- deemed to create or ratify any implied private right of section. action, or to prevent the Commission, by rule or regulation, from restricting or otherwise regulating private (2) Requirement to aggregate positions actions under the Securities Exchange Act of 1934 [15 In establishing the limits under paragraph U.S.C. 78a et seq.].’’ (1), the self-regulatory organization may re- § 78j–2. Position limits and position accountabil- quire such member or person to aggregate po- ity for security-based swaps and large trader sitions in— reporting (A) any security-based swap and any security or loan or group or narrow-based secu- (a) Position limits rity index of securities or loans on which As a means reasonably designed to prevent such security-based swap is based, which fraud and manipulation, the Commission shall, such security-based swap references, or to by rule or regulation, as necessary or appro- which such security-based swap is related as priate in the public interest or for the protec- described in section 78c(a)(68) of this title, tion of investors, establish limits (including re- and any other instrument relating to such lated hedge exemption provisions) on the size of security or loan or group or narrow-based se- positions in any security-based swap that may curity index of securities or loans; or be held by any person. In establishing such lim- (B)(i) any security-based swap; and its, the Commission may require any person to (ii) any security-based swap and any other aggregate positions in— instrument relating to the same security or (1) any security-based swap and any security group or narrow-based security index of se- or loan or group of securities or loans on curities. which such security-based swap is based, (d) Large trader reporting which such security-based swap references, or The Commission, by rule or regulation, may to which such security-based swap is related require any person that effects transactions for as described in paragraph (68) of section 78c(a) such person’s own account or the account of oth- of this title, and any other instrument relat- ers in any securities-based swap or uncleared se- ing to such security or loan or group or index curity-based swap and any security or loan or of securities or loans; or group or narrow-based security index of securi- (2) any security-based swap and— ties or loans as set forth in paragraphs (1) and (A) any security or group or index of secu- (2) of subsection (a) under this section to report rities, the price, yield, value, or volatility of such information as the Commission may pre- which, or of which any interest therein, is scribe regarding any position or positions in any the basis for a material term of such secu- security-based swap or uncleared security-based rity-based swap as described in paragraph swap and any security or loan or group or nar- (68) of section 78c(a) of this title; and row-based security index of securities or loans (B) any other instrument relating to the and any other instrument relating to such secu- same security or group or index of securities rity or loan or group or narrow-based security described under subparagraph (A). index of securities or loans as set forth in para- (b) Exemptions graphs (1) and (2) of subsection (a) under this The Commission, by rule, regulation, or order, section. may conditionally or unconditionally exempt (June 6, 1934, ch. 404, title I, § 10B, as added Pub. any person or class of persons, any security- L. 111–203, title VII, § 763(h), July 21, 2010, 124 based swap or class of security-based swaps, or Stat. 1778.) any transaction or class of transactions from any requirement the Commission may establish REFERENCES IN TEXT under this section with respect to position lim- This chapter, referred to in subsec. (c)(1), was in the its. original ‘‘this title’’. See References in Text note set (c) SRO rules out under section 78a of this title.

(1) In general EFFECTIVE DATE As a means reasonably designed to prevent Section effective on the later of 360 days after July fraud or manipulation, the Commission, by 21, 2010, or, to the extent a provision of subtitle B rule, regulation, or order, as necessary or ap- (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- propriate in the public interest, for the protec- making, not less than 60 days after publication of the tion of investors, or otherwise in furtherance final rule or regulation implementing such provision of of the purposes of this chapter, may direct a subtitle B, see section 774 of Pub. L. 111–203, set out as self-regulatory organization— an Effective Date of 2010 Amendment note under section 77b of this title. (A) to adopt rules regarding the size of positions in any security-based swap that may § 78j–3. Compensation committees be held by— (i) any member of such self-regulatory (a) Independence of compensation committees organization; or (1) Listing standards (ii) any person for whom a member of The Commission shall, by rule, direct the such self-regulatory organization effects national securities exchanges and national se- transactions in such security-based swap; curities associations to prohibit the listing of and any equity security of an issuer, other than an (B) to adopt rules reasonably designed to issuer that is a controlled company, limited ensure compliance with requirements pre- partnership, company in bankruptcy proceed- Page 233 TITLE 15—COMMERCE AND TRADE § 78j–3

ings, open-ended management investment pensation consultant, legal counsel, or other company that is registered under the Invest- adviser; ment Company Act of 1940 [15 U.S.C. 80a–1 et (B) the amount of fees received from the seq.], or a foreign private issuer that provides issuer by the person that employs the com- annual disclosures to shareholders of the rea- pensation consultant, legal counsel, or other sons that the foreign private issuer does not adviser, as a percentage of the total revenue have an independent compensation committee, of the person that employs the compensa- that does not comply with the requirements of tion consultant, legal counsel, or other ad- this subsection. viser; (2) Independence of compensation committees (C) the policies and procedures of the person that employs the compensation consult- The rules of the Commission under para- ant, legal counsel, or other adviser that are graph (1) shall require that each member of designed to prevent conflicts of interest; the compensation committee of the board of (D) any business or personal relationship directors of an issuer be— of the compensation consultant, legal coun- (A) a member of the board of directors of sel, or other adviser with a member of the the issuer; and compensation committee; and (B) independent. (E) any stock of the issuer owned by the (3) Independence compensation consultant, legal counsel, or The rules of the Commission under para- other adviser. graph (1) shall require that, in determining (c) Compensation committee authority relating the definition of the term ‘‘independence’’ for to compensation consultants purposes of paragraph (2), the national securi- (1) Authority to retain compensation consult- ties exchanges and the national securities as- ant sociations shall consider relevant factors, in- (A) In general cluding— (A) the source of compensation of a mem- The compensation committee of an issuer, ber of the board of directors of an issuer, in- in its capacity as a committee of the board cluding any consulting, advisory, or other of directors, may, in its sole discretion, re- compensatory fee paid by the issuer to such tain or obtain the advice of a compensation member of the board of directors; and consultant. (B) whether a member of the board of di- (B) Direct responsibility of compensation rectors of an issuer is affiliated with the is- committee suer, a subsidiary of the issuer, or an affili- The compensation committee of an issuer ate of a subsidiary of the issuer. shall be directly responsible for the appoint- (4) Exemption authority ment, compensation, and oversight of the The rules of the Commission under para- work of a compensation consultant. graph (1) shall permit a national securities ex- (C) Rule of construction change or a national securities association to This paragraph may not be construed— exempt a particular relationship from the re- (i) to require the compensation commit- quirements of paragraph (2), with respect to tee to implement or act consistently with the members of a compensation committee, as the advice or recommendations of the the national securities exchange or national compensation consultant; or securities association determines is appro- (ii) to affect the ability or obligation of priate, taking into consideration the size of an a compensation committee to exercise its issuer and any other relevant factors. own judgment in fulfillment of the duties (b) Independence of compensation consultants of the compensation committee. and other compensation committee advisers (2) Disclosure (1) In general In any proxy or consent solicitation mate- The compensation committee of an issuer rial for an annual meeting of the shareholders may only select a compensation consultant, (or a special meeting in lieu of the annual legal counsel, or other adviser to the com- meeting) occurring on or after the date that is pensation committee after taking into consid- 1 year after July 21, 2010, each issuer shall dis- eration the factors identified by the Commis- close in the proxy or consent material, in ac- sion under paragraph (2). cordance with regulations of the Commission, whether— (2) Rules (A) the compensation committee of the is- The Commission shall identify factors that suer retained or obtained the advice of a affect the independence of a compensation compensation consultant; and consultant, legal counsel, or other adviser to a (B) the work of the compensation consult- compensation committee of an issuer. Such ant has raised any conflict of interest and, if factors shall be competitively neutral among so, the nature of the conflict and how the categories of consultants, legal counsel, or conflict is being addressed. other advisers and preserve the ability of com- (d) Authority to engage independent legal coun- pensation committees to retain the services of sel and other advisers members of any such category, and shall include— (1) In general (A) the provision of other services to the The compensation committee of an issuer, in issuer by the person that employs the com- its capacity as a committee of the board of di- § 78j–4 TITLE 15—COMMERCE AND TRADE Page 234

rectors, may, in its sole discretion, retain and (2) Definition obtain the advice of independent legal counsel For purposes of this section, the term ‘‘con- and other advisers. trolled company’’ means an issuer— (2) Direct responsibility of compensation com- (A) that is listed on a national securities mittee exchange or by a national securities associa- The compensation committee of an issuer tion; and shall be directly responsible for the appoint- (B) that holds an election for the board of ment, compensation, and oversight of the directors of the issuer in which more than 50 work of independent legal counsel and other percent of the voting power is held by an in- advisers. dividual, a group, or another issuer. (3) Rule of construction (June 6, 1934, ch. 404, title I, § 10C, as added Pub. This subsection may not be construed— L. 111–203, title IX, § 952(a), July 21, 2010, 124 (A) to require a compensation committee Stat. 1900.) to implement or act consistently with the advice or recommendations of independent REFERENCES IN TEXT legal counsel or other advisers under this The Investment Company Act of 1940, referred to in subsection; or subsec. (a)(1), is title I of act Aug. 22, 1940, ch. 686, 54 (B) to affect the ability or obligation of a Stat. 789, which is classified generally to subchapter I compensation committee to exercise its own (§ 80a–1 et seq.) of chapter 2D of this title. For complete judgment in fulfillment of the duties of the classification of this Act to the Code, see section 80a–51 compensation committee. of this title and Tables.

(e) Compensation of compensation consultants, EFFECTIVE DATE independent legal counsel, and other advisers Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set Each issuer shall provide for appropriate fund- out as a note under section 5301 of Title 12, Banks and ing, as determined by the compensation com- Banking. mittee in its capacity as a committee of the board of directors, for payment of reasonable § 78j–4. Recovery of erroneously awarded com- compensation— pensation policy (1) to a compensation consultant; and (2) to independent legal counsel or any other (a) Listing standards adviser to the compensation committee. The Commission shall, by rule, direct the na- (f) Commission rules tional securities exchanges and national securi- (1) In general ties associations to prohibit the listing of any security of an issuer that does not comply with Not later than 360 days after July 21, 2010, the Commission shall, by rule, direct the na- the requirements of this section. tional securities exchanges and national secu- (b) Recovery of funds rities associations to prohibit the listing of The rules of the Commission under subsection any security of an issuer that is not in compli- (a) shall require each issuer to develop and im- ance with the requirements of this section. plement a policy providing— (2) Opportunity to cure defects (1) for disclosure of the policy of the issuer The rules of the Commission under para- on incentive-based compensation that is based graph (1) shall provide for appropriate proce- on financial information required to be re- dures for an issuer to have a reasonable oppor- ported under the securities laws; and tunity to cure any defects that would be the (2) that, in the event that the issuer is re- basis for the prohibition under paragraph (1), quired to prepare an accounting restatement before the imposition of such prohibition. due to the material noncompliance of the is- (3) Exemption authority suer with any financial reporting requirement (A) In general under the securities laws, the issuer will recover from any current or former executive of- The rules of the Commission under para- ficer of the issuer who received incentive- graph (1) shall permit a national securities based compensation (including stock options exchange or a national securities association awarded as compensation) during the 3-year to exempt a category of issuers from the re- period preceding the date on which the issuer quirements under this section, as the na- is required to prepare an accounting restate- tional securities exchange or the national ment, based on the erroneous data, in 1 excess securities association determines is appro- of what would have been paid to the executive priate. officer under the accounting restatement. (B) Considerations In determining appropriate exemptions (June 6, 1934, ch. 404, title I, § 10D, as added Pub. under subparagraph (A), the national securi- L. 111–203, title IX, § 954, July 21, 2010, 124 Stat. ties exchange or the national securities as- 1904.) sociation shall take into account the poten- EFFECTIVE DATE tial impact of the requirements of this section on smaller reporting issuers. Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set (g) Controlled company exemption out as a note under section 5301 of Title 12, Banks and (1) In general Banking. This section shall not apply to any controlled company. 1 So in original. Probably should be ‘‘compensation in’’. Page 235 TITLE 15—COMMERCE AND TRADE § 78k

§ 78k. Trading by members of exchanges, bro- (iii) complies with any rules the Commis- kers, and dealers sion has prescribed with respect to the re- (a) Trading for own account or account of associ- quirements of clauses (i) and (ii); and ated person; exceptions (I) any other transaction of a kind which the (1) It shall be unlawful for any member of a Commission, by rule, determines is consistent national securities exchange to effect any trans- with the purposes of this paragraph, the pro- action on such exchange for its own account, the tection of investors, and the maintenance of account of an associated person, or an account fair and orderly markets. with respect to which it or an associated person (2) The Commission, by rule, as it deems nec- thereof exercises investment discretion: Pro- essary or appropriate in the public interest and vided, however, That this paragraph shall not for the protection of investors, to maintain fair make unlawful— and orderly markets, or to assure equal regula- (A) any transaction by a dealer acting in the tion of exchange markets and markets occurring capacity of market maker; otherwise than on an exchange, may regulate or (B) any transaction for the account of an prohibit: odd-lot dealer in a security in which he is so (A) transactions on a national securities ex- registered; change not unlawful under paragraph (1) of (C) any stabilizing transaction effected in this subsection effected by any member there- compliance with rules under section 78j(b) of of for its own account (unless such member is this title to facilitate a distribution of a secu- acting in the capacity of market maker or rity in which the member effecting such trans- odd-lot dealer), the account of an associated action is participating; person, or an account with respect to which (D) any bona fide arbitrage transaction, any such member or an associated person thereof bona fide hedge transaction involving a long exercises investment discretion; or short position in an equity security and a (B) transactions otherwise than on a na- long or short position in a security entitling tional securities exchange effected by use of the holder to acquire or sell such equity secu- the mails or any means or instrumentality of rity, or any risk arbitrage transaction in con- interstate commerce by any member of a na- nection with a merger, acquisition, tender tional securities exchange, broker, or dealer offer, or similar transaction involving a re- for the account of such member, broker, or capitalization; dealer (unless such member, broker, or dealer (E) any transaction for the account of a nat- is acting in the capacity of a market maker) 1 ural person, the estate of a natural person, or the account of an associated person, or an ac- a trust created by a natural person for himself count with respect to which such member, or another natural person; broker, or dealer or associated person thereof (F) any transaction to offset a transaction exercises investment discretion; and made in error; (C) transactions on a national securities ex- (G) any other transaction for a member’s change effected by any broker or dealer not a own account provided that (i) such member is member thereof for the account of such broker primarily engaged in the business of under- or dealer (unless such broker or dealer is act- writing and distributing securities issued by ing in the capacity of market maker), the ac- other persons, selling securities to customers, count of an associated person, or an account and acting as broker, or any one or more of with respect to which such broker or dealer or such activities, and whose gross income nor- associated person thereof exercises investment mally is derived principally from such busi- discretion. ness and related activities and (ii) such trans- (3) The provisions of paragraph (1) of this sub- action is effected in compliance with rules of section insofar as they apply to transactions on the Commission which, as a minimum, assure a national securities exchange effected by a that the transaction is not inconsistent with member thereof who was a member on February the maintenance of fair and orderly markets 1, 1978 shall not become effective until February and yields priority, parity, and precedence in 1, 1979. Nothing in this paragraph shall be con- execution to orders for the account of persons strued to impair or limit the authority of the who are not members or associated with mem- Commission to regulate or prohibit such trans- bers of the exchange; actions prior to February 1, 1979, pursuant to (H) any transaction for an account with re- paragraph (2) of this subsection. spect to which such member or an associated person thereof exercises investment discretion (b) Registration of members as odd-lot dealers if such member— and specialists (i) has obtained, from the person or per- When not in contravention of such rules and sons authorized to transact business for the regulations as the Commission may prescribe as account, express authorization for such necessary or appropriate in the public interest member or associated person to effect such and for the protection of investors, to maintain transactions prior to engaging in the prac- fair and orderly markets, or to remove impedi- tice of effecting such transactions; ments to and perfect the mechanism of a na- (ii) furnishes the person or persons author- tional market system, the rules of a national se- ized to transact business for the account curities exchange may permit (1) a member to with a statement at least annually disclos- be registered as an odd-lot dealer and as such to ing the aggregate compensation received by buy and sell for his own account so far as may the exchange member in effecting such transactions; and 1 So in original. Probably should be followed by a comma. § 78k TITLE 15—COMMERCE AND TRADE Page 236 be reasonably necessary to carry on such odd-lot than an exempted security) unless, if the trans- transactions, and (2) a member to be registered action is with a customer, he discloses to such as a specialist. Under the rules and regulations customer in writing at or before the completion of the Commission a specialist may be permitted of the transaction whether he is acting as a to act as a broker and dealer or limited to act- dealer for his own account, as a broker for such ing as a broker or dealer. It shall be unlawful for customer, or as a broker for some other person. a specialist or an official of the exchange to dis- (June 6, 1934, ch. 404, title I, § 11, 48 Stat. 891; close information in regard to orders placed Aug. 10, 1954, ch. 667, title II, § 201, 68 Stat. 686; with such specialist which is not available to all Pub. L. 94–29, § 6, June 4, 1975, 89 Stat. 110; Pub. members of the exchange, to any person other L. 95–283, § 18(a), May 21, 1978, 92 Stat. 275; Pub. than an official of the exchange, a representa- L. 98–440, title I, § 104, Oct. 3, 1984, 98 Stat. 1690; tive of the Commission, or a specialist who may Pub. L. 103–68, § 1, Aug. 11, 1993, 107 Stat. 691; be acting for such specialist: Provided, however, Pub. L. 103–325, title II, § 205, Sept. 23, 1994, 108 That the Commission, by rule, may require dis- Stat. 2199.) closure to all members of the exchange of all orders placed with specialists, under such rules AMENDMENTS and regulations as the Commission may pre- 1994—Subsec. (d)(1)(ii). Pub. L. 103–325 inserted ‘‘or scribe as necessary or appropriate in the public any small business related security’’ after ‘‘mortgage interest or for the protection of investors. It related security’’. shall also be unlawful for a specialist permitted 1993—Subsec. (a)(1)(E). Pub. L. 103–68, § 1(1), struck out ‘‘(other than an investment company)’’ after to act as a broker and dealer to effect on the ex- ‘‘trust’’. change as broker any transaction except upon a Subsec. (a)(1)(H), (I). Pub. L. 103–68, § 1(2)–(4), added market or limited price order. subpar. (H) and redesignated former subpar. (H) as (I). (c) Exemptions from provisions of section and 1984—Subsec. (d)(1). Pub. L. 98–440 designated existing provisions of par. (1) as cl. (i) and added cl. (ii). rules and regulations 1978—Subsec. (a)(3). Pub. L. 95–283 substituted ‘‘Feb- If because of the limited volume of trans- ruary 1, 1978’’ for ‘‘May 1, 1975’’, and ‘‘February 1, 1979’’ actions effected on an exchange, it is in the for ‘‘May 1, 1978’’ in two places. opinion of the Commission impracticable and 1975—Subsec. (a). Pub. L. 94–29, § 6(2), prohibited stock exchange members from effecting any transaction on not necessary or appropriate in the public inter- the exchange for its own account, the account of an as- est or for the protection of investors to apply sociated person, or an account with respect to which any of the foregoing provisions of this section or the member or an associated person exercises invest- the rules and regulations thereunder, the Com- ment discretion, exempted from that prohibition 8 mission shall have power, upon application of types of transactions, and authorized the Commission, the exchange and on a showing that the rules of as it deems necessary or appropriate in the public in- such exchange are otherwise adequate for the terest or for the protection of investors, to regulate or protection of investors, to exempt such ex- prohibit the specifically exempted transactions, certain transactions otherwise that on a national securities exchange and its members from any such provision change, and transactions on a national securities ex- or rules and regulations. change effected by a broker or dealer not a member (d) Prohibition on extension of credit by broker- thereof for the account of such broker or dealer, the ac- dealer count of an associated person, or an account with respect to which such broker, dealer, or associated person It shall be unlawful for a member of a national exercises investment discretion. securities exchange who is both a dealer and a Subsec. (b). Pub. L. 94–29, § 6(2), struck out require- broker, or for any person who both as a broker ment that specialist’s dealings be limited to those and a dealer transacts a business in securities transactions reasonably necessary to permit him to through the medium of a member or otherwise, maintain a fair and orderly market, expanded the Com- to effect through the use of any facility of a na- mission’s rulemaking authority in the area of specialist’s dealings so that the Commission may define re- tional securities exchange or of the mails or of sponsibilities and restrict activities of specialists in re- any means or instrumentality of interstate com- sponse to changing conditions in the market, expanded merce, or otherwise in the case of a member, (1) the standards to be followed by the Commission in ex- any transaction in connection with which, di- ercising its rulemaking power to include the mainte- rectly or indirectly, he extends or maintains or nance of fair and orderly markets and the removal of arranges for the extension or maintenance of impediments to and the perfection of the mechanism of credit to or for a customer on any security a national market system, and inserted specific reference to the Commission’s power to limit the activity (other than an exempted security) which was a of a specialist to that of a broker or dealer. part of a new issue in the distribution of which Subsec. (e). Pub. L. 94–29, § 6(3), struck out subsec. (e) he participated as a member of a selling syn- which directed the Commission to make a study, to be dicate or group within thirty days prior to such submitted on or before Jan. 3, 1936, of the feasibility of transaction: Provided, That credit shall not be segregating the functions of dealer and broker. deemed extended by reason of a bona fide de- 1954—Subsec. (d). Act Aug. 10, 1954, reduced from 6 months to 30 days the prohibition period against ex- layed delivery of (i) any such security against tending credit to purchasers of a new issue by dealers. full payment of the entire purchase price thereof upon such delivery within thirty-five days after EFFECTIVE DATE OF 1978 AMENDMENT such purchase or (ii) any mortgage related secu- Pub. L. 95–283, § 18(b), May 21, 1978, 92 Stat. 275, pro- rity or any small business related security vided that: ‘‘The amendment made by subsection (a) of against full payment of the entire purchase this section [amending this section] shall be effective price thereof upon such delivery within one hun- as of May 1, 1978.’’ dred and eighty days after such purchase, or EFFECTIVE DATE OF 1975 AMENDMENT within such shorter period as the Commission Amendment by Pub. L. 94–29 effective June 4, 1975, may prescribe by rule or regulation, or (2) any see section 31(a) of Pub. L. 94–29, set out as a note under transaction with respect to any security (other section 78b of this title. Page 237 TITLE 15—COMMERCE AND TRADE § 78k–1

EFFECTIVE DATE OF 1954 AMENDMENT (3) The Commission is authorized in further- Amendment by act Aug. 10, 1954, effective 60 days ance of the directive in paragraph (2) of this sub- after Aug. 10, 1954, see note under section 77b of this section— title. (A) to create one or more advisory commit- TRANSFER OF FUNCTIONS tees pursuant to the Federal Advisory Com- mittee Act (which shall be in addition to the For transfer of functions of Securities and Exchange National Market Advisory Board established Commission, with certain exceptions, to Chairman of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, pursuant to subsection (d) of this section) and eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under to employ one or more outside experts; section 78d of this title. (B) by rule or order, to authorize or require self-regulatory organizations to act jointly § 78k–1. National market system for securities; with respect to matters as to which they share securities information processors authority under this chapter in planning, de- (a) Congressional findings; facilitating establish- veloping, operating, or regulating a national ment of national market system for securi- market system (or a subsystem thereof) or one ties; designation of qualified securities or more facilities thereof; and (1) The Congress finds that— (C) to conduct studies and make recom- (A) The securities markets are an important mendations to the Congress from time to time national asset which must be preserved and as to the possible need for modifications of the strengthened. scheme of self-regulation provided for in this (B) New data processing and communica- chapter so as to adapt it to a national market tions techniques create the opportunity for system. more efficient and effective market oper- (b) Securities information processors; registra- ations. tion; withdrawal of registration; access to (C) It is in the public interest and appro- services; censure; suspension or revocation priate for the protection of investors and the of registration maintenance of fair and orderly markets to as- (1) Except as otherwise provided in this sec- sure— (i) economically efficient execution of se- tion, it shall be unlawful for any securities in- curities transactions; formation processor unless registered in accord- (ii) fair competition among brokers and ance with this subsection, directly or indirectly, dealers, among exchange markets, and be- to make use of the mails or any means or instru- tween exchange markets and markets other mentality of interstate commerce to perform than exchange markets; the functions of a securities information proc- (iii) the availability to brokers, dealers, essor. The Commission, by rule or order, upon and investors of information with respect to its own motion or upon application, may condi- quotations for and transactions in securi- tionally or unconditionally exempt any securities; ties information processor or class of securities (iv) the practicability of brokers executing information processors or security or class of se- investors’ orders in the best market; and curities from any provision of this section or the (v) an opportunity, consistent with the rules or regulations thereunder, if the Commis- provisions of clauses (i) and (iv) of this sub- sion finds that such exemption is consistent paragraph, for investors’ orders to be exe- with the public interest, the protection of inves- cuted without the participation of a dealer. tors, and the purposes of this section, including the maintenance of fair and orderly markets in (D) The linking of all markets for qualified securities and the removal of impediments to securities through communication and data and perfection of the mechanism of a national processing facilities will foster efficiency, en- market system: Provided, however, That a securi- hance competition, increase the information ties information processor not acting as the ex- available to brokers, dealers, and investors, fa- clusive processor of any information with re- cilitate the offsetting of investors’ orders, and spect to quotations for or transactions in securi- contribute to best execution of such orders. ties is exempt from the requirement to register (2) The Commission is directed, therefore, hav- in accordance with this subsection unless the ing due regard for the public interest, the pro- Commission, by rule or order, finds that the reg- tection of investors, and the maintenance of fair istration of such securities information proc- and orderly markets, to use its authority under essor is necessary or appropriate in the public this chapter to facilitate the establishment of a interest, for the protection of investors, or for national market system for securities (which the achievement of the purposes of this section. may include subsystems for particular types of (2) A securities information processor may be securities with unique trading characteristics) registered by filing with the Commission an ap- in accordance with the findings and to carry out plication for registration in such form as the the objectives set forth in paragraph (1) of this Commission, by rule, may prescribe containing subsection. The Commission, by rule, shall des- the address of its principal office, or offices, the ignate the securities or classes of securities names of the securities and markets for which it qualified for trading in the national market sys- is then acting and for which it proposes to act as tem from among securities other than exempted a securities information processor, and such securities. (Securities or classes of securities so other information and documents as the Com- designated hereinafter 1 in this section referred mission, by rule, may prescribe with regard to to as ‘‘qualified securities’’.) performance capability, standards and procedures for the collection, processing, distribu- 1 So in original. Probably should be ‘‘are hereinafter’’. tion, and publication of information with re- § 78k–1 TITLE 15—COMMERCE AND TRADE Page 238 spect to quotations for and transactions in secu- tion on access to services with respect to which rities, personnel qualifications, financial condi- a registered securities information processor is tion, and such other matters as the Commission required by this paragraph to file notice shall be determines to be germane to the provisions of subject to review by the Commission on its own this chapter and the rules and regulations there- motion, or upon application by any person ag- under, or necessary or appropriate in further- grieved thereby filed within thirty days after ance of the purposes of this section. such notice has been filed with the Commission (3) The Commission shall, upon the filing of an and received by such aggrieved person, or within application for registration pursuant to para- such longer period as the Commission may de- graph (2) of this subsection, publish notice of the termine. Application to the Commission for re- filing and afford interested persons an oppor- view, or the institution of review by the Com- tunity to submit written data, views, and argu- mission on its own motion, shall not operate as ments concerning such application. Within nine- a stay of such prohibition or limitation, unless ty days of the date of the publication of such no- the Commission otherwise orders, summarily or tice (or within such longer period as to which after notice and opportunity for hearing on the the applicant consents) the Commission shall— question of a stay (which hearing may consist (A) by order grant such registration, or solely of the submission of affidavits or presen- (B) institute proceedings to determine tation of oral arguments). The Commission shall whether registration should be denied. Such establish for appropriate cases an expedited pro- proceedings shall include notice of the grounds cedure for consideration and determination of for denial under consideration and oppor- the question of a stay. tunity for hearing and shall be concluded (B) In any proceeding to review the prohibi- within one hundred eighty days of the date of tion or limitation of any person in respect of ac- publication of notice of the filing of the appli- cess to services offered by a registered securities cation for registration. At the conclusion of information processor, if the Commission finds, such proceedings the Commission, by order, after notice and opportunity for hearing, that shall grant or deny such registration. The such prohibition or limitation is consistent with Commission may extend the time for the con- the provisions of this chapter and the rules and clusion of such proceedings for up to sixty regulations thereunder and that such person has days if it finds good cause for such extension and publishes its reasons for so finding or for not been discriminated against unfairly, the such longer periods as to which the applicant Commission, by order, shall dismiss the proceed- consents. ing. If the Commission does not make any such finding or if it finds that such prohibition or The Commission shall grant the registration of limitation imposes any burden on competition a securities information processor if the Com- not necessary or appropriate in furtherance of mission finds that such securities information the purposes of this chapter, the Commission, by processor is so organized, and has the capacity, order, shall set aside the prohibition or limita- to be able to assure the prompt, accurate, and tion and require the registered securities infor- reliable performance of its functions as a securi- mation processor to permit such person access ties information processor, comply with the pro- to services offered by the registered securities visions of this chapter and the rules and regula- information processor. tions thereunder, carry out its functions in a (6) The Commission, by order, may censure or manner consistent with the purposes of this sec- place limitations upon the activities, functions, tion, and, insofar as it is acting as an exclusive or operations of any registered securities infor- processor, operate fairly and efficiently. The mation processor or suspend for a period not ex- Commission shall deny the registration of a se- ceeding twelve months or revoke the registra- curities information processor if the Commis- tion of any such processor, if the Commission sion does not make any such finding. finds, on the record after notice and opportunity (4) A registered securities information proc- for hearing, that such censure, placing of limita- essor may, upon such terms and conditions as tions, suspension, or revocation is in the public the Commission deems necessary or appropriate interest, necessary or appropriate for the pro- in the public interest or for the protection of in- tection of investors or to assure the prompt, ac- vestors, withdraw from registration by filing a curate, or reliable performance of the functions written notice of withdrawal with the Commis- of such securities information processor, and sion. If the Commission finds that any reg- that such securities information processor has istered securities information processor is no violated or is unable to comply with any provi- longer in existence or has ceased to do business sion of this chapter or the rules or regulations in the capacity specified in its application for thereunder. registration, the Commission, by order, shall cancel the registration. (c) Rules and regulations covering use of mails (5)(A) If any registered securities information or other means or instrumentalities of inter- processor prohibits or limits any person in restate commerce; reports of purchase or sale spect of access to services offered, directly or in- of qualified securities; limiting registered se- directly, by such securities information proc- curities transactions to national securities essor, the registered securities information exchanges processor shall promptly file notice thereof with (1) No self-regulatory organization, member the Commission. The notice shall be in such thereof, securities information processor, form and contain such information as the Com- broker, or dealer shall make use of the mails or mission, by rule, may prescribe as necessary or any means or instrumentality of interstate com- appropriate in the public interest or for the pro- merce to collect, process, distribute, publish, or tection of investors. Any prohibition or limita- prepare for distribution or publication any in- Page 239 TITLE 15—COMMERCE AND TRADE § 78k–1 formation with respect to quotations for or finds, on the record after notice and opportunity transactions in any security other than an ex- for hearing, that— empted security, to assist, participate in, or (i) as a result of transactions in such securi- coordinate the distribution or publication of ties effected otherwise than on a national se- such information, or to effect any transaction curities exchange the fairness or orderliness of in, or to induce or attempt to induce the pur- the markets for such securities has been af- chase or sale of, any such security in contraven- fected in a manner contrary to the public in- tion of such rules and regulations as the Com- terest or the protection of investors; mission shall prescribe as necessary or appro- (ii) no rule of any national securities ex- priate in the public interest, for the protection change unreasonably impairs the ability of of investors, or otherwise in furtherance of the any dealer to solicit or effect transactions in purposes of this chapter to— such securities for his own account or unrea- (A) prevent the use, distribution, or publica- sonably restricts competition among dealers tion of fraudulent, deceptive, or manipulative in such securities or between dealers acting in information with respect to quotations for and the capacity of market makers who are spe- transactions in such securities; cialists in such securities and such dealers (B) assure the prompt, accurate, reliable, who are not specialists in such securities, and and fair collection, processing, distribution, (iii) the maintenance or restoration of fair and publication of information with respect to and orderly markets in such securities may quotations for and transactions in such securi- not be assured through other lawful means ties and the fairness and usefulness of the under this chapter. form and content of such information; (C) assure that all securities information The Commission may conditionally or uncondi- processors may, for purposes of distribution tionally exempt any security or transaction or and publication, obtain on fair and reasonable any class of securities or transactions from any terms such information with respect to such prohibition if the Commission deems such quotations for and transactions in such securi- exemption consistent with the public interest, ties as is collected, processed, or prepared for the protection of investors, and the mainte- distribution or publication by any exclusive nance of fair and orderly markets. processor of such information acting in such (B) For the purposes of subparagraph (A) of capacity; this paragraph, the ability of a dealer to solicit (D) assure that all exchange members, bro- or effect transactions in securities for his own kers, dealers, securities information proc- account shall not be deemed to be unreasonably essors, and, subject to such limitations as the impaired by any rule of an exchange fairly and Commission, by rule, may impose as necessary reasonably prescribing the sequence in which or- or appropriate for the protection of investors ders brought to the exchange must be executed or maintenance of fair and orderly markets, or which has been adopted to effect compliance all other persons may obtain on terms which with a rule of the Commission promulgated are not unreasonably discriminatory such in- under this chapter. formation with respect to quotations for and (4) The Commission is directed to review any transactions in such securities as is published and all rules of national securities exchanges or distributed by any self-regulatory organiza- which limit or condition the ability of members tion or securities information processor; to effect transactions in securities otherwise (E) assure that all exchange members, bro- than on such exchanges. kers, and dealers transmit and direct orders (5) No national securities exchange or reg- for the purchase or sale of qualified securities istered securities association may limit or con- in a manner consistent with the establishment dition the participation of any member in any and operation of a national market system; registered clearing agency. and (d) National Market Advisory Board (F) assure equal regulation of all markets (1) Not later than one hundred eighty days for qualified securities and all exchange mem- after June 4, 1975, the Commission shall estab- bers, brokers, and dealers effecting trans- lish a National Market Advisory Board (herein- actions in such securities. after in this section referred to as the ‘‘Advisory (2) The Commission, by rule, as it deems nec- Board’’) to be composed of fifteen members, not essary or appropriate in the public interest or all of whom shall be from the same geographical for the protection of investors, may require any area of the United States, appointed by the person who has effected the purchase or sale of Commission for a term specified by the Commis- any qualified security by use of the mails or any sion of not less than two years or more than five means or instrumentality of interstate com- years. The Advisory Board shall consist of per- merce to report such purchase or sale to a reg- sons associated with brokers and dealers (who istered securities information processor, na- shall be a majority) and persons not so associ- tional securities exchange, or registered securi- ated who are representative of the public and, to ties association and require such processor, ex- the extent feasible, have knowledge of the secu- change, or association to make appropriate dis- rities markets of the United States. tribution and publication of information with (2) It shall be the responsibility of the Advi- respect to such purchase or sale. sory Board to formulate and furnish to the Com- (3)(A) The Commission, by rule, is authorized mission its views on significant regulatory pro- to prohibit brokers and dealers from effecting posals made by the Commission or any self-regu- transactions in securities registered pursuant to latory organization concerning the establish- section 78l(b) of this title otherwise than on a ment, operation, and regulation of the markets national securities exchange, if the Commission for securities in the United States. § 78k–1 TITLE 15—COMMERCE AND TRADE Page 240

(3)(A) The Advisory Board shall study and the trading of security futures products on an make recommendations to the Commission as to exchange that is registered under section the steps it finds appropriate to facilitate the 78f(g) of this title unless the Commodity Fu- establishment of a national market system. In tures Trading Commission has issued an order so doing, the Advisory Board shall assume the directing that such rule is applicable to such responsibilities of any advisory committee ap- persons. pointed to advise the Commission with respect to the national market system which is in exist- (June 6, 1934, ch. 404, title I, § 11A, as added Pub. ence at the time of the establishment of the Ad- L. 94–29, § 7, June 4, 1975, 89 Stat. 111; amended visory Board. Pub. L. 98–620, title IV, § 402(14), Nov. 8, 1984, 98 (B) The Advisory Board shall study the pos- Stat. 3358; Pub. L. 100–181, title III, §§ 313, 314, sible need for modifications of the scheme of Dec. 4, 1987, 101 Stat. 1256; Pub. L. 106–554, self-regulation provided for in this chapter so as § 1(a)(5) [title II, § 206(c)], Dec. 21, 2000, 114 Stat. to adapt it to a national market system, includ- 2763, 2763A–430.) ing the need for the establishment of a new self- REFERENCES IN TEXT regulatory organization (hereinafter in this section referred to as a ‘‘National Market Regu- The Federal Advisory Committee Act, referred to in latory Board’’ or ‘‘Regulatory Board’’) to admin- subsec. (a)(3)(A), is Pub. L. 92–436, Oct. 6, 1972, 86 Stat. ister the national market system. In the event 770, as amended, which is set out in the Appendix to Title 5, Government Organization and Employees. the Advisory Board determines a National Mar- ket Regulatory Board should be established, it AMENDMENTS shall make recommendations as to: 2000—Subsec. (e). Pub. L. 106–554 added subsec. (e). (i) the point in time at which a Regulatory 1987—Subsec. (b)(2). Pub. L. 100–181, § 313(1), sub- Board should be established; stituted ‘‘transactions’’ for ‘‘transaction’’. (ii) the composition of a Regulatory Board; Subsec. (c)(4). Pub. L. 100–181, § 313(2), struck out ‘‘On (iii) the scope of the authority of a Regu- or before the ninetieth day following June 4, 1975, the latory Board; Commission shall (i) report to the Congress the results (iv) the relationship of a Regulatory Board of its review, including the effects on competition of to the Commission and to existing self-regu- such rules, and (ii) commence a proceeding in accord- latory organizations; and ance with the provisions of section 78s(c) of this title to (v) the manner in which a Regulatory Board amend any such rule imposing a burden on competition should be funded. which does not appear to the Commission to be necessary or appropriate in furtherance of the purposes of The Advisory Board shall report to the Con- this chapter. The Commission shall conclude any such gress, on or before December 31, 1976, the results proceeding within ninety days of the date of publica- of such study and its recommendations, includ- tion of notice of its commencement.’’ ing such recommendations for legislation as it Subsec. (e). Pub. L. 100–181, § 314, struck out subsec. deems appropriate. (e) which read as follows: ‘‘The Commission is author- (C) In carrying out its responsibilities under ized and directed to make a study of the extent to this paragraph, the Advisory Board shall consult which persons excluded from the definitions of ‘broker’ with self-regulatory organizations, brokers, and ‘dealer’ maintain accounts on behalf of public cus- dealers, securities information processors, issu- tomers for buying and selling securities registered ers, investors, representatives of Government under section 78l of this title and whether such exclusions are consistent with the protection of investors agencies, and other persons interested or likely and the other purposes of this chapter. The Commission to participate in the establishment, operation, shall report to the Congress, on or before December 31, or regulation of the national market system. 1976, the results of its study together with such recom- (e) National markets system for security futures mendations for legislation as it deems advisable.’’ products 1984—Subsec. (c)(4). Pub. L. 98–620 struck out designa- (1) Consultation and cooperation required tion ‘‘(A)’’ after ‘‘(4)’’, and struck out subpar. (B) which provided that review pursuant to section 78y(b) of this With respect to security futures products, title of any rule promulgated by the Commission in ac- the Commission and the Commodity Futures cordance with any proceeding commenced pursuant to Trading Commission shall consult and cooper- this paragraph would, except as to causes the court ate so that, to the maximum extent prac- considers of greater importance, take precedence on ticable, their respective regulatory respon- the docket over all other causes and had to be assigned sibilities may be fulfilled and the rules and for consideration at the earliest practicable date and regulations applicable to security futures expedited in every way. products may foster a national market system EFFECTIVE DATE OF 1984 AMENDMENT for security futures products if the Commis- Amendment by Pub. L. 98–620 not applicable to cases sion and the Commodity Futures Trading pending on Nov. 8, 1984, see section 403 of Pub. L. 98–620, Commission jointly determine that such a sys- set out as an Effective Date note under section 1657 of tem would be consistent with the congres- Title 28, Judiciary and Judicial Procedure. sional findings in subsection (a)(1) of this section. In accordance with this objective, the EFFECTIVE DATE Commission shall, at least 15 days prior to the Section effective June 4, 1975, except for subsec. (b) issuance for public comment of any proposed which is effective 180 days after June 4, 1975, see section rule or regulation under this section concern- 31(a) of Pub. L. 94–29, set out as a note under section 78b ing security futures products, consult and re- of this title. quest the views of the Commodity Futures TERMINATION OF ADVISORY COMMITTEES Trading Commission. (2) Application of rules by order of CFTC Advisory committees established after Jan. 5, 1973, to terminate not later than the expiration of the 2-year No rule adopted pursuant to this section period beginning on the date of their establishment, shall be applied to any person with respect to unless, in the case of a committee established by the Page 241 TITLE 15—COMMERCE AND TRADE § 78l

President or an officer of the Federal Government, such (J) balance sheets for not more than the committee is renewed by appropriate action prior to three preceding fiscal years, certified if re- the expiration of such 2-year period, or in the case of quired by the rules and regulations of the a committee established by the Congress, its duration Commission by a registered public account- is otherwise provided for by law. See section 14 of Pub. L. 92–463, Oct. 6, 1972, 86 Stat. 776, set out in the Appen- ing firm; dix to Title 5, Government Organization and Employ- (K) profit and loss statements for not more ees. than the three preceding fiscal years, certified if required by the rules and regula- § 78l. Registration requirements for securities tions of the Commission by a registered pub- (a) General requirement of registration lic accounting firm; and (L) any further financial statements which It shall be unlawful for any member, broker, the Commission may deem necessary or ap- or dealer to effect any transaction in any secu- propriate for the protection of investors. rity (other than an exempted security) on a national securities exchange unless a registration (2) Such copies of articles of incorporation, is effective as to such security for such exchange bylaws, trust indentures, or corresponding in accordance with the provisions of this chap- documents by whatever name known, under- ter and the rules and regulations thereunder. writing arrangements, and other similar docu- The provisions of this subsection shall not apply ments of, and voting trust agreements with re- in respect of a security futures product traded spect to, the issuer and any person directly or on a national securities exchange. indirectly controlling or controlled by, or (b) Procedure for registration; information under direct or indirect common control with, the issuer as the Commission may require as A security may be registered on a national se- necessary or appropriate for the proper protec- curities exchange by the issuer filing an application of investors and to insure fair dealing in tion with the exchange (and filing with the Com- the security. mission such duplicate originals thereof as the (3) Such copies of material contracts, re- Commission may require), which application ferred to in paragraph (1)(I) above, as the Com- shall contain— mission may require as necessary or appro- (1) Such information, in such detail, as to priate for the proper protection of investors the issuer and any person directly or indi- and to insure fair dealing in the security. rectly controlling or controlled by, or under direct or indirect common control with, the is- (c) Additional or alternative information suer, and any guarantor of the security as to If in the judgment of the Commission any in- principal or interest or both, as the Commis- formation required under subsection (b) of this sion may by rules and regulations require, as section is inapplicable to any specified class or necessary or appropriate in the public interest classes of issuers, the Commission shall require or for the protection of investors, in respect of in lieu thereof the submission of such other in- the following: formation of comparable character as it may (A) the organization, financial structure, deem applicable to such class of issuers. and nature of the business; (d) Effective date of registration; withdrawal of (B) the terms, position, rights, and privi- registration leges of the different classes of securities If the exchange authorities certify to the Com- outstanding; mission that the security has been approved by (C) the terms on which their securities are the exchange for listing and registration, the to be, and during the preceding three years registration shall become effective thirty days have been, offered to the public or otherwise; after the receipt of such certification by the (D) the directors, officers, and under- Commission or within such shorter period of writers, and each security holder of record time as the Commission may determine. A secu- holding more than 10 per centum of any rity registered with a national securities ex- class of any equity security of the issuer change may be withdrawn or stricken from list- (other than an exempted security), their re- ing and registration in accordance with the muneration and their interests in the securi- rules of the exchange and, upon such terms as ties of, and their material contracts with, the Commission may deem necessary to impose the issuer and any person directly or indi- for the protection of investors, upon application rectly controlling or controlled by, or under by the issuer or the exchange to the Commis- direct or indirect common control with, the sion; whereupon the issuer shall be relieved from issuer; further compliance with the provisions of this (E) remuneration to others than directors section and section 78m of this title and any and officers exceeding $20,000 per annum; rules or regulations under such sections as to (F) bonus and profit-sharing arrangements; the securities so withdrawn or stricken. An un- (G) management and service contracts; issued security may be registered only in ac- (H) options existing or to be created in re- cordance with such rules and regulations as the spect of their securities; Commission may prescribe as necessary or ap- (I) material contracts, not made in the or- propriate in the public interest or for the pro- dinary course of business, which are to be tection of investors. executed in whole or in part at or after the filing of the application or which were made (e) Exemption from provisions of section for pe- not more than two years before such filing, riod ending not later than July 1, 1935 and every material patent or contract for a Notwithstanding the foregoing provisions of material patent right shall be deemed a ma- this section, the Commission may by such rules terial contract; and regulations as it deems necessary or appro- § 78l TITLE 15—COMMERCE AND TRADE Page 242 priate in the public interest or for the protec- the existing markets for such securities, and tion of investors, permit securities listed on any the desirability of removing impediments to exchange at the time the registration of such and the progress that has been made toward exchange as a national securities exchange be- the development of a national market system; comes effective, to be registered for a period and ending not later than July 1, 1935, without com- (iii) shall not permit a national securities plying with the provisions of this section. exchange to extend unlisted trading privileges (f) Unlisted trading privileges for security origi- to such securities if any rule of such national nally listed on another national exchange securities exchange would unreasonably impair the ability of a dealer to solicit or effect (1)(A) Notwithstanding the preceding sub- transactions in such securities for its own ac- sections of this section, any national securities count, or would unreasonably restrict com- exchange, in accordance with the requirements petition among dealers in such securities or of this subsection and the rules hereunder, may between such dealers acting in the capacity of extend unlisted trading privileges to— market makers who are specialists and such (i) any security that is listed and registered dealers who are not specialists. on a national securities exchange, subject to subparagraph (B); and (F) An exchange may continue to extend un- (ii) any security that is otherwise registered listed trading privileges in accordance with this pursuant to this section, or that would be re- paragraph only if the exchange and the subject quired to be so registered except for the ex- security continue to satisfy the requirements emption from registration provided in sub- for eligibility under this paragraph, including paragraph (B) or (G) of subsection (g)(2) of this any rules and regulations issued by the Commis- section, subject to subparagraph (E) of this sion pursuant to this paragraph, except that un- paragraph. listed trading privileges may continue with regard to securities which had been admitted on (B) A national securities exchange may not ex- such exchange prior to July 1, 1964, notwith- tend unlisted trading privileges to a security de- standing the failure to satisfy such require- scribed in subparagraph (A)(i) during such inter- ments. If unlisted trading privileges in a secu- val, if any, after the commencement of an ini- rity are discontinued pursuant to this subpara- tial public offering of such security, as is or may graph, the exchange shall cease trading in that be required pursuant to subparagraph (C). (C) Not later than 180 days after October 22, security, unless the exchange and the subject se- 1994, the Commission shall prescribe, by rule or curity thereafter satisfy the requirements of regulation, the duration of the interval referred this paragraph and the rules issued hereunder. (G) For purposes of this paragraph— to in subparagraph (B), if any, as the Commis- (i) a security is the subject of an initial pub- sion determines to be necessary or appropriate lic offering if— for the maintenance of fair and orderly markets, (I) the offering of the subject security is the protection of investors and the public inter- registered under the Securities Act of 1933 est, or otherwise in furtherance of the purposes [15 U.S.C. 77a et seq.]; and of this chapter. Until the earlier of the effective (II) the issuer of the security, immediately date of such rule or regulation or 240 days after prior to filing the registration statement October 22, 1994, such interval shall begin at the with respect to the offering, was not subject opening of trading on the day on which such se- to the reporting requirements of section 78m curity commences trading on the national secu- or 78o(d) of this title; and rities exchange with which such security is registered and end at the conclusion of the next day (ii) an initial public offering of such security of trading. commences at the opening of trading on the (D) The Commission may prescribe, by rule or day on which such security commences trad- regulation such additional procedures or re- ing on the national securities exchange with quirements for extending unlisted trading privi- which such security is registered. leges to any security as the Commission deems (2)(A) At any time within 60 days of com- necessary or appropriate for the maintenance of mencement of trading on an exchange of a secu- fair and orderly markets, the protection of in- rity pursuant to unlisted trading privileges, the vestors and the public interest, or otherwise in Commission may summarily suspend such un- furtherance of the purposes of this chapter. listed trading privileges on the exchange. Such (E) No extension of unlisted trading privileges suspension shall not be reviewable under section to securities described in subparagraph (A)(ii) 78y of this title and shall not be deemed to be a may occur except pursuant to a rule, regulation, final agency action for purposes of section 704 of or order of the Commission approving such ex- title 5. Upon such suspension— tension or extensions. In promulgating such rule (i) the exchange shall cease trading in the or regulation or in issuing such order, the Com- security by the close of business on the date of mission— such suspension, or at such time as the Com- (i) shall find that such extension or exten- mission may prescribe by rule or order for the sions of unlisted trading privileges is consist- maintenance of fair and orderly markets, the ent with the maintenance of fair and orderly protection of investors and the public interest, markets, the protection of investors and the or otherwise in furtherance of the purposes of public interest, and otherwise in furtherance this chapter; and of the purposes of this chapter; (ii) if the exchange seeks to extend unlisted (ii) shall take account of the public trading trading privileges to the security, the ex- activity in such securities, the character of change shall file an application to reinstate such trading, the impact of such extension on its ability to do so with the Commission pur- Page 243 TITLE 15—COMMERCE AND TRADE § 78l

suant to such procedures as the Commission is necessary or appropriate in the public interest may prescribe by rule or order for the mainte- or for the protection of investors. nance of fair and orderly markets, the protec- (5) In any proceeding under this subsection in tion of investors and the public interest, or which appropriate notice and opportunity for otherwise in furtherance of the purposes of hearing are required, notice of not less than ten this chapter. days to the applicant in such proceeding, to the issuer of the security involved, to the exchange (B) A suspension under subparagraph (A) shall which is seeking to continue or extend or has remain in effect until the Commission, by order, continued or extended unlisted trading privi- grants approval of an application to reinstate, leges for such security, and to the exchange, if as described in subparagraph (A)(ii). (C) A suspension under subparagraph (A) shall any, on which such security is listed and reg- not affect the validity or force of an extension of istered, shall be deemed adequate notice, and unlisted trading privileges in effect prior to such any broker or dealer who makes or creates a suspension. market for such security, and any other person (D) The Commission shall not approve an ap- having a bona fide interest in such proceeding, plication by a national securities exchange to shall upon application be entitled to be heard. reinstate its ability to extend unlisted trading (6) Any security for which unlisted trading privileges to a security unless the Commission privileges are continued or extended pursuant to finds, after notice and opportunity for hearing, this subsection shall be deemed to be registered that the extension of unlisted trading privileges on a national securities exchange within the pursuant to such application is consistent with meaning of this chapter. The powers and duties the maintenance of fair and orderly markets, of the Commission under this chapter shall be the protection of investors and the public inter- applicable to the rules of an exchange in respect est, and otherwise in furtherance of the purposes of any such security. The Commission may, by of this chapter. If the application is made to re- such rules and regulations as it deems necessary instate unlisted trading privileges to a security or appropriate in the public interest or for the described in paragraph (1)(A)(ii), the Commis- protection of investors, either unconditionally sion— or upon specified terms and conditions, or for (i) shall take account of the public trading stated periods, exempt such securities from the activity in such security, the character of operation of any provision of section 78m, 78n, or such trading, the impact of such extension on 78p of this title. the existing markets for such a security, and (g) Registration of securities by issuer; exemp- the desirability of removing impediments to tions and the progress that has been made toward (1) Every issuer which is engaged in interstate the development of a national market system; commerce, or in a business affecting interstate and commerce, or whose securities are traded by use (ii) shall not grant any such application if of the mails or any means or instrumentality of any rule of the national securities exchange interstate commerce shall— making application under this subsection (A) within one hundred and twenty days would unreasonably impair the ability of a after the last day of its first fiscal year ended dealer to solicit or effect transactions in such after July 1, 1964, on which the issuer has total security for its own account, or would unrea- assets exceeding $1,000,000 and a class of equity sonably restrict competition among dealers in security (other than an exempted security) such security or between such dealers acting held of record by seven hundred and fifty or in the capacity of marketmakers who are spe- more persons; and cialists and such dealers who are not special- (B) within one hundred and twenty days ists. after the last day of its first fiscal year ended (3) Notwithstanding paragraph (2), the Com- after two years from July 1, 1964, on which the mission shall by rules and regulations suspend issuer has total assets exceeding $1,000,000 and unlisted trading privileges in whole or in part a class of equity security (other than an ex- for any or all classes of securities for a period empted security) held of record by five hun- not exceeding twelve months, if it deems such dred or more but less than seven hundred and suspension necessary or appropriate in the pub- fifty persons, lic interest or for the protection of investors or register such security by filing with the Com- to prevent evasion of the purposes of this chap- mission a registration statement (and such cop- ter. ies thereof as the Commission may require) with (4) On the application of the issuer of any se- respect to such security containing such infor- curity for which unlisted trading privileges on mation and documents as the Commission may any exchange have been continued or extended specify comparable to that which is required in pursuant to this subsection, or of any broker or an application to register a security pursuant to dealer who makes or creates a market for such subsection (b) of this section. Each such reg- security, or of any other person having a bona istration statement shall become effective sixty fide interest in the question of termination or days after filing with the Commission or within suspension of such unlisted trading privileges, such shorter period as the Commission may di- or on its own motion, the Commission shall by rect. Until such registration statement becomes order terminate, or suspend for a period not ex- effective it shall not be deemed filed for the pur- ceeding twelve months, such unlisted trading poses of section 78r of this title. Any issuer may privileges for such security if the Commission register any class of equity security not re- finds, after appropriate notice and opportunity quired to be registered by filing a registration for hearing, that such termination or suspension statement pursuant to the provisions of this § 78l TITLE 15—COMMERCE AND TRADE Page 244 paragraph. The Commission is authorized to ex- company by beneficial owners, directors, or tend the date upon which any issuer or class of officers of such company are subject to regu- issuers is required to register a security pursu- lation (including reporting) by its domi- ant to the provisions of this paragraph. ciliary State substantially in the manner (2) The provisions of this subsection shall not provided in section 78p of this title. apply in respect of— (H) any interest or participation in any col- (A) any security listed and registered on a lective trust funds maintained by a bank or in national securities exchange. (B) any security issued by an investment a separate account maintained by an insur- company registered pursuant to section 80a–8 ance company which interest or participation of this title. is issued in connection with (i) a stock-bonus, (C) any security, other than permanent pension, or profit-sharing plan which meets stock, guaranty stock, permanent reserve the requirements for qualification under sec- stock, or any similar certificate evidencing tion 401 of title 26, (ii) an annuity plan which nonwithdrawable capital, issued by a savings meets the requirements for deduction of the and loan association, building and loan asso- employer’s contribution under section 404(a)(2) ciation, cooperative bank, homestead associa- of title 26, or (iii) a church plan, company, or tion, or similar institution, which is super- account that is excluded from the definition of vised and examined by State or Federal au- an investment company under section thority having supervision over any such in- 80a–3(c)(14) of this title. stitution. (3) The Commission may by rules or regula- (D) any security of an issuer organized and tions or, on its own motion, after notice and op- operated exclusively for religious, edu- portunity for hearing, by order, exempt from cational, benevolent, fraternal, charitable, or this subsection any security of a foreign issuer, reformatory purposes and not for pecuniary including any certificate of deposit for such a profit, and no part of the net earnings of which security, if the Commission finds that such ex- inures to the benefit of any private share- emption is in the public interest and is consist- holder or individual; or any security of a fund ent with the protection of investors. that is excluded from the definition of an (4) Registration of any class of security pursu- investment company under section ant to this subsection shall be terminated nine- 80a–3(c)(10)(B) of this title. ty days, or such shorter period as the Commis- (E) any security of an issuer which is a ‘‘co- sion may determine, after the issuer files a cer- operative association’’ as defined in the Agri- tification with the Commission that the number cultural Marketing Act, approved June 15, of holders of record of such class of security is 1929, as amended [12 U.S.C. 1141 et seq.], or a reduced to less than three hundred persons. The federation of such cooperative associations, if Commission shall after notice and opportunity such federation possesses no greater powers or for hearing deny termination of registration if it purposes than cooperative associations so de- finds that the certification is untrue. Termi- fined. nation of registration shall be deferred pending (F) any security issued by a mutual or coop- final determination on the question of denial. erative organization which supplies a com- (5) For the purposes of this subsection the modity or service primarily for the benefit of term ‘‘class’’ shall include all securities of an is- its members and operates not for pecuniary suer which are of substantially similar char- profit, but only if the security is part of a acter and the holders of which enjoy substan- class issuable only to persons who purchase tially similar rights and privileges. The Com- commodities or services from the issuer, the mission may for the purpose of this subsection security is transferable only to a successor in define by rules and regulations the terms ‘‘total interest or occupancy of premises serviced or assets’’ and ‘‘held of record’’ as it deems nec- to be served by the issuer, and no dividends essary or appropriate in the public interest or are payable to the holder of the security. for the protection of investors in order to pre- (G) any security issued by an insurance com- vent circumvention of the provisions of this sub- pany if all of the following conditions are met: section. For purposes of this subsection, a secu- (i) Such insurance company is required to rity futures product shall not be considered a and does file an annual statement with the class of equity security of the issuer of the secu- Commissioner of Insurance (or other officer rities underlying the security futures product. or agency performing a similar function) of its domiciliary State, and such annual state- (h) Exemption by rules and regulations from cer- ment conforms to that prescribed by the Na- tain provisions of section tional Association of Insurance Commis- The Commission may by rules and regula- sioners or in the determination of such State tions, or upon application of an interested per- commissioner, officer or agency substan- son, by order, after notice and opportunity for tially conforms to that so prescribed. hearing, exempt in whole or in part any issuer (ii) Such insurance company is subject to or class of issuers from the provisions of sub- regulation by its domiciliary State of prox- section (g) of this section or from section 78m, ies, consents, or authorizations in respect of 78n, or 78o(d) of this title or may exempt from securities issued by such company and such section 78p of this title any officer, director, or regulation conforms to that prescribed by beneficial owner of securities of any issuer, any the National Association of Insurance Com- security of which is required to be registered missioners. pursuant to subsection (g) hereof, upon such (iii) After July 1, 1966, the purchase and terms and conditions and for such period as it sales of securities issued by such insurance deems necessary or appropriate, if the Commis- Page 245 TITLE 15—COMMERCE AND TRADE § 78l sion finds, by reason of the number of public in- of a security, if the Commission finds, on the vestors, amount of trading interest in the secu- record after notice and opportunity for hearing, rities, the nature and extent of the activities of that the issuer, of such security has failed to the issuer, income or assets of the issuer, or comply with any provision of this chapter or the otherwise, that such action is not inconsistent rules and regulations thereunder. No member of with the public interest or the protection of in- a national securities exchange, broker, or dealer vestors. The Commission may, for the purposes shall make use of the mails or any means or in- of any of the above-mentioned sections or sub- strumentality of interstate commerce to effect sections of this chapter, classify issuers and pre- any transaction in, or to induce the purchase or scribe requirements appropriate for each such sale of, any security the registration of which class. has been and is suspended or revoked pursuant (i) Securities issued by banks to the preceding sentence. In respect of any securities issued by banks (k) Trading suspensions; emergency authority and savings associations the deposits of which (1) Trading suspensions are insured in accordance with the Federal De- If in its opinion the public interest and the posit Insurance Act [12 U.S.C. 1811 et seq.], the protection of investors so require, the Com- powers, functions, and duties vested in the Com- mission is authorized by order— mission to administer and enforce this section (A) summarily to suspend trading in any and sections 78j–1(m), 78m, 78n(a), 78n(c), 78n(d), 78n(f), and 78p of this title, and sections 7241, security (other than an exempted security) 7242, 7243, 7244, 7261(b), 7262, 7264, and 7265 of this for a period not exceeding 10 business days, title, (1) with respect to national banks and Fed- and eral savings associations, the accounts of which (B) summarily to suspend all trading on are insured by the Federal Deposit Insurance any national securities exchange or other- Corporation 1 are vested in the Comptroller of wise, in securities other than exempted secu- the Currency, (2) with respect to all other mem- rities, for a period not exceeding 90 calendar ber banks of the Federal Reserve System are days. vested in the Board of Governors of the Federal The action described in subparagraph (B) shall Reserve System, and (3) with respect to all other not take effect unless the Commission notifies insured banks and State savings associations, the President of its decision and the President the accounts of which are insured by the Federal notifies the Commission that the President Deposit Insurance Corporation, are vested in the does not disapprove of such decision. If the ac- Federal Deposit Insurance Corporation. The tions described in subparagraph (A) or (B) in- Comptroller of the Currency, the Board of Gov- volve a security futures product, the Commis- ernors of the Federal Reserve System, and the sion shall consult with and consider the views Federal Deposit Insurance Corporation shall of the Commodity Futures Trading Commis- have the power to make such rules and regula- sion. tions as may be necessary for the execution of (2) Emergency orders the functions vested in them as provided in this subsection. In carrying out their responsibilities (A) In general under this subsection, the agencies named in the The Commission, in an emergency, may by first sentence of this subsection shall issue sub- order summarily take such action to alter, stantially similar regulations to regulations and supplement, suspend, or impose require- rules issued by the Commission under this sec- ments or restrictions with respect to any tion and sections 78j–1(m), 78m, 78n(a), 78n(c), matter or action subject to regulation by 78n(d), 78n(f), and 78p of this title, and sections the Commission or a self-regulatory organi- 7241, 7242, 7243, 7244, 7261(b), 7262, 7264, and 7265 of zation under the securities laws, as the Com- this title, unless they find that implementation mission determines is necessary in the pub- of substantially similar regulations with respect lic interest and for the protection of inves- to insured banks and insured institutions are tors— not necessary or appropriate in the public inter- (i) to maintain or restore fair and or- est or for protection of investors, and publish derly securities markets (other than mar- such findings, and the detailed reasons therefor, kets in exempted securities); in the Federal Register. Such regulations of the (ii) to ensure prompt, accurate, and safe above-named agencies, or the reasons for failure clearance and settlement of transactions to publish such substantially similar regula- in securities (other than exempted securi- tions to those of the Commission, shall be pub- ties); or lished in the Federal Register within 120 days of (iii) to reduce, eliminate, or prevent the October 28, 1974, and, thereafter, within 60 days substantial disruption by the emergency of any changes made by the Commission in its of— relevant regulations and rules. (I) securities markets (other than mar- (j) Denial, suspension, or revocation of registra- kets in exempted securities), investment tion; notice and hearing companies, or any other significant por- The Commission is authorized, by order, as it tion or segment of such markets; or deems necessary or appropriate for the protec- (II) the transmission or processing of tion of investors to deny, to suspend the effec- securities transactions (other than tive date of, to suspend for a period not exceed- transactions in exempted securities). ing twelve months, or to revoke the registration (B) Effective period An order of the Commission under this 1 So in original. Probably should be followed by a comma. paragraph shall continue in effect for the pe- § 78l TITLE 15—COMMERCE AND TRADE Page 246

riod specified by the Commission, and may with and consider the views of the Secretary be extended. Except as provided in subpara- of the Treasury, the Board of Governors of the graph (C), an order of the Commission under Federal Reserve System, and the Commodity this paragraph may not continue in effect Futures Trading Commission, unless such con- for more than 10 business days, including ex- sultation is impracticable in light of the emer- tensions. gency. (C) Extension (7) Definition An order of the Commission under this For purposes of this subsection, the term paragraph may be extended to continue in ‘‘emergency’’ means— effect for more than 10 business days if, at (A) a major market disturbance character- the time of the extension, the Commission ized by or constituting— finds that the emergency still exists and de- (i) sudden and excessive fluctuations of termines that the continuation of the order securities prices generally, or a substan- beyond 10 business days is necessary in the tial threat thereof, that threaten fair and public interest and for the protection of in- orderly markets; or vestors to attain an objective described in (ii) a substantial disruption of the safe or clause (i), (ii), or (iii) of subparagraph (A). In efficient operation of the national system no event shall an order of the Commission for clearance and settlement of trans- under this paragraph continue in effect for actions in securities, or a substantial more than 30 calendar days. threat thereof; or (D) Security futures (B) a major disturbance that substantially disrupts, or threatens to substantially dis- If the actions described in subparagraph rupt— (A) involve a security futures product, the (i) the functioning of securities markets, Commission shall consult with and consider investment companies, or any other sig- the views of the Commodity Futures Trading nificant portion or segment of the securi- Commission. ties markets; or (E) Exemption (ii) the transmission or processing of se- In exercising its authority under this para- curities transactions. graph, the Commission shall not be required (l) Issuance of any security in contravention of to comply with the provisions of— rules and regulations; application to annuity (i) section 78s(c) of this title; or contracts and variable life policies (ii) section 553 of title 5. It shall be unlawful for an issuer, any class of (3) Termination of emergency actions by Presi- whose securities is registered pursuant to this dent section or would be required to be so registered The President may direct that action taken except for the exemption from registration pro- by the Commission under paragraph (1)(B) or vided by subsection (g)(2)(B) or (g)(2)(G) of this paragraph (2) of this subsection shall not con- section, by the use of any means or instrumen- tinue in effect. tality of interstate commerce, or of the mails, to issue, either originally or upon transfer, any (4) Compliance with orders of such securities in a form or with a format No member of a national securities ex- which contravenes such rules and regulations as change, broker, or dealer shall make use of the the Commission may prescribe as necessary or mails or any means or instrumentality of appropriate for the prompt and accurate clear- interstate commerce to effect any transaction ance and settlement of transactions in securi- in, or to induce the purchase or sale of, any se- ties. The provisions of this subsection shall not curity in contravention of an order of the apply to variable annuity contracts or variable Commission under this subsection unless such life policies issued by an insurance company or order has been stayed, modified, or set aside as its separate accounts. provided in paragraph (5) of this subsection or (June 6, 1934, ch. 404, title I, § 12, 48 Stat. 892; has ceased to be effective upon direction of the May 27, 1936, ch. 462, § 1, 49 Stat. 1375; Aug. 10, President as provided in paragraph (3). 1954, ch. 667, title II, § 202, 68 Stat. 686; Pub. L. (5) Limitations on review of orders 88–467, § 3, Aug. 20, 1964, 78 Stat. 565; Pub. L. An order of the Commission pursuant to this 90–439, § 1, July 29, 1968, 82 Stat. 454; Pub. L. subsection shall be subject to review only as 91–547, § 28(c), Dec. 14, 1970, 84 Stat. 1435; Pub. L. provided in section 78y(a) of this title. Review 93–495, title I, § 105(b), Oct. 28, 1974, 88 Stat. 1503; shall be based on an examination of all the in- Pub. L. 94–29, §§ 8, 9, June 4, 1975, 89 Stat. 117, 118; formation before the Commission at the time Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095; such order was issued. The reviewing court Pub. L. 100–181, title III, § 314, Dec. 4, 1987, 101 shall not enter a stay, writ of mandamus, or Stat. 1256; Pub. L. 101–73, title VII, § 744(u)(2), similar relief unless the court finds, after no- Aug. 9, 1989, 103 Stat. 441; Pub. L. 101–432, § 2, tice and hearing before a panel of the court, Oct. 16, 1990, 104 Stat. 963; Pub. L. 103–389, § 2, that the Commission’s action is arbitrary, ca- Oct. 22, 1994, 108 Stat. 4081; Pub. L. 104–62, § 4(d), pricious, an abuse of discretion, or otherwise Dec. 8, 1995, 109 Stat. 685; Pub. L. 106–554, § 1(a)(5) not in accordance with law. [title II, §§ 206(e), 208(b)(1), (2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–431, 2763A–435; Pub. L. 107–204, (6) Consultation § 3(b)(4), title II, § 205(c)(1), July 30, 2002, 116 Stat. Prior to taking any action described in para- 749, 774; Pub. L. 108–359, § 1(c)(2), Oct. 25, 2004, 118 graph (1)(B), the Commission shall consult Stat. 1666; Pub. L. 108–386, § 8(f)(4), Oct. 30, 2004, Page 247 TITLE 15—COMMERCE AND TRADE § 78l

118 Stat. 2232; Pub. L. 108–458, title VII, § 7803(b), Subsec. (i). Pub. L. 107–204, § 3(b)(4)(B), substituted (c), Dec. 17, 2004, 118 Stat. 3861, 3862; Pub. L. ‘‘and 78p of this title, and sections 7241, 7242, 7243, 7244, 111–203, title III, § 376(2), title IX, § 986(a)(2), July 7261(b), 7262, 7264, and 7265 of this title,’’ for ‘‘and 78p of this title,’’ in two places. 21, 2010, 124 Stat. 1569, 1935.) Pub. L. 107–204, § 3(b)(4)(A), substituted ‘‘this section REFERENCES IN TEXT and sections 78j–1(m), 78m’’ for ‘‘this section and sections 78m’’ in two places. This chapter, referred to in subsecs. (a), (f), and (j), 2000—Subsec. (a). Pub. L. 106–554, § 1(a)(5) [title II, was in the original ‘‘this title’’. See References in Text § 208(b)(1)], inserted at end ‘‘The provisions of this sub- note set out under section 78a of this title. section shall not apply in respect of a security futures The Securities Act of 1933, referred to in subsec. product traded on a national securities exchange.’’ (f)(1)(G)(i)(I), is act May 27, 1933, ch. 38, title I, 48 Stat. Subsec. (g)(5). Pub. L. 106–554, § 1(a)(5) [title II, 74, which is classified generally to subchapter I (§ 77a et § 208(b)(2)], inserted at end ‘‘For purposes of this sub- seq.) of chapter 2A of this title. For complete classifica- section, a security futures product shall not be consid- tion of this Act to the Code, see section 77a of this title ered a class of equity security of the issuer of the secu- and Tables. rities underlying the security futures product.’’ The Agricultural Marketing Act, approved June 15, Subsec. (k)(1). Pub. L. 106–554, § 1(a)(5) [title II, 1929, as amended, referred to in subsec. (g)(2)(E), is act § 206(e)(1)], inserted at end ‘‘If the actions described in June 15, 1929, ch. 24, 46 Stat. 11, which is classified gen- subparagraph (A) or (B) involve a security futures prod- erally to chapter 7A (§ 1141 et seq.) of Title 12, Banks uct, the Commission shall consult with and consider and Banking. For complete classification of this Act to the views of the Commodity Futures Trading Commis- the Code, see section 1141j(e) of Title 12 and Tables. sion.’’ The Federal Deposit Insurance Act, referred to in Subsec. (k)(2)(B). Pub. L. 106–554, § 1(a)(5) [title II, subsec. (i), is act Sept. 21, 1950, ch. 967, § 2, 64 Stat. 873, § 206(e)(2)], inserted after first sentence ‘‘If the actions which is classified generally to chapter 16 (§ 1811 et seq.) described in subparagraph (A) involve a security fu- of Title 12, Banks and Banking. For complete classi- tures product, the Commission shall consult with and fication of this Act to the Code, see Short Title note consider the views of the Commodity Futures Trading set out under section 1811 of Title 12 and Tables. Commission.’’ AMENDMENTS 1995—Subsec. (g)(2)(D). Pub. L. 104–62 inserted before period at end ‘‘; or any security of a fund that is ex- 2010—Subsec. (i). Pub. L. 111–203, § 376(2)(C), sub- cluded from the definition of an investment company stituted ‘‘and the Federal Deposit Insurance Corpora- under section 80a–3(c)(10)(B) of this title’’. tion’’ for ‘‘the Federal Deposit Insurance Corporation, 1994—Subsec. (f)(1), (2). Pub. L. 103–389, § 2(a), added and the Office of Thrift Supervision’’ in second sen- pars. (1) and (2) and struck out former pars. (1) and (2) tence. which related to extension of unlisted trading privi- Subsec. (i)(1). Pub. L. 111–203, § 376(2)(A), inserted leges for securities originally listed on another na- ‘‘and Federal savings associations, the accounts of tional exchange and approval process for application which are insured by the Federal Deposit Insurance for extension of such privileges, respectively. Corporation’’ after ‘‘national banks’’. Subsec. (f)(3). Pub. L. 103–389, § 2(b), substituted ‘‘Not- Subsec. (i)(3), (4). Pub. L. 111–203, § 376(2)(B), sub- withstanding paragraph (2), the Commission’’ for ‘‘The stituted ‘‘and (3) with respect to all other insured Commission’’. banks and State savings associations, the accounts of 1990—Subsec. (k). Pub. L. 101–432 amended subsec. (k) which are insured by the Federal Deposit Insurance generally. Prior to amendment, subsec. (k) read as fol- Corporation, are vested in the Federal Deposit Insur- lows: ‘‘If in its opinion the public interest and the pro- ance Corporation’’ for ‘‘(3) with respect to all other in- tection of investors so require, the Commission is au- sured banks are vested in the Federal Deposit Insur- thorized summarily to suspend trading in any security ance Corporation, and (4) with respect to savings asso- (other than an exempted security) for a period not ex- ciations the accounts of which are insured by the Fed- ceeding ten days, or with the approval of the President, eral Deposit Insurance Corporation are vested in the summarily to suspend all trading on any national secu- Office of Thrift Supervision’’. Subsec. (k)(7). Pub. L. 111–203, § 986(a)(2), amended rities exchange or otherwise, in securities other than par. (7) generally. Prior to amendment, par. (7) con- exempted securities, for a period not exceeding ninety tained similar provisions defining the term ‘‘emer- days. No member of a national securities exchange, gency’’ and provided that, notwithstanding section broker, or dealer shall make use of the mails or any 78c(a)(47) of this title, the term ‘‘securities laws’’ did means or instrumentality of interstate commerce to ef- not include the Public Utility Holding Company Act of fect any transaction in, or to induce the purchase or 1935. sale of, any security in which trading is so suspended.’’ 2004—Subsec. (g)(2)(H)(iii). Pub. L. 108–359 added cl. 1989—Subsec. (i). Pub. L. 101–73, in first sentence, in- (iii). serted ‘‘and savings associations’’ after ‘‘securities is- Subsec. (i)(1). Pub. L. 108–386 struck out ‘‘and banks sued by banks’’, struck out ‘‘or institutions the ac- operating under the Code of Law for the District of Co- counts of which are insured by the Federal Savings and lumbia’’ after ‘‘national banks’’. Loan Insurance Corporation’’ before ‘‘, the powers, Subsec. (k)(2). Pub. L. 108–458, § 7803(b)(1), amended functions, and duties’’, inserted new cl. (4) and struck par. (2) generally. Prior to amendment, par. (2) pro- out former cl. (4) which read ‘‘with respect to institu- vided Commission authority to make emergency or- tions the accounts of which are insured by the Federal ders. Savings and Loan Insurance Corporation are vested in Subsec. (k)(6), (7). Pub. L. 108–458, § 7803(c), added the Federal Home Loan Bank Board’’, and, in second pars. (6) and (7) and struck out heading and text of sentence, substituted ‘‘Office of Thrift Supervision’’ for former par. (6). Text read as follows: ‘‘For purposes of ‘‘Federal Home Loan Bank Board’’. this subsection, the term ‘emergency’ means a major 1987—Subsec. (m). Pub. L. 100–181 struck out subsec. market disturbance characterized by or constituting— (m) which read as follows: ‘‘The Commission is author- ‘‘(A) sudden and excessive fluctuations of securities ized and directed to make a study and investigation of prices generally, or a substantial threat thereof, that the practice of recording the ownership of securities in threaten fair and orderly markets, or the records of the issuer in other than the name of the ‘‘(B) a substantial disruption of the safe or efficient beneficial owner of such securities to determine (1) operation of the national system for clearance and whether such practice is consistent with the purposes settlement of securities, or a substantial threat of this chapter, with particular reference to subsection thereof.’’ (g) of this section and sections 78m, 78n, 78o(d), 78p, and 2002—Subsec. (b)(1)(J), (K). Pub. L. 107–204, § 205(c)(1), 78q–1 of this title, and (2) whether steps can be taken to substituted ‘‘a registered public accounting firm’’ for facilitate communications between issuers and the ben- ‘‘independent public accountants’’. eficial owners of their securities while at the same § 78l TITLE 15—COMMERCE AND TRADE Page 248 time retaining the benefits of such practice. The Com- curity exchange) for approval of application to extend mission shall report to the Congress its preliminary unlisted trading privileges to any security pursuant to findings within six months after June 4, 1975, and its former clause (3) of subsec. (f); the fifth sentence, to re- final conclusions and recommendations within one year quirement for differentiation by national security ex- of such date.’’ changes between quotations or transactions in listed 1986—Subsec. (g)(2)(H). Pub. L. 99–514 substituted ‘‘In- securities and in securities with unlisted trading privi- ternal Revenue Code of 1986’’ for ‘‘Internal Revenue leges, now covered by section 78s(b) of this title; the Code of 1954’’, which for purposes of codification was sixth sentence, to grouping under separate headings of translated as ‘‘title 26’’ thus requiring no change in quotations or transactions in listed securities and in text. securities with unlisted trading privileges, in the publi- 1975—Subsec. (f)(1). Pub. L. 94–29, § 8(1), added subpar. cation of quotations or transactions. (C) and in provisions following subpar. (C), substituted Subsec. (f)(3). Pub. L. 88–467, § 3(b), designated third ‘‘is based’’ for ‘‘was originally based’’ and ‘‘remains par. as (3). listed and registered on a national securities exchange’’ Subsec. (f)(4). Pub. L. 88–467, § 3(b), designated second for ‘‘shall remain listed and registered on any other na- sentence of fourth par. as (4), struck out ‘‘by reason of tional securities exchange’’. inadequate public distribution of such security in the Subsec. (f)(2). Pub. L. 94–29, § 8(1), substituted ‘‘after vicinity of said exchange, or by reason of inadequate notice and opportunity for hearing’’ for ‘‘after appro- public trading activity or of the character of trading priate notice and opportunity for hearing’’ and ‘‘con- therein on said exchange,’’ before ‘‘such termination or sistent with the maintenance of fair and orderly mar- suspension is necessary’’, and struck out first sentence kets and the protection of investors’’ for ‘‘necessary or of fourth par. which provided for the termination under appropriate in the public interest or for the protection certain conditions of unlisted trading privileges con- of investors’’ in existing provisions and added the enu- tinued for any security pursuant to former cl. (1) of meration of matters to be taken into account by the subsec. (f), now incorporated in par. (1)(A) of subsec. (f). Commission in considering an application for the ex- Subsec. (f)(5), (6). Pub. L. 88–467, § 3(b), designated tension of unlisted trading privileges to a security not fifth and sixth pars. as (5) and (6). listed and registered on a national securities exchange. Subsecs. (g) to (i). Pub. L. 88–467, § 3(c)–(e), added sub- Subsec. (f)(6). Pub. L. 94–29, § 8(2), substituted ‘‘this secs. (g) to (i). chapter’’ for ‘‘section 78s(b) of this title’’. 1954—Subsec. (d). Act Aug. 10, 1954, repealed last sen- Subsecs. (j) to (m). Pub. L. 94–29, § 9, added subsecs. (j) tence requiring that rules and regulations limit the to (m). registration of unissued security to specified cases. 1974—Subsec. (i). Pub. L. 93–495 added coverage of in- 1936—Subsec. (f). Act May 27, 1936, amended first par. stitutions insured by the Federal Savings and Loan In- and added subsequent pars. surance Corporation, cl. (4), and provisions authorizing EFFECTIVE DATE OF 2010 AMENDMENT the Federal Home Loan Bank Board to promulgate necessary rules and regulations, and substituted provisions Amendment by section 986(a)(2) of Pub. L. 111–203 ef- relating to issuance of regulations in order to imple- fective 1 day after July 21, 2010, except as otherwise ment agency responsibility under this subsec. for provi- provided, see section 4 of Pub. L. 111–203, set out as an sions relating to the binding effect of rules, regula- Effective Date note under section 5301 of Title 12, tions, forms or orders issued or adopted by the Commis- Banks and Banking. sion pursuant to this chapter. Amendment by section 376(2) of Pub. L. 111–203 effec- 1970—Subsec. (g)(2)(H). Pub. L. 91–547 added subpar. tive on the transfer date, see section 351 of Pub. L. (H). 111–203, set out as a note under section 906 of Title 2, 1968—Subsec. (i). Pub. L. 90–439 inserted ‘‘78n(d), The Congress. 78n(f),’’ after ‘‘78n(c)’’. EFFECTIVE DATE OF 2004 AMENDMENT 1964—Subsec. (b)(1)(I) to (L). Pub. L. 88–467, § 3(a)(1), (2), added subpar. (I) and redesignated former subpars. Amendment by Pub. L. 108–386 effective Oct. 30, 2004, (I) to (K) as (J) to (L), respectively. and, except as otherwise provided, applicable with re- Subsec. (b)(3). Pub. L. 88–467, § 3(a)(3), added par. (3). spect to fiscal year 2005 and each succeeding fiscal Subsec. (f)(1). Pub. L. 88–467, § 3(b), designated first year, see sections 8(i) and 9 of Pub. L. 108–386, set out par. as (1), redesignated cl. (1) as cl. (A) and substituted as notes under section 321 of Title 12, Banks and Bank- therein ‘‘July 1, 1964’’ for ‘‘March 1, 1934’’, redesignated ing. cl. (2) as cl. (B) and struck out the provision for con- EFFECTIVE DATE OF 1995 AMENDMENT tinuation of unlisted trading privileges, which is now incorporated in concluding sentence, and struck out cl. Amendment by Pub. L. 104–62 applicable as defense to (3) which permitted a national security exchange to ex- any claim in administrative and judicial actions pend- tend unlisted trading privileges to any security in re- ing on or commenced after Dec. 8, 1995, that any person, spect to which there was available information sub- security, interest, or participation of type described in stantially equivalent to that available in respect to a Pub. L. 104–62 is subject to the Securities Act of 1933, security duly listed and registered on a national securi- the Securities Exchange Act of 1934, the Investment ties exchange, so long as the registration statement Company Act of 1940, the Investment Advisers Act of was effective and the reports and data continued to be 1940, or any State statute or regulation preempted as filed. provided in section 80a–3a of this title, except as spe- Subsec. (f)(2). Pub. L. 88–467, § 3(b), designated first cifically provided in such statutes, see section 7 of Pub. sentence of second par. as (2) and substituted therein L. 104–62, set out as a note under section 77c of this ‘‘finds, after appropriate notice and opportunity for title. hearing, that the extension’’ for ‘‘finds that the continuation or extension’’, and struck out second through EFFECTIVE DATE OF 1975 AMENDMENT sixth sentences of such second par. which related as fol- Amendment by Pub. L. 94–29 effective June 4, 1975, lows: the second sentence, to notice and opportunity see section 31(a) of Pub. L. 94–29, set out as a note under for hearing, now incorporated in par. (2); the third sen- section 78b of this title. tence, to conditions (respecting sufficiently widespread public distribution and sufficient public trading activ- EFFECTIVE DATE OF 1970 AMENDMENT ity) for approval of application to extend unlisted trad- Amendment by Pub. L. 91–547 effective Dec. 14, 1970, ing privileges to any security pursuant to former see section 30 of Pub. L. 91–547, set out as a note under clauses (2) and (3) of subsec. (f); the fourth sentence, to section 80a–52 of this title. terms and conditions (subjecting issuer, officers, and EFFECTIVE DATE OF 1964 AMENDMENT directors of issuer, and beneficial owners of more than 10 per centum of the securities to duties equivalent to Amendment by section 3(a), (c) of Pub. L. 88–467 effec- duties if the securities were registered on a national se- tive July 1, 1964, and amendment by section 3(b), (d), (e) Page 249 TITLE 15—COMMERCE AND TRADE § 78m of Pub. L. 88–467 effective Aug. 20, 1964, see section 13 of statement filed pursuant to section 78l of this Pub. L. 88–467, set out as a note under section 78c of title, except that the Commission may not re- this title. quire the filing of any material contract whol- EFFECTIVE DATE OF 1954 AMENDMENT ly executed before July 1, 1962. (2) such annual reports (and such copies Amendment by act Aug. 10, 1954, effective 60 days thereof), certified if required by the rules and after Aug. 10, 1954, see note under section 77b of this title. regulations of the Commission by independent public accountants, and such quarterly reports TRANSFER OF FUNCTIONS (and such copies thereof), as the Commission For transfer of functions of Securities and Exchange may prescribe. Commission, with certain exceptions, to Chairman of Every issuer of a security registered on a na- such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, tional securities exchange shall also file a dupli- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under cate original of such information, documents, section 78d of this title. and reports with the exchange. ADDITIONAL DISCLOSURE REQUIREMENTS (b) Form of report; books, records, and internal Pub. L. 111–203, title IX, § 953(b), July 21, 2010, 124 accounting; directives Stat. 1904, provided that: (1) The Commission may prescribe, in regard ‘‘(1) IN GENERAL.—The Commission shall amend sec- to reports made pursuant to this chapter, the tion 229.402 of title 17, Code of Federal Regulations, to form or forms in which the required information require each issuer to disclose in any filing of the issuer described in section 229.10(a) of title 17, Code of shall be set forth, the items or details to be Federal Regulations (or any successor thereto)— shown in the balance sheet and the earnings ‘‘(A) the median of the annual total compensation statement, and the methods to be followed in of all employees of the issuer, except the chief execu- the preparation of reports, in the appraisal or tive officer (or any equivalent position) of the issuer; valuation of assets and liabilities, in the deter- ‘‘(B) the annual total compensation of the chief ex- mination of depreciation and depletion, in the ecutive officer (or any equivalent position) of the is- differentiation of recurring and nonrecurring in- suer; and come, in the differentiation of investment and ‘‘(C) the ratio of the amount described in subparagraph (A) to the amount described in subparagraph operating income, and in the preparation, where (B). the Commission deems it necessary or desirable, ‘‘(2) TOTAL COMPENSATION.—For purposes of this sub- of separate and/or consolidated balance sheets or section, the total compensation of an employee of an income accounts of any person directly or indi- issuer shall be determined in accordance with section rectly controlling or controlled by the issuer, or 229.402(c)(2)(x) of title 17, Code of Federal Regulations, any person under direct or indirect common as in effect on the day before the date of enactment of control with the issuer; but in the case of the re- this Act [July 21, 2010].’’ ports of any person whose methods of account- [For definitions of ‘‘Commission’’ and ‘‘issuer’’ as ing are prescribed under the provisions of any used in section 953(b) of Pub. L. 111–203, set out above, see section 5301 of Title 12, Banks and Banking.] law of the United States, or any rule or regulation thereunder, the rules and regulations of the § 78l–1. Applications for unlisted trading privi- Commission with respect to reports shall not be leges deemed filed under section 78l of this inconsistent with the requirements imposed by title such law or rule or regulation in respect of the same subject matter (except that such rules and Any application to continue unlisted trading regulations of the Commission may be inconsist- privileges for any security heretofore filed by ent with such requirements to the extent that any exchange and approved by the Commission the Commission determines that the public in- pursuant to clause (1) of subsection (f) of section terest or the protection of investors so requires). 78l of this title and rules and regulations there- (2) Every issuer which has a class of securities under shall be deemed to have been filed and ap- registered pursuant to section 78l of this title proved pursuant to clause (1) of said subsection and every issuer which is required to file reports (f). pursuant to section 78o(d) of this title shall— (May 27, 1936, ch. 462, § 2, 49 Stat. 1377.) (A) make and keep books, records, and accounts, which, in reasonable detail, accurately CODIFICATION and fairly reflect the transactions and disposi- Section was not enacted as a part of the Securities tions of the assets of the issuer; Exchange Act of 1934 which comprises this chapter. (B) devise and maintain a system of internal accounting controls sufficient to provide rea- § 78m. Periodical and other reports sonable assurances that— (a) Reports by issuer of security; contents (i) transactions are executed in accordance with management’s general or specific au- Every issuer of a security registered pursuant thorization; to section 78l of this title shall file with the (ii) transactions are recorded as necessary Commission, in accordance with such rules and (I) to permit preparation of financial state- regulations as the Commission may prescribe as ments in conformity with generally accepted necessary or appropriate for the proper protec- accounting principles or any other criteria tion of investors and to insure fair dealing in applicable to such statements, and (II) to the security— maintain accountability for assets; (1) such information and documents (and (iii) access to assets is permitted only in such copies thereof) as the Commission shall accordance with management’s general or require to keep reasonably current the infor- specific authorization; and mation and documents required to be included (iv) the recorded accountability for assets in or filed with an application or registration is compared with the existing assets at rea- § 78m TITLE 15—COMMERCE AND TRADE Page 250

sonable intervals and appropriate action is (c) Alternative reports taken with respect to any differences; and If in the judgment of the Commission any re- (C) notwithstanding any other provision of port required under subsection (a) of this section law, pay the allocable share of such issuer of is inapplicable to any specified class or classes a reasonable annual accounting support fee or of issuers, the Commission shall require in lieu fees, determined in accordance with section thereof the submission of such reports of com- 7219 of this title. parable character as it may deem applicable to such class or classes of issuers. (3)(A) With respect to matters concerning the (d) Reports by persons acquiring more than five national security of the United States, no duty per centum of certain classes of securities or liability under paragraph (2) of this subsection shall be imposed upon any person acting (1) Any person who, after acquiring directly or in cooperation with the head of any Federal de- indirectly the beneficial ownership of any equity partment or agency responsible for such matters security of a class which is registered pursuant if such act in cooperation with such head of a to section 78l of this title, or any equity security department or agency was done upon the spe- of an insurance company which would have been cific, written directive of the head of such de- required to be so registered except for the ex- partment or agency pursuant to Presidential au- emption contained in section 78l(g)(2)(G) of this thority to issue such directives. Each directive title, or any equity security issued by a closed- issued under this paragraph shall set forth the end investment company registered under the specific facts and circumstances with respect to Investment Company Act of 1940 [15 U.S.C. 80a–1 which the provisions of this paragraph are to be et seq.] or any equity security issued by a Na- invoked. Each such directive shall, unless re- tive Corporation pursuant to section 1629c(d)(6) newed in writing, expire one year after the date of title 43, or otherwise becomes or is deemed to of issuance. become a beneficial owner of any of the foregoing upon the purchase or sale of a security- (B) Each head of a Federal department or based swap that the Commission may define by agency of the United States who issues a direc- rule, and is directly or indirectly the beneficial tive pursuant to this paragraph shall maintain a owner of more than 5 per centum of such class complete file of all such directives and shall, on shall, within ten days after such acquisition or October 1 of each year, transmit a summary of within such shorter time as the Commission matters covered by such directives in force at may establish by rule, file with the Commission, any time during the previous year to the Perma- a statement containing such of the following in- nent Select Committee on Intelligence of the formation, and such additional information, as House of Representatives and the Select Com- the Commission may by rules and regulations, mittee on Intelligence of the Senate. prescribe as necessary or appropriate in the pub- (4) No criminal liability shall be imposed for lic interest or for the protection of investors— failing to comply with the requirements of para- (A) the background, and identity, residence, graph (2) of this subsection except as provided in and citizenship of, and the nature of such ben- paragraph (5) of this subsection. eficial ownership by, such person and all other (5) No person shall knowingly circumvent or persons by whom or on whose behalf the pur- knowingly fail to implement a system of inter- chases have been or are to be effected; nal accounting controls or knowingly falsify (B) the source and amount of the funds or any book, record, or account described in para- other consideration used or to be used in mak- graph (2). ing the purchases, and if any part of the pur- (6) Where an issuer which has a class of securi- chase price is represented or is to be rep- ties registered pursuant to section 78l of this resented by funds or other consideration bor- title or an issuer which is required to file re- rowed or otherwise obtained for the purpose of ports pursuant to section 78o(d) of this title acquiring, holding, or trading such security, a holds 50 per centum or less of the voting power description of the transaction and the names with respect to a domestic or foreign firm, the of the parties thereto, except that where a provisions of paragraph (2) require only that the source of funds is a loan made in the ordinary issuer proceed in good faith to use its influence, course of business by a bank, as defined in sec- to the extent reasonable under the issuer’s cir- tion 78c(a)(6) of this title, if the person filing cumstances, to cause such domestic or foreign such statement so requests, the name of the firm to devise and maintain a system of internal bank shall not be made available to the public; accounting controls consistent with paragraph (C) if the purpose of the purchases or pro- (2). Such circumstances include the relative de- spective purchases is to acquire control of the gree of the issuer’s ownership of the domestic or business of the issuer of the securities, any foreign firm and the laws and practices govern- plans or proposals which such persons may ing the business operations of the country in have to liquidate such issuer, to sell its assets which such firm is located. An issuer which to or merge it with any other persons, or to demonstrates good faith efforts to use such in- make any other major change in its business fluence shall be conclusively presumed to have or corporate structure; complied with the requirements of paragraph (D) the number of shares of such security (2). which are beneficially owned, and the number (7) For the purpose of paragraph (2) of this sub- of shares concerning which there is a right to section, the terms ‘‘reasonable assurances’’ and acquire, directly or indirectly, by (i) such per- ‘‘reasonable detail’’ mean such level of detail son, and (ii) by each associate of such person, and degree of assurance as would satisfy prudent giving the background, identity, residence, officials in the conduct of their own affairs. and citizenship of each such associate; and Page 251 TITLE 15—COMMERCE AND TRADE § 78m

(E) information as to any contracts, ar- (e) Purchase of securities by issuer rangements, or understandings with any per- (1) It shall be unlawful for an issuer which has son with respect to any securities of the is- a class of equity securities registered pursuant suer, including but not limited to transfer of to section 78l of this title, or which is a closed- any of the securities, joint ventures, loan or end investment company registered under the option arrangements, puts or calls, guaranties Investment Company Act of 1940 [15 U.S.C. 80a–1 of loans, guaranties against loss or guaranties et seq.], to purchase any equity security issued of profits, division of losses or profits, or the by it if such purchase is in contravention of such giving or withholding of proxies, naming the rules and regulations as the Commission, in the persons with whom such contracts, arrange- public interest or for the protection of investors, ments, or understandings have been entered may adopt (A) to define acts and practices which into, and giving the details thereof. are fraudulent, deceptive, or manipulative, and (2) If any material change occurs in the facts (B) to prescribe means reasonably designed to set forth in the statement filed with the Com- prevent such acts and practices. Such rules and mission, an amendment shall be filed with the regulations may require such issuer to provide Commission, in accordance with such rules and holders of equity securities of such class with regulations as the Commission may prescribe as such information relating to the reasons for necessary or appropriate in the public interest such purchase, the source of funds, the number or for the protection of investors. of shares to be purchased, the price to be paid (3) When two or more persons act as a partner- for such securities, the method of purchase, and ship, limited partnership, syndicate, or other such additional information, as the Commission group for the purpose of acquiring, holding, or deems necessary or appropriate in the public in- disposing of securities of an issuer, such syn- terest or for the protection of investors, or dicate or group shall be deemed a ‘‘person’’ for which the Commission deems to be material to the purposes of this subsection. a determination whether such security should (4) In determining, for purposes of this sub- be sold. section, any percentage of a class of any secu- (2) For the purpose of this subsection, a pur- rity, such class shall be deemed to consist of the chase by or for the issuer or any person control- amount of the outstanding securities of such ling, controlled by, or under common control class, exclusive of any securities of such class with the issuer, or a purchase subject to control held by or for the account of the issuer or a sub- of the issuer or any such person, shall be deemed sidiary of the issuer. to be a purchase by the issuer. The Commission (5) The Commission, by rule or regulation or shall have power to make rules and regulations by order, may permit any person to file in lieu implementing this paragraph in the public inter- of the statement required by paragraph (1) of est and for the protection of investors, including this subsection or the rules and regulations exemptive rules and regulations covering situa- thereunder, a notice stating the name of such tions in which the Commission deems it unnec- person, the number of shares of any equity secu- essary or inappropriate that a purchase of the rities subject to paragraph (1) which are owned type described in this paragraph shall be deemed by him, the date of their acquisition and such to be a purchase by the issuer for purposes of other information as the Commission may speci- some or all of the provisions of paragraph (1) of fy, if it appears to the Commission that such se- this subsection. curities were acquired by such person in the or- (3) At the time of filing such statement as the dinary course of his business and were not ac- Commission may require by rule pursuant to quired for the purpose of and do not have the ef- paragraph (1) of this subsection, the person fect of changing or influencing the control of making the filing shall pay to the Commission a the issuer nor in connection with or as a partici- fee at a rate that, subject to paragraph (4), is pant in any transaction having such purpose or equal to $92 per $1,000,000 of the value of securi- effect. ties proposed to be purchased. The fee shall be (6) The provisions of this subsection shall not reduced with respect to securities in an amount apply to— equal to any fee paid with respect to any securi- (A) any acquisition or offer to acquire secu- ties issued in connection with the proposed rities made or proposed to be made by means transaction under section 6(b) of the Securities of a registration statement under the Securi- Act of 1933 [15 U.S.C. 77f(b)], or the fee paid ties Act of 1933 [15 U.S.C. 77a et seq.]; under that section shall be reduced in an (B) any acquisition of the beneficial owner- amount equal to the fee paid to the Commission ship of a security which, together with all in connection with such transaction under this other acquisitions by the same person of secu- paragraph. rities of the same class during the preceding (4) ANNUAL ADJUSTMENT.—For each fiscal year, twelve months, does not exceed 2 per centum the Commission shall by order adjust the rate of that class; required by paragraph (3) for such fiscal year to (C) any acquisition of an equity security by a rate that is equal to the rate (expressed in dol- the issuer of such security; lars per million) that is applicable under section (D) any acquisition or proposed acquisition 6(b) of the Securities Act of 1933 [15 U.S.C. 77f(b)] of a security which the Commission, by rules for such fiscal year. or regulations or by order, shall exempt from (5) FEE COLLECTIONS.—Fees collected pursuant the provisions of this subsection as not en- to this subsection for fiscal year 2012 and each tered into for the purpose of, and not having fiscal year thereafter shall be deposited and the effect of, changing or influencing the con- credited as general revenue of the Treasury and trol of the issuer or otherwise as not com- shall not be available for obligation. prehended within the purposes of this sub- (6) EFFECTIVE DATE; PUBLICATION.—In exercis- section. ing its authority under this subsection, the § 78m TITLE 15—COMMERCE AND TRADE Page 252

Commission shall not be required to comply rity (other than an exempted security) ef- with the provisions of section 553 of title 5. An fected by or for such accounts; and adjusted rate prescribed under paragraph (4) (E) with respect to any transaction or series shall be published and take effect in accordance of transactions having a market value of at with section 6(b) of the Securities Act of 1933 (15 least $500,000 or such other amount as the U.S.C. 77f(b)). Commission, by rule, may determine, effected (7) PRO RATA APPLICATION.—The rates per during the reporting period by or for such ac- $1,000,000 required by this subsection shall be ap- counts in any equity security of a class de- plied pro rata to amounts and balances of less scribed in subsection (d)(1) of this section— than $1,000,000. (i) the name of the issuer and the title, (f) Reports by institutional investment managers class, and CUSIP number of the security; (1) Every institutional investment manager (ii) the number of shares or principal which uses the mails, or any means or instru- amount of the security involved in the mentality of interstate commerce in the course transaction; (iii) whether the transaction was a pur- of its business as an institutional investment chase or sale; manager and which exercises investment discre- (iv) the per share price or prices at which tion with respect to accounts holding equity se- the transaction was effected; curities of a class described in subsection (d)(1) (v) the date or dates of the transaction; of this section or otherwise becomes or is (vi) the date or dates of the settlement of deemed to become a beneficial owner of any se- the transaction; curity of a class described in subsection (d)(1) (vii) the broker or dealer through whom upon the purchase or sale of a security-based the transaction was effected; swap that the Commission may define by rule, (viii) the market or markets in which the having an aggregate fair market value on the transaction was effected; and last trading day in any of the preceding twelve (ix) such other related information as the months of at least $100,000,000 or such lesser Commission, by rule, may prescribe. amount (but in no case less than $10,000,000) as the Commission, by rule, may determine, shall (2) The Commission shall prescribe rules pro- file reports with the Commission in such form, viding for the public disclosure of the name of for such periods, and at such times after the end the issuer and the title, class, CUSIP number, of such periods as the Commission, by rule, may aggregate amount of the number of short sales prescribe, but in no event shall such reports be of each security, and any additional information filed for periods longer than one year or shorter determined by the Commission following the than one quarter. Such reports shall include for end of the reporting period. At a minimum, such each such equity security held on the last day of public disclosure shall occur every month. the reporting period by accounts (in aggregate (3) The Commission, by rule, or order, may ex- or by type as the Commission, by rule, may pre- empt, conditionally or unconditionally, any in- scribe) with respect to which the institutional stitutional investment manager or security or investment manager exercises investment dis- any class of institutional investment managers cretion (other than securities held in amounts or securities from any or all of the provisions of which the Commission, by rule, determines to be this subsection or the rules thereunder. insignificant for purposes of this subsection), (4) The Commission shall make available to the name of the issuer and the title, class, the public for a reasonable fee a list of all equity CUSIP number, number of shares or principal securities of a class described in subsection amount, and aggregate fair market value of (d)(1) of this section, updated no less frequently each such security. Such reports may also in- than reports are required to be filed pursuant to clude for accounts (in aggregate or by type) with paragraph (1) of this subsection. The Commis- respect to which the institutional investment sion shall tabulate the information contained in manager exercises investment discretion such of any report filed pursuant to this subsection in a the following information as the Commission, manner which will, in the view of the Commis- by rule, prescribes— sion, maximize the usefulness of the information (A) the name of the issuer and the title, to other Federal and State authorities and the class, CUSIP number, number of shares or public. Promptly after the filing of any such re- principal amount, and aggregate fair market port, the Commission shall make the informa- value or cost or amortized cost of each other tion contained therein conveniently available to security (other than an exempted security) the public for a reasonable fee in such form as held on the last day of the reporting period by the Commission, by rule, may prescribe, except such accounts; that the Commission, as it determines to be nec- (B) the aggregate fair market value or cost essary or appropriate in the public interest or or amortized cost of exempted securities (in for the protection of investors, may delay or aggregate or by class) held on the last day of prevent public disclosure of any such informa- the reporting period by such accounts; tion in accordance with section 552 of title 5. (C) the number of shares of each equity secu- Notwithstanding the preceding sentence, any rity of a class described in subsection (d)(1) of such information identifying the securities held this section held on the last day of the report- by the account of a natural person or an estate ing period by such accounts with respect to or trust (other than a business trust or invest- which the institutional investment manager ment company) shall not be disclosed to the possesses sole or shared authority to exercise public. the voting rights evidenced by such securities; (5) In exercising its authority under this sub- (D) the aggregate purchases and aggregate section, the Commission shall determine (and so sales during the reporting period of each secu- state) that its action is necessary or appropriate Page 253 TITLE 15—COMMERCE AND TRADE § 78m in the public interest and for the protection of (2) If any material change occurs in the facts investors or to maintain fair and orderly mar- set forth in the statement filed with the Com- kets or, in granting an exemption, that its ac- mission, an amendment shall be filed with the tion is consistent with the protection of inves- Commission, in accordance with such rules and tors and the purposes of this subsection. In exer- regulations as the Commission may prescribe as cising such authority the Commission shall take necessary or appropriate in the public interest such steps as are within its power, including or for the protection of investors. consulting with the Comptroller General of the (3) When two or more persons act as a partner- United States, the Director of the Office of Man- ship, limited partnership, syndicate, or other agement and Budget, the appropriate regulatory group for the purpose of acquiring, holding, or agencies, Federal and State authorities which, disposing of securities of an issuer, such syn- directly or indirectly, require reports from insti- dicate or group shall be deemed a ‘‘person’’ for tutional investment managers of information the purposes of this subsection. substantially similar to that called for by this (4) In determining, for purposes of this sub- subsection, national securities exchanges, and section, any percentage of a class of any secu- registered securities associations, (A) to achieve rity, such class shall be deemed to consist of the uniform, centralized reporting of information amount of the outstanding securities of such concerning the securities holdings of and trans- class, exclusive of any securities of such class actions by or for accounts with respect to which held by or for the account of the issuer or a sub- institutional investment managers exercise in- sidiary of the issuer. vestment discretion, and (B) consistently with (5) In exercising its authority under this sub- the objective set forth in the preceding subpara- section, the Commission shall take such steps as graph, to avoid unnecessarily duplicative report- it deems necessary or appropriate in the public ing by, and minimize the compliance burden on, interest or for the protection of investors (A) to institutional investment managers. Federal au- achieve centralized reporting of information re- thorities which, directly or indirectly, require garding ownership, (B) to avoid unnecessarily reports from institutional investment managers duplicative reporting by and minimize the com- of information substantially similar to that pliance burden on persons required to report, called for by this subsection shall cooperate and (C) to tabulate and promptly make available with the Commission in the performance of its the information contained in any report filed responsibilities under the preceding sentence. pursuant to this subsection in a manner which An institutional investment manager which is a will, in the view of the Commission, maximize bank, the deposits of which are insured in ac- the usefulness of the information to other Fed- cordance with the Federal Deposit Insurance eral and State agencies and the public. Act [12 U.S.C. 1811 et seq.], shall file with the ap- (6) The Commission may, by rule or order, ex- propriate regulatory agency a copy of every re- empt, in whole or in part, any person or class of port filed with the Commission pursuant to this persons from any or all of the reporting require- subsection. ments of this subsection as it deems necessary (6)(A) For purposes of this subsection the term or appropriate in the public interest or for the ‘‘institutional investment manager’’ includes protection of investors. any person, other than a natural person, invest- (h) Large trader reporting ing in or buying and selling securities for its (1) Identification requirements for large trad- own account, and any person exercising invest- ers ment discretion with respect to the account of For the purpose of monitoring the impact on any other person. the securities markets of securities trans- (B) The Commission shall adopt such rules as actions involving a substantial volume or a it deems necessary or appropriate to prevent du- large fair market value or exercise value and plicative reporting pursuant to this subsection for the purpose of otherwise assisting the by two or more institutional investment man- Commission in the enforcement of this chap- agers exercising investment discretion with re- ter, each large trader shall— spect to the same amount.1 (A) provide such information to the Com- (g) Statement of equity security ownership mission as the Commission may by rule or (1) Any person who is directly or indirectly the regulation prescribe as necessary or appro- beneficial owner of more than 5 per centum of priate, identifying such large trader and all any security of a class described in subsection accounts in or through which such large (d)(1) of this section or otherwise becomes or is trader effects such transactions; and deemed to become a beneficial owner of any se- (B) identify, in accordance with such rules curity of a class described in subsection (d)(1) or regulations as the Commission may pre- upon the purchase or sale of a security-based scribe as necessary or appropriate, to any swap that the Commission may define by rule registered broker or dealer by or through shall file with the Commission a statement set- whom such large trader directly or indi- ting forth, in such form and at such time as the rectly effects securities transactions, such Commission may, by rule, prescribe— large trader and all accounts directly or in- (A) such person’s identity, residence, and directly maintained with such broker or citizenship; and dealer by such large trader in or through (B) the number and description of the shares which such transactions are effected. in which such person has an interest and the (2) Recordkeeping and reporting requirements nature of such interest. for brokers and dealers Every registered broker or dealer shall make 1 So in original. Probably should be ‘‘account.’’ and keep for prescribed periods such records as § 78m TITLE 15—COMMERCE AND TRADE Page 254

the Commission by rule or regulation pre- (7) Authority of Commission to limit disclosure scribes as necessary or appropriate in the pub- of information lic interest, for the protection of investors, or Notwithstanding any other provision of law, otherwise in furtherance of the purposes of the Commission shall not be compelled to dis- this chapter, with respect to securities trans- close any information required to be kept or actions that equal or exceed the reporting ac- reported under this subsection. Nothing in this tivity level effected directly or indirectly by subsection shall authorize the Commission to or through such registered broker or dealer of withhold information from Congress, or pre- or for any person that such broker or dealer vent the Commission from complying with a knows is a large trader, or any person that request for information from any other Fed- such broker or dealer has reason to know is a eral department or agency requesting informa- large trader on the basis of transactions in se- tion for purposes within the scope of its juris- curities effected by or through such broker or diction, or complying with an order of a court dealer. Such records shall be available for re- of the United States in an action brought by porting to the Commission, or any self-regu- the United States or the Commission. For pur- latory organization that the Commission shall poses of section 552 of title 5, this subsection designate to receive such reports, on the shall be considered a statute described in sub- morning of the day following the day the section (b)(3)(B) of such section 552. transactions were effected, and shall be reported to the Commission or a self-regulatory (8) Definitions organization designated by the Commission For purposes of this subsection— immediately upon request by the Commission (A) the term ‘‘large trader’’ means every or such a self-regulatory organization. Such person who, for his own account or an ac- records and reports shall be in a format and count for which he exercises investment dis- transmitted in a manner prescribed by the cretion, effects transactions for the purchase Commission (including, but not limited to, or sale of any publicly traded security or se- machine readable form). curities by use of any means or instrumen- (3) Aggregation rules tality of interstate commerce or of the mails, or of any facility of a national securi- The Commission may prescribe rules or reg- ties exchange, directly or indirectly by or ulations governing the manner in which trans- through a registered broker or dealer in an actions and accounts shall be aggregated for aggregate amount equal to or in excess of the purpose of this subsection, including ag- the identifying activity level; gregation on the basis of common ownership (B) the term ‘‘publicly traded security’’ or control. means any equity security (including an op- (4) Examination of broker and dealer records tion on individual equity securities, and an All records required to be made and kept by option on a group or index of such securities) registered brokers and dealers pursuant to this listed, or admitted to unlisted trading privi- subsection with respect to transactions ef- leges, on a national securities exchange, or fected by large traders are subject at any quoted in an automated interdealer time, or from time to time, to such reasonable quotation system; periodic, special, or other examinations by (C) the term ‘‘identifying activity level’’ representatives of the Commission as the means transactions in publicly traded secu- Commission deems necessary or appropriate in rities at or above a level of volume, fair mar- the public interest, for the protection of inves- ket value, or exercise value as shall be fixed tors, or otherwise in furtherance of the pur- from time to time by the Commission by poses of this chapter. rule or regulation, specifying the time interval during which such transactions shall be (5) Factors to be considered in Commission ac- aggregated; tions (D) the term ‘‘reporting activity level’’ In exercising its authority under this sub- means transactions in publicly traded secu- section, the Commission shall take into ac- rities at or above a level of volume, fair mar- count— ket value, or exercise value as shall be fixed (A) existing reporting systems; from time to time by the Commission by (B) the costs associated with maintaining rule, regulation, or order, specifying the information with respect to transactions ef- time interval during which such trans- fected by large traders and reporting such actions shall be aggregated; and information to the Commission or self-regu- (E) the term ‘‘person’’ has the meaning latory organizations; and given in section 78c(a)(9) of this title and (C) the relationship between the United also includes two or more persons acting as States and international securities markets. a partnership, limited partnership, syn- (6) Exemptions dicate, or other group, but does not include a foreign central bank. The Commission, by rule, regulation, or order, consistent with the purposes of this (i) Accuracy of financial reports chapter, may exempt any person or class of Each financial report that contains financial persons or any transaction or class of trans- statements, and that is required to be prepared actions, either conditionally or upon specified in accordance with (or reconciled to) generally terms and conditions or for stated periods, accepted accounting principles under this chap- from the operation of this subsection, and the ter and filed with the Commission shall reflect rules and regulations thereunder. all material correcting adjustments that have Page 255 TITLE 15—COMMERCE AND TRADE § 78m been identified by a registered public accounting (l) Real time issuer disclosures firm in accordance with generally accepted ac- Each issuer reporting under subsec. (a) of this counting principles and the rules and regula- section or section 78o(d) of this title shall dis- tions of the Commission. close to the public on a rapid and current basis (j) Off-balance sheet transactions such additional information concerning mate- Not later than 180 days after July 30, 2002, the rial changes in the financial condition or oper- Commission shall issue final rules providing ations of the issuer, in plain English, which may that each annual and quarterly financial report include trend and qualitative information and required to be filed with the Commission shall graphic presentations, as the Commission deter- disclose all material off-balance sheet trans- mines, by rule, is necessary or useful for the pro- actions, arrangements, obligations (including tection of investors and in the public interest. contingent obligations), and other relationships (m) Public availability of security-based swap of the issuer with unconsolidated entities or transaction data other persons, that may have a material current (1) In general or future effect on financial condition, changes (A) Definition of real-time public reporting in financial condition, results of operations, liquidity, capital expenditures, capital resources, In this paragraph, the term ‘‘real-time or significant components of revenues or ex- public reporting’’ means to report data re- penses. lating to a security-based swap transaction, including price and volume, as soon as tech- (k) Prohibition on personal loans to executives nologically practicable after the time at (1) In general which the security-based swap transaction It shall be unlawful for any issuer (as de- has been executed. fined in section 7201 of this title), directly or (B) Purpose indirectly, including through any subsidiary, The purpose of this subsection is to au- to extend or maintain credit, to arrange for thorize the Commission to make security- the extension of credit, or to renew an exten- based swap transaction and pricing data sion of credit, in the form of a personal loan to available to the public in such form and at or for any director or executive officer (or such times as the Commission determines equivalent thereof) of that issuer. An exten- appropriate to enhance price discovery. sion of credit maintained by the issuer on July 30, 2002, shall not be subject to the provisions (C) General rule of this subsection, provided that there is no The Commission is authorized to provide material modification to any term of any such by rule for the public availability of secu- extension of credit or any renewal of any such rity-based swap transaction, volume, and extension of credit on or after July 30, 2002. pricing data as follows: (2) Limitation (i) With respect to those security-based swaps that are subject to the mandatory Paragraph (1) does not preclude any home clearing requirement described in section improvement and manufactured home loans 78c–3(a)(1) of this title (including those se- (as that term is defined in section 1464 of title curity-based swaps that are excepted from 12), consumer credit (as defined in section 1602 the requirement pursuant to section of this title), or any extension of credit under 78c–3(g) of this title), the Commission shall an open end credit plan (as defined in section require real-time public reporting for such 1602 of this title), or a charge card (as defined transactions. in section 1637(c)(4)(e) of this title), or any ex- (ii) With respect to those security-based tension of credit by a broker or dealer reg- swaps that are not subject to the manda- istered under section 78o of this title to an em- tory clearing requirement described in sec- ployee of that broker or dealer to buy, trade, tion 78c–3(a)(1) of this title, but are cleared or carry securities, that is permitted under at a registered clearing agency, the Com- rules or regulations of the Board of Governors mission shall require real-time public re- of the Federal Reserve System pursuant to porting for such transactions. section 78g of this title (other than an exten- (iii) With respect to security-based swaps sion of credit that would be used to purchase that are not cleared at a registered clear- the stock of that issuer), that is— ing agency and which are reported to a se- (A) made or provided in the ordinary curity-based swap data repository or the course of the consumer credit business of Commission under section 78c–3(a)(6) of such issuer; this title,2 the Commission shall require (B) of a type that is generally made avail- real-time public reporting for such trans- able by such issuer to the public; and actions, in a manner that does not disclose (C) made by such issuer on market terms, the business transactions and market posi- or terms that are no more favorable than tions of any person. those offered by the issuer to the general (iv) With respect to security-based swaps public for such extensions of credit. that are determined to be required to be (3) Rule of construction for certain loans cleared under section 78c–3(b) of this title Paragraph (1) does not apply to any loan but are not cleared, the Commission shall made or maintained by an insured depository require real-time public reporting for such institution (as defined in section 3 of the Fed- transactions. eral Deposit Insurance Act (12 U.S.C. 1813)), if the loan is subject to the insider lending re- 2 So in original. Section 78c–3(a) of this title does not contain strictions of section 375b of title 12. a par. (6). § 78m TITLE 15—COMMERCE AND TRADE Page 256

(D) Registered entities and public reporting sponsibilities of the Commission under this The Commission may require registered paragraph in accordance with such terms entities to publicly disseminate the secu- and conditions as the Commission deter- rity-based swap transaction and pricing data mines to be appropriate and in the public in- required to be reported under this para- terest. graph. (n) Security-based swap data repositories (E) Rulemaking required (1) Registration requirement With respect to the rule providing for the It shall be unlawful for any person, unless public availability of transaction and pric- registered with the Commission, directly or ing data for security-based swaps described indirectly, to make use of the mails or any in clauses (i) and (ii) of subparagraph (C), means or instrumentality of interstate com- the rule promulgated by the Commission merce to perform the functions of a security- shall contain provisions— based swap data repository. (i) to ensure such information does not (2) Inspection and examination identify the participants; Each registered security-based swap data re- (ii) to specify the criteria for determin- pository shall be subject to inspection and ex- ing what constitutes a large notional secu- amination by any representative of the Com- rity-based swap transaction (block trade) mission. for particular markets and contracts; (3) Compliance with core principles (iii) to specify the appropriate time (A) In general delay for reporting large notional security-based swap transactions (block To be registered, and maintain registra- trades) to the public; and tion, as a security-based swap data reposi- (iv) that take into account whether the tory, the security-based swap data reposi- public disclosure will materially reduce tory shall comply with— market liquidity. (i) the requirements and core principles described in this subsection; and (F) Timeliness of reporting (ii) any requirement that the Commis- Parties to a security-based swap (including sion may impose by rule or regulation. agents of the parties to a security-based (B) Reasonable discretion of security-based swap) shall be responsible for reporting secu- swap data repository rity-based swap transaction information to Unless otherwise determined by the Com- the appropriate registered entity in a timely mission, by rule or regulation, a security- manner as may be prescribed by the Com- based swap data repository described in submission. paragraph (A) shall have reasonable discre- (G) Reporting of swaps to registered secu- tion in establishing the manner in which the rity-based swap data repositories security-based swap data repository com- Each security-based swap (whether cleared plies with the core principles described in or uncleared) shall be reported to a reg- this subsection. istered security-based swap data repository. (4) Standard setting (H) Registration of clearing agencies (A) Data identification A clearing agency may register as a secu- (i) In general rity-based swap data repository. In accordance with clause (ii), the Com- (2) Semiannual and annual public reporting of mission shall prescribe standards that aggregate security-based swap data specify the data elements for each secu- (A) In general rity-based swap that shall be collected and maintained by each registered security- In accordance with subparagraph (B), the based swap data repository. Commission shall issue a written report on a (ii) Requirement semiannual and annual basis to make available to the public information relating to— In carrying out clause (i), the Commis- (i) the trading and clearing in the major sion shall prescribe consistent data ele- security-based swap categories; and ment standards applicable to registered (ii) the market participants and develop- entities and reporting counterparties. ments in new products. (B) Data collection and maintenance (B) Use; consultation The Commission shall prescribe data col- In preparing a report under subparagraph lection and data maintenance standards for (A), the Commission shall— security-based swap data repositories. (i) use information from security-based (C) Comparability swap data repositories and clearing agen- The standards prescribed by the Commis- cies; and sion under this subsection shall be com- (ii) consult with the Office of the Comp- parable to the data standards imposed by the troller of the Currency, the Bank for Inter- Commission on clearing agencies in connec- national Settlements, and such other regu- tion with their clearing of security-based latory bodies as may be necessary. swaps. (C) Authority of Commission (5) Duties The Commission may, by rule, regulation, A security-based swap data repository or order, delegate the public reporting re- shall— Page 257 TITLE 15—COMMERCE AND TRADE § 78m

(A) accept data prescribed by the Commis- (6) Designation of chief compliance officer sion for each security-based swap under sub- (A) In general section (b); Each security-based swap data repository (B) confirm with both counterparties to shall designate an individual to serve as a the security-based swap the accuracy of the chief compliance officer. data that was submitted; (B) Duties (C) maintain the data described in subparagraph (A) in such form, in such manner, The chief compliance officer shall— and for such period as may be required by (i) report directly to the board or to the the Commission; senior officer of the security-based swap data repository; (D)(i) provide direct electronic access to (ii) review the compliance of the secu- the Commission (or any designee of the rity-based swap data repository with re- Commission, including another registered spect to the requirements and core prin- entity); and ciples described in this subsection; (ii) provide the information described in (iii) in consultation with the board of subparagraph (A) in such form and at such the security-based swap data repository, a frequency as the Commission may require to body performing a function similar to the comply with the public reporting require- board of the security-based swap data re- ments set forth in subsection (m); pository, or the senior officer of the secu- (E) at the direction of the Commission, es- rity-based swap data repository, resolve tablish automated systems for monitoring, any conflicts of interest that may arise; screening, and analyzing security-based (iv) be responsible for administering swap data; each policy and procedure that is required (F) maintain the privacy of any and all se- to be established pursuant to this section; curity-based swap transaction information (v) ensure compliance with this chapter that the security-based swap data repository (including regulations) relating to agree- receives from a security-based swap dealer, ments, contracts, or transactions, includ- counterparty, or any other registered entity; ing each rule prescribed by the Commis- and sion under this section; (G) on a confidential basis pursuant to sec- (vi) establish procedures for the remedi- tion 78x of this title, upon request, and after ation of noncompliance issues identified notifying the Commission of the request, by the chief compliance officer through make available all data obtained by the se- any— curity-based swap data repository, including (I) compliance office review; individual counterparty trade and position (II) look-back; (III) internal or external audit finding; data, to— (IV) self-reported error; or (i) each appropriate prudential regu- (V) validated complaint; and lator; (ii) the Financial Stability Oversight (vii) establish and follow appropriate Council; procedures for the handling, management response, remediation, retesting, and clos- (iii) the Commodity Futures Trading ing of noncompliance issues. Commission; (C) Annual reports (iv) the Department of Justice; and (v) any other person that the Commis- (i) In general sion determines to be appropriate, includ- In accordance with rules prescribed by ing— the Commission, the chief compliance offi- (I) foreign financial supervisors (in- cer shall annually prepare and sign a re- cluding foreign futures authorities); port that contains a description of— (II) foreign central banks; and (I) the compliance of the security- based swap data repository of the chief (III) foreign ministries. compliance officer with respect to this (H) CONFIDENTIALITY AND INDEMNIFICATION chapter (including regulations); and AGREEMENT.—Before the security-based swap (II) each policy and procedure of the data repository may share information with security-based swap data repository of any entity described in subparagraph (G)— the chief compliance officer (including (i) the security-based swap data reposi- the code of ethics and conflict of interest tory shall receive a written agreement policies of the security-based swap data from each entity stating that the entity repository). shall abide by the confidentiality require- (ii) Requirements ments described in section 78x of this title A compliance report under clause (i) relating to the information on security- shall— based swap transactions that is provided; (I) accompany each appropriate finan- and cial report of the security-based swap (ii) each entity shall agree to indemnify data repository that is required to be the security-based swap data repository furnished to the Commission pursuant to and the Commission for any expenses aris- this section; and ing from litigation relating to the infor- (II) include a certification that, under mation provided under section 78x of this penalty of law, the compliance report is title. accurate and complete. § 78m TITLE 15—COMMERCE AND TRADE Page 258

(7) Core principles applicable to security-based (o) Beneficial ownership swap data repositories For purposes of this section and section 78p of (A) Antitrust considerations this title, a person shall be deemed to acquire Unless necessary or appropriate to achieve beneficial ownership of an equity security based the purposes of this chapter, the swap data on the purchase or sale of a security-based swap, repository shall not— only to the extent that the Commission, by rule, (i) adopt any rule or take any action determines after consultation with the pruden- that results in any unreasonable restraint tial regulators and the Secretary of the Treas- of trade; or ury, that the purchase or sale of the security- (ii) impose any material anticompetitive based swap, or class of security-based swap, pro- burden on the trading, clearing, or report- vides incidents of ownership comparable to di- ing of transactions. rect ownership of the equity security, and that (B) Governance arrangements it is necessary to achieve the purposes of this section that the purchase or sale of the security- Each security-based swap data repository based swaps, or class of security-based swap, be shall establish governance arrangements deemed the acquisition of beneficial ownership that are transparent— of the equity security. (i) to fulfill public interest requirements; (p) Disclosures relating to conflict minerals orig- and inating in the Democratic Republic of the (ii) to support the objectives of the Fed- Congo eral Government, owners, and participants. (1) Regulations (A) In general (C) Conflicts of interest Not later than 270 days after July 21, 2010, Each security-based swap data repository the Commission shall promulgate regula- shall— tions requiring any person described in para- (i) establish and enforce rules to mini- graph (2) to disclose annually, beginning mize conflicts of interest in the decision- with the person’s first full fiscal year that making process of the security-based swap begins after the date of promulgation of data repository; and such regulations, whether conflict minerals (ii) establish a process for resolving any that are necessary as described in paragraph conflicts of interest described in clause (i). (2)(B), in the year for which such reporting is (D) Additional duties developed by Commis- required, did originate in the Democratic sion Republic of the Congo or an adjoining coun- (i) In general try and, in cases in which such conflict min- The Commission may develop 1 or more erals did originate in any such country, sub- additional duties applicable to security- mit to the Commission a report that in- based swap data repositories. cludes, with respect to the period covered by (ii) Consideration of evolving standards the report— (i) a description of the measures taken In developing additional duties under by the person to exercise due diligence on subparagraph (A),3 the Commission may the source and chain of custody of such take into consideration any evolving minerals, which measures shall include an standard of the United States or the inter- independent private sector audit of such national community. report submitted through the Commission (iii) Additional duties for Commission des- that is conducted in accordance with ignees standards established by the Comptroller The Commission shall establish addi- General of the United States, in accord- tional duties for any registrant described ance with rules promulgated by the Com- in subsection (m)(2)(C) in order to mini- mission, in consultation with the Sec- mize conflicts of interest, protect data, en- retary of State; and sure compliance, and guarantee the safety (ii) a description of the products manu- and security of the security-based swap factured or contracted to be manufactured data repository. that are not DRC conflict free (‘‘DRC conflict free’’ is defined to mean the products (8) Required registration for security-based that do not contain minerals that directly swap data repositories or indirectly finance or benefit armed Any person that is required to be registered groups in the Democratic Republic of the as a security-based swap data repository under Congo or an adjoining country), the entity this subsection shall register with the Com- that conducted the independent private mission, regardless of whether that person is sector audit in accordance with clause (i), also licensed under the Commodity Exchange the facilities used to process the conflict Act [7 U.S.C. 1 et seq.] as a swap data reposi- minerals, the country of origin of the con- tory. flict minerals, and the efforts to determine (9) Rules the mine or location of origin with the The Commission shall adopt rules governing greatest possible specificity. persons that are registered under this sub- (B) Certification section. The person submitting a report under subparagraph (A) shall certify the audit de- 3 So in original. Probably should be ‘‘clause (i),’’. scribed in clause (i) of such subparagraph Page 259 TITLE 15—COMMERCE AND TRADE § 78m

that is included in such report. Such a cer- (q) Disclosure of payments by resource extrac- tified audit shall constitute a critical com- tion issuers ponent of due diligence in establishing the (1) Definitions source and chain of custody of such min- In this subsection— erals. (A) the term ‘‘commercial development of (C) Unreliable determination oil, natural gas, or minerals’’ includes explo- If a report required to be submitted by a ration, extraction, processing, export, and person under subparagraph (A) relies on a other significant actions relating to oil, nat- determination of an independent private sec- ural gas, or minerals, or the acquisition of a tor audit, as described under subparagraph license for any such activity, as determined (A)(i), or other due diligence processes pre- by the Commission; viously determined by the Commission to be (B) the term ‘‘foreign government’’ means unreliable, the report shall not satisfy the a foreign government, a department, agency, requirements of the regulations promulgated or instrumentality of a foreign government, under subparagraph (A)(i). or a company owned by a foreign govern- (D) DRC conflict free ment, as determined by the Commission; (C) the term ‘‘payment’’— For purposes of this paragraph, a product (i) means a payment that is— may be labeled as ‘‘DRC conflict free’’ if the (I) made to further the commercial de- product does not contain conflict minerals velopment of oil, natural gas, or min- that directly or indirectly finance or benefit erals; and armed groups in the Democratic Republic of (II) not de minimis; and the Congo or an adjoining country. (E) Information available to the public (ii) includes taxes, royalties, fees (including license fees), production entitle- Each person described under paragraph (2) ments, bonuses, and other material bene- shall make available to the public on the fits, that the Commission, consistent with Internet website of such person the informa- the guidelines of the Extractive Industries tion disclosed by such person under subpara- Transparency Initiative (to the extent graph (A). practicable), determines are part of the (2) Person described commonly recognized revenue stream for A person is described in this paragraph if— the commercial development of oil, natu- (A) the person is required to file reports ral gas, or minerals; with the Commission pursuant to paragraph (D) the term ‘‘resource extraction issuer’’ (1)(A); and means an issuer that— (B) conflict minerals are necessary to the (i) is required to file an annual report functionality or production of a product with the Commission; and manufactured by such person. (ii) engages in the commercial develop- (3) Revisions and waivers ment of oil, natural gas, or minerals; The Commission shall revise or temporarily (E) the term ‘‘interactive data format’’ waive the requirements described in paragraph means an electronic data format in which (1) if the President transmits to the Commis- pieces of information are identified using an sion a determination that— interactive data standard; and (A) such revision or waiver is in the na- (F) the term ‘‘interactive data standard’’ tional security interest of the United States means 4 standardized list of electronic tags and the President includes the reasons that mark information included in the an- therefor; and nual report of a resource extraction issuer. (B) establishes a date, not later than 2 (2) Disclosure years after the initial publication of such exemption, on which such exemption shall ex- (A) Information required pire. Not later than 270 days after July 21, 2010, (4) Termination of disclosure requirements the Commission shall issue final rules that require each resource extraction issuer to The requirements of paragraph (1) shall ter- include in an annual report of the resource minate on the date on which the President de- extraction issuer information relating to termines and certifies to the appropriate con- any payment made by the resource extrac- gressional committees, but in no case earlier tion issuer, a subsidiary of the resource ex- than the date that is one day after the end of traction issuer, or an entity under the con- the 5-year period beginning on July 21, 2010, trol of the resource extraction issuer to a that no armed groups continue to be directly foreign government or the Federal Govern- involved and benefitting from commercial ac- ment for the purpose of the commercial de- tivity involving conflict minerals. velopment of oil, natural gas, or minerals, (5) Definitions including— For purposes of this subsection, the terms (i) the type and total amount of such ‘‘adjoining country’’, ‘‘appropriate congres- payments made for each project of the re- sional committees’’, ‘‘armed group’’, and ‘‘con- source extraction issuer relating to the flict mineral’’ have the meaning given those commercial development of oil, natural terms under section 1502 of the Dodd-Frank gas, or minerals; and Wall Street Reform and Consumer Protection Act. 4 So in original. The word ‘‘a’’ probably should appear. § 78m TITLE 15—COMMERCE AND TRADE Page 260

(ii) the type and total amount of such be submitted under the rules issued under payments made to each government. paragraph (2)(A). (B) Consultation in rulemaking (B) Other information In issuing rules under subparagraph (A), Nothing in this paragraph shall require the the Commission may consult with any agen- Commission to make available online infor- cy or entity that the Commission deter- mation other than the information required mines is relevant. to be submitted under the rules issued under (C) Interactive data format paragraph (2)(A). The rules issued under subparagraph (A) (4) Authorization of appropriations shall require that the information included There are authorized to be appropriated to in the annual report of a resource extraction the Commission such sums as may be nec- issuer be submitted in an interactive data essary to carry out this subsection. format. (June 6, 1934, ch. 404, title I, § 13, 48 Stat. 894; (D) Interactive data standard Pub. L. 88–467, § 4, Aug. 20, 1964, 78 Stat. 569; Pub. (i) In general L. 90–439, § 2, July 29, 1968, 82 Stat. 454; Pub. L. The rules issued under subparagraph (A) 91–567, §§ 1, 2, Dec. 22, 1970, 84 Stat. 1497; Pub. L. shall establish an interactive data stand- 94–29, § 10, June 4, 1975, 89 Stat. 119; Pub. L. ard for the information included in the an- 94–210, title III, § 308(b), Feb. 5, 1976, 90 Stat. 57; nual report of a resource extraction issuer. Pub. L. 95–213, title I, § 102, title II, §§ 202, 203, Dec. 19, 1977, 91 Stat. 1494, 1498, 1499; Pub. L. (ii) Electronic tags 98–38, § 2(a), June 6, 1983, 97 Stat. 205; Pub. L. The interactive data standard shall in- 100–181, title III, §§ 315, 316, Dec. 4, 1987, 101 Stat. clude electronic tags that identify, for any 1256; Pub. L. 100–241, § 12(d), Feb. 3, 1988, 101 Stat. payments made by a resource extraction 1810; Pub. L. 100–418, title V, § 5002, Aug. 23, 1988, issuer to a foreign government or the Fed- 102 Stat. 1415; Pub. L. 101–432, § 3, Oct. 16, 1990, eral Government— 104 Stat. 964; Pub. L. 107–123, § 5, Jan. 16, 2002, 115 (I) the total amounts of the payments, Stat. 2395; Pub. L. 107–204, title I, § 109(i), for- by category; merly § 109(h), title IV, §§ 401(a), 402(a), 409, July (II) the currency used to make the pay- 30, 2002, 116 Stat. 771, 785, 787, 791, renumbered ments; § 109(i), Pub. L. 111–203, title IX, § 982(h)(3), July (III) the financial period in which the 21, 2010, 124 Stat. 1930; Pub. L. 111–203, title VII, payments were made; §§ 763(i), 766(b), (c), (e), title IX, §§ 929R(a), (IV) the business segment of the re- 929X(a), 985(b)(4), 991(b)(2), title XV, §§ 1502(b), source extraction issuer that made the 1504, July 21, 2010, 124 Stat. 1779, 1799, 1866, 1870, payments; 1933, 1952, 2213, 2220.) (V) the government that received the AMENDMENT OF SECTION payments, and the country in which the government is located; Unless otherwise provided, amendment by (VI) the project of the resource extrac- subtitle B (§§ 761–774) of title VII of Pub. L. tion issuer to which the payments relate; 111–203 effective on the later of 360 days after and July 21, 2010, or, to the extent a provision of (VII) such other information as the subtitle B requires a rulemaking, not less than Commission may determine is necessary 60 days after publication of the final rule or or appropriate in the public interest or regulation implementing such provision of sub- for the protection of investors. title B, see 2010 Amendment notes and Effective Date of 2010 Amendment note below. (E) International transparency efforts To the extent practicable, the rules issued REFERENCES IN TEXT under subparagraph (A) shall support the This chapter, referred to in subsecs. (b)(1), (h)(1), (2), commitment of the Federal Government to (4), (6), (i), and (n)(6)(B)(v), (C)(i)(I), (7)(A), was in the international transparency promotion ef- original ‘‘this title’’. See References in Text note set forts relating to the commercial develop- out under section 78a of this title. ment of oil, natural gas, or minerals. The Investment Company Act of 1940, referred to in subsecs. (d)(1) and (e)(1), is title I of act Aug. 22, 1940, (F) Effective date ch. 686, 54 Stat. 789, which is classified generally to sub- With respect to each resource extraction chapter I (§ 80a–1 et seq.) of chapter 2D of this title. For complete classification of this Act to the Code, see sec- issuer, the final rules issued under subpara- tion 80a–51 of this title and Tables. graph (A) shall take effect on the date on The Securities Act of 1933, referred to in subsec. which the resource extraction issuer is re- (d)(6)(A), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, quired to submit an annual report relating which is classified generally to subchapter I (§ 77a et to the fiscal year of the resource extraction seq.) of chapter 2A of this title. For complete classifica- issuer that ends not earlier than 1 year after tion of this Act to the Code, see section 77a of this title the date on which the Commission issues and Tables. final rules under subparagraph (A). The Federal Deposit Insurance Act, referred to in subsec. (f)(5), is act Sept. 21, 1950, ch. 967, § 2, 64 Stat. (3) Public availability of information 873, which is classified generally to chapter 16 (§ 1811 et (A) In general seq.) of Title 12, Banks and Banking. For complete classification of this Act to the Code, see Short Title note To the extent practicable, the Commission set out under section 1811 of Title 12 and Tables. shall make available online, to the public, a Section 7201 of this title, referred to in subsec. (k)(1), compilation of the information required to was in the original ‘‘section 2 of the Sarbanes-Oxley Page 261 TITLE 15—COMMERCE AND TRADE § 78m

Act of 2002’’, Pub. L. 107–204, which enacted section 7201 Subsec. (q). Pub. L. 111–203, § 1504, added subsec. (q). of this title and amended section 78c of this title. 2002—Subsec. (b)(2)(C). Pub. L. 107–204, § 109(i), for- The Commodity Exchange Act, referred to in subsec. merly § 109(h), renumbered § 109(i) by Pub. L. 111–203, (n)(8), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, which is § 982(h)(3), added subpar. (C). classified generally to chapter 1 (§ 1 et seq.) of Title 7, Subsec. (e)(3). Pub. L. 107–123, § 5(1), substituted ‘‘a fee Agriculture. For complete classification of this Act to at a rate that, subject to paragraphs (5) and (6), is equal the Code, see section 1 of Title 7 and Tables. to $92 per $1,000,000 of the value of securities proposed Section 1502 of the Dodd-Frank Wall Street Reform to be purchased’’ for ‘‘a fee of 1⁄50 of 1 per centum of the and Consumer Protection Act, referred to in subsec. value of securities proposed to be purchased’’. (p)(5), is section 1502 of Pub. L. 111–203, which amended Subsec. (e)(4) to (10). Pub. L. 107–123, § 5(2), added pars. this section and enacted provisions set out as a note (4) to (10). below. Subsecs. (i), (j). Pub. L. 107–204, § 401(a), added subsecs. (i) and (j). AMENDMENTS Subsec. (k). Pub. L. 107–204, § 402(a), added subsec. (k). 2010—Subsec. (b)(1). Pub. L. 111–203, § 985(b)(4), sub- Subsec. (l). Pub. L. 107–204, § 409, added subsec. (l). 1990—Subsec. (h). Pub. L. 101–432 added subsec. (h). stituted ‘‘earnings statement’’ for ‘‘earning state- 1988—Subsec. (b)(4) to (7). Pub. L. 100–418 added pars. ment’’. (4) to (7). Subsec. (b)(2)(C). Pub. L. 111–203, § 982(h)(3), amended Subsec. (d)(1). Pub. L. 100–241 inserted ‘‘or any equity Pub. L. 107–204, § 109. See 2002 Amendment note below. security issued by a Native Corporation pursuant to Subsec. (d)(1). Pub. L. 111–203, § 929R(a)(1), in intro- section 1629c(d)(6) of title 43’’. ductory provisions, inserted ‘‘or within such shorter 1987—Subsec. (c). Pub. L. 100–181, § 315, struck out time as the Commission may establish by rule’’ after ‘‘of’’ after ‘‘thereof’’. ‘‘within ten days after such acquisition’’ and struck out Subsec. (h). Pub. L. 100–181, § 316, struck out subsec. ‘‘send to the issuer of the security at its principal exec- (h) which required Commission to report to Congress utive office, by registered or certified mail, send to within thirty months of Dec. 19, 1977, with respect to ef- each exchange where the security is traded, and’’ before fectiveness of ownership reporting requirements con- ‘‘file with the Commission’’. tained in this chapter and desirability and feasibility of Pub. L. 111–203, § 766(b)(1), in introductory provisions, reducing or otherwise modifying the 5 per centum inserted ‘‘or otherwise becomes or is deemed to become threshold used in subsecs. (d)(1) and (g)(1) of this sec- a beneficial owner of any of the foregoing upon the pur- tion. chase or sale of a security-based swap that the Commis- 1983—Subsec. (e)(3). Pub. L. 98–38 added par. (3). sion may define by rule, and’’ after ‘‘section 1629c(d)(6) 1977—Subsec. (b). Pub. L. 95–213, § 102, designated ex- of title 43,’’. isting provisions as par. (1) and added pars. (2) and (3). Subsec. (d)(2). Pub. L. 111–203, § 929R(a)(2), struck out Subsec. (d)(1). Pub. L. 95–213, § 202, inserted references ‘‘in the statements to the issuer and the exchange, to residence and citizenship of persons and to nature of and’’ after ‘‘facts set forth’’ and ‘‘shall be transmitted beneficial ownership of persons in subpar. (A), and in- to the issuer and the exchange and’’ after ‘‘an amend- serted references to background, identity, residence, ment’’. and citizenship of associates of persons in subpar. (D). Subsec. (e)(3). Pub. L. 111–203, § 991(b)(2)(A), sub- Subsecs. (g), (h). Pub. L. 95–213, § 203, added subsecs. stituted ‘‘paragraph (4)’’ for ‘‘paragraphs (5) and (6)’’. (g) and (h). Subsec. (e)(4) to (6). Pub. L. 111–203, § 991(b)(2)(B), (C), 1976—Subsec. (b). Pub. L. 94–210 substituted provi- added pars. (4) to (6) and struck out former pars. (4) to sions relating to exceptions for inconsistent rules and (6) which related to offsetting collections, annual ad- regulations, for provisions relating to reporting re- justment of rate, and final rate adjustment, respec- quirements for carriers subject to the provisions of sec- tively. tion 20 of title 49, or other carriers required to make re- Subsec. (e)(8) to (10). Pub. L. 111–203, § 991(b)(2)(D), ports of the same general character as those required struck out pars. (8) to (10) which related to review and under section 20 of title 49. effective date of adjusted rate, collection of fees upon 1975—Subsec. (f). Pub. L. 94–29 added subsec. (f). lapse of appropriation, and publication of rate, respec- 1970—Subsec. (d)(1). Pub. L. 91–567, § 1(a), included eq- tively. uity securities of insurance companies which would Subsec. (f)(1). Pub. L. 111–203, § 766(c), which directed have been required to be registered except for the ex- insertion of ‘‘or otherwise becomes or is deemed to be- emption contained in section 78l(g)(2)(G) of this title, come a beneficial owner of any security of a class de- and substituted ‘‘5 per centum’’ for ‘‘10 per centum’’. scribed in subsection (d)(1) upon the purchase or sale of Subsec. (d)(5), (6). Pub. L. 91–567, § 1(b), added par. (5) a security-based swap that the Commission may define and redesignated former par. (5) as (6). by rule,’’ after ‘‘subsection (d)(1) of this section’’, was Subsec. (e)(2). Pub. L. 91–567, § 2, inserted provisions executed by making the insertion after ‘‘section 13(d)(1) empowering the Commission to make rules and regula- of this title’’, which was translated to ‘‘subsection tions implementing the paragraph in the public inter- (d)(1) of this section’’, to reflect the probable intent of est and for the protection of investors. Congress. 1968—Subsecs. (d), (e). Pub. L. 90–439 added subsecs. Subsec. (f)(2) to (6). Pub. L. 111–203, § 929X(a), added (d) and (e). par. (2) and redesignated former pars. (2) to (5) as (3) to 1964—Subsec. (a). Pub. L. 88–467 substituted provi- (6), respectively. sions which require the issuer of a security registered Subsec. (g)(1). Pub. L. 111–203, § 929R(a)(3), struck out pursuant to section 78l of this title to file reports with ‘‘shall send to the issuer of the security and’’ before the Commission rather than with the exchange and to ‘‘shall file’’ in introductory provisions. furnish the exchange with duplicate originals and pro- Pub. L. 111–203, § 766(b)(2), in introductory provisions, hibit the Commission from requiring the filing of any inserted ‘‘or otherwise becomes or is deemed to become material contract wholly executed before July 1, 1962 a beneficial owner of any security of a class described for former provisions which required the issuer of a se- in subsection (d)(1) upon the purchase or sale of a secu- curity registered on a national securities exchange to rity-based swap that the Commission may define by file certain reports with the exchange and to file dupli- rule’’ after ‘‘subsection (d)(1) of this section’’. cates with the Commission. Subsec. (g)(2). Pub. L. 111–203, § 929R(a)(4), struck out EFFECTIVE DATE OF 2010 AMENDMENT ‘‘sent to the issuer and’’ after ‘‘the statement’’ and ‘‘shall be transmitted to the issuer and’’ after ‘‘an Amendment by sections 929R(a), 929X(a), 982(h)(3), amendment’’. 985(b)(4), 1502(b), and 1504 of Pub. L. 111–203 effective 1 Subsecs. (m), (n). Pub. L. 111–203, § 763(i), added sub- day after July 21, 2010, except as otherwise provided, secs. (m) and (n). see section 4 of Pub. L. 111–203, set out as an Effective Subsec. (o). Pub. L. 111–203, § 766(e), added subsec. (o). Date note under section 5301 of Title 12, Banks and Subsec. (p). Pub. L. 111–203, § 1502(b), added subsec. (p). Banking. § 78m TITLE 15—COMMERCE AND TRADE Page 262

Amendment by sections 763(i) and 766(b), (c), (e) of priate congressional committees a strategy to ad- Pub. L. 111–203 effective on the later of 360 days after dress the linkages between human rights abuses, July 21, 2010, or, to the extent a provision of subtitle B armed groups, mining of conflict minerals, and (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- commercial products. making, not less than 60 days after publication of the ‘‘(B) CONTENTS.—The strategy required by sub- final rule or regulation implementing such provision of paragraph (A) shall include the following: subtitle B, see section 774 of Pub. L. 111–203, set out as ‘‘(i) A plan to promote peace and security in the a note under section 77b of this title. Democratic Republic of the Congo by supporting Amendment by section 991(b)(2) of Pub. L. 111–203 ef- efforts of the Government of the Democratic Re- fective Oct. 1, 2011, see section 991(b)(4) of Pub. L. public of the Congo, including the Ministry of 111–203, set out as a note under section 77f of this title. Mines and other relevant agencies, adjoining countries, and the international community, in EFFECTIVE DATE OF 2002 AMENDMENT particular the United Nations Group of Experts Amendment by Pub. L. 107–123 effective Oct. 1, 2001, on the Democratic Republic of Congo, to— except that authorities provided by subsec. (e)(9) of this ‘‘(I) monitor and stop commercial activities section to not apply until Oct. 1, 2002, see section 11 of involving the natural resources of the Demo- Pub. L. 107–123, set out as a note under section 78ee of cratic Republic of the Congo that contribute to this title. the activities of armed groups and human rights violations in the Democratic Republic of EFFECTIVE DATE OF 1976 AMENDMENT the Congo; and ‘‘(II) develop stronger governance and eco- Amendment by Pub. L. 94–210 not applicable to any nomic institutions that can facilitate and im- report by any person with respect to a fiscal year of prove transparency in the cross-border trade in- such person which began before Feb. 5, 1976, see section volving the natural resources of the Democratic 308(d)(2) of Pub. L. 94–210, set out as a note under sec- Republic of the Congo to reduce exploitation by tion 80a–3 of this title. armed groups and promote local and regional EFFECTIVE DATE OF 1975 AMENDMENT development. ‘‘(ii) A plan to provide guidance to commercial Amendment by Pub. L. 94–29 effective June 4, 1975, entities seeking to exercise due diligence on and see section 31(a) of Pub. L. 94–29, set out as a note under formalize the origin and chain of custody of con- section 78b of this title. flict minerals used in their products and on their suppliers to ensure that conflict minerals used in EFFECTIVE DATE OF 1964 AMENDMENT the products of such suppliers do not directly or Amendment by Pub. L. 88–467 effective Aug. 20, 1964, indirectly finance armed conflict or result in see section 13 of Pub. L. 88–467, set out as a note under labor or human rights violations. section 78c of this title. ‘‘(iii) A description of punitive measures that could be taken against individuals or entities TRANSFER OF FUNCTIONS whose commercial activities are supporting For transfer of functions of Securities and Exchange armed groups and human rights violations in the Commission, with certain exceptions, to Chairman of Democratic Republic of the Congo. such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, ‘‘(2) MAP.— eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under ‘‘(A) IN GENERAL.—Not later than 180 days after section 78d of this title. the date of the enactment of this Act [July 21, 2010], the Secretary of State shall, in accordance with the ELIMINATION OF EXEMPTION FROM FAIR DISCLOSURE recommendation of the United Nations Group of RULE Experts on the Democratic Republic of the Congo in their December 2008 report— Pub. L. 111–203, title IX, § 939B, July 21, 2010, 124 Stat. ‘‘(i) produce a map of mineral-rich zones, trade 1887, provided that: ‘‘Not later than 90 days after the routes, and areas under the control of armed date of enactment of this subtitle [July 21, 2010], the groups in the Democratic Republic of the Congo Securities [and] Exchange Commission shall revise and adjoining countries based on data from mul- Regulation FD (17 C.F.R. 243.100) to remove from such tiple sources, including— regulation the exemption for entities whose primary ‘‘(I) the United Nations Group of Experts on business is the issuance of credit ratings (17 C.F.R. the Democratic Republic of the Congo; 243.100(b)(2)(iii)).’’ ‘‘(II) the Government of the Democratic Re- CONFLICT MINERALS public of the Congo, the governments of adjoining countries, and the governments of other Pub. L. 111–203, title XV, § 1502, July 21, 2010, 124 Stat. Member States of the United Nations; and 2213, provided that: ‘‘(III) local and international nongovern- ‘‘(a) SENSE OF CONGRESS ON EXPLOITATION AND TRADE mental organizations; OF CONFLICT MINERALS ORIGINATING IN THE DEMOCRATIC ‘‘(ii) make such map available to the public; and REPUBLIC OF THE CONGO.—It is the sense of Congress ‘‘(iii) provide to the appropriate congressional that the exploitation and trade of conflict minerals committees an explanatory note describing the originating in the Democratic Republic of the Congo is sources of information from which such map is helping to finance conflict characterized by extreme based and the identification, where possible, of levels of violence in the eastern Democratic Republic of the armed groups or other forces in control of the the Congo, particularly sexual- and gender-based vio- mines depicted. lence, and contributing to an emergency humanitarian ‘‘(B) DESIGNATION.—The map required under sub- situation therein, warranting the provisions of section paragraph (A) shall be known as the ‘Conflict Min- 13(p) of the Securities Exchange Act of 1934 [15 U.S.C. erals Map’, and mines located in areas under the 78m(p)], as added by subsection (b). control of armed groups in the Democratic Republic ‘‘(b) [Amended this section.] of the Congo and adjoining countries, as depicted ‘‘(c) STRATEGY AND MAP TO ADDRESS LINKAGES BE- on such Conflict Minerals Map, shall be known as TWEEN CONFLICT MINERALS AND ARMED GROUPS.— ‘Conflict Zone Mines’. ‘‘(1) STRATEGY.— ‘‘(C) UPDATES.—The Secretary of State shall up- ‘‘(A) IN GENERAL.—Not later than 180 days after date the map required under subparagraph (A) not the date of the enactment of this Act [July 21, 2010], less frequently than once every 180 days until the the Secretary of State, in consultation with the Ad- date on which the disclosure requirements under ministrator of the United States Agency for Inter- paragraph (1) of section 13(p) of the Securities Ex- national Development, shall submit to the appro- change Act of 1934 [15 U.S.C. 78m(p)], as added by Page 263 TITLE 15—COMMERCE AND TRADE § 78m–1

subsection (b), terminate in accordance with the ‘‘(B) the Committee on Appropriations, the Com- provisions of paragraph (4) of such section 13(p). mittee on Foreign Relations, the Committee on Fi- ‘‘(D) PUBLICATION IN FEDERAL REGISTER.—The Sec- nance, and the Committee on Banking, Housing, retary of State shall add minerals to the list of and Urban Affairs of the Senate. minerals in the definition of conflict minerals ‘‘(3) ARMED GROUP.—The term ‘armed group’ means under section 1502 [amending this section and en- an armed group that is identified as perpetrators of acting this note], as appropriate. The Secretary serious human rights abuses in the annual Country shall publish in the Federal Register notice of in- Reports on Human Rights Practices under sections tent to declare a mineral as a conflict mineral in- 116(d) and 502B(b) of the Foreign Assistance Act of cluded in such definition not later than one year 1961 (22 U.S.C. 2151n(d) and 2304(b)) relating to the before such declaration. Democratic Republic of the Congo or an adjoining ‘‘(d) REPORTS.— country. ‘‘(1) BASELINE REPORT.—Not later than 1 year after ‘‘(4) CONFLICT MINERAL.—The term ‘conflict min- the date of the enactment of this Act [July 21, 2010] eral’ means— and annually thereafter until the termination of the ‘‘(A) columbite-tantalite (coltan), cassiterite, disclosure requirements under section 13(p) of the Se- gold, wolframite, or their derivatives; or ‘‘(B) any other mineral or its derivatives deter- curities Exchange Act of 1934 [15 U.S.C. 78m(p)], the mined by the Secretary of State to be financing Comptroller General of the United States shall sub- conflict in the Democratic Republic of the Congo or mit to appropriate congressional committees a report an adjoining country. that includes an assessment of the rate of sexual- and ‘‘(5) UNDER THE CONTROL OF ARMED GROUPS.—The gender-based violence in war-torn areas of the Demo- term ‘under the control of armed groups’ means areas cratic Republic of the Congo and adjoining countries. within the Democratic Republic of the Congo or ad- ‘‘(2) REGULAR REPORT ON EFFECTIVENESS.—Not later joining countries in which armed groups— than 2 years after the date of the enactment of this ‘‘(A) physically control mines or force labor of ci- Act [July 21, 2010] and annually thereafter, the Comp- vilians to mine, transport, or sell conflict minerals; troller General of the United States shall submit to ‘‘(B) tax, extort, or control any part of trade the appropriate congressional committees a report routes for conflict minerals, including the entire that includes the following: trade route from a Conflict Zone Mine to the point ‘‘(A) An assessment of the effectiveness of section of export from the Democratic Republic of the 13(p) of the Securities Exchange Act of 1934 [15 Congo or an adjoining country; or U.S.C. 78m(p)], as added by subsection (b), in pro- ‘‘(C) tax, extort, or control trading facilities, in moting peace and security in the Democratic Re- whole or in part, including the point of export from public of the Congo and adjoining countries. the Democratic Republic of the Congo or an adjoin- ‘‘(B) A description of issues encountered by the ing country.’’ Securities and Exchange Commission in carrying out the provisions of such section 13(p). CONSULTATION ‘‘(C)(i) A general review of persons described in Pub. L. 106–102, title II, § 241, Nov. 12, 1999, 113 Stat. clause (ii) and whether information is publicly 1407, provided that: available about— ‘‘(a) IN GENERAL.—The Securities and Exchange Com- ‘‘(I) the use of conflict minerals by such per- mission shall consult and coordinate comments with sons; and the appropriate Federal banking agency before taking ‘‘(II) whether such conflict minerals originate any action or rendering any opinion with respect to the from the Democratic Republic of the Congo or an manner in which any insured depository institution or adjoining country. depository institution holding company reports loan ‘‘(ii) A person is described in this clause if— loss reserves in its financial statement, including the ‘‘(I) the person is not required to file reports amount of any such loan loss reserve. with the Securities and Exchange Commission ‘‘(b) DEFINITIONS.—For purposes of subsection (a), the pursuant to section 13(p)(1)(A) of the Securities terms ‘insured depository institution’, ‘depository in- Exchange Act of 1934 [15 U.S.C. 78m(p)(1)(A)], as stitution holding company’, and ‘appropriate Federal added by subsection (b); and banking agency’ have the same meaning as given in ‘‘(II) conflict minerals are necessary to the section 3 of the Federal Deposit Insurance Act [12 functionality or production of a product manufac- U.S.C. 1813].’’ tured by such person. ‘‘(3) REPORT ON PRIVATE SECTOR AUDITING.—Not ASSIGNMENT OF FUNCTION RELATING TO GRANTING OF later than 30 months after the date of the enactment AUTHORITY FOR ISSUANCE OF CERTAIN DIRECTIVES of this Act [July 21, 2010], and annually thereafter, Memorandum of President of the United States, May the Secretary of Commerce shall submit to the appro- 5, 2006, 71 F.R. 27943, provided: priate congressional committees a report that in- Memorandum for the Director of National Intel- cludes the following: ligence ‘‘(A) An assessment of the accuracy of the inde- By virtue of the authority vested in me by the Con- pendent private sector audits and other due dili- stitution and laws of the United States, including sec- gence processes described under section 13(p) of the tion 301 of title 3, United States Code, I hereby assign Securities Exchange Act of 1934 [15 U.S.C. 78m(p)]. to you the function of the President under section ‘‘(B) Recommendations for the processes used to 13(b)(3)(A) of the Securities Exchange Act of 1934, as carry out such audits, including ways to— amended (15 U.S.C. 78m(b)(3)(A)). In performing such ‘‘(i) improve the accuracy of such audits; and function, you should consult the heads of departments ‘‘(ii) establish standards of best practices. and agencies, as appropriate. ‘‘(C) A listing of all known conflict mineral proc- You are authorized and directed to publish this essing facilities worldwide. memorandum in the Federal Register. ‘‘(e) DEFINITIONS.—For purposes of this section: GEORGE W. BUSH. ‘‘(1) ADJOINING COUNTRY.—The term ‘adjoining country’, with respect to the Democratic Republic of § 78m–1. Reporting and recordkeeping for certain the Congo, means a country that shares an inter- security-based swaps nationally recognized border with the Democratic Re- public of the Congo. (a) Required reporting of security-based swaps ‘‘(2) APPROPRIATE CONGRESSIONAL COMMITTEES.—The not accepted by any clearing agency or de- term ‘appropriate congressional committees’ means— rivatives clearing organization ‘‘(A) the Committee on Appropriations, the Com- (1) In general mittee on Foreign Affairs, the Committee on Ways and Means, and the Committee on Financial Serv- Each security-based swap that is not accept- ices of the House of Representatives; and ed for clearing by any clearing agency or de- § 78m–2 TITLE 15—COMMERCE AND TRADE Page 264

rivatives clearing organization shall be re- described in subsection (c) if the individual or ported to— entity did not— (A) a security-based swap data repository (1) clear the security-based swap in accord- described in section 78m(n) of this title; or ance with section 78c–3(a)(1) of this title; or (B) in the case in which there is no secu- (2) have the data regarding the security- rity-based swap data repository that would based swap accepted by a security-based swap accept the security-based swap, to the Com- data repository in accordance with rules (in- mission pursuant to this section within such cluding timeframes) adopted by the Commis- time period as the Commission may by rule sion under this chapter. or regulation prescribe. (c) Requirements (2) Transition rule for preenactment security- An individual or entity described in subsection based swaps (b) shall— (A) Security-based swaps entered into before (1) upon written request from the Commis- July 21, 2010 sion, provide reports regarding the security- based swaps held by the individual or entity to Each security-based swap entered into be- the Commission in such form and in such man- fore July 21, 2010, the terms of which have ner as the Commission may request; and not expired as of July 21, 2010, shall be re- (2) maintain books and records pertaining to ported to a registered security-based swap the security-based swaps held by the individ- data repository or the Commission by a date ual or entity in such form, in such manner, that is not later than— and for such period as the Commission may re- (i) 30 days after issuance of the interim quire, which shall be open to inspection by— final rule; or (A) any representative of the Commission; (ii) such other period as the Commission (B) an appropriate prudential regulator; determines to be appropriate. (C) the Commodity Futures Trading Com- (B) Commission rulemaking mission; The Commission shall promulgate an in- (D) the Financial Stability Oversight terim final rule within 90 days of July 21, Council; and 2010, providing for the reporting of each se- (E) the Department of Justice. curity-based swap entered into before July (d) Identical data 21, 2010, as referenced in subparagraph (A). In prescribing rules under this section, the (C) Effective date Commission shall require individuals and enti- The reporting provisions described in this ties described in subsection (b) to submit to the section shall be effective upon July 21, 2010. Commission a report that contains data that is not less comprehensive than the data required (3) Reporting obligations to be collected by security-based swap data re- (A) Security-based swaps in which only 1 positories under this chapter. counterparty is a security-based swap (June 6, 1934, ch. 404, title I, § 13A, as added Pub. dealer or major security-based swap par- L. 111–203, title VII, § 766(a), July 21, 2010, 124 ticipant Stat. 1797.) With respect to a security-based swap in which only 1 counterparty is a security- REFERENCES IN TEXT based swap dealer or major security-based This chapter, referred to in subsecs. (b)(2) and (d), was swap participant, the security-based swap in the original ‘‘this title’’. See References in Text note dealer or major security-based swap partici- set out under section 78a of this title. pant shall report the security-based swap as EFFECTIVE DATE required under paragraphs (1) and (2). Section effective on the later of 360 days after July (B) Security-based swaps in which 1 21, 2010, or, to the extent a provision of subtitle B counterparty is a security-based swap (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- dealer and the other a major security- making, not less than 60 days after publication of the based swap participant final rule or regulation implementing such provision of subtitle B, see section 774 of Pub. L. 111–203, set out as With respect to a security-based swap in an Effective Date of 2010 Amendment note under sec- which 1 counterparty is a security-based tion 77b of this title. swap dealer and the other a major security- based swap participant, the security-based § 78m–2. Reporting requirements regarding coal swap dealer shall report the security-based or other mine safety swap as required under paragraphs (1) and (a) Reporting mine safety information (2). Each issuer that is required to file reports pur- (C) Other security-based swaps suant to section 13(a) or 15(d) of the Securities With respect to any other security-based Exchange Act of 1934 [15 U.S.C. 78m(a), 78o(d)] swap not described in subparagraph (A) or and that is an operator, or that has a subsidiary (B), the counterparties to the security-based that is an operator, of a coal or other mine shall swap shall select a counterparty to report include, in each periodic report filed with the the security-based swap as required under Commission under the securities laws on or paragraphs (1) and (2). after July 21, 2010, the following information for the time period covered by such report: (b) Duties of certain individuals (1) For each coal or other mine of which the Any individual or entity that enters into a se- issuer or a subsidiary of the issuer is an opera- curity-based swap shall meet each requirement tor— Page 265 TITLE 15—COMMERCE AND TRADE § 78n

(A) the total number of violations of man- closure under any other applicable law in effect datory health or safety standards that could before, on, or after July 21, 2010. significantly and substantially contribute to (d) Commission authority the cause and effect of a coal or other mine (1) Enforcement safety or health hazard under section 104 of the Federal Mine Safety and Health Act of A violation by any person of this section, or 1977 (30 U.S.C. 814) for which the operator re- any rule or regulation of the Commission is- ceived a citation from the Mine Safety and sued under this section, shall be treated for all Health Administration; purposes in the same manner as a violation of (B) the total number of orders issued under the Securities Exchange Act of 1934 (15 U.S.C. section 104(b) of such Act (30 U.S.C. 814(b)); 78a et seq.) or the rules and regulations issued (C) the total number of citations and or- thereunder, consistent with the provisions of ders for unwarrantable failure of the mine this section, and any such person shall be sub- operator to comply with mandatory health ject to the same penalties, and to the same ex- or safety standards under section 104(d) of tent, as for a violation of such Act or the rules such Act (30 U.S.C. 814(d)); or regulations issued thereunder. (D) the total number of flagrant violations (2) Rules and regulations under section 110(b)(2) of such Act (30 U.S.C. The Commission is authorized to issue such 820(b)(2)); (E) the total number of imminent danger rules or regulations as are necessary or appro- orders issued under section 107(a) of such Act priate for the protection of investors and to (30 U.S.C. 817(a)); carry out the purposes of this section. (F) the total dollar value of proposed as- (e) Definitions sessments from the Mine Safety and Health In this section— Administration under such Act (30 U.S.C. 801 (1) the terms ‘‘issuer’’ and ‘‘securities laws’’ et seq.); and have the meaning given the terms in section 3 (G) the total number of mining-related fa- of the Securities Exchange Act of 1934 (15 talities. U.S.C. 78c); (2) A list of such coal or other mines, of (2) the term ‘‘coal or other mine’’ means a which the issuer or a subsidiary of the issuer coal or other mine, as defined in section 3 of is an operator, that receive written notice the Federal Mine Safety and Health Act of from the Mine Safety and Health Administra- 1977 (30 U.S.C. 802), that is subject to the provi- tion of— sions of such Act (30 U.S.C. 801 et seq.); and (A) a pattern of violations of mandatory (3) the term ‘‘operator’’ has the meaning health or safety standards that are of such given the term in section 3 of the Federal nature as could have significantly and sub- Mine Safety and Health Act of 1977 (30 U.S.C. stantially contributed to the cause and ef- 802). fect of coal or other mine health or safety (f) Effective date hazards under section 104(e) of such Act (30 This section shall take effect on the day that U.S.C. 814(e)); or is 30 days after July 21, 2010. (B) the potential to have such a pattern. (3) Any pending legal action before the Fed- (Pub. L. 111–203, title XV, § 1503, July 21, 2010, 124 eral Mine Safety and Health Review Commis- Stat. 2218.) sion involving such coal or other mine. REFERENCES IN TEXT (b) Reporting shutdowns and patterns of viola- Such Act, referred to in subsecs. (a)(1)(F) and (e)(2), tions is the Federal Mine Safety and Health Act of 1977, Pub. Beginning on and after July 21, 2010, each is- L. 91–173, Dec. 30, 1969, 83 Stat. 742, which is classified suer that is an operator, or that has a subsidiary principally to chapter 22 (§ 801 et seq.) of Title 30, Min- eral Lands and Mining. For complete classification of that is an operator, of a coal or other mine shall this Act to the Code, see Short Title note set out under file a current report with the Commission on section 801 of Title 30 and Tables. Form 8–K (or any successor form) disclosing the The Securities Exchange Act of 1934, referred to in following regarding each coal or other mine of subsec. (d)(1), is act June 6, 1934, ch. 404, 48 Stat. 881, which the issuer or subsidiary is an operator: which is classified principally to this chapter. For com- (1) The receipt of an imminent danger order plete classification of this Act to the Code, see section issued under section 107(a) of the Federal Mine 78a of this title and Tables. Safety and Health Act of 1977 (30 U.S.C. 817(a)). CODIFICATION (2) The receipt of written notice from the Mine Safety and Health Administration that Section was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and not the coal or other mine has— as part of the Securities Exchange Act of 1934 which (A) a pattern of violations of mandatory comprises this chapter. health or safety standards that are of such nature as could have significantly and sub- DEFINITIONS stantially contributed to the cause and ef- For definitions of terms used in this section, see sec- fect of coal or other mine health or safety tion 5301 of Title 12, Banks and Banking. hazards under section 104(e) of such Act (30 U.S.C. 814(e)); or § 78n. Proxies (B) the potential to have such a pattern. (a) Solicitation of proxies in violation of rules (c) Rule of construction and regulations Nothing in this section shall be construed to (1) It shall be unlawful for any person, by the affect any obligation of a person to make a dis- use of the mails or by any means or instrumen- § 78n TITLE 15—COMMERCE AND TRADE Page 266 tality of interstate commerce or of any facility (d) Tender offer by owner of more than five per of a national securities exchange or otherwise, centum of class of securities; exceptions in contravention of such rules and regulations (1) It shall be unlawful for any person, directly as the Commission may prescribe as necessary or indirectly, by use of the mails or by any or appropriate in the public interest or for the means or instrumentality of interstate com- protection of investors, to solicit or to permit merce or of any facility of a national securities the use of his name to solicit any proxy or con- exchange or otherwise, to make a tender offer sent or authorization in respect of any security for, or a request or invitation for tenders of, any (other than an exempted security) registered class of any equity security which is registered pursuant to section 78l of this title. pursuant to section 78l of this title, or any eq- (2) The rules and regulations prescribed by the uity security of an insurance company which Commission under paragraph (1) may include— would have been required to be so registered ex- (A) a requirement that a solicitation of cept for the exemption contained in section proxy, consent, or authorization by (or on be- 78l(g)(2)(G) of this title, or any equity security half of) an issuer include a nominee submitted issued by a a closed-end investment company by a shareholder to serve on the board of di- registered under the Investment Company Act rectors of the issuer; and of 1940 [15 U.S.C. 80a–1 et seq.], if, after con- (B) a requirement that an issuer follow a summation thereof, such person would, directly certain procedure in relation to a solicitation or indirectly, be the beneficial owner of more described in subparagraph (A). than 5 per centum of such class, unless at the (b) Giving or refraining from giving proxy in re- time copies of the offer or request or invitation spect of any security carried for account of are first published or sent or given to security customer holders such person has filed with the Commis- (1) It shall be unlawful for any member of a sion a statement containing such of the infor- national securities exchange, or any broker or mation specified in section 78m(d) of this title, dealer registered under this chapter, or any and such additional information as the Commis- bank, association, or other entity that exercises sion may by rules and regulations prescribe as fiduciary powers, in contravention of such rules necessary or appropriate in the public interest and regulations as the Commission may pre- or for the protection of investors. All requests or scribe as necessary or appropriate in the public invitations for tenders or advertisements mak- interest or for the protection of investors, to ing a tender offer or requesting or inviting give, or to refrain from giving a proxy, consent, tenders of such a security shall be filed as a part authorization, or information statement in re- of such statement and shall contain such of the spect of any security registered pursuant to sec- information contained in such statement as the tion 78l of this title, or any security issued by an Commission may by rules and regulations pre- investment company registered under the In- scribe. Copies of any additional material solicit- vestment Company Act of 1940 [15 U.S.C. 80a–1 et ing or requesting such tender offers subsequent seq.], and carried for the account of a customer. to the initial solicitation or request shall con- (2) With respect to banks, the rules and regu- tain such information as the Commission may lations prescribed by the Commission under by rules and regulations prescribe as necessary paragraph (1) shall not require the disclosure of or appropriate in the public interest or for the the names of beneficial owners of securities in protection of investors, and shall be filed with an account held by the bank on December 28, the Commission not later than the time copies 1985, unless the beneficial owner consents to the of such material are first published or sent or disclosure. The provisions of this paragraph given to security holders. Copies of all state- shall not apply in the case of a bank which the ments, in the form in which such material is Commission finds has not made a good faith ef- furnished to security holders and the Commis- fort to obtain such consent from such beneficial sion, shall be sent to the issuer not later than owners. the date such material is first published or sent (c) Information to holders of record prior to an- or given to any security holders. (2) When two or more persons act as a partner- nual or other meeting ship, limited partnership, syndicate, or other Unless proxies, consents, or authorizations in group for the purpose of acquiring, holding, or respect of a security registered pursuant to sec- disposing of securities of an issuer, such syn- tion 78l of this title, or a security issued by an dicate or group shall be deemed a ‘‘person’’ for investment company registered under the In- purposes of this subsection. vestment Company Act of 1940 [15 U.S.C. 80a–1 et (3) In determining, for purposes of this sub- seq.], are solicited by or on behalf of the man- section, any percentage of a class of any secu- agement of the issuer from the holders of record rity, such class shall be deemed to consist of the of such security in accordance with the rules amount of the outstanding securities of such and regulations prescribed under subsection (a) class, exclusive of any securities of such class of this section, prior to any annual or other held by or for the account of the issuer or a sub- meeting of the holders of such security, such is- sidiary of the issuer. suer shall, in accordance with rules and regula- (4) Any solicitation or recommendation to the tions prescribed by the Commission, file with holders of such a security to accept or reject a the Commission and transmit to all holders of tender offer or request or invitation for tenders record of such security information substan- shall be made in accordance with such rules and tially equivalent to the information which regulations as the Commission may prescribe as would be required to be transmitted if a solicita- necessary or appropriate in the public interest tion were made, but no information shall be re- or for the protection of investors. quired to be filed or transmitted pursuant to (5) Securities deposited pursuant to a tender this subsection before July 1, 1964. offer or request or invitation for tenders may be Page 267 TITLE 15—COMMERCE AND TRADE § 78n withdrawn by or on behalf of the depositor at means reasonably designed to prevent, such acts any time until the expiration of seven days after and practices as are fraudulent, deceptive, or the time definitive copies of the offer or request manipulative. or invitation are first published or sent or given (f) Election or designation of majority of direc- to security holders, and at any time after sixty tors of issuer by owner of more than five per days from the date of the original tender offer or centum of class of securities at other than request or invitation, except as the Commission meeting of security holders may otherwise prescribe by rules, regulations, or order as necessary or appropriate in the pub- If, pursuant to any arrangement or under- lic interest or for the protection of investors. standing with the person or persons acquiring (6) Where any person makes a tender offer, or securities in a transaction subject to subsection request or invitation for tenders, for less than (d) of this section or subsection (d) of section all the outstanding equity securities of a class, 78m of this title, any persons are to be elected or and where a greater number of securities is de- designated as directors of the issuer, otherwise posited pursuant thereto within ten days after than at a meeting of security holders, and the copies of the offer or request or invitation are persons so elected or designated will constitute first published or sent or given to security hold- a majority of the directors of the issuer, then, ers than such person is bound or willing to take prior to the time any such person takes office as up and pay for, the securities taken up shall be a director, and in accordance with rules and reg- taken up as nearly as may be pro rata, dis- ulations prescribed by the Commission, the is- regarding fractions, according to the number of suer shall file with the Commission, and trans- securities deposited by each depositor. The pro- mit to all holders of record of securities of the visions of this subsection shall also apply to se- issuer who would be entitled to vote at a meet- curities deposited within ten days after notice of ing for election of directors, information sub- an increase in the consideration offered to secu- stantially equivalent to the information which rity holders, as described in paragraph (7), is would be required by subsection (a) or (c) of this first published or sent or given to security hold- section to be transmitted if such person or per- ers. sons were nominees for election as directors at (7) Where any person varies the terms of a ten- a meeting of such security holders. der offer or request or invitation for tenders be- (g) Filing fees fore the expiration thereof by increasing the (1)(A) At the time of filing such preliminary consideration offered to holders of such securi- proxy solicitation material as the Commission ties, such person shall pay the increased consid- may require by rule pursuant to subsection (a) eration to each security holder whose securities of this section that concerns an acquisition, are taken up and paid for pursuant to the tender merger, consolidation, or proposed sale or other offer or request or invitation for tenders wheth- disposition of substantially all the assets of a er or not such securities have been taken up by company, the person making such filing, other such person before the variation of the tender than a company registered under the Invest- offer or request or invitation. ment Company Act of 1940 [15 U.S.C. 80a–1 et (8) The provisions of this subsection shall not seq.], shall pay to the Commission the following apply to any offer for, or request or invitation fees: for tenders of, any security— (i) for preliminary proxy solicitation mate- (A) if the acquisition of such security, to- rial involving an acquisition, merger, or con- gether with all other acquisitions by the same solidation, if there is a proposed payment of person of securities of the same class during cash or transfer of securities or property to the preceding twelve months, would not ex- shareholders, a fee at a rate that, subject to ceed 2 per centum of that class; paragraph (4), is equal to $92 per $1,000,000 of (B) by the issuer of such security; or such proposed payment, or of the value of such (C) which the Commission, by rules or regu- securities or other property proposed to be lations or by order, shall exempt from the pro- transferred; and visions of this subsection as not entered into (ii) for preliminary proxy solicitation mate- for the purpose of, and not having the effect rial involving a proposed sale or other disposi- of, changing or influencing the control of the tion of substantially all of the assets of a com- issuer or otherwise as not comprehended with- pany, a fee at a rate that, subject to paragraph in the purposes of this subsection. (4), is equal to $92 per $1,000,000 of the cash or (e) Untrue statement of material fact or omission of the value of any securities or other property of fact with respect to tender offer proposed to be received upon such sale or dis- It shall be unlawful for any person to make position. any untrue statement of a material fact or omit (B) The fee imposed under subparagraph (A) to state any material fact necessary in order to shall be reduced with respect to securities in an make the statements made, in the light of the amount equal to any fee paid to the Commission circumstances under which they are made, not with respect to such securities in connection misleading, or to engage in any fraudulent, de- with the proposed transaction under section ceptive, or manipulative acts or practices, in 77f(b) of this title, or the fee paid under that sec- connection with any tender offer or request or tion shall be reduced in an amount equal to the invitation for tenders, or any solicitation of se- fee paid to the Commission in connection with curity holders in opposition to or in favor of any such transaction under this subsection. Where such offer, request, or invitation. The Commis- two or more companies involved in an acquisi- sion shall, for the purposes of this subsection, by tion, merger, consolidation, sale, or other dis- rules and regulations define, and prescribe position of substantially all the assets of a com- § 78n TITLE 15—COMMERCE AND TRADE Page 268 pany must file such proxy material with the (A) permit any holder of a security that is Commission, each shall pay a proportionate the subject of the proposed limited partner- share of such fee. ship rollup transaction to engage in prelimi- (2) At the time of filing such preliminary in- nary communications for the purpose of de- formation statement as the Commission may re- termining whether to solicit proxies, con- quire by rule pursuant to subsection (c) of this sents, or authorizations in opposition to the section, the issuer shall pay to the Commission proposed limited partnership rollup trans- the same fee as required for preliminary proxy action, without regard to whether any such solicitation material under paragraph (1) of this communication would otherwise be consid- subsection. ered a solicitation of proxies, and without (3) At the time of filing such statement as the being required to file soliciting material Commission may require by rule pursuant to with the Commission prior to making that subsection (d)(1) of this section, the person mak- determination, except that— ing the filing shall pay to the Commission a fee (i) nothing in this subparagraph shall be at a rate that, subject to paragraph (4), is equal construed to limit the application of any to $92 per $1,000,000 of the aggregate amount of provision of this chapter prohibiting, or cash or of the value of securities or other prop- reasonably designed to prevent, fraudu- erty proposed to be offered. The fee shall be re- lent, deceptive, or manipulative acts or duced with respect to securities in an amount practices under this chapter; and equal to any fee paid with respect to such secu- (ii) any holder of not less than 5 percent rities in connection with the proposed trans- of the outstanding securities that are the action under section 6(b) of the Securities Act of subject of the proposed limited partnership 1933 (15 U.S.C. 77f(b)), or the fee paid under that rollup transaction who engages in the section shall be reduced in an amount equal to business of buying and selling limited the fee paid to the Commission in connection partnership interests in the secondary with such transaction under this subsection. market shall be required to disclose such (4) ANNUAL ADJUSTMENT.—For each fiscal year, ownership interests and any potential con- the Commission shall by order adjust the rate flicts of interests in such preliminary com- required by paragraphs (1) and (3) for such fiscal munications; year to a rate that is equal to the rate (ex- (B) require the issuer to provide to holders pressed in dollars per million) that is applicable of the securities that are the subject of the under section 6(b) of the Securities Act of 1933 limited partnership rollup transaction such (15 U.S.C. 77f(b)) for such fiscal year. list of the holders of the issuer’s securities (5) FEE COLLECTION.—Fees collected pursuant as the Commission may determine in such to this subsection for fiscal year 2012 and each form and subject to such terms and condi- fiscal year thereafter shall be deposited and tions as the Commission may specify; credited as general revenue of the Treasury and (C) prohibit compensating any person so- shall not be available for obligation. liciting proxies, consents, or authorizations (6) REVIEW; EFFECTIVE DATE; PUBLICATION.—In directly from security holders concerning exercising its authority under this subsection, such a limited partnership rollup trans- the Commission shall not be required to comply action— with the provisions of section 553 of title 5. An (i) on the basis of whether the solicited adjusted rate prescribed under paragraph (4) proxy, consent, or authorization either ap- shall be published and take effect in accordance proves or disapproves the proposed limited with section 6(b) of the Securities Act of 1933 (15 partnership rollup transaction; or U.S.C. 77f(b)). (ii) contingent on the approval, dis- (7) PRO RATA APPLICATION.—The rates per approval, or completion of the limited $1,000,000 required by this subsection shall be ap- partnership rollup transaction; plied pro rata to amounts and balances of less than $1,000,000. (D) set forth disclosure requirements for (8) Notwithstanding any other provision of soliciting material distributed in connection law, the Commission may impose fees, charges, with a limited partnership rollup trans- or prices for matters not involving any acquisi- action, including requirements for clear, tion, merger, consolidation, sale, or other dis- concise, and comprehensible disclosure with position of assets described in this subsection, respect to— as authorized by section 9701 of title 31, or other- (i) any changes in the business plan, vot- wise. ing rights, form of ownership interest, or the compensation of the general partner in (h) Proxy solicitations and tender offers in con- the proposed limited partnership rollup nection with limited partnership rollup transaction from each of the original lim- transactions ited partnerships; (1) Proxy rules to contain special provisions (ii) the conflicts of interest, if any, of It shall be unlawful for any person to solicit the general partner; any proxy, consent, or authorization concern- (iii) whether it is expected that there ing a limited partnership rollup transaction, will be a significant difference between the or to make any tender offer in furtherance of exchange values of the limited partner- a limited partnership rollup transaction, un- ships and the trading price of the securi- less such transaction is conducted in accord- ties to be issued in the limited partnership ance with rules prescribed by the Commission rollup transaction; under subsections (a) and (d) of this section as (iv) the valuation of the limited partner- required by this subsection. Such rules shall— ships and the method used to determine Page 269 TITLE 15—COMMERCE AND TRADE § 78n

the value of the interests of the limited statement of such partner’s or sponsor’s rea- partners to be exchanged for the securities sons for concluding that such an opinion is in the limited partnership rollup trans- not necessary in order to permit the limited action; partners to make an informed decision on (v) the differing risks and effects of the the proposed transaction; limited partnership rollup transaction for (I) require that the soliciting material in- investors in different limited partnerships clude a clear, concise, and comprehensible proposed to be included, and the risks and summary of the limited partnership rollup effects of completing the limited partner- transaction (including a summary of the ship rollup transaction with less than all matters referred to in clauses (i) through limited partnerships; (vii) of subparagraph (D) and a summary of (vi) the statement by the general partner the matter referred to in subparagraphs (F), required under subparagraph (E); (G), and (H)), with the risks of the limited (vii) such other matters deemed nec- partnership rollup transaction set forth essary or appropriate by the Commission; prominently in the fore part thereof; (J) provide that any solicitation or offer- (E) require a statement by the general ing period with respect to any proxy solici- partner as to whether the proposed limited tation, tender offer, or information state- partnership rollup transaction is fair or un- ment in a limited partnership rollup trans- fair to investors in each limited partnership, action shall be for not less than the lesser of a discussion of the basis for that conclusion, 60 calendar days or the maximum number of and an evaluation and a description by the days permitted under applicable State law; general partner of alternatives to the lim- and ited partnership rollup transaction, such as (K) contain such other provisions as the liquidation; Commission determines to be necessary or (F) provide that, if the general partner or appropriate for the protection of investors in sponsor has obtained any opinion (other limited partnership rollup transactions. than an opinion of counsel), appraisal, or re- (2) Exemptions port that is prepared by an outside party and that is materially related to the limited The Commission may, consistent with the partnership rollup transaction, such solicit- public interest, the protection of investors, ing materials shall contain or be accom- and the purposes of this chapter, exempt by panied by clear, concise, and comprehensible rule or order any security or class of securi- disclosure with respect to— ties, any transaction or class of transactions, (i) the analysis of the transaction, scope or any person or class of persons, in whole or of review, preparation of the opinion, and in part, conditionally or unconditionally, from basis for and methods of arriving at con- the requirements imposed pursuant to para- clusions, and any representations and un- graph (1) or from the definition contained in dertakings with respect thereto; paragraph (4). (ii) the identity and qualifications of the (3) Effect on Commission authority person who prepared the opinion, the Nothing in this subsection limits the author- method of selection of such person, and ity of the Commission under subsection (a) or any material past, existing, or con- (d) of this section or any other provision of templated relationships between the per- this chapter or precludes the Commission from son or any of its affiliates and the general imposing, under subsection (a) or (d) of this partner, sponsor, successor, or any other section or any other provision of this chapter, affiliate; a remedy or procedure required to be imposed (iii) any compensation of the preparer of under this subsection. such opinion, appraisal, or report that is (4) ‘‘Limited partnership rollup transaction’’ contingent on the transaction’s approval defined or completion; and (iv) any limitations imposed by the is- Except as provided in paragraph (5), as used suer on the access afforded to such pre- in this subsection, the term ‘‘limited partner- parer to the issuer’s personnel, premises, ship rollup transaction’’ means a transaction and relevant books and records; involving the combination or reorganization of one or more limited partnerships, directly (G) provide that, if the general partner or or indirectly, in which— sponsor has obtained any opinion, appraisal, (A) some or all of the investors in any of or report as described in subparagraph (F) such limited partnerships will receive new from any person whose compensation is con- securities, or securities in another entity, tingent on the transaction’s approval or that will be reported under a transaction re- completion or who has not been given access porting plan declared effective before De- by the issuer to its personnel and premises cember 17, 1993, by the Commission under and relevant books and records, the general section 78k–1 of this title; partner or sponsor shall state the reasons (B) any of the investors’ limited partner- therefor; ship securities are not, as of the date of fil- (H) provide that, if the general partner or ing, reported under a transaction reporting sponsor has not obtained any opinion on the plan declared effective before December 17, fairness of the proposed limited partnership 1993, by the Commission under section 78k–1 rollup transaction to investors in each of the of this title; affected partnerships, such soliciting mate- (C) investors in any of the limited partner- rials shall contain or be accompanied by a ships involved in the transaction are subject § 78n TITLE 15—COMMERCE AND TRADE Page 270

to a significant adverse change with respect ties of such class held by or for the ac- to voting rights, the term of existence of the count of the entity or a subsidiary of the entity, management compensation, or in- entity. vestment objectives; and (i) Disclosure of pay versus performance (D) any of such investors are not provided The Commission shall, by rule, require each an option to receive or retain a security issuer to disclose in any proxy or consent solici- under substantially the same terms and con- tation material for an annual meeting of the ditions as the original issue. shareholders of the issuer a clear description of (5) Exclusions from definition any compensation required to be disclosed by Notwithstanding paragraph (4), the term the issuer under section 229.402 of title 17, Code ‘‘limited partnership rollup transaction’’ does of Federal Regulations (or any successor there- not include— to), including information that shows the rela- (A) a transaction that involves only a lim- tionship between executive compensation actu- ited partnership or partnerships having an ally paid and the financial performance of the operating policy or practice of retaining issuer, taking into account any change in the cash available for distribution and reinvest- value of the shares of stock and dividends of the ing proceeds from the sale, financing, or refi- issuer and any distributions. The disclosure nancing of assets in accordance with such under this subsection may include a graphic rep- criteria as the Commission determines ap- resentation of the information required to be propriate; disclosed. (B) a transaction involving only limited (j) Disclosure of hedging by employees and direc- partnerships wherein the interests of the tors limited partners are repurchased, recalled, or exchanged in accordance with the terms The Commission shall, by rule, require each of the preexisting limited partnership agree- issuer to disclose in any proxy or consent solici- ments for securities in an operating com- tation material for an annual meeting of the pany specifically identified at the time of shareholders of the issuer whether any employee the formation of the original limited part- or member of the board of directors of the is- nership; suer, or any designee of such employee or mem- (C) a transaction in which the securities to ber, is permitted to purchase financial instru- be issued or exchanged are not required to be ments (including prepaid variable forward con- and are not registered under the Securities tracts, equity swaps, collars, and exchange Act of 1933 [15 U.S.C. 77a et seq.]; funds) that are designed to hedge or offset any (D) a transaction that involves only issu- decrease in the market value of equity securi- ers that are not required to register or re- ties— port under section 78l of this title, both be- (1) granted to the employee or member of fore and after the transaction; the board of directors by the issuer as part of (E) a transaction, except as the Commis- the compensation of the employee or member sion may otherwise provide by rule for the of the board of directors; or protection of investors, involving the combi- (2) held, directly or indirectly, by the em- nation or reorganization of one or more lim- ployee or member of the board of directors. ited partnerships in which a non-affiliated (June 6, 1934, ch. 404, title I, § 14, 48 Stat. 895; party succeeds to the interests of a general Pub. L. 88–467, § 5, Aug. 20, 1964, 78 Stat. 569; Pub. partner or sponsor, if— L. 90–439, § 3, July 29, 1968, 82 Stat. 455; Pub. L. (i) such action is approved by not less 91–567, §§ 3–5, Dec. 22, 1970, 84 Stat. 1497; Pub. L. than 662⁄3 percent of the outstanding units 98–38, § 2(b), June 6, 1983, 97 Stat. 205; Pub. L. of each of the participating limited part- 99–222, § 2, Dec. 28, 1985, 99 Stat. 1737; Pub. L. nerships; and 101–550, title III, § 302, Nov. 15, 1990, 104 Stat. 2721; (ii) as a result of the transaction, the ex- Pub. L. 103–202, title III, § 302(a), Dec. 17, 1993, 107 isting general partners will receive only Stat. 2359; Pub. L. 105–353, title III, § 301(b)(7), compensation to which they are entitled Nov. 3, 1998, 112 Stat. 3236; Pub. L. 107–123, § 6, as expressly provided for in the preexisting Jan. 16, 2002, 115 Stat. 2396; Pub. L. 111–203, title limited partnership agreements; or IX, §§ 953(a), 955, 971(a), 991(b)(3), July 21, 2010, 124 (F) a transaction, except as the Commis- Stat. 1903, 1904, 1915, 1953.) sion may otherwise provide by rule for the REFERENCES IN TEXT protection of investors, in which the securities offered to investors are securities of an- This chapter, referred to in subsecs. (b) and (h)(1)(A), (2), (3), was in the original ‘‘this title’’. See References other entity that are reported under a trans- in Text note set out under section 78a of this title. action reporting plan declared effective be- The Investment Company Act of 1940, referred to in fore December 17, 1993, by the Commission subsecs. (b)(1), (c), (d)(1), and (g)(1)(A), is title I of act under section 78k–1 of this title, if— Aug. 22, 1940, ch. 686, 54 Stat. 789, as amended, which is (i) such other entity was formed, and classified generally to subchapter I (§ 80a–1 et seq.) of such class of securities was reported and chapter 2D of this title. For complete classification of regularly traded, not less than 12 months this Act to the Code, see section 80a–51 of this title and before the date on which soliciting mate- Tables. rial is mailed to investors; and The Securities Act of 1933, referred to in subsec. (h)(5)(C), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, (ii) the securities of that entity issued to as amended, which is classified generally to subchapter investors in the transaction do not exceed I (§ 77a et seq.) of chapter 2A of this title. For complete 20 percent of the total outstanding securi- classification of this Act to the Code, see section 77a of ties of the entity, exclusive of any securi- this title and Tables. Page 271 TITLE 15—COMMERCE AND TRADE § 78n

AMENDMENTS tomers for former provisions which limited the Com- mission’s rulemaking authority only to the giving of 2010—Subsec. (a). Pub. L. 111–203, § 971(a), designated proxies in respect to listed securities carried for the ac- existing provisions as par. (1) and added par. (2). count of customers by members of the national securi- Subsec. (g)(1)(A). Pub. L. 111–203, § 991(b)(3)(A), sub- ties exchanges and by brokers or dealers who conduct stituted ‘‘paragraph (4)’’ for ‘‘paragraphs (5) and (6)’’ in business through the medium of an exchange member, cls. (i) and (ii). and deleted the reference to brokers and dealers who Subsec. (g)(3). Pub. L. 111–203, § 991(b)(3)(B), sub- transacted business through the medium of an ex- stituted ‘‘paragraph (4)’’ for ‘‘paragraphs (5) and (6)’’. change member as being now covered by brokers and Subsec. (g)(4) to (6). Pub. L. 111–203, § 991(b)(3)(C), (D), dealers registered under this chapter. added pars. (4) to (6) and struck out former pars. (4) to Subsec. (c). Pub. L. 88–467, § 5(c), added subsec. (c). (6) which related to deposit and crediting of fees as offsetting collections, annual adjustment of rates, and EFFECTIVE DATE OF 2010 AMENDMENT final rate adjustment, respectively. Subsec. (g)(8) to (11). Pub. L. 111–203, § 991(b)(3)(E), (F), Amendment by sections 953(a), 955, and 971(a) of Pub. redesignated par. (11) as (8) and struck out former pars. L. 111–203 effective 1 day after July 21, 2010, except as (8) to (10) which related to review and effective date of otherwise provided, see section 4 of Pub. L. 111–203, set adjusted rate, collection of fees upon lapse of appro- out as an Effective Date note under section 5301 of Title priation, and publication of rate, respectively. 12, Banks and Banking. Subsec. (i). Pub. L. 111–203, § 953(a), added subsec. (i). Amendment by section 991(b)(3) of Pub. L. 111–203 ef- Subsec. (j). Pub. L. 111–203, § 955, added subsec. (j). fective Oct. 1, 2011, see section 991(b)(4) of Pub. L. 2002—Subsec. (g)(1)(A)(i), (ii), (3). Pub. L. 107–123, 111–203, set out as a note under section 77f of this title. § 6(1), substituted ‘‘a fee at a rate that, subject to para- EFFECTIVE DATE OF 2002 AMENDMENT graphs (5) and (6), is equal to $92 per $1,000,000 of’’ for ‘‘a fee of 1⁄50 of 1 per centum of’’. Amendment by Pub. L. 107–123 effective Oct. 1, 2001, Subsec. (g)(4) to (11). Pub. L. 107–123, § 6(2), (3), added except that authorities provided by subsec. (g)(9) of this pars. (4) to (10) and redesignated former par. (4) as (11). section to not apply until Oct. 1, 2002, see section 11 of 1998—Subsec. (g)(4). Pub. L. 105–353 substituted ‘‘con- Pub. L. 107–123, set out as a note under section 78ee of solidation, sale,’’ for ‘‘consolidation sale,’’. this title. 1993—Subsec. (h). Pub. L. 103–202 added subsec. (h). 1990—Subsec. (b)(1). Pub. L. 101–550, § 302(a), sub- EFFECTIVE DATE OF 1990 AMENDMENT stituted ‘‘section 78l of this title, or any security issued Pub. L. 101–550, title III, § 303, Nov. 15, 1990, 104 Stat. by an investment company registered under the Invest- 2721, provided that: ‘‘The amendments made by section ment Company Act of 1940,’’ for ‘‘section 78l of this 302 of this title [amending this section] shall take ef- title’’ and ‘‘authorization, or information statement’’ fect upon the expiration of 180 days after the date of en- for ‘‘or authorization’’. actment of this Act [Nov. 15, 1990].’’ Subsec. (c). Pub. L. 101–550, § 302(b), substituted ‘‘title, or a security issued by an investment company reg- EFFECTIVE DATE OF 1985 AMENDMENT istered under the Investment Company Act of 1940,’’ for Pub. L. 99–222, § 3, Dec. 28, 1985, 99 Stat. 1737, provided ‘‘title’’. that: ‘‘The amendments made by this Act [amending 1985—Subsec. (b). Pub. L. 99–222 designated existing this section] shall become effective one year after the provision as par. (1), inserted ‘‘or any bank, associa- date of enactment of this Act [Dec. 28, 1985].’’ tion, or other entity that exercises fiduciary powers,’’ after ‘‘under this chapter,’’, and added par. (2). EFFECTIVE DATE OF 1964 AMENDMENT 1983—Subsec. (g). Pub. L. 98–38 added subsec. (g). 1970—Subsec. (d)(1). Pub. L. 91–567, § 3, included equity Amendment by Pub. L. 88–467 effective Aug. 20, 1964, securities of an insurance company which would have see section 13 of Pub. L. 88–467, set out as a note under been required to be registered except for the exemption section 78c of this title. contained in section 78l(g)(2)(G) of this title, and sub- REGULATIONS stituted ‘‘5 per centum’’ for ‘‘10 per centum’’. Subsec. (d)(8). Pub. L. 91–567, § 4, struck out cl. (A) Pub. L. 111–203, title IX, § 971(b), (c), July 21, 2010, 124 which excluded offers for, or invitations for tenders of, Stat. 1915, provided that: securities proposed to be made by means of a registra- ‘‘(b) REGULATIONS.—The Commission may issue rules tion statement under the Securities Act of 1933, and re- permitting the use by a shareholder of proxy solicita- designated cls. (B) to (D) as (A) to (C), respectively. tion materials supplied by an issuer of securities for Subsec. (e). Pub. L. 91–567, § 5, inserted provisions re- the purpose of nominating individuals to membership quiring the Commission, for the purposes of the sub- on the board of directors of the issuer, under such section, by rules and regulations to define, and pre- terms and conditions as the Commission determines scribe means reasonably designed to prevent, such acts are in the interests of shareholders and for the protec- and practices as are fraudulent, deceptive, or manipulation of investors. tive. ‘‘(c) EXEMPTIONS.—The Commission may, by rule or 1968—Subsecs. (d) to (f). Pub. L. 90–439 added subsecs. order, exempt an issuer or class of issuers from the re- (d) to (f). quirement made by this section [amending this section] 1964—Subsec. (a). Pub. L. 88–467, § 5(a), substituted or an amendment made by this section. In determining provisions which make it unlawful for any person, in whether to make an exemption under this subsection, contravention of the Commission’s rules and regula- the Commission shall take into account, among other tions, to solicit, or to permit the use of his name to so- considerations, whether the requirement in the amend- licit, proxies in respect of any security registered pur- ment made by subsection (a) disproportionately bur- suant to section 78l of this title for former provisions dens small issuers.’’ which limited the Commission’s rulemaking authority [For definitions of terms used in section 971(b), (c) of to proxies relating to securities listed and registered on Pub. L. 111–203, set out above, see section 5301 of Title a national securities exchange. 12, Banks and Banking.] Subsec. (b). Pub. L. 88–467, § 5(b), substituted provi- Pub. L. 103–202, title III, § 302(b), Dec. 17, 1993, 107 sions which make it unlawful for members of a national Stat. 2363, provided that: ‘‘The Securities and Exchange securities exchange and brokers and dealers registered Commission shall conduct rulemaking proceedings and under this chapter, in contravention of such rules as prescribe final regulations under the Securities Act of may be prescribed by the Commission, to give, or to re- 1933 [15 U.S.C. 77a et seq.] and the Securities Exchange frain from giving proxies, consents, and other author- Act of 1934 [15 U.S.C. 78a et seq.] to implement the re- izations in respect of any security registered under sec- quirements of section 14(h) of the Securities Exchange tion 78l of this title carried for the account of cus- Act of 1934 [15 U.S.C. 78n(h)], as amended by subsection § 78n–1 TITLE 15—COMMERCE AND TRADE Page 272

(a), and such regulations shall become effective not nual or other meeting of the shareholders for later than 12 months after the date of enactment of which the proxy solicitation rules of the Com- this Act [Dec. 17, 1993].’’ mission require compensation disclosure shall CONSTRUCTION OF 1993 AMENDMENT include a separate resolution subject to share- Amendment by Pub. L. 103–202 not to limit authority holder vote to approve the compensation of ex- of Securities and Exchange Commission, a registered ecutives, as disclosed pursuant to section securities association, or a national securities ex- 229.402 of title 17, Code of Federal Regulations, change under any provision of this chapter or preclude or any successor thereto. the Commission or such association or exchange from (2) Frequency of vote imposing a remedy or procedure required to be imposed under such amendment, see section 304(b) of Pub. L. Not less frequently than once every 6 years, 103–202, set out in an Effective Date of 1993 Amendment a proxy or consent or authorization for an an- note under section 78f of this title. nual or other meeting of the shareholders for TRANSFER OF FUNCTIONS which the proxy solicitation rules of the Com- mission require compensation disclosure shall For transfer of functions of Securities and Exchange include a separate resolution subject to share- Commission, with certain exceptions, to Chairman of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, holder vote to determine whether votes on the eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under resolutions required under paragraph (1) will section 78d of this title. occur every 1, 2, or 3 years.

STUDY AND REPORT ON SHAREHOLDER ACCESS TO (3) Effective date PROXY STATEMENTS The proxy or consent or authorization for Pub. L. 104–290, title V, § 510(b), Oct. 11, 1996, 110 Stat. the first annual or other meeting of the share- 3450, provided that: holders occurring after the end of the 6-month ‘‘(1) STUDY.—The Commission shall conduct a study period beginning on July 21, 2010, shall in- of— clude— ‘‘(A) whether shareholder access to proxy state- (A) the resolution described in paragraph ments pursuant to section 14 of the Securities Ex- (1); and change Act of 1934 [15 U.S.C. 78n] has been impaired by recent statutory, judicial, or regulatory changes; (B) a separate resolution subject to share- and holder vote to determine whether votes on ‘‘(B) the ability of shareholders to have proposals the resolutions required under paragraph (1) relating to corporate practices and social issues in- will occur every 1, 2, or 3 years. cluded as part of proxy statements. (b) Shareholder approval of golden parachute ‘‘(2) REPORT.—Not later than 1 year after the date of enactment of this Act [Oct. 11, 1996], the Commission compensation shall submit a report to the Congress on the results of (1) Disclosure the study conducted under paragraph (1), together with In any proxy or consent solicitation mate- any recommendations for regulatory or legislative changes that it considers necessary to improve share- rial (the solicitation of which is subject to the holder access to proxy statements.’’ rules of the Commission pursuant to subsection (a)) for a meeting of the shareholders EVALUATION OF FAIRNESS OPINION PREPARATION, occurring after the end of the 6-month period DISCLOSURE, AND USE beginning on July 21, 2010, at which sharehold- Pub. L. 103–202, title III, § 302(c), Dec. 17, 1993, 107 ers are asked to approve an acquisition, merg- Stat. 2363, provided that: er, consolidation, or proposed sale or other ‘‘(1) EVALUATION REQUIRED.—The Comptroller General disposition of all or substantially all the as- of the United States shall, within 18 months after the sets of an issuer, the person making such so- date of enactment of this Act [Dec. 17, 1993], conduct a study of— licitation shall disclose in the proxy or con- ‘‘(A) the use of fairness opinions in limited partner- sent solicitation material, in a clear and sim- ship rollup transactions; ple form in accordance with regulations to be ‘‘(B) the standards which preparers use in making promulgated by the Commission, any agree- determinations of fairness; ments or understandings that such person has ‘‘(C) the scope of review, quality of analysis, quali- with any named executive officers of such is- fications and methods of selection of preparers, costs suer (or of the acquiring issuer, if such issuer of preparation, and any limitations imposed by issuers on such preparers; is not the acquiring issuer) concerning any ‘‘(D) the nature and quality of disclosures provided type of compensation (whether present, de- with respect to such opinions; ferred, or contingent) that is based on or ‘‘(E) any conflicts of interest with respect to the otherwise relates to the acquisition, merger, preparation of such opinions; and consolidation, sale, or other disposition of all ‘‘(F) the usefulness of such opinions to limited part- or substantially all of the assets of the issuer ners. and the aggregate total of all such compensa- ‘‘(2) REPORT REQUIRED.—Not later than the end of the tion that may (and the conditions upon which 18-month period referred to in paragraph (1), the Comp- troller General of the United States shall submit to the it may) be paid or become payable to or on be- Congress a report on the evaluation required by para- half of such executive officer. graph (1).’’ (2) Shareholder approval § 78n–1. Shareholder approval of executive com- Any proxy or consent or authorization relat- pensation ing to the proxy or consent solicitation material containing the disclosure required by (a) Separate resolution required paragraph (1) shall include a separate resolu- (1) In general tion subject to shareholder vote to approve Not less frequently than once every 3 years, such agreements or understandings and com- a proxy or consent or authorization for an an- pensation as disclosed, unless such agreements Page 273 TITLE 15—COMMERCE AND TRADE § 78o

or understandings have been subject to a 111–203, which enacted this section, to reflect the prob- shareholder vote under subsection (a). able intent of Congress. (c) Rule of construction EFFECTIVE DATE The shareholder vote referred to in sub- Section effective 1 day after July 21, 2010, except as sections (a) and (b) shall not be binding on the otherwise provided, see section 4 of Pub. L. 111–203, set issuer or the board of directors of an issuer, and out as a note under section 5301 of Title 12, Banks and may not be construed— Banking. (1) as overruling a decision by such issuer or § 78o. Registration and regulation of brokers and board of directors; dealers (2) to create or imply any change to the fiduciary duties of such issuer or board of direc- (a) Registration of all persons utilizing exchange tors; facilities to effect transactions; exemptions (3) to create or imply any additional fidu- (1) It shall be unlawful for any broker or deal- ciary duties for such issuer or board of direc- er which is either a person other than a natural tors; or person or a natural person not associated with a (4) to restrict or limit the ability of share- broker or dealer which is a person other than a holders to make proposals for inclusion in natural person (other than such a broker or proxy materials related to executive com- dealer whose business is exclusively intrastate pensation. and who does not make use of any facility of a national securities exchange) to make use of the (d) Disclosure of votes mails or any means or instrumentality of inter- Every institutional investment manager sub- state commerce to effect any transactions in, or ject to section 78m(f) of this title shall report at to induce or attempt to induce the purchase or least annually how it voted on any shareholder sale of, any security (other than an exempted se- vote pursuant to subsections (a) and (b), unless curity or commercial paper, bankers’ accept- such vote is otherwise required to be reported ances, or commercial bills) unless such broker publicly by rule or regulation of the Commis- or dealer is registered in accordance with sub- sion. section (b) of this section. (e) Exemption (2) The Commission, by rule or order, as it The Commission may, by rule or order, ex- deems consistent with the public interest and empt an issuer or class of issuers from the re- the protection of investors, may conditionally quirement under subsection (a) or (b). In deter- or unconditionally exempt from paragraph (1) of mining whether to make an exemption under this subsection any broker or dealer or class of this subsection, the Commission shall take into brokers or dealers specified in such rule or account, among other considerations, whether order. the requirements under subsections (a) and (b) (b) Manner of registration of brokers and dealers disproportionately burdens 1 small issuers. (1) A broker or dealer may be registered by fil- (June 6, 1934, ch. 404, title I, § 14A, as added Pub. ing with the Commission an application for reg- L. 111–203, title IX, § 951, July 21, 2010, 124 Stat. istration in such form and containing such in- 1899.) formation and documents concerning such broker or dealer and any persons associated with EFFECTIVE DATE such broker or dealer as the Commission, by Section effective 1 day after July 21, 2010, except as rule, may prescribe as necessary or appropriate otherwise provided, see section 4 of Pub. L. 111–203, set in the public interest or for the protection of in- out as a note under section 5301 of Title 12, Banks and vestors. Within forty-five days of the date of the Banking. filing of such application (or within such longer period as to which the applicant consents), the § 78n–2. Corporate governance Commission shall— Not later than 180 days after July 21, 2010, the (A) by order grant registration, or Commission shall issue rules that require an is- (B) institute proceedings to determine suer to disclose in the annual proxy sent to in- whether registration should be denied. Such vestors the reasons why the issuer has chosen— proceedings shall include notice of the grounds (1) the same person to serve as chairman of for denial under consideration and oppor- the board of directors and chief executive offi- tunity for hearing and shall be concluded cer (or in equivalent positions); or within one hundred twenty days of the date of (2) different individuals to serve as chairman the filing of the application for registration. of the board of directors and chief executive At the conclusion of such proceedings, the officer (or in equivalent positions of the is- Commission, by order, shall grant or deny suer). such registration. The Commission may extend the time for conclusion of such proceed- (June 6, 1934, ch. 404, title I, § 14B, as added Pub. ings for up to ninety days if it finds good cause L. 111–203, title IX, § 972, July 21, 2010, 124 Stat. for such extension and publishes its reasons 1915.) for so finding or for such longer period as to CODIFICATION which the applicant consents. July 21, 2010, referred to in text, was in the original The Commission shall grant such registration if ‘‘the date of enactment of this subsection’’, and was the Commission finds that the requirements of translated as meaning the date of enactment of Pub. L. this section are satisfied. The order granting registration shall not be effective until such 1 So in original. Probably should be ‘‘burden’’. broker or dealer has become a member of a reg- § 78o TITLE 15—COMMERCE AND TRADE Page 274 istered securities association, or until such of any use of the mails or any means or instru- broker or dealer has become a member of a na- mentality of interstate commerce in connection tional securities exchange, if such broker or therewith. dealer effects transactions solely on that ex- (4) The Commission, by order, shall censure, change, unless the Commission has exempted place limitations on the activities, functions, or such broker or dealer, by rule or order, from operations of, suspend for a period not exceeding such membership. The Commission shall deny twelve months, or revoke the registration of any such registration if it does not make such a broker or dealer if it finds, on the record after finding or if it finds that if the applicant were so notice and opportunity for hearing, that such registered, its registration would be subject to censure, placing of limitations, suspension, or suspension or revocation under paragraph (4) of revocation is in the public interest and that this subsection. such broker or dealer, whether prior or subse- (2)(A) An application for registration of a quent to becoming such, or any person associ- broker or dealer to be formed or organized may ated with such broker or dealer, whether prior be made by a broker or dealer to which the or subsequent to becoming so associated— broker or dealer to be formed or organized is to (A) has willfully made or caused to be made be the successor. Such application, in such form in any application for registration or report as the Commission, by rule, may prescribe, shall required to be filed with the Commission or contain such information and documents con- with any other appropriate regulatory agency cerning the applicant, the successor, and any under this chapter, or in any proceeding before persons associated with the applicant or the suc- the Commission with respect to registration, cessor, as the Commission, by rule, may pre- any statement which was at the time and in scribe as necessary or appropriate in the public the light of the circumstances under which it interest or for the protection of investors. The was made false or misleading with respect to grant or denial of registration to such an appli- any material fact, or has omitted to state in cant shall be in accordance with the procedures any such application or report any material set forth in paragraph (1) of this subsection. If fact which is required to be stated therein. the Commission grants such registration, the (B) has been convicted within ten years pre- registration shall terminate on the forty-fifth ceding the filing of any application for reg- day after the effective date thereof, unless prior istration or at any time thereafter of any fel- thereto the successor shall, in accordance with ony or misdemeanor or of a substantially such rules and regulations as the Commission equivalent crime by a foreign court of com- may prescribe, adopt the application for reg- petent jurisdiction which the Commission istration as its own. finds— (B) Any person who is a broker or dealer solely (i) involves the purchase or sale of any se- by reason of acting as a municipal securities curity, the taking of a false oath, the mak- dealer or municipal securities broker, who so ing of a false report, bribery, perjury, bur- acts through a separately identifiable depart- glary, any substantially equivalent activity ment or division, and who so acted in such a however denominated by the laws of the rel- manner on June 4, 1975, may, in accordance with evant foreign government, or conspiracy to such terms and conditions as the Commission, commit any such offense; by rule, prescribes as necessary and appropriate (ii) arises out of the conduct of the busi- in the public interest and for the protection of ness of a broker, dealer, municipal securities investors, register such separately identifiable dealer municipal advisor,,1 government secu- department or division in accordance with this rities broker, government securities dealer, subsection. If any such department or division is investment adviser, bank, insurance com- so registered, the department or division and pany, fiduciary, transfer agent, nationally not such person himself shall be the broker or recognized statistical rating organization, dealer for purposes of this chapter. foreign person performing a function sub- (C) Within six months of the date of the grant- stantially equivalent to any of the above, or ing of registration to a broker or dealer, the entity or person required to be registered Commission, or upon the authorization and di- under the Commodity Exchange Act (7 rection of the Commission, a registered securi- U.S.C. 1 et seq.) or any substantially equiva- ties association or national securities exchange lent foreign statute or regulation; of which such broker or dealer is a member, (iii) involves the larceny, theft, robbery, shall conduct an inspection of the broker or extortion, forgery, counterfeiting, fraudu- dealer to determine whether it is operating in lent concealment, embezzlement, fraudulent conformity with the provisions of this chapter conversion, or misappropriation of funds, or and the rules and regulations thereunder: Pro- securities, or substantially equivalent activ- vided, however, That the Commission may delay ity however denominated by the laws of the such inspection of any class of brokers or deal- relevant foreign government; or ers for a period not to exceed six months. (iv) involves the violation of section 152, (3) Any provision of this chapter (other than 1341, 1342, or 1343 or chapter 25 or 47 of title section 78e of this title and subsection (a) of this 18 or a violation of a substantially equiva- section) which prohibits any act, practice, or lent foreign statute. course of business if the mails or any means or instrumentality of interstate commerce is used (C) is permanently or temporarily enjoined in connection therewith shall also prohibit any by order, judgment, or decree of any court of such act, practice, or course of business by any competent jurisdiction from acting as an in- registered broker or dealer or any person acting on behalf of such a broker or dealer, irrespective 1 So in original. Page 275 TITLE 15—COMMERCE AND TRADE § 78o

vestment adviser, underwriter, broker, dealer, eign financial regulatory authority with re- municipal securities dealer municipal advi- spect to registration, any statement that sor,,1 government securities broker, govern- was at the time and in the light of the cir- ment securities dealer, security-based swap cumstances under which it was made false or dealer, major security-based swap participant, misleading with respect to any material transfer agent, nationally recognized statis- fact, or has omitted to state in any applica- tical rating organization, foreign person per- tion or report to the foreign financial regu- forming a function substantially equivalent to latory authority any material fact that is any of the above, or entity or person required required to be stated therein; to be registered under the Commodity Ex- (ii) violated any foreign statute or regula- change Act or any substantially equivalent tion regarding transactions in securities, or foreign statute or regulation, or as an affili- contracts of sale of a commodity for future ated person or employee of any investment delivery, traded on or subject to the rules of company, bank, insurance company, foreign a contract market or any board of trade; entity substantially equivalent to any of the (iii) aided, abetted, counseled, commanded, above, or entity or person required to be reg- induced, or procured the violation by any istered under the Commodity Exchange Act or person of any provision of any statutory pro- any substantially equivalent foreign statute visions enacted by a foreign government, or or regulation, or from engaging in or continu- rules or regulations thereunder, empowering ing any conduct or practice in connection with a foreign financial regulatory authority re- any such activity, or in connection with the garding transactions in securities, or con- purchase or sale of any security. tracts of sale of a commodity for future de- (D) has willfully violated any provision of livery, traded on or subject to the rules of a the Securities Act of 1933 [15 U.S.C. 77a et contract market or any board of trade, or seq.], the Investment Advisers Act of 1940 [15 has been found, by a foreign financial regu- U.S.C. 80b–1 et seq.], the Investment Company latory authority, to have failed reasonably Act of 1940 [15 U.S.C. 80a–1 et seq.], the Com- to supervise, with a view to preventing vio- modity Exchange Act, this chapter, the rules lations of such statutory provisions, rules, or regulations under any of such statutes, or and regulations, another person who com- the rules of the Municipal Securities Rule- mits such a violation, if such other person is making Board, or is unable to comply with subject to his supervision; or any such provision. (E) has willfully aided, abetted, counseled, (H) is subject to any final order of a State commanded, induced, or procured the viola- securities commission (or any agency or offi- tion by any other person of any provision of cer performing like functions), State author- the Securities Act of 1933, the Investment Ad- ity that supervises or examines banks, savings visers Act of 1940, the Investment Company associations, or credit unions, State insurance Act of 1940, the Commodity Exchange Act, this commission (or any agency or office perform- chapter, the rules or regulations under any of ing like functions), an appropriate Federal such statutes, or the rules of the Municipal banking agency (as defined in section 3 of the Securities Rulemaking Board, or has failed Federal Deposit Insurance Act (12 U.S.C. reasonably to supervise, with a view to pre- 1813(q))), or the National Credit Union Admin- venting violations of the provisions of such istration, that— statutes, rules, and regulations, another per- (i) bars such person from association with son who commits such a violation, if such an entity regulated by such commission, au- other person is subject to his supervision. For thority, agency, or officer, or from engaging the purposes of this subparagraph (E) no per- in the business of securities, insurance, son shall be deemed to have failed reasonably banking, savings association activities, or to supervise any other person, if— credit union activities; or (i) there have been established procedures, (ii) constitutes a final order based on vio- and a system for applying such procedures, lations of any laws or regulations that pro- which would reasonably be expected to pre- hibit fraudulent, manipulative, or deceptive vent and detect, insofar as practicable, any conduct. such violation by such other person, and (5) Pending final determination whether any (ii) such person has reasonably discharged registration under this subsection shall be re- the duties and obligations incumbent upon voked, the Commission, by order, may suspend him by reason of such procedures and system such registration, if such suspension appears to without reasonable cause to believe that the Commission, after notice and opportunity such procedures and system were not being for hearing, to be necessary or appropriate in complied with. the public interest or for the protection of inves- (F) is subject to any order of the Commis- tors. Any registered broker or dealer may, upon sion barring or suspending the right of the per- such terms and conditions as the Commission son to be associated with a broker, dealer, se- deems necessary or appropriate in the public in- curity-based swap dealer, or a major security- terest or for the protection of investors, with- based swap participant; draw from registration by filing a written notice (G) has been found by a foreign financial reg- of withdrawal with the Commission. If the Com- ulatory authority to have— mission finds that any registered broker or deal- (i) made or caused to be made in any appli- er is no longer in existence or has ceased to do cation for registration or report required to business as a broker or dealer, the Commission, be filed with a foreign financial regulatory by order, shall cancel the registration of such authority, or in any proceeding before a for- broker or dealer. § 78o TITLE 15—COMMERCE AND TRADE Page 276

(6)(A) With respect to any person who is asso- dealer registered (or required to register) under ciated, who is seeking to become associated, or, section 78o–5(a)(1)(A) of this title shall effect at the time of the alleged misconduct, who was any transaction in, or induce the purchase or associated or was seeking to become associated sale of, any security unless such broker or deal- with a broker or dealer, or any person partici- er meets such standards of operational capabil- pating, or, at the time of the alleged mis- ity and such broker or dealer and all natural conduct, who was participating, in an offering of persons associated with such broker or dealer any penny stock, the Commission, by order, meet such standards of training, experience, shall censure, place limitations on the activities competence, and such other qualifications as the or functions of such person, or suspend for a pe- Commission finds necessary or appropriate in riod not exceeding 12 months, or bar any such the public interest or for the protection of inves- person from being associated with a broker, tors. The Commission shall establish such dealer, investment adviser, municipal securities standards by rules and regulations, which may— dealer, municipal advisor, transfer agent, or na- (A) specify that all or any portion of such tionally recognized statistical rating organiza- standards shall be applicable to any class of tion, or from participating in an offering of brokers and dealers and persons associated penny stock, if the Commission finds, on the with brokers and dealers; record after notice and opportunity for a hear- (B) require persons in any such class to pass ing, that such censure, placing of limitations, tests prescribed in accordance with such rules suspension, or bar is in the public interest and and regulations, which tests shall, with re- that such person— spect to any class of partners, officers, or su- (i) has committed or omitted any act, or is pervisory employees (which latter term may subject to an order or finding, enumerated in be defined by the Commission’s rules and regu- subparagraph (A), (D), or (E) of paragraph (4) lations and as so defined shall include branch of this subsection; managers of brokers or dealers) engaged in the (ii) has been convicted of any offense speci- management of the broker or dealer, include fied in subparagraph (B) of such paragraph (4) questions relating to bookkeeping, account- within 10 years of the commencement of the ing, internal control over cash and securities, proceedings under this paragraph; or supervision of employees, maintenance of (iii) is enjoined from any action, conduct, or records, and other appropriate matters; and practice specified in subparagraph (C) of such (C) provide that persons in any such class paragraph (4). other than brokers and dealers and partners, officers, and supervisory employees of brokers (B) It shall be unlawful— or dealers, may be qualified solely on the basis (i) for any person as to whom an order under of compliance with such standards of training subparagraph (A) is in effect, without the con- and such other qualifications as the Commis- sent of the Commission, willfully to become, sion finds appropriate. or to be, associated with a broker or dealer in The Commission, by rule, may prescribe reason- contravention of such order, or to participate able fees and charges to defray its costs in car- in an offering of penny stock in contravention rying out this paragraph, including, but not lim- of such order; ited to, fees for any test administered by it or (ii) for any broker or dealer to permit such under its direction. The Commission may co- a person, without the consent of the Commis- operate with registered securities associations sion, to become or remain, a person associated and national securities exchanges in devising with the broker or dealer in contravention of and administering tests and may require reg- such order, if such broker or dealer knew, or in istered brokers and dealers and persons associ- the exercise of reasonable care should have ated with such brokers and dealers to pass tests known, of such order; or administered by or on behalf of any such asso- (iii) for any broker or dealer to permit such ciation or exchange and to pay such association a person, without the consent of the Commis- or exchange reasonable fees or charges to defray sion, to participate in an offering of penny the costs incurred by such association or ex- stock in contravention of such order, if such change in administering such tests. broker or dealer knew, or in the exercise of (8) It shall be unlawful for any registered reasonable care should have known, of such broker or dealer to effect any transaction in, or order and of such participation. induce or attempt to induce the purchase or sale (C) For purposes of this paragraph, the term of, any security (other than or 2 commercial ‘‘person participating in an offering of penny paper, bankers’ acceptances, or commercial stock’’ includes any person acting as any pro- bills), unless such broker or dealer is a member moter, finder, consultant, agent, or other person of a securities association registered pursuant who engages in activities with a broker, dealer, to section 78o–3 of this title or effects trans- or issuer for purposes of the issuance or trading actions in securities solely on a national securi- in any penny stock, or inducing or attempting ties exchange of which it is a member. to induce the purchase or sale of any penny (9) The Commission by rule or order, as it stock. The Commission may, by rule or regula- deems consistent with the public interest and tion, define such term to include other activi- the protection of investors, may conditionally ties, and may, by rule, regulation, or order, ex- or unconditionally exempt from paragraph (8) of empt any person or class of persons, in whole or this subsection any broker or dealer or class of in part, conditionally or unconditionally, from brokers or dealers specified in such rule or such term. order. (7) No registered broker or dealer or government securities broker or government securities 2 So in original. The word ‘‘or’’ probably should not appear. Page 277 TITLE 15—COMMERCE AND TRADE § 78o

(10) For the purposes of determining whether a an exchange pursuant to section 78f(g) of person is subject to a statutory disqualification this title; under section 78f(c)(2), 78o–3(g)(2), or (ii) effects transactions only in securities 78q–1(b)(4)(A) of this title, the term ‘‘Commis- on the exchange of which such person is a sion’’ in paragraph (4)(B) of this subsection shall member; and mean ‘‘exchange’’, ‘‘association’’, or ‘‘clearing (iii) does not directly accept or solicit or- agency’’, respectively. ders from public customers or provide advice (11) BROKER/DEALER REGISTRATION WITH RE- to public customers in connection with the SPECT TO TRANSACTIONS IN SECURITY FUTURES trading of security futures products. PRODUCTS.— (B) OTHER EXEMPTIONS.—A natural person (A) NOTICE REGISTRATION.— (i) CONTENTS OF NOTICE.—Notwithstanding exempt from registration pursuant to subpara- paragraphs (1) and (2), a broker or dealer re- graph (A) shall also be exempt from the fol- quired to register only because it effects lowing provisions of this chapter and the rules transactions in security futures products on thereunder: an exchange registered pursuant to section (i) Section 78h of this title. 78f(g) of this title may register for purposes (ii) Section 78k of this title. of this section by filing with the Commis- (iii) Subsections (c)(3), (c)(5), and (e) of sion a written notice in such form and con- this section. o taining such information concerning such (iv) Section 78 –4 of this title. (v) Section 78o–5 of this title. broker or dealer and any persons associated (vi) Subsections (d), (e), (f), (g), (h), and (i) 3 with such broker or dealer as the Commis- of section 78q of this title. sion, by rule, may prescribe as necessary or appropriate in the public interest or for the (c) Use of manipulative or deceptive devices; protection of investors. A broker or dealer contravention of rules and regulations may not register under this paragraph un- (1)(A) No broker or dealer shall make use of less that broker or dealer is a member of a the mails or any means or instrumentality of national securities association registered interstate commerce to effect any transaction under section 78o–3(k) of this title. in, or to induce or attempt to induce the pur- (ii) IMMEDIATE EFFECTIVENESS.—Such reg- chase or sale of, any security (other than com- istration shall be effective contempora- mercial paper, bankers’ acceptances, or com- neously with the submission of notice, in mercial bills), or any security-based swap agree- written or electronic form, to the Commis- ment by means of any manipulative, deceptive, sion, except that such registration shall not or other fraudulent device or contrivance. be effective if the registration would be sub- (B) No broker, dealer, or municipal securities ject to suspension or revocation under para- dealer shall make use of the mails or any means graph (4). or instrumentality of interstate commerce to ef- (iii) SUSPENSION.—Such registration shall fect any transaction in, or to induce or attempt be suspended immediately if a national secu- to induce the purchase or sale of, any municipal rities association registered pursuant to sec- security or any security-based swap agreement tion 78o–3(k) of this title suspends the mem- involving a municipal security by means of any bership of that broker or dealer. manipulative, deceptive, or other fraudulent de- (iv) TERMINATION.—Such registration shall vice or contrivance. be terminated immediately if any of the (C) No government securities broker or gov- above stated conditions for registration set ernment securities dealer shall make use of the forth in this paragraph are no longer sat- mails or any means or instrumentality of inter- isfied. state commerce to effect any transaction in, or (B) EXEMPTIONS FOR REGISTERED BROKERS to induce or to attempt to induce the purchase AND DEALERS.—A broker or dealer registered or sale of, any government security or any secu- pursuant to the requirements of subparagraph rity-based swap agreement involving a govern- (A) shall be exempt from the following provi- ment security by means of any manipulative, sions of this chapter and the rules thereunder deceptive, or other fraudulent device or contriv- with respect to transactions in security fu- ance. tures products: (2)(A) No broker or dealer shall make use of (i) Section 78h of this title. the mails or any means or instrumentality of (ii) Section 78k of this title. interstate commerce to effect any transaction (iii) Subsections (c)(3) and (c)(5) of this in, or to induce or attempt to induce the pur- section. chase or sale of, any security (other than an ex- (iv) Section 78o–4 of this title. empted security or commercial paper, bankers’ (v) Section 78o–5 of this title. acceptances, or commercial bills) otherwise 3 (vi) Subsections (d), (e), (f), (g), (h), and (i) than on a national securities exchange of which of section 78q of this title. it is a member, in connection with which such (12) EXEMPTION FOR SECURITY FUTURES PRODUCT broker or dealer engages in any fraudulent, de- EXCHANGE MEMBERS.— ceptive, or manipulative act or practice, or (A) REGISTRATION EXEMPTION.—A natural makes any fictitious quotation. person shall be exempt from the registration (B) No broker, dealer, or municipal securities requirements of this section if such person— dealer shall make use of the mails or any means (i) is a member of a designated contract or instrumentality of interstate commerce to ef- market registered with the Commission as fect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal 3 See References in Text note below. security in connection with which such broker, § 78o TITLE 15—COMMERCE AND TRADE Page 278 dealer, or municipal securities dealer engages in rules, regulations, or orders as are necessary to any fraudulent, deceptive, or manipulative act avoid duplicative or conflicting regulations ap- or practice, or makes any fictitious quotation. plicable to any broker or dealer registered with (C) No government securities broker or gov- the Commission pursuant to subsection (b) of ernment securities dealer shall make use of the this section (except paragraph (11) thereof), that mails or any means or instrumentality of inter- is also registered with the Commodity Futures state commerce to effect any transaction in, or Trading Commission pursuant to section 4f(a) of induce or attempt to induce the purchase or sale the Commodity Exchange Act [7 U.S.C. 6f(a)] of, any government security in connection with (except paragraph (2) thereof), with respect to which such government securities broker or gov- the application of: (i) the provisions of section ernment securities dealer engages in any fraudu- 78h of this title, subsection (c)(3) of this section, lent, deceptive, or manipulative act or practice, and section 78q of this title and the rules and or makes any fictitious quotation. regulations thereunder related to the treatment (D) The Commission shall, for the purposes of of customer funds, securities, or property, main- this paragraph, by rules and regulations define, tenance of books and records, financial report- and prescribe means reasonably designed to pre- ing, or other financial responsibility rules, in- vent, such acts and practices as are fraudulent, volving security futures products; and (ii) simi- deceptive, or manipulative and such quotations lar provisions of the Commodity Exchange Act as are fictitious. [7 U.S.C. 1 et seq.] and rules and regulations (E) The Commission shall, prior to adopting thereunder involving security futures products. any rule or regulation under subparagraph (C), (C) Notwithstanding any provision of sections consult with and consider the views of the Sec- 2(a)(1)(C)(i) or 4d(a)(2) of the Commodity Ex- retary of the Treasury and each appropriate reg- change Act [7 U.S.C. 2(a)(1)(C)(i), 6d(a)(2)] and ulatory agency. If the Secretary of the Treasury the rules and regulations thereunder, and pursu- or any appropriate regulatory agency comments ant to an exemption granted by the Commission in writing on a proposed rule or regulation of under section 78mm of this title or pursuant to the Commission under such subparagraph (C) a rule or regulation, cash and securities may be that has been published for comment, the Com- held by a broker or dealer registered pursuant to mission shall respond in writing to such written subsection (b)(1) and also registered as a futures comment before adopting the proposed rule. If commission merchant pursuant to section the Secretary of the Treasury determines, and 4f(a)(1) of the Commodity Exchange Act [7 notifies the Commission, that such rule or regu- U.S.C. 6f(a)(1)], in a portfolio margining account lation, if implemented, would, or as applied does carried as a futures account subject to section (i) adversely affect the liquidity or efficiency of 4d of the Commodity Exchange Act [7 U.S.C. 6d] the market for government securities; or (ii) im- and the rules and regulations thereunder, pursu- pose any burden on competition not necessary ant to a portfolio margining program approved or appropriate in furtherance of the purposes of by the Commodity Futures Trading Commis- this section, the Commission shall, prior to sion, and subject to subchapter IV of chapter 7 adopting the proposed rule or regulation, find of title 11 and the rules and regulations there- that such rule or regulation is necessary and ap- under. The Commission shall consult with the propriate in furtherance of the purposes of this Commodity Futures Trading Commission to section notwithstanding the Secretary’s deter- adopt rules to ensure that such transactions and mination. accounts are subject to comparable require- (3)(A) No broker or dealer (other than a gov- ments to the extent practicable for similar prod- ernment securities broker or government securi- ucts. ties dealer, except a registered broker or dealer) (4) If the Commission finds, after notice and shall make use of the mails or any means or in- opportunity for a hearing, that any person sub- strumentality of interstate commerce to effect ject to the provisions of section 78l, 78m, 78n of any transaction in, or to induce or attempt to this title or subsection (d) of this section or any induce the purchase or sale of, any security rule or regulation thereunder has failed to com- (other than an exempted security (except a gov- ply with any such provision, rule, or regulation ernment security) or commercial paper, bank- in any material respect, the Commission may ers’ acceptances, or commercial bills) in con- publish its findings and issue an order requiring travention of such rules and regulations as the such person, and any person who was a cause of Commission shall prescribe as necessary or ap- the failure to comply due to an act or omission propriate in the public interest or for the pro- the person knew or should have known would tection of investors to provide safeguards with contribute to the failure to comply, to comply, respect to the financial responsibility and relat- or to take steps to effect compliance, with such ed practices of brokers and dealers including, provision or such rule or regulation thereunder but not limited to, the acceptance of custody upon such terms and conditions and within such and use of customers’ securities and the carry- time as the Commission may specify in such ing and use of customers’ deposits or credit bal- order. ances. Such rules and regulations shall (A) re- (5) No dealer (other than a specialist reg- quire the maintenance of reserves with respect istered on a national securities exchange) acting to customers’ deposits or credit balances, and in the capacity of market maker or otherwise (B) no later than September 1, 1975, establish shall make use of the mails or any means or in- minimum financial responsibility requirements strumentality of interstate commerce to effect for all brokers and dealers. any transaction in, or to induce or attempt to (B) Consistent with this chapter, the Commis- induce the purchase or sale of, any security sion, in consultation with the Commodity Fu- (other than an exempted security or a municipal tures Trading Commission, shall issue such security) in contravention of such specified and Page 279 TITLE 15—COMMERCE AND TRADE § 78o appropriate standards with respect to dealing as pursuant to section 78m of this title in respect the Commission, by rule, shall prescribe as nec- of a security registered pursuant to section 78l essary or appropriate in the public interest and of this title. The duty to file under this sub- for the protection of investors, to maintain fair section shall be automatically suspended if and orderly markets, or to remove impediments and so long as any issue of securities of such to and perfect the mechanism of a national mar- issuer is registered pursuant to section 78l of ket system. Under the rules of the Commission this title. The duty to file under this sub- a dealer in a security may be prohibited from section shall also be automatically suspended acting as a broker in that security. as to any fiscal year, other than the fiscal (6) No broker or dealer shall make use of the year within which such registration statement mails or any means or instrumentality of inter- became effective, if, at the beginning of such state commerce to effect any transaction in, or fiscal year, the securities of each class, other to induce or attempt to induce the purchase or than any class of asset-backed securities, to sale of, any security (other than an exempted se- which the registration statement relates are curity, municipal security, commercial paper, held of record by less than three hundred per- bankers’ acceptances, or commercial bills) in sons. For the purposes of this subsection, the contravention of such rules and regulations as term ‘‘class’’ shall be construed to include all the Commission shall prescribe as necessary or securities of an issuer which are of substan- appropriate in the public interest and for the tially similar character and the holders of protection of investors or to perfect or remove which enjoy substantially similar rights and impediments to a national system for the privileges. The Commission may, for the pur- prompt and accurate clearance and settlement pose of this subsection, define by rules and of securities transactions, with respect to the regulations the term ‘‘held of record’’ as it time and method of, and the form and format of deems necessary or appropriate in the public documents used in connection with, making set- interest or for the protection of investors in tlements of and payments for transactions in se- order to prevent circumvention of the provi- curities, making transfers and deliveries of secu- sions of this subsection. Nothing in this sub- rities, and closing accounts. Nothing in this section shall apply to securities issued by a paragraph shall be construed (A) to affect the foreign government or political subdivision authority of the Board of Governors of the Fed- thereof. eral Reserve System, pursuant to section 78g of (2) Asset-backed securities this title, to prescribe rules and regulations for (A) Suspension of duty to file the purpose of preventing the excessive use of credit for the purchase or carrying of securities, The Commission may, by rule or regula- or (B) to authorize the Commission to prescribe tion, provide for the suspension or termi- rules or regulations for such purpose. nation of the duty to file under this sub- (7) In connection with any bid for or purchase section for any class of asset-backed secu- of a government security related to an offering rity, on such terms and conditions and for of government securities by or on behalf of an such period or periods as the Commission issuer, no government securities broker, govern- deems necessary or appropriate in the public ment securities dealer, or bidder for or pur- interest or for the protection of investors. chaser of securities in such offering shall know- (B) Classification of issuers ingly or willfully make any false or misleading The Commission may, for purposes of this written statement or omit any fact necessary to subsection, classify issuers and prescribe re- make any written statement made not mislead- quirements appropriate for each class of is- ing. suers of asset-backed securities. (8) PROHIBITION OF REFERRAL FEES.—No broker or dealer, or person associated with a broker or (e) Notices to customers regarding securities dealer, may solicit or accept, directly or indi- lending rectly, remuneration for assisting an attorney Every registered broker or dealer shall provide in obtaining the representation of any person in notice to its customers that they may elect not any private action arising under this chapter or to allow their fully paid securities to be used in under the Securities Act of 1933 [15 U.S.C. 77a et connection with short sales. If a broker or deal- seq.]. er uses a customer’s securities in connection (d) Supplementary and periodic information with short sales, the broker or dealer shall pro- (1) In general vide notice to its customer that the broker or dealer may receive compensation in connection Each issuer which has filed a registration with lending the customer’s securities. The statement containing an undertaking which is Commission, by rule, as it deems necessary or or becomes operative under this subsection as appropriate in the public interest and for the in effect prior to August 20, 1964, and each is- protection of investors, may prescribe the form, suer which shall after such date file a registra- content, time, and manner of delivery of any no- tion statement which has become effective tice required under this paragraph. pursuant to the Securities Act of 1933, as amended [15 U.S.C. 77a et seq.], shall file with (f) Compliance with this chapter by members not the Commission, in accordance with such rules required to be registered and regulations as the Commission may pre- The Commission, by rule, as it deems nec- scribe as necessary or appropriate in the pub- essary or appropriate in the public interest and lic interest or for the protection of investors, for the protection of investors or to assure equal such supplementary and periodic information, regulation, may require any member of a na- documents, and reports as may be required tional securities exchange not required to reg- § 78o TITLE 15—COMMERCE AND TRADE Page 280 ister under this section and any person associ- (3) Commission rules relating to disclosure ated with any such member to comply with any The Commission shall adopt rules setting provision of this chapter (other than subsection forth additional standards for the disclosure (a) of this section) or the rules or regulations by brokers and dealers to customers of infor- thereunder which by its terms regulates or pro- mation concerning transactions in penny hibits any act, practice, or course of business by stocks. Such rules— a ‘‘broker or dealer’’ or ‘‘registered broker or (A) shall require brokers and dealers to dealer’’ or a ‘‘person associated with a broker or disclose to each customer, prior to effecting dealer,’’ respectively. any transaction in, and at the time of con- (g) Prevention of misuse of material, nonpublic firming any transaction with respect to any information penny stock, in accordance with such proce- Every registered broker or dealer shall estab- dures and methods as the Commission may lish, maintain, and enforce written policies and require consistent with the public interest procedures reasonably designed, taking into and the protection of investors— consideration the nature of such broker’s or (i) the bid and ask prices for penny dealer’s business, to prevent the misuse in viola- stock, or such other information as the tion of this chapter, or the rules or regulations Commission may, by rule, require to pro- thereunder, of material, nonpublic information vide customers with more useful and reli- by such broker or dealer or any person associ- able information relating to the price of ated with such broker or dealer. The Commis- such stock; sion, as it deems necessary or appropriate in the (ii) the number of shares to which such public interest or for the protection of investors, bid and ask prices apply, or other com- shall adopt rules or regulations to require spe- parable information relating to the depth cific policies or procedures reasonably designed and liquidity of the market for such stock; to prevent misuse in violation of this chapter and (or the rules or regulations thereunder) of mate- (iii) the amount and a description of any rial, nonpublic information. compensation that the broker or dealer (h) Requirements for transactions in penny and the associated person thereof will re- stocks ceive or has received in connection with such transaction; (1) In general No broker or dealer shall make use of the (B) shall require brokers and dealers to mails or any means or instrumentality of provide, to each customer whose account interstate commerce to effect any transaction with the broker or dealer contains penny in, or to induce or attempt to induce the pur- stocks, a monthly statement indicating the chase or sale of, any penny stock by any cus- market value of the penny stocks in that ac- tomer except in accordance with the require- count or indicating that the market value of ments of this subsection and the rules and reg- such stock cannot be determined because of ulations prescribed under this subsection. the unavailability of firm quotes; and (C) may, as the Commission finds nec- (2) Risk disclosure with respect to penny essary or appropriate in the public interest stocks or for the protection of investors, require Prior to effecting any transaction in any brokers and dealers to disclose to customers penny stock, a broker or dealer shall give the additional information concerning trans- customer a risk disclosure document that— actions in penny stocks. (A) contains a description of the nature and level of risk in the market for penny (4) Exemptions stocks in both public offerings and second- The Commission, as it determines consistent ary trading; with the public interest and the protection of (B) contains a description of the broker’s investors, may by rule, regulation, or order ex- or dealer’s duties to the customer and of the empt in whole or in part, conditionally or un- rights and remedies available to the cus- conditionally, any person or class of persons, tomer with respect to violations of such du- or any transaction or class of transactions, ties or other requirements of Federal securi- from the requirements of this subsection. ties laws; Such exemptions shall include an exemption (C) contains a brief, clear, narrative de- for brokers and dealers based on the minimal scription of a dealer market, including ‘‘bid’’ percentage of the broker’s or dealer’s commis- and ‘‘ask’’ prices for penny stocks and the sions, commission-equivalents, and markups significance of the spread between the bid received from transactions in penny stocks. and ask prices; (D) contains the toll free telephone num- (5) Regulations ber for inquiries on disciplinary actions es- It shall be unlawful for any person to violate tablished pursuant to section 78o–3(i) of this such rules and regulations as the Commission title; shall prescribe in the public interest or for the (E) defines significant terms used in the protection of investors or to maintain fair and disclosure document or in the conduct of orderly markets— trading in penny stocks; and (A) as necessary or appropriate to carry (F) contains such other information, and is out this subsection; or in such form (including language, type size, (B) as reasonably designed to prevent and format), as the Commission shall re- fraudulent, deceptive, or manipulative acts quire by rule or regulation. and practices with respect to penny stocks. Page 281 TITLE 15—COMMERCE AND TRADE § 78o

(i) Limitations on State law denied the application for registration (1) Capital, margin, books and records, bond- or has stayed the pendency of the ap- ing, and reports plication for cause. No law, rule, regulation, or order, or other (B) Rules of construction administrative action of any State or political For purposes of subparagraph (A)(i)(II)— subdivision thereof shall establish capital, (i) each of up to 3 associated persons of custody, margin, financial responsibility, a broker or dealer who are designated to making and keeping records, bonding, or fi- effect transactions during the absence or nancial or operational reporting requirements unavailability of the principal associated for brokers, dealers, municipal securities deal- person for a customer may be treated as an ers, government securities brokers, or govern- associated person to which such customer ment securities dealers that differ from, or are is assigned; and in addition to, the requirements in those areas (ii) if the customer is present in another established under this chapter. The Commis- State for 30 or more consecutive days or sion shall consult periodically the securities has permanently changed his or her resi- commissions (or any agency or office perform- dence to another State, a transaction is ing like functions) of the States concerning not described in this paragraph, unless the the adequacy of such requirements as estab- associated person of the broker or dealer lished under this chapter. files an application for registration with such State not later than 10 business days (2) De minimis transactions by associated per- after the later of the date of the trans- sons action, or the date of the discovery of the No law, rule, regulation, or order, or other presence of the customer in the other administrative action of any State or political State for 30 or more consecutive days or subdivision thereof may prohibit an associated the change in the customer’s residence. person of a broker or dealer from effecting a (j) 4 Rulemaking to extend requirements to new transaction described in paragraph (3) for a hybrid products customer in such State if— (1) Consultation (A) such associated person is not ineligible to register with such State for any reason Prior to commencing a rulemaking under other than such a transaction; this subsection, the Commission shall consult (B) such associated person is registered with and seek the concurrence of the Board with a registered securities association and concerning the imposition of broker or dealer at least one State; and registration requirements with respect to any (C) the broker or dealer with which such new hybrid product. In developing and promul- person is associated is registered with such gating rules under this subsection, the Com- State. mission shall consider the views of the Board, including views with respect to the nature of (3) Described transactions the new hybrid product; the history, purpose, (A) In general extent, and appropriateness of the regulation A transaction is described in this para- of the new product under the Federal banking graph if— laws; and the impact of the proposed rule on (i) such transaction is effected— the banking industry. (I) on behalf of a customer that, for 30 (2) Limitation days prior to the day of the transaction, The Commission shall not— maintained an account with the broker (A) require a bank to register as a broker or dealer; and or dealer under this section because the (II) by an associated person of the bank engages in any transaction in, or buys broker or dealer— or sells, a new hybrid product; or (aa) to which the customer was as- (B) bring an action against a bank for a signed for 14 days prior to the day of failure to comply with a requirement de- the transaction; and scribed in subparagraph (A), (bb) who is registered with a State in which the customer was a resident or unless the Commission has imposed such re- was present for at least 30 consecutive quirement by rule or regulation issued in ac- days during the 1-year period prior to cordance with this section. the day of the transaction; or (3) Criteria for rulemaking (ii) the transaction is effected— The Commission shall not impose a require- (I) on behalf of a customer that, for 30 ment under paragraph (2) of this subsection days prior to the day of the transaction, with respect to any new hybrid product unless maintained an account with the broker the Commission determines that— (A) the new hybrid product is a security; or dealer; and (II) during the period beginning on the and (B) imposing such requirement is nec- date on which such associated person essary and appropriate in the public interest files an application for registration with and for the protection of investors. the State in which the transaction is effected and ending on the earlier of— (4) Considerations (aa) 60 days after the date on which In making a determination under paragraph the application is filed; or (3), the Commission shall consider— (bb) the date on which such State notifies the associated person that it has 4 So in original. There are two subsecs. designated (j). § 78o TITLE 15—COMMERCE AND TRADE Page 282

(A) the nature of the new hybrid product; (i) was not subjected to regulation by the and Commission as a security prior to the date (B) the history, purpose, extent, and appro- of the enactment of the Gramm-Leach-Bli- priateness of the regulation of the new hy- ley Act [Nov. 12, 1999]; brid product under the Federal securities (ii) is not an identified banking product laws and under the Federal banking laws. as such term is defined in section 206 of (5) Objection to Commission regulation such Act; and (A) Filing of petition for review (iii) is not an equity swap within the meaning of section 206(a)(6) of such Act. The Board may obtain review of any final regulation described in paragraph (2) in the (B) Board United States Court of Appeals for the Dis- The term ‘‘Board’’ means the Board of trict of Columbia Circuit by filing in such Governors of the Federal Reserve System. court, not later than 60 days after the date (j) 4 Limitation on Commission authority of publication of the final regulation, a written petition requesting that the regulation The authority of the Commission under this be set aside. Any proceeding to challenge section with respect to security-based swap any such rule shall be expedited by the agreements shall be subject to the restrictions Court of Appeals. and limitations of section 78c–1(b) of this title. (B) Transmittal of petition and record (k) 5 Registration or succession to a United A copy of a petition described in subpara- States broker or dealer graph (A) shall be transmitted as soon as In determining whether to permit a foreign possible by the Clerk of the Court to an offi- person or an affiliate of a foreign person to reg- cer or employee of the Commission des- ister as a United States broker or dealer, or suc- ignated for that purpose. Upon receipt of the ceed to the registration of a United States petition, the Commission shall file with the broker or dealer, the Commission may consider court the regulation under review and any whether, for a foreign person, or an affiliate of documents referred to therein, and any other a foreign person that presents a risk to the sta- relevant materials prescribed by the court. bility of the United States financial system, the (C) Exclusive jurisdiction home country of the foreign person has adopted, or made demonstrable progress toward adopting, On the date of the filing of the petition an appropriate system of financial regulation to under subparagraph (A), the court has juris- mitigate such risk. diction, which becomes exclusive on the filing of the materials set forth in subpara- (l) 6 Termination of a United States broker or graph (B), to affirm and enforce or to set dealer aside the regulation at issue. For a foreign person or an affiliate of a foreign (D) Standard of review person that presents such a risk to the stability The court shall determine to affirm and of the United States financial system, the Com- enforce or set aside a regulation of the Com- mission may determine to terminate the reg- mission under this subsection, based on the istration of such foreign person or an affiliate of determination of the court as to whether— such foreign person as a broker or dealer in the (i) the subject product is a new hybrid United States, if the Commission determines product, as defined in this subsection; that the home country of the foreign person has (ii) the subject product is a security; and not adopted, or made demonstrable progress to- (iii) imposing a requirement to register ward adopting, an appropriate system of finan- as a broker or dealer for banks engaging in cial regulation to mitigate such risk. transactions in such product is appropriate (k) 7 Standard of conduct in light of the history, purpose, and extent of regulation under the Federal securities (1) In general laws and under the Federal banking laws, Notwithstanding any other provision of this giving deference neither to the views of chapter or the Investment Advisers Act of 1940 the Commission nor the Board. [15 U.S.C. 80b–1 et seq.], the Commission may (E) Judicial stay promulgate rules to provide that, with respect to a broker or dealer, when providing person- The filing of a petition by the Board pursu- alized investment advice about securities to a ant to subparagraph (A) shall operate as a retail customer (and such other customers as judicial stay, until the date on which the de- the Commission may by rule provide), the termination of the court is final (including standard of conduct for such broker or dealer any appeal of such determination). with respect to such customer shall be the (F) Other authority to challenge same as the standard of conduct applicable to Any aggrieved party may seek judicial re- an investment adviser under section 211 of the view of the Commission’s rulemaking under Investment Advisers Act of 1940 [15 U.S.C. this subsection pursuant to section 78y of 80b–11]. The receipt of compensation based on this title. commission or other standard compensation (6) Definitions for the sale of securities shall not, in and of it- For purposes of this subsection: self, be considered a violation of such standard (A) New hybrid product 5 Another subsec. (k) is set out after the first subsec. (l). The term ‘‘new hybrid product’’ means a 6 Another subsec. (l) is set out after the second subsec. (k). product that— 7 Another subsec. (k) is set out after the second subsec. (j). Page 283 TITLE 15—COMMERCE AND TRADE § 78o

applied to a broker or dealer. Nothing in this vestment product or service by the retail in- section shall require a broker or dealer or reg- vestor. istered representative to have a continuing (2) Considerations duty of care or loyalty to the customer after In developing any rules under paragraph (1), providing personalized investment advice the Commission shall consider whether the about securities. rules will promote investor protection, effi- (2) Disclosure of range of products offered ciency, competition, and capital formation. Where a broker or dealer sells only propri- (3) Form and contents of documents and infor- etary or other limited range of products, as mation determined by the Commission, the Commis- Any documents or information designated sion may by rule require that such broker or under a rule promulgated under paragraph (1) dealer provide notice to each retail customer shall— and obtain the consent or acknowledgment of (A) be in a summary format; and the customer. The sale of only proprietary or (B) contain clear and concise information other limited range of products by a broker or about— dealer shall not, in and of itself, be considered (i) investment objectives, strategies, a violation of the standard set forth in para- costs, and risks; and graph (1). (ii) any compensation or other financial (l) 8 Other matters incentive received by a broker, dealer, or other intermediary in connection with the The Commission shall— purchase of retail investment products. (1) facilitate the provision of simple and o clear disclosures to investors regarding the ( ) Authority to restrict mandatory pre-dispute arbitration terms of their relationships with brokers, dealers, and investment advisers, including The Commission, by rule, may prohibit, or im- any material conflicts of interest; and pose conditions or limitations on the use of, (2) examine and, where appropriate, promul- agreements that require customers or clients of gate rules prohibiting or restricting certain any broker, dealer, or municipal securities deal- sales practices, conflicts of interest, and com- er to arbitrate any future dispute between them pensation schemes for brokers, dealers, and in- arising under the Federal securities laws, the vestment advisers that the Commission deems rules and regulations thereunder, or the rules of contrary to the public interest and the protec- a self-regulatory organization if it finds that tion of investors. such prohibition, imposition of conditions, or limitations are in the public interest and for the (m) Harmonization of enforcement protection of investors. The enforcement authority of the Commission (June 6, 1934, ch. 404, title I, § 15, 48 Stat. 895; with respect to violations of the standard of May 27, 1936, ch. 462, § 3, 49 Stat. 1377; June 25, conduct applicable to a broker or dealer provid- 1938, ch. 677, § 2, 52 Stat. 1075; Pub. L. 88–467, § 6, ing personalized investment advice about securi- Aug. 20, 1964, 78 Stat. 570; Pub. L. 91–598, § 11(d), ties to a retail customer shall include— formerly § 7(d), Dec. 30, 1970, 84 Stat. 1653, re- (1) the enforcement authority of the Com- numbered § 11(d), Pub. L. 95–283, § 9, May 21, 1978, mission with respect to such violations pro- 92 Stat. 260; Pub. L. 94–29, § 11, June 4, 1975, 89 vided under this chapter; and Stat. 121; Pub. L. 95–213, title II, § 204, Dec. 19, (2) the enforcement authority of the Com- 1977, 91 Stat. 1500; Pub. L. 98–38, § 3(a), June 6, mission with respect to violations of the 1983, 97 Stat. 206; Pub. L. 98–376, §§ 4, 6(b), Aug. standard of conduct applicable to an invest- 10, 1984, 98 Stat. 1265; Pub. L. 99–571, title I, ment adviser under the Investment Advisers § 102(e), (f), Oct. 28, 1986, 100 Stat. 3218; Pub. L. Act of 1940 [15 U.S.C. 80b–1 et seq.], including 100–181, title III, § 317, Dec. 4, 1987, 101 Stat. 1256; the authority to impose sanctions for such Pub. L. 100–704, § 3(b)(1), Nov. 19, 1988, 102 Stat. violations, and 4679; Pub. L. 101–429, title V, §§ 504(a), 505, Oct. 15, the Commission shall seek to prosecute and 1990, 104 Stat. 952, 953; Pub. L. 101–550, title II, sanction violators of the standard of conduct ap- § 203(a), (c)(1), Nov. 15, 1990, 104 Stat. 2715, 2718; plicable to a broker or dealer providing person- Pub. L. 103–202, title I, §§ 105, 106(b)(2)(B), alized investment advice about securities to a 109(b)(2), 110, Dec. 17, 1993, 107 Stat. 2348, 2350, retail customer under this chapter to 9 same ex- 2353; Pub. L. 104–67, title I, § 103(a), Dec. 22, 1995, tent as the Commission prosecutes and sanc- 109 Stat. 756; Pub. L. 104–290, title I, § 103(a), Oct. tions violators of the standard of conduct appli- 11, 1996, 110 Stat. 3420; Pub. L. 105–353, title III, cable to an investment advisor under the Invest- § 301(b)(8), Nov. 3, 1998, 112 Stat. 3236; Pub. L. ment Advisers Act of 1940 [15 U.S.C. 80b–1 et 106–102, title II, § 205, Nov. 12, 1999, 113 Stat. 1391; seq.]. Pub. L. 106–554, § 1(a)(5) [title II, §§ 203(a)(1), (b), (n) Disclosures to retail investors 206(h), title III, § 303(e), (f)], Dec. 21, 2000, 114 Stat. 2763, 2763A–421, 2763A–422, 2763A–432, (1) In general 2763A–454, 2763A–455; Pub. L. 107–204, title VI, Notwithstanding any other provision of the § 604(a), (c)(1)(B)(ii), July 30, 2002, 116 Stat. 795, securities laws, the Commission may issue 796; Pub. L. 109–291, § 4(b)(1)(A), Sept. 29, 2006, 120 rules designating documents or information Stat. 1337; Pub. L. 111–203, title I, § 173(c), title that shall be provided by a broker or dealer to VII, §§ 713(a), 762(d)(4), 766(d), title IX, §§ 913(g)(1), a retail investor before the purchase of an in- (h)(1), 919, 921(a), 925(a)(1), 929L(3), 929X(c), 942(a), 975(g), 985(b)(5)(A), July 21, 2010, 124 Stat. 1440, 8 Another subsec. (l) is set out after the first subsec. (k). 1646, 1761, 1799, 1828, 1829, 1837, 1841, 1850, 1861, 9 So in original. Probably should be followed by ‘‘the’’. 1870, 1896, 1923, 1933.) § 78o TITLE 15—COMMERCE AND TRADE Page 284

AMENDMENT OF SECTION Subsec. (b)(4)(F). Pub. L. 111–203, § 766(d)(2), sub- Unless otherwise provided, amendments by stituted ‘‘broker, dealer, security-based swap dealer, or a major security-based swap participant’’ for ‘‘broker subtitle A (§§ 711–754) and subtitle B (§§ 761–774) or dealer’’. of title VII of Pub. L. 111–203 effective on the Subsec. (b)(6)(A). Pub. L. 111–203, § 925(a)(1), sub- later of 360 days after July 21, 2010, or, to the stituted ‘‘, or bar any such person from being associ- extent a provision of either subtitle A or B re- ated with a broker, dealer, investment adviser, munici- quires a rulemaking, not less than 60 days after pal securities dealer, municipal advisor, transfer agent, publication of the final rule or regulation imple- or nationally recognized statistical rating organiza- menting such provision of subtitle A or B, see tion,’’ for ‘‘, or bar such person from being associated 2010 Amendment notes and Effective Date of with a broker or dealer,’’ in introductory provisions. Subsec. (c). Pub. L. 111–203, § 975(g)(2), inserted 2010 Amendment note below. ‘‘broker, dealer, or’’ before ‘‘municipal securities deal- REFERENCES IN TEXT er’’ in par. (1)(B) and in two places in par. (2)(B). Subsec. (c)(1)(A). Pub. L. 111–203, § 929L(3), struck out This chapter, referred to in subsecs. (b)(2)(B), (C), (3), ‘‘otherwise than on a national securities exchange of (4)(A), (D), (E), (11)(B), (12)(B), (c)(3)(B), (8), (f), (g), and which it is a member’’ after ‘‘commercial bills)’’. (i)(1), was in the original ‘‘this title’’, and this chapter, Pub. L. 111–203, § 762(d)(4)(A), struck out ‘‘(as defined referred to in subsecs. (k)(1) and (m), was in the origi- in section 206B of the Gramm-Leach-Bliley Act),’’ after nal ‘‘this Act’’. See References in Text note set out ‘‘security-based swap agreement’’. under section 78a of this title. Subsec. (c)(1)(B), (C). Pub. L. 111–203, § 762(d)(4)(B), The Commodity Exchange Act, referred to in subsecs. struck out ‘‘(as defined in section 206B of the Gramm- (b)(4)(B)(ii), (C) to (E) and (c)(3)(B), is act Sept. 21, 1922, Leach-Bliley Act)’’ after ‘‘security-based swap agree- ch. 369, 42 Stat. 998, which is classified generally to ment’’. chapter 1 (§ 1 et seq.) of Title 7, Agriculture. For com- Subsec. (c)(3)(C). Pub. L. 111–203, § 713(a), added sub- plete classification of this Act to the Code, see section par. (C). 1 of Title 7 and Tables. The Securities Act of 1933, referred to in subsecs. Subsec. (d). Pub. L. 111–203, § 942(a), inserted subsec. (b)(4)(D), (E), (c)(8), and (d)(1), is act May 27, 1933, ch. 38, heading, designated existing provisions as par. (1), in- title I, 48 Stat. 74, which is classified generally to sub- serted par. heading, inserted ‘‘, other than any class of chapter 1 (§ 77a et seq.) of chapter 2A of this title. For asset-backed securities,’’ after ‘‘securities of each complete classification of this Act to the Code, see sec- class’’, and added par. (2). tion 77a of this title and Tables. Subsecs. (e) to (h). Pub. L. 111–203, § 929X(c), added The Investment Advisers Act of 1940, referred to in subsec. (e) and redesignated former subsecs. (e) to (g) as subsecs. (b)(4)(D), (E), (k)(1), and (m), is title II of act (f) to (h), respectively. Former subsec. (h) redesignated Aug. 22, 1940, ch. 686, 54 Stat. 847, which is classified (i) relating to limitations on State law. generally to subchapter II (§ 80b–1 et seq.) of chapter 2D Subsec. (i). Pub. L. 111–203, § 929X(c)(1), redesignated of this title. For complete classification of this Act to subsec. (h) as (i). Former subsec. (i), relating to rule- the Code, see section 80b–20 of this title and Tables. making to extend requirements to new hybrid products, The Investment Company Act of 1940, referred to in redesignated (j). subsec. (b)(4)(D), (E), is title I of act Aug. 22, 1940, ch. Subsec. (j). Pub. L. 111–203, § 929X(c)(1), redesignated 686, 54 Stat. 789, which is classified generally to sub- subsec. (i), relating to rulemaking to extend require- chapter 1 (§ 80a–1 et seq.) of chapter 2D of this title. For ments to new hybrid products, as (j). complete classification of this Act to the Code, see sec- Pub. L. 111–203, § 762(d)(4)(C), (D), redesignated subsec. tion 80a–51 of this title and Tables. (i), relating to limitation on Commission authority, as Subsection (i) of section 78q of this title, referred to (j) and struck out ‘‘(as defined in section 206B of the in subsec. (b)(11)(B)(vi), (12)(B)(vi), was struck out and Gramm-Leach-Bliley Act)’’ after ‘‘security-based swap subsec. (j) was redesignated (i) by Pub. L. 111–203, title agreements’’. VI, § 617(a), July 21, 2010, 124 Stat. 1616. Subsecs. (k), (l). Pub. L. 111–203, § 913(g)(1), added sub- Section 206 of the Gramm-Leach-Bliley Act, referred sec. (k) relating to standard of conduct and subsec. (l) to in subsec. (j)(6)(A)(ii), (iii), is section 206 of Pub. L. relating to other matters. 106–102, which is set out as a note under section 78c of Pub. L. 111–203, § 173(c), added subsec. (k) relating to this title. registration or succession to a United States broker or dealer and subsec. (l) relating to termination of a AMENDMENTS United States broker or dealer. 2010—Subsec. (b)(1). Pub. L. 111–203, § 985(b)(5)(A)(ii), Subsec. (m). Pub. L. 111–203, § 913(h)(1), added subsec. in concluding provisions, inserted ‘‘The order granting (m). registration shall not be effective until such broker or Subsec. (n). Pub. L. 111–203, § 919, added subsec. (n). dealer has become a member of a registered securities Subsec. (o). Pub. L. 111–203, § 921(a), added subsec. (o). association, or until such broker or dealer has become 2006—Subsec. (b)(4)(B)(ii), (C). Pub. L. 109–291 inserted a member of a national securities exchange, if such ‘‘nationally recognized statistical rating organiza- broker or dealer effects transactions solely on that ex- tion,’’ after ‘‘transfer agent,’’. change, unless the Commission has exempted such 2002—Subsec. (b)(4)(F). Pub. L. 107–204, § 604(a)(1), broker or dealer, by rule or order, from such member- added subpar. (F) and struck out former subpar. (F) ship.’’ after ‘‘are satisfied.’’ which read as follows: ‘‘is subject to an order of the Subsec. (b)(1)(B). Pub. L. 111–203, § 985(b)(5)(A)(i), Commission entered pursuant to paragraph (6) of this struck out ‘‘The order granting registration shall not subsection (b) barring or suspending the right of such be effective until such broker or dealer has become a person to be associated with a broker or dealer.’’ member of a registered securities association, or until Subsec. (b)(4)(H). Pub. L. 107–204, § 604(a)(2), added such broker or dealer has become a member of a na- subpar. (H). tional securities exchange if such broker or dealer ef- Subsec. (b)(6)(A)(i). Pub. L. 107–204, § 604(c)(1)(B)(ii), fects transactions solely on that exchange, unless the substituted ‘‘, or is subject to an order or finding,’’ for Commission has exempted such broker or dealer, by ‘‘or omission’’. rule or order, from such membership.’’ after ‘‘grant or 2000—Subsec. (b)(11). Pub. L. 106–554, § 1(a)(5) [title II, deny such registration.’’ § 203(a)(1)], added par. (11). Subsec. (b)(4). Pub. L. 111–203, § 975(g)(1), inserted Subsec. (b)(12). Pub. L. 106–554, § 1(a)(5) [title II, ‘‘municipal advisor,’’ after ‘‘municipal securities deal- § 203(b)], added par. (12). er’’ in subpars. (B)(ii) and (C). Subsec. (c)(1). Pub. L. 106–554, § 1(a)(5) [title III, Subsec. (b)(4)(C). Pub. L. 111–203, § 766(d)(1), inserted § 303(e)], amended par. (1) generally. Prior to amend- ‘‘security-based swap dealer, major security-based swap ment, par. (1) consisted of subpars. (A) to (E) prohibit- participant,’’ after ‘‘government securities dealer,’’. ing use of mails or instrumentality of interstate com- Page 285 TITLE 15—COMMERCE AND TRADE § 78o merce for transactions in securities by manipulative, Subsec. (b)(4)(C). Pub. L. 101–550, § 203(a)(6), inserted deceptive, or other fraudulent device, requiring the ‘‘foreign person performing a function substantially Commission, by regulation, to define such devices as equivalent to any of the above,’’ after ‘‘transfer manipulative, deceptive or fraudulent, and providing agent,’’, ‘‘or any substantially equivalent foreign stat- for consultation with the Secretary of the Treasury ute or regulation’’ after ‘‘Commodity Exchange Act’’ and other agencies prior to adoption of regulations. wherever appearing, and ‘‘foreign entity substantially Subsec. (c)(3). Pub. L. 106–554, § 1(a)(5) [title II, equivalent to any of the above,’’ after ‘‘insurance com- § 206(h)], designated existing provisions as subpar. (A) pany,’’. and added subpar. (B). Subsec. (b)(4)(G). Pub. L. 101–550, § 203(a)(7), added Subsec. (i). Pub. L. 106–554, § 1(a)(5) [title III, § 303(f)], subpar. (G). added subsec. (i) relating to limitation on Commission Subsec. (b)(6). Pub. L. 101–429, § 504(a), amended par. authority. (6) generally. Prior to amendment, par. (6) read as fol- 1999—Subsec. (i). Pub. L. 106–102 added subsec. (i) re- lows: ‘‘The Commission, by order, shall censure or lating to rulemaking to extend requirements to new place limitations on the activities or functions of any hybrid products. person associated, seeking to become associated, or, at 1998—Subsec. (c)(8). Pub. L. 105–353, § 301(b)(8)(A), re- the time of the alleged misconduct, associated or seek- aligned margins. ing to become associated with a broker or dealer, or Subsec. (h)(2). Pub. L. 105–353, § 301(b)(8)(B), sub- suspend for a period not exceeding twelve months or stituted ‘‘effecting’’ for ‘‘affecting’’ in introductory bar any such person from being associated with a provisions. broker or dealer, if the Commission finds, on the record Subsec. (h)(3)(A)(i)(II)(bb). Pub. L. 105–353, after notice and opportunity for hearing, that such cen- § 301(b)(8)(C), inserted ‘‘or’’ after semicolon at end. sure, placing of limitations, suspension, or bar is in the Subsec. (h)(3)(A)(ii)(I). Pub. L. 105–353, § 301(b)(8)(D), public interest and that such person has committed or substituted ‘‘maintained’’ for ‘‘maintains’’. omitted any act or omission enumerated in subpara- Subsec. (h)(3)(B)(ii). Pub. L. 105–353, § 301(b)(8)(E), sub- graph (A), (D), (E), or (G) of paragraph (4) of this substituted ‘‘associated’’ for ‘‘association’’. section, has been convicted of any offense specified in 1996—Subsec. (h). Pub. L. 104–290 added subsec. (h). subparagraph (B) of said paragraph (4) within ten years 1995—Subsec. (c)(8). Pub. L. 104–67 added par. (8). of the commencement of the proceedings under this 1993—Subsec. (b)(1)(B). Pub. L. 103–202, § 109(b)(2), in- paragraph, or is enjoined from any action, conduct, or serted ‘‘The order granting registration shall not be ef- practice specified in subparagraph (C) of said paragraph fective until such broker or dealer has become a mem- (4). It shall be unlawful for any person as to whom such ber of a registered securities association, or until such an order suspending or barring him from being associ- broker or dealer has become a member of a national se- ated with a broker or dealer is in effect willfully to be- curities exchange if such broker or dealer effects trans- come, or to be, associated with a broker or dealer with- actions solely on that exchange, unless the Commission out the consent of the Commission, and it shall be un- has exempted such broker or dealer, by rule or order, lawful for any broker or dealer to permit such a person from such membership.’’ before ‘‘The Commission may to become, or remain, a person associated with him extend’’. without the consent of the Commission, if such broker Subsec. (b)(7). Pub. L. 103–202, § 106(b)(2)(B), inserted or dealer knew, or in the exercise of reasonable care ‘‘or government securities broker or government secu- should have known, of such order.’’ rities dealer registered (or required to register) under Pub. L. 101–550, § 203(c)(1), substituted ‘‘(A), (D), (E), section 78o–5(a)(1)(A) of this title’’ after ‘‘No registered or (G)’’ for ‘‘(A), (D), or (E)’’. broker or dealer’’ in introductory provisions. Subsec. (g). Pub. L. 101–429, § 505, added subsec. (g). Subsec. (c)(1). Pub. L. 103–202, § 105(b), inserted sub- 1988—Subsec. (f). Pub. L. 100–704 added subsec. (f). par. designation ‘‘(A)’’ after ‘‘(1)’’, substituted ‘‘con- 1987—Subsec. (b)(4)(B)(ii). Pub. L. 100–181, § 317(1), sub- trivance.’’ along with subpar. designation ‘‘(B)’’ and stituted ‘‘fiduciary, transfer agent, or’’ for ‘‘fiduciary, ‘‘No municipal securities dealer’’ for ‘‘contrivance, and or any’’. no municipal securities dealer’’, substituted ‘‘contriv- Subsec. (b)(4)(C). Pub. L. 100–181, § 317(2), added sub- ance.’’ along with subpar. (C), subpar. designation par. (C) and struck out former subpar. (C) which read as ‘‘(D)’’ and ‘‘The Commission shall’’ for ‘‘contrivance. follows: ‘‘is permanently or temporarily enjoined by The Commission shall’’, and added subpar. (E). order, judgment, or decree of any court of competent Subsec. (c)(2). Pub. L. 103–202, § 105(a), inserted sub- jurisdiction from acting as an investment adviser, un- par. designation ‘‘(A)’’ after ‘‘(2)’’, substituted ‘‘ficti- derwriter, broker, dealer, entity or person required to tious quotation.’’ along with subpar. designation ‘‘(B)’’ be registered under the Commodity Exchange Act, mu- and ‘‘No municipal securities dealer’’ for ‘‘fictitious nicipal securities dealer, government securities broker, quotation, and no municipal securities dealer’’, sub- or government securities dealer, or as an affiliated per- stituted ‘‘fictitious quotation.’’ along with subpar. (C), son or employee of any investment company, bank, en- subpar. designation ‘‘(D)’’ and ‘‘The Commission shall’’ tity or person required to be registered under such Act, for ‘‘fictitious quotation. The Commission shall’’, and or insurance company, or from engaging in or continu- added subpar. (E). ing any conduct or practice in connection with any Subsec. (c)(7). Pub. L. 103–202, § 110, added par. (7). such activity, or in connection with the purchase or 1990—Subsec. (b)(4)(B). Pub. L. 101–550, § 203(a)(1), in- sale of any security.’’ serted ‘‘or of a substantially equivalent crime by a for- Subsec. (b)(6). Pub. L. 100–181, § 317(3), substituted eign court of competent jurisdiction’’ after ‘‘mis- ‘‘seeking to become associated, or, at the time of the demeanor’’. alleged misconduct, associated or seeking to become Subsec. (b)(4)(B)(i). Pub. L. 101–550, § 203(a)(2), inserted associated’’ for ‘‘or seeking to become associated,’’ in ‘‘any substantially equivalent activity however de- first sentence. nominated by the laws of the relevant foreign govern- Subsec. (b)(10). Pub. L. 100–181, § 317(4), substituted ment,’’ after ‘‘burglary,’’. ‘‘78q–1(b)(4)(A)’’ for ‘‘78q–1(b)(4)(B)’’. Subsec. (b)(4)(B)(ii). Pub. L. 101–550, § 203(a)(3), in- 1986—Subsec. (b)(4)(A). Pub. L. 99–571, § 102(e)(1), inserted ‘‘foreign person performing a function substan- serted ‘‘or with any other appropriate regulatory agen- tially equivalent to any of the above,’’ after ‘‘transfer cy’’. agent,’’ and ‘‘or any substantially equivalent foreign Subsec. (b)(4)(B)(ii). Pub. L. 99–571, § 102(e)(2), inserted statute or regulation’’ before semicolon at end. ‘‘government securities broker, government securities Subsec. (b)(4)(B)(iii). Pub. L. 101–550, § 203(a)(4), in- dealer,’’. serted ‘‘, or substantially equivalent activity however Subsec. (b)(4)(C). Pub. L. 99–571, § 102(e)(3), substituted denominated by the laws of the relevant foreign gov- ‘‘municipal securities dealer, government securities ernment’’ after ‘‘securities’’. broker, or government securities dealer,’’ for ‘‘or mu- Subsec. (b)(4)(B)(iv). Pub. L. 101–550, § 203(a)(5), in- nicipal securities dealer,’’. serted ‘‘or a violation of a substantially equivalent for- Subsec. (b)(8). Pub. L. 99–571, § 102(e)(4), substituted eign statute’’ after ‘‘title 18’’. ‘‘any registered broker or dealer’’ for ‘‘any broker or § 78o TITLE 15—COMMERCE AND TRADE Page 286 dealer required to register pursuant to this chapter’’ acts, and practices deemed manipulative, deceptive, and struck out ‘‘an exempted security’’ after ‘‘other and otherwise fraudulent for municipal securities deal- than’’. ers as well as for brokers and dealers. Subsec. (c)(3). Pub. L. 99–571, § 102(f), inserted ‘‘(other Subsec. (c)(2). Pub. L. 94–29, § 11(3), expanded the Com- than a government securities broker or government se- mission’s authority to define quotations deemed to be curities dealer, except a registered broker or dealer)’’ fictitious for municipal securities dealers as well as for and ‘‘(except a government security)’’. brokers and dealers. 1984—Subsec. (b)(4)(B)(ii). Pub. L. 98–376, § 6(b)(1), sub- Subsec. (c)(3). Pub. L. 94–29, § 11(3), inserted require- stituted ‘‘fiduciary, or any entity or person required to ment that rules and regulations be promulgated no be registered under the Commodity Exchange Act (7 later than Sept. 1, 1975, establishing minimum financial U.S.C. 1 et seq.)’’ for ‘‘or fiduciary’’. responsibility requirements for all brokers and dealers. Subsec. (b)(4)(C). Pub. L. 98–376, § 6(b)(2), inserted ‘‘en- Subsec. (c)(5). Pub. L. 94–29, § 11(4), substituted provi- tity or person required to be registered under the Com- sions authorizing the Commission to regulate trading modity Exchange Act,’’ and ‘‘entity or person required activities of market makers other than specialists reg- to be registered under such Act’’. istered on a national securities exchange for provisions Subsec. (b)(4)(D), (E). Pub. L. 98–376, § 6(b)(3), inserted authorizing the Commission summarily to suspend ‘‘the Commodity Exchange Act,’’. trading, otherwise than on a national securities ex- Subsec. (c)(4). Pub. L. 98–376, § 4, inserted reference to change, in any security other than an exempted secu- section 78n of this title and ‘‘and any person who was rity for a period not exceeding 10 days if the public in- a cause of the failure to comply due to an act or omis- terest and the protection of investors so requires. sion the person knew or should have known would con- Subsec. (c)(6). Pub. L. 94–29, § 11(5), added par. (6). tribute to the failure to comply,’’. Subsec. (e). Pub. L. 94–29, § 11(6), added subsec. (e). 1983—Subsec. (b)(8). Pub. L. 98–38, § 3(a)(1), added par. 1970—Subsec. (c)(3). Pub. L. 91–598 extended Commis- (8) and struck out former par. (8), which had directed sion’s rulemaking power to both the exchange and the that, in addition to the fees and charges authorized by over-the-counter markets, striking out ‘‘otherwise par. (7) of this subsection, each registered broker or than on a national securities exchange’’ before ‘‘in con- dealer not a member of a registered securities associa- travention of such rules and regulations’’ and sub- tion pay to the Commission such reasonable fees and stituting ‘‘shall prescribe’’ for ‘‘may prescribe’’ and charges as necessary to defray the costs of the addi- provided for safeguards with respect to the related tional regulatory duties required to be performed by practices of brokers and dealers, including customers’ the Commission because such broker or dealer effected securities and customers’ deposits or credit balances, transactions in securities otherwise than on a national and maintenance of reserves with respect to such de- securities exchange of which it was a member and was posits or credit balances. not a member of a registered securities association, 1964—Subsec. (a). Pub. L. 88–467, § 6(a), designated ex- and that the Commission, by rule, establish such fees isting provisions as par. (1) and added par. (2). and charges. Subsec. (b)(1). Pub. L. 88–467, § 6(b), designated first Subsec. (b)(9). Pub. L. 98–38, § 3(a)(2), added par. (9) par. as (1) and substituted ‘‘persons associated with and struck out former par. (9), which had provided that such broker or dealer’’ for ‘‘person directly or indi- no broker or dealer subject to par. (8) of this subsection rectly controlling or controlled by, or under direct or could effect any transaction in, or induce the purchase indirect common control with, such broker or dealer,’’. or sale of, any security (otherwise than on a national Subsec. (b)(2). Pub. L. 88–467, § 6(b), designated second securities exchange of which it was a member) in con- par. as (2) and substituted ‘‘associated with the appli- travention of such rules and regulations as the Com- cant’’ for ‘‘directly or indirectly controlling or con- mission might prescribe designed to promote just and trolled by, or under direct or indirect common control equitable principles of trade, to remove impediments to with, the applicant’’. and perfect the mechanism of a free and open market Subsec. (b)(3). Pub. L. 88–467, § 6(b), designated third and a national market system, and, in general, to pro- par. as (3) and substituted ‘‘effective date of the reg- tect investors and the public interest. istration’’ for ‘‘effective date thereof’’. 1977—Subsec. (d). Pub. L. 95–213 authorized the Com- Subsec. (b)(4). Pub. L. 88–467, § 6(b), added par. (4). mission to define, for purposes of this subsection, term Subsec. (b)(5). Pub. L. 88–467, § 6(b), designated first ‘‘held of record’’. sentence of fourth par, as (5), provided for censure and 1975—Pub. L. 94–29, § 11(1), amended section catchline. for suspension for period not exceeding twelve months, Subsec. (a). Pub. L. 94–29, § 11(2), required registration substituted the language ‘‘that such broker or dealer, with the Commission of all persons utilizing an ex- whether prior or subsequent to becoming such, or any change’s facilities to effect transactions. person associated with such broker or dealer, whether Subsec. (b). Pub. L. 94–29, § 11(2), expanded coverage to prior or subsequent to becoming so associated’’ for include municipal securities dealers, permitted ‘‘that (1) such broker or dealer whether prior or subse- nonbank municipal securities dealers and brokers to quent to becoming such, or (2) any partner, officer, di- register company departments or divisions conducting rector, or branch manager of such broker or dealer (or municipal securities activities rather than the com- any person occupying a similar status or performing pany of which the department or division is a part, sub- similar functions), or any person directly or indirectly jected municipal securities and associated persons controlling or controlled by such broker or dealer, thereof to the Commission’s enforcement and discipli- whether prior or subsequent to becoming such’’, sub- nary powers, updated the list of statutory offenses stituted in clause (A) the provision respecting false or which bar a person from becoming a broker-dealer or misleading statements in any report required to, be an associated person of a broker-dealer, expanded Com- filed with the Commission for such statements in any mission regulatory control to include all brokers and document supplemental to application for registration dealers executing transactions on exchanges of which and inserted in such clause (A) the material fact omis- such brokers and dealers are not members, required sion provision, designated existing provisions of clause any registered broker-dealer who is not a member of a (B) as items (i) and (ii), included in item (ii) the busi- registered securities association to pay the Commis- ness of investment broker, and added items (iii) and sion fees imposed by it to defray the costs of the addi- (iv), provided in clause (C) for enjoyment from acting tional regulatory duties to be performed by the Com- as an investment adviser, underwriter, broker, or deal- mission, and clarified the power of national securities er, or as an affiliated person or employee of any invest- exchanges, registered securities associations, and reg- ment company, bank, or insurance company, or from istered clearing agencies to make determinations as to engaging in or continuing any conduct or practice in whether a person is subject to statutory disqualifica- connection with any such activity, made clause (D) ap- tion. plicable to violations of the Investment Advisers Act of Subsec. (c)(1). Pub. L. 94–29, § 11(3), expanded the Com- 1940 and the Investment Company Act of 1940, and mission’s authority to define devices, contrivances, added clauses (E) and (F). Page 287 TITLE 15—COMMERCE AND TRADE § 78o

Subsec. (b)(6). Pub. L. 88–467, § 6(b), designated second EFFECTIVE DATE OF 1990 AMENDMENT through fifth sentences of fourth par. as (6) and, in pro- Amendment by section 504(a) of Pub. L. 101–429 effec- vision constituting first sentence of par. (6) substituted tive 12 months after Oct. 15, 1990, with provisions relat- ‘‘any registration under this subsection’’ for ‘‘any such ing to civil penalties and accounting and disgorgement, registration’’ and inserted ‘‘(which may consist solely see section 1(c)(2), (3)(A) of Pub. L. 101–429, set out in a of affidavits and oral argument)’’ after ‘‘opportunity note under section 77g of this title. for hearing’’. Amendment by section 505 of Pub. L. 101–429 effective Subsec. (b)(7) to (10). Pub. L. 88–467, § 6(b), added pars. 18 months after Oct. 15, 1990, with provision to com- (7) to (10). mence rulemaking proceedings to implement such Subsec. (c)(4), (5). Pub. L. 88–467, § 6(c), added pars. (4) amendment not later than 180 days after Oct. 15, 1990, and (5). and with provisions relating to civil penalties and ac- Subsec. (d). Pub. L. 88–467, § 6(d), substituted provi- counting and disgorgement, see section 1(c)(2), (3)(B), sions which require every issuer filing a registration (C) of Pub. L. 101–429, set out in a note under section statement under the Securities Act of 1933 to file for 77g of this title. the fiscal year in which the registration statement becomes effective such reports as may be required by the EFFECTIVE DATE OF 1988 AMENDMENT Commission under section 78m of this title and provide for suspension of duty to file reports for any later fiscal Pub. L. 100–704, § 9, Nov. 19, 1988, 102 Stat. 4684, pro- years if at the beginning of such fiscal year the securi- vided that: ‘‘The amendments made by this Act [enact- ties to which the registration statement relates are ing sections 78t–1, 78u–1, and 80b–4a of this title and held of record by less than three hundred persons for amending this section and sections 78c, 78u, 78ff, and former provisions which required the registration 78kk of this title], except for section 6 [amending sec- statement filed under the Securities Act to contain an tions 78c and 78u of this title], shall not apply to any undertaking if the value of the securities offered plus actions occurring before the date of enactment of this the value of other outstanding securities of the same Act [Nov. 19, 1988].’’ class amounted to $2,000,000 or more and suspended the EFFECTIVE DATE OF 1986 AMENDMENT duty to file if the value of securities outstanding was reduced to less than $1,000,000 or the issuer had become Amendment by Pub. L. 99–571 effective 270 days after subject to an equivalent reporting requirement and de- Oct. 28, 1986, see section 401 of Pub. L. 99–571, set out as leted ‘‘or to any other security which the Commission an Effective Date note under section 78o–5 of this title. may by rules and regulations exempt as not comprehended within the purposes of this subsection’’ after EFFECTIVE DATE OF 1984 AMENDMENT ‘‘political subdivision thereof’’. Amendment Pub. L. 98–376 effective Aug. 10, 1984, see 1938—Subsec. (c)(2), (3). Act June 25, 1938, added pars. section 7 of Pub. L. 98–376, set out as a note under sec- (2) and (3). tion 78c of this title. 1936—Act May 27, 1936, amended section generally. EFFECTIVE DATE OF 1983 AMENDMENT EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 98–38, § 3(b), June 6, 1983, 97 Stat. 207, provided Amendment by sections 173(c), 913(g)(1), (h)(1), 919, that: ‘‘The amendments made by subsection (a) 921(a), 925(a)(1), 929L(3), 929X(c), 942(a), and 985(b)(5)(A) [amending this section] shall become effective six of Pub. L. 111–203 effective 1 day after July 21, 2010, ex- months after the date of enactment of this Act [June cept as otherwise provided, see section 4 of Pub. L. 6, 1983].’’ 111–203, set out as an Effective Date note under section 5301 of Title 12, Banks and Banking. EFFECTIVE DATE OF 1975 AMENDMENT Amendment by section 713(a) of Pub. L. 111–203 effec- Amendment by Pub. L. 94–29 effective June 4, 1975, ex- tive on the later of 360 days after July 21, 2010, or, to cept for amendment of subsec. (a) by Pub. L. 94–29 the extent a provision of subtitle A (§§ 711–754) of title which is effective 180 days after June 4, 1975, see section VII of Pub. L. 111–203 requires a rulemaking, not less 31(a) of Pub. L. 94–29, set out as a note under section 78b than 60 days after publication of the final rule or regu- of this title. lation implementing such provision of subtitle A, see section 754 of Pub. L. 111–203, set out as a note under EFFECTIVE DATE OF 1964 AMENDMENT section 1a of Title 7, Agriculture. Amendment by sections 762(d)(4) and 766(d) of Pub. L. Amendment by Pub. L. 88–467 of subsec. (a) of this 111–203 effective on the later of 360 days after July 21, section effective July 1, 1964, and of subsecs. (b), (c)(4), 2010, or, to the extent a provision of subtitle B (5), and (d) of this section effective Aug. 20, 1964, see (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- section 13 of Pub. L. 88–467, set out as a note under sec- making, not less than 60 days after publication of the tion 78c of this title. final rule or regulation implementing such provision of CONSTRUCTION OF 1995 AMENDMENT subtitle B, see section 774 of Pub. L. 111–203, set out as a note under section 77b of this title. Nothing in amendment by Pub. L. 104–67 to be deemed Pub. L. 111–203, title IX, § 975(i), July 21, 2010, 124 Stat. to create or ratify any implied right of action, or to 1923, provided that: ‘‘This section [amending this sec- prevent Commission, by rule or regulation, from re- tion and sections 78o–3, 78o–4, and 78q of this title], and stricting or otherwise regulating private actions under the amendments made by this section, shall take effect this chapter, see section 203 of Pub. L. 104–67, set out as on October 1, 2010.’’ a Construction note under section 78j–1 of this title.

EFFECTIVE DATE OF 1999 AMENDMENT CONSTRUCTION OF 1993 AMENDMENT Amendment by Pub. L. 106–102 effective at the end of Amendment by sections 105, 106(b)(2)(B), and 109(b)(2) the 18-month period beginning on Nov. 12, 1999, see sec- of Pub. L. 103–202 not to be construed to govern initial tion 209 of Pub. L. 106–102, set out as a note under sec- issuance of any public debt obligation or to grant any tion 1828 of Title 12, Banks and Banking. authority to (or extend any authority of) the Securities and Exchange Commission, any appropriate regulatory EFFECTIVE DATE OF 1995 AMENDMENT agency, or a self-regulatory organization to prescribe Amendment by Pub. L. 104–67 not to affect or apply any procedure, term, or condition of such initial issu- to any private action arising under this chapter or title ance, to promulgate any rule or regulation governing I of the Securities Act of 1933 (15 U.S.C. 77a et seq.), such initial issuance, or to otherwise regulate in any commenced before and pending on Dec. 22, 1995, see sec- manner such initial issuance, see section 111 of Pub. L. tion 108 of Pub. L. 104–67, set out as a note under sec- 103–202, set out as a note under section 78o–5 of this tion 77l of this title. title. § 78o TITLE 15—COMMERCE AND TRADE Page 288

TRANSFER OF FUNCTIONS or dealers, and persons associated with investment advisers when providing personalized investment ad- For transfer of functions of Securities and Exchange vice and recommendations about securities to retail Commission, with certain exceptions, to Chairman of customers, including— such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, ‘‘(A) the effectiveness of the examinations of bro- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under kers, dealers, and investment advisers in determin- section 78d of this title. ing compliance with regulations; STUDY AND RULEMAKING REGARDING OBLIGATIONS OF ‘‘(B) the frequency of the examinations; and BROKERS, DEALERS, AND INVESTMENT ADVISERS ‘‘(C) the length of time of the examinations; ‘‘(6) the substantive differences in the regulation of Pub. L. 111–203, title IX, § 913(a)–(f), July 21, 2010, 124 brokers, dealers, and investment advisers, when pro- Stat. 1824–1827, provided that: viding personalized investment advice and recom- ‘‘(a) DEFINITION.—For purposes of this section, the mendations about securities to retail customers; term ‘retail customer’ means a natural person, or the ‘‘(7) the specific instances related to the provision legal representative of such natural person, who— of personalized investment advice about securities in ‘‘(1) receives personalized investment advice about which— securities from a broker or dealer or investment ad- ‘‘(A) the regulation and oversight of investment viser; and advisers provide greater protection to retail cus- ‘‘(2) uses such advice primarily for personal, family, tomers than the regulation and oversight of bro- or household purposes. kers and dealers; and ‘‘(b) STUDY.—The Commission shall conduct a study ‘‘(B) the regulation and oversight of brokers and to evaluate— dealers provide greater protection to retail cus- ‘‘(1) the effectiveness of existing legal or regulatory tomers than the regulation and oversight of invest- standards of care for brokers, dealers, investment ad- ment advisers; visers, persons associated with brokers or dealers, ‘‘(8) the existing legal or regulatory standards of and persons associated with investment advisers for State securities regulators and other regulators in- providing personalized investment advice and recom- tended to protect retail customers; mendations about securities to retail customers im- ‘‘(9) the potential impact on retail customers, in- posed by the Commission and a national securities cluding the potential impact on access of retail cus- association, and other Federal and State legal or reg- tomers to the range of products and services offered ulatory standards; and by brokers and dealers, of imposing upon brokers, ‘‘(2) whether there are legal or regulatory gaps, dealers, and persons associated with brokers or deal- shortcomings, or overlaps in legal or regulatory ers— standards in the protection of retail customers relat- ‘‘(A) the standard of care applied under the In- ing to the standards of care for brokers, dealers, investment Advisers Act of 1940 (15 U.S.C. 80b–1 et vestment advisers, persons associated with brokers or seq.) for providing personalized investment advice dealers, and persons associated with investment ad- about securities to retail customers of investment visers for providing personalized investment advice advisers, as interpreted by the Commission and the about securities to retail customers that should be courts; and addressed by rule or statute. ‘‘(B) other requirements of the Investment Advis- ‘‘(c) CONSIDERATIONS.—In conducting the study re- ers Act of 1940 (15 U.S.C. 80b–1 et seq.); quired under subsection (b), the Commission shall con- ‘‘(10) the potential impact of eliminating the broker sider— and dealer exclusion from the definition of ‘invest- ‘‘(1) the effectiveness of existing legal or regulatory ment adviser’ under section 202(a)(11)(C) of the In- standards of care for brokers, dealers, investment ad- vestment Advisers Act of 1940 (15 U.S.C. visers, persons associated with brokers or dealers, 80b–2(a)(11)(C)), in terms of— and persons associated with investment advisers for ‘‘(A) the impact and potential benefits and harm providing personalized investment advice and recom- to retail customers that could result from such a mendations about securities to retail customers im- change, including any potential impact on access to posed by the Commission and a national securities personalized investment advice and recommenda- association, and other Federal and State legal or reg- tions about securities to retail customers or the ulatory standards; availability of such advice and recommendations; ‘‘(2) whether there are legal or regulatory gaps, ‘‘(B) the number of additional entities and indi- shortcomings, or overlaps in legal or regulatory viduals that would be required to register under, or standards in the protection of retail customers relat- become subject to, the Investment Advisers Act of ing to the standards of care for brokers, dealers, in- 1940 (15 U.S.C. 80b–1 et seq.), and the additional re- vestment advisers, persons associated with brokers or quirements to which brokers, dealers, and persons dealers, and persons associated with investment ad- associated with brokers and dealers would become visers for providing personalized investment advice subject, including— about securities to retail customers that should be ‘‘(i) any potential additional associated person addressed by rule or statute; licensing, registration, and examination require- ‘‘(3) whether retail customers understand that ments; and there are different standards of care applicable to ‘‘(ii) the additional costs, if any, to the addi- brokers, dealers, investment advisers, persons associ- tional entities and individuals; and ated with brokers or dealers, and persons associated ‘‘(C) the impact on Commission and State re- with investment advisers in the provision of personal- sources to— ized investment advice about securities to retail cus- ‘‘(i) conduct examinations of registered invest- tomers; ment advisers and the representatives of reg- ‘‘(4) whether the existence of different standards of istered investment advisers, including the impact care applicable to brokers, dealers, investment advis- on the examination cycle; and ers, persons associated with brokers or dealers, and ‘‘(ii) enforce the standard of care and other ap- persons associated with investment advisers is a plicable requirements imposed under the Invest- source of confusion for retail customers regarding the ment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.); quality of personalized investment advice that retail ‘‘(11) the varying level of services provided by bro- customers receive; kers, dealers, investment advisers, persons associated ‘‘(5) the regulatory, examination, and enforcement with brokers or dealers, and persons associated with resources devoted to, and activities of, the Commis- investment advisers to retail customers and the vary- sion, the States, and a national securities association ing scope and terms of retail customer relationships to enforce the standards of care for brokers, dealers, of brokers, dealers, investment advisers, persons as- investment advisers, persons associated with brokers sociated with brokers or dealers, and persons associ- Page 289 TITLE 15—COMMERCE AND TRADE § 78o

ated with investment advisers with such retail cus- STUDY AND REPORT ON BROKER-DEALER UNIFORMITY tomers; Pub. L. 104–290, title V, § 510(d), Oct. 11, 1996, 110 Stat. ‘‘(12) the potential impact upon retail customers 3451, provided that: that could result from potential changes in the regu- ‘‘(1) STUDY.—The Commission, after consultation latory requirements or legal standards of care affect- with registered securities associations, national securi- ing brokers, dealers, investment advisers, persons as- ties exchanges, and States, shall conduct a study of the sociated with brokers or dealers, and persons associ- impact of disparate State licensing requirements on as- ated with investment advisers relating to their obli- sociated persons of registered brokers or dealers and gations to retail customers regarding the provision of methods for States to attain uniform licensing require- investment advice, including any potential impact ments for such persons. on— ‘‘(2) REPORT.—Not later than 1 year after the date of ‘‘(A) protection from fraud; enactment of this Act [Oct. 11, 1996], the Commission ‘‘(B) access to personalized investment advice, shall submit to the Congress a report on the study con- and recommendations about securities to retail ducted under paragraph (1). Such report shall include customers; or ‘‘(C) the availability of such advice and recom- recommendations concerning appropriate methods de- mendations; scribed in paragraph (1)(B), including any necessary ‘‘(13) the potential additional costs and expenses legislative changes to implement such recommenda- to— tions.’’ ‘‘(A) retail customers regarding and the potential PENNY STOCK REFORM; CONGRESSIONAL STATEMENT OF impact on the profitability of their investment de- FINDINGS cisions; and ‘‘(B) brokers, dealers, and investment advisers re- Pub. L. 101–429, title V, § 502, Oct. 15, 1990, 104 Stat. sulting from potential changes in the regulatory re- 951, provided that: ‘‘The Congress finds the following: quirements or legal standards affecting brokers, ‘‘(1) The maintenance of an honest and healthy pri- dealers, investment advisers, persons associated mary and secondary market for securities offerings is with brokers or dealers, and persons associated essential to enhancing long-term capital formation with investment advisers relating to their obliga- and economic growth and providing legitimate in- tions, including duty of care, to retail customers; vestment opportunities for individuals and institu- and tions. ‘‘(14) any other consideration that the Commission ‘‘(2) Protecting investors in new securities is a crit- considers necessary and appropriate in determining ical component in the maintenance of an honest and whether to conduct a rulemaking under subsection healthy market for such securities. (f). ‘‘(3) Protecting issuers of new securities and pro- ‘‘(d) REPORT.— moting the capital formation process on behalf of ‘‘(1) IN GENERAL.—Not later than 6 months after the small companies are fundamental concerns in main- date of enactment of this Act [July 21, 2010], the Com- taining a strong economy and viable trading mar- mission shall submit a report on the study required kets. under subsection (b) to— ‘‘(4) Unscrupulous market practices and market ‘‘(A) the Committee on Banking, Housing, and participants have pervaded the ‘penny stock’ market Urban Affairs of the Senate; and with an overwhelming amount of fraud and abuse. ‘‘(B) the Committee on Financial Services of the ‘‘(5) Although the Securities and Exchange Com- House of Representatives. mission, State securities regulators, and securities ‘‘(2) CONTENT REQUIREMENTS.—The report required self-regulators have made efforts to curb these abu- under paragraph (1) shall describe the findings, con- sive and harmful practices, the penny stock market clusions, and recommendations of the Commission still lacks an adequate and sufficient regulatory from the study required under subsection (b), includ- structure, particularly in comparison to the struc- ing— ture for overseeing trading in National Market Sys- ‘‘(A) a description of the considerations, analysis, tem securities. and public and industry input that the Commission ‘‘(6) Investors in the penny stock market suffer considered, as required under subsection (b), to from a serious lack of adequate information concern- make such findings, conclusions, and policy recom- ing price and volume of penny stock transactions, the mendations; and nature of this market, and the specific securities in ‘‘(B) an analysis of whether [sic] any identified which they are investing. legal or regulatory gaps, shortcomings, or overlap ‘‘(7) Current practices do not adequately regulate in legal or regulatory standards in the protection of the role of ‘promoters’ and ‘consultants’ in the penny retail customers relating to the standards of care stock market, and many professionals who have been for brokers, dealers, investment advisers, persons banned from the securities markets have ended up in associated with brokers or dealers, and persons as- promoter and consultant roles, contributing substan- sociated with investment advisers for providing tially to fraudulent and abusive schemes. personalized investment advice about securities to ‘‘(8) The present regulatory environment has per- retail customers. mitted the ascendancy of the use of particular mar- ‘‘(e) PUBLIC COMMENT.—The Commission shall seek ket practices, such as ‘reverse mergers’ with shell and consider public input, comments, and data in order corporations and ‘blank check’ offerings, which are to prepare the report required under subsection (d). used to facilitate manipulation schemes and harm in- ‘‘(f) RULEMAKING.—The Commission may commence a vestors. rulemaking, as necessary or appropriate in the public ‘‘(9) In light of the substantial and continuing prob- interest and for the protection of retail customers (and lems in the penny stock markets, additional legisla- such other customers as the Commission may by rule tive measures are necessary and appropriate.’’ provide), to address the legal or regulatory standards of REVISION OF SANCTION AUTHORITY WITH RESPECT TO care for brokers, dealers, investment advisers, persons PENNY STOCKS; RECOMMENDATIONS TO CONGRESS associated with brokers or dealers, and persons associated with investment advisers for providing personal- Pub. L. 101–429, title V, § 504(b), Oct. 15, 1990, 104 Stat. ized investment advice about securities to such retail 953, provided that: ‘‘Within 6 months after the date of customers. The Commission shall consider the enactment of this Act [Oct. 15, 1990], the Securities and findings[,] conclusions, and recommendations of the Exchange Commission shall submit to each House of study required under subsection (b).’’ the Congress such recommendations as the Commission [For definitions of terms used in section 913(a)–(f) of considers appropriate with respect to further revision Pub. L. 111–203, set out above, see section 5301 of Title of section 15(b)(6) of the Securities Exchange Act of 1934 12, Banks and Banking.] (15 U.S.C. 78o(b)(6)). In preparing such recommenda- § 78o–1 TITLE 15—COMMERCE AND TRADE Page 290 tions, the Commission shall consider the desirability (1) By reason of the number and geographi- and effect of expanding the applicability of such sec- cal distribution of its members and the scope tion to any promoter, finder, consultant, agent or other of their transactions, such association will be person who engages in activities with a broker, dealer, or issuer for purposes of the issuance of or trading in, able to carry out the purposes of this section. or inducing or attempting to induce the purchase or (2) Such association is so organized and has sale of, any security (and not just penny stock).’’ the capacity to be able to carry out the purposes of this chapter and to comply, and (sub- § 78o–1. Brokers deemed to be registered ject to any rule or order of the Commission All brokers and dealers for whom registration pursuant to section 78q(d) or 78s(g)(2) of this was in effect on May 27, 1936, in accordance with title) to enforce compliance by its members rules and regulations of the Commission pre- and persons associated with its members, with scribed pursuant to section 78o of this title shall the provisions of this chapter, the rules and be deemed to be registered pursuant to said sec- regulations thereunder, the rules of the Mu- tion. nicipal Securities Rulemaking Board, and the rules of the association. (May 27, 1936, ch. 462, § 10, 49 Stat. 1380.) (3) Subject to the provisions of subsection CODIFICATION (g) of this section, the rules of the association Section was not enacted as a part of the Securities provide that any registered broker or dealer Exchange Act of 1934 which comprises this chapter. may become a member of such association and any person may become associated with a TRANSFER OF FUNCTIONS member thereof. For transfer of functions of Securities and Exchange (4) The rules of the association assure a fair Commission, with certain exceptions, to Chairman of representation of its members in the selection such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, of its directors and administration of its af- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title. fairs and provide that one or more directors shall be representative of issuers and investors § 78o–2. Liabilities arising prior to amendment and not be associated with a member of the as- unaffected sociation, broker, or dealer. (5) The rules of the association provide for Nothing in this Act shall be deemed to extin- the equitable allocation of reasonable dues, guish any liability which may have arisen prior fees, and other charges among members and to the effective date of this Act by reason of any issuers and other persons using any facility or violation of section 78o of this title or of any system which the association operates or con- rule or regulation thereunder. trols. (May 27, 1936, ch. 462, § 11, 49 Stat. 1380.) (6) The rules of the association are designed REFERENCES IN TEXT to prevent fraudulent and manipulative acts and practices, to promote just and equitable This Act, referred to in text, is act May 27, 1936, ch. 462, 49 Stat. 1375, popularly known as the Unlisted Se- principles of trade, to foster cooperation and curities Trading Act, which enacted sections 78l–1, coordination with persons engaged in regulat- 78o–1, 78o–2, and 78hh–1 of this title, and amended sec- ing, clearing, settling, processing information tions 78l, 78o, 78q, 78r, 78t, 78u, 78w, and 78ff of this title. with respect to, and facilitating transactions Effective date of this Act, referred to in text, is July in securities, to remove impediments to and 1, 1934. See section 78hh–1 of this title. perfect the mechanism of a free and open mar- CODIFICATION ket and a national market system, and, in Section was not enacted as a part of the Securities general, to protect investors and the public in- Exchange Act of 1934 which comprises this chapter. terest; and are not designed to permit unfair discrimination between customers, issuers, § 78o–3. Registered securities associations brokers, or dealers, to fix minimum profits, to (a) Registration; application impose any schedule or fix rates of commissions, allowances, discounts, or other fees to An association of brokers and dealers may be be charged by its members, or to regulate by registered as a national securities association virtue of any authority conferred by this chap- pursuant to subsection (b) of this section, or as ter matters not related to the purposes of this an affiliated securities association pursuant to chapter or the administration of the associa- subsection (d) of this section, under the terms tion. and conditions hereinafter provided in this sec- (7) The rules of the association provide that tion and in accordance with the provisions of (subject to any rule or order of the Commis- section 78s(a) of this title, by filing with the sion pursuant to section 78q(d) or 78s(g)(2) of Commission an application for registration in this title) its members and persons associated such form as the Commission, by rule, may pre- with its members shall be appropriately dis- scribe containing the rules of the association ciplined for violation of any provision of this and such other information and documents as chapter, the rules or regulations thereunder, the Commission, by rule, may prescribe as nec- the rules of the Municipal Securities Rule- essary or appropriate in the public interest or making Board, or the rules of the association, for the protection of investors. by expulsion, suspension, limitation of activi- (b) Determinations by Commission requisite to ties, functions, and operations, fine, censure, registration of applicant as national securi- being suspended or barred from being associ- ties association ated with a member, or any other fitting sanc- An association of brokers and dealers shall not tion. be registered as a national securities association (8) The rules of the association are in ac- unless the Commission determines that— cordance with the provisions of subsection (h) Page 291 TITLE 15—COMMERCE AND TRADE § 78o–3

of this section, and, in general, provide a fair (C) the right not to bear an unfair portion procedure for the disciplining of members and of the costs of a proposed limited partner- persons associated with members, the denial ship rollup transaction that is rejected; and of membership to any person seeking member- (D) restrictions on the conversion of con- ship therein, the barring of any person from tingent interests or fees into non-contingent becoming associated with a member thereof, interests or fees and restrictions on the re- and the prohibition or limitation by the asso- ceipt of a non-contingent equity interest in ciation of any person with respect to access to exchange for fees for services which have not services offered by the association or a mem- yet been provided. ber thereof. As used in this paragraph, the term ‘‘dissent- (9) The rules of the association do not im- ing limited partner’’ means a person who, on pose any burden on competition not necessary the date on which soliciting material is mailed or appropriate in furtherance of the purposes to investors, is a holder of a beneficial interest of this chapter. (10) The requirements of subsection (c) of in a limited partnership that is the subject of this section, insofar as these may be applica- a limited partnership rollup transaction, and ble, are satisfied. who casts a vote against the transaction and (11) The rules of the association include pro- complies with procedures established by the visions governing the form and content of association, except that for purposes of an ex- quotations relating to securities sold other- change or tender offer, such person shall file wise than on a national securities exchange an objection in writing under the rules of the which may be distributed or published by any association during the period in which the member or person associated with a member, offer is outstanding. and the persons to whom such quotations may (13) The rules of the association prohibit the be supplied. Such rules relating to quotations authorization for quotation on an automated shall be designed to produce fair and inform- interdealer quotation system sponsored by the ative quotations, to prevent fictitious or mis- association of any security designated by the leading quotations, and to promote orderly Commission as a national market system se- procedures for collecting, distributing, and curity resulting from a limited partnership publishing quotations. rollup transaction (as such term is defined in (12) The rules of the association to promote paragraphs (4) and (5) of section 78n(h) of this just and equitable principles of trade, as re- title), unless such transaction was conducted quired by paragraph (6), include rules to pre- in accordance with procedures designed to pro- vent members of the association from partici- tect the rights of limited partners, including— pating in any limited partnership rollup trans- (A) the right of dissenting limited partners action (as such term is defined in paragraphs to one of the following: (4) and (5) of section 78n(h) of this title) unless (i) an appraisal and compensation; such transaction was conducted in accordance (ii) retention of a security under sub- with procedures designed to protect the rights stantially the same terms and conditions of limited partners, including— as the original issue; (A) the right of dissenting limited partners (iii) approval of the limited partnership to one of the following: rollup transaction by not less than 75 per- (i) an appraisal and compensation; cent of the outstanding securities of each (ii) retention of a security under sub- of the participating limited partnerships; stantially the same terms and conditions (iv) the use of a committee that is inde- as the original issue; pendent, as determined in accordance with (iii) approval of the limited partnership rules prescribed by the association, of the rollup transaction by not less than 75 per- general partner or sponsor, that has been cent of the outstanding securities of each approved by a majority of the outstanding of the participating limited partnerships; securities of each of the participating (iv) the use of a committee that is inde- partnerships, and that has such authority pendent, as determined in accordance with as is necessary to protect the interest of rules prescribed by the association, of the limited partners, including the authority general partner or sponsor, that has been to hire independent advisors, to negotiate approved by a majority of the outstanding with the general partner or sponsor on be- securities of each of the participating half of the limited partners, and to make a partnerships, and that has such authority recommendation to the limited partners as is necessary to protect the interest of with respect to the proposed transaction; limited partners, including the authority or to hire independent advisors, to negotiate (v) other comparable rights that are pre- with the general partner or sponsor on be- scribed by rule by the association and that half of the limited partners, and to make a are designed to protect dissenting limited recommendation to the limited partners partners; with respect to the proposed transaction; (B) the right not to have their voting or power unfairly reduced or abridged; (v) other comparable rights that are pre- (C) the right not to bear an unfair portion scribed by rule by the association and that of the costs of a proposed limited partner- are designed to protect dissenting limited ship rollup transaction that is rejected; and partners; (D) restrictions on the conversion of con- (B) the right not to have their voting tingent interests or fees into non-contingent power unfairly reduced or abridged; interests or fees and restrictions on the re- § 78o–3 TITLE 15—COMMERCE AND TRADE Page 292

ceipt of a non-contingent equity interest in pursuant to subsection (d) of this section, to exchange for fees for services which have not participation in said applicant association as an yet been provided. affiliate thereof, under terms permitting such powers and responsibilities to such affiliate, and As used in this paragraph, the term ‘‘dissent- under such other appropriate terms and condi- ing limited partner’’ means a person who, on tions, as may be provided by the rules of said ap- the date on which soliciting material is mailed plicant association, if such rules appear to the to investors, is a holder of a beneficial interest Commission to be necessary or appropriate in in a limited partnership that is the subject of the public interest or for the protection of inves- a limited partnership rollup transaction, and tors and to carry out the purposes of this sec- who casts a vote against the transaction and tion. The duties and powers of the Commission complies with procedures established by the with respect to any national securities associa- association, except that for purposes of an ex- tion or any affiliated securities association shall change or tender offer, such person shall file in no way be limited by reason of any such af- an objection in writing under the rules of the filiation. association during the period during which the offer is outstanding. (d) Registration as affiliated association; pre- (14) The rules of the association include pro- requisites; association rules visions governing the sales, or offers of sales, An applicant association shall not be reg- of securities on the premises of any military istered as an affiliated securities association un- installation to any member of the Armed less it appears to the Commission that— Forces or a dependent thereof, which rules re- (1) such association, notwithstanding that it quire— does not satisfy the requirements set forth in (A) the broker or dealer performing bro- paragraph (1) of subsection (b) of this section, kerage services to clearly and conspicuously will, forthwith upon the registration thereof, disclose to potential investors— be admitted to affiliation with an association (i) that the securities offered are not registered as a national securities association being offered or provided by the broker or pursuant to subsection (b) of this section, in dealer on behalf of the Federal Govern- the manner and under the terms and condi- ment, and that its offer is not sanctioned, tions provided by the rules of said national se- recommended, or encouraged by the Fed- curities association in accordance with sub- eral Government; and section (c) of this section; and (ii) the identity of the registered broker- (2) such association and its rules satisfy the dealer offering the securities; requirements set forth in paragraphs (2) to (10), inclusive, and paragraph (12),1 of sub- (B) such broker or dealer to perform an ap- section (b) of this section; except that in the propriate suitability determination, includ- case of any such association any restrictions ing consideration of costs and knowledge upon membership therein of the type author- about securities, prior to making a recom- ized by paragraph (3) of subsection (b) of this mendation of a security to a member of the section shall not be less stringent than in the Armed Forces or a dependent thereof; and case of the national securities association (C) that no person receive any referral fee with which such association is to be affiliated. or incentive compensation in connection with a sale or offer of sale of securities, un- (e) Dealings with nonmember professionals less such person is an associated person of a (1) The rules of a registered securities associa- registered broker or dealer and is qualified tion may provide that no member thereof shall pursuant to the rules of a self-regulatory or- deal with any nonmember professional (as de- ganization. fined in paragraph (2) of this subsection) except at the same prices, for the same commissions or (15) The rules of the association provide that fees, and on the same terms and conditions as the association shall— are by such member accorded to the general (A) request guidance from the Municipal public. Securities Rulemaking Board in interpreta- (2) For the purposes of this subsection, the tion of the rules of the Municipal Securities term ‘‘nonmember professional’’ shall include Rulemaking Board; and (A) with respect to transactions in securities (B) provide information to the Municipal other than municipal securities, any registered Securities Rulemaking Board about the en- broker or dealer who is not a member of any forcement actions and examinations of the registered securities association, except such a association under section 78o–4(b)(2)(E) of broker or dealer who deals exclusively in com- this title, so that the Municipal Securities mercial paper, bankers’ acceptances, and com- Rulemaking Board may— mercial bills, and (B) with respect to trans- (i) assist in such enforcement actions actions in municipal securities, any municipal and examinations; and securities dealer (other than a bank or division (ii) evaluate the ongoing effectiveness of or department of a bank) who is not a member the rules of the Board. of any registered securities association and any (c) National association rules; provision for reg- municipal securities broker who is not a mem- istration of affiliated securities association ber of any such association. The Commission may permit or require the (3) Nothing in this subsection shall be so con- rules of an association applying for registration strued or applied as to prevent (A) any member pursuant to subsection (b) of this section, to of a registered securities association from grant- provide for the admission of an association registered as an affiliated securities association 1 See References in Text note below. Page 293 TITLE 15—COMMERCE AND TRADE § 78o–3 ing to any other member of any registered secu- a member or condition the association of a natu- rities association any dealer’s discount, allow- ral person with a member if such natural person ance, commission, or special terms, in connec- (i) does not meet such standards of training, ex- tion with the purchase or sale of securities, or perience, and competence as are prescribed by (B) any member of a registered securities asso- the rules of the association or (ii) has engaged ciation or any municipal securities dealer which and there is a reasonable likelihood he will is a bank or a division or department of a bank again engage in acts or practices inconsistent from granting to any member of any registered with just and equitable principles of trade. A securities association or any such municipal se- registered securities association may examine curities dealer any dealer’s discount, allowance, and verify the qualifications of an applicant to commission, or special terms in connection with become a person associated with a member in the purchase or sale of municipal securities: Pro- accordance with procedures established by the vided, however, That the granting of any such rules of the association and require a natural discount, allowance, commission, or special person associated with a member, or any class of terms in connection with the purchase or sale of such natural persons, to be registered with the municipal securities shall be subject to rules of association in accordance with procedures so es- the Municipal Securities Rulemaking Board tablished. adopted pursuant to section 78o–4(b)(2)(K) of this (C) A registered securities association may bar title. any person from becoming associated with a (f) Transactions in municipal securities member if such person does not agree (i) to sup- Nothing in subsection (b)(6) or (b)(11) of this ply the association with such information with section shall be construed to permit a registered respect to its relationship and dealings with the securities association to make rules concerning member as may be specified in the rules of the any transaction by a registered broker or dealer association and (ii) to permit examination of its in a municipal security. books and records to verify the accuracy of any information so supplied. (g) Denial of membership (D) Nothing in subparagraph (A), (B), or (C) of (1) A registered securities association shall this paragraph shall be construed to permit a deny membership to any person who is not a registered securities association to deny mem- registered broker or dealer. bership to or condition the membership of, or (2) A registered securities association may, bar any person from becoming associated with and in cases in which the Commission, by order, or condition the association of any person with, directs as necessary or appropriate in the public a broker or dealer that engages exclusively in interest or for the protection of investors shall, transactions in municipal securities. deny membership to any registered broker or (4) A registered securities association may dealer, and bar from becoming associated with a deny membership to a registered broker or deal- member any person, who is subject to a statu- er not engaged in a type of business in which the tory disqualification. A registered securities as- rules of the association require members to be sociation shall file notice with the Commission engaged: Provided, however, That no registered not less than thirty days prior to admitting any securities association may deny membership to registered broker or dealer to membership or a registered broker or dealer by reason of the permitting any person to become associated amount of such type of business done by such with a member, if the association knew, or in broker or dealer or the other types of business in the exercise of reasonable care should have which he is engaged. known, that such broker or dealer or person was subject to a statutory disqualification. The no- (h) Discipline of registered securities association tice shall be in such form and contain such in- members and persons associated with mem- formation as the Commission, by rule, may pre- bers; summary proceedings scribe as necessary or appropriate in the public (1) In any proceeding by a registered securities interest or for the protection of investors. association to determine whether a member or (3)(A) A registered securities association may person associated with a member should be dis- deny membership to, or condition the member- ciplined (other than a summary proceeding pur- ship of, a registered broker or dealer if (i) such suant to paragraph (3) of this subsection) the as- broker or dealer does not meet such standards of sociation shall bring specific charges, notify financial responsibility or operational capabil- such member or person of, and give him an op- ity or such broker or dealer or any natural per- portunity to defend against, such charges, and son associated with such broker or dealer does keep a record. A determination by the associa- not meet such standards of training, experience, tion to impose a disciplinary sanction shall be and competence as are prescribed by the rules of supported by a statement setting forth— the association or (ii) such broker or dealer or (A) any act or practice in which such mem- person associated with such broker or dealer has ber or person associated with a member has engaged and there is a reasonable likelihood he been found to have engaged, or which such will again engage in acts or practices inconsist- member or person has been found to have ent with just and equitable principles of trade. A omitted; registered securities association may examine (B) the specific provision of this chapter, the and verify the qualifications of an applicant to rules or regulations thereunder, the rules of become a member and the natural persons asso- the Municipal Securities Rulemaking Board, ciated with such an applicant in accordance or the rules of the association which any such with procedures established by the rules of the act or practice, or omission to act, is deemed association. to violate; and (B) A registered securities association may bar (C) the sanction imposed and the reason a natural person from becoming associated with therefor. § 78o–3 TITLE 15—COMMERCE AND TRADE Page 294

(2) In any proceeding by a registered securities any registered national securities ex- association to determine whether a person shall change that uses the system described in be denied membership, barred from becoming as- subparagraph (A) for the registration of its sociated with a member, or prohibited or limited members and their associated persons; and with respect to access to services offered by the (C) adopt rules governing the process for association or a member thereof (other than a making inquiries and the type, scope, and summary proceeding pursuant to paragraph (3) presentation of information to be provided of this subsection), the association shall notify in response to such inquiries in consultation such person of and give him an opportunity to with any registered national securities ex- be heard upon, the specific grounds for denial, change providing information pursuant to bar, or prohibition or limitation under consideration and keep a record. A determination by the subparagraph (B)(ii). association to deny membership, bar a person (2) Recovery of costs from becoming associated with a member, or A registered securities association may prohibit or limit a person with respect to access charge persons making inquiries described in to services offered by the association or a mem- paragraph (1)(B), other than individual inves- ber thereof shall be supported by a statement tors, reasonable fees for responses to such in- setting forth the specific grounds on which the quiries. denial, bar, or prohibition or limitation is based. (3) A registered securities association may (3) Process for disputed information summarily (A) suspend a member or person as- Each registered securities association shall sociated with a member who has been and is ex- adopt rules establishing an administrative pelled or suspended from any self-regulatory or- process for disputing the accuracy of informa- ganization or barred or suspended from being as- tion provided in response to inquiries under sociated with a member of any self-regulatory this subsection in consultation with any reg- organization, (B) suspend a member who is in istered national securities exchange providing such financial or operating difficulty that the information pursuant to paragraph (1)(B)(ii). association determines and so notifies the Com- (4) Limitation on liability mission that the member cannot be permitted to continue to do business as a member with safety A registered securities association, or an ex- to investors, creditors, other members, or the change reporting information to such an asso- association, or (C) limit or prohibit any person ciation, shall not have any liability to any with respect to access to services offered by the person for any actions taken or omitted in association if subparagraph (A) or (B) of this good faith under this subsection. paragraph is applicable to such person or, in the (5) Definition case of a person who is not a member, if the as- For purposes of this subsection, the term sociation determines that such person does not ‘‘registration information’’ means the infor- meet the qualification requirements or other mation reported in connection with the reg- prerequisites for such access and such person istration or licensing of brokers and dealers cannot be permitted to continue to have such and their associated persons, including dis- access with safety to investors, creditors, mem- ciplinary actions, regulatory, judicial, and ar- bers, or the association. Any person aggrieved bitration proceedings, and other information by any such summary action shall be promptly required by law, or exchange or association afforded an opportunity for a hearing by the as- rule, and the source and status of such infor- sociation in accordance with the provisions of mation. paragraph (1) or (2) of this subsection. The Com- mission, by order, may stay any such summary (j) Registration for sales of private securities of- action on its own motion or upon application by ferings any person aggrieved thereby, if the Commission A registered securities association shall create determines summarily or after notice and oppor- a limited qualification category for any associ- tunity for hearing (which hearing may consist ated person of a member who effects sales as solely of the submission of affidavits or presen- part of a primary offering of securities not in- tation of oral arguments) that such stay is con- volving a public offering, pursuant to section sistent with the public interest and the protec- 77c(b), 77d(2), or 77d(6) of this title and the rules tion of investors. and regulations thereunder, and shall deem (i) Obligation to maintain registration, discipli- qualified in such limited qualification category, nary, and other data without testing, any bank employee who, in the (1) Maintenance of system to respond to in- six month period preceding November 12, 1999, quiries engaged in effecting such sales. A registered securities association shall— (k) Limited purpose national securities associa- (A) establish and maintain a system for tion collecting and retaining registration infor- (1) Regulation of members with respect to se- mation; curity futures products (B) establish and maintain a toll-free telephone listing, and a readily accessible elec- A futures association registered under sec- tronic or other process, to receive and tion 21 of title 7 shall be a registered national promptly respond to inquiries regarding— securities association for the limited purpose (i) registration information on its mem- of regulating the activities of members who bers and their associated persons; and are registered as brokers or dealers in security (ii) registration information on the futures products pursuant to section 78o(b)(11) members and their associated persons of of this title. Page 295 TITLE 15—COMMERCE AND TRADE § 78o–3

(2) Requirements for registration proposed rule changes related to margin, ex- Such a securities association shall— cept for changes resulting in higher margin (A) be so organized and have the capacity levels; and to carry out the purposes of the securities (C) the association shall file pursuant to laws applicable to security futures products section 78s(b)(1) of this title proposed rule and to comply, and (subject to any rule or changes that have been abrogated by the order of the Commission pursuant to section Commission pursuant to section 78s(b)(7)(C) 78s(g)(2) of this title) to enforce compliance of this title. by its members and persons associated with (4) Other exemptions its members, with the provisions of the secu- Such a securities association shall be ex- rities laws applicable to security futures empt from and shall not be required to enforce products, the rules and regulations there- compliance by its members, and its members under, and its rules; (B) have rules that— shall not, solely with respect to their trans- (i) are designed to prevent fraudulent actions effected in security futures products, and manipulative acts and practices, to be required to comply, with the following pro- promote just and equitable principles of visions of this chapter and the rules there- trade, and, in general, to protect investors under: and the public interest, including rules (A) Section 78h of this title. governing sales practices and the advertis- (B) Subsections (b)(1), (b)(3), (b)(4), (b)(5), ing of security futures products reasonably (b)(8), (b)(10), (b)(11), (b)(12), (b)(13), (c), (d), comparable to those of other national se- (e), (f), (g), (h), and (i) of this section. curities associations registered pursuant (C) Subsections (d), (f), and (k) 1 of section to subsection (a) of this section that are 78q of this title. applicable to security futures products; (D) Subsections (a), (f), and (h) of section and 78s of this title. (ii) are not designed to regulate by vir- (l) Rules to avoid duplicative regulation of dual tue of any authority conferred by this registrants chapter matters not related to the pur- Consistent with this chapter, each national se- poses of this chapter or the administration curities association registered pursuant to sub- of the association; section (a) of this section shall issue such rules (C) have rules that provide that (subject to as are necessary to avoid duplicative or conflict- any rule or order of the Commission pursu- ing rules applicable to any broker or dealer reg- ant to section 78s(g)(2) of this title) its mem- istered with the Commission pursuant to section bers and persons associated with its mem- 78o(b) of this title (except paragraph (11) there- bers shall be appropriately disciplined for of), that is also registered with the Commodity violation of any provision of the securities Futures Trading Commission pursuant to sec- laws applicable to security futures products, tion 6f(a) of title 7 (except paragraph (2) there- the rules or regulations thereunder, or the of), with respect to the application of— rules of the association, by expulsion, sus- (1) rules of such national securities associa- pension, limitation of activities, functions, tion of the type specified in section 78o(c)(3)(B) and operations, fine, censure, being sus- of this title involving security futures prod- pended or barred from being associated with ucts; and a member, or any other fitting sanction; and (2) similar rules of national securities asso- (D) have rules that ensure that members ciations registered pursuant to subsection (k) and natural persons associated with mem- of this section and national securities ex- bers meet such standards of training, experi- changes registered pursuant to section 78f(g) ence, and competence necessary to effect of this title involving security futures prod- transactions in security futures products ucts. and are tested for their knowledge of securi- (m) Procedures and rules for security future ties and security futures products. products (3) Exemption from rule change submission A national securities association registered Such a securities association shall be ex- pursuant to subsection (a) of this section shall, empt from submitting proposed rule changes not later than 8 months after December 21, 2000, pursuant to section 78s(b) of this title, except implement the procedures specified in section that— 78f(h)(5)(A) of this title and adopt the rules spec- (A) the association shall file proposed rule ified in subparagraphs (B) and (C) of section changes related to higher margin levels, 78f(h)(5) of this title. fraud or manipulation, recordkeeping, reporting, listing standards, or decimal pricing (June 6, 1934, ch. 404, title I, § 15A, as added June for security futures products, sales practices 25, 1938, ch. 677, § 1, 52 Stat. 1070; amended Pub. for, advertising of, or standards of training, L. 88–467, § 7, Aug. 20, 1964, 78 Stat. 574; Pub. L. experience, competence, or other qualifica- 94–29, § 12, June 4, 1975, 89 Stat. 127; Pub. L. tions for security futures products for per- 99–571, title I, § 102(g), Oct. 28, 1986, 100 Stat. 3218; sons who effect transactions in security fu- Pub. L. 101–429, title V, § 509, Oct. 15, 1990, 104 tures products, or rules effectuating the as- Stat. 957; Pub. L. 103–202, title I, § 106(b)(1), title sociation’s obligation to enforce the securi- III, § 303(a), (c), Dec. 17, 1993, 107 Stat. 2350, 2364, ties laws pursuant to section 78s(b)(7) of this 2366; Pub. L. 106–102, title II, § 203, Nov. 12, 1999, title; 113 Stat. 1391; Pub. L. 106–554, § 1(a)(5) [title II, (B) the association shall file pursuant to §§ 203(c), 206(j), (k)(1)], Dec. 21, 2000, 114 Stat. sections 78s(b)(1) and 78s(b)(2) of this title 2763, 2763A–422, 2763A–433; Pub. L. 109–290, §§ 5, 6, § 78o–3 TITLE 15—COMMERCE AND TRADE Page 296

Sept. 29, 2006, 120 Stat. 1319, 1320; Pub. L. 111–203, responsibility rules adopted under section 78o–5(b)(1)(A) title IX, § 975(f), July 21, 2010, 124 Stat. 1923.) of this title, or where it appeared likely that such person or entity had or would engage in conduct which REFERENCES IN TEXT would subject such person or entity to sanctions under This chapter, referred to in subsecs. (b)(2), (6), (7), (9), section 78o–5(c) of this title. (h)(1)(B), (k)(2)(B)(ii), (4), and (l), was in the original 1990—Subsec. (i). Pub. L. 101–429 added subsec. (i). ‘‘this title’’. See References in Text note set out under 1986—Subsec. (f). Pub. L. 99–571, § 102(g)(1), amended section 78a of this title. subsec. (f) generally. Prior to amendment, subsec. (f) Paragraph (12), of subsection (b) of this section, re- read as follows: ‘‘Nothing in this section shall be conferred to in subsec. (d)(2), was omitted in the general strued to apply with respect to any transaction by a amendment of subsec. (b) by Pub. L. 94–29, see par. (11) broker or dealer in any exempted security.’’ Subsec. (g)(3)(D). Pub. L. 99–571, § 102(g)(2)(A), added of subsec. (b). A new par. (12) was added by Pub. L. subpar. (D). 103–302, § 303(a). Subsec. (g)(4), (5). Pub. L. 99–571, § 102(g)(2)(B), (C), Subsection (k) of section 78q of this title, referred to added par. (4) and redesignated former par. (4) as (5). in subsec. (k)(4)(C), was redesignated subsec. (j) by Pub. 1975—Subsec. (a). Pub. L. 94–29, § 12(2), struck out L. 111–203, title VI, § 617(a)(2), July 21, 2010, 124 Stat. ‘‘with the Commission’’ after ‘‘registered’’, inserted ref- 1616. erence to section 78s(a) of this title, substituted provi- AMENDMENTS sions covering an application for registration in the form prescribed by Commission rule containing the 2010—Subsec. (b)(15). Pub. L. 111–203 added par. (15). rules of the association and such other information and 2006—Subsec. (b)(14). Pub. L. 109–290, § 5, added par. documents as the Commission prescribes as necessary (14). or appropriate in the public interest or for the protec- Subsec. (i). Pub. L. 109–290, § 6, inserted heading and tion of investors for provisions covering a statement in amended text of subsec. (i) generally. Prior to amend- the form prescribed by the Commission setting forth ment, text read as follows: ‘‘A registered securities as- specified information and accompanied by specified sociation shall, within one year from October 15, 1990, documents, and struck out provision that registration (1) establish and maintain a toll-free telephone listing not be construed as a waiver of constitutional rights or to receive inquiries regarding disciplinary actions in- as a waiver of the right to contest the validity of Com- volving its members and their associated persons, and mission rules or regulations. (2) promptly respond to such inquiries in writing. Such Subsec. (b). Pub. L. 94–29, § 12(2), amended subsec. (b) association may charge persons, other than individual generally, to conform its provisions concerning the reg- investors, reasonable fees for written responses to such istration and regulation of national and affiliated secu- inquiries. Such an association shall not have any liabil- rities associations to those covering the registration ity to any person for any actions taken or omitted in and regulation of national securities exchanges con- good faith under this paragraph.’’ tained in section 78f of this title and inserted provi- 2000—Subsec. (k). Pub. L. 106–554, § 1(a)(5) [title II, sions necessary to accommodate the creation of the § 203(c)], added subsec. (k). Municipal Securities Rulemaking Board and to imple- Subsec. (l). Pub. L. 106–554, § 1(a)(5) [title II, § 206(j)], ment its purposes. added subsec. (l). Subsec. (e). Pub. L. 94–29, § 12(3), redesignated subsec. Subsec. (m). Pub. L. 106–554, § 1(a)(5) [title II, (i) as (e) and in subsec. (e) as so redesignated sub- § 206(k)(1)], added subsec. (m). stituted ‘‘nonmember professional’’ for ‘‘nonmember 1999—Subsec. (j). Pub. L. 106–102 added subsec. (j). broker or dealer’’ in par. (1), substituted ‘‘term ‘non- 1993—Subsec. (b)(12). Pub. L. 103–202, § 303(a), added member professional’ shall include (A) with respect to par. (12). transactions in securities other than municipal securi- Subsec. (b)(13). Pub. L. 103–202, § 303(c), added par. (13). ties, any registered broker or dealer who is not a mem- Subsec. (f). Pub. L. 103–202, § 106(b)(1)(A), redesignated ber of any registered securities association, except such par. (3) as entire subsec. (f) and struck out pars. (1) and a broker or dealer who deals exclusively in commercial (2) which read as follows: paper, bankers’ acceptances, and commercial bills’’ for ‘‘(1) Except as provided in paragraph (2) of this sub- ‘‘term ‘nonmember broker or dealer’ shall include any section, nothing in this section shall be construed to broker or dealer who makes use of the mails or of any apply with respect to any transaction by a registered means or instrumentality of interstate commerce to ef- broker or dealer in any exempted security. fect any transaction in, or to induce the purchase or ‘‘(2) A registered securities association may adopt sale of, any security otherwise than on a national secu- and implement rules applicable to members of such as- rities exchange, who is not a member of any registered sociation (A) to enforce compliance by registered bro- securities association, except a broker or dealer who kers and dealers with applicable provisions of this deals exclusively in commercial paper, bankers’ accept- chapter and the rules and regulations thereunder, (B) ances, or commercial bills’’ and added cl. (B) in par. (2), to provide that its members and persons associated and, in par. (3), designated existing provisions as cl. (A) with its members shall be appropriately disciplined, in and added cl. (B). Former subsec. (e), covering the accordance with subsections (b)(7), (b)(8), and (h) of this grant and denial of registration and the revocation of section, for violation of applicable provisions of this affiliated association registration, was struck out. See chapter and the rules and regulations thereunder, (C) section 78s of this title. to provide for reasonable inspection and examination of Subsec. (f). Pub. L. 94–29, § 12(3), redesignated subsec. the books and records of registered brokers and dealers, (m) as (f). Former subsec. (f), covering withdrawal from (D) to provide for the matters described in paragraphs registration, was struck out. See section 78s of this (b)(3), (b)(4), and (b)(5) of this section, (E) to implement title. the provisions of subsection (g) of this section, and (F) Subsec. (g). Pub. L. 94–29, § 12(3), (4), added subsec. (g). to prohibit fraudulent, misleading, deceptive, and false Former subsec. (g), covering review by the Commission advertising.’’ of adverse actions against association members and Subsec. (g)(3)(D). Pub. L. 103–202, § 106(b)(1)(B)(i), sub- stays of such actions, was struck out. See section 78s of stituted ‘‘transactions in municipal securities’’ for this title. ‘‘transactions in exempted securities’’. Subsec. (h). Pub. L. 94–29, § 12(3), (4), added subsec. (h). Subsec. (g)(4), (5). Pub. L. 103–202, § 106(b)(1)(B)(ii), Former subsec. (h), covering the Commission’s action (iii), redesignated par. (5) as (4) and struck out former upon findings, was struck out. See section 78s of this par. (4) which allowed a registered securities associa- title. tion to deny membership to, condition the membership Subsec. (i). Pub. L. 94–29, § 12(3), redesignated subsec. of, or to otherwise bar association with, the associa- (i) as (e) and amended subsec. (e) as so redesignated. tion, under circumstances where a government securi- Subsecs. (j) to (l). Pub. L. 94–29, § 12(3), struck out sub- ties broker or dealer or other person violated financial secs. (j) to (l) which covered the filing of changes or ad- Page 297 TITLE 15—COMMERCE AND TRADE § 78o–3 ditions to association rules and current information, Pub. L. 88–467, § 7(a)(7), inserted effective date provi- the abrogation and alteration of association rules and sions for application of subsec. (b) prior to its amend- supplements to association rules, the suspension of an ment and since its amendment with July 1, 1964 as the association or its members, the revocation of registra- guiding date. tion, the expulsion of members, and the removal of offi- Subsec. (d)(2). Pub. L. 88–467, § 7(b), substituted ‘‘(10)’’ cers or directors. See section 78s of this title. for ‘‘(9)’’ and inserted ‘‘and paragraph (12),’’ after Subsec. (m). Pub. L. 94–29, § 12(3), redesignated subsec. ‘‘, inclusive,’’. (m) as (f). Subsec. (g). Pub. L. 88–467, § 7(c), provided that dis- Subsec. (n). Pub. L. 94–29, § 12(3), struck out subsec. ciplinary action taken by a registered securities asso- (n) which directed that provisions of this section pre- ciation against a person associated with a member will vail in the event of any conflict between this section be reviewable by the Commission, shortened the period and any other law of the United States in force on June for review by an aggrieved person from sixty days or 25, 1938. within such longer period as the Commission may de- 1964—Subsec. (b)(1), (2). Pub. L. 88–467, § 7(a)(1), sub- termine to thirty days or within such longer period as stituted a period for the semicolon at end of pars. (1) the Commission may determine, authorized the Com- and (2). mission, after notice and opportunity for hearing on Subsec. (b)(3). Pub. L. 88–467, § 7(a)(1), (2), substituted the question of stay to order no stay of action of a reg- a period for the semicolon at end of par. (3), struck out istered securities association pending the Commission’s ‘‘of’’ before ‘‘any means’’, substituted ‘‘paragraph (4) or decision on review, and authorized the Commission to (5) of this subsection, or a rule of the association per- limit the hearing on the question of stay to affidavits mitted under this paragraph. The rules’’ for ‘‘paragraph and oral arguments. (4) of this subsection: Provided, That the rules’’, and in- Subsec. (h). Pub. L. 88–467, § 7(d), made the procedures serted provision authorizing a registered securities as- and the Commission’s authority in reviewing discipli- sociation to adopt rules under which it might exclude nary action by a registered securities association from membership persons who had been suspended or against members and in reviewing association action in expelled from a national securities exchange or who denying membership also applicable to Commission re- were barred or suspended from being associated with all view of disciplinary action against persons associated brokers or dealers who are members of such an ex- with members and to the barring by an association of change for violation of exchange rules. any person from being associated with a member. Subsec. (b)(4). Pub. L. 88–467, § 7(a)(1), (3), substituted Subsec. (k)(2). Pub. L. 88–467, § 7(e), inserted ‘‘, or a period for the semicolon at end of par. (4), deleted with such modifications of such alteration or supple- from text preceding cl. (A) the language ‘‘or (2) any ment as it deems necessary’’ after ‘‘in the manner partner, officer, director, or branch manager of such theretofore requested’’, redesignated cls. (1) to (4) as broker or dealer (or any person occupying a similar (A) to (D), respectively, and inserted in cl. (A) ‘‘or the status or performing similar functions), or any person barring from being associated with a member’’ and ‘‘or directly or indirectly controlling or controlled by such persons associated with members, or the qualifications broker or dealer, whether prior or subsequent to be- required for members or natural persons associated coming such’’, inserted in cl. (A) ‘‘or has been and is with members or any class thereof’’. barred or suspended from being associated with all bro- Subsec. (l). Pub. L. 88–467, § 7(f), substituted a period kers or dealers which are members of such exchange’’, for a semicolon at end of par. (1) and inserted in par. (2) inserted in cl. (B) provision for suspension for period preceding cl. (A) ‘‘, or to suspend for a period not ex- not exceeding twelve months or barring or suspending ceeding twelve months or to bar any person from being the broker or dealer from being associated with a associated with a member thereof,’’. broker or dealer, inserted at the beginning of cl. (C) ‘‘whether prior or subsequent to becoming a broker or EFFECTIVE DATE OF 2010 AMENDMENT dealer,’’ (derived from former cl. (1) of this paragraph) and added to cl. (C) provision conferring jurisdiction Amendment by Pub. L. 111–203 effective Oct. 1, 2010, upon the Commission, an exchange, or a registered se- see section 975(i) of Pub. L. 111–203, set out as a note curities association to determine whether an individual under section 78o of this title. is the cause of disciplinary action taken by them against a broker or a dealer, and added cl. (D). EFFECTIVE DATE OF 1999 AMENDMENT Subsec. (b)(5). Pub. L. 88–467, § 7(a)(4), added par. (5). Amendment by Pub. L. 106–102 effective at the end of Former par. (5) redesignated (6). the 18-month period beginning on Nov. 12, 1999, see sec- Subsec. (b)(6) to (8). Pub. L. 88–467, § 7(a)(1), (4), sub- tion 209 of Pub. L. 106–102, set out as a note under sec- stituted periods for semicolons at end of paragraphs, tion 1828 of Title 12, Banks and Banking. and redesignated former pars. (5) to (7) as (6) to (8), respectively. Former pars. (6) to (8) redesignated (7) to EFFECTIVE DATE OF 1993 AMENDMENT (9), respectively. Subsec. (b)(9). Pub. L. 88–467, § 7(a)(1), (4), (5), sub- Amendment by section 303(a), (c) of Pub. L. 103–202 ef- stituted a period for the semicolon at the end, redesig- fective 12 months after Dec. 17, 1993, with provisions for nated former par. (8) as (9), and inserted ‘‘and persons rulemaking authority and review of filings prior to ef- associated with its members’’ and ‘‘or being suspended fective date, see section 304(a) of Pub. L. 103–202, set out or barred from being associated with all members,’’, re- as a note under section 78f of this title. spectively. Former par. (9) redesignated (10). Subsec. (b)(10). Pub. L. 88–467, § 7(a)(4), (6), redesig- EFFECTIVE DATE OF 1990 AMENDMENT nated former par. (9) as (10), and inserted in paragraph Amendment by Pub. L. 101–429 effective Oct. 15, 1990, preceding cl. (A) ‘‘and persons associated with mem- with provisions relating to civil penalties and account- bers’’, ‘‘or the barring of any person from being associ- ing and disgorgement, see section 1(c)(1), (2) of Pub. L. ated with a member’’, ‘‘or other persons’’, and ‘‘or per- 101–429, set out in a note under section 77g of this title. son’’, substituted a period for a comma at end of cls. (A) and (B) and a period for ‘‘, and’’ at end of cl. (C), in- EFFECTIVE DATE OF 1986 AMENDMENT serted in cl. (A) ‘‘or other person’’ in two places and in Amendment by Pub. L. 99–571 effective 270 days after concluding sentence ‘‘or whether any person shall be Oct. 28, 1986, see section 401 of Pub. L. 99–571, set out as barred from being associated with a member’’, ‘‘or per- an Effective Date note under section 78o–5 of this title. son’’, ‘‘or bar’’ in two places, and substituted a period for ‘‘; and’’, respectively. Former par. (10) redesignated EFFECTIVE DATE OF 1975 AMENDMENT (11). Subsec. (b)(11). Pub. L. 88–467, § 7(a)(4), redesignated Amendment by Pub. L. 94–29 effective 180 days after former par. (10) as (11). June 4, 1975, see section 31(a) of Pub. L. 94–29, set out Subsec. (b)(12). Pub. L. 88–467, § 7(a)(7), added par. (12). as a note under section 78b of this title. § 78o–4 TITLE 15—COMMERCE AND TRADE Page 298

EFFECTIVE DATE OF 1964 AMENDMENT tunity for hearing and shall be concluded Amendment by Pub. L. 88–467 effective Aug. 20, 1964, within one hundred twenty days of the date of see section 13 of Pub. L. 88–467, set out as a note under the filing of the application for registration. section 78c of this title. At the conclusion of such proceedings the Commission, by order, shall grant or deny CONSTRUCTION OF 1993 AMENDMENT such registration. The Commission may ex- Amendment by section 106(b)(1) of Pub. L. 103–202 not tend the time for the conclusion of such pro- to be construed to govern initial issuance of any public ceedings for up to ninety days if it finds good debt obligation or to grant any authority to (or extend cause for such extension and publishes its rea- any authority of) the Securities and Exchange Commis- sons for so finding or for such longer period as sion, any appropriate regulatory agency, or a self-regulatory organization to prescribe any procedure, term, to which the applicant consents. or condition of such initial issuance, to promulgate any The Commission shall grant the registration of rule or regulation governing such initial issuance, or to a municipal securities dealer or municipal advi- otherwise regulate in any manner such initial issuance, sor if the Commission finds that the require- see section 111 of Pub. L. 103–202, set out as a note ments of this section are satisfied. The Commis- under section 78o–5 of this title. Amendment by section 303(a), (c) of Pub. L. 103–202 sion shall deny such registration if it does not not to limit authority of Securities and Exchange Com- make such a finding or if it finds that if the ap- mission, a registered securities association or a na- plicant were so registered, its registration would tional securities exchange under any provision of this be subject to suspension or revocation under chapter, or preclude the Commission or such associa- subsection (c) of this section. tion or exchange from imposing a remedy or procedure (3) Any provision of this chapter (other than required to be imposed under such amendment, see sec- section 78e of this title or paragraph (1) of this tion 304(b) of Pub. L. 103–202, set out in an Effective subsection) which prohibits any act, practice, or Date of 1993 Amendment note under section 78f of this course of business if the mails or any means or title. instrumentality of interstate commerce is used TRANSFER OF FUNCTIONS in connection therewith shall also prohibit any For transfer of functions of Securities and Exchange such act, practice, or course of business by any Commission, with certain exceptions, to Chairman of registered municipal securities dealer or munic- such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, ipal advisor or any person acting on behalf of eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under such municipal securities dealer or municipal section 78d of this title. advisor, irrespective of any use of the mails or o any means or instrumentality of interstate com- § 78 –4. Municipal securities merce in connection therewith. (a) Registration of municipal securities dealers (4) The Commission, by rule or order, upon its own motion or upon application, may condi- (1)(A) It shall be unlawful for any municipal tionally or unconditionally exempt any broker, securities dealer (other than one registered as a dealer, municipal securities dealer, or municipal broker or dealer under section 78o of this title) advisor, or class of brokers, dealers, municipal to make use of the mails or any means or instru- securities dealers, or municipal advisors from mentality of interstate commerce to effect any any provision of this section or the rules or reg- transaction in, or to induce or attempt to induce ulations thereunder, if the Commission finds the purchase or sale of, any municipal security that such exemption is consistent with the pub- unless such municipal securities dealer is reg- lic interest, the protection of investors, and the istered in accordance with this subsection. purposes of this section. (B) It shall be unlawful for a municipal advisor (5) No municipal advisor shall make use of the to provide advice to or on behalf of a municipal mails or any means or instrumentality of inter- entity or obligated person with respect to mu- state commerce to provide advice to or on behalf nicipal financial products or the issuance of mu- of a municipal entity or obligated person with nicipal securities, or to undertake a solicitation respect to municipal financial products, the is- of a municipal entity or obligated person, unless suance of municipal securities, or to undertake the municipal advisor is registered in accord- a solicitation of a municipal entity or obligated ance with this subsection. person, in connection with which such munici- (2) A municipal securities dealer or municipal pal advisor engages in any fraudulent, deceptive, advisor may be registered by filing with the or manipulative act or practice. Commission an application for registration in such form and containing such information and (b) Municipal Securities Rulemaking Board; documents concerning such municipal securities rules and regulations dealer or municipal advisor and any persons as- (1) The Municipal Securities Rulemaking sociated with such municipal securities dealer Board shall be composed of 15 members, or such or municipal advisor as the Commission, by other number of members as specified by rules rule, may prescribe as necessary or appropriate of the Board pursuant to paragraph (2)(B),,1 in the public interest or for the protection of in- which shall perform the duties set forth in this vestors. Within forty-five days of the date of the section. The members of the Board shall serve as filing of such application (or within such longer members for a term of 3 years or for such other period as to which the applicant consents), the terms as specified by rules of the Board pursu- Commission shall— ant to paragraph (2)(B), and shall consist of (A) (A) by order grant registration, or 8 individuals who are independent of any munic- (B) institute proceedings to determine ipal securities broker, municipal securities deal- whether registration should be denied. Such er, or municipal advisor, at least 1 of whom proceedings shall include notice of the grounds for denial under consideration and oppor- 1 So in original. Page 299 TITLE 15—COMMERCE AND TRADE § 78o–4 shall be representative of institutional or retail (i) appropriately classify municipal securi- investors in municipal securities, at least 1 of ties brokers, municipal securities dealers, whom shall be representative of municipal enti- and municipal advisors (taking into account ties, and at least 1 of whom shall be a member relevant matters, including types of business of the public with knowledge of or experience in done, nature of securities other than munici- the municipal industry (which members are pal securities sold, and character of business hereinafter referred to as ‘‘public representa- organization), and persons associated with tives’’); and (B) 7 individuals who are associated municipal securities brokers, municipal se- with a broker, dealer, municipal securities deal- curities dealers, and municipal advisors; er, or municipal advisor, including at least 1 in- (ii) specify that all or any portion of such dividual who is associated with and representa- standards shall be applicable to any such tive of brokers, dealers, or municipal securities class; and dealers that are not banks or subsidiaries or de- (iii) require persons in any such class to partments or divisions of banks (which members pass tests administered in accordance with are hereinafter referred to as ‘‘broker-dealer subsection (c)(7) of this section. representatives’’), at least 1 individual who is (B) establish fair procedures for the nomina- associated with and representative of municipal tion and election of members of the Board and securities dealers which are banks or subsidi- assure fair representation in such nominations aries or departments or divisions of banks and elections of public representatives, broker (which members are hereinafter referred to as dealer representatives, bank representatives, ‘‘bank representatives’’), and at least 1 individ- and advisor representatives. Such rules— ual who is associated with a municipal advisor (i) shall provide that the number of public (which members are hereinafter referred to as representatives of the Board shall at all ‘‘advisor representatives’’ and, together with the times exceed the total number of regulated broker-dealer representatives and the bank rep- representatives and that the membership resentatives, are referred to as ‘‘regulated rep- shall at all times be as evenly divided in resentatives’’). Each member of the board shall number as possible between public rep- be knowledgeable of matters related to the mu- resentatives and regulated representatives; nicipal securities markets. Prior to the expira- (ii) shall specify the length or lengths of tion of the terms of office of the members of the terms members shall serve; Board, an election shall be held under rules (iii) may increase the number of members adopted by the Board (pursuant to subsection which shall constitute the whole Board, pro- (b)(2)(B) of this section) of the members to suc- vided that such number is an odd number; ceed such members. (2) The Board shall propose and adopt rules to and (iv) shall establish requirements regarding effect the purposes of this chapter with respect the independence of public representatives. to transactions in municipal securities effected by brokers, dealers, and municipal securities (C) be designed to prevent fraudulent and dealers and advice provided to or on behalf of manipulative acts and practices, to promote municipal entities or obligated persons by bro- just and equitable principles of trade, to foster kers, dealers, municipal securities dealers, and cooperation and coordination with persons en- municipal advisors with respect to municipal fi- gaged in regulating, clearing, settling, proc- nancial products, the issuance of municipal se- essing information with respect to, and facili- curities, and solicitations of municipal entities tating transactions in municipal securities or obligated persons undertaken by brokers, and municipal financial products, to remove dealers, municipal securities dealers, and mu- impediments to and perfect the mechanism of nicipal advisors. The rules of the Board, as a a free and open market in municipal securities minimum, shall: and municipal financial products, and, in gen- (A) provide that no municipal securities eral, to protect investors, municipal entities, broker or municipal securities dealer shall ef- obligated persons, and the public interest; and fect any transaction in, or induce or attempt not be designed to permit unfair discrimina- to induce the purchase or sale of, any munici- tion among customers, municipal entities, ob- pal security, and no broker, dealer, municipal ligated persons, municipal securities brokers, securities dealer, or municipal advisor shall municipal securities dealers, or municipal ad- provide advice to or on behalf of a municipal visors, to fix minimum profits, to impose any entity or obligated person with respect to mu- schedule or fix rates of commissions, allow- nicipal financial products or the issuance of ances, discounts, or other fees to be charged municipal securities, unless such municipal by municipal securities brokers, municipal se- securities broker or municipal securities deal- curities dealers, or municipal advisors, to reg- er meets such standards of operational capa- ulate by virtue of any authority conferred by bility and such municipal securities broker or this chapter matters not related to the pur- municipal securities dealer and every natural poses of this chapter or the administration of person associated with such municipal securi- the Board, or to impose any burden on com- ties broker or municipal securities dealer petition not necessary or appropriate in fur- meet such standards of training, experience, therance of the purposes of this chapter. competence, and such other qualifications as (D) if the Board deems appropriate, provide the Board finds necessary or appropriate in for the arbitration of claims, disputes, and the public interest or for the protection of in- controversies relating to transactions in mu- vestors and municipal entities or obligated nicipal securities and advice concerning mu- persons. In connection with the definition and nicipal financial products: Provided, however, application of such standards the Board may— that no person other than a municipal securi- § 78o–4 TITLE 15—COMMERCE AND TRADE Page 300

ties broker, municipal securities dealer, mu- such fees and charges, which may include nicipal advisor, or person associated with such charges for failure to submit to the Board, or a municipal securities broker, municipal secu- to any information system operated by the rities dealer, or municipal advisor may be Board, within the prescribed timeframes, any compelled to submit to such arbitration ex- items of information or documents required to cept at his instance and in accordance with be submitted under any rule issued by the section 78cc of this title. Board. (E) provide for the periodic examination in (K) establish the terms and conditions under accordance with subsection (c)(7) of this sec- which any broker, dealer, or municipal securi- tion of municipal securities brokers, munici- ties dealer may sell, or prohibit any broker, pal securities dealers, and municipal advisors dealer, or municipal securities dealer from to determine compliance with applicable pro- selling, any part of a new issue of municipal visions of this chapter, the rules and regula- securities to a related account of a broker, tions thereunder, and the rules of the Board. dealer, or municipal securities dealer during Such rules shall specify the minimum scope the underwriting period. and frequency of such examinations and shall (L) with respect to municipal advisors— be designed to avoid unnecessary regulatory (i) prescribe means reasonably designed to duplication or undue regulatory burdens for prevent acts, practices, and courses of busi- any such municipal securities broker, munici- ness as are not consistent with a municipal pal securities dealer, or municipal advisor. advisor’s fiduciary duty to its clients; (F) include provisions governing the form (ii) provide continuing education require- and content of quotations relating to munici- ments for municipal advisors; pal securities which may be distributed or (iii) provide professional standards; and published by any municipal securities broker, (iv) not impose a regulatory burden on municipal securities dealer, or person associ- small municipal advisors that is not nec- ated with such a municipal securities broker essary or appropriate in the public interest or municipal securities dealer, and the persons and for the protection of investors, munici- to whom such quotations may be supplied. pal entities, and obligated persons, provided Such rules relating to quotations shall be de- that there is robust protection of investors signed to produce fair and informative against fraud. quotations, to prevent fictitious or misleading (3) The Board, in conjunction with or on behalf quotations, and to promote orderly procedures of any Federal financial regulator or self-regu- for collecting, distributing, and publishing latory organization, may— quotations. (A) establish information systems; and (G) prescribe records to be made and kept by (B) assess such reasonable fees and charges municipal securities brokers, municipal secu- for the submission of information to, or the rities dealers, and municipal advisors and the receipt of information from, such systems periods for which such records shall be pre- from any persons which systems may be devel- served. oped for the purposes of serving as a reposi- (H) define the term ‘‘separately identifiable tory of information from municipal market department or division’’, as that term is used participants or otherwise in furtherance of the in section 78c(a)(30) of this title, in accordance purposes of the Board, a Federal financial reg- with specified and appropriate standards to as- ulator, or a self-regulatory organization, ex- sure that a bank is not deemed to be engaged cept that the Board— in the business of buying and selling munici- (i) may not charge a fee to municipal enti- pal securities through a separately identifi- ties or obligated persons to submit docu- able department or division unless such de- ments or other information to the Board or partment or division is organized and adminis- charge a fee to any person to obtain, directly tered so as to permit independent examination from the Internet site of the Board, docu- and enforcement of applicable provisions of ments or information submitted by munici- this chapter, the rules and regulations there- pal entities, obligated persons, brokers, deal- under, and the rules of the Board. A separately ers, municipal securities dealers, or munici- identifiable department or division of a bank pal advisors, including documents submitted may be engaged in activities other than those under the rules of the Board or the Commis- relating to municipal securities. sion; and (I) provide for the operation and administra- (ii) shall not be prohibited from charging tion of the Board, including the selection of a commercially reasonable fees for automated Chairman from among the members of the subscription-based feeds or similar services, Board, the compensation of the members of or for charging for other data or document- the Board, and the appointment and com- based services customized upon request of pensation of such employees, attorneys, and any person, made available to commercial consultants as may be necessary or appro- enterprises, municipal securities market priate to carry out the Board’s functions professionals, or the general public, whether under this section. (J) provide that each municipal securities delivered through the Internet or any other broker, municipal securities dealer, and mu- means, that contain all or part of the docu- nicipal advisor shall pay to the Board such ments or information, subject to approval of reasonable fees and charges as may be nec- the fees by the Commission under section essary or appropriate to defray the costs and 78s(b) of this title. expenses of operating and administering the (4) The Board may provide guidance and as- Board. Such rules shall specify the amount of sistance in the enforcement of, and examination Page 301 TITLE 15—COMMERCE AND TRADE § 78o–4 for, compliance with the rules of the Board to (3) Pending final determination whether any the Commission, a registered securities associa- registration under this section shall be revoked, tion under section 78o–3 of this title, or any the Commission, by order, may suspend such other appropriate regulatory agency, as applica- registration, if such suspension appears to the ble. Commission, after notice and opportunity for (5) The Board, the Commission, and a reg- hearing, to be necessary or appropriate in the istered securities association under section 78o–3 public interest or for the protection of investors of this title, or the designees of the Board, the or municipal entities or obligated person.3 Any Commission, or such association, shall meet not registered municipal securities dealer or munic- less frequently than 2 times a year— ipal advisor may, upon such terms and condi- (A) to describe the work of the Board, the tions as the Commission may deem necessary in Commission, and the registered securities as- the public interest or for the protection of inves- sociation involving the regulation of munici- tors or municipal entities or obligated person,3 pal securities; and withdraw from registration by filing a written (B) to share information about— notice of withdrawal with the Commission. If (i) the interpretation of the Board, the the Commission finds that any registered mu- Commission, and the registered securities nicipal securities dealer or municipal advisor is association of Board rules; and no longer in existence or has ceased to do busi- (ii) examination and enforcement of compliance with Board rules. ness as a municipal securities dealer or municipal advisor, the Commission, by order, shall can- (7) 2 Nothing in this section shall be construed cel the registration of such municipal securities to impair or limit the power of the Commission dealer or municipal advisor. under this chapter. (4) The Commission, by order, shall censure or (c) Discipline of municipal securities dealers; place limitations on the activities or functions censure; suspension or revocation of reg- of any person associated, seeking to become as- istration; other sanctions; investigations sociated, or, at the time of the alleged mis- (1) No broker, dealer, or municipal securities conduct, associated or seeking to become associ- dealer shall make use of the mails or any means ated with a municipal securities dealer, or sus- or instrumentality of interstate commerce to ef- pend for a period not exceeding 12 months or bar fect any transaction in, or to induce or attempt any such person from being associated with a to induce the purchase or sale of, any municipal broker, dealer, investment adviser, municipal security, and no broker, dealer, municipal secu- securities dealer, municipal advisor, transfer rities dealer, or municipal advisor shall make agent, or nationally recognized statistical rat- use of the mails or any means or instrumental- ing organization, if the Commission finds, on ity of interstate commerce to provide advice to the record after notice and opportunity for hear- or on behalf of a municipal entity or obligated ing, that such censure, placing of limitations, person with respect to municipal financial prod- suspension, or bar is in the public interest and ucts, the issuance of municipal securities, or to that such person has committed any act, or is undertake a solicitation of a municipal entity or subject to an order or finding, enumerated in obligated person, in contravention of any rule of subparagraph (A), (D), (E), (H), or (G) of para- the Board. A municipal advisor and any person graph (4) of section 78o(b) of this title, has been associated with such municipal advisor shall be convicted of any offense specified in subpara- deemed to have a fiduciary duty to any munici- graph (B) of such paragraph (4) within 10 years pal entity for whom such municipal advisor acts of the commencement of the proceedings under as a municipal advisor, and no municipal advi- this paragraph, or is enjoined from any action, sor may engage in any act, practice, or course of conduct, or practice specified in subparagraph business which is not consistent with a munici- (C) of such paragraph (4). It shall be unlawful for pal advisor’s fiduciary duty or that is in con- any person as to whom an order entered pursu- travention of any rule of the Board. ant to this paragraph or paragraph (5) of this (2) The Commission, by order, shall censure, subsection suspending or barring him from being place limitations on the activities, functions, or associated with a municipal securities dealer is operations, suspend for a period not exceeding in effect willfully to become, or to be, associated twelve months, or revoke the registration of any with a municipal securities dealer without the municipal securities dealer or municipal advi- consent of the Commission, and it shall be un- sor, if it finds, on the record after notice and op- lawful for any municipal securities dealer to portunity for hearing, that such censure, placing permit such a person to become, or remain, a of limitations, denial, suspension, or revocation, person associated with him without the consent is in the public interest and that such municipal of the Commission, if such municipal securities securities dealer or municipal advisor has com- dealer knew, or, in the exercise of reasonable mitted or omitted any act, or is subject to an care should have known, of such order. order or finding, enumerated in subparagraph (5) With respect to any municipal securities (A), (D), (E), (H), or (G) of paragraph (4) of sec- dealer for which the Commission is not the ap- tion 78o(b) of this title, has been convicted of propriate regulatory agency, the appropriate any offense specified in subparagraph (B) of such regulatory agency for such municipal securities paragraph (4) within ten years of the commence- dealer may sanction any such municipal securi- ment of the proceedings under this paragraph, ties dealer in the manner and for the reasons or is enjoined from any action, conduct, or prac- specified in paragraph (2) of this subsection and tice specified in subparagraph (C) of such para- any person associated with such municipal secu- graph (4). rities dealer in the manner and for the reasons

2 So in original. Probably should be ‘‘(6)’’. 3 So in original. Person probably should be plural. § 78o–4 TITLE 15—COMMERCE AND TRADE Page 302 specified in paragraph (4) of this subsection. In such municipal securities dealer or associated addition, such appropriate regulatory agency person. may, in accordance with section 1818 of title 12, (C) Nothing in this paragraph shall be con- enforce compliance by such municipal securities strued to impair or limit (other than by the re- dealer or any person associated with such mu- quirement of prior consultation) the power of nicipal securities dealer with the provisions of the Commission or the appropriate regulatory this section, section 78q of this title, the rules of agency for a municipal securities dealer to initi- the Board, and the rules of the Commission per- ate any action of a class described in this para- taining to municipal securities dealers, persons graph or to affect in any way the power of the associated with municipal securities dealers, Commission or such appropriate regulatory and transactions in municipal securities. For agency to initiate any other action pursuant to purposes of the preceding sentence, any viola- this chapter or any other provision of law. tion of any such provision shall constitute ade- (7)(A) Tests required pursuant to subsection quate basis for the issuance of any order under (b)(2)(A)(iii) of this section shall be administered section 1818(b) or 1818(c) of title 12, and the cus- by or on behalf of and periodic examinations tomers of any such municipal securities dealer pursuant to subsection (b)(2)(E) of this section shall be deemed to be ‘‘depositors’’ as that term shall be conducted by— is used in section 1818(c) of title 12. Nothing in (i) a registered securities association, in the this paragraph shall be construed to affect in case of municipal securities brokers and mu- any way the powers of such appropriate regu- nicipal securities dealers who are members of latory agency to proceed against such municipal such association; securities dealer under any other provision of (ii) the appropriate regulatory agency for law. any municipal securities broker or municipal (6)(A) The Commission, prior to the entry of securities dealer, in the case of all other mu- an order of investigation, or commencement of nicipal securities brokers and municipal secu- any proceedings, against any municipal securi- rities dealers; and ties dealer, or person associated with any mu- (iii) the Commission, or its designee, in the nicipal securities dealer, for which the Commis- case of municipal advisors. sion is not the appropriate regulatory agency, for violation of any provision of this section, (B) A registered securities association shall section 78o(c)(1) or 78o(c)(2) of this title, any rule make a report of any examination conducted or regulation under any such section, or any pursuant to subsection (b)(2)(E) of this section rule of the Board, shall (i) give notice to the ap- and promptly furnish the Commission a copy propriate regulatory agency for such municipal thereof and any data supplied to it in connec- securities dealer of the identity of such munici- tion with such examination. Subject to such pal securities dealer or person associated with limitations as the Commission, by rule, deter- such municipal securities dealer, the nature of mines to be necessary or appropriate in the pub- and basis for such proposed action, and whether lic interest or for the protection of investors or the Commission is seeking a monetary penalty municipal entities or obligated person,3 the against such municipal securities dealer or such Commission shall, on request, make available to associated person pursuant to section 78u–2 of the Board a copy of any report of an examina- this title; and (ii) consult with such appropriate tion of a municipal securities broker or munici- regulatory agency concerning the effect of such pal securities dealer made by or furnished to the proposed action on sound banking practices and Commission pursuant to this paragraph or sec- the feasibility and desirability of coordinating tion 78q(c)(3) of this title. such action with any proceeding or proposed (8) The Commission is authorized, by order, if proceeding by such appropriate regulatory agen- in its opinion such action is necessary or appro- cy against such municipal securities dealer or priate in the public interest, for the protection associated person. of investors, or otherwise, in furtherance of the (B) The appropriate regulatory agency for a purposes of this chapter, to remove from office municipal securities dealer (if other than the or censure any person who is, or at the time of Commission), prior to the entry of an order of the alleged violation or abuse was, a member or investigation, or commencement of any proceed- employee of the Board, who, the Commission ings, against such municipal securities dealer or finds, on the record after notice and opportunity person associated with such municipal securities for hearing, has willfully (A) violated any provi- dealer, for violation of any provision of this sec- sion of this chapter, the rules and regulations tion, the rules of the Board, or the rules or regu- thereunder, or the rules of the Board or (B) lations of the Commission pertaining to munici- abused his authority. pal securities dealers, persons associated with (9)(A) Fines collected by the Commission for municipal securities dealers, or transactions in violations of the rules of the Board shall be municipal securities shall (i) give notice to the equally divided between the Commission and the Commission of the identity of such municipal Board. securities dealer or person associated with such (B) Fines collected by a registered securities municipal securities dealer and the nature of association under section 78o–3(b)(7) 4 of this and basis for such proposed action and (ii) con- title with respect to violations of the rules of sult with the Commission concerning the effect the Board shall be accounted for by such reg- of such proposed action on the protection of in- istered securities association separately from vestors or municipal entities or obligated per- other fines collected under section 78o–3(b)(7) 4 of son 3 and the feasibility and desirability of co- this title and shall be allocated between such ordinating such action with any proceeding or proposed proceeding by the Commission against 4 See References in Text note below. Page 303 TITLE 15—COMMERCE AND TRADE § 78o–4 registered securities association and the Board, (ii) undertakes a solicitation of a munic- and such allocation shall require the registered ipal entity; 1 securities association to pay to the Board ⁄3 of (B) includes financial advisors, guaranteed all fines collected by the registered securities investment contract brokers, third-party association reasonably allocable to violations of marketers, placement agents, solicitors, the rules of the Board, or such other portion of finders, and swap advisors, if such persons such fines as may be directed by the Commis- are described in any of clauses (i) through sion upon agreement between the registered se- (iii) 5 of subparagraph (A); and curities association and the Board. (C) does not include a broker, dealer, or (d) Issuance of municipal securities municipal securities dealer serving as an un- (1) Neither the Commission nor the Board is derwriter (as defined in section 77b(a)(11) of authorized under this chapter, by rule or regula- this title), any investment adviser registered tion, to require any issuer of municipal securi- under the Investment Advisers Act of 1940 ties, directly or indirectly through a purchaser [15 U.S.C. 80b–1 et seq.], or persons associ- or prospective purchaser of securities from the ated with such investment advisers who are issuer, to file with the Commission or the Board providing investment advice, any commod- prior to the sale of such securities by the issuer ity trading advisor registered under the any application, report, or document in connec- Commodity Exchange Act [7 U.S.C. 1 et seq.] tion with the issuance, sale, or distribution of or persons associated with a commodity such securities. trading advisor who are providing advice re- (2) The Board is not authorized under this lated to swaps, attorneys offering legal ad- chapter to require any issuer of municipal secu- vice or providing services that are of a tradi- rities, directly or indirectly through a munici- tional legal nature, or engineers providing pal securities broker, municipal securities deal- engineering advice; er, municipal advisor, or otherwise, to furnish to (5) the term ‘‘municipal financial product’’ the Board or to a purchaser or a prospective pur- means municipal derivatives, guaranteed in- chaser of such securities any application, report, vestment contracts, and investment strate- document, or information with respect to such gies; issuer: Provided, however, That the Board may (6) the term ‘‘rules of the Board’’ means the require municipal securities brokers and munic- rules proposed and adopted by the Board under ipal securities dealers or municipal advisors to subsection (b)(2); furnish to the Board or purchasers or prospec- (7) the term ‘‘person associated with a mu- tive purchasers of municipal securities applica- nicipal advisor’’ or ‘‘associated person of an tions, reports, documents, and information with advisor’’ means— respect to the issuer thereof which is generally (A) any partner, officer, director, or available from a source other than such issuer. branch manager of such municipal advisor Nothing in this paragraph shall be construed to (or any person occupying a similar status or impair or limit the power of the Commission performing similar functions); under any provision of this chapter. (B) any other employee of such municipal (e) Definitions advisor who is engaged in the management, For purposes of this section— direction, supervision, or performance of any (1) the term ‘‘Board’’ means the Municipal activities relating to the provision of advice Securities Rulemaking Board established to or on behalf of a municipal entity or obli- under subsection (b)(1); gated person with respect to municipal fi- (2) the term ‘‘guaranteed investment con- nancial products or the issuance of munici- tract’’ includes any investment that has speci- pal securities; and fied withdrawal or reinvestment provisions (C) any person directly or indirectly con- and a specifically negotiated or bid interest trolling, controlled by, or under common rate, and also includes any agreement to sup- control with such municipal advisor; ply investments on 2 or more future dates, (8) the term ‘‘municipal entity’’ means any such as a forward supply contract; State, political subdivision of a State, or mu- (3) the term ‘‘investment strategies’’ in- nicipal corporate instrumentality of a State, cludes plans or programs for the investment of including— the proceeds of municipal securities that are (A) any agency, authority, or instrumen- not municipal derivatives, guaranteed invest- tality of the State, political subdivision, or ment contracts, and the recommendation of municipal corporate instrumentality; and brokerage of municipal escrow invest- (B) any plan, program, or pool of assets ments; sponsored or established by the State, politi- (4) the term ‘‘municipal advisor’’— cal subdivision, or municipal corporate in- (A) means a person (who is not a municipal strumentality or any agency, authority, or entity or an employee of a municipal entity) instrumentality thereof; and that— (C) any other issuer of municipal securi- (i) provides advice to or on behalf of a ties; municipal entity or obligated person with respect to municipal financial products or (9) the term ‘‘solicitation of a municipal en- the issuance of municipal securities, in- tity or obligated person’’ means a direct or including advice with respect to the struc- direct communication with a municipal entity ture, timing, terms, and other similar or obligated person made by a person, for di- matters concerning such financial products or issues; or 5 So in original. Subpar. (A) does not contain a cl. (iii). § 78o–4 TITLE 15—COMMERCE AND TRADE Page 304

rect or indirect compensation, on behalf of a ‘‘initial’’, was executed in fourth sentence by striking broker, dealer, municipal securities dealer, out ‘‘initial’’ after ‘‘office of the’’ and after ‘‘such’’, to municipal advisor, or investment adviser (as reflect the probable intent of Congress. Pub. L. 111–203, § 975(b)(1)(B), added second and third defined in section 202 of the Investment Advis- sentences and struck out former second sentence which ers Act of 1940 [15 U.S.C. 80b–2]) that does not read as follows: ‘‘The initial members of the Board control, is not controlled by, or is not under shall serve as members for a term of two years, and common control with the person undertaking shall consist of (A) five individuals who are not associ- such solicitation for the purpose of obtaining ated with any broker, dealer, or municipal securities or retaining an engagement by a municipal en- dealer (other than by reason of being under common tity or obligated person of a broker, dealer, control with, or indirectly controlling, any broker or dealer which is not a municipal securities broker or municipal securities dealer, or municipal advi- municipal securities dealer), at least one of whom shall sor for or in connection with municipal finan- be representative of investors in municipal securities, cial products, the issuance of municipal secu- and at least one of whom shall be representative of is- rities, or of an investment adviser to provide suers of municipal securities (which members are here- investment advisory services to or on behalf of inafter referred to as ‘public representatives’); (B) five a municipal entity; and individuals who are associated with and representative (10) the term ‘‘obligated person’’ means any of municipal securities brokers and municipal securi- person, including an issuer of municipal secu- ties dealers which are not banks or subsidiaries or de- rities, who is either generally or through an partments or divisions of banks (which members are hereinafter referred to as ‘broker-dealer representa- enterprise, fund, or account of such person, tives’); and (C) five individuals who are associated with committed by contract or other arrangement and representative of municipal securities dealers to support the payment of all or part of the which are banks or subsidiaries or departments or divi- obligations on the municipal securities to be sions of banks (which members are hereinafter referred sold in an offering of municipal securities. to as ‘bank representatives’).’’ Pub. L. 111–203, § 975(b)(1)(A), in first sentence, sub- (June 6, 1934, ch. 404, title I, § 15B, as added Pub. stituted ‘‘The Municipal Securities Rulemaking Board L. 94–29, § 13, June 4, 1975, 89 Stat. 131; amended shall be composed of 15 members, or such other number Pub. L. 98–38, § 4, June 6, 1983, 97 Stat. 207; Pub. of members as specified by rules of the Board pursuant L. 100–181, title III, §§ 318–320, Dec. 4, 1987, 101 to paragraph (2)(B),’’ for ‘‘Not later than one hundred Stat. 1256, 1257; Pub. L. 101–429, title II, § 205, Oct. twenty days after June 4, 1975, the Commission shall es- 15, 1990, 104 Stat. 941; Pub. L. 101–550, title II, tablish a Municipal Securities Rulemaking Board (hereinafter in this section referred to as the ‘Board’), § 203(c)(1), Nov. 15, 1990, 104 Stat. 2718; Pub. L. to be composed initially of fifteen members appointed 105–353, title III, § 301(b)(9), Nov. 3, 1998, 112 Stat. by the Commission’’. 3236; Pub. L. 107–204, title VI, § 604(c)(1)(B), July Subsec. (b)(2). Pub. L. 111–203, § 975(b)(2)(A), in intro- 30, 2002, 116 Stat. 796; Pub. L. 111–203, title IX, ductory provisions, inserted ‘‘and advice provided to or §§ 925(a)(2), 929F(a), 975(a)–(e), July 21, 2010, 124 on behalf of municipal entities or obligated persons by Stat. 1850, 1853, 1915–1921.) brokers, dealers, municipal securities dealers, and municipal advisors with respect to municipal financial REFERENCES IN TEXT products, the issuance of municipal securities, and so- This chapter, referred to in subsecs. (a)(3), (b)(2), (7), licitations of municipal entities or obligated persons (c)(6)(C), (8), and (d), was in the original ‘‘this title’’. undertaken by brokers, dealers, municipal securities See References in Text note set out under section 78a dealers, and municipal advisors’’ before period at end of of this title. first sentence and struck out ‘‘(Such rules are herein- Section 78o–3(b)(7) of this title, referred to in subsec. after collectively referred to in this chapter as ‘rules of (c)(9)(B), was in the original ‘‘section 15A(7)’’, and was the Board’.)’’ before ‘‘The rules’’. translated as meaning section 15A(b)(7) of act June 6, Subsec. (b)(2)(A). Pub. L. 111–203, § 975(b)(2)(B), in in- 1934, to reflect the probable intent of Congress. troductory provisions, inserted ‘‘, and no broker, deal- The Investment Advisers Act of 1940, referred to in er, municipal securities dealer, or municipal advisor subsec. (e)(4)(C), is title II of act Aug. 22, 1940, ch. 686, shall provide advice to or on behalf of a municipal en- 54 Stat. 847, which is classified generally to subchapter tity or obligated person with respect to municipal fi- II (§ 80b–1 et seq.) of chapter 2D of this title. For com- nancial products or the issuance of municipal securi- plete classification of this Act to the Code, see section ties,’’ after ‘‘sale of, any municipal security’’ and ‘‘and 80b–20 of this title and Tables. municipal entities or obligated persons’’ after ‘‘protec- The Commodity Exchange Act, referred to in subsec. tion of investors’’, in cl. (i), substituted ‘‘municipal se- (e)(4)(C), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, which curities brokers, municipal securities dealers, and mu- is classified generally to chapter 1 (§ 1 et seq.) of Title nicipal advisors’’ for ‘‘municipal securities brokers and 7, Agriculture. For complete classification of this Act municipal securities dealers’’ in two places, in cl. (ii), to the Code, see section 1 of Title 7 and Tables. inserted ‘‘and’’ at end, in cl. (iii), substituted period for ‘‘; and’’ at end, and struck out cl. (iv) which read as fol- AMENDMENTS lows: ‘‘provide that persons in any such class other 2010—Subsec. (a)(1). Pub. L. 111–203, § 975(a)(1), des- than municipal securities brokers and municipal secu- ignated existing provisions as subpar. (A) and added rities dealers and partners, officers, and supervisory subpar. (B). employees of municipal securities brokers or municipal Subsec. (a)(2), (3). Pub. L. 111–203, § 975(a)(2), (3), in- securities dealers, may be qualified solely on the basis serted ‘‘or municipal advisor’’ after ‘‘municipal securi- of compliance with such standards of training and such ties dealer’’ wherever appearing. other qualifications as the Board finds appropriate.’’ Subsec. (a)(4). Pub. L. 111–203, § 975(a)(4), substituted Subsec. (b)(2)(B). Pub. L. 111–203, § 975(b)(2)(C), amend- ‘‘dealer, municipal securities dealer, or municipal advi- ed subpar. (B) generally. Prior to amendment, subpar. sor, or class of brokers, dealers, municipal securities (B) read as follows: ‘‘establish fair procedures for the dealers, or municipal advisors’’ for ‘‘dealer, or munici- nomination and election of members of the Board and pal securities dealer or class of brokers, dealers, or mu- assure fair representation in such nominations and nicipal securities dealers’’. elections of municipal securities brokers and municipal Subsec. (a)(5). Pub. L. 111–203, § 975(a)(5), added par. securities dealers. Such rules shall provide that the (5). membership of the Board shall at all times be equally Subsec. (b)(1). Pub. L. 111–203, § 975(b)(1)(C), which di- divided among public representatives, broker-dealer rected amendment of third sentence by striking out representatives, and bank representatives, and that the Page 305 TITLE 15—COMMERCE AND TRADE § 78o–4 public representatives shall be subject to approval by practice, or course of business which is not consistent the Commission to assure that no one of them is associ- with a municipal advisor’s fiduciary duty or that is in ated with any broker, dealer, or municipal securities contravention of any rule of the Board.’’ dealer (other than by reason of being under common Subsec. (c)(2). Pub. L. 111–203, § 975(c)(3), inserted ‘‘or control with, or indirectly controlling, any broker or municipal advisor’’ after ‘‘municipal securities dealer’’ dealer which is not a municipal securities broker or in two places. municipal securities dealer) and that at least one is Subsec. (c)(3). Pub. L. 111–203, § 975(c)(4), inserted ‘‘or representative of investors in municipal securities and municipal entities or obligated person’’ after ‘‘protec- at least one is representative of issuers of municipal se- tion of investors’’ in two places and ‘‘or municipal advi- curities. Such rules shall also specify the term mem- sor’’ after ‘‘municipal securities dealer’’ wherever ap- bers shall serve and may increase the number of mem- pearing. bers which shall constitute the whole Board provided Subsec. (c)(4). Pub. L. 111–203, § 975(c)(5), which di- that such number is an odd number.’’ rected amendment of par. (4) by inserting ‘‘or munici- Subsec. (b)(2)(C). Pub. L. 111–203, § 975(b)(2)(D), in- pal advisor’’ after ‘‘municipal securities dealer or obli- serted ‘‘and municipal financial products’’ after ‘‘mu- gated person’’ each place that term appears, could not nicipal securities’’ the first two places appearing and be executed because such term does not appear. ‘‘, municipal entities, obligated persons,’’ after ‘‘to pro- Pub. L. 111–203, § 925(a)(2), substituted ‘‘12 months or tect investors’’ and substituted ‘‘among customers, mu- bar any such person from being associated with a nicipal entities, obligated persons, municipal securities broker, dealer, investment adviser, municipal securi- brokers, municipal securities dealers, or municipal ad- ties dealer, municipal advisor, transfer agent, or na- visors,’’ for ‘‘between customers, issuers, municipal se- tionally recognized statistical rating organization,’’ for curities brokers, or municipal securities dealers,’’ and ‘‘twelve months or bar any such person from being as- ‘‘brokers, municipal securities dealers, or municipal sociated with a municipal securities dealer,’’. advisors, to regulate’’ for ‘‘brokers or municipal securi- Subsec. (c)(6)(B). Pub. L. 111–203, § 975(c)(6), inserted ties dealers, to regulate’’. ‘‘or municipal entities or obligated person’’ after ‘‘pro- Subsec. (b)(2)(D). Pub. L. 111–203, § 975(b)(2)(E), in- tection of investors’’. serted ‘‘and advice concerning municipal financial Subsec. (c)(7)(A)(iii). Pub. L. 111–203, § 975(c)(7)(A), products’’ after ‘‘transactions in municipal securities’’ added cl. (iii). and ‘‘municipal advisor,’’ before ‘‘or person associated’’ Subsec. (c)(7)(B). Pub. L. 111–203, § 975(c)(7)(B), in- and substituted ‘‘that no’’ for ‘‘That no’’ and ‘‘a munic- serted ‘‘or municipal entities or obligated person’’ after ipal securities broker, municipal securities dealer, or ‘‘protection of investors’’. municipal advisor may be compelled’’ for ‘‘a municipal Subsec. (c)(8). Pub. L. 111–203, § 929F(a), substituted securities broker or municipal securities dealer may be ‘‘any person who is, or at the time of the alleged viola- compelled’’. tion or abuse was, a member or employee’’ for ‘‘any Subsec. (b)(2)(E). Pub. L. 111–203, § 975(b)(2)(F), sub- member or employee’’. stituted ‘‘municipal securities brokers, municipal secu- Subsec. (c)(9). Pub. L. 111–203, § 975(c)(8), added par. rities dealers, and municipal advisors’’ for ‘‘municipal (9). securities brokers and municipal securities dealers’’ Subsec. (d)(2). Pub. L. 111–203, § 975(d)(2), which di- and ‘‘municipal securities broker, municipal securities rected amendment of par. (2) by inserting ‘‘or munici- dealer, or municipal advisor’’ for ‘‘municipal securities pal advisors’’ before ‘‘to furnish’’, was executed by broker or municipal securities dealer’’. making the insertion before ‘‘to furnish’’ the second Subsec. (b)(2)(G). Pub. L. 111–203, § 975(b)(2)(G), sub- place appearing, to reflect the probable intent of Con- stituted ‘‘municipal securities brokers, municipal secu- gress. rities dealers, and municipal advisors’’ for ‘‘municipal Pub. L. 111–203, § 975(d)(1), substituted ‘‘through a mu- securities brokers and municipal securities dealers’’. nicipal securities broker, municipal securities dealer, Subsec. (b)(2)(J). Pub. L. 111–203, § 975(b)(2)(H), sub- municipal advisor, or otherwise’’ for ‘‘through a munic- stituted ‘‘each municipal securities broker, municipal ipal securities broker or municipal securities dealer or securities dealer, and municipal advisor’’ for ‘‘each mu- otherwise’’. nicipal securities broker and each municipal securities Subsec. (e). Pub. L. 111–203, § 975(e), added subsec. (e). dealer’’ and inserted ‘‘, which may include charges for 2002—Subsec. (c)(2), (4). Pub. L. 107–204 substituted failure to submit to the Board, or to any information ‘‘, or is subject to an order or finding,’’ for ‘‘or omis- system operated by the Board, within the prescribed sion’’ and ‘‘(H), or (G)’’ for ‘‘or (G)’’. timeframes, any items of information or documents re- 1998—Subsec. (c)(4). Pub. L. 105–353 substituted ‘‘con- quired to be submitted under any rule issued by the victed of any offense’’ for ‘‘convicted by any offense’’ in Board’’ after ‘‘such fees and charges’’. first sentence. Subsec. (b)(2)(K). Pub. L. 111–203, § 975(b)(2)(I), sub- 1990—Subsec. (c)(2), (4). Pub. L. 101–550 substituted stituted ‘‘a related account of a broker, dealer, or mu- ‘‘(A), (D), (E), or (G)’’ for ‘‘(A), (D), or (E)’’. nicipal securities dealer’’ for ‘‘a municipal securities Subsec. (c)(6)(A). Pub. L. 101–429 substituted ‘‘, the investment portfolio’’ and substituted ‘‘any broker, nature’’ for ‘‘and the nature’’ and ‘‘proposed action, and dealer, or municipal securities dealer’’ for ‘‘any munic- whether the Commission is seeking a monetary penalty ipal securities dealer’’ in two places. against such municipal securities dealer or such associ- Subsec. (b)(2)(L). Pub. L. 111–203, § 975(b)(2)(J), added ated person pursuant to section 78u–2 of this title; and’’ subpar. (L). for ‘‘proposed action and’’. Subsec. (b)(3) to (5), (7). Pub. L. 111–203, § 975(b)(3), (4), 1987—Subsec. (b)(2)(C). Pub. L. 100–181, § 318, sub- added pars. (3) to (5) and redesignated former par. (3) as stituted ‘‘municipal securities dealers, to regulate’’ for (7). ‘‘municipal security dealers, to regulate’’ ‘‘purposes of Subsec. (c)(1). Pub. L. 111–203, § 975(c)(1), (2), inserted this chapter’’ for ‘‘purposes of this chapter or the secu- ‘‘, and no broker, dealer, municipal securities dealer, rities’’, and ‘‘burden on competition’’ for ‘‘burden or or municipal advisor shall make use of the mails or any competition’’. means or instrumentality of interstate commerce to Subsec. (c)(4). Pub. L. 100–181, § 319, substituted new provide advice to or on behalf of a municipal entity or first sentence for former first sentence which read as obligated person with respect to municipal financial follows: ‘‘The Commission, by order, shall censure any products, the issuance of municipal securities, or to un- person associated, or seeking to become associated dertake a solicitation of a municipal entity or obli- with, a municipal securities dealer or suspend for a pe- gated person,’’ after ‘‘any municipal security’’ and in- riod not exceeding twelve months or bar any such per- serted at end ‘‘A municipal advisor and any person as- son from being associated with a municipal securities sociated with such municipal advisor shall be deemed dealer, if the Commission finds, on the record after no- to have a fiduciary duty to any municipal entity for tice and opportunity for hearing, that such censure, whom such municipal advisor acts as a municipal advi- suspension, or bar is in the public interest and that sor, and no municipal advisor may engage in any act, such person has committed or omitted any act or omis- § 78o–4a TITLE 15—COMMERCE AND TRADE Page 306 sion enumerated in subparagraph (A), (D), or (E) of of the Dodd-Frank Wall Street Reform and Consumer paragraph (4) of section 78o(b) of this title, has been Protection Act, and not as part of the Securities Ex- convicted of any offense specified in subparagraph (B) change Act of 1934 which comprises this chapter. of such paragraph (4) within ten years of the commencement of the proceedings under this paragraph, or EFFECTIVE DATE is enjoined from any action, conduct, or practice speci- Section effective 1 day after July 21, 2010, except as fied in subparagraph (C) of such paragraph (4).’’ otherwise provided, see section 4 of Pub. L. 111–203, set Subsec. (c)(6)(A). Pub. L. 100–181, § 320, substituted out as a note under section 5301 of Title 12, Banks and ‘‘Board’’ for ‘‘board’’. 1983—Subsec. (b)(1)(A). Pub. L. 98–38, § 4(a), inserted Banking. ‘‘(other than by reason of being under common control DEFINITIONS with, or indirectly controlling, any broker or dealer which is not a municipal securities broker or municipal For definitions of terms used in this section, see sec- securities dealer)’’ after ‘‘securities dealer’’. tion 5301 of Title 12, Banks and Banking. Subsec. (b)(2)(B). Pub. L. 98–38, § 4(b), inserted ‘‘(other than by reason of being under common control with, or § 78o–5. Government securities brokers and deal- indirectly controlling, any broker or dealer which is ers not a municipal securities broker or municipal securities dealer)’’ after ‘‘broker, dealer, or municipal securi- (a) Registration requirements; notice to regu- ties dealer’’. latory agencies; manner of registration; exemption from registration requirements EFFECTIVE DATE OF 2010 AMENDMENT Amendment by sections 925(a)(2) and 929F(a) of Pub. (1)(A) It shall be unlawful for any government L. 111–203 effective 1 day after July 21, 2010, except as securities broker or government securities deal- otherwise provided, see section 4 of Pub. L. 111–203, set er (other than a registered broker or dealer or a out as an Effective Date note under section 5301 of Title financial institution) to make use of the mails 12, Banks and Banking. or any means or instrumentality of interstate Amendment by section 975(a)–(e) of Pub. L. 111–203 ef- commerce to effect any transaction in, or to in- fective Oct. 1, 2010, see section 975(i) of Pub. L. 111–203, set out as a note under section 78o of this title. duce or attempt to induce the purchase or sale of, any government security unless such govern- EFFECTIVE DATE OF 1990 AMENDMENT ment securities broker or government securities Amendment by Pub. L. 101–429 effective Oct. 15, 1990, dealer is registered in accordance with para- with provisions relating to civil penalties and account- graph (2) of this subsection. ing and disgorgement, see section 1(c)(1), (2) of Pub. L. (B)(i) It shall be unlawful for any government 101–429, set out in a note under section 77g of this title. securities broker or government securities deal- EFFECTIVE DATE er that is a registered broker or dealer or a fi- Section effective June 4, 1975, except for subsec. (a) nancial institution to make use of the mails or which is effective 180 days after June 4, 1975, see section any means or instrumentality of interstate com- 31(a) of Pub. L. 94–29, set out as a note under section 78b merce to effect any transaction in, or to induce of this title. or attempt to induce the purchase or sale of, any government security unless such government se- § 78o–4a. Commission Office of Municipal Securi- curities broker or government securities dealer ties has filed with the appropriate regulatory agency (a) In general written notice that it is a government securities There shall be in the Commission an Office of broker or government securities dealer. When Municipal Securities, which shall— such a government securities broker or govern- (1) administer the rules of the Commission ment securities dealer ceases to act as such it with respect to the practices of municipal se- shall file with the appropriate regulatory agen- curities brokers and dealers, municipal securi- cy a written notice that it is no longer acting as ties advisors, municipal securities investors, a government securities broker or government and municipal securities issuers; and securities dealer. (2) coordinate with the Municipal Securities (ii) Such notices shall be in such form and con- Rulemaking Board for rulemaking and en- tain such information concerning a government forcement actions as required by law. securities broker or government securities deal- (b) Director of the Office er that is a financial institution and any persons The head of the Office of Municipal Securities associated with such government securities shall be the Director, who shall report to the broker or government securities dealer as the Chairman. Board of Governors of the Federal Reserve Sys- (c) Staffing tem shall, by rule, after consultation with each appropriate regulatory agency (including the (1) In general Commission), prescribe as necessary or appro- The Office of Municipal Securities shall be priate in the public interest or for the protec- staffed sufficiently to carry out the require- tion of investors. Such notices shall be in such ments of this section. form and contain such information concerning a (2) Requirement government securities broker or government se- The staff of the Office of Municipal Securi- curities dealer that is a registered broker or ties shall include individuals with knowledge dealer and any persons associated with such gov- of and expertise in municipal finance. ernment securities broker or government securities dealer as the Commission shall, by rule, pre- (Pub. L. 111–203, title IX, § 979, July 21, 2010, 124 scribe as necessary or appropriate in the public Stat. 1926.) interest or for the protection of investors. CODIFICATION (iii) Each appropriate regulatory agency Section was enacted as part of the Investor Protec- (other than the Commission) shall make avail- tion and Securities Reform Act of 2010 and also as part able to the Commission the notices which have Page 307 TITLE 15—COMMERCE AND TRADE § 78o–5 been filed with it under this subparagraph, and ister under paragraph (1)(A) and that is not a the Commission shall maintain and make avail- member of the Securities Investor Protection able to the public such notices and the notices it Corporation shall effect any transaction in any receives under this subparagraph. security in contravention of such rules as the (2) A government securities broker or a gov- Commission shall prescribe pursuant to this ernment securities dealer subject to the reg- subsection to assure that its customers receive istration requirement of paragraph (1)(A) of this complete, accurate, and timely disclosure of the subsection may be registered by filing with the inapplicability of Securities Investor Protection Commission an application for registration in Corporation coverage to their accounts. such form and containing such information and (5) The Secretary of the Treasury (hereinafter documents concerning such government securi- in this section referred to as the ‘‘Secretary’’), ties broker or government securities dealer and by rule or order, upon the Secretary’s own mo- any persons associated with such government tion or upon application, may conditionally or securities broker or government securities deal- unconditionally exempt any government securi- er as the Commission, by rule, may prescribe as ties broker or government securities dealer, or necessary or appropriate in the public interest class of government securities brokers or gov- or for the protection of investors. Within 45 days ernment securities dealers, from any provision of the date of filing of such application (or with- of subsection (a), (b), or (d) of this section, other in such longer period as to which the applicant than subsection (d)(3) of this section, or the consents), the Commission shall— rules thereunder, if the Secretary finds that (A) by order grant registration, or (B) institute proceedings to determine such exemption is consistent with the public in- whether registration should be denied. Such terest, the protection of investors, and the pur- proceedings shall include notice of the grounds poses of this chapter. for denial under consideration and oppor- (b) Rules with respect to transactions in govern- tunity for hearing and shall be concluded ment securities within 120 days of the date of the filing of the (1) The Secretary shall propose and adopt application for registration. At the conclusion rules to effect the purposes of this chapter with of such proceedings, the Commission, by order, respect to transactions in government securities shall grant or deny such registration. The effected by government securities brokers and Commission may extend the time for the con- government securities dealers as follows: clusion of such proceedings for up to 90 days if (A) Such rules shall provide safeguards with it finds good cause for such extension and pub- respect to the financial responsibility and re- lishes its reasons for so finding or for such lated practices of government securities bro- longer period as to which the applicant con- kers and government securities dealers includ- sents. ing, but not limited to, capital adequacy The Commission shall grant the registration of standards, the acceptance of custody and use a government securities broker or a government of customers’ securities, the carrying and use securities dealer if the Commission finds that of customers’ deposits or credit balances, and the requirements of this section are satisfied. the transfer and control of government securi- The order granting registration shall not be ef- ties subject to repurchase agreements and in fective until such government securities broker similar transactions. or government securities dealer has become a (B) Such rules shall require every govern- member of a national securities exchange reg- ment securities broker and government securi- istered under section 78f of this title, or a secu- ties dealer to make reports to and furnish cop- rities association registered under section 78o–3 ies of records to the appropriate regulatory of this title, unless the Commission has exempt- agency, and to file with the appropriate regu- ed such government securities broker or govern- latory agency, annually or more frequently, a ment securities dealer, by rule or order, from balance sheet and income statement certified such membership. The Commission shall deny by an independent public accountant, prepared such registration if it does not make such a on a calendar or fiscal year basis, and such finding or if it finds that if the applicant were so other financial statements (which shall, as the registered, its registration would be subject to Secretary specifies, be certified) and informa- suspension or revocation under subsection (c) of tion concerning its financial condition as re- this section. quired by such rules. (3) Any provision of this chapter (other than (C) Such rules shall require records to be section 78e of this title or paragraph (1) of this made and kept by government securities bro- subsection) which prohibits any act, practice, or kers and government securities dealers and course of business if the mails or any means or shall specify the periods for which such instrumentality of interstate commerce is used records shall be preserved. in connection therewith shall also prohibit any such act, practice, or course of business by any (2) RISK ASSESSMENT FOR HOLDING COMPANY government securities broker or government se- SYSTEMS.— curities dealer registered or having filed notice (A) OBLIGATIONS TO OBTAIN, MAINTAIN, AND under paragraph (1) of this subsection or any REPORT INFORMATION.—Every person who is person acting on behalf of such government se- registered as a government securities broker curities broker or government securities dealer, or government securities dealer under this irrespective of any use of the mails or any section shall obtain such information and means or instrumentality of interstate com- make and keep such records as the Secretary merce in connection therewith. by rule prescribes concerning the registered (4) No government securities broker or govern- person’s policies, procedures, or systems for ment securities dealer that is required to reg- monitoring and controlling financial and oper- § 78o–5 TITLE 15—COMMERCE AND TRADE Page 308

ational risks to it resulting from the activities ing an associated person that is subject to of any of its associated persons, other than a examination by or reporting requirements of natural person. Such records shall describe, in a Federal banking agency if such govern- the aggregate, each of the financial and secu- ment securities broker or government securities activities conducted by, and customary rities dealer utilizes for such recordkeeping sources of capital and funding of, those of its or reporting requirement copies of reports associated persons whose business activities filed by the associated person with the Fed- are reasonably likely to have a material im- eral banking agency pursuant to section 161 pact on the financial or operational condition of title 12, subchapter VIII of chapter 3 of of such registered person, including its cap- title 12, section 1817(a) of title 12, section ital, its liquidity, or its ability to conduct or 1467a(b) of title 12, or section 1847 of title 12. finance its operations. The Secretary, by rule, The Secretary may, however, by rule adopt- may require summary reports of such informa- ed pursuant to subparagraph (A), require any tion to be filed with the registered person’s ap- registered government securities broker or propriate regulatory agency no more fre- government securities dealer filing such re- quently than quarterly. ports with the appropriate regulatory agen- (B) AUTHORITY TO REQUIRE ADDITIONAL INFOR- cy to obtain, maintain, or report supple- MATION.—If, as a result of adverse market con- mental information if the Secretary makes ditions or based on reports provided pursuant an explicit finding, based on information to subparagraph (A) of this paragraph or other provided by the appropriate regulatory agen- available information, the appropriate regu- cy, that such supplemental information is latory agency reasonably concludes that it has necessary to inform the appropriate regu- concerns regarding the financial or oper- latory agency regarding potential risks to ational condition of any government securi- such government securities broker or gov- ties broker or government securities dealer ernment securities dealer. Prior to requiring registered under this section, such agency any such supplemental information, the Sec- may require the registered person to make re- retary shall first request the Federal bank- ports concerning the financial and securities ing agency to expand its reporting require- activities of any of such person’s associated ments to include such information. persons, other than a natural person, whose (iii) PROCEDURE FOR REQUIRING ADDITIONAL business activities are reasonably likely to INFORMATION.—Prior to making a request have a material impact on the financial or pursuant to subparagraph (B) of this para- operational condition of such registered per- graph for information with respect to an as- son. The appropriate regulatory agency, in re- sociated person that is subject to examina- quiring reports pursuant to this subparagraph, tion by or reporting requirements of a Fed- shall specify the information required, the pe- eral banking agency, the appropriate regu- riod for which it is required, the time and date latory agency shall— on which the information must be furnished, (I) notify such banking agency of the in- and whether the information is to be furnished formation required with respect to such directly to the appropriate regulatory agency associated person; and (II) consult with such agency to deter- or to a self-regulatory organization with pri- mine whether the information required is mary responsibility for examining the reg- available from such agency and for other istered person’s financial and operational con- purposes, unless the appropriate regu- dition. latory agency determines that any delay (C) SPECIAL PROVISIONS WITH RESPECT TO AS- resulting from such consultation would be SOCIATED PERSONS SUBJECT TO FEDERAL BANK- inconsistent with ensuring the financial ING AGENCY REGULATION.— (i) COOPERATION IN IMPLEMENTATION.—In and operational condition of the govern- developing and implementing reporting re- ment securities broker or government se- quirements pursuant to subparagraph (A) of curities dealer or the stability or integrity this paragraph with respect to associated of the securities markets. persons subject to examination by or report- (iv) EXCLUSION FOR EXAMINATION RE- ing requirements of a Federal banking agen- PORTS.—Nothing in this subparagraph shall cy, the Secretary shall consult with and con- be construed to permit the Secretary or an sider the views of each such Federal banking appropriate regulatory agency to require agency. If a Federal banking agency com- any registered government securities broker ments in writing on a proposed rule of the or government securities dealer to obtain, Secretary under this paragraph that has maintain, or furnish any examination report been published for comment, the Secretary of any Federal banking agency or any super- shall respond in writing to such written visory recommendations or analysis con- comment before adopting the proposed rule. tained therein. The Secretary shall, at the request of a Fed- (v) CONFIDENTIALITY OF INFORMATION PRO- eral banking agency, publish such comment VIDED.—No information provided to or ob- and response in the Federal Register at the tained by an appropriate regulatory agency time of publishing the adopted rule. from any Federal banking agency pursuant (ii) USE OF BANKING AGENCY REPORTS.—A to a request under clause (iii) of this sub- registered government securities broker or paragraph regarding any associated person government securities dealer shall be in which is subject to examination by or re- compliance with any recordkeeping or reporting requirements of a Federal banking porting requirement adopted pursuant to agency may be disclosed to any other person subparagraph (A) of this paragraph concern- (other than a self-regulatory organization), Page 309 TITLE 15—COMMERCE AND TRADE § 78o–5

without the prior written approval of the relating to such associated persons shall con- Federal banking agency. Nothing in this form, to the greatest extent practicable, to clause shall authorize the Secretary or any the requirements under section 78q(h) of this appropriate regulatory agency to withhold title. information from Congress, or prevent the (F) AUTHORITY TO LIMIT DISCLOSURE OF INFOR- Secretary or any appropriate regulatory MATION.—Notwithstanding any other provision agency from complying with a request for of law, the Secretary and any appropriate reg- information from any other Federal depart- ulatory agency shall not be compelled to dis- ment or agency requesting the information close any information required to be reported for purposes within the scope of its jurisdic- under this paragraph, or any information sup- tion, or complying with an order of a court plied to the Secretary or any appropriate reg- of the United States in an action brought by ulatory agency by any domestic or foreign the United States or the Commission. regulatory agency that relates to the financial (vi) NOTICE TO BANKING AGENCIES CONCERN- or operational condition of any associated per- ING FINANCIAL AND OPERATIONAL CONDITION son of a registered government securities CONCERNS.—The Secretary or appropriate broker or a government securities dealer. regulatory agency shall notify the Federal Nothing in this paragraph shall authorize the banking agency of any concerns of the Sec- Secretary or any appropriate regulatory agen- retary or the appropriate regulatory agency cy to withhold information from Congress, or regarding significant financial or oper- prevent the Secretary or any appropriate reg- ational risks resulting from the activities of ulatory agency from complying with a request any government securities broker or govern- for information from any other Federal de- ment securities dealer to any associated per- partment or agency requesting the informa- son thereof which is subject to examination tion for purposes within the scope of its juris- by or reporting requirements of the Federal diction, or complying with an order of a court banking agency. of the United States in an action brought by (vii) DEFINITION.—For purposes of this sub- the United States or the Commission. For pur- paragraph, the term ‘‘Federal banking agen- poses of section 552 of title 5, this paragraph cy’’ shall have the same meaning as the shall be considered a statute described in sub- term ‘‘appropriate Federal banking agency’’ section (b)(3)(B) of such section 552. in section 1813(q) of title 12. (3)(A) With respect to any financial institution (D) EXEMPTIONS.—The Secretary by rule or that has filed notice as a government securities order may exempt any person or class of per- broker or government securities dealer or that sons, under such terms and conditions and for is required to file notice under subsection such periods as the Secretary shall provide in (a)(1)(B) of this section, the appropriate regu- such rule or order, from the provisions of this latory agency for such government securities paragraph, and the rules thereunder. In grant- broker or government securities dealer may ing such exemptions, the Secretary shall con- issue such rules and regulations with respect to sider, among other factors— transactions in government securities as may be (i) whether information of the type re- necessary to prevent fraudulent and manipula- quired under this paragraph is available tive acts and practices and to promote just and from a supervisory agency (as defined in sec- equitable principles of trade. If the Secretary of tion 3401(6) 1 of title 12), a State insurance the Treasury determines, and notifies the appro- commission or similar State agency, the priate regulatory agency, that such rule or regu- Commodity Futures Trading Commission, or lation, if implemented, would, or as applied does a similar foreign regulator; (i) adversely affect the liquidity or efficiency of (ii) the primary business of any associated the market for government securities; or (ii) im- person; pose any burden on competition not necessary (iii) the nature and extent of domestic or or appropriate in furtherance of the purposes of foreign regulation of the associated person’s this section, the appropriate regulatory agency activities; shall, prior to adopting the proposed rule or reg- (iv) the nature and extent of the registered ulation, find that such rule or regulation is nec- person’s securities transactions; and essary and appropriate in furtherance of the (v) with respect to the registered person purposes of this section notwithstanding the and its associated persons, on a consolidated Secretary’s determination. basis, the amount and proportion of assets (B) The appropriate regulatory agency shall devoted to, and revenues derived from, ac- consult with and consider the views of the Sec- tivities in the United States securities mar- retary prior to approving or amending a rule or kets. regulation under this paragraph, except where the appropriate regulatory agency determines (E) CONFORMITY WITH REQUIREMENTS UNDER that an emergency exists requiring expeditious SECTION 78q(h).—In exercising authority pursu- and summary action and publishes its reasons ant to subparagraph (A) of this paragraph con- therefor. If the Secretary comments in writing cerning information with respect to associated to the appropriate regulatory agency on a pro- persons of government securities brokers and posed rule or regulation that has been published government securities dealers who are also as- for comment, the appropriate regulatory agency sociated persons of registered brokers or deal- shall respond in writing to such written com- ers reporting to the Commission pursuant to ment before approving the proposed rule or reg- section 78q(h) of this title, the requirements ulation. (C) In promulgating rules under this section, 1 See References in Text note below. the appropriate regulatory agency shall consider § 78o–5 TITLE 15—COMMERCE AND TRADE Page 310 the sufficiency and appropriateness of then ex- istered or required to register under subsection isting laws and rules applicable to government (a)(1)(A) of this section— securities brokers, government securities deal- (A) The Commission, by order, shall censure, ers, and persons associated with government se- place limitations on the activities, functions, curities brokers and government securities deal- or operations of, suspend for a period not ex- ers. ceeding 12 months, or revoke the registration (4) Rules promulgated and orders issued under of such government securities broker or gov- this section shall— ernment securities dealer, if it finds, on the (A) be designed to prevent fraudulent and record after notice and opportunity for hear- manipulative acts and practices and to protect ing, that such censure, placing of limitations, the integrity, liquidity, and efficiency of the suspension, or revocation is in the public in- market for government securities, investors, terest and that such government securities and the public interest; and broker or government securities dealer, or any (B) not be designed to permit unfair dis- person associated with such government secu- crimination between customers, issuers, gov- rities broker or government securities dealer ernment securities brokers, or government se- (whether prior or subsequent to becoming so curities dealers, or to impose any burden on associated), has committed or omitted any competition not necessary or appropriate in act, or is subject to an order or finding, enu- furtherance of the purposes of this chapter. merated in subparagraph (A), (D), (E), (H), or (5) In promulgating rules and issuing orders (G) of paragraph (4) of section 78o(b) of this under this section, the Secretary— title, has been convicted of any offense speci- (A) may appropriately classify government fied in subparagraph (B) of such paragraph (4) securities brokers and government securities within 10 years of the commencement of the dealers (taking into account relevant matters, proceedings under this paragraph, or is en- including types of business done, nature of se- joined from any action, conduct, or practice curities other than government securities pur- specified in subparagraph (C) of such para- chased or sold, and character of business orga- graph (4). nization) and persons associated with govern- (B) Pending final determination whether ment securities brokers and government secu- registration of any government securities rities dealers; broker or government securities dealer shall (B) may determine, to the extent consistent be revoked, the Commission, by order, may with paragraph (2) of this subsection and with suspend such registration, if such suspension the public interest, the protection of inves- appears to the Commission, after notice and tors, and the purposes of this chapter, not to opportunity for hearing, to be necessary or ap- apply, in whole or in part, certain rules under propriate in the public interest or for the pro- this section, or to apply greater, lesser, or dif- tection of investors. Any registered govern- ferent standards, to certain classes of government securities broker or registered government securities brokers, government securi- ment securities dealer may, upon such terms ties dealers, or persons associated with gov- and conditions as the Commission may deem ernment securities brokers or government se- necessary in the public interest or for the pro- curities dealers; tection of investors, withdraw from registra- (C) shall consider the sufficiency and appro- tion by filing a written notice of withdrawal priateness of then existing laws and rules ap- with the Commission. If the Commission finds plicable to government securities brokers, that any registered government securities government securities dealers, and persons as- broker or registered government securities sociated with government securities brokers dealer is no longer in existence or has ceased and government securities dealers; and to do business as a government securities (D) shall consult with and consider the views broker or government securities dealer, the of the Commission and the Board of Governors Commission, by order, shall cancel the reg- of the Federal Reserve System, except where istration of such government securities broker the Secretary determines that an emergency or government securities dealer. exists requiring expeditious or summary ac- (C) The Commission, by order, shall censure tion and publishes its reasons for such deter- or place limitations on the activities or func- mination. tions of any person who is, or at the time of the alleged misconduct was, associated or (6) If the Commission or the Board of Gov- seeking to become associated with a govern- ernors of the Federal Reserve System comments ment securities broker or government securi- in writing on a proposed rule of the Secretary ties dealer registered or required to register that has been published for comment, the Sec- under subsection (a)(1)(A) of this section or retary shall respond in writing to such written suspend for a period not exceeding 12 months comment before approving the proposed rule. or bar any such person from being associated (7) No government securities broker or govern- with such a government securities broker or ment securities dealer shall make use of the government securities dealer, if the Commis- mails or any means or instrumentality of inter- sion finds, on the record after notice and op- state commerce to effect any transaction in, or portunity for hearing, that such censure, plac- to induce or attempt to induce the purchase or ing of limitations, suspension, or bar is in the sale of, any government security in contraven- public interest and that such person has com- tion of any rule under this section. mitted or omitted any act, or is subject to an (c) Sanctions for violations order or finding, enumerated in subparagraph (1) With respect to any government securities (A), (D), (E), (H), or (G) of paragraph (4) of sec- broker or government securities dealer reg- tion 78o(b) of this title, has been convicted of Page 311 TITLE 15—COMMERCE AND TRADE § 78o–5

any offense specified in subparagraph (B) of (3) It shall be unlawful for any person as to such paragraph (4) within 10 years of the com- whom an order entered pursuant to paragraph mencement of the proceedings under this para- (1) or (2) of this subsection suspending or barring graph, or is enjoined from any action, conduct, him from being associated with a government or practice specified in subparagraph (C) of securities broker or government securities deal- such paragraph (4). er is in effect willfully to become, or to be, asso- (2)(A) With respect to any government securi- ciated with a government securities broker or ties broker or government securities dealer government securities dealer without the con- which is not registered or required to register sent of the appropriate regulatory agency, and under subsection (a)(1)(A) of this section, the ap- it shall be unlawful for any government securi- propriate regulatory agency for such govern- ties broker or government securities dealer to ment securities broker or government securities permit such a person to become, or remain, a dealer may, in the manner and for the reasons person associated with it without the consent of specified in paragraph (1)(A) of this subsection, the appropriate regulatory agency, if such gov- censure, place limitations on the activities, ernment securities broker or government securi- functions, or operations of, suspend for a period ties dealer knew, or, in the exercise of reason- not exceeding 12 months, or bar from acting as able care should have known, of such order. a government securities broker or government (d) Records of brokers and dealers subject to ex- securities dealer any such government securities amination broker or government securities dealer, and may (1) All records of a government securities sanction any person associated, seeking to be- broker or government securities dealer are sub- come associated, or, at the time of the alleged ject at any time, or from time to time, to such misconduct, associated or seeking to become as- reasonable periodic, special, or other examina- sociated with such government securities broker tions by representatives of the appropriate regu- or government securities dealer in the manner latory agency for such government securities and for the reasons specified in paragraph (1)(C) broker or government securities dealer as such of this subsection. appropriate regulatory agency deems necessary (B) In addition, where applicable, such appro- or appropriate in the public interest, for the propriate regulatory agency may, in accordance tection of investors, or otherwise in furtherance with section 1818 of title 12, section 1464 of title of the purposes of this chapter. 12, or section 1730 2 of title 12, enforce compli- (2) Information received by an appropriate reg- ance by such government securities broker or ulatory agency, the Secretary, or the Commis- government securities dealer or any person asso- sion from or with respect to any government se- ciated, seeking to become associated, or, at the curities broker, government securities dealer, time of the alleged misconduct, associated or any person associated with a government securi- seeking to become associated with such govern- ties broker or government securities dealer, or ment securities broker or government securities any other person subject to this section or rules dealer with the provisions of this section and promulgated thereunder, may be made available the rules thereunder. by the Secretary or the recipient agency to the (C) For purposes of subparagraph (B) of this Commission, the Secretary, the Department of paragraph, any violation of any such provision Justice, the Commodity Futures Trading Com- shall constitute adequate basis for the issuance mission, any appropriate regulatory agency, any of any order under section 1818(b) or (c) of title self-regulatory organization, or any Federal Re- 12, section 1464(d)(2) or (d)(3) 2 of title 12, or sec- serve Bank. tion 1730(e) or (f) 2 of title 12, and the customers (3) GOVERNMENT SECURITIES TRADE RECON- of any such government securities broker or STRUCTION.— government securities dealer shall be deemed, (A) FURNISHING RECORDS.—Every government respectively, ‘‘depositors’’ as that term is used securities broker and government securities in section 1818(c) of title 12, ‘‘savings account dealer shall furnish to the Commission on re- holders’’ as that term is used in section quest such records of government securities 1464(d)(3) 2 of title 12, or ‘‘insured members’’ as transactions, including records of the date and that term is used in section 1730(f) 2 of title 12. time of execution of trades, as the Commission (D) Nothing in this paragraph shall be con- may require to reconstruct trading in the strued to affect in any way the powers of such course of a particular inquiry or investigation appropriate regulatory agency to proceed being conducted by the Commission for en- against such government securities broker or forcement or surveillance purposes. In requir- government securities dealer under any other ing information pursuant to this paragraph, provision of law. the Commission shall specify the information (E) Each appropriate regulatory agency (other required, the period for which it is required, than the Commission) shall promptly notify the the time and date on which the information Commission after it has imposed any sanction must be furnished, and whether the informa- under this paragraph on a government securities tion is to be furnished directly to the Commis- broker or government securities dealer, or a per- sion, to the Federal Reserve Bank of New son associated with a government securities York, or to an appropriate regulatory agency broker or government securities dealer, and the or self-regulatory organization with respon- Commission shall maintain, and make available sibility for examining the government securi- to the public, a record of such sanctions and any ties broker or government securities dealer. sanctions imposed by it under this subsection. The Commission may require that such information be furnished in machine readable form 2 See References in Text note below. notwithstanding any limitation in subpara- § 78o–5 TITLE 15—COMMERCE AND TRADE Page 312

graph (B). In utilizing its authority to require from any other Federal department or agency information in machine readable form, the requesting information for purposes within Commission shall minimize the burden such the scope of its jurisdiction, or from comply- requirement may place on small government ing with an order of a court of the United securities brokers and dealers. States in an action brought by the United (B) LIMITATION; CONSTRUCTION.—The Com- States, the Commission, or the appropriate mission shall not utilize its authority under regulatory agency. For purposes of section 552 this paragraph to develop regular reporting re- of title 5, this subparagraph shall be consid- quirements, except that the Commission may ered a statute described in subsection (b)(3)(B) require information to be furnished under this of such section 552. paragraph as frequently as necessary for par- (e) Membership in national securities exchange; ticular inquiries or investigations for enforce- exemptions ment or surveillance purposes. This paragraph shall not be construed as requiring, or as au- (1) It shall be unlawful for any government se- thorizing the Commission to require, any gov- curities broker or government securities dealer ernment securities broker or government se- registered or required to register with the Com- curities dealer to obtain or maintain any in- mission under subsection (a)(1)(A) of this section formation for purposes of this paragraph to effect any transaction in, or induce or at- which is not otherwise maintained by such tempt to induce the purchase or sale of, any broker or dealer in accordance with any other government security, unless such government provision of law or usual and customary busi- securities broker or government securities deal- ness practice. The Commission shall, where er is a member of a national securities exchange feasible, avoid requiring any information to be registered under section 78f of this title or a se- furnished under this paragraph that the Com- curities association registered under section mission may obtain from the Federal Reserve 78o–3 of this title. Bank of New York. (2) The Commission, after consultation with (C) PROCEDURES FOR REQUIRING INFORMA- the Secretary, by rule or order, as it deems con- TION.—At the time the Commission requests sistent with the public interest and the protec- any information pursuant to subparagraph (A) tion of investors, may conditionally or uncondi- with respect to any government securities tionally exempt from paragraph (1) of this sub- broker or government securities dealer for section any government securities broker or which the Commission is not the appropriate government securities dealer or class of govern- regulatory agency, the Commission shall no- ment securities brokers or government securi- tify the appropriate regulatory agency for ties dealers specified in such rule or order. such government securities broker or govern- (f) Large position reporting ment securities dealer and, upon request, fur- (1) Reporting requirements nish to the appropriate regulatory agency any information supplied to the Commission. The Secretary may adopt rules to require (D) CONSULTATION.—Within 90 days after De- specified persons holding, maintaining, or con- cember 17, 1993, and annually thereafter, or trolling large positions in to-be-issued or re- upon the request of any other appropriate reg- cently issued Treasury securities to file such ulatory agency, the Commission shall consult reports regarding such positions as the Sec- with the other appropriate regulatory agen- retary determines to be necessary and appro- cies to determine the availability of records priate for the purpose of monitoring the im- that may be required to be furnished under pact in the Treasury securities market of con- this paragraph and, for those records available centrations of positions in Treasury securities directly from the other appropriate regulatory and for the purpose of otherwise assisting the agencies, to develop a procedure for furnishing Commission in the enforcement of this chap- such records expeditiously upon the Commis- ter, taking into account any impact of such sion’s request. rules on the efficiency and liquidity of the (E) EXCLUSION FOR EXAMINATION REPORTS.— Treasury securities market and the cost to Nothing in this paragraph shall be construed taxpayers of funding the Federal debt. Unless so as to permit the Commission to require any otherwise specified by the Secretary, reports government securities broker or government required under this subsection shall be filed securities dealer to obtain, maintain, or fur- with the Federal Reserve Bank of New York, nish any examination report of any appro- acting as agent for the Secretary. Such re- priate regulatory agency other than the Com- ports shall, on a timely basis, be provided di- mission or any supervisory recommendations rectly to the Commission by the person with or analysis contained in any such examination whom they are filed. report. (2) Recordkeeping requirements (F) AUTHORITY TO LIMIT DISCLOSURE OF INFOR- Rules under this subsection may require per- MATION.—Notwithstanding any other provision sons holding, maintaining, or controlling large of law, the Commission and the appropriate positions in Treasury securities to make and regulatory agencies shall not be compelled to keep for prescribed periods such records as the disclose any information required or obtained Secretary determines are necessary or appro- under this paragraph. Nothing in this para- priate to ensure that such persons can comply graph shall authorize the Commission or any with reporting requirements under this sub- appropriate regulatory agency to withhold in- section. formation from Congress, or prevent the Com- mission or any appropriate regulatory agency (3) Aggregation rules from complying with a request for information Rules under this subsection— Page 313 TITLE 15—COMMERCE AND TRADE § 78o–5

(A) may prescribe the manner in which po- (2) Notwithstanding any other provision of sitions and accounts shall be aggregated for this chapter, the Commission shall not have any the purpose of this subsection, including ag- authority to make investigations of, require the gregation on the basis of common ownership filing of a statement by, or take any other ac- or control; and tion under this chapter against a government (B) may define which persons (individually securities broker or government securities deal- or as a group) hold, maintain, or control er, or any person associated with a government large positions. securities broker or government securities deal- (4) Definitional authority; determination of re- er, for any violation or threatened violation of porting threshold the provisions of this section, other than sub- 3 (A) In prescribing rules under this subsection (d)(3) of this section or the rules or reg- section, the Secretary may, consistent with ulations thereunder, unless the Commission is the purpose of this subsection, define terms the appropriate regulatory agency for such gov- used in this subsection that are not otherwise ernment securities broker or government securi- defined in section 78c of this title. ties dealer. Nothing in the preceding sentence (B) Rules under this subsection shall speci- shall be construed to limit the authority of the fy— Commission with respect to violations or (i) the minimum size of positions subject threatened violations of any provision of this to reporting under this subsection, which chapter other than this section (except sub- shall be no less than the size that provides section (d)(3) of this section), the rules or regu- the potential for manipulation or control of lations under any such other provision, or inves- the supply or price, or the cost of financing tigations pursuant to section 78u(a)(2) of this arrangements, of an issue or the portion title to assist a foreign securities authority. thereof that is available for trading; (h) Emergency authority (ii) the types of positions (which may in- The Secretary may, by order, take any action clude financing arrangements) to be re- with respect to a matter or action subject to ported; regulation by the Secretary under this section, (iii) the securities to be covered; and or the rules of the Secretary under this section, (iv) the form and manner in which reports involving a government security or a market shall be transmitted, which may include therein (or significant portion or segment of transmission in machine readable form. that market), that the Commission may take (5) Exemptions under section 78l(k)(2) of this title with respect Consistent with the public interest and the to transactions in securities (other than ex- protection of investors, the Secretary by rule empted securities) or a market therein (or sig- or order may exempt in whole or in part, con- nificant portion or segment of that market). ditionally or unconditionally, any person or (June 6, 1934, ch. 404, title I, § 15C, as added Pub. class of persons, or any transaction or class of L. 99–571, title I, § 101, Oct. 28, 1986, 100 Stat. 3208; transactions, from the requirements of this amended Pub. L. 100–181, title VIII, § 801(a), Dec. subsection. 4, 1987, 101 Stat. 1265; Pub. L. 101–73, title VII, (6) Limitation on disclosure of information § 744(u)(3), Aug. 9, 1989, 103 Stat. 441; Pub. L. Notwithstanding any other provision of law, 101–432, § 4(b), Oct. 16, 1990, 104 Stat. 970; Pub. L. the Secretary and the Commission shall not be 101–550, title II, § 203(c), Nov. 15, 1990, 104 Stat. compelled to disclose any information re- 2718; Pub. L. 103–202, title I, §§ 102–104, 106(a), 108, quired to be kept or reported under this sub- 109(b)(1), (c), Dec. 17, 1993, 107 Stat. 2345, 2346, section. Nothing in this subsection shall au- 2349, 2351–2353; Pub. L. 105–353, title III, thorize the Secretary or the Commission to § 301(b)(10), Nov. 3, 1998, 112 Stat. 3236; Pub. L. withhold information from Congress, or pre- 107–204, title VI, § 604(c)(1)(B), July 30, 2002, 116 vent the Secretary or the Commission from Stat. 796; Pub. L. 108–458, title VII, § 7803(d), Dec. complying with a request for information from 17, 2004, 118 Stat. 3863; Pub. L. 111–203, title III, any other Federal department or agency re- § 376(3), title IX, §§ 929F(b), 985(b)(6), July 21, 2010, questing information for purposes within the 124 Stat. 1569, 1854, 1934.) scope of its jurisdiction, or from complying REFERENCES IN TEXT with an order of a court of the United States This chapter, referred to in subsecs. (a)(3), (5), (b)(1), in an action brought by the United States, the (2)(B), (4)(B), (d)(1), (f)(1), and (g)(2), was in the original Secretary, or the Commission. For purposes of ‘‘this title’’. See References in Text note set out under section 552 of title 5, this paragraph shall be section 78a of this title. considered a statute described in subsection Subchapter VIII of chapter 3 of title 12, referred to in (b)(3)(B) of such section 552. subsec. (b)(2)(C)(ii), was in the original ‘‘section 9 of the Federal Reserve Act’’, meaning section 9 of act Dec. 23, (g) Effect on other laws; authority of Commission 1913, ch. 6, 38 Stat. 251, as amended, which is classified (1) Nothing in this section except paragraph generally to subchapter VIII (§ 321 et seq.) of chapter 3 (2) of this subsection shall be construed to im- of Title 12, Banks and Banking. pair or limit the authority under any other pro- Section 3401(6) of title 12, referred to in subsec. (b)(2)(D)(i), was redesignated section 3401(7) of title 12 vision of law of the Commission, the Secretary by Pub. L. 101–73, title IX, § 941(1), Aug. 9, 1989, 103 Stat. of the Treasury, the Board of Governors of the 496. Federal Reserve System, the Comptroller of the Section 1730 of title 12, referred to in subsec. (c)(2)(B), Currency, the Federal Deposit Insurance Cor- (C), was repealed by Pub. L. 101–73, title IV, § 407, Aug. poration, the Secretary of Housing and Urban 9, 1989, 103 Stat. 363. Development, and the Government National Mortgage Association. 3 So in original. Probably should be followed by a comma. § 78o–5 TITLE 15—COMMERCE AND TRADE Page 314

Section 1464(d)(2) and (d)(3) of title 12, referred to in Subsec. (d)(3). Pub. L. 103–202, § 103(a), added par. (3). subsec. (c)(2)(C), was amended generally by Pub. L. Subsec. (f). Pub. L. 103–202, § 104(2), added subsec. (f). 101–73, title III, § 301, Aug. 9, 1989, 103 Stat. 282, and, as Former subsec. (f) redesignated (g). so amended, no longer relates to issuance of orders nor Subsec. (f)(2). Pub. L. 103–202, § 103(b)(2), inserted contains the term ‘‘savings account holders’’. ‘‘, other than subsection (d)(3) of this section’’ after ‘‘threatened violation of the provisions of this section’’ AMENDMENTS and ‘‘(except subsection (d)(3) of this section)’’ after 2010—Subsec. (a)(2). Pub. L. 111–203, § 985(b)(6)(C), in- ‘‘other than this section’’. serted after first sentence in concluding provisions: Subsec. (g). Pub. L. 103–202, § 104(1), redesignated sub- ‘‘The order granting registration shall not be effective sec. (f) as (g). until such government securities broker or government Pub. L. 103–202, § 102, struck out subsec. (g) which read securities dealer has become a member of a national se- as follows: curities exchange registered under section 78f of this ‘‘(1) The authority of the Secretary to issue orders title, or a securities association registered under sec- and to propose and adopt rules under this section shall tion 78o–3 of this title, unless the Commission has ex- terminate on October 1, 1991. empted such government securities broker or govern- ‘‘(2) All orders and rules— ment securities dealer, by rule or order, from such ‘‘(A) which have been issued or adopted by the Sec- membership.’’ retary, and Pub. L. 111–203, § 985(b)(6)(A), (B), redesignated cls. (i) ‘‘(B) which are in effect on the date specified in and (ii) as subpars. (A) and (B), respectively, realigned paragraph (1), margins, and, in subpar. (B), struck out ‘‘The order shall continue in effect according to their terms.’’ granting registration shall not be effective until such 1990—Subsec. (b)(2) to (6). Pub. L. 101–432 added par. government securities broker or government securities (2) and redesignated former pars. (2) to (5) as (3) to (6), dealer has become a member of a national securities respectively. exchange registered under section 78f of this title, or a Subsec. (c)(1)(A), (C). Pub. L. 101–550, § 203(c)(1), sub- securities association registered under section 78o–3 of stituted ‘‘(A), (D), (E), or (G)’’ for ‘‘(A), (D), or (E)’’. this title, unless the Commission has exempted such Subsec. (f)(2). Pub. L. 101–550, § 203(c)(2), substituted government securities broker or government securities ‘‘the rules or regulations under any such other provi- dealer, by rule or order, from such membership.’’ after sion, or investigations pursuant to section 78u(a)(2) of ‘‘grant or deny such registration.’’ this title to assist a foreign securities authority’’ for Subsec. (c)(1)(C). Pub. L. 111–203, § 929F(b)(1), sub- ‘‘or the rules or regulations under any such other provi- stituted ‘‘any person who is, or at the time of the al- sion’’. leged misconduct was, associated or seeking to become 1989—Subsec. (f)(1). Pub. L. 101–73 substituted ‘‘Direc- associated’’ for ‘‘any person associated, or seeking to tor of the Office of Thrift Supervision’’ for ‘‘Federal become associated,’’. Home Loan Bank Board’’. Subsec. (c)(2)(A), (B). Pub. L. 111–203, § 929F(b)(2)(A), 1987—Subsec. (a)(1)(B)(i). Pub. L. 100–181 substituted (B), inserted ‘‘, seeking to become associated, or, at the ‘‘When such’’ for ‘‘When’’. time of the alleged misconduct, associated or seeking to become associated’’ after ‘‘any person associated’’. EFFECTIVE DATE OF 2010 AMENDMENT Subsec. (g)(1). Pub. L. 111–203, § 376(3), struck out ‘‘the Amendment by sections 929F(b) and 985(b)(6) of Pub. Director of the Office of Thrift Supervision, the Federal L. 111–203 effective 1 day after July 21, 2010, except as Savings and Loan Insurance Corporation,’’ after ‘‘the otherwise provided, see section 4 of Pub. L. 111–203, set Federal Deposit Insurance Corporation,’’. out as an Effective Date note under section 5301 of Title 2004—Subsec. (h). Pub. L. 108–458 added subsec. (h). 12, Banks and Banking. 2002—Subsec. (c)(1)(A), (C). Pub. L. 107–204 substituted Amendment by section 376(3) of Pub. L. 111–203 effec- ‘‘, or is subject to an order or finding,’’ for ‘‘or omis- tive on the transfer date, see section 351 of Pub. L. sion’’ and ‘‘(H), or (G)’’ for ‘‘or (G)’’. 1998—Subsec. (f)(5). Pub. L. 105–353 substituted ‘‘class 111–203, set out as a note under section 906 of Title 2, of persons’’ for ‘‘class or persons’’. The Congress. 1993—Subsec. (a)(2)(ii). Pub. L. 103–202, § 109(b)(1), in- EFFECTIVE DATE serted ‘‘The order granting registration shall not be effective until such government securities broker or gov- Pub. L. 99–571, title IV, §§ 401–403, Oct. 28, 1986, 100 ernment securities dealer has become a member of a Stat. 3224, 3225, provided that: national securities exchange registered under section ‘‘SEC. 401. GENERAL EFFECTIVE DATES. 78f of this title, or a securities association registered ‘‘Except as provided in section 402, this Act [enacting under section 78o–3 of this title, unless the Commission section 78o–5 of this title and section 9110 of Title 31, has exempted such government securities broker or Money and Finance, amending sections 78c, 78o, 78o–3, government securities dealer, by rule or order, from 78q, 78w, 78y, 80a–9, and 80b–3 of this title and section such membership.’’ before ‘‘The Commission may ex- 3121 of Title 31, and enacting provisions set out as notes tend’’. o Subsec. (a)(4). Pub. L. 103–202, § 108(2), added par. (4). under sections 78a and 78 –5 of this title] and the Former par. (4) redesignated (5). amendments made by this Act shall take effect 270 days Pub. L. 103–202, § 103(b)(1), inserted ‘‘, other than sub- after the date of enactment of this Act [Oct. 28, 1986]. section (d)(3) of this section,’’ after ‘‘subsection (a), (b), ‘‘SEC. 402. EFFECTIVE DATE AND REQUIREMENTS or (d) of this section’’. FOR REGULATIONS. Subsec. (a)(5). Pub. L. 103–202, § 108(1), redesignated ‘‘Notwithstanding section 401, the Secretary of the par. (4) as (5). Treasury and each appropriate regulatory agency shall, Subsec. (b)(3) to (7). Pub. L. 103–202, § 106(a), added within 120 days after the date of enactment of this Act par. (3) and redesignated former pars. (3) to (6) as (4) to [Oct. 28, 1986], publish for notice and public comment (7), respectively. such regulations as are initially required to implement Subsec. (d)(2). Pub. L. 103–202, § 109(c), amended par. this Act, which regulations shall become effective as (2) generally. Prior to amendment, par. (2) read as fol- temporary regulations 210 days after the date of enact- lows: ‘‘Information received by any appropriate regu- ment of this Act and as final regulations not later than latory agency or the Secretary from or with respect to 270 days after the date of enactment of this Act. any government securities broker or government securities dealer or with respect to any person associated ‘‘SEC. 403. REGISTRATION DATE. therewith may be made available by the Secretary or ‘‘No person may continue to act as a government se- the recipient agency to the Commission, the Secretary, curities broker or government securities dealer after any appropriate regulatory agency, and any self-regu- 270 days after the date of enactment of this Act [Oct. latory organization.’’ 28, 1986] unless such person has been registered or has Page 315 TITLE 15—COMMERCE AND TRADE § 78o–5 provided notice to the Commission or the appropriate of 1986 [see Short Title of 1986 Amendment note set regulatory agency as required by the amendment made out under section 78a of this title] have worked well by section 101 of this Act [enacting section 78o–5 of this to protect investors from unregulated dealers and title].’’ maintain the efficiency of the government securities market; and TRANSITIONAL AND SAVINGS PROVISIONS ‘‘(4) extending the authority of the Secretary and Pub. L. 99–571, title III, § 301, Oct. 28, 1986, 100 Stat. providing new authority will ensure the continued 3224, provided that: strength of the government securities market.’’ ‘‘(a) EFFECT ON PENDING ADMINISTRATIVE PROCEED- Pub. L. 99–571, § 1(b), Oct. 28, 1986, 100 Stat. 3208, pro- INGS.—The provisions of this Act [see Effective Date vided that: ‘‘The Congress finds that transactions in note above] shall not affect any proceedings pending on government securities are affected with a public inter- the effective date of this Act [see Effective Date note est which makes it necessary— above]. ‘‘(1) to provide for the integrity, stability, and effi- ‘‘(b) EFFECT ON PENDING JUDICIAL PROCEEDINGS.—The ciency of such transactions and of matters and prac- provisions of this Act shall not affect suits commenced tices related thereto; prior to the effective date of this Act, and in all such ‘‘(2) to impose adequate regulation of government suits, proceedings shall be had, appeals taken, and securities brokers and government securities dealers judgments rendered in the same manner and effect as if generally; and this Act had not been enacted. ‘‘(3) to require appropriate financial responsibility, ‘‘(c) DISCRETION OF THE FEDERAL RESERVE BANK OF recordkeeping, reporting, and related regulatory re- NEW YORK.—Nothing in this Act shall be construed to quirements; limit or impair the discretion or authority of the Fed- in order to protect investors and to insure the mainte- eral Reserve Bank of New York to require reports or es- nance of fair, honest, and liquid markets in such securi- tablish terms and conditions in connection with the ties.’’ Bank’s relationship with any government securities broker or government securities dealer, including a pri- STUDY OF REGULATORY SYSTEM FOR GOVERNMENT mary dealer. SECURITIES ‘‘(d) JURISDICTION OF THE COMMODITY FUTURES TRAD- Pub. L. 103–202, title I, § 112, Dec. 17, 1993, 107 Stat. ING COMMISSION.—Nothing in this Act affects the juris- 2354, provided that: diction of the Commodity Futures Trading Commission ‘‘(a) JOINT STUDY.—The Secretary of the Treasury, as set forth in the Commodity Exchange Act [7 U.S.C. the Securities and Exchange Commission, and the 1 et seq.] over trading of commodity futures contracts Board of Governors of the Federal Reserve System and options on such contracts involving government se- shall— curities.’’ ‘‘(1) with respect to any rules promulgated or CONSTRUCTION OF 1993 AMENDMENT amended after October 1, 1991, pursuant to section 15C of the Securities Exchange Act of 1934 [15 U.S.C. Pub. L. 103–202, title I, § 111, Dec. 17, 1993, 107 Stat. 78o–5] or any amendment made by this title [amend- 2353, provided that: ing this section and sections 78c, 78o, 78o–3, 78s, and ‘‘(a) IN GENERAL.—No provision of, or amendment 78w of this title], and any national securities associa- made by, this title [amending this section and sections tion rule changes applicable principally to govern- 78c, 78o, 78o–3, 78s, and 78w of this title and enacting ment securities transactions approved after October provisions set out as notes below] may be construed— 1, 1991— ‘‘(1) to govern the initial issuance of any public ‘‘(A) evaluate the effectiveness of such rules in debt obligation, or carrying out the purposes of such Act [15 U.S.C. 78a ‘‘(2) to grant any authority to (or extend any au- et seq.]; and thority of) the Securities and Exchange Commission, ‘‘(B) evaluate the impact of any such rules on the any appropriate regulatory agency, or a self-regu- efficiency and liquidity of the government securi- latory organization— ties market and the cost of funding the Federal ‘‘(A) to prescribe any procedure, term, or condi- debt; tion of such initial issuance, ‘‘(2) evaluate the effectiveness of surveillance and ‘‘(B) to promulgate any rule or regulation govern- enforcement with respect to government securities, ing such initial issuance, or and the impact on such surveillance and enforcement ‘‘(C) to otherwise regulate in any manner such of the availability of automated, time- sequenced initial issuance. records of essential information pertaining to trades ‘‘(b) EXCEPTION.—Subsection (a) of this section shall in such securities; and not apply to the amendment made by section 110 of this ‘‘(3) submit to the Congress, not later than March Act [amending section 78o of this title]. 31, 1998, any recommendations they may consider ap- ‘‘(c) PUBLIC DEBT OBLIGATION.—For purposes of this propriate concerning— section, the term ‘public debt obligation’ means an ob- ‘‘(A) the regulation of government securities bro- ligation subject to the public debt limit established in kers and government securities dealers; section 3101 of title 31, United States Code.’’ ‘‘(B) the dissemination of information concerning TRANSFER OF FUNCTIONS quotations for and transactions in government securities; Federal Savings and Loan Insurance Corporation ‘‘(C) the prevention of sales practice abuses in abolished and functions transferred, see sections 401 to connection with transactions in government securi- 406 of Pub. L. 101–73, set out as a note under section 1437 ties; and of Title 12, Banks and Banking. ‘‘(D) such other matters as they consider appropriate. CONGRESSIONAL FINDINGS ‘‘(b) TREASURY STUDY.—The Secretary of the Treas- Pub. L. 103–202, title I, § 101, Dec. 17, 1993, 107 Stat. ury, in consultation with the Securities and Exchange 2344, provided that: ‘‘The Congress finds that— Commission, shall— ‘‘(1) the liquid and efficient operation of the govern- ‘‘(1) conduct a study of— ment securities market is essential to facilitate gov- ‘‘(A) the identity and nature of the business of ernment borrowing at the lowest possible cost to tax- government securities brokers and government se- payers; curities dealers that are registered with the Securi- ‘‘(2) the fair and honest treatment of investors will ties and Exchange Commission under section 15C of strengthen the integrity and liquidity of the govern- the Securities Exchange Act of 1934 [15 U.S.C. ment securities market; 78o–5]; and ‘‘(3) rules promulgated by the Secretary of the ‘‘(B) the continuing need for, and regulatory and Treasury pursuant to the Government Securities Act financial consequences of, a separate regulatory § 78o–6 TITLE 15—COMMERCE AND TRADE Page 316

system for such government securities brokers and may not limit the authority of a broker or government securities dealers; and dealer to discipline a securities analyst for ‘‘(2) submit to the Congress, not later than 18 causes other than such research report in ac- months after the date of enactment of this Act [Dec. cordance with the policies and procedures of 17, 1993], the Secretary’s recommendations for change, if any, or such other recommendations as the the firm; Secretary considers appropriate.’’ (2) to define periods during which brokers or dealers who have participated, or are to par- STUDIES AND RECOMMENDATIONS WITH RESPECT TO ticipate, in a public offering of securities as EXTENSION OF TREASURY AUTHORITY underwriters or dealers should not publish or Pub. L. 99–571, title I, § 103, Oct. 28, 1986, 100 Stat. 3221, otherwise distribute research reports relating directed Secretary of the Treasury, together with Secu- to such securities or to the issuer of such securities and Exchange Commission and Board of Gov- rities; ernors of the Federal Reserve System, to evaluate the effectiveness of the rules promulgated pursuant to 15 (3) to establish structural and institutional U.S.C. 78o–5 in effecting the purposes of this chapter, safeguards within registered brokers or deal- and shall submit to Congress, not later than Oct. 1, ers to assure that securities analysts are sepa- 1990, their recommendation with respect to the exten- rated by appropriate informational partitions sion of the Secretary’s authority under 15 U.S.C. 78o–5 within the firm from the review, pressure, or and such other recommendations as they considered ap- oversight of those whose involvement in in- propriate; and directed Comptroller General to conduct vestment banking activities might potentially a study of the regulation of government securities bro- bias their judgment or supervision; and kers and government securities dealers pursuant to 15 (4) to address such other issues as the Com- U.S.C. 78o–5 and the effectiveness of the amendments mission, or such association or exchange, de- made by this Act in protecting investors and in effecting the purposes described in 15 U.S.C. 78o–5(b)(2), and termines appropriate. submit to Congress, not later than Mar. 31, 1990, his (b) Disclosure recommendations with respect to the extension of the The Commission, or upon the authorization Secretary’s authority under 15 U.S.C. 78o–5 and such and direction of the Commission, a registered other recommendations as he considered appropriate. securities association or national securities ex- § 78o–6. Securities analysts and research reports change, shall have adopted, not later than 1 year after July 30, 2002, rules reasonably designed to (a) Analyst protections require each securities analyst to disclose in The Commission, or upon the authorization public appearances, and each registered broker and direction of the Commission, a registered or dealer to disclose in each research report, as securities association or national securities ex- applicable, conflicts of interest that are known change, shall have adopted, not later than 1 year or should have been known by the securities an- after July 30, 2002, rules reasonably designed to alyst or the broker or dealer, to exist at the address conflicts of interest that can arise when time of the appearance or the date of distribu- securities analysts recommend equity securities tion of the report, including— in research reports and public appearances, in (1) the extent to which the securities analyst order to improve the objectivity of research and has debt or equity investments in the issuer provide investors with more useful and reliable that is the subject of the appearance or re- information, including rules designed— search report; (2) whether any compensation has been re- (1) to foster greater public confidence in se- ceived by the registered broker or dealer, or curities research, and to protect the objectiv- any affiliate thereof, including the securities ity and independence of securities analysts, analyst, from the issuer that is the subject of by— the appearance or research report, subject to (A) restricting the prepublication clear- such exemptions as the Commission may de- ance or approval of research reports by per- termine appropriate and necessary to prevent sons employed by the broker or dealer who disclosure by virtue of this paragraph of mate- are engaged in investment banking activi- rial non-public information regarding specific ties, or persons not directly responsible for potential future investment banking trans- investment research, other than legal or actions of such issuer, as is appropriate in the compliance staff; public interest and consistent with the protec- (B) limiting the supervision and compen- tion of investors; satory evaluation of securities analysts to (3) whether an issuer, the securities of which officials employed by the broker or dealer are recommended in the appearance or re- who are not engaged in investment banking search report, currently is, or during the 1- activities; and year period preceding the date of the appear- (C) requiring that a broker or dealer and ance or date of distribution of the report has persons employed by a broker or dealer who been, a client of the registered broker or deal- are involved with investment banking ac- er, and if so, stating the types of services pro- tivities may not, directly or indirectly, re- vided to the issuer; taliate against or threaten to retaliate (4) whether the securities analyst received against any securities analyst employed by compensation with respect to a research re- that broker or dealer or its affiliates as a report, based upon (among any other factors) the sult of an adverse, negative, or otherwise un- investment banking revenues (either generally favorable research report that may ad- or specifically earned from the issuer being versely affect the present or prospective in- analyzed) of the registered broker or dealer; vestment banking relationship of the broker and or dealer with the issuer that is the subject (5) such other disclosures of conflicts of in- of the research report, except that such rules terest that are material to investors, research Page 317 TITLE 15—COMMERCE AND TRADE § 78o–7

analysts, or the broker or dealer as the Com- (vi) any conflict of interest relating to mission, or such association or exchange, de- the issuance of credit ratings by the appli- termines appropriate. cant; (c) Definitions (vii) the categories described in any of clauses (i) through (v) of section In this section— 78c(a)(62)(B) of this title with respect to (1) the term ‘‘securities analyst’’ means any which the applicant intends to apply for associated person of a registered broker or registration under this section; dealer that is principally responsible for, and (viii) on a confidential basis, a list of the any associated person who reports directly or 20 largest issuers and subscribers that use indirectly to a securities analyst in connec- the credit rating services of the applicant, tion with, the preparation of the substance of by amount of net revenues received there- a research report, whether or not any such from in the fiscal year immediately pre- person has the job title of ‘‘securities ana- ceding the date of submission of the appli- lyst’’; and cation; (2) the term ‘‘research report’’ means a writ- (ix) on a confidential basis, as to each ten or electronic communication that includes applicable category of obligor described in an analysis of equity securities of individual any of clauses (i) through (v) of section companies or industries, and that provides in- 78c(a)(62)(B) of this title, written certifi- formation reasonably sufficient upon which to cations described in subparagraph (C), ex- base an investment decision. cept as provided in subparagraph (D); and (June 6, 1934, ch. 404, title I, § 15D, as added Pub. (x) any other information and documents L. 107–204, title V, § 501(a), July 30, 2002, 116 Stat. concerning the applicant and any person 791.) associated with such applicant as the Com- mission, by rule, may prescribe as nec- COMMISSION AUTHORITY essary or appropriate in the public interest Pub. L. 107–204, title V, § 501(c), July 30, 2002, 116 Stat. or for the protection of investors. 793, provided that: ‘‘The Commission may promulgate and amend its regulations, or direct a registered securi- (C) Written certifications ties association or national securities exchange to pro- Written certifications required by subpara- mulgate and amend its rules, to carry out section 15D graph (B)(ix)— of the Securities Exchange Act of 1934 [15 U.S.C. 78o–6], (i) shall be provided from not fewer than as added by this section, as is necessary for the protec- 10 qualified institutional buyers, none of tion of investors and in the public interest.’’ which is affiliated with the applicant; § 78o–7. Registration of nationally recognized sta- (ii) may address more than one category tistical rating organizations of obligors described in any of clauses (i) through (v) of section 78c(a)(62)(B) of this (a) Registration procedures title; (1) Application for registration (iii) shall include not fewer than 2 cer- (A) In general tifications for each such category of obli- A credit rating agency that elects to be gor; and treated as a nationally recognized statistical (iv) shall state that the qualified institu- rating organization for purposes of this tional buyer— (I) meets the definition of a qualified chapter (in this section referred to as the institutional buyer under section ‘‘applicant’’), shall furnish to the Commis- 78c(a)(64) of this title; and sion an application for registration, in such (II) has used the credit ratings of the form as the Commission shall require, by applicant for at least the 3 years imme- rule or regulation issued in accordance with diately preceding the date of the certifi- subsection (n), and containing the informa- cation in the subject category or cat- tion described in subparagraph (B). egories of obligors. (B) Required information (D) Exemption from certification require- An application for registration under this ment section shall contain information regard- A written certification under subpara- ing— graph (B)(ix) is not required with respect to (i) credit ratings performance measure- any credit rating agency which has received, ment statistics over short-term, mid-term, or been the subject of, a no-action letter and long-term periods (as applicable) of from the staff of the Commission prior to the applicant; August 2, 2006, stating that such staff would (ii) the procedures and methodologies not recommend enforcement action against that the applicant uses in determining any broker or dealer that considers credit credit ratings; ratings issued by such credit rating agency (iii) policies or procedures adopted and to be ratings from a nationally recognized implemented by the applicant to prevent statistical rating organization. the misuse, in violation of this chapter (or the rules and regulations hereunder), of (E) Limitation on liability of qualified insti- material, nonpublic information; tutional buyers (iv) the organizational structure of the No qualified institutional buyer shall be applicant; liable in any private right of action for any (v) whether or not the applicant has in opinion or statement expressed in a certifi- effect a code of ethics, and if not, the rea- cation made pursuant to subparagraph sons therefor; (B)(ix). § 78o–7 TITLE 15—COMMERCE AND TRADE Page 318

(2) Review of application its website, or through another comparable, (A) Initial determination readily accessible means, except as provided in clauses (viii) and (ix) of paragraph (1)(B). Not later than 90 days after the date on which the application for registration is fur- (b) Update of registration nished to the Commission under paragraph (1) Update (1) (or within such longer period as to which Each nationally recognized statistical rating the applicant consents) the Commission organization shall promptly amend its appli- shall— cation for registration under this section if (i) by order, grant such registration for any information or document provided therein ratings in the subject category or cat- becomes materially inaccurate, except that a egories of obligors, as described in clauses nationally recognized statistical rating orga- (i) through (v) of section 78c(a)(62)(B) of nization is not required to amend— this title; or (A) the information required to be filed (ii) institute proceedings to determine under subsection (a)(1)(B)(i) by filing infor- whether registration should be denied. mation under this paragraph, but shall (B) Conduct of proceedings amend such information in the annual sub- (i) Content mission of the organization under paragraph (2) of this subsection; or Proceedings referred to in subparagraph (B) the certifications required to be pro- (A)(ii) shall— vided under subsection (a)(1)(B)(ix) by filing (I) include notice of the grounds for de- information under this paragraph. nial under consideration and an opportunity for hearing; and (2) Certification (II) be concluded not later than 120 Not later than 90 days after the end of each days after the date on which the applica- calendar year, each nationally recognized sta- tion for registration is furnished to the tistical rating organization shall file with the Commission under paragraph (1). Commission an amendment to its registration, (ii) Determination in such form as the Commission, by rule, may prescribe as necessary or appropriate in the At the conclusion of such proceedings, public interest or for the protection of inves- the Commission, by order, shall grant or tors— deny such application for registration. (A) certifying that the information and (iii) Extension authorized documents in the application for registra- The Commission may extend the time tion of such nationally recognized statistical for conclusion of such proceedings for not rating organization (other than the certifi- longer than 90 days, if it finds good cause cations required under subsection for such extension and publishes its rea- (a)(1)(B)(ix)) continue to be accurate; and sons for so finding, or for such longer pe- (B) listing any material change that oc- riod as to which the applicant consents. curred to such information or documents (C) Grounds for decision during the previous calendar year. (c) Accountability for ratings procedures The Commission shall grant registration under this subsection— (1) Authority (i) if the Commission finds that the re- The Commission shall have exclusive au- quirements of this section are satisfied; thority to enforce the provisions of this sec- and tion in accordance with this chapter with re- (ii) unless the Commission finds (in spect to any nationally recognized statistical which case the Commission shall deny rating organization, if such nationally recog- such registration) that— nized statistical rating organization issues (I) the applicant does not have ade- credit ratings in material contravention of quate financial and managerial resources those procedures relating to such nationally to consistently produce credit ratings recognized statistical rating organization, in- with integrity and to materially comply cluding procedures relating to the prevention with the procedures and methodologies of misuse of nonpublic information and con- disclosed under paragraph (1)(B) and flicts of interest, that such nationally recog- with subsections (g), (h), (i), and (j); or nized statistical rating organization— (II) if the applicant were so registered, (A) includes in its application for registra- its registration would be subject to sus- tion under subsection (a)(1)(B)(ii); or pension or revocation under subsection (B) makes and disseminates in reports pur- (d). suant to section 78q(a) of this title or the (3) Public availability of information rules and regulations thereunder. Subject to section 78x of this title, the Com- (2) Limitation mission shall, by rule, require a nationally The rules and regulations that the Commis- recognized statistical rating organization, sion may prescribe pursuant to this chapter, upon the granting of registration under this as they apply to nationally recognized statis- section, to make the information and docu- tical rating organizations, shall be narrowly ments submitted to the Commission in its tailored to meet the requirements of this completed application for registration, or in chapter applicable to nationally recognized any amendment submitted under paragraph (1) statistical rating organizations. Notwith- or (2) of subsection (b), publicly available on standing any other provision of this section, Page 319 TITLE 15—COMMERCE AND TRADE § 78o–7

or any other provision of law, neither the recognized statistical rating organization, or Commission nor any State (or political sub- any person associated with such an organiza- division thereof) may regulate the substance tion, whether prior to or subsequent to becom- of credit ratings or the procedures and meth- ing so associated— odologies by which any nationally recognized (A) has committed or omitted any act, or statistical rating organization determines is subject to an order or finding, enumerated credit ratings. Nothing in this paragraph may in subparagraph (A), (D), (E), (H), or (G) of be construed to afford a defense against any section 78o(b)(4) of this title, has been con- action or proceeding brought by the Commis- victed of any offense specified in section sion to enforce the antifraud provisions of the 78o(b)(4)(B) of this title, or is enjoined from securities laws. any action, conduct, or practice specified in (3) Internal controls over processes for deter- subparagraph (C) of section 78o(b)(4) of this mining credit ratings title, during the 10-year period preceding the date of commencement of the proceedings (A) In general under this subsection, or at any time there- Each nationally recognized statistical rat- after; ing organization shall establish, maintain, (B) has been convicted during the 10-year enforce, and document an effective internal period preceding the date on which an appli- control structure governing the implementa- cation for registration is filed with the Com- tion of and adherence to policies, proce- mission under this section, or at any time dures, and methodologies for determining thereafter, of— credit ratings, taking into consideration (i) any crime that is punishable by im- such factors as the Commission may pre- prisonment for 1 or more years, and that is scribe, by rule. not described in section 78o(b)(4)(B) of this (B) Attestation requirement title; or (ii) a substantially equivalent crime by a The Commission shall prescribe rules re- foreign court of competent jurisdiction; quiring each nationally recognized statistical rating organization to submit to the (C) is subject to any order of the Commis- Commission an annual internal controls re- sion barring or suspending the right of the port, which shall contain— person to be associated with a nationally (i) a description of the responsibility of recognized statistical rating organization; the management of the nationally recog- (D) fails to file the certifications required nized statistical rating organization in es- under subsection (b)(2); tablishing and maintaining an effective in- (E) fails to maintain adequate financial ternal control structure under subpara- and managerial resources to consistently graph (A); produce credit ratings with integrity; 1 (ii) an assessment of the effectiveness of (F) has failed reasonably to supervise, with the internal control structure of the na- a view to preventing a violation of the secu- tionally recognized statistical rating orga- rities laws, an individual who commits such nization; and a violation, if the individual is subject to the (iii) the attestation of the chief execu- supervision of that person. tive officer, or equivalent individual, of (2) Suspension or revocation for particular the nationally recognized statistical rat- class of securities ing organization. (A) In general (d) Censure, denial, or suspension of registra- The Commission may temporarily suspend tion; notice and hearing or permanently revoke the registration of a (1) In general nationally recognized statistical rating organization with respect to a particular class The Commission, by order, shall censure, or subclass of securities, if the Commission place limitations on the activities, functions, finds, on the record after notice and oppor- or operations of, suspend for a period not ex- tunity for hearing, that the nationally rec- ceeding 12 months, or revoke the registration ognized statistical rating organization does of any nationally recognized statistical rating not have adequate financial and managerial organization, or with respect to any person resources to consistently produce credit rat- who is associated with, who is seeking to be- ings with integrity. come associated with, or, at the time of the alleged misconduct, who was associated or was (B) Considerations seeking to become associated with a nation- In making any determination under sub- ally recognized statistical rating organization, paragraph (A), the Commission shall con- the Commission, by order, shall censure, place sider— limitations on the activities or functions of (i) whether the nationally recognized such person, suspend for a period not exceed- statistical rating organization has failed ing 1 year, or bar such person from being asso- over a sustained period of time, as deter- ciated with a nationally recognized statistical mined by the Commission, to produce rat- rating organization, if the Commission finds, ings that are accurate for that class or on the record after notice and opportunity for subclass of securities; and hearing, that such censure, placing of limita- (ii) such other factors as the Commission tions, suspension, bar or revocation is nec- may determine. essary for the protection of investors and in the public interest and that such nationally 1 So in original. The word ‘‘or’’ probably should appear. § 78o–7 TITLE 15—COMMERCE AND TRADE Page 320

(e) Termination of registration cific policies or procedures that are reasonably (1) Voluntary withdrawal designed to prevent misuse in violation of this chapter (or the rules or regulations hereunder) A nationally recognized statistical rating of material, nonpublic information. organization may, upon such terms and conditions as the Commission may establish as nec- (h) Management of conflicts of interest essary in the public interest or for the protec- (1) Organization policies and procedures tion of investors, withdraw from registration Each nationally recognized statistical rating by furnishing a written notice of withdrawal organization shall establish, maintain, and en- to the Commission. force written policies and procedures reason- (2) Commission authority ably designed, taking into consideration the In addition to any other authority of the nature of the business of such nationally rec- Commission under this chapter, if the Com- ognized statistical rating organization and af- mission finds that a nationally recognized sta- filiated persons and affiliated companies tistical rating organization is no longer in ex- thereof, to address and manage any conflicts istence or has ceased to do business as a credit of interest that can arise from such business. rating agency, the Commission, by order, shall (2) Commission authority cancel the registration under this section of The Commission shall issue final rules in ac- such nationally recognized statistical rating cordance with subsection (n) to prohibit, or reorganization. quire the management and disclosure of, any (f) Representations conflicts of interest relating to the issuance of (1) Ban on representations of sponsorship by credit ratings by a nationally recognized sta- United States or agency thereof tistical rating organization, including, with- It shall be unlawful for any nationally rec- out limitation, conflicts of interest relating ognized statistical rating organization to rep- to— resent or imply in any manner whatsoever (A) the manner in which a nationally rec- that such nationally recognized statistical ognized statistical rating organization is rating organization has been designated, spon- compensated by the obligor, or any affiliate sored, recommended, or approved, or that the of the obligor, for issuing credit ratings or abilities or qualifications thereof have in any providing related services; respect been passed upon, by the United States (B) the provision of consulting, advisory, or any agency, officer, or employee thereof. or other services by a nationally recognized statistical rating organization, or any per- (2) Ban on representation as NRSRO of unreg- son associated with such nationally recog- istered credit rating agencies nized statistical rating organization, to the It shall be unlawful for any credit rating obligor, or any affiliate of the obligor; agency that is not registered under this sec- (C) business relationships, ownership in- tion as a nationally recognized statistical rat- terests, or any other financial or personal ing organization to state that such credit rat- interests between a nationally recognized ing agency is a nationally recognized statis- statistical rating organization, or any per- tical rating organization registered under this son associated with such nationally recog- chapter. nized statistical rating organization, and the (3) Statement of registration under Securities obligor, or any affiliate of the obligor; Exchange Act of 1934 provisions (D) any affiliation of a nationally recog- No provision of paragraph (1) shall be con- nized statistical rating organization, or any strued to prohibit a statement that a nation- person associated with such nationally rec- ally recognized statistical rating organization ognized statistical rating organization, with is a nationally recognized statistical rating any person that underwrites the securities organization under this chapter, if such state- or money market instruments that are the ment is true in fact and if the effect of such subject of a credit rating; and registration is not misrepresented. (E) any other potential conflict of interest, (g) Prevention of misuse of nonpublic informa- as the Commission deems necessary or ap- tion propriate in the public interest or for the protection of investors. (1) Organization policies and procedures (3) Separation of ratings from sales and mar- Each nationally recognized statistical rating keting organization shall establish, maintain, and enforce written policies and procedures reason- (A) Rules required ably designed, taking into consideration the The Commission shall issue rules to pre- nature of the business of such nationally rec- vent the sales and marketing considerations ognized statistical rating organization, to pre- of a nationally recognized statistical rating vent the misuse in violation of this chapter, or organization from influencing the produc- the rules or regulations hereunder, of mate- tion of ratings by the nationally recognized rial, nonpublic information by such nationally statistical rating organization. recognized statistical rating organization or (B) Contents of rules any person associated with such nationally The rules issued under subparagraph (A) recognized statistical rating organization. shall provide for— (2) Commission authority (i) exceptions for small nationally recog- The Commission shall issue final rules in ac- nized statistical rating organizations with cordance with subsection (n) to require spe- respect to which the Commission deter- Page 321 TITLE 15—COMMERCE AND TRADE § 78o–7

mines that the separation of the produc- sion any case such organization knows or tion of ratings and sales and marketing ac- can reasonably be expected to know where a tivities is not appropriate; and person associated with such organization (ii) suspension or revocation of the reg- within the previous 5 years obtains employ- istration of a nationally recognized statis- ment with any obligor, issuer, underwriter, tical rating organization, if the Commis- or sponsor of a security or money market in- sion finds, on the record, after notice and strument for which the organization issued a opportunity for a hearing, that— credit rating during the 12-month period (I) the nationally recognized statis- prior to such employment, if such em- tical rating organization has committed ployee— a violation of a rule issued under this (i) was a senior officer of such organiza- subsection; and tion; (II) the violation of a rule issued under (ii) participated in any capacity in deter- this subsection affected a rating. mining credit ratings for such obligor, is- (4) Look-back requirement suer, underwriter, or sponsor; or (iii) supervised an employee described in (A) Review by the nationally recognized sta- clause (ii). tistical rating organization (B) Public disclosure Each nationally recognized statistical rating organization shall establish, maintain, Upon receiving such a report, the Commis- and enforce policies and procedures reason- sion shall make such information publicly ably designed to ensure that, in any case in available. which an employee of a person subject to a (i) Prohibited conduct credit rating of the nationally recognized statistical rating organization or the issuer, (1) Prohibited acts and practices underwriter, or sponsor of a security or The Commission shall issue final rules in ac- money market instrument subject to a cred- cordance with subsection (n) to prohibit any it rating of the nationally recognized statis- act or practice relating to the issuance of tical rating organization was employed by credit ratings by a nationally recognized sta- the nationally recognized statistical rating tistical rating organization that the Commis- organization and participated in any capac- sion determines to be unfair, coercive, or abu- ity in determining credit ratings for the per- sive, including any act or practice relating son or the securities or money market in- to— struments during the 1-year period preced- (A) conditioning or threatening to condi- ing the date an action was taken with re- tion the issuance of a credit rating on the spect to the credit rating, the nationally purchase by the obligor or an affiliate there- recognized statistical rating organization of of other services or products, including shall— pre-credit rating assessment products, of the (i) conduct a review to determine wheth- nationally recognized statistical rating or- er any conflicts of interest of the employee ganization or any person associated with influenced the credit rating; and such nationally recognized statistical rating (ii) take action to revise the rating if ap- organization; propriate, in accordance with such rules as (B) lowering or threatening to lower a the Commission shall prescribe. credit rating on, or refusing to rate, securities or money market instruments issued by (B) Review by Commission an asset pool or as part of any asset-backed (i) In general or mortgage-backed securities transaction, The Commission shall conduct periodic unless a portion of the assets within such reviews of the policies described in sub- pool or part of such transaction, as applica- paragraph (A) and the implementation of ble, also is rated by the nationally recog- the policies at each nationally recognized nized statistical rating organization; or statistical rating organization to ensure (C) modifying or threatening to modify a they are reasonably designed and imple- credit rating or otherwise departing from its mented to most effectively eliminate con- adopted systematic procedures and meth- flicts of interest. odologies in determining credit ratings, (ii) Timing of reviews based on whether the obligor, or an affiliate of the obligor, purchases or will purchase The Commission shall review the code of the credit rating or any other service or ethics and conflict of interest policy of product of the nationally recognized statis- each nationally recognized statistical rat- tical rating organization or any person asso- ing organization— ciated with such organization. (I) not less frequently than annually; and (2) Rule of construction (II) whenever such policies are materi- Nothing in paragraph (1), or in any rules or ally modified or amended. regulations adopted thereunder, may be con- (5) Report to Commission on certain employ- strued to modify, impair, or supersede the opment transitions eration of any of the antitrust laws (as defined in section 12 of this title, except that such (A) Report required term includes section 45 of this title, to the Each nationally recognized statistical rat- extent that such section 45 applies to unfair ing organization shall report to the Commis- methods of competition). § 78o–7 TITLE 15—COMMERCE AND TRADE Page 322

(j) Designation of compliance officer (B) Submission of reports to the Commission (1) In general Each nationally recognized statistical rat- Each nationally recognized statistical rating ing organization shall file the reports reorganization shall designate an individual required under subparagraph (A) together with sponsible for administering the policies and the financial report that is required to be procedures that are required to be established submitted to the Commission under this sec- pursuant to subsections (g) and (h), and for en- tion. suring compliance with the securities laws and (k) Statements of financial condition the rules and regulations thereunder, includ- Each nationally recognized statistical rating ing those promulgated by the Commission pur- organization shall, on a confidential basis, file suant to this section. with the Commission, at intervals determined (2) Limitations by the Commission, such financial statements, (A) In general certified (if required by the rules or regulations Except as provided in subparagraph (B), an of the Commission) by an independent public ac- individual designated under paragraph (1) countant, and information concerning its finan- may not, while serving in the designated ca- cial condition, as the Commission, by rule, may pacity— prescribe as necessary or appropriate in the pub- (i) perform credit ratings; lic interest or for the protection of investors. (ii) participate in the development of (l) Sole method of registration ratings methodologies or models; (1) In general (iii) perform marketing or sales functions; or On and after the effective date of this sec- (iv) participate in establishing com- tion, a credit rating agency may only be reg- pensation levels, other than for employees istered as a nationally recognized statistical working for that individual. rating organization for any purpose in accordance with this section. (B) Exception (2) Prohibition on reliance on no-action relief The Commission may exempt a small nationally recognized statistical rating organi- On and after the effective date of this sec- zation from the limitations under this para- tion— graph, if the Commission finds that compli- (A) an entity that, before that date, re- ance with such limitations would impose an ceived advice, approval, or a no-action letter unreasonable burden on the nationally rec- from the Commission or staff thereof to be ognized statistical rating organization. treated as a nationally recognized statistical rating organization pursuant to the Commis- (3) Other duties sion rule at section 240.15c3–1 of title 17, Each individual designated under paragraph Code of Federal Regulations, may represent (1) shall establish procedures for the receipt, itself or act as a nationally recognized sta- retention, and treatment of— tistical rating organization only— (A) complaints regarding credit ratings, (i) during Commission consideration of models, methodologies, and compliance with the application, if such entity has filed an the securities laws and the policies and pro- application for registration under this sec- cedures developed under this section; and tion; and (B) confidential, anonymous complaints by (ii) on and after the date of approval of employees or users of credit ratings. its application for registration under this (4) Compensation section; and The compensation of each compliance officer (B) the advice, approval, or no-action let- appointed under paragraph (1) shall not be ter described in subparagraph (A) shall be linked to the financial performance of the na- void. tionally recognized statistical rating organiza- (3) Notice to other agencies tion and shall be arranged so as to ensure the independence of the officer’s judgment. Not later than 30 days after September 29, (5) Annual reports required 2006, the Commission shall give notice of the actions undertaken pursuant to this section to (A) Annual reports required each Federal agency which employs in its Each individual designated under para- rules and regulations the term ‘‘nationally graph (1) shall submit to the nationally rec- recognized statistical rating organization’’ (as ognized statistical rating organization an that term is used under Commission rule annual report on the compliance of the na- 15c3–1 (17 C.F.R. 240.15c3–1), as in effect on Sep- tionally recognized statistical rating organi- tember 29, 2006). zation with the securities laws and the poli- (m) Accountability cies and procedures of the nationally recognized statistical rating organization that in- (1) In general cludes— The enforcement and penalty provisions of (i) a description of any material changes this chapter shall apply to statements made to the code of ethics and conflict of inter- by a credit rating agency in the same manner est policies of the nationally recognized and to the same extent as such provisions statistical rating organization; and apply to statements made by a registered pub- (ii) a certification that the report is ac- lic accounting firm or a securities analyst curate and complete. under the securities laws, and such statements Page 323 TITLE 15—COMMERCE AND TRADE § 78o–7

shall not be deemed forward-looking state- (iii) to ensure that such ratings are not ments for the purposes of section 78u–5 of this unduly influenced by conflicts of interest. title. (B) Director of the Office (2) Rulemaking The head of the Office shall be the Direc- The Commission shall issue such rules as tor, who shall report to the Chairman. may be necessary to carry out this subsection. (2) Staffing (n) Regulations The Office established under this subsection (1) New provisions shall be staffed sufficiently to carry out fully the requirements of this section. The staff Such rules and regulations as are required shall include persons with knowledge of and by this section or are otherwise necessary to expertise in corporate, municipal, and struc- carry out this section, including the applica- tured debt finance. tion form required under subsection (a)— (A) shall be issued by the Commission in (3) Commission examinations final form, not later than 270 days after Sep- (A) Annual examinations required tember 29, 2006; and The Office shall conduct an examination of (B) shall become effective not later than each nationally recognized statistical rating 270 days after September 29, 2006. organization at least annually. (2) Review of existing regulations (B) Conduct of examinations Not later than 270 days after September 29, Each examination under subparagraph (A) 2006, the Commission shall— shall include a review of— (A) review its existing rules and regula- (i) whether the nationally recognized tions which employ the term ‘‘nationally statistical rating organization conducts recognized statistical rating organization’’ business in accordance with the policies, or ‘‘NRSRO’’; and procedures, and rating methodologies of (B) amend or revise such rules and regula- the nationally recognized statistical rat- tions in accordance with the purposes of this ing organization; section, as the Commission may prescribe as (ii) the management of conflicts of inter- necessary or appropriate in the public interest by the nationally recognized statistical est or for the protection of investors. rating organization; (o) NRSROs subject to Commission authority (iii) implementation of ethics policies by the nationally recognized statistical rat- (1) In general ing organization; No provision of the laws of any State or po- (iv) the internal supervisory controls of litical subdivision thereof requiring the reg- the nationally recognized statistical rat- istration, licensing, or qualification as a cred- ing organization; it rating agency or a nationally recognized (v) the governance of the nationally rec- statistical rating organization shall apply to ognized statistical rating organization; any nationally recognized statistical rating (vi) the activities of the individual des- organization or person employed by or work- ignated by the nationally recognized sta- ing under the control of a nationally recog- tistical rating organization under sub- nized statistical rating organization. section (j)(1); (2) Limitation (vii) the processing of complaints by the nationally recognized statistical rating or- Nothing in this subsection prohibits the se- ganization; and curities commission (or any agency or office (viii) the policies of the nationally recog- performing like functions) of any State from nized statistical rating organization gov- investigating and bringing an enforcement ac- erning the post-employment activities of tion with respect to fraud or deceit against former staff of the nationally recognized any nationally recognized statistical rating statistical rating organization. organization or person associated with a na- (C) Inspection reports tionally recognized statistical rating organization. The Commission shall make available to the public, in an easily understandable for- (p) Regulation of nationally recognized statis- mat, an annual report summarizing— tical rating organizations (i) the essential findings of all examina- (1) Establishment of Office of Credit Ratings tions conducted under subparagraph (A), (A) Office established as deemed appropriate by the Commission; (ii) the responses by the nationally rec- The Commission shall establish within the ognized statistical rating organizations to Commission an Office of Credit Ratings (re- any material regulatory deficiencies iden- ferred to in this subsection as the ‘‘Office’’) tified by the Commission under clause (i); to administer the rules of the Commission— and (i) with respect to the practices of na- (iii) whether the nationally recognized tionally recognized statistical rating orga- statistical rating organizations have ap- nizations in determining ratings, for the propriately addressed the recommenda- protection of users of credit ratings and in tions of the Commission contained in pre- the public interest; vious reports under this subparagraph. (ii) to promote accuracy in credit ratings issued by nationally recognized statistical (4) Rulemaking authority rating organizations; and The Commission shall— § 78o–7 TITLE 15—COMMERCE AND TRADE Page 324

(A) establish, by rule, fines, and other pen- (A) approved by the board of the nation- alties applicable to any nationally recog- ally recognized statistical rating organiza- nized statistical rating organization that tion, a body performing a function similar to violates the requirements of this section and that of a board; and the rules thereunder; and (B) in accordance with the policies and (B) issue such rules as may be necessary to procedures of the nationally recognized sta- carry out this section. tistical rating organization for the develop- (q) Transparency of ratings performance ment and modification of credit rating pro- (1) Rulemaking required cedures and methodologies; The Commission shall, by rule, require that (2) to ensure that when material changes to each nationally recognized statistical rating credit rating procedures and methodologies organization publicly disclose information on (including changes to qualitative and quan- the initial credit ratings determined by the titative data and models) are made, that— nationally recognized statistical rating orga- (A) the changes are applied consistently to nization for each type of obligor, security, and all credit ratings to which the changed pro- money market instrument, and any subse- cedures and methodologies apply; quent changes to such credit ratings, for the (B) to the extent that changes are made to purpose of allowing users of credit ratings to credit rating surveillance procedures and evaluate the accuracy of ratings and compare methodologies, the changes are applied to then-current credit ratings by the nationally the performance of ratings by different nation- recognized statistical rating organization ally recognized statistical rating organiza- within a reasonable time period determined tions. by the Commission, by rule; and (2) Content (C) the nationally recognized statistical The rules of the Commission under this sub- rating organization publicly discloses the section shall require, at a minimum, disclo- reason for the change; and sures that— (3) to notify users of credit ratings— (A) are comparable among nationally rec- (A) of the version of a procedure or meth- ognized statistical rating organizations, to odology, including the qualitative methodol- allow users of credit ratings to compare the ogy or quantitative inputs, used with respect performance of credit ratings across nation- to a particular credit rating; ally recognized statistical rating organiza- (B) when a material change is made to a tions; procedure or methodology, including to a (B) are clear and informative for investors qualitative model or quantitative inputs; having a wide range of sophistication who (C) when a significant error is identified in use or might use credit ratings; a procedure or methodology, including a (C) include performance information over qualitative or quantitative model, that may a range of years and for a variety of types of result in credit rating actions; and credit ratings, including for credit ratings (D) of the likelihood of a material change withdrawn by the nationally recognized sta- described in subparagraph (B) resulting in a tistical rating organization; change in current credit ratings. (D) are published and made freely avail- (s) Transparency of credit rating methodologies able by the nationally recognized statistical and information reviewed rating organization, on an easily accessible portion of its website, and in writing, when (1) Form for disclosures requested; The Commission shall require, by rule, each (E) are appropriate to the business model nationally recognized statistical rating orga- of a nationally recognized statistical rating nization to prescribe a form to accompany the organization; and publication of each credit rating that dis- (F) each nationally recognized statistical closes— rating organization include an attestation (A) information relating to— with any credit rating it issues affirming (i) the assumptions underlying the credit that no part of the rating was influenced by rating procedures and methodologies; any other business activities, that the rating (ii) the data that was relied on to deter- was based solely on the merits of the instru- mine the credit rating; and ments being rated, and that such rating was (iii) if applicable, how the nationally rec- an independent evaluation of the risks and ognized statistical rating organization merits of the instrument. used servicer or remittance reports, and with what frequency, to conduct surveil- (r) Credit ratings methodologies lance of the credit rating; and The Commission shall prescribe rules, for the protection of investors and in the public inter- (B) information that can be used by inves- est, with respect to the procedures and meth- tors and other users of credit ratings to bet- odologies, including qualitative and quan- ter understand credit ratings in each class of titative data and models, used by nationally rec- credit rating issued by the nationally recog- ognized statistical rating organizations that re- nized statistical rating organization. quire each nationally recognized statistical rat- (2) Format ing organization— The form developed under paragraph (1) (1) to ensure that credit ratings are deter- shall— mined using procedures and methodologies, in- (A) be easy to use and helpful for users of cluding qualitative and quantitative data and credit ratings to understand the information models, that are— contained in the report; Page 325 TITLE 15—COMMERCE AND TRADE § 78o–7

(B) require the nationally recognized sta- (B) Quantitative content tistical rating organization to provide the Each nationally recognized statistical rat- content described in paragraph (3)(B) in a ing organization shall disclose on the form manner that is directly comparable across developed under this subsection— types of securities; and (i) an explanation or measure of the po- (C) be made readily available to users of tential volatility of the credit rating, in- credit ratings, in electronic or paper form, cluding— as the Commission may, by rule, determine. (I) any factors that might lead to a (3) Content of form change in the credit ratings; and (II) the magnitude of the change that a (A) Qualitative content user can expect under different market Each nationally recognized statistical rat- conditions; ing organization shall disclose on the form (ii) information on the content of the developed under paragraph (1)— rating, including— (i) the credit ratings produced by the na- (I) the historical performance of the tionally recognized statistical rating orga- rating; and nization; (II) the expected probability of default (ii) the main assumptions and principles and the expected loss in the event of de- used in constructing procedures and meth- fault; odologies, including qualitative methodologies and quantitative inputs and as- (iii) information on the sensitivity of the sumptions about the correlation of de- rating to assumptions made by the nation- faults across underlying assets used in rat- ally recognized statistical rating organiza- ing structured products; tion, including— (iii) the potential limitations of the (I) 5 assumptions made in the ratings credit ratings, and the types of risks ex- process that, without accounting for any cluded from the credit ratings that the na- other factor, would have the greatest im- tionally recognized statistical rating orga- pact on a rating if the assumptions were nization does not comment on, including proven false or inaccurate; and liquidity, market, and other risks; (II) an analysis, using specific exam- (iv) information on the uncertainty of ples, of how each of the 5 assumptions the credit rating, including— identified under subclause (I) impacts a (I) information on the reliability, accu- rating; 2 racy, and quality of the data relied on in (iv) such additional information as may determining the credit rating; and be required by the Commission. (II) a statement relating to the extent (4) Due diligence services for asset-backed se- to which data essential to the deter- curities mination of the credit rating were reliable or limited, including— (A) Findings (aa) any limits on the scope of his- The issuer or underwriter of any asset- torical data; and backed security shall make publicly avail- (bb) any limits in accessibility to able the findings and conclusions of any certain documents or other types of in- third-party due diligence report obtained by formation that would have better in- the issuer or underwriter. formed the credit rating; (B) Certification required (v) whether and to what extent third In any case in which third-party due dili- party due diligence services have been gence services are employed by a nationally used by the nationally recognized statis- recognized statistical rating organization, tical rating organization, a description of an issuer, or an underwriter, the person pro- the information that such third party re- viding the due diligence services shall pro- viewed in conducting due diligence serv- vide to any nationally recognized statistical ices, and a description of the findings or rating organization that produces a rating conclusions of such third party; to which such services relate, written cer- (vi) a description of the data about any tification, as provided in subparagraph (C). obligor, issuer, security, or money market (C) Format and content instrument that were relied upon for the The Commission shall establish the appro- purpose of determining the credit rating; priate format and content for the written (vii) a statement containing an overall certifications required under subparagraph assessment of the quality of information (B), to ensure that providers of due diligence available and considered in producing a services have conducted a thorough review rating for an obligor, security, or money of data, documentation, and other relevant market instrument, in relation to the information necessary for a nationally rec- quality of information available to the na- ognized statistical rating organization to tionally recognized statistical rating orga- provide an accurate rating. nization in rating similar issuances; (viii) information relating to conflicts of (D) Disclosure of certification interest of the nationally recognized sta- The Commission shall adopt rules requir- tistical rating organization; and ing a nationally recognized statistical rating (ix) such additional information as the Commission may require. 2 So in original. The word ‘‘and’’ probably should appear. § 78o–7 TITLE 15—COMMERCE AND TRADE Page 326

organization, at the time at which the na- (D) the compensation and promotion poli- tionally recognized statistical rating organi- cies and practices of the nationally recog- zation produces a rating, to disclose the cer- nized statistical rating organization. tification described in subparagraph (B) to (4) Treatment of NRSRO subsidiaries the public in a manner that allows the public to determine the adequacy and level of If a nationally recognized statistical rating due diligence services provided by a third organization is a subsidiary of a parent entity, party. the board of the directors of the parent entity may satisfy the requirements of this sub- (t) Corporate governance, organization, and section by assigning to a committee of such management of conflicts of interest board of directors the duties under paragraph (1) Board of directors (3), if— Each nationally recognized statistical rating (A) at least 1⁄2 of the members of the com- organization shall have a board of directors. mittee (including the chairperson of the (2) Independent directors committee) are independent, as defined in (A) In general this section; and (B) at least 1 member of the committee is At least 1⁄2 of the board of directors, but not fewer than 2 of the members thereof, a user of ratings from a nationally recog- shall be independent of the nationally recognized statistical rating organization. nized statistical rating agency. A portion of (5) Exception authority the independent directors shall include users If the Commission finds that compliance of ratings from a nationally recognized sta- with the provisions of this subsection present tistical rating organization. an unreasonable burden on a small nationally (B) Independence determination recognized statistical rating organization, the In order to be considered independent for Commission may permit the nationally recog- purposes of this subsection, a member of the nized statistical rating organization to dele- board of directors of a nationally recognized gate such responsibilities to a committee that statistical rating organization— includes at least one individual who is a user (i) may not, other than in his or her ca- of ratings of a nationally recognized statis- pacity as a member of the board of direc- tical rating organization. tors or any committee thereof— (u) Duty to report tips alleging material viola- (I) accept any consulting, advisory, or tions of law other compensatory fee from the nationally recognized statistical rating organi- (1) Duty to report zation; or Each nationally recognized statistical rating (II) be a person associated with the na- organization shall refer to the appropriate law tionally recognized statistical rating or- enforcement or regulatory authorities any in- ganization or with any affiliated com- formation that the nationally recognized sta- pany thereof; and tistical rating organization receives from a (ii) shall be disqualified from any delib- third party and finds credible that alleges that eration involving a specific rating in an issuer of securities rated by the nationally which the independent board member has recognized statistical rating organization has a financial interest in the outcome of the committed or is committing a material viola- rating. tion of law that has not been adjudicated by a (C) Compensation and term Federal or State court. The compensation of the independent (2) Rule of construction members of the board of directors of a na- Nothing in paragraph (1) may be construed tionally recognized statistical rating organi- to require a nationally recognized statistical zation shall not be linked to the business rating organization to verify the accuracy of performance of the nationally recognized the information described in paragraph (1). statistical rating organization, and shall be (v) Information from sources other than the is- arranged so as to ensure the independence of suer their judgment. The term of office of the independent directors shall be for a pre- In producing a credit rating, a nationally rec- agreed fixed period, not to exceed 5 years, ognized statistical rating organization shall and shall not be renewable. consider information about an issuer that the (3) Duties of board of directors nationally recognized statistical rating organization has, or receives from a source other than In addition to the overall responsibilities of the issuer or underwriter, that the nationally the board of directors, the board shall over- recognized statistical rating organization finds see— (A) the establishment, maintenance, and credible and potentially significant to a rating enforcement of policies and procedures for decision. determining credit ratings; (June 6, 1934, ch. 404, title I, § 15E, as added Pub. (B) the establishment, maintenance, and L. 109–291, § 4(a), Sept. 29, 2006, 120 Stat. 1329; enforcement of policies and procedures to amended Pub. L. 111–203, title IX, §§ 932(a), 933(a), address, manage, and disclose any conflicts 934, 935, July 21, 2010, 124 Stat. 1872, 1883, 1884.) of interest; (C) the effectiveness of the internal con- REFERENCES IN TEXT trol system with respect to policies and pro- This chapter, referred to in subsecs. (a)(1)(A), (B)(iii), cedures for determining credit ratings; and (c), (e)(2), (f)(2), (3), (g), and (m)(1), was in the original Page 327 TITLE 15—COMMERCE AND TRADE § 78o–7

‘‘this title’’. See References in Text note set out under of Title 12, Banks and Banking, and section 286hh of section 78a of this title. Title 22, Foreign Relations and Intercourse, and enact- The Securities Exchange Act of 1934, referred to in ing provisions set out as notes under this section, sec- subsec. (f)(3), is act June 6, 1934, ch. 404, 48 Stat. 881, as tions 78m and 78o–9 of this title, and section 24a of Title amended, which is classified principally to this chapter 12], the [Securities and Exchange] Commission shall (§ 78a et seq.). For complete classification of this Act to issue final regulations, as required by this subtitle and the Code, see section 78a of this title and Tables. the amendments made by this subtitle, not later than 1 year after the date of enactment of this Act [July 21, AMENDMENTS 2010].’’ 2010—Subsec. (b)(1)(A). Pub. L. 111–203, § 932(a)(1)(A), QUALIFICATION STANDARDS FOR CREDIT RATING substituted ‘‘filed’’ for ‘‘furnished’’ and ‘‘filing’’ for ANALYSTS ‘‘furnishing’’. Subsec. (b)(1)(B). Pub. L. 111–203, § 932(a)(1)(B), sub- Pub. L. 111–203, title IX, § 936, July 21, 2010, 124 Stat. stituted ‘‘filing’’ for ‘‘furnishing’’. 1884, provided that: ‘‘Not later than 1 year after the Subsec. (b)(2). Pub. L. 111–203, § 932(a)(1)(C), sub- date of enactment of this Act [July 21, 2010], the Com- stituted ‘‘file with’’ for ‘‘furnish to’’ in introductory mission shall issue rules that are reasonably designed provisions. to ensure that any person employed by a nationally Subsec. (c)(2). Pub. L. 111–203, § 932(a)(2)(A), inserted recognized statistical rating organization to perform ‘‘any other provision of this section, or’’ after ‘‘Not- credit ratings— withstanding’’ and inserted at end ‘‘Nothing in this ‘‘(1) meets standards of training, experience, and paragraph may be construed to afford a defense against competence necessary to produce accurate ratings for any action or proceeding brought by the Commission to the categories of issuers whose securities the person enforce the antifraud provisions of the securities laws.’’ rates; and Subsec. (c)(3). Pub. L. 111–203, § 932(a)(2)(B), added par. ‘‘(2) is tested for knowledge of the credit rating (3). process.’’ Subsec. (d). Pub. L. 111–203, § 932(a)(3), designated ex- [For definitions of terms used in section 936 of Pub. isting provisions as par. (1), inserted heading, inserted L. 111–203, set out above, see section 5301 of Title 12, ‘‘, or with respect to any person who is associated with, Banks and Banking.] who is seeking to become associated with, or, at the time of the alleged misconduct, who was associated or REVIEW OF RELIANCE ON RATINGS was seeking to become associated with a nationally Pub. L. 111–203, title IX, § 939A, July 21, 2010, 124 Stat. recognized statistical rating organization, the Commis- 1887, provided that: sion, by order, shall censure, place limitations on the ‘‘(a) AGENCY REVIEW.—Not later than 1 year after the activities or functions of such person, suspend for a pe- date of the enactment of this subtitle [July 21, 2010], riod not exceeding 1 year, or bar such person from each Federal agency shall, to the extent applicable, re- being associated with a nationally recognized statis- view— tical rating organization,’’ before ‘‘if the Commission ‘‘(1) any regulation issued by such agency that re- finds’’ and ‘‘bar’’ before ‘‘or revocation is necessary’’, quires the use of an assessment of the credit-worthi- redesignated former pars. (1) to (5) as subpars. (A) to ness of a security or money market instrument; and (E), respectively, of par. (1) and former subpars. (A) and ‘‘(2) any references to or requirements in such regu- (B) of par. (2) as cls. (i) and (ii), respectively, of subpar. lations regarding credit ratings. (B), in subpar. (B), substituted ‘‘filed with’’ for ‘‘fur- ‘‘(b) MODIFICATIONS REQUIRED.—Each such agency nished to’’ in introductory provisions, in subpar. (D), shall modify any such regulations identified by the re- substituted ‘‘file’’ for ‘‘furnish’’, and added subpar. (F) view conducted under subsection (a) to remove any ref- and par. (2). erence to or requirement of reliance on credit ratings Subsec. (h)(3) to (5). Pub. L. 111–203, § 932(a)(4), added and to substitute in such regulations such standard of pars. (3) to (5). credit-worthiness as each respective agency shall deter- Subsec. (j). Pub. L. 111–203, § 932(a)(5), designated ex- mine as appropriate for such regulations. In making isting provisions as par. (1), inserted heading, and such determination, such agencies shall seek to estab- added pars. (2) to (5). lish, to the extent feasible, uniform standards of credit- Subsec. (k). Pub. L. 111–203, § 932(a)(6), substituted worthiness for use by each such agency, taking into ac- ‘‘file with’’ for ‘‘furnish to’’. count the entities regulated by each such agency and Subsec. (l)(2)(A)(i). Pub. L. 111–203, § 932(a)(7), sub- the purposes for which such entities would rely on such stituted ‘‘filed’’ for ‘‘furnished’’. standards of credit-worthiness. Subsec. (m). Pub. L. 111–203, § 933(a), amended subsec. ‘‘(c) REPORT.—Upon conclusion of the review required (m) generally. Prior to amendment, subsec. (m) pro- under subsection (a), each Federal agency shall trans- vided that registration did not constitute a waiver of mit a report to Congress containing a description of rights, privileges, or defenses and that this section any modification of any regulation such agency made could not be construed as creating any private right of pursuant to subsection (b).’’ action. [For definition of ‘‘security’’ as used in section 939A Subsecs. (p) to (t). Pub. L. 111–203, § 932(a)(8), added of Pub. L. 111–203, set out above, see section 5301 of subsecs. (p) to (t) and struck out former subsec. (p) Title 12, Banks and Banking.] which related to applicability date of this section. Subsec. (u). Pub. L. 111–203, § 934, added subsec. (u). REPRESENTATIONS AND WARRANTIES IN ASSET-BACKED Subsec. (v). Pub. L. 111–203, § 935, added subsec. (v). OFFERINGS Pub. L. 111–203, title IX, § 943, July 21, 2010, 124 Stat. EFFECTIVE DATE OF 2010 AMENDMENT 1897, provided that: ‘‘Not later than 180 days after the Amendment by Pub. L. 111–203 effective 1 day after date of enactment of this Act [July 21, 2010], the Secu- July 21, 2010, except as otherwise provided, see section rities and Exchange Commission shall prescribe regula- 4 of Pub. L. 111–203, set out as an Effective Date note tions on the use of representations and warranties in under section 5301 of Title 12, Banks and Banking. the market for asset-backed securities (as that term is defined in section 3(a)(77) of the Securities Exchange REGULATIONS Act of 1934 [15 U.S.C. 78c(a)(77)], as added by this sub- Pub. L. 111–203, title IX, § 937, July 21, 2010, 124 Stat. title) that— 1885, provided that: ‘‘Unless otherwise specifically pro- ‘‘(1) require each national [sic] recognized statis- vided in this subtitle [subtitle C (§§ 931–939H) of title IX tical rating organization to include in any report ac- of Pub. L. 111–203, enacting sections 78o–8 and 78o–9 of companying a credit rating a description of— this title, amending this section and sections 78c, 78u–4, ‘‘(A) the representations, warranties, and enforce- and 80a–6 of this title, sections 24a, 1817, 1831e, and 4519 ment mechanisms available to investors; and § 78o–8 TITLE 15—COMMERCE AND TRADE Page 328

‘‘(B) how they differ from the representations, ‘‘(2) their ratings, publications, writings, analyses, warranties, and enforcement mechanisms in issu- and reports customarily relate to the purchase and ances of similar securities; and sale of securities traded on securities exchanges and ‘‘(2) require any securitizer (as that term is defined in interstate over-the-counter markets, securities is- in section 15G(a) of the Securities Exchange Act of sued by companies engaged in business in interstate 1934 [15 U.S.C. 78o–11(a)], as added by this subtitle) to commerce, and securities issued by national banks disclose fulfilled and unfulfilled repurchase requests and member banks of the Federal Reserve System; across all trusts aggregated by the securitizer, so ‘‘(3) the foregoing transactions occur in such vol- that investors may identify asset originators with ume as substantially to affect interstate commerce, clear underwriting deficiencies.’’ the securities markets, the national banking system, [For definitions of terms used in section 943 of Pub. and the national economy; L. 111–203, set out above, see section 5301 of Title 12, ‘‘(4) the oversight of such credit rating agencies Banks and Banking.] serves the compelling interest of investor protection; ‘‘(5) the 2 largest credit rating agencies serve the FINDINGS vast majority of the market, and additional competi- Pub. L. 111–203, title IX, § 931, July 21, 2010, 124 Stat. tion is in the public interest; and 1872, provided that: ‘‘Congress finds the following: ‘‘(6) the Commission has indicated that it needs ‘‘(1) Because of the systemic importance of credit statutory authority to oversee the credit rating in- ratings and the reliance placed on credit ratings by dustry.’’ individual and institutional investors and financial SECURITIES AND EXCHANGE COMMISSION ANNUAL regulators, the activities and performances of credit REPORT rating agencies, including nationally recognized statistical rating organizations, are matters of national Pub. L. 109–291, § 6, Sept. 29, 2006, 120 Stat. 1338, pro- public interest, as credit rating agencies are central vided that: ‘‘The Commission shall submit an annual to capital formation, investor confidence, and the ef- report to the Committee on Banking, Housing, and ficient performance of the United States economy. Urban Affairs of the Senate and the Committee on Fi- ‘‘(2) Credit rating agencies, including nationally nancial Services of the House of Representatives that, recognized statistical rating organizations, play a with respect to the year to which the report relates— critical ‘gatekeeper’ role in the debt market that is ‘‘(1) identifies applicants for registration under sec- functionally similar to that of securities analysts, tion 15E of the Securities Exchange Act of 1934 [15 who evaluate the quality of securities in the equity U.S.C. 78o–7], as added by this Act; market, and auditors, who review the financial state- ‘‘(2) specifies the number of and actions taken on ments of firms. Such role justifies a similar level of such applications; and public oversight and accountability. ‘‘(3) specifies the views of the Commission on the ‘‘(3) Because credit rating agencies perform evalua- state of competition, transparency, and conflicts of tive and analytical services on behalf of clients, interest among nationally recognized statistical rat- much as other financial ‘gatekeepers’ do, the activi- ing organizations.’’ ties of credit rating agencies are fundamentally com- DEFINITIONS mercial in character and should be subject to the same standards of liability and oversight as apply to Pub. L. 109–291, § 3(b), Sept. 29, 2006, 120 Stat. 1328, pro- auditors, securities analysts, and investment bank- vided that: ‘‘As used in this Act [see Short Title of 2006 ers. Amendment note set out under section 78a of this ‘‘(4) In certain activities, particularly in advising title]— arrangers of structured financial products on poten- ‘‘(1) the term ‘Commission’ means the Securities tial ratings of such products, credit rating agencies and Exchange Commission; and face conflicts of interest that need to be carefully ‘‘(2) the term ‘nationally recognized statistical rat- monitored and that therefore should be addressed ex- ing organization’ has the same meaning as in section plicitly in legislation in order to give clearer author- 3(a)(62) of the Securities Exchange Act of 1934 [15 ity to the Securities and Exchange Commission. U.S.C. 78c(a)(62)], as added by this Act.’’ ‘‘(5) In the recent financial crisis, the ratings on o structured financial products have proven to be inac- § 78 –8. Universal ratings symbols curate. This inaccuracy contributed significantly to (a) Rulemaking the mismanagement of risks by financial institutions and investors, which in turn adversely impacted the The Commission shall require, by rule, each health of the economy in the United States and nationally recognized statistical rating organi- around the world. Such inaccuracy necessitates in- zation to establish, maintain, and enforce writ- creased accountability on the part of credit rating ten policies and procedures that— agencies.’’ (1) assess the probability that an issuer of a [For definitions of terms used in section 931 of Pub. security or money market instrument will de- L. 111–203, set out above, see section 5301 of Title 12, fault, fail to make timely payments, or other- Banks and Banking.] Pub. L. 109–291, § 2, Sept. 29, 2006, 120 Stat. 1327, pro- wise not make payments to investors in ac- vided that: ‘‘Upon the basis of facts disclosed by the cordance with the terms of the security or record and report of the Securities and Exchange Com- money market instrument; mission made pursuant to section 702 of the Sarbanes- (2) clearly define and disclose the meaning of Oxley Act of 2002 [Pub. L. 107–204] (116 Stat. 797), hear- any symbol used by the nationally recognized ings before the Committee on Banking, Housing, and statistical rating organization to denote a Urban Affairs of the Senate and the Committee on Fi- credit rating; and nancial Services of the House of Representatives during (3) apply any symbol described in paragraph the 108th and 109th Congresses, comment letters to the (2) in a manner that is consistent for all types concept releases and proposed rules of the Commission, and facts otherwise disclosed and ascertained, Congress of securities and money market instruments finds that credit rating agencies are of national impor- for which the symbol is used. tance, in that, among other things— (b) Rule of construction ‘‘(1) their ratings, publications, writings, analyses, Nothing in this section shall prohibit a nation- and reports are furnished and distributed, and their contracts, subscription agreements, and other ar- ally recognized statistical rating organization rangements with clients are negotiated and per- from using distinct sets of symbols to denote formed, by the use of the mails and other means and credit ratings for different types of securities or instrumentalities of interstate commerce; money market instruments. Page 329 TITLE 15—COMMERCE AND TRADE § 78o–9

(Pub. L. 111–203, title IX, § 938, July 21, 2010, 124 (2) any recommendations for regulatory or Stat. 1885.) statutory changes that the Commission determines should be made to implement the find- CODIFICATION ings of the study required under subsection Section was enacted as part of the Investor Protec- (b). tion and Securities Reform Act of 2010 and also as part of the Dodd-Frank Wall Street Reform and Consumer (d) Rulemaking Protection Act, and not as part of the Securities Ex- (1) Rulemaking change Act of 1934 which comprises this chapter. After submission of the report under sub- EFFECTIVE DATE section (c), the Commission shall, by rule, as Section effective 1 day after July 21, 2010, except as the Commission determines is necessary or ap- otherwise provided, see section 4 of Pub. L. 111–203, set propriate in the public interest or for the pro- out as a note under section 5301 of Title 12, Banks and tection of investors, establish a system for the Banking. assignment of nationally recognized statis- DEFINITIONS tical rating organizations to determine the initial credit ratings of structured finance For definitions of terms used in this section, see sec- products, in a manner that prevents the is- tion 5301 of Title 12, Banks and Banking. suer, sponsor, or underwriter of the structured § 78o–9. Study and rulemaking on assigned credit finance product from selecting the nationally ratings recognized statistical rating organization that will determine the initial credit ratings and (a) Definition monitor such credit ratings. In issuing any In this section, the term ‘‘structured finance rule under this paragraph, the Commission product’’ means an asset-backed security, as de- shall give thorough consideration to the provi- fined in section 3(a)(77) of the Securities Ex- sions of section 15E(w) of the Securities Ex- change Act of 1934 [15 U.S.C. 78c(a)(77)], as added change Act of 1934, as that provision would by section 941,1 and any structured product have been added by section 939D of H.R. 4173 based on an asset-backed security, as deter- (111th Congress), as passed by the Senate on mined by the Commission, by rule. May 20, 2010, and shall implement the system (b) Study described in such section 939D unless the Com- The Commission shall carry out a study of— mission determines that an alternative system (1) the credit rating process for structured would better serve the public interest and the finance products and the conflicts of interest protection of investors. associated with the issuer-pay and the sub- (2) Rule of construction scriber-pay models; Nothing in this subsection may be construed (2) the feasibility of establishing a system in to limit or suspend any other rulemaking au- which a public or private utility or a self-regu- thority of the Commission. latory organization assigns nationally recognized statistical rating organizations to deter- (Pub. L. 111–203, title IX, § 939F, July 21, 2010, 124 mine the credit ratings of structured finance Stat. 1889.) products, including— REFERENCES IN TEXT (A) an assessment of potential mechanisms Section 941, referred to in subsec. (a), means section for determining fees for the nationally rec- 941 of Pub. L. 111–203. ognized statistical rating organizations; Section 15E of the Securities Exchange Act of 1934, (B) appropriate methods for paying fees to referred to in subsec. (d)(1), is classified to section 78o–7 the nationally recognized statistical rating of this title. organizations; H.R. 4173, referred to in subsec. (d)(1), became Pub. L. (C) the extent to which the creation of 111–203. As enacted, section 939D of Pub. L. 111–203 did such a system would be viewed as the cre- not add a subsec. (w) to section 15E of the Securities ation of moral hazard by the Federal Gov- Exchange Act of 1934 (15 U.S.C. 78o–7) but enacted provisions set out as a note below. For the provisions of ernment; and section 15E(w) of the Securities Exchange Act of 1934, (D) any constitutional or other issues con- as that provision would have been added by section cerning the establishment of such a system; 939D of H.R. 4173 (111th Congress), as passed by the Sen- (3) the range of metrics that could be used to ate on May 20, 2010, see 156 Cong. Rec. 80 at pp. S4338, determine the accuracy of credit ratings; and S4339 (daily ed. May 25, 2010). (4) alternative means for compensating na- CODIFICATION tionally recognized statistical rating organiza- Section was enacted as part of the Investor Protec- tions that would create incentives for accu- tion and Securities Reform Act of 2010 and also as part rate credit ratings. of the Dodd-Frank Wall Street Reform and Consumer (c) Report and recommendation Protection Act, and not as part of the Securities Ex- change Act of 1934 which comprises this chapter. Not later than 24 months after July 21, 2010, the Commission shall submit to the Committee EFFECTIVE DATE on Banking, Housing, and Urban Affairs of the Section effective 1 day after July 21, 2010, except as Senate and the Committee on Financial Serv- otherwise provided, see section 4 of Pub. L. 111–203, set ices of the House of Representatives a report out as a note under section 5301 of Title 12, Banks and that contains— Banking. (1) the findings of the study required under GOVERNMENT ACCOUNTABILITY OFFICE STUDY ON subsection (b); and ALTERNATIVE BUSINESS MODELS Pub. L. 111–203, title IX, § 939D, July 21, 2010, 124 Stat. 1 See References in Text note below. 1888, provided that: § 78o–10 TITLE 15—COMMERCE AND TRADE Page 330

‘‘(a) STUDY.—The Comptroller General of the United ble to security-based swap dealers and major States shall conduct a study on alternative means for security-based swap participants, including compensating nationally recognized statistical rating rules that limit the activities of non-bank se- organizations in order to create incentives for nation- curity-based swap dealers and major security- ally recognized statistical rating organizations to provide more accurate credit ratings, including any statu- based swap participants. tory changes that would be required to facilitate the (5) Transition use of an alternative means of compensation. Not later than 1 year after July 21, 2010, the ‘‘(b) REPORT.—Not later than 18 months after the date Commission shall issue rules under this sec- of enactment of this Act [July 21, 2010], the Comptrol- tion to provide for the registration of secu- ler General shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Com- rity-based swap dealers and major security- mittee on Financial Services of the House of Rep- based swap participants. resentatives a report on the results of the study con- (6) Statutory disqualification ducted under subsection (a), including recommenda- Except to the extent otherwise specifically tions, if any, for providing incentives to credit rating provided by rule, regulation, or order of the agencies to improve the credit rating process.’’ [For definition of ‘‘nationally recognized statistical Commission, it shall be unlawful for a secu- rating organization’’ as used in section 939D of Pub. L. rity-based swap dealer or a major security- 111–203, set out above, see section 5301 of Title 12, Banks based swap participant to permit any person and Banking.] associated with a security-based swap dealer or a major security-based swap participant DEFINITIONS who is subject to a statutory disqualification For definitions of terms used in this section, see sec- to effect or be involved in effecting security- tion 5301 of Title 12, Banks and Banking. based swaps on behalf of the security-based § 78o–10. Registration and regulation of security- swap dealer or major security-based swap par- based swap dealers and major security-based ticipant, if the security-based swap dealer or swap participants major security-based swap participant knew, or in the exercise of reasonable care should (a) Registration have known, of the statutory disqualification. (1) Security-based swap dealers (c) Dual registration It shall be unlawful for any person to act as (1) Security-based swap dealer a security-based swap dealer unless the person Any person that is required to be registered is registered as a security-based swap dealer as a security-based swap dealer under this sec- with the Commission. tion shall register with the Commission, re- (2) Major security-based swap participants gardless of whether the person also is reg- It shall be unlawful for any person to act as istered with the Commodity Futures Trading a major security-based swap participant un- Commission as a swap dealer. less the person is registered as a major secu- (2) Major security-based swap participant rity-based swap participant with the Commis- Any person that is required to be registered sion. as a major security-based swap participant (b) Requirements under this section shall register with the Com- mission, regardless of whether the person also (1) In general is registered with the Commodity Futures A person shall register as a security-based Trading Commission as a major swap partici- swap dealer or major security-based swap par- pant. ticipant by filing a registration application (d) Rulemaking with the Commission. (1) In general (2) Contents The Commission shall adopt rules for per- (A) In general sons that are registered as security-based swap The application shall be made in such form dealers or major security-based swap partici- and manner as prescribed by the Commis- pants under this section. sion, and shall contain such information, as (2) Exception for prudential requirements the Commission considers necessary con- (A) In general cerning the business in which the applicant The Commission may not prescribe rules is or will be engaged. imposing prudential requirements on secu- (B) Continual reporting rity-based swap dealers or major security- A person that is registered as a security- based swap participants for which there is a based swap dealer or major security-based prudential regulator. swap participant shall continue to submit to (B) Applicability the Commission reports that contain such Subparagraph (A) does not limit the au- information pertaining to the business of thority of the Commission to prescribe rules the person as the Commission may require. as directed under this section. (3) Expiration (e) Capital and margin requirements Each registration under this section shall (1) In general expire at such time as the Commission may (A) Security-based swap dealers and major prescribe by rule or regulation. security-based swap participants that are (4) Rules banks Except as provided in subsections (d) and (e), Each registered security-based swap dealer the Commission may prescribe rules applica- and major security-based swap participant Page 331 TITLE 15—COMMERCE AND TRADE § 78o–10

for which there is not a prudential regulator arising from the use of security-based swaps shall meet such minimum capital require- that are not cleared, the requirements im- ments and minimum initial and variation posed under paragraph (2) shall— margin requirements as the prudential regu- (i) help ensure the safety and soundness lator shall by rule or regulation prescribe of the security-based swap dealer or major under paragraph (2)(A). security-based swap participant; and (B) Security-based swap dealers and major (ii) be appropriate for the risk associated security-based swap participants that are with the non-cleared security-based swaps not banks held as a security-based swap dealer or major security-based swap participant. Each registered security-based swap dealer and major security-based swap participant (B) Rule of construction for which there is not a prudential regulator (i) In general shall meet such minimum capital require- Nothing in this section shall limit, or be ments and minimum initial and variation construed to limit, the authority— margin requirements as the Commission (I) of the Commission to set financial shall by rule or regulation prescribe under responsibility rules for a broker or deal- paragraph (2)(B). er registered pursuant to section 78o(b) (2) Rules of this title (except for section 78o(b)(11) (A) Security-based swap dealers and major thereof) in accordance with section security-based swap participants that are 78o(c)(3) of this title; or banks (II) of the Commodity Futures Trading The prudential regulators, in consultation Commission to set financial responsibil- with the Commission and the Commodity ity rules for a futures commission mer- Futures Trading Commission, shall adopt chant or introducing broker registered rules for security-based swap dealers and pursuant to section 4f(a) of the Commod- major security-based swap participants, ity Exchange Act [7 U.S.C. 6f(a)] (except with respect to their activities as a swap for section 4f(a)(3) [7 U.S.C. 6f(a)(3)] dealer or major swap participant, for which thereof) in accordance with section 4f(b) there is a prudential regulator imposing— of the Commodity Exchange Act [7 (i) capital requirements; and U.S.C. 6f(b)]. (ii) both initial and variation margin re- (ii) Futures commission merchants and quirements on all security-based swaps other dealers that are not cleared by a registered clear- A futures commission merchant, intro- ing agency. ducing broker, broker, or dealer shall (B) Security-based swap dealers and major maintain sufficient capital to comply with security-based swap participants that are the stricter of any applicable capital re- not banks quirements to which such futures commis- The Commission shall adopt rules for secu- sion merchant, introducing broker, broker, rity-based swap dealers and major security- or dealer is subject to under this chapter based swap participants, with respect to or the Commodity Exchange Act [7 U.S.C. their activities as a swap dealer or major 1 et seq.]. swap participant, for which there is not a (C) Margin requirements prudential regulator imposing— In prescribing margin requirements under (i) capital requirements; and this subsection, the prudential regulator (ii) both initial and variation margin re- with respect to security-based swap dealers quirements on all swaps that are not and major security-based swap participants cleared by a registered clearing agency. that are depository institutions, and the (C) Capital Commission with respect to security-based In setting capital requirements for a per- swap dealers and major security-based swap son that is designated as a security-based participants that are not depository institu- swap dealer or a major security-based swap tions shall permit the use of noncash collat- participant for a single type or single class eral, as the regulator or the Commission de- or category of security-based swap or activi- termines to be consistent with— ties, the prudential regulator and the Com- (i) preserving the financial integrity of mission shall take into account the risks as- markets trading security-based swaps; and sociated with other types of security-based (ii) preserving the stability of the United swaps or classes of security-based swaps or States financial system. categories of security-based swaps engaged (D) Comparability of capital and margin re- in and the other activities conducted by that quirements person that are not otherwise subject to regulation applicable to that person by virtue (i) In general of the status of the person. The prudential regulators, the Commis- (3) Standards for capital and margin sion, and the Securities and Exchange Commission shall periodically (but not (A) In general less frequently than annually) consult on To offset the greater risk to the security- minimum capital requirements and mini- based swap dealer or major security-based mum initial and variation margin require- swap participant and the financial system ments. § 78o–10 TITLE 15—COMMERCE AND TRADE Page 332

(ii) Comparability shall maintain a complete audit trail for con- The entities described in clause (i) shall, ducting comprehensive and accurate trade re- to the maximum extent practicable, estab- constructions. lish and maintain comparable minimum (5) Rules capital requirements and minimum initial The Commission shall adopt rules governing and variation margin requirements, in- daily trading records for security-based swap cluding the use of noncash collateral, for— (I) security-based swap dealers; and dealers and major security-based swap partici- (II) major security-based swap participants. pants. (h) Business conduct standards (f) Reporting and recordkeeping (1) In general (1) In general Each registered security-based swap dealer Each registered security-based swap dealer and major security-based swap participant and major security-based swap participant— shall conform with such business conduct (A) shall make such reports as are required standards as prescribed in paragraph (3) and as by the Commission, by rule or regulation, may be prescribed by the Commission by rule regarding the transactions and positions and or regulation that relate to— financial condition of the registered secu- (A) fraud, manipulation, and other abusive rity-based swap dealer or major security- practices involving security-based swaps (in- based swap participant; cluding security-based swaps that are of- (B)(i) for which there is a prudential regu- fered but not entered into); lator, shall keep books and records of all ac- (B) diligent supervision of the business of tivities related to the business as a security- the registered security-based swap dealer based swap dealer or major security-based and major security-based swap participant; swap participant in such form and manner (C) adherence to all applicable position and for such period as may be prescribed by limits; and the Commission by rule or regulation; and (ii) for which there is no prudential regu- (D) such other matters as the Commission lator, shall keep books and records in such determines to be appropriate. form and manner and for such period as may (2) Responsibilities with respect to special en- be prescribed by the Commission by rule or tities regulation; and (A) Advising special entities (C) shall keep books and records described in subparagraph (B) open to inspection and A security-based swap dealer or major se- examination by any representative of the curity-based swap participant that acts as Commission. an advisor to 1 special entity regarding a se- (2) Rules curity-based swap shall comply with the requirements of paragraph (4) with respect to The Commission shall adopt rules governing such special entity. reporting and recordkeeping for security-based swap dealers and major security-based swap (B) Entering of security-based swaps with re- participants. spect to special entities (g) Daily trading records A security-based swap dealer that enters (1) In general into or offers to enter into 1 security-based swap with a special entity shall comply with Each registered security-based swap dealer the requirements of paragraph (5) with re- and major security-based swap participant shall maintain daily trading records of the se- spect to such special entity. curity-based swaps of the registered security- (C) Special entity defined based swap dealer and major security-based For purposes of this subsection, the term swap participant and all related records (in- ‘‘special entity’’ means— cluding related cash or forward transactions) (i) a Federal agency; and recorded communications, including elec- (ii) a State, State agency, city, county, tronic mail, instant messages, and recordings municipality, or other political subdivi- of telephone calls, for such period as may be sion of a State or; required by the Commission by rule or regula- (iii) any employee benefit plan, as de- tion. fined in section 3 of the Employee Retire- (2) Information requirements ment Income Security Act of 1974 (29 The daily trading records shall include such U.S.C. 1002); information as the Commission shall require (iv) any governmental plan, as defined in by rule or regulation. section 3 of the Employee Retirement In- (3) Counterparty records come Security Act of 1974 (29 U.S.C. 1002); or Each registered security-based swap dealer (v) any endowment, including an endow- and major security-based swap participant ment that is an organization described in shall maintain daily trading records for each counterparty in a manner and form that is section 501(c)(3) of title 26. identifiable with each security-based swap (3) Business conduct requirements transaction. Business conduct requirements adopted by (4) Audit trail the Commission shall— Each registered security-based swap dealer and major security-based swap participant 1 So in original. Probably should be followed by ‘‘a’’. Page 333 TITLE 15—COMMERCE AND TRADE § 78o–10

(A) establish a duty for a security-based termination that any security-based swap swap dealer or major security-based swap recommended by the security-based swap participant to verify that any counterparty dealer is in the best interests of the special meets the eligibility standards for an eligi- entity, including information relating to— ble contract participant; (i) the financial status of the special en- (B) require disclosure by the security- tity; based swap dealer or major security-based (ii) the tax status of the special entity; swap participant to any counterparty to the (iii) the investment or financing objec- transaction (other than a security-based tives of the special entity; and swap dealer, major security-based swap par- (iv) any other information that the Com- ticipant, security-based swap dealer, or mission may prescribe by rule or regula- major security-based swap participant) of— tion. (i) information about the material risks (5) Special requirements for security-based and characteristics of the security-based swap dealers as counterparties to special swap; entities (ii) any material incentives or conflicts (A) In general of interest that the security-based swap Any security-based swap dealer or major dealer or major security-based swap par- security-based swap participant that offers ticipant may have in connection with the to or enters into a security-based swap with security-based swap; and a special entity shall— (iii)(I) for cleared security-based swaps, (i) comply with any duty established by upon the request of the counterparty, re- the Commission for a security-based swap ceipt of the daily mark of the transaction dealer or major security-based swap par- from the appropriate derivatives clearing ticipant, with respect to a counterparty organization; and that is an eligible contract participant (II) for uncleared security-based swaps, within the meaning of subclause (I) or (II) receipt of the daily mark of the trans- of clause (vii) of section 1a(18) of the Com- action from the security-based swap dealer modity Exchange Act [7 U.S.C. 1a(18)], that or the major security-based swap partici- requires the security-based swap dealer or pant; major security-based swap participant to have a reasonable basis to believe that the (C) establish a duty for a security-based counterparty that is a special entity has swap dealer or major security-based swap an independent representative that— participant to communicate in a fair and (I) has sufficient knowledge to evalu- balanced manner based on principles of fair ate the transaction and risks; dealing and good faith; and (II) is not subject to a statutory dis- (D) establish such other standards and re- qualification; quirements as the Commission may deter- (III) is independent of the security- mine are appropriate in the public interest, based swap dealer or major security- for the protection of investors, or otherwise based swap participant; in furtherance of the purposes of this chap- (IV) undertakes a duty to act in the ter. best interests of the counterparty it rep- (4) Special requirements for security-based resents; swap dealers acting as advisors (V) makes appropriate disclosures; (VI) will provide written representa- (A) In general tions to the special entity regarding fair It shall be unlawful for a security-based pricing and the appropriateness of the swap dealer or major security-based swap transaction; and participant— (VII) in the case of employee benefit (i) to employ any device, scheme, or arti- plans subject to the Employee Retire- fice to defraud any special entity or pro- ment Income Security act 2 of 1974 [29 spective customer who is a special entity; U.S.C. 1001 et seq.], is a fiduciary as de- (ii) to engage in any transaction, prac- fined in section 3 of that Act (29 U.S.C. tice, or course of business that operates as 1002); and a fraud or deceit on any special entity or (ii) before the initiation of the trans- prospective customer who is a special en- action, disclose to the special entity in tity; or writing the capacity in which the security- (iii) to engage in any act, practice, or based swap dealer is acting. course of business that is fraudulent, de- (B) Commission authority ceptive, or manipulative. The Commission may establish such other (B) Duty standards and requirements under this para- Any security-based swap dealer that acts graph as the Commission may determine are as an advisor to a special entity shall have appropriate in the public interest, for the a duty to act in the best interests of the spe- protection of investors, or otherwise in fur- cial entity. therance of the purposes of this chapter. (C) Reasonable efforts (6) Rules Any security-based swap dealer that acts The Commission shall prescribe rules under as an advisor to a special entity shall make this subsection governing business conduct reasonable efforts to obtain such information as is necessary to make a reasonable de- 2 So in original. Probably should be capitalized. § 78o–10 TITLE 15—COMMERCE AND TRADE Page 334

standards for security-based swap dealers and (B) provide the information to the Com- major security-based swap participants. mission and to the prudential regulator for (7) Applicability the security-based swap dealer or major security-based swap participant, as applicable, This subsection shall not apply with respect on request. to a transaction that is— (5) Conflicts of interest (A) initiated by a special entity on an exchange or security-based swaps execution fa- The security-based swap dealer and major cility; and security-based swap participant shall imple- (B) the security-based swap dealer or ment conflict-of-interest systems and proce- major security-based swap participant does dures that— not know the identity of the counterparty to (A) establish structural and institutional the transaction. safeguards to ensure that the activities of any person within the firm relating to re- (i) Documentation standards search or analysis of the price or market for (1) In general any security-based swap or acting in a role Each registered security-based swap dealer of providing clearing activities or making and major security-based swap participant determinations as to accepting clearing cus- shall conform with such standards as may be tomers are separated by appropriate infor- prescribed by the Commission, by rule or regu- mational partitions within the firm from the lation, that relate to timely and accurate con- review, pressure, or oversight of persons firmation, processing, netting, documentation, whose involvement in pricing, trading, or and valuation of all security-based swaps. clearing activities might potentially bias their judgment or supervision and con- (2) Rules travene the core principles of open access The Commission shall adopt rules governing and the business conduct standards de- documentation standards for security-based scribed in this chapter; and swap dealers and major security-based swap (B) address such other issues as the Com- participants. mission determines to be appropriate. (j) Duties (6) Antitrust considerations Each registered security-based swap dealer Unless necessary or appropriate to achieve and major security-based swap participant shall, the purposes of this chapter, the security- at all times, comply with the following require- based swap dealer or major security-based ments: swap participant shall not— (A) adopt any process or take any action (1) Monitoring of trading that results in any unreasonable restraint of The security-based swap dealer or major se- trade; or curity-based swap participant shall monitor (B) impose any material anticompetitive its trading in security-based swaps to prevent burden on trading or clearing. violations of applicable position limits. (7) Rules (2) Risk management procedures The Commission shall prescribe rules under The security-based swap dealer or major se- this subsection governing duties of security- curity-based swap participant shall establish based swap dealers and major security-based robust and professional risk management sys- swap participants. tems adequate for managing the day-to-day (k) Designation of chief compliance officer business of the security-based swap dealer or (1) In general major security-based swap participant. Each security-based swap dealer and major (3) Disclosure of general information security-based swap participant shall des- The security-based swap dealer or major se- ignate an individual to serve as a chief compli- curity-based swap participant shall disclose to ance officer. the Commission and to the prudential regu- (2) Duties lator for the security-based swap dealer or The chief compliance officer shall— major security-based swap participant, as ap- (A) report directly to the board or to the plicable, information concerning— senior officer of the security-based swap (A) terms and conditions of its security- dealer or major security-based swap partici- based swaps; pant; (B) security-based swap trading oper- (B) review the compliance of the security- ations, mechanisms, and practices; based swap dealer or major security-based (C) financial integrity protections relating swap participant with respect to the secu- to security-based swaps; and rity-based swap dealer and major security- (D) other information relevant to its trad- based swap participant requirements de- ing in security-based swaps. scribed in this section; (C) in consultation with the board of direc- (4) Ability to obtain information tors, a body performing a function similar to The security-based swap dealer or major se- the board, or the senior officer of the organi- curity-based swap participant shall— zation, resolve any conflicts of interest that (A) establish and enforce internal systems may arise; and procedures to obtain any necessary in- (D) be responsible for administering each formation to perform any of the functions policy and procedure that is required to be described in this section; and established pursuant to this section; Page 335 TITLE 15—COMMERCE AND TRADE § 78o–10

(E) ensure compliance with this chapter major security-based swap participants (including regulations) relating to security- that are depository institutions has cause based swaps, including each rule prescribed to believe that such security-based swap by the Commission under this section; dealer or major security-based swap par- (F) establish procedures for the remedi- ticipant may have engaged in conduct that ation of noncompliance issues identified by constitutes a violation of the nonpruden- the chief compliance officer through any— tial requirements of this section or rules (i) compliance office review; adopted by the Commission thereunder, (ii) look-back; the agency may recommend in writing to (iii) internal or external audit finding; the Commission that the Commission ini- (iv) self-reported error; or tiate an enforcement proceeding as au- (v) validated complaint; and thorized under this chapter. The recommendation shall be accompanied by a writ- (G) establish and follow appropriate proce- ten explanation of the concerns giving rise dures for the handling, management re- to the recommendation. sponse, remediation, retesting, and closing of noncompliance issues. (ii) Violations of prudential requirements (3) Annual reports If the Commission has cause to believe (A) In general that a securities-based swap dealer or major securities-based swap participant In accordance with rules prescribed by the that has a prudential regulator may have Commission, the chief compliance officer engaged in conduct that constitute 3 a vio- shall annually prepare and sign a report that lation of the prudential requirements of contains a description of— subsection (e) or rules adopted thereunder, (i) the compliance of the security-based the Commission may recommend in writ- swap dealer or major swap participant ing to the prudential regulator that the with respect to this chapter (including reg- prudential regulator initiate an enforce- ulations); and ment proceeding as authorized under this (ii) each policy and procedure of the se- chapter. The recommendation shall be ac- curity-based swap dealer or major secu- companied by a written explanation of the rity-based swap participant of the chief concerns giving rise to the recommenda- compliance officer (including the code of tion. ethics and conflict of interest policies). (D) Backstop enforcement authority (B) Requirements (i) Initiation of enforcement proceeding by A compliance report under subparagraph prudential regulator (A) shall— If the Commission does not initiate an (i) accompany each appropriate financial enforcement proceeding before the end of report of the security-based swap dealer or the 90-day period beginning on the date on major security-based swap participant which the Commission receives a written that is required to be furnished to the report under subsection 4 (C)(i), the pru- Commission pursuant to this section; and dential regulator may initiate an enforce- (ii) include a certification that, under ment proceeding. penalty of law, the compliance report is accurate and complete. (ii) Initiation of enforcement proceeding by Commission (l) Enforcement and administrative proceeding authority If the prudential regulator does not initiate an enforcement proceeding before the (1) Primary enforcement authority end of the 90-day period beginning on the (A) Securities and Exchange Commission date on which the prudential regulator re- Except as provided in subparagraph (B), ceives a written report under subsection 4 (C), or (D), the Commission shall have pri- (C)(ii), the Commission may initiate an en- mary authority to enforce subtitle B, and forcement proceeding. the amendments made by subtitle B of the (2) Censure, denial, suspension; notice and Wall Street Transparency and Accountabil- hearing ity Act of 2010, with respect to any person. The Commission, by order, shall censure, (B) Prudential regulators place limitations on the activities, functions, The prudential regulators shall have ex- or operations of, or revoke the registration of clusive authority to enforce the provisions any security-based swap dealer or major secu- of subsection (e) and other prudential re- rity-based swap participant that has reg- quirements of this chapter (including risk istered with the Commission pursuant to sub- management standards), with respect to se- section (b) if the Commission finds, on the curity-based swap dealers or major security- record after notice and opportunity for hear- based swap participants for which they are ing, that such censure, placing of limitations, the prudential regulator. or revocation is in the public interest and that such security-based swap dealer or major secu- (C) Referral rity-based swap participant, or any person as- (i) Violations of nonprudential require- sociated with such security-based swap dealer ments

If the appropriate Federal banking agen- 3 So in original. Probably should be ‘‘constitutes’’. cy for security-based swap dealers or 4 So in original. Probably should be ‘‘subparagraph’’. § 78o–11 TITLE 15—COMMERCE AND TRADE Page 336

or major security-based swap participant ef- come, or to be, associated with a security- fecting or involved in effecting transactions in based swap dealer or major security-based security-based swaps on behalf of such secu- swap participant in contravention of such rity-based swap dealer or major security-based order; or swap participant, whether prior or subsequent (B) for any security-based swap dealer or to becoming so associated— major security-based swap participant to (A) has committed or omitted any act, or permit such a person, without the consent of is subject to an order or finding, enumerated the Commission, to become or remain a per- in subparagraph (A), (D), or (E) of paragraph son associated with the security-based swap (4) of section 78o(b) of this title; dealer or major security-based swap partici- (B) has been convicted of any offense speci- pant in contravention of such order, if such fied in subparagraph (B) of such paragraph security-based swap dealer or major secu- (4) within 10 years of the commencement of rity-based swap participant knew, or in the the proceedings under this subsection; exercise of reasonable care should have (C) is enjoined from any action, conduct, known, of such order. or practice specified in subparagraph (C) of (June 6, 1934, ch. 404, title I, § 15F, as added Pub. such paragraph (4); (D) is subject to an order or a final order L. 111–203, title VII, § 764(a), July 21, 2010, 124 specified in subparagraph (F) or (H), respec- Stat. 1784.) tively, of such paragraph (4); or REFERENCES IN TEXT (E) has been found by a foreign financial This chapter, referred to in subsecs. (e)(3)(B)(ii), regulatory authority to have committed or (j)(5)(A), (6), (k)(2)(E), (3)(A)(i), and (l)(1)(B), (C), was in omitted any act, or violated any foreign the original ‘‘this title’’, and this chapter, referred to statute or regulation, enumerated in sub- in subsec. (h)(3)(D), (5)(B), was in the original ‘‘this paragraph (G) of such paragraph (4). Act’’. See References in Text note set out under section (3) Associated persons 78a of this title. The Commodity Exchange Act, referred to in subsec. With respect to any person who is associ- (e)(3)(B)(ii), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, ated, who is seeking to become associated, or, which is classified generally to chapter 1 (§ 1 et seq.) of at the time of the alleged misconduct, who Title 7, Agriculture. For complete classification of this was associated or was seeking to become asso- Act to the Code, see section 1 of Title 7 and Tables. ciated with a security-based swap dealer or The Employee Retirement Income Security Act of major security-based swap participant for the 1974, referred to in subsec. (h)(5)(A)(i)(VII), is Pub. L. purpose of effecting or being involved in ef- 93–406, Sept. 2, 1974, 88 Stat. 829, which is classified principally to chapter 18 (§ 1001 et seq.) of Title 29, Labor. fecting security-based swaps on behalf of such For complete classification of this Act to the Code, see security-based swap dealer or major security- Short Title note set out under section 1001 of Title 29 based swap participant, the Commission, by and Tables. order, shall censure, place limitations on the Subtitle B of the Wall Street Transparency and Ac- activities or functions of such person, or sus- countability Act of 2010, referred to in subsec. (l)(1)(A), pend for a period not exceeding 12 months, or is subtitle B (§§ 761–774) of title VII of Pub. L. 111–203, bar such person from being associated with a July 21, 2010, 124 Stat. 1754, which enacted this section security-based swap dealer or major security- and subchapter II (§ 8341 et seq.) of chapter 109 and sections 78c–3 to 78c–5, 78j–2, and 78m–1 of this title, based swap participant, if the Commission amended sections 77b, 77b–1, 77e, 77q, 78c, 78c–1, 78f, 78i, finds, on the record after notice and oppor- 78j, 78m, 78o, 78p, 78q–1, 78t, 78u–1, 78u–2, 78bb, 78dd, tunity for a hearing, that such censure, plac- 78mm, 80a–2, and 80b–2 of this title, enacted provisions ing of limitations, suspension, or bar is in the set out as a note under section 77b of this title, and public interest and that such person— amended provisions set out as a note under section 78c (A) has committed or omitted any act, or of this title. For complete classification of subtitle B is subject to an order or finding, enumerated to the Code, see Tables. in subparagraph (A), (D), or (E) of paragraph EFFECTIVE DATE (4) of section 78o(b) of this title; (B) has been convicted of any offense speci- Section effective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle B fied in subparagraph (B) of such paragraph (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- (4) within 10 years of the commencement of making, not less than 60 days after publication of the the proceedings under this subsection; final rule or regulation implementing such provision of (C) is enjoined from any action, conduct, subtitle B, see section 774 of Pub. L. 111–203, set out as or practice specified in subparagraph (C) of an Effective Date of 2010 Amendment note under sec- such paragraph (4); tion 77b of this title. (D) is subject to an order or a final order o specified in subparagraph (F) or (H), respec- § 78 –11. Credit risk retention tively, of such paragraph (4); or (a) Definitions (E) has been found by a foreign financial In this section— regulatory authority to have committed or (1) the term ‘‘Federal banking agencies’’ omitted any act, or violated any foreign means the Office of the Comptroller of the statute or regulation, enumerated in sub- Currency, the Board of Governors of the Fed- paragraph (G) of such paragraph (4). eral Reserve System, and the Federal Deposit (4) Unlawful conduct Insurance Corporation; It shall be unlawful— (2) the term ‘‘insured depository institution’’ (A) for any person as to whom an order has the same meaning as in section 1813(c) of under paragraph (3) is in effect, without the title 12; consent of the Commission, willfully to be- (3) the term ‘‘securitizer’’ means— Page 337 TITLE 15—COMMERCE AND TRADE § 78o–11

(A) an issuer of an asset-backed security; (C) specify— or (i) the permissible forms of risk reten- (B) a person who organizes and initiates an tion for purposes of this section; asset-backed securities transaction by sell- (ii) the minimum duration of the risk re- ing or transferring assets, either directly or tention required under this section; and indirectly, including through an affiliate, to (iii) that a securitizer is not required to the issuer; and retain any part of the credit risk for an asset that is transferred, sold or conveyed (4) the term ‘‘originator’’ means a person through the issuance of an asset-backed who— security by the securitizer, if all of the as- (A) through the extension of credit or sets that collateralize the asset-backed se- otherwise, creates a financial asset that curity are qualified residential mortgages; collateralizes an asset-backed security; and (B) sells an asset directly or indirectly to (D) apply, regardless of whether the a securitizer. securitizer is an insured depository institution; (b) Regulations required (E) with respect to a commercial mort- (1) In general gage, specify the permissible types, forms, Not later than 270 days after July 21, 2010, and amounts of risk retention that would the Federal banking agencies and the Commis- meet the requirements of subparagraph (B), sion shall jointly prescribe regulations to re- which in the determination of the Federal quire any securitizer to retain an economic in- banking agencies and the Commission may terest in a portion of the credit risk for any include— asset that the securitizer, through the issu- (i) retention of a specified amount or ance of an asset-backed security, transfers, percentage of the total credit risk of the sells, or conveys to a third party. asset; (ii) retention of the first-loss position by (2) Residential mortgages a third-party purchaser that specifically Not later than 270 days after July 21, 2010, negotiates for the purchase of such first the Federal banking agencies, the Commis- loss position, holds adequate financial re- sion, the Secretary of Housing and Urban De- sources to back losses, provides due dili- velopment, and the Federal Housing Finance gence on all individual assets in the pool Agency, shall jointly prescribe regulations to before the issuance of the asset-backed se- require any securitizer to retain an economic curities, and meets the same standards for interest in a portion of the credit risk for any risk retention as the Federal banking residential mortgage asset that the agencies and the Commission require of securitizer, through the issuance of an asset- the securitizer; backed security, transfers, sells, or conveys to (iii) a determination by the Federal a third party. banking agencies and the Commission that (c) Standards for regulations the underwriting standards and controls for the asset are adequate; and (1) Standards (iv) provision of adequate representa- The regulations prescribed under subsection tions and warranties and related enforce- (b) shall— ment mechanisms; and 1 (A) prohibit a securitizer from directly or (F) establish appropriate standards for re- indirectly hedging or otherwise transferring tention of an economic interest with respect the credit risk that the securitizer is re- to collateralized debt obligations, securities quired to retain with respect to an asset; collateralized by collateralized debt obliga- (B) require a securitizer to retain— tions, and similar instruments collateralized (i) not less than 5 percent of the credit by other asset-backed securities; and risk for any asset— (G) provide for— (I) that is not a qualified residential (i) a total or partial exemption of any mortgage that is transferred, sold, or securitization, as may be appropriate in conveyed through the issuance of an the public interest and for the protection asset-backed security by the securitizer; of investors; or (ii) a total or partial exemption for the (II) that is a qualified residential mort- securitization of an asset issued or guaran- gage that is transferred, sold, or con- teed by the United States, or an agency of veyed through the issuance of an asset- the United States, as the Federal banking backed security by the securitizer, if 1 or agencies and the Commission jointly de- more of the assets that collateralize the termine appropriate in the public interest asset-backed security are not qualified and for the protection of investors, except residential mortgages; or that, for purposes of this clause, the Fed- (ii) less than 5 percent of the credit risk eral National Mortgage Association and for an asset that is not a qualified residen- the Federal Home Loan Mortgage Corpora- tial mortgage that is transferred, sold, or tion are not agencies of the United States; conveyed through the issuance of an asset- (iii) a total or partial exemption for any backed security by the securitizer, if the asset-backed security that is a security is- originator of the asset meets the under- sued or guaranteed by any State of the writing standards prescribed under paragraph (2)(B); 1 So in original. The word ‘‘and’’ probably should not appear. § 78o–11 TITLE 15—COMMERCE AND TRADE Page 338

United States, or by any political subdivi- (2) Applicable standards sion of a State or territory, or by any pub- Any exemption, exception, or adjustment lic instrumentality of a State or territory adopted or issued by the Federal banking that is exempt from the registration re- agencies and the Commission under this para- quirements of the Securities Act of 1933 [15 graph shall— U.S.C. 77a et seq.] by reason of section (A) help ensure high quality underwriting 3(a)(2) of that Act (15 U.S.C. 77c(a)(2)), or a standards for the securitizers and origina- security defined as a qualified scholarship tors of assets that are securitized or avail- funding bond in section 150(d)(2) of title 26, able for securitization; and as may be appropriate in the public inter- (B) encourage appropriate risk manage- est and for the protection of investors; and ment practices by the securitizers and origi- (iv) the allocation of risk retention obli- nators of assets, improve the access of con- gations between a securitizer and an origi- sumers and businesses to credit on reason- nator in the case of a securitizer that pur- able terms, or otherwise be in the public in- chases assets from an originator, as the terest and for the protection of investors. Federal banking agencies and the Commis- sion jointly determine appropriate. (3) Certain institutions and programs exempt (2) Asset classes (A) Farm credit system institutions (A) Asset classes Notwithstanding any other provision of The regulations prescribed under sub- this section, the requirements of this section section (b) shall establish asset classes with shall not apply to any loan or other finan- separate rules for securitizers of different cial asset made, insured, guaranteed, or pur- classes of assets, including residential mort- chased by any institution that is subject to gages, commercial mortgages, commercial the supervision of the Farm Credit Adminis- loans, auto loans, and any other class of as- tration, including the Federal Agricultural sets that the Federal banking agencies and Mortgage Corporation. the Commission deem appropriate. (B) Other Federal programs (B) Contents This section shall not apply to any resi- For each asset class established under sub- dential, multifamily, or health care facility paragraph (A), the regulations prescribed mortgage loan asset, or securitization based under subsection (b) shall include underwrit- directly or indirectly on such an asset, ing standards established by the Federal which is insured or guaranteed by the United banking agencies that specify the terms, States or an agency of the United States. conditions, and characteristics of a loan For purposes of this subsection, the Federal within the asset class that indicate a low National Mortgage Association, the Federal credit risk with respect to the loan. Home Loan Mortgage Corporation, and the (d) Originators Federal home loan banks shall not be con- In determining how to allocate risk retention sidered an agency of the United States. obligations between a securitizer and an origina- (4) Exemption for qualified residential mort- tor under subsection (c)(1)(E)(iv), the Federal gages banking agencies and the Commission shall— (A) In general (1) reduce the percentage of risk retention obligations required of the securitizer by the The Federal banking agencies, the Com- percentage of risk retention obligations remission, the Secretary of Housing and Urban quired of the originator; and Development, and the Director of the Fed- (2) consider— eral Housing Finance Agency shall jointly (A) whether the assets sold to the issue regulations to exempt qualified resi- securitizer have terms, conditions, and char- dential mortgages from the risk retention acteristics that reflect low credit risk; requirements of this subsection. (B) whether the form or volume of trans- (B) Qualified residential mortgage actions in securitization markets creates in- The Federal banking agencies, the Com- centives for imprudent origination of the mission, the Secretary of Housing and Urban type of loan or asset to be sold to the Development, and the Director of the Fed- securitizer; and (C) the potential impact of the risk reten- eral Housing Finance Agency shall jointly tion obligations on the access of consumers define the term ‘‘qualified residential mort- and businesses to credit on reasonable gage’’ for purposes of this subsection, taking terms, which may not include the transfer of into consideration underwriting and product credit risk to a third party. features that historical loan performance data indicate result in a lower risk of de- (e) Exemptions, exceptions, and adjustments fault, such as— (1) In general (i) documentation and verification of the The Federal banking agencies and the Com- financial resources relied upon to qualify mission may jointly adopt or issue exemp- the mortgagor; tions, exceptions, or adjustments to the rules (ii) standards with respect to— issued under this section, including exemp- (I) the residual income of the mortga- tions, exceptions, or adjustments for classes of gor after all monthly obligations; institutions or assets relating to the risk re- (II) the ratio of the housing payments tention requirement and the prohibition on of the mortgagor to the monthly income hedging under subsection (c)(1). of the mortgagor; Page 339 TITLE 15—COMMERCE AND TRADE § 78p

(III) the ratio of total monthly install- (i) Effective date of regulations ment payments of the mortgagor to the The regulations issued under this section shall income of the mortgagor; become effective— (iii) mitigating the potential for pay- (1) with respect to securitizers and origina- ment shock on adjustable rate mortgages tors of asset-backed securities backed by resi- through product features and underwriting dential mortgages, 1 year after the date on standards; which final rules under this section are pub- (iv) mortgage guarantee insurance or lished in the Federal Register; and other types of insurance or credit enhance- (2) with respect to securitizers and origina- ment obtained at the time of origination, tors of all other classes of asset-backed securi- to the extent such insurance or credit en- ties, 2 years after the date on which final rules hancement reduces the risk of default; and under this section are published in the Federal (v) prohibiting or restricting the use of Register. balloon payments, negative amortization, prepayment penalties, interest-only pay- (June 6, 1934, ch. 404, title I, § 15G, as added Pub. ments, and other features that have been L. 111–203, title IX, § 941(b), July 21, 2010, 124 demonstrated to exhibit a higher risk of Stat. 1891.) borrower default. REFERENCES IN TEXT (C) Limitation on definition The Securities Act of 1933, referred to in subsec. The Federal banking agencies, the Com- (c)(1)(G)(iii), is title I of act May 27, 1933, ch. 38, 48 Stat. mission, the Secretary of Housing and Urban 74, which is classified generally to subchapter I (§ 77a et Development, and the Director of the Fed- seq.) of chapter 2A of this title. For complete classifica- eral Housing Finance Agency in defining the tion of this Act to the Code, see section 77a of this title term ‘‘qualified residential mortgage’’, as re- and Tables. quired by subparagraph (B), shall define that Section 129C(c)(2) of the Truth in Lending Act, as term to be no broader than the definition amended by the Consumer Financial Protection Act of ‘‘qualified mortgage’’ as the term is defined 2010, referred to in subsec. (e)(4)(C), probably means under section 129C(c)(2) of the Truth in section 129C(b)(2) of Pub. L. 90–321, as amended by title X of Pub. L. 111–203, which defines ‘‘qualified mort- Lending Act, as amended by the Consumer gage’’ and is classified to section 1639c(b)(2) of this 2 Financial Protection Act of 2010, and regu- title. lations adopted thereunder. (5) Condition for qualified residential mort- EFFECTIVE DATE gage exemption Section effective 1 day after July 21, 2010, except as The regulations issued under paragraph (4) otherwise provided, see section 4 of Pub. L. 111–203, set shall provide that an asset-backed security out as a note under section 5301 of Title 12, Banks and that is collateralized by tranches of other Banking. asset-backed securities shall not be exempt § 78p. Directors, officers, and principal stock- from the risk retention requirements of this holders subsection. (6) Certification (a) Disclosures required The Commission shall require an issuer to (1) Directors, officers, and principal stockhold- certify, for each issuance of an asset-backed ers required to file security collateralized exclusively by qualified Every person who is directly or indirectly residential mortgages, that the issuer has the beneficial owner of more than 10 percent of evaluated the effectiveness of the internal su- any class of any equity security (other than an pervisory controls of the issuer with respect to exempted security) which is registered pursu- the process for ensuring that all assets that ant to section 78l of this title, or who is a di- collateralize the asset-backed security are rector or an officer of the issuer of such secu- qualified residential mortgages. rity, shall file the statements required by this (f) Enforcement subsection with the Commission. The regulations issued under this section shall (2) Time of filing be enforced by— (1) the appropriate Federal banking agency, The statements required by this subsection with respect to any securitizer that is an in- shall be filed— sured depository institution; and (A) at the time of the registration of such (2) the Commission, with respect to any security on a national securities exchange or securitizer that is not an insured depository by the effective date of a registration state- institution. ment filed pursuant to section 78l(g) of this (g) Authority of Commission title; (B) within 10 days after he or she becomes The authority of the Commission under this such beneficial owner, director, or officer, or section shall be in addition to the authority of within such shorter time as the Commission the Commission to otherwise enforce the securi- may establish by rule; ties laws. (C) if there has been a change in such own- (h) Authority to coordinate on rulemaking ership, or if such person shall have pur- The Chairperson of the Financial Stability chased or sold a security-based swap agree- Oversight Council shall coordinate all joint rule- ment involving such equity security, before making required under this section. the end of the second business day following the day on which the subject transaction has 2 See References in Text note below. been executed, or at such other time as the § 78p TITLE 15—COMMERCE AND TRADE Page 340

Commission shall establish, by rule, in any swap involved, or any transaction or trans- case in which the Commission determines actions which the Commission by rules and reg- that such 2-day period is not feasible. ulations may exempt as not comprehended with- (3) Contents of statements in the purpose of this subsection. A statement filed— (c) Conditions for sale of security by beneficial (A) under subparagraph (A) or (B) of para- owner, director, or officer graph (2) shall contain a statement of the It shall be unlawful for any such beneficial amount of all equity securities of such is- owner, director, or officer, directly or indirectly, suer of which the filing person is the bene- to sell any equity security of such issuer (other ficial owner; and than an exempted security), if the person selling (B) under subparagraph (C) of such para- the security or his principal (1) does not own the graph shall indicate ownership by the filing security sold, or (2) if owning the security, does person at the date of filing, any such not deliver it against such sale within twenty changes in such ownership, and such pur- days thereafter, or does not within five days chases and sales of the security-based swap after such sale deposit it in the mails or other agreements or security-based swaps as have usual channels of transportation; but no person occurred since the most recent such filing shall be deemed to have violated this subsection under such subparagraph. if he proves that notwithstanding the exercise of (4) Electronic filing and availability good faith he was unable to make such delivery Beginning not later than 1 year after July or deposit within such time, or that to do so 30, 2002— would cause undue inconvenience or expense. (A) a statement filed under subparagraph (d) Securities held in investment account, trans- (C) of paragraph (2) shall be filed electroni- actions in ordinary course of business, and cally; establishment of primary or secondary mar- (B) the Commission shall provide each ket such statement on a publicly accessible The provisions of subsection (b) of this section Internet site not later than the end of the shall not apply to any purchase and sale, or sale business day following that filing; and and purchase, and the provisions of subsection (C) the issuer (if the issuer maintains a (c) of this section shall not apply to any sale, of corporate website) shall provide that state- an equity security not then or theretofore held ment on that corporate website, not later by him in an investment account, by a dealer in than the end of the business day following the ordinary course of his business and incident that filing. to the establishment or maintenance by him of (b) Profits from purchase and sale of security a primary or secondary market (otherwise than within six months on a national securities exchange or an ex- For the purpose of preventing the unfair use of change exempted from registration under sec- information which may have been obtained by tion 78e of this title) for such security. The such beneficial owner, director, or officer by rea- Commission may, by such rules and regulations son of his relationship to the issuer, any profit as it deems necessary or appropriate in the pub- realized by him from any purchase and sale, or lic interest, define and prescribe terms and con- any sale and purchase, of any equity security of ditions with respect to securities held in an in- such issuer (other than an exempted security) or vestment account and transactions made in the a security-based swap agreement involving any ordinary course of business and incident to the such equity security within any period of less establishment or maintenance of a primary or than six months, unless such security or secu- secondary market. rity-based swap agreement was acquired in good (e) Application of section to foreign or domestic faith in connection with a debt previously con- arbitrage transactions tracted, shall inure to and be recoverable by the The provisions of this section shall not apply issuer, irrespective of any intention on the part to foreign or domestic arbitrage transactions of such beneficial owner, director, or officer in unless made in contravention of such rules and entering into such transaction of holding the se- regulations as the Commission may adopt in curity or security-based swap agreement pur- order to carry out the purposes of this section. chased or of not repurchasing the security or security-based swap agreement sold for a period (f) Treatment of transactions in security futures exceeding six months. Suit to recover such prof- products it may be instituted at law or in equity in any The provisions of this section shall apply to court of competent jurisdiction by the issuer, or ownership of and transactions in security fu- by the owner of any security of the issuer in the tures products. name and in behalf of the issuer if the issuer (g) Limitation on Commission authority shall fail or refuse to bring such suit within sixty days after request or shall fail diligently The authority of the Commission under this to prosecute the same thereafter; but no such section with respect to security-based swap suit shall be brought more than two years after agreements shall be subject to the restrictions the date such profit was realized. This sub- and limitations of section 78c–1(b) of this title. section shall not be construed to cover any (June 6, 1934, ch. 404, title I, § 16, 48 Stat. 896; transaction where such beneficial owner was not Pub. L. 88–467, § 8, Aug. 20, 1964, 78 Stat. 579; Pub. such both at the time of the purchase and sale, L. 106–554, § 1(a)(5) [title II, § 208(b)(3), title III, or the sale and purchase, of the security or secu- § 303(g), (h)], Dec. 21, 2000, 114 Stat. 2763, rity-based swap agreement or a security-based 2763A–435, 2763A–455, 2763A–456; Pub. L. 107–204, Page 341 TITLE 15—COMMERCE AND TRADE § 78q title IV, § 403(a), July 30, 2002, 116 Stat. 788; Pub. vising provisions to extend application to security- L. 111–203, title VII, § 762(d)(5), title IX, § 929R(b), based swap agreements. July 21, 2010, 124 Stat. 1761, 1867.) Subsec. (f). Pub. L. 106–554, § 1(a)(5) [title II, § 208(b)(3)], added subsec. (f). AMENDMENT OF SECTION Subsec. (g). Pub. L. 106–554, § 1(a)(5) [title III, § 303(h)], Unless otherwise provided, amendment by added subsec. (g). subtitle B (§§ 761–774) of title VII of Pub. L. 1964—Subsec. (a). Pub. L. 88–467, § 8(a), substituted ‘‘registered pursuant to section 78l of this title’’ for 111–203 effective on the later of 360 days after ‘‘registered on a national securities exchange’’, ‘‘Com- July 21, 2010, or, to the extent a provision of mission (and, if such security is registered on a na- subtitle B requires a rulemaking, not less than tional securities exchange, also with the exchange)’’ for 60 days after publication of the final rule or ‘‘exchange (and a duplicate original thereof with the regulation implementing such provision of sub- Commission)’’, ‘‘a change’’ for ‘‘any change’’, and title B, see 2010 Amendment notes and Effective ‘‘Commission (and if such security is registered on a Date of 2010 Amendment note below. national securities exchange, shall also file with the exchange) a statement’’ for ‘‘exchange a statement AMENDMENTS (and a duplicate original thereof with the Commis- sion)’’, and inserted ‘‘on a national securities exchange 2010—Subsec. (a)(1). Pub. L. 111–203, § 929R(b)(1), or by the effective date of a registration statement struck out ‘‘(and, if such security is registered on a na- filed pursuant to section 78l(g) of this title’’ after ‘‘reg- tional securities exchange, also with the exchange)’’ istration of such security’’. after ‘‘Commission’’. Subsec. (a)(2)(B). Pub. L. 111–203, § 929R(b)(2), inserted Subsecs. (d), (e). Pub. L. 88–467, § 8(b), added subsec. ‘‘, or within such shorter time as the Commission may (d) and redesignated former subsec. (d) as (e). establish by rule’’ after ‘‘officer’’. EFFECTIVE DATE OF 2010 AMENDMENT Subsec. (a)(2)(C). Pub. L. 111–203, § 762(d)(5)(A), struck out ‘‘(as defined in section 206(b) of the Gramm-Leach- Amendment by section 929R(b) of Pub. L. 111–203 ef- Bliley Act (15 U.S.C. 78c note))’’ after ‘‘security-based fective 1 day after July 21, 2010, except as otherwise swap agreement’’. provided, see section 4 of Pub. L. 111–203, set out as an Subsec. (a)(3)(B). Pub. L. 111–203, § 762(d)(5)(B), which Effective Date note under section 5301 of Title 12, directed amendment of subpar. (B) by inserting ‘‘or se- Banks and Banking. curity-based swaps’’ after ‘‘security-based swap agree- Amendment by section 762(d)(5) of Pub. L. 111–203 ef- ment’’, was executed by making the insertion after ‘‘se- fective on the later of 360 days after July 21, 2010, or, curity-based swap agreements’’, to reflect the probable to the extent a provision of subtitle B (§§ 761–774) of intent of Congress. title VII of Pub. L. 111–203 requires a rulemaking, not Subsec. (b). Pub. L. 111–203, § 762(d)(5)(D), which di- less than 60 days after publication of the final rule or rected amendment of subsec. (b) by substituting ‘‘or a regulation implementing such provision of subtitle B, security-based swap’’ for ‘‘(as defined in section 206B of see section 774 of Pub. L. 111–203, set out as a note the Gramm-Leach Bliley Act)’’ in third sentence, was under section 77b of this title. executed by making the substitution for ‘‘(as defined in EFFECTIVE DATE OF 2002 AMENDMENT section 206B of the Gramm-Leach-Bliley Act)’’ in third sentence, to reflect the probable intent of Congress. Pub. L. 107–204, title IV, § 403(b), July 30, 2002, 116 Pub. L. 111–203, § 762(d)(5)(C), struck out ‘‘(as defined Stat. 789, provided that: ‘‘The amendment made by this in section 206B of the Gramm-Leach-Bliley Act)’’ after section [amending this section] shall be effective 30 ‘‘security-based swap agreement’’ in first sentence. days after the date of the enactment of this Act [July Subsec. (g). Pub. L. 111–203, § 762(d)(5)(E), struck out 30, 2002].’’ ‘‘(as defined in section 206B of the Gramm-Leach-Bliley EFFECTIVE DATE OF 1964 AMENDMENT Act)’’ after ‘‘security-based swap agreements’’. 2002—Pub. L. 107–204 reenacted section catchline Amendment by Pub. L. 88–467 effective Aug. 20, 1964, without change, added heading and text of subsec. (a), see section 13 of Pub. L. 88–467, set out as a note under and struck out former subsec. (a) which read as follows: section 78c of this title. ‘‘Every person who is directly or indirectly the bene- TRANSFER OF FUNCTIONS ficial owner of more than 10 per centum of any class of any equity security (other than an exempted security) For transfer of functions of Securities and Exchange which is registered pursuant to section 78l of this title, Commission, with certain exceptions, to Chairman of or who is a director or an officer of the issuer of such such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, security, shall file, at the time of the registration of eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under such security on a national securities exchange or by section 78d of this title. the effective date of a registration statement filed pursuant to section 78l(g) of this title, or within ten days § 78q. Records and reports after he becomes such beneficial owner, director, or of- (a) Rules and regulations ficer, a statement with the Commission (and, if such security is registered on a national securities exchange, (1) Every national securities exchange, mem- also with the exchange) of the amount of all equity se- ber thereof, broker or dealer who transacts a curities of such issuer of which he is the beneficial business in securities through the medium of owner, and within ten days after the close of each cal- any such member, registered securities associa- endar month thereafter, if there has been a change in tion, registered broker or dealer, registered mu- such ownership or if such person shall have purchased 1 or sold a security-based swap agreement (as defined in nicipal securities dealer municipal advisor,, section 206B of the Gramm-Leach-Bliley Act) involving registered securities information processor, reg- such equity security during such month, shall file with istered transfer agent, nationally recognized the Commission (and if such security is registered on a statistical rating organization, and registered national securities exchange, shall also file with the clearing agency and the Municipal Securities exchange), a statement indicating his ownership at the Rulemaking Board shall make and keep for pre- close of the calendar month and such changes in his scribed periods such records, furnish such copies ownership and such purchases and sales of such secu- thereof, and make and disseminate such reports rity-based swap agreements as have occurred during such calendar month.’’ as the Commission, by rule, prescribes as nec- 2000—Subsecs. (a), (b). Pub. L. 106–554, § 1(a)(5) [title III, § 303(g)], amended subsecs. (a) and (b) generally, re- 1 So in original. § 78q TITLE 15—COMMERCE AND TRADE Page 342 essary or appropriate in the public interest, for ducted by the Commodity Futures Trading the protection of investors, or otherwise in fur- Commission in order to avoid unnecessary therance of the purposes of this chapter. Any re- regulatory duplication or undue regulatory port that a nationally recognized statistical rat- burdens for such broker or dealer or ex- ing organization is required by Commission change. rules under this paragraph to make and dissemi- (2) Furnishing data and reports to CFTC nate to the Commission shall be deemed fur- The Commission shall notify the Commodity nished to the Commission. Futures Trading Commission of any examina- (2) Every registered clearing agency shall also tion conducted of any broker or dealer reg- make and keep for prescribed periods such istered pursuant to section 78o(b)(11) of this records, furnish such copies thereof, and make title, exchange registered pursuant to section and disseminate such reports, as the appropriate 78f(g) of this title, or national securities asso- regulatory agency for such clearing agency, by ciation registered pursuant to section 78o–3(k) rule, prescribes as necessary or appropriate for of this title and, upon request, furnish to the the safeguarding of securities and funds in the Commodity Futures Trading Commission any custody or control of such clearing agency or for examination report and data supplied to, or which it is responsible. prepared by, the Commission in connection (3) Every registered transfer agent shall also with such examination. make and keep for prescribed periods such rec- (3) Use of CFTC reports ords, furnish such copies thereof, and make such reports as the appropriate regulatory agency for Prior to conducting an examination under such transfer agent, by rule, prescribes as nec- paragraph (1), the Commission shall use the essary or appropriate in furtherance of the pur- reports of examinations, if the information poses of section 78q–1 of this title. available therein is sufficient for the purposes of the examination, of— (b) Records subject to examination (A) any broker or dealer registered pursu- (1) Procedures for cooperation with other ant to section 78o(b)(11) of this title; agencies (B) exchange 3 registered pursuant to sec- All records of persons described in sub- tion 78f(g) of this title; or section (a) of this section are subject at any (C) national 4 securities association reg- time, or from time to time, to such reasonable istered pursuant to section 78o–3(k) of this periodic, special, or other examinations by title; representatives of the Commission and the ap- that is made by the Commodity Futures Trad- propriate regulatory agency for such persons ing Commission, a national securities associa- as the Commission or the appropriate regu- tion registered pursuant to section 78o–3(k) of latory agency for such persons deems nec- this title, or an exchange registered pursuant essary or appropriate in the public interest, to section 78f(g) of this title. for the protection of investors, or otherwise in (4) Rules of construction furtherance of the purposes of this chapter: (A) Notwithstanding any other provision of Provided, however, That the Commission shall, this subsection, the records of a broker or prior to conducting any such examination of dealer registered pursuant to section 78o(b)(11) a— of this title, an exchange registered pursuant (A) registered clearing agency, registered to section 78f(g) of this title, or a national se- transfer agent, or registered municipal secu- curities association registered pursuant to rities dealer for which it is not the appro- section 78o–3(k) of this title described in this priate regulatory agency, give notice to the subparagraph shall not be subject to routine appropriate regulatory agency for such periodic examinations by the Commission. clearing agency, transfer agent, or munici- (B) Any recordkeeping rules adopted under pal securities dealer of such proposed exam- this subsection for a broker or dealer reg- ination and consult with such appropriate istered pursuant to section 78o(b)(11) of this regulatory agency concerning the feasibility title, an exchange registered pursuant to sec- and desirability of coordinating such exam- tion 78f(g) of this title, or a national securities ination with examinations conducted by association registered pursuant to section such appropriate regulatory agency with a 78o–3(k) of this title shall be limited to records view to avoiding unnecessary regulatory du- with respect to persons, accounts, agreements, plication or undue regulatory burdens for contracts, and transactions involving security such clearing agency, transfer agent, or mu- futures products. nicipal securities dealer; or (C) Nothing in the proviso in paragraph (1) (B) broker or dealer registered pursuant to shall be construed to impair or limit (other section 78o(b)(11) of this title, exchange reg- than by the requirement of prior consultation) istered pursuant to section 78f(g) of this the power of the Commission under this subtitle, or national securities association reg- section to examine any clearing agency, trans- istered pursuant to section 78o–3(k) of this fer agent, or municipal securities dealer or to title, give notice to the Commodity Futures affect in any way the power of the Commission Trading Commission of such proposed exam- under any other provision of this chapter or ination and consults 2 with the Commodity otherwise to inspect, examine, or investigate Futures Trading Commission concerning the any such clearing agency, transfer agent, or feasibility and desirability of coordinating municipal securities dealer. such examination with examinations con- 3 So in original. Probably should be preceded by ‘‘an’’. 2 So in original. Probably should be ‘‘consult’’. 4 So in original. Probably should be preceded by ‘‘a’’. Page 343 TITLE 15—COMMERCE AND TRADE § 78q

(c) Copies of reports filed with other regulatory tional market system and national system for agencies the clearance and settlement of securities trans- (1) Every clearing agency, transfer agent, and actions, may— municipal securities dealer for which the Com- (A) with respect to any person who is a mission is not the appropriate regulatory agen- member of or participant in more than one self-regulatory organization, relieve any such cy shall (A) file with the appropriate regulatory self-regulatory organization of any respon- agency for such clearing agency, transfer agent, sibility under this chapter (i) to receive regu- or municipal securities dealer a copy of any ap- latory reports from such person, (ii) to exam- plication, notice, proposal, report, or document ine such person for compliance, or to enforce filed with the Commission by reason of its being compliance by such person, with specified pro- a clearing agency, transfer agent, or municipal visions of this chapter, the rules and regula- securities dealer and (B) file with the Commis- tions thereunder, and its own rules, or (iii) to sion a copy of any application, notice, proposal, carry out other specified regulatory functions report, or document filed with such appropriate with respect to such person, and regulatory agency by reason of its being a clear- (B) allocate among self-regulatory organiza- ing agency, transfer agent, or municipal securi- tions the authority to adopt rules with respect ties dealer. The Municipal Securities Rule- to matters as to which, in the absence of such making Board shall file with each agency enu- allocation, such self-regulatory organizations merated in section 78c(a)(34)(A) of this title cop- share authority under this chapter. ies of every proposed rule change filed with the In making any such rule or entering any such Commission pursuant to section 78s(b) of this order, the Commission shall take into consider- title. ation the regulatory capabilities and procedures (2) The appropriate regulatory agency for a of the self-regulatory organizations, availability clearing agency, transfer agent, or municipal se- of staff, convenience of location, unnecessary curities dealer for which the Commission is not regulatory duplication, and such other factors the appropriate regulatory agency shall file as the Commission may consider germane to the with the Commission notice of the commence- protection of investors, cooperation and coordi- ment of any proceeding and a copy of any order nation among self-regulatory organizations, and entered by such appropriate regulatory agency the development of a national market system against any clearing agency, transfer agent, mu- and a national system for the clearance and set- nicipal securities dealer, or person associated tlement of securities transactions. The Commis- with a transfer agent or municipal securities sion, by rule or order, as it deems necessary or dealer, and the Commission shall file with such appropriate in the public interest and for the appropriate regulatory agency, if any, notice of protection of investors, may require any self- the commencement of any proceeding and a regulatory organization relieved of any respon- copy of any order entered by the Commission sibility pursuant to this paragraph, and any per- against the clearing agency, transfer agent, or son with respect to whom such responsibility re- municipal securities dealer, or against any per- lates, to take such steps as are specified in any son associated with a transfer agent or munici- such rule or order to notify customers of, and pal securities dealer for which the agency is the persons doing business with, such person of the appropriate regulatory agency. limited nature of such self-regulatory organiza- (3) The Commission and the appropriate regu- tion’s responsibility for such person’s acts, prac- latory agency for a clearing agency, transfer tices, and course of business. agent, or municipal securities dealer for which (2) A self-regulatory organization shall furnish the Commission is not the appropriate regu- copies of any report of examination of any per- latory agency shall each notify the other and son who is a member of or a participant in such make a report of any examination conducted by self-regulatory organization to any other self- it of such clearing agency, transfer agent, or regulatory organization of which such person is municipal securities dealer, and, upon request, a member or in which such person is a partici- furnish to the other a copy of such report and pant upon the request of such person, such other any data supplied to it in connection with such self-regulatory organization, or the Commission. examination. (e) Balance sheet and income statement; other fi- (4) The Commission or the appropriate regu- nancial statements and information latory agency may specify that documents re- (1)(A) Every registered broker or dealer shall quired to be filed pursuant to this subsection annually file with the Commission a balance with the Commission or such agency, respec- sheet and income statement certified by a 5 inde- tively, may be retained by the originating clear- pendent public accounting firm, or by a reg- ing agency, transfer agent, or municipal securi- istered public accounting firm if the firm is re- ties dealer, or filed with another appropriate quired to be registered under the Sarbanes- regulatory agency. The Commission or the ap- Oxley Act of 2002,,1 prepared on a calendar or fis- propriate regulatory agency (as the case may cal year basis, and such other financial state- be) making such a specification shall continue ments (which shall, as the Commission specifies, to have access to the document on request. be certified) and information concerning its fi- (d) Self-regulatory organizations nancial condition as the Commission, by rule (1) The Commission, by rule or order, as it may prescribe as necessary or appropriate in the deems necessary or appropriate in the public in- public interest or for the protection of investors. terest and for the protection of investors, to fos- (B) Every registered broker and dealer shall ter cooperation and coordination among self- annually send to its customers its certified bal- regulatory organizations, or to remove impediments to and foster the development of a na- 5 So in original. Probably should be ‘‘an’’. § 78q TITLE 15—COMMERCE AND TRADE Page 344 ance sheet and such other financial statements propriate processing. The Commission, by rule, and information concerning its financial condi- may exempt from the provisions of this para- tion as the Commission, by rule, may prescribe graph upon specified terms, conditions, and peri- pursuant to subsection (a) of this section. ods, any class of partners, directors, officers, or (C) The Commission, by rule or order, may employees of any such member, broker, dealer, conditionally or unconditionally exempt any transfer agent, clearing agency, securities infor- registered broker or dealer, or class of such bro- mation processor, national securities exchange, kers or dealers, from any provision of this para- or national securities association, if the Com- graph if the Commission determines that such mission finds that such action is not inconsist- exemption is consistent with the public interest ent with the public interest or the protection of and the protection of investors. investors. Notwithstanding any other provision (2) The Commission, by rule, as it deems nec- of law, in providing identification and process- essary or appropriate in the public interest or ing functions, the Attorney General shall pro- for the protection of investors, may prescribe vide the Commission and self-regulatory organi- the form and content of financial statements zations designated by the Commission with ac- filed pursuant to this chapter and the account- cess to all criminal history record information. ing principles and accounting standards used in (3)(A) In order to carry out the authority their preparation. under paragraph (1) above, the Commission or (f) Missing, lost, counterfeit, and stolen securi- its designee may enter into agreement with the ties Attorney General to use the facilities of the Na- (1) Every national securities exchange, mem- tional Crime Information Center (‘‘NCIC’’) to re- ber thereof, registered securities association, ceive, store, and disseminate information in re- broker, dealer, municipal securities dealer, gov- gard to missing, lost, counterfeit, or stolen secu- ernment securities broker, government securi- rities and to permit direct inquiry access to ties dealer, registered transfer agent, registered NCIC’s file on such securities for the financial clearing agency, participant therein, member of community. the Federal Reserve System, and bank whose de- (B) In order to carry out the authority under posits are insured by the Federal Deposit Insur- paragraph (1) of this subsection, the Commission ance Corporation shall— or its designee and the Secretary of the Treas- (A) report to the Commission or other per- ury shall enter into an agreement whereby the son designated by the Commission and, in the Commission or its designee will receive, store, case of securities issued pursuant to chapter 31 and disseminate information in the possession, of title 31, to the Secretary of the Treasury and which comes into the possession, of the De- such information about securities that are partment of the Treasury in regard to missing, missing, lost, counterfeit, stolen, or cancelled, lost, counterfeit, or stolen securities. in such form and within such time as the Com- (4) In regard to paragraphs (1), (2), and (3), mission, by rule, determines is necessary or above insofar as such paragraphs apply to any appropriate in the public interest or for the bank or member of the Federal Reserve System, protection of investors; such information shall the Commission may delegate its authority to: be available on request for a reasonable fee, to (A) the Comptroller of the Currency as to any such exchange, member, association, national banks; (B) the Federal Reserve Board in regard to broker, dealer, municipal securities dealer, any member of the Federal Reserve System government securities broker, government se- which is not a national bank; and curities dealer, transfer agent, clearing agen- (C) the Federal Deposit Insurance Corpora- cy, participant, member of the Federal Re- tion for any State bank which is insured by serve System, or insured bank, and such other the Federal Deposit Insurance Corporation but persons as the Commission, by rule, des- which is not a member of the Federal Reserve ignates; and System. (B) make such inquiry with respect to information reported pursuant to this subsection as (5) The Commission shall encourage the insur- the Commission, by rule, prescribes as nec- ance industry to require their insured to report essary or appropriate in the public interest or expeditiously instances of missing, lost, coun- for the protection of investors, to determine terfeit, or stolen securities to the Commission whether securities in their custody or control, or to such other person as the Commission may, for which they are responsible, or in which by rule, designate to receive such information. they are effecting, clearing, or settling a (g) Persons extending credit transaction have been reported as missing, Any broker, dealer, or other person extending lost, counterfeit, stolen, cancelled, or reported credit who is subject to the rules and regula- in such other manner as the Commission, by tions prescribed by the Board of Governors of rule, may prescribe. the Federal Reserve System pursuant to this (2) Every member of a national securities ex- chapter shall make such reports to the Board as change, broker, dealer, registered transfer it may require as necessary or appropriate to agent, registered clearing agency, registered se- enable it to perform the functions conferred curities information processor, national securi- upon it by this chapter. If any such broker, deal- ties exchange, and national securities associa- er, or other person shall fail to make any such tion shall require that each of its partners, di- report or fail to furnish full information therein, rectors, officers, and employees be fingerprinted or, if in the judgment of the Board it is other- and shall submit such fingerprints, or cause the wise necessary, such broker, dealer, or other same to be submitted, to the Attorney General person shall permit such inspections to be made of the United States for identification and ap- by the Board with respect to the business oper- Page 345 TITLE 15—COMMERCE AND TRADE § 78q ations of such broker, dealer, or other person as ing requirements of a Federal banking agen- the Board may deem necessary to enable it to cy, the Commission shall consult with and obtain the required information. consider the views of each such Federal (h) Risk assessment for holding company sys- banking agency. If a Federal banking agency tems comments in writing on a proposed rule of the Commission under this subsection that (1) Obligations to obtain, maintain, and report has been published for comment, the Com- information mission shall respond in writing to such Every person who is (A) a registered broker written comment before adopting the pro- or dealer, or (B) a registered municipal securi- posed rule. The Commission shall, at the re- ties dealer for which the Commission is the quest of the Federal banking agency, publish appropriate regulatory agency, shall obtain such comment and response in the Federal such information and make and keep such Register at the time of publishing the adopt- records as the Commission by rule prescribes ed rule. concerning the registered person’s policies, procedures, or systems for monitoring and (B) Use of banking agency reports controlling financial and operational risks to A registered broker, dealer, or municipal it resulting from the activities of any of its as- securities dealer shall be in compliance with sociated persons, other than a natural person. any recordkeeping or reporting requirement Such records shall describe, in the aggregate, adopted pursuant to paragraph (1) of this each of the financial and securities activities subsection concerning an associated person conducted by, and the customary sources of that is subject to examination by or report- capital and funding of, those of its associated ing requirements of a Federal banking agen- persons whose business activities are reason- cy if such broker, dealer, or municipal secu- ably likely to have a material impact on the rities dealer utilizes for such recordkeeping financial or operational condition of such reg- or reporting requirement copies of reports istered person, including its net capital, its li- filed by the associated person with the Fed- quidity, or its ability to conduct or finance its eral banking agency pursuant to section 161 operations. The Commission, by rule, may re- of title 12, subchapter VIII of chapter 3 of quire summary reports of such information to title 12, section 1817(a) of title 12, section be filed with the Commission no more fre- 1467a(b) of title 12, or section 1847 of title 12. quently than quarterly. The Commission may, however, by rule (2) Authority to require additional information adopted pursuant to paragraph (1), require If, as a result of adverse market conditions any broker, dealer, or municipal securities or based on reports provided to the Commis- dealer filing such reports with the Commis- sion pursuant to paragraph (1) of this sub- sion to obtain, maintain, or report supple- section or other available information, the mental information if the Commission Commission reasonably concludes that it has makes an explicit finding that such supple- concerns regarding the financial or oper- mental information is necessary to inform ational condition of (A) any registered broker the Commission regarding potential risks to or dealer, or (B) any registered municipal se- such broker, dealer, or municipal securities curities dealer, government securities broker, dealer. Prior to requiring any such supple- or government securities dealer for which the mental information, the Commission shall Commission is the appropriate regulatory first request the Federal banking agency to agency, the Commission may require the reg- expand its reporting requirements to include istered person to make reports concerning the such information. financial and securities activities of any of such person’s associated persons, other than a (C) Procedure for requiring additional infor- natural person, whose business activities are mation reasonably likely to have a material impact Prior to making a request pursuant to on the financial or operational condition of paragraph (2) of this subsection for informa- such registered person. The Commission, in re- tion with respect to an associated person quiring reports pursuant to this paragraph, that is subject to examination by or report- shall specify the information required, the pe- ing requirements of a Federal banking agen- riod for which it is required, the time and date cy, the Commission shall— on which the information must be furnished, (i) notify such agency of the information and whether the information is to be furnished required with respect to such associated directly to the Commission or to a self-regu- person; and latory organization with primary responsibil- (ii) consult with such agency to deter- ity for examining the registered person’s fi- mine whether the information required is nancial and operational condition. available from such agency and for other (3) Special provisions with respect to associ- purposes, unless the Commission deter- ated persons subject to Federal banking mines that any delay resulting from such agency regulation consultation would be inconsistent with ensuring the financial and operational (A) Cooperation in implementation condition of the broker, dealer, municipal In developing and implementing reporting securities dealer, government securities requirements pursuant to paragraph (1) of broker, or government securities dealer or this subsection with respect to associated the stability or integrity of the securities persons subject to examination by or report- markets. § 78q TITLE 15—COMMERCE AND TRADE Page 346

(D) Exclusion for examination reports commission or similar State agency, the Nothing in this subsection shall be con- Commodity Futures Trading Commission, or strued to permit the Commission to require a similar foreign regulator; any registered broker or dealer, or any reg- (B) the primary business of any associated istered municipal securities dealer, govern- person; ment securities broker, or government secu- (C) the nature and extent of domestic or rities dealer for which the Commission is the foreign regulation of the associated person’s appropriate regulatory agency, to obtain, activities; maintain, or furnish any examination report (D) the nature and extent of the registered of any Federal banking agency or any super- person’s securities activities; and visory recommendations or analysis con- (E) with respect to the registered person tained therein. and its associated persons, on a consolidated basis, the amount and proportion of assets (E) Confidentiality of information provided devoted to, and revenues derived from, ac- No information provided to or obtained by tivities in the United States securities mar- the Commission from any Federal banking kets. agency pursuant to a request by the Com- (5) Authority to limit disclosure of information mission under subparagraph (C) of this paragraph regarding any associated person which Notwithstanding any other provision of law, is subject to examination by or reporting re- the Commission shall not be compelled to dis- quirements of a Federal banking agency close any information required to be reported may be disclosed to any other person (other under this subsection, or any information sup- than a self-regulatory organization), with- plied to the Commission by any domestic or out the prior written approval of the Federal foreign regulatory agency that relates to the banking agency. Nothing in this subsection financial or operational condition of any asso- shall authorize the Commission to withhold ciated person of a registered broker, dealer, information from Congress, or prevent the government securities broker, government se- Commission from complying with a request curities dealer, or municipal securities dealer. for information from any other Federal de- Nothing in this subsection shall authorize the partment or agency requesting the informa- Commission to withhold information from tion for purposes within the scope of its ju- Congress, or prevent the Commission from risdiction, or complying with an order of a complying with a request for information from court of the United States in an action any other Federal department or agency re- brought by the United States or the Com- questing the information for purposes within mission. the scope of its jurisdiction, or complying (F) Notice to banking agencies concerning fi- with an order of a court of the United States nancial and operational condition con- in an action brought by the United States or cerns the Commission. For purposes of section 552 of The Commission shall notify the Federal title 5, this subsection shall be considered a banking agency of any concerns of the Com- statute described in subsection (b)(3)(B) of mission regarding significant financial or such section 552. In prescribing regulations to operational risks resulting from the activi- carry out the requirements of this subsection, ties of any registered broker or dealer, or the Commission shall designate information any registered municipal securities dealer, described in or obtained pursuant to subpara- government securities broker, or govern- graph (B) or (C) of paragraph (3) of this sub- ment securities dealer for which the Com- section as confidential information for pur- mission is the appropriate regulatory agen- poses of section 78x(b)(2) of this title. cy, to any associated person thereof which is (i) Authority to limit disclosure of information subject to examination by or reporting re- Notwithstanding any other provision of law, quirements of the Federal banking agency. the Commission shall not be compelled to dis- (G) ‘‘Federal banking agency’’ defined close any information required to be reported For purposes of this paragraph, the term under subsection (h) or (i) 6 of this section or any ‘‘Federal banking agency’’ shall have the information supplied to the Commission by any same meaning as the term ‘‘appropriate Fed- domestic or foreign regulatory agency that re- eral bank agency’’ in section 1813(q) of title lates to the financial or operational condition of 12. any associated person of a broker or dealer, in- (4) Exemptions vestment bank holding company, or any affili- The Commission by rule or order may ex- ate of an investment bank holding company. empt any person or class of persons, under Nothing in this subsection shall authorize the such terms and conditions and for such periods Commission to withhold information from Con- as the Commission shall provide in such rule gress, or prevent the Commission from comply- or order, from the provisions of this sub- ing with a request for information from any section, and the rules thereunder. In granting other Federal department or agency or any self- such exemptions, the Commission shall con- regulatory organization requesting the informa- sider, among other factors— tion for purposes within the scope of its jurisdic- (A) whether information of the type re- tion, or complying with an order of a court of quired under this subsection is available the United States in an action brought by the from a supervisory agency (as defined in sec- United States or the Commission. For purposes tion 3401(6) 6 of title 12), a State insurance of section 552 of title 5, this subsection shall be considered a statute described in subsection 6 See References in Text note below. (b)(3)(B) of such section 552. In prescribing regu- Page 347 TITLE 15—COMMERCE AND TRADE § 78q lations to carry out the requirements of this II, § 204], Dec. 21, 2000, 114 Stat. 2763, 2763A–424; subsection, the Commission shall designate in- Pub. L. 107–204, title II, § 205(c)(2), July 30, 2002, formation described in or obtained pursuant to 116 Stat. 774; Pub. L. 108–386, § 8(f)(5), (6), Oct. 30, subparagraphs (A), (B), and (C) of subsection 2004, 118 Stat. 2232; Pub. L. 109–291, § 5, Sept. 29, (i)(5) 6 of this section as confidential information 2006, 120 Stat. 1338; Pub. L. 111–203, title VI, for purposes of section 78x(b)(2) of this title. § 617(a), title IX, §§ 929D, 929S, 975(h), 982(e)(2), (j) Coordination of examining authorities 985(b)(7), July 21, 2010, 124 Stat. 1616, 1853, 1867, 1923, 1929, 1934.) (1) Elimination of duplication The Commission and the examining authori- REFERENCES IN TEXT ties, through cooperation and coordination of This chapter, referred to in subsecs. (a)(1), (b), examination and oversight activities, shall (d)(1)(A), (B), (e)(2), (g), and (j)(5), was in the original eliminate any unnecessary and burdensome ‘‘this title’’. See References in Text note set out under section 78a of this title. duplication in the examination process. The Sarbanes-Oxley Act of 2002, referred to in subsec. (2) Coordination of examinations (e)(1)(A), is Pub. L. 107–204, July 30, 2002, 116 Stat. 745. For complete classification of this Act to the Code, see The Commission and the examining authori- Short Title note set out under section 7201 of this title ties shall share such information, including and Tables. reports of examinations, customer complaint Subchapter VIII of chapter 3 of title 12, referred to in information, and other nonpublic regulatory subsec. (h)(3)(B), was in the original ‘‘section 9 of the information, as appropriate to foster a coordi- Federal Reserve Act’’, meaning section 9 of act Dec. 23, nated approach to regulatory oversight of bro- 1913, ch. 6, 38 Stat. 251, as amended, which is classified kers and dealers that are subject to examina- generally to subchapter VIII (§ 321 et seq.) of chapter 3 tion by more than one examining authority. of Title 12, Banks and Banking. Section 3401(6) of title 12, referred to in subsec. (3) Examinations for cause (h)(4)(A), was redesignated section 3401(7) of title 12 by At any time, any examining authority may Pub. L. 101–73, title IX, § 941(1), Aug. 9, 1989, 103 Stat. 496. conduct an examination for cause of any Subsection (i) of this section, referred to in subsec. broker or dealer subject to its jurisdiction. (i), was repealed, and subsec. (j) was redesignated (i), by (4) Confidentiality Pub. L. 111–203, § 617(a). See 2010 Amendment note below. (A) In general AMENDMENTS Section 78x of this title shall apply to the sharing of information in accordance with 2010—Subsec. (a)(1). Pub. L. 111–203, § 975(h), inserted this subsection. The Commission shall take ‘‘municipal advisor,’’ after ‘‘municipal securities deal- appropriate action under section 78x(c) of er’’. Subsec. (b)(1)(B). Pub. L. 111–203, § 985(b)(7), sub- this title to ensure that such information is stituted ‘‘give notice to’’ for ‘‘gives notice to’’. not inappropriately disclosed. Subsec. (e)(1)(A). Pub. L. 111–203, § 982(e)(2), sub- (B) Appropriate disclosure not prohibited stituted ‘‘independent public accounting firm, or by a registered public accounting firm if the firm is required Nothing in this paragraph authorizes the to be registered under the Sarbanes-Oxley Act of 2002,’’ Commission or any examining authority to for ‘‘registered public accounting firm’’. withhold information from the Congress, or Subsec. (f)(1)(A). Pub. L. 111–203, § 929D(1), substituted prevent the Commission or any examining ‘‘securities that are missing, lost, counterfeit, stolen, authority from complying with a request for or cancelled’’ for ‘‘missing, lost, counterfeit, or stolen information from any other Federal depart- securities’’. Subsec. (f)(1)(B). Pub. L. 111–203, § 929D(2), substituted ment or agency requesting the information ‘‘stolen, cancelled, or reported in such other manner as for purposes within the scope of its jurisdic- the Commission, by rule, may prescribe’’ for ‘‘or sto- tion, or complying with an order of a court len’’. of the United States in an action brought by Subsec. (f)(2). Pub. L. 111–203, § 929S, in first sentence, the United States or the Commission. substituted ‘‘registered clearing agency, registered securities information processor, national securities ex- (5) ‘‘Examining authority’’ defined change, and national securities association’’ for ‘‘and For purposes of this subsection, the term registered clearing agency,’’ and, in second sentence, ‘‘examining authority’’ means a self-regu- substituted ‘‘clearing agency, securities information latory organization registered with the Com- processor, national securities exchange, or national se- mission under this chapter (other than a reg- curities association,’’ for ‘‘or clearing agency,’’. Subsecs. (i) to (k). Pub. L. 111–203, § 617(a), redesig- istered clearing agency) with the authority to nated subsecs. (j) and (k) as (i) and (j), respectively, and examine, inspect, and otherwise oversee the struck out former subsec. (i) which related to super- activities of a registered broker or dealer. vision of investment bank holding companies and recordkeeping and reporting requirements. (June 6, 1934, ch. 404, title I, § 17, 48 Stat. 897; 2006—Subsec. (a)(1). Pub. L. 109–291 inserted ‘‘nation- May 27, 1936, ch. 462, § 4, 49 Stat. 1379; June 25, ally recognized statistical rating organization,’’ after 1938, ch. 677, § 5, 52 Stat. 1076; Pub. L. 94–29, § 14, ‘‘registered transfer agent,’’ and inserted at end ‘‘Any June 4, 1975, 89 Stat. 137; Pub. L. 99–571, title I, report that a nationally recognized statistical rating § 102(h), (i), Oct. 28, 1986, 100 Stat. 3219; Pub. L. organization is required by Commission rules under 100–181, title III, § 321, title VIII, § 801(b), Dec. 4, this paragraph to make and disseminate to the Com- 1987, 101 Stat. 1257, 1265; Pub. L. 101–432, § 4(a), mission shall be deemed furnished to the Commission.’’ Oct. 16, 1990, 104 Stat. 966; Pub. L. 104–290, title 2004—Subsec. (f)(4)(A). Pub. L. 108–386, § 8(f)(5), struck out ‘‘and banks operating under the Code of Law for I, § 108, Oct. 11, 1996, 110 Stat. 3425; Pub. L. the District of Columbia’’ before semicolon. 105–353, title III, § 301(b)(5), Nov. 3, 1998, 112 Stat. Subsec. (f)(4)(B). Pub. L. 108–386, § 8(f)(6), struck out 3236; Pub. L. 106–102, title II, § 231(a), Nov. 12, ‘‘or a bank operating under the Code of Law for the 1999, 113 Stat. 1402; Pub. L. 106–554, § 1(a)(5) [title District of Columbia’’ before semicolon. § 78q–1 TITLE 15—COMMERCE AND TRADE Page 348

2002—Subsecs. (e)(1)(A), (i)(3)(A)(ii). Pub. L. 107–204 ties through the use of the mails or of any means or in- substituted ‘‘a registered public accounting firm’’ for strumentality of interstate commerce’’. ‘‘an independent public accountant’’. 2000—Subsec. (b). Pub. L. 106–554, § 1(a)(5) [title II, EFFECTIVE DATE OF 2010 AMENDMENT § 204(5)], which directed amendment of subsec. (b) by Amendment by sections 929D, 929S, 982(e)(2), and adding at the end pars. (2) to (4)(B), was executed by 985(b)(7) of Pub. L. 111–203 effective 1 day after July 21, making the addition after par. (1), to reflect the prob- 2010, except as otherwise provided, see section 4 of Pub. able intent of Congress. L. 111–203, set out as an Effective Date note under sec- Pub. L. 106–554, § 1(a)(5) [title II, § 204(1) to (4), (6)], in- tion 5301 of Title 12, Banks and Banking. serted subsec. heading, inserted par. (1) designation and Pub. L. 111–203, title VI, § 617(b), July 21, 2010, 124 heading before ‘‘All’’, substituted ‘‘prior to conducting Stat. 1616, provided that: ‘‘The amendments made by any such examination of a—’’ for ‘‘prior to conducting this section [amending this section] shall take effect on any such examination of a’’, inserted subpar. (A) des- the transfer date.’’ ignation before ‘‘registered clearing’’, added subpar. [For definition of ‘‘transfer date’’ as used in section (B), designated last sentence as par. (4)(C) and sub- 617(b) of Pub. L. 111–203, set out above, see section 5301 stituted ‘‘Nothing in the proviso in paragraph (1)’’ for of Title 12, Banks and Banking.] ‘‘Nothing in the proviso to the preceding sentence’’. Amendment by section 975(h) of Pub. L. 111–203 effec- 1999—Subsecs. (i) to (k). Pub. L. 106–102 added subsecs. tive Oct. 1, 2010, see section 975(i) of Pub. L. 111–203, set (i) and (j) and redesignated former subsec. (i) as (k). out as a note under section 78o of this title. 1998—Subsec. (g). Pub. L. 105–353 substituted ‘‘Board of Governors of the Federal Reserve System’’ for ‘‘Fed- EFFECTIVE DATE OF 2004 AMENDMENT eral Reserve Board’’ in first sentence. Amendment by Pub. L. 108–386 effective Oct. 30, 2004, 1996—Subsec. (i). Pub. L. 104–290 added subsec. (i). and, except as otherwise provided, applicable with re- 1990—Subsec. (h). Pub. L. 101–432 added subsec. (h). spect to fiscal year 2005 and each succeeding fiscal 1987—Subsec. (c)(2). Pub. L. 100–181, § 321(1), sub- year, see sections 8(i) and 9 of Pub. L. 108–386, set out stituted new par. (2) for former par. (2) which read as as notes under section 321 of Title 12, Banks and Bank- follows: ‘‘The appropriate regulatory agency for a ing. clearing agency, transfer agent, or municipal securities dealer for which the Commission is not the appropriate EFFECTIVE DATE OF 1986 AMENDMENT regulatory agency shall file with the Commission notice of the commencement of any proceeding and a Amendment by Pub. L. 99–571 effective 270 days after copy of any order entered by such appropriate regu- Oct. 28, 1986, see section 401 of Pub. L. 99–571, set out as latory agency against such clearing agency, transfer an Effective Date note under section 78o–5 of this title. agent, or municipal securities dealer, and the Commis- EFFECTIVE DATE OF 1975 AMENDMENT sion shall file with such appropriate regulatory agency notice of the commencement of any proceeding and a Amendment by Pub. L. 94–29 effective June 4, 1975, copy of any order entered by the Commission against see section 31(a) of Pub. L. 94–29, set out as a note under such clearing agency, transfer agent, or municipal se- section 78b of this title. curities dealer.’’ TRANSFER OF FUNCTIONS Subsec. (f)(1)(A). Pub. L. 100–181, § 801(b), substituted ‘‘securities issued pursuant to chapter 31 of title 31’’ for For transfer of functions of Securities and Exchange ‘‘government securities’’. Commission, with certain exceptions, to Chairman of Subsec. (f)(2). Pub. L. 100–181, § 321(2), inserted at end such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, ‘‘Notwithstanding any other provision of law, in pro- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under viding identification and processing functions, the At- section 78d of this title. torney General shall provide the Commission and self- regulatory organizations designated by the Commis- § 78q–1. National system for clearance and settle- sion with access to all criminal history record informa- ment of securities transactions tion.’’ Subsec. (f)(3)(A). Pub. L. 100–181, § 321(3), substituted (a) Congressional findings; facilitating establish- ‘‘paragraph (1)’’ for ‘‘paragraphs (1) and (2)’’. ment of system 1986—Subsec. (c)(4). Pub. L. 99–571, § 102(h), added par. (1) The Congress finds that— (4). (A) The prompt and accurate clearance and Subsec. (f)(1). Pub. L. 99–571, § 102(i)(1), inserted ‘‘government securities broker, government securities deal- settlement of securities transactions, includ- er,’’ in introductory provisions and in subpar. (A). ing the transfer of record ownership and the Subsec. (f)(1)(A). Pub. L. 99–571, § 102(i)(2), inserted safeguarding of securities and funds related ‘‘and, in the case of government securities, to the Sec- thereto, are necessary for the protection of in- retary of the Treasury’’. vestors and persons facilitating transactions Subsec. (f)(3). Pub. L. 99–571, § 102(i)(3), designated ex- by and acting on behalf of investors. isting provisions as subpar. (A) and added subpar. (B). (B) Inefficient procedures for clearance and 1975—Subsec. (a). Pub. L. 94–29 designated existing provisions as par. (1), expanded the coverage to require settlement impose unnecessary costs on inves- registered municipal securities dealers, the Municipal tors and persons facilitating transactions by Securities Rulemaking Board, registered securities in- and acting on behalf of investors. formation processors, and registered clearing agencies (C) New data processing and communica- to make and keep such records, to furnish copies there- tions techniques create the opportunity for of, and to make such reports as the Commission may more efficient, effective, and safe procedures prescribe and clarified the Commission’s authority to for clearance and settlement. require the dissemination of reports submitted pursu- (D) The linking of all clearance and settle- ant to the rules of the Commission, and added pars. (2) and (3). ment facilities and the development of uni- Subsecs. (b) to (g). Pub. L. 94–29 added subsecs. (b) to form standards and procedures for clearance (f) and redesignated former subsec. (b) as (g). and settlement will reduce unnecessary costs 1938—Subsec. (a). Act June 25, 1938, inserted ‘‘every and increase the protection of investors and registered securities association’’. persons facilitating transactions by and acting 1936—Subsec. (a). Act May 27, 1936, substituted ‘‘every on behalf of investors. broker or dealer registered pursuant to section 78o of this title’’ for ‘‘every broker or dealer making or creat- (2)(A) The Commission is directed, therefore, ing a market for both the purchase and sale of securi- having due regard for the public interest, the Page 349 TITLE 15—COMMERCE AND TRADE § 78q–1 protection of investors, the safeguarding of se- (3) A clearing agency shall not be registered curities and funds, and maintenance of fair com- unless the Commission determines that— petition among brokers and dealers, clearing (A) Such clearing agency is so organized and agencies, and transfer agents, to use its author- has the capacity to be able to facilitate the ity under this chapter— prompt and accurate clearance and settlement (i) to facilitate the establishment of a na- of securities transactions and derivative tional system for the prompt and accurate agreements, contracts, and transactions for clearance and settlement of transactions in se- which it is responsible, to safeguard securities curities (other than exempt securities); and and funds in its custody or control or for (ii) to facilitate the establishment of linked which it is responsible, to comply with the or coordinated facilities for clearance and set- provisions of this chapter and the rules and tlement of transactions in securities, securi- regulations thereunder, to enforce (subject to ties options, contracts of sale for future deliv- any rule or order of the Commission pursuant ery and options thereon, and commodity op- to section 78q(d) or 78s(g)(2) of this title) com- tions; pliance by its participants with the rules of in accordance with the findings and to carry out the clearing agency, and to carry out the pur- the objectives set forth in paragraph (1) of this poses of this section. subsection. (B) Subject to the provisions of paragraph (4) (B) The Commission shall use its authority of this subsection, the rules of the clearing under this chapter to assure equal regulation agency provide that any (i) registered broker under this chapter of registered clearing agen- or dealer, (ii) other registered clearing agency, cies and registered transfer agents. In carrying (iii) registered investment company, (iv) bank, out its responsibilities set forth in subparagraph (v) insurance company, or (vi) other person or (A)(ii) of this paragraph, the Commission shall class of persons as the Commission, by rule, coordinate with the Commodity Futures Trad- may from time to time designate as appro- ing Commission and consult with the Board of priate to the development of a national sys- Governors of the Federal Reserve System. tem for the prompt and accurate clearance and settlement of securities transactions may (b) Registration of clearing agencies; application; become a participant in such clearing agency. determinations by Commission requisite to (C) The rules of the clearing agency assure a registration of applicant as clearing agency; fair representation of its shareholders (or denial of participation; discipline; summary members) and participants in the selection of proceedings; exemption; facilities for han- its directors and administration of its affairs. dling derivatives (The Commission may determine that the rep- (1) Except as otherwise provided in this sec- resentation of participants is fair if they are tion, it shall be unlawful for any clearing agen- afforded a reasonable opportunity to acquire cy, unless registered in accordance with this voting stock of the clearing agency, directly subsection, directly or indirectly, to make use or indirectly, in reasonable proportion to their of the mails or any means or instrumentality of use of such clearing agency.) interstate commerce to perform the functions of (D) The rules of the clearing agency provide a clearing agency with respect to any security for the equitable allocation of reasonable dues, (other than an exempted security). The Commis- fees, and other charges among its participants. sion, by rule or order, upon its own motion or (E) The rules of the clearing agency do not upon application, may conditionally or uncondi- impose any schedule of prices, or fix rates or tionally exempt any clearing agency or security other fees, for services rendered by its partici- or any class of clearing agencies or securities pants. from any provisions of this section or the rules (F) The rules of the clearing agency are de- or regulations thereunder, if the Commission signed to promote the prompt and accurate finds that such exemption is consistent with the clearance and settlement of securities trans- public interest, the protection of investors, and actions and, to the extent applicable, deriva- the purposes of this section, including the tive agreements, contracts, and transactions, prompt and accurate clearance and settlement to assure the safeguarding of securities and of securities transactions and the safeguarding funds which are in the custody or control of of securities and funds. A clearing agency or the clearing agency or for which it is respon- transfer agent shall not perform the functions of sible, to foster cooperation and coordination both a clearing agency and a transfer agent un- with persons engaged in the clearance and set- less such clearing agency or transfer agent is tlement of securities transactions, to remove registered in accordance with this subsection impediments to and perfect the mechanism of and subsection (c) of this section. a national system for the prompt and accurate (2) A clearing agency may be registered under clearance and settlement of securities trans- the terms and conditions hereinafter provided in actions, and, in general, to protect investors this subsection and in accordance with the pro- and the public interest; and are not designed visions of section 78s(a) of this title, by filing to permit unfair discrimination in the admis- with the Commission an application for reg- sion of participants or among participants in istration in such form as the Commission, by the use of the clearing agency, or to regulate rule, may prescribe containing the rules of the by virtue of any authority conferred by this clearing agency and such other information and chapter matters not related to the purposes of documents as the Commission, by rule, may pre- this section or the administration of the clear- scribe as necessary or appropriate in the public ing agency. interest or for the prompt and accurate clear- (G) The rules of the clearing agency provide ance and settlement of securities transactions. that (subject to any rule or order of the Com- § 78q–1 TITLE 15—COMMERCE AND TRADE Page 350

mission pursuant to section 78q(d) or 78s(g)(2) with respect to access to services offered by the of this title) its participants shall be appro- clearing agency, the clearing agency shall notify priately disciplined for violation of any provi- such person of, and give him an opportunity to sion of the rules of the clearing agency by ex- be heard upon, the specific grounds for denial or pulsion, suspension, limitation of activities, prohibition or limitation under consideration functions, and operations, fine, censure, or any and keep a record. A determination by the clear- other fitting sanction. ing agency to deny participation or prohibit or (H) The rules of the clearing agency are in limit a person with respect to access to services accordance with the provisions of paragraph offered by the clearing agency shall be sup- (5) of this subsection, and, in general, provide ported by a statement setting forth the specific a fair procedure with respect to the disciplin- grounds on which the denial or prohibition or ing of participants, the denial of participation limitation is based. to any person seeking participation therein, (C) A registered clearing agency may sum- and the prohibition or limitation by the clear- marily suspend and close the accounts of a paring agency of any person with respect to ac- ticipant who (i) has been and is expelled or sus- cess to services offered by the clearing agency. pended from any self-regulatory organization, (I) The rules of the clearing agency do not (ii) is in default of any delivery of funds or secu- impose any burden on competition not nec- rities to the clearing agency, or (iii) is in such essary or appropriate in furtherance of the financial or operating difficulty that the clear- purposes of this chapter. ing agency determines and so notifies the appro- (4)(A) A registered clearing agency may, and priate regulatory agency for such participant in cases in which the Commission, by order, di- that such suspension and closing of accounts are rects as appropriate in the public interest shall, necessary for the protection of the clearing deny participation to any person subject to a agency, its participants, creditors, or investors. statutory disqualification. A registered clearing A participant so summarily suspended shall be agency shall file notice with the Commission promptly afforded an opportunity for a hearing not less than thirty days prior to admitting any by the clearing agency in accordance with the person to participation, if the clearing agency provisions of subparagraph (A) of this para- knew, or in the exercise of reasonable care graph. The appropriate regulatory agency for should have known, that such person was sub- such participant, by order, may stay any such ject to a statutory disqualification. The notice summary suspension on its own motion or upon shall be in such form and contain such informa- application by any person aggrieved thereby, if tion as the Commission, by rule, may prescribe such appropriate regulatory agency determines as necessary or appropriate in the public inter- summarily or after notice and opportunity for est or for the protection of investors. hearing (which hearing may consist solely of the (B) A registered clearing agency may deny submission of affidavits or presentation of oral participation to, or condition the participation arguments) that such stay is consistent with the of, any person if such person does not meet such public interest and protection of investors. standards of financial responsibility, oper- (6) No registered clearing agency shall pro- ational capability, experience, and competence hibit or limit access by any person to services as are prescribed by the rules of the clearing offered by any participant therein. agency. A registered clearing agency may exam- (7)(A) A clearing agency that is regulated di- ine and verify the qualifications of an applicant rectly or indirectly by the Commodity Futures to be a participant in accordance with proce- Trading Commission through its association dures established by the rules of the clearing with a designated contract market for security agency. futures products that is a national securities ex- (5)(A) In any proceeding by a registered clear- change registered pursuant to section 78f(g) of ing agency to determine whether a participant this title, and that would be required to register should be disciplined (other than a summary pursuant to paragraph (1) of this subsection only proceeding pursuant to subparagraph (C) of this because it performs the functions of a clearing paragraph), the clearing agency shall bring spe- agency with respect to security futures products cific charges, notify such participant of, and effected pursuant to the rules of the designated give him an opportunity to defend against such contract market with which such agency is asso- charges, and keep a record. A determination by ciated, is exempted from the provisions of this the clearing agency to impose a disciplinary section and the rules and regulations there- sanction shall be supported by a statement set- under, except that if such a clearing agency per- ting forth— forms the functions of a clearing agency with re- (i) any act or practice in which such partici- spect to a security futures product that is not pant has been found to have engaged, or which cash settled, it must have arrangements in place such participant has been found to have omit- with a registered clearing agency to effect the ted; payment and delivery of the securities underly- (ii) the specific provisions of the rules of the ing the security futures product. clearing agency which any such act or prac- (B) Any clearing agency that performs the tice, or omission to act, is deemed to violate; functions of a clearing agency with respect to and security futures products must coordinate with (iii) the sanction imposed and the reasons and develop fair and reasonable links with any therefor. and all other clearing agencies that perform the (B) In any proceeding by a registered clearing functions of a clearing agency with respect to agency to determine whether a person shall be security futures products, in order to permit, as denied participation or prohibited or limited of the compliance date (as defined in section Page 351 TITLE 15—COMMERCE AND TRADE § 78q–1

78f(h)(6)(C) 1 of this title), security futures prod- (A) has committed or omitted any act, or is ucts to be purchased on one market and offset subject to an order or finding, enumerated in on another market that trades such products. subparagraph (A), (D), (E), (H), or (G) of para- (8) A registered clearing agency shall be per- graph (4) of section 78o(b) of this title, has mitted to provide facilities for the clearance and been convicted of any offense specified in sub- settlement of any derivative agreements, con- paragraph (B) of such paragraph (4) within ten tracts, or transactions that are excluded from years of the commencement of the proceedings the Commodity Exchange Act [7 U.S.C. 1 et under this paragraph, or is enjoined from any seq.], subject to the requirements of this section action, conduct, or practice specified in sub- and to such rules and regulations as the Com- paragraph (C) of such paragraph (4); or mission may prescribe as necessary or appro- (B) is subject to an order entered pursuant priate in the public interest, for the protection to subparagraph (C) of paragraph (4) of this of investors, or otherwise in furtherance of the subsection barring or suspending the right of purposes of this chapter. such person to be associated with a transfer (c) Registration of transfer agents agent. (1) Except as otherwise provided in this section, it shall be unlawful for any transfer agent, (4)(A) Pending final determination whether unless registered in accordance with this sec- any registration by a transfer agent under this tion, directly or indirectly, to make use of the subsection shall be denied, the appropriate regu- mails or any means or instrumentality of inter- latory agency for such transfer agent, by order, state commerce to perform the function of a may postpone the effective date of such registra- transfer agent with respect to any security reg- tion for a period not to exceed fifteen days, but istered under section 78l of this title or which if, after notice and opportunity for hearing would be required to be registered except for the (which may consist solely of affidavits and oral exemption from registration provided by sub- arguments), it shall appear to such appropriate section (g)(2)(B) or (g)(2)(G) of that section. The regulatory agency to be necessary or appro- appropriate regulatory agency, by rule or order, priate in the public interest or for the protec- upon its own motion or upon application, may tion of investors to postpone the effective date conditionally or unconditionally exempt any of such registration until final determination, person or security or class of persons or securi- such appropriate regulatory agency shall so ties from any provision of this section or any order. Pending final determination whether any rule or regulation prescribed under this section, registration under this subsection shall be re- if the appropriate regulatory agency finds (A) voked, such appropriate regulatory agency, by that such exemption is in the public interest order, may suspend such registration, if such and consistent with the protection of investors suspension appears to such appropriate regu- and the purposes of this section, including the latory agency, after notice and opportunity for prompt and accurate clearance and settlement hearing, to be necessary or appropriate in the of securities transactions and the safeguarding public interest or for the protection of investors. of securities and funds, and (B) the Commission (B) A registered transfer agent may, upon such does not object to such exemption. terms and conditions as the appropriate regu- (2) A transfer agent may be registered by fil- latory agency for such transfer agent deems nec- ing with the appropriate regulatory agency for essary or appropriate in the public interest, for such transfer agent an application for registra- the protection of investors, or in furtherance of tion in such form and containing such informa- the purposes of this section, withdraw from reg- tion and documents concerning such transfer istration by filing a written notice of with- agent and any persons associated with the trans- drawal with such appropriate regulatory agency. fer agent as such appropriate regulatory agency If such appropriate regulatory agency finds that may prescribe as necessary or appropriate in any transfer agent for which it is the appro- furtherance of the purposes of this section. Ex- priate regulatory agency, is no longer in exist- cept as hereinafter provided, such registration ence or has ceased to do business as a transfer shall become effective 45 days after receipt of agent, such appropriate regulatory agency, by such application by such appropriate regulatory order, shall cancel or deny the registration. agency or within such shorter period of time as such appropriate regulatory agency may deter- (C) The appropriate regulatory agency for a mine. transfer agent, by order, shall censure or place (3) The appropriate regulatory agency for a limitations on the activities or functions of any transfer agent, by order, shall deny registration person associated, seeking to become associated, to, censure, place limitations on the activities, or, at the time of the alleged misconduct, asso- functions, or operations of, suspend for a period ciated or seeking to become associated with the not exceeding 12 months, or revoke the registra- transfer agent, or suspend for a period not ex- tion of such transfer agent, if such appropriate ceeding 12 months or bar any such person from regulatory agency finds, on the record after no- being associated with any transfer agent, tice and opportunity for hearing, that such de- broker, dealer, investment adviser, municipal nial, censure, placing of limitations, suspension, securities dealer, municipal advisor, or nation- or revocation is in the public interest and that ally recognized statistical rating organization, such transfer agent, whether prior or subsequent if the appropriate regulatory agency finds, on to becoming such, or any person associated with the record after notice and opportunity for hear- such transfer agent, whether prior or subsequent ing, that such censure, placing of limitations, to becoming so associated— suspension, or bar is in the public interest and that such person has committed or omitted any 1 So in original. Probably should be ‘‘section 78f(h)(7)(C)’’. act, or is subject to an order or finding, enumer- § 78q–1 TITLE 15—COMMERCE AND TRADE Page 352 ated in subparagraph (A), (D), (E), (H), or (G) or 2 having supervision over such clearing agency or paragraph (4) of section 78o(b) of this title, has transfer agent toward the end that, to the maxi- been convicted of any offense specified in sub- mum extent practicable, their respective regu- paragraph (B) of such paragraph (4) within ten latory responsibilities may be fulfilled and the years of the commencement of the proceedings rules and regulations applicable to such clearing under this paragraph, or is enjoined from any agency or transfer agent may be in accord with action, conduct, or practice specified in subpara- both sound banking practices and a national graph (C) of such paragraph (4). It shall be un- system for the prompt and accurate clearance lawful for any person as to whom such an order and settlement of securities transactions. In ac- suspending or barring him from being associated cordance with this objective— with a transfer agent is in effect willfully to be- (i) the Commission and such appropriate reg- come, or to be, associated with a transfer agent ulatory agency shall, at least fifteen days without the consent of the appropriate regu- prior to the issuance for public comment of latory agency that entered the order and the ap- any proposed rule or regulation or adoption of propriate regulatory agency for that transfer any rule or regulation concerning such clear- agent. It shall be unlawful for any transfer ing agency or transfer agent, consult and re- agent to permit such a person to become, or request the views of the other; and main, a person associated with it without the (ii) such appropriate regulatory agency shall consent of such appropriate regulatory agencies, assume primary responsibility to examine and if the transfer agent knew, or in the exercise of enforce compliance by such clearing agency or reasonable care should have known, of such transfer agent with the provisions of this sec- order. The Commission may establish, by rule, tion and sections 78q and 78s of this title. procedures by which a transfer agent reasonably (B) Nothing in the preceding subparagraph or can determine whether a person associated or elsewhere in this chapter shall be construed to seeking to become associated with it is subject impair or limit (other than by the requirement to any such order, and may require, by rule, of notification) the Commission’s authority to that any transfer agent comply with such proce- make rules under any provision of this chapter dures. or to enforce compliance pursuant to any provi- (d) Activities of clearing agencies and transfer sion of this chapter by any clearing agency, agents; enforcement by appropriate regu- transfer agent, or person associated with a latory agencies transfer agent with the provisions of this chap- (1) No registered clearing agency or registered ter and the rules and regulations thereunder. transfer agent shall, directly or indirectly, en- (4) Nothing in this section shall be construed gage in any activity as clearing agency or trans- to impair the authority of any State banking fer agent in contravention of such rules and reg- authority or other State or Federal regulatory ulations (A) as the Commission may prescribe as authority having jurisdiction over a person reg- necessary or appropriate in the public interest, istered as a clearing agency, transfer agent, or for the protection of investors, or otherwise in person associated with a transfer agent, to make furtherance of the purposes of this chapter, or and enforce rules governing such person which (B) as the appropriate regulatory agency for are not inconsistent with this chapter and the such clearing agency or transfer agent may pre- rules and regulations thereunder. scribe as necessary or appropriate for the safe- (5) A registered transfer agent may not, di- guarding of securities and funds. rectly or indirectly, engage in any activity in (2) With respect to any clearing agency or connection with the guarantee of a signature of transfer agent for which the Commission is not an endorser of a security, including the accept- the appropriate regulatory agency, the appro- ance or rejection of such guarantee, in con- priate regulatory agency for such clearing agen- travention of such rules and regulations as the cy or transfer agent may, in accordance with Commission may prescribe as necessary or ap- section 1818 of title 12, enforce compliance by propriate in the public interest, for the protec- such clearing agency or transfer agent with the tion of investors, to facilitate the equitable provisions of this section, sections 78q and 78s of treatment of financial institutions which issue this title, and the rules and regulations there- such guarantees, or otherwise in furtherance of under. For purposes of the preceding sentence, the purposes of this chapter. any violation of any such provision shall con- (e) Physical movement of securities certificates stitute adequate basis for the issuance of an order under section 1818(b) or 1818(c) of title 12, The Commission shall use its authority under and the participants in any such clearing agency this chapter to end the physical movement of se- and the persons doing business with any such curities certificates in connection with the set- transfer agent shall be deemed to be ‘‘deposi- tlement among brokers and dealers of trans- tors’’ as that term is used in section 1818(c) of actions in securities consummated by means of title 12. the mails or any means or instrumentalities of (3)(A) With respect to any clearing agency or interstate commerce. transfer agent for which the Commission is not (f) Rules concerning transfer of securities and the appropriate regulatory agency, the Commis- rights and obligations of involved or affected sion and the appropriate regulatory agency for parties such clearing agency or transfer agent shall con- (1) Notwithstanding any provision of State sult and cooperate with each other, and, as may law, except as provided in paragraph (3), if the be appropriate, with State banking authorities Commission makes each of the findings described in paragraph (2)(A), the Commission may 2 So in original. Probably should be ‘‘of’’. adopt rules concerning— Page 353 TITLE 15—COMMERCE AND TRADE § 78q–1

(A) the transfer of certificated or uncertifi- Commission, after consultation with the Sec- cated securities (other than government secu- retary of the Treasury and the Board of Gov- rities issued pursuant to chapter 31 of title 31 ernors of the Federal Reserve System, deter- or securities otherwise processed within a mines, including the areas, if any, in which book-entry system operated by the Federal State commercial laws and related Federal laws Reserve banks pursuant to a Federal book- concerning the transfer of certificated or un- entry regulation) or limited interests (includ- certificated securities, limited interests (including security interests) therein; and ing security interests) in such securities, or the (B) rights and obligations of purchasers, sell- creation or perfection of security interests in ers, owners, lenders, borrowers, and financial such securities do not provide the necessary cer- intermediaries (including brokers, dealers, tainty, uniformity, and clarity for purchasers, banks, and clearing agencies) involved in or sellers, owners, lenders, borrowers, and financial affected by such transfers, and the rights of intermediaries concerning their respective third parties whose interests in such securities rights and obligations. devolve from such transfers. (B) The Advisory Committee shall consist of 15 (2)(A) The findings described in this paragraph members, of which— (i) 11 shall be designated by the Commission are findings by the Commission that— in accordance with the Federal Advisory Com- (i) such rule is necessary or appropriate for mittee Act; and the protection of investors or in the public in- (ii) 2 each shall be designated by the Board terest and is reasonably designed to promote of Governors of the Federal Reserve System the prompt, accurate, and safe clearance and and the Secretary of the Treasury. settlement of securities transactions; (ii) in the absence of a uniform rule, the safe (C) The Advisory Committee shall conduct its and efficient operation of the national system activities in accordance with the Federal Advi- for clearance and settlement of securities sory Committee Act. Within 6 months of its des- transactions will be, or is, substantially im- ignation, or such longer time as the Commission peded; and may designate, the Advisory Committee shall (iii) to the extent such rule will impair or di- issue a report to the Commission, and shall minish, directly or indirectly, rights of per- cause copies of that report to be delivered to the sons specified in paragraph (1)(B) under State Secretary of the Treasury and the Chairman of law concerning transfers of securities (or lim- the Board of Governors of the Federal Reserve ited interests therein), the benefits of such System. rule outweigh such impairment or diminution (g) 3 Due diligence for the delivery of dividends, of rights. interest, and other valuable property rights (B) In making the findings described in sub- (1) Revision of rules required paragraph (A), the Commission shall give con- The Commission shall revise its regulations sideration to the recommendations of the Advi- in section 240.17Ad–17 of title 17, Code of Fed- sory Committee established under paragraph (4), eral Regulations, as in effect on December 8, and it shall consult with and consider the views 1997, to extend the application of such section of the Secretary of the Treasury and the Board to brokers and dealers and to provide for the of Governors of the Federal Reserve System. If following: the Secretary of the Treasury objects, in writ- (A) A requirement that the paying agent ing, to any proposed rule of the Commission on provide a single written notification to each the basis of the Secretary’s view on the issues missing security holder that the missing se- described in clauses (i), (ii), and (iii) of subpara- curity holder has been sent a check that has graph (A), the Commission shall consider all fea- not yet been negotiated. The written notifi- sible alternatives to the proposed rule, and it cation may be sent along with a check or shall not adopt any such rule unless the Com- other mailing subsequently sent to the miss- mission makes an explicit finding that the rule ing security holder but must be provided no is the most practicable method for achieving later than 7 months after the sending of the safe and efficient operation of the national not yet negotiated check. clearance and settlement system. (B) An exclusion for paying agents from (3) Any State may, prior to the expiration of the notification requirements when the 2 years after the Commission adopts a rule value of the not yet negotiated check is less under this subsection, enact a statute that spe- than $25. cifically refers to this subsection and the spe- (C) A provision clarifying that the require- cific rule thereunder and establishes, prospec- ments described in subparagraph (A) shall tively from the date of enactment of the State have no effect on State escheatment laws. statute, a provision that differs from that appli- (D) For purposes of such revised regula- cable under the Commission’s rule. tions— (4)(A) Within 90 days after October 16, 1990, the (i) a security holder shall be considered a Commission shall (and at such times thereafter ‘‘missing security holder’’ if a check is as the Commission may determine, the Commis- sent to the security holder and the check sion may), after consultation with the Secretary is not negotiated before the earlier of the of the Treasury and the Board of Governors of paying agent sending the next regularly the Federal Reserve System, establish an advi- scheduled check or the elapsing of 6 sory committee under the Federal Advisory months after the sending of the not yet ne- Committee Act (5 U.S.C. App.). The Advisory gotiated check; and Committee shall be directed to consider and report to the Commission on such matters as the 3 So in original. Two subsecs. (g) have been enacted. § 78q–1 TITLE 15—COMMERCE AND TRADE Page 354

(ii) the term ‘‘paying agent’’ includes (l) Existing depository institutions and deriva- any issuer, transfer agent, broker, dealer, tive clearing organizations investment adviser, indenture trustee, cus- (1) In general todian, or any other person that accepts A depository institution or derivative clear- payments from the issuer of a security and ing organization registered with the Commod- distributes the payments to the holders of ity Futures Trading Commission under the the security. Commodity Exchange Act [7 U.S.C. 1 et seq.] (2) Rulemaking that is required to be registered as a clearing The Commission shall adopt such rules, reg- agency under this section is deemed to be regulations, and orders necessary to implement istered under this section solely for the pur- this subsection no later than 1 year after July pose of clearing security-based swaps to the 21, 2010. In proposing such rules, the Commis- extent that, before July 21, 2010— sion shall seek to minimize disruptions to cur- (A) the depository institution cleared rent systems used by or on behalf of paying swaps as a multilateral clearing organiza- agents to process payment to account holders tion; or and avoid requiring multiple paying agents to (B) the derivative clearing organization send written notification to a missing security cleared swaps pursuant to an exemption holder regarding the same not yet negotiated from registration as a clearing agency. check. (2) Conversion of depository institutions (g) 3 Registration requirement A depository institution to which this subsection applies may, by the vote of the share- It shall be unlawful for a clearing agency, un- holders owning not less than 51 percent of the less registered with the Commission, directly or voting interests of the depository institution, indirectly to make use of the mails or any be converted into a State corporation, part- means or instrumentality of interstate com- nership, limited liability company, or similar merce to perform the functions of a clearing legal form pursuant to a plan of conversion, if agency with respect to a security-based swap. the conversion is not in contravention of ap- (h) Voluntary registration plicable State law. A person that clears agreements, contracts, or (3) Sharing of information transactions that are not required to be cleared The Commodity Futures Trading Commis- under this chapter may register with the Com- sion shall make available to the Commission, mission as a clearing agency. upon request, all information determined to be (i) Standards for clearing agencies clearing secu- relevant by the Commodity Futures Trading rity-based swap transactions Commission regarding a derivatives clearing organization deemed to be registered with the To be registered and to maintain registration Commission under paragraph (1). as a clearing agency that clears security-based (m) Modification of core principles swap transactions, a clearing agency shall comply with such standards as the Commission may The Commission may conform the core prin- establish by rule. In establishing any such ciples established in this section to reflect standards, and in the exercise of its oversight of evolving United States and international stand- such a clearing agency pursuant to this chapter, ards. the Commission may conform such standards or (June 6, 1934, ch. 404, title I, § 17A, as added Pub. oversight to reflect evolving United States and L. 94–29, § 15, June 4, 1975, 89 Stat. 141; amended international standards. Except where the Com- Pub. L. 100–181, title III, § 322, Dec. 4, 1987, 101 mission determines otherwise by rule or regula- Stat. 1257; Pub. L. 101–429, title II, § 206, Oct. 15, tion, a clearing agency shall have reasonable 1990, 104 Stat. 941; Pub. L. 101–432, § 5, Oct. 16, discretion in establishing the manner in which 1990, 104 Stat. 973; Pub. L. 101–550, title II, it complies with any such standards. § 203(c)(1), Nov. 15, 1990, 104 Stat. 2718; Pub. L. (j) Rules 106–554, § 1(a)(5) [title II, §§ 206(d), 207], Dec. 21, 2000, 114 Stat. 2763, 2763A–431, 2763A–434; Pub. L. The Commission shall adopt rules governing 107–204, title VI, § 604(c)(1)(C), July 30, 2002, 116 persons that are registered as clearing agencies Stat. 796; Pub. L. 111–203, title VII, § 763(b), title for security-based swaps under this chapter. IX, §§ 925(a)(3), 929W, July 21, 2010, 124 Stat. 1768, (k) Exemptions 1851, 1869.) The Commission may exempt, conditionally or AMENDMENT OF SECTION unconditionally, a clearing agency from reg- Unless otherwise provided, amendment by istration under this section for the clearing of subtitle B (§§ 761–774) of title VII of Pub. L. security-based swaps if the Commission deter- 111–203 effective on the later of 360 days after mines that the clearing agency is subject to July 21, 2010, or, to the extent a provision of comparable, comprehensive supervision and reg- subtitle B requires a rulemaking, not less than ulation by the Commodity Futures Trading 60 days after publication of the final rule or Commission or the appropriate government au- regulation implementing such provision of sub- thorities in the home country of the agency. title B, see 2010 Amendment notes and Effective Such conditions may include, but are not lim- Date of 2010 Amendment note below. ited to, requiring that the clearing agency be available for inspection by the Commission and REFERENCES IN TEXT make available all information requested by the This chapter, referred to in subsecs. (a)(2), (b)(3)(A), Commission. (F), (I), (8), (d)(1), (3)(B), (4), (5), and (e), and (h) to (j), Page 355 TITLE 15—COMMERCE AND TRADE § 78q–2 was in the original ‘‘this title’’. See References in Text 78q of this title or the rules or regulations there- note set out under section 78a of this title. under.’’, redesignated subpars. (B) and (C) of former The Commodity Exchange Act, referred to in subsecs. par. (3) as subpars. (A) and (B), respectively, of new par. (b)(8) and (l)(1), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, (4), and added subpar. (C) to such par. (4). which is classified generally to chapter 1 (§ 1 et seq.) of Subsec. (d)(3)(B). Pub. L. 100–181, § 322(6), substituted Title 7, Agriculture. For complete classification of this ‘‘clearing agency, transfer agent, or person associated Act to the Code, see section 1 of Title 7 and Tables. with a transfer agent’’ for ‘‘clearing agency or transfer The Federal Advisory Committee Act, referred to in agent’’. subsec. (f)(4), is Pub. L. 92–463, Oct. 6, 1972, 86 Stat. 770, Subsec. (d)(4). Pub. L. 100–181, § 322(7), substituted which is set out in the Appendix to Title 5, Government ‘‘, transfer agent, or person associated with a transfer Organization and Employees. agent,’’ for ‘‘or transfer agent’’. AMENDMENTS EFFECTIVE DATE OF 2010 AMENDMENT 2010—Subsec. (c)(4)(C). Pub. L. 111–203, § 925(a)(3), substituted ‘‘12 months or bar any such person from being Amendment by sections 925(a)(3) and 929W of Pub. L. associated with any transfer agent, broker, dealer, in- 111–203 effective 1 day after July 21, 2010, except as vestment adviser, municipal securities dealer, munici- otherwise provided, see section 4 of Pub. L. 111–203, set pal advisor, or nationally recognized statistical rating out as an Effective Date note under section 5301 of Title organization,’’ for ‘‘twelve months or bar any such per- 12, Banks and Banking. son from being associated with the transfer agent,’’. Amendment by section 763(b) of Pub. L. 111–203 effec- Subsec. (g). Pub. L. 111–203, § 929W, added subsec. (g) tive on the later of 360 days after July 21, 2010, or, to relating to due diligence for the delivery of dividends, the extent a provision of subtitle B (§§ 761–774) of title interest, and other valuable property rights. VII of Pub. L. 111–203 requires a rulemaking, not less Pub. L. 111–203, § 763(b), added subsec. (g) relating to than 60 days after publication of the final rule or regu- registration requirement. lation implementing such provision of subtitle B, see Subsecs. (h) to (m). Pub. L. 111–203, § 763(b), added subsection 774 of Pub. L. 111–203, set out as a note under secs. (h) to (m). section 77b of this title. 2002—Subsec. (c)(3)(A), (4)(C). Pub. L. 107–204 inserted ‘‘, or is subject to an order or finding,’’ before ‘‘enu- EFFECTIVE DATE OF 1990 AMENDMENT merated’’ and substituted ‘‘(H), or (G)’’ for ‘‘or (G)’’. Amendment by Pub. L. 101–429 effective Oct. 15, 1990, 2000—Subsec. (b)(3)(A). Pub. L. 106–554, § 1(a)(5) [title with provisions relating to civil penalties and account- II, § 207(1)], inserted ‘‘and derivative agreements, con- ing and disgorgement, see section 1(c)(1), (2) of Pub. L. tracts, and transactions’’ after ‘‘prompt and accurate 101–429, set out in a note under section 77g of this title. clearance and settlement of securities transactions’’. Subsec. (b)(3)(F). Pub. L. 106–554, § 1(a)(5) [title II, § 207(2)], inserted ‘‘and, to the extent applicable, deriva- EFFECTIVE DATE tive agreements, contracts, and transactions’’ after Section effective June 4, 1975, except for subsecs. (b) ‘‘designed to promote the prompt and accurate clear- and (c) which are effective 180 days after June 4, 1975, ance and settlement of securities transactions’’. see section 31(a) of Pub. L. 94–29, set out as a note under Subsec. (b)(7). Pub. L. 106–554, § 1(a)(5) [title II, section 78b of this title. § 206(d)], added par. (7). Subsec. (b)(8). Pub. L. 106–554, § 1(a)(5) [title II, CLEARANCE AND SETTLEMENT OF TRANSACTIONS; § 207(3)], added par. (8). REPORT TO CONGRESS 1990—Subsec. (a)(2). Pub. L. 101–432, § 5(a), amended par. (2) generally. Prior to amendment, par. (2) read as Section 8(b) of Pub. L. 101–432 directed Securities and follows: ‘‘The Commission is directed, therefore, having Exchange Commission, in consultation with Commod- due regard for the public interest, the protection of in- ity Futures Trading Commission, Board of Governors of vestors, the safeguarding of securities and funds, and the Federal Reserve System, and other relevant regu- maintenance of fair competition among brokers and latory authorities, to examine progress toward estab- dealers, clearing agencies, and transfer agents, to use lishing linked or coordinated facilities for clearance its authority under this chapter to facilitate the estab- and settlement of transactions in securities, securities lishment of a national system for the prompt and accu- options, contracts of sale for future delivery and op- rate clearance and settlement of transactions in securi- tions thereon, and commodity options, and to submit ties (other than exempted securities) in accordance to Congress, not later than 2 years from Oct. 16, 1990, with the findings and to carry out the objectives set a report detailing and evaluating such progress. forth in paragraph (1) of this subsection. The Commis- sion shall use its authority under this chapter to assure § 78q–2. Automated quotation systems for penny equal regulation under this chapter of registered clear- stocks ing agencies and registered transfer agents.’’ Subsec. (c)(3)(A), (4)(C). Pub. L. 101–550 substituted (a) Findings ‘‘(A), (D), (E), or (G)’’ for ‘‘(A), (D), or (E)’’. Subsec. (d)(5). Pub. L. 101–429 added par. (5). The Congress finds that— Subsec. (f). Pub. L. 101–432, § 5(b), added subsec. (f). (1) the market for penny stocks suffers from 1987—Subsec. (c)(2). Pub. L. 100–181, § 322(1), (2), in- a lack of reliable and accurate quotation and serted ‘‘and any persons associated with the transfer last sale information available to investors agent’’ in first sentence and substituted ‘‘45’’ for ‘‘thir- and regulators; ty’’ in second sentence. Subsec. (c)(3), (4). Pub. L. 100–181, § 322(3)–(5), added (2) it is in the public interest and appro- par. (3), struck out former par. (3)(A) which read as fol- priate for the protection of investors and the lows: ‘‘The appropriate regulatory agency for a transfer maintenance of fair and orderly markets to agent, by order, shall deny registration to, censure, improve significantly the information avail- place limitations on the activities, functions, or oper- able to brokers, dealers, investors, and regu- ations of, suspend for a period not exceeding twelve lators with respect to quotations for and months, or revoke the registration of such transfer transactions in penny stocks; and agent, if such appropriate regulatory agency finds, on (3) a fully implemented automated quotation the record after notice and opportunity for hearing, that such denial, censure, placing of limitations, sus- system for penny stocks would meet the infor- pension, or revocation is in the public interest and that mation needs of investors and market partici- such transfer agent has willfully violated or is unable pants and would add visibility and regulatory to comply with any provision of this section or section and surveillance data to that market. § 78r TITLE 15—COMMERCE AND TRADE Page 356

(b) Mandate to facilitate establishment of auto- lated to reports referred to in subsec. (d), see Codifica- mated quotation systems tion note set out under section 78w of this title. (1) In general EFFECTIVE DATE The Commission shall facilitate the wide- Section effective Oct. 15, 1990, with provisions relat- spread dissemination of reliable and accurate ing to civil penalties and accounting and disgorgement, last sale and quotation information with re- see section 1(c)(1), (2) of Pub. L. 101–429, set out in an Effective Date of 1990 Amendment note under section spect to penny stocks in accordance with the 77g of this title. findings set forth in subsection (a) of this section, with a view toward establishing, at the § 78r. Liability for misleading statements earliest feasible time, one or more automated (a) Persons liable; persons entitled to recover; quotation systems that will collect and dis- defense of good faith; suit at law or in equity; seminate information regarding all penny costs, etc. stocks. Any person who shall make or cause to be (2) Characteristics of systems made any statement in any application, report, Each such automated quotation system or document filed pursuant to this chapter or shall— any rule or regulation thereunder or any under- (A) be operated by a registered securities taking contained in a registration statement as association or a national securities exchange provided in subsection (d) of section 78o of this in accordance with such rules as the Com- title, which statement was at the time and in mission and these entities shall prescribe; the light of the circumstances under which it (B) collect and disseminate quotation and was made false or misleading with respect to transaction information; any material fact, shall be liable to any person (C) except as provided in subsection (c) of (not knowing that such statement was false or this section, provide bid and ask quotations misleading) who, in reliance upon such state- of participating brokers or dealers, or comment, shall have purchased or sold a security at parably accurate and reliable pricing infor- a price which was affected by such statement, mation, which shall constitute firm bids or for damages caused by such reliance, unless the offers for at least such minimum numbers of person sued shall prove that he acted in good shares or minimum dollar amounts as the faith and had no knowledge that such statement Commission and the registered securities as- was false or misleading. A person seeking to en- sociation or national securities exchange force such liability may sue at law or in equity shall require; and in any court of competent jurisdiction. In any (D) provide for the reporting of the volume such suit the court may, in its discretion, re- of penny stock transactions, including last quire an undertaking for the payment of the sale reporting, when the volume reaches ap- costs of such suit, and assess reasonable costs, propriate levels that the Commission shall including reasonable attorneys’ fees, against ei- specify by rule or order. ther party litigant. (c) Exemptive authority (b) Contribution The Commission may, by rule or order, grant Every person who becomes liable to make pay- such exemptions, in whole or in part, condi- ment under this section may recover contribu- tionally or unconditionally, to any penny stock tion as in cases of contract from any person or class of penny stocks from the requirements who, if joined in the original suit, would have of subsection (b) of this section as the Commis- been liable to make the same payment. sion determines to be consistent with the public (c) Period of limitations interest, the protection of investors, and the No action shall be maintained to enforce any maintenance of fair and orderly markets. liability created under this section unless (d) Commission reporting requirements brought within one year after the discovery of The Commission shall, in each of the first 5 the facts constituting the cause of action and annual reports (under section 78w(b)(1) of this within three years after such cause of action ac- title) submitted more than 12 months after Oc- crued. tober 15, 1990, include a description of the status (June 6, 1934, ch. 404, title I, § 18, 48 Stat. 897; of the penny stock automated quotation system May 27, 1936, ch. 462, § 5, 49 Stat. 1379.) or systems required by subsection (b) of this sec- REFERENCES IN TEXT tion. Such description shall include— (1) a review of the development, implemen- This chapter, referred to in subsec. (a), was in the tation, and progress of the project, including original ‘‘this title’’. See References in Text note set out under section 78a of this title. achievement of significant milestones and current project schedule; and AMENDMENTS (2) a review of the activities of registered se- 1936—Subsec. (a). Act May 27, 1936, inserted ‘‘or any curities associations and national securities undertaking contained in a registration statement as exchanges in the development of the system. provided in subsection (d) of section 78o of this title’’. (June 6, 1934, ch. 404, title I, § 17B, as added Pub. § 78s. Registration, responsibilities, and over- L. 101–429, title V, § 506, Oct. 15, 1990, 104 Stat. sight of self-regulatory organizations 955.) (a) Registration procedures; notice of filing; REFERENCES IN TEXT other regulatory agencies Section 78w(b)(1) of this title, referred to in subsec. (1) The Commission shall, upon the filing of an (d), was omitted from the Code. For further details re- application for registration as a national securi- Page 357 TITLE 15—COMMERCE AND TRADE § 78s ties exchange, registered securities association, section of such appropriate regulatory agen- or registered clearing agency, pursuant to sec- cy’s (i) determination that such clearing agen- tion 78f, 78o–3, or 78q–1 of this title, respectively, cy is not so organized or does not have the ca- publish notice of such filing and afford inter- pacity to be able to safeguard securities or ested persons an opportunity to submit written funds in its custody or control or for which it data, views, and arguments concerning such ap- is responsible or that the rules of such clear- plication. Within ninety days of the date of pub- ing agency are not designed to assure the safe- lication of such notice (or within such longer pe- guarding of such securities or funds and (ii) riod as to which the applicant consents), the reasons for such determination. Commission shall— (3) A self-regulatory organization may, upon (A) by order grant such registration, or (B) institute proceedings to determine such terms and conditions as the Commission, whether registration should be denied. Such by rule, deems necessary or appropriate in the proceedings shall include notice of the grounds public interest or for the protection of investors, for denial under consideration and oppor- withdraw from registration by filing a written tunity for hearing and shall be concluded notice of withdrawal with the Commission. If within one hundred eighty days of the date of the Commission finds that any self-regulatory a publication of notice of the filing of the ap- organization is no longer in existence or has plication for registration. At the conclusion of ceased to do business in the capacity specified in such proceedings the Commission, by order, its application for registration, the Commission, shall grant or deny such registration. The by order, shall cancel its registration. Upon the Commission may extend the time for conclu- withdrawal of a national securities association sion of such proceedings for up to ninety days from registration or the cancellation, suspen- if it finds good cause for such extension and sion, or revocation of the registration of a na- publishes its reasons for so finding or for such tional securities association, the registration of longer period as to which the applicant con- any association affiliated therewith shall auto- sents. matically terminate. The Commission shall grant such registration if (b) Proposed rule changes; notice; proceedings it finds that the requirements of this chapter (1) Each self-regulatory organization shall file and the rules and regulations thereunder with with the Commission, in accordance with such respect to the applicant are satisfied. The Com- rules as the Commission may prescribe, copies mission shall deny such registration if it does of any proposed rule or any proposed change in, not make such finding. addition to, or deletion from the rules of such (2) With respect to an application for registra- self-regulatory organization (hereinafter in this tion filed by a clearing agency for which the subsection collectively referred to as a ‘‘pro- Commission is not the appropriate regulatory posed rule change’’) accompanied by a concise agency— general statement of the basis and purpose of (A) The Commission shall not grant reg- such proposed rule change. The Commission istration prior to the sixtieth day after the shall, as soon as practicable after the date of the date of publication of notice of the filing of filing of any proposed rule change, publish no- such application unless the appropriate regu- tice thereof together with the terms of sub- latory agency for such clearing agency has no- stance of the proposed rule change or a descrip- tified the Commission of such appropriate reg- tion of the subjects and issues involved. The ulatory agency’s determination that such Commission shall give interested persons an op- clearing agency is so organized and has the ca- portunity to submit written data, views, and ar- pacity to be able to safeguard securities and guments concerning such proposed rule change. funds in its custody or control or for which it No proposed rule change shall take effect unless is responsible and that the rules of such clear- approved by the Commission or otherwise per- ing agency are designed to assure the safe- mitted in accordance with the provisions of this guarding of such securities and funds. subsection. (B) The Commission shall institute proceed- (2) APPROVAL PROCESS.— ings in accordance with paragraph (1)(B) of (A) APPROVAL PROCESS ESTABLISHED.— this subsection to determine whether registra- (i) IN GENERAL.—Except as provided in tion should be denied if the appropriate regu- clause (ii), not later than 45 days after the latory agency for such clearing agency noti- date of publication of a proposed rule change fies the Commission within sixty days of the under paragraph (1), the Commission shall— date of publication of notice of the filing of (I) by order, approve or disapprove the such application of such appropriate regu- proposed rule change; or latory agency’s (i) determination that such (II) institute proceedings under subpara- clearing agency may not be so organized or graph (B) to determine whether the pro- have the capacity to be able to safeguard secu- posed rule change should be disapproved. rities or funds in its custody or control or for (ii) EXTENSION OF TIME PERIOD.—The Com- which it is responsible or that the rules of mission may extend the period established such clearing agency may not be designed to under clause (i) by not more than an addi- assure the safeguarding of such securities and tional 45 days, if— funds and (ii) reasons for such determination. (I) the Commission determines that a (C) The Commission shall deny registration longer period is appropriate and publishes if the appropriate regulatory agency for such the reasons for such determination; or clearing agency notifies the Commission prior (II) the self-regulatory organization that to the conclusion of proceedings instituted in filed the proposed rule change consents to accordance with paragraph (1)(B) of this sub- the longer period. § 78s TITLE 15—COMMERCE AND TRADE Page 358

(B) PROCEEDINGS.— terms of such proposed rule change, on a pub- (i) NOTICE AND HEARING.—If the Commis- licly accessible website, the Commission shall sion does not approve or disapprove a pro- thereafter send the notice to the Federal Reg- posed rule change under subparagraph (A), ister for publication thereof under paragraph the Commission shall provide to the self-reg- (1) within 15 days of the date on which such ulatory organization that filed the proposed website publication is made. If the Commis- rule change— sion fails to send the notice for publication (I) notice of the grounds for disapproval thereof within such 15 day period, then the under consideration; and date of publication shall be deemed to be the (II) opportunity for hearing, to be con- date on which such website publication was cluded not later than 180 days after the made. date of publication of notice of the filing (F) RULEMAKING.— of the proposed rule change. (i) IN GENERAL.—Not later than 180 days after July 21, 2010, after consultation with (ii) ORDER OF APPROVAL OR DISAPPROVAL.— other regulatory agencies, the Commission (I) IN GENERAL.—Except as provided in shall promulgate rules setting forth the pro- subclause (II), not later than 180 days after cedural requirements of the proceedings re- the date of publication under paragraph quired under this paragraph. (1), the Commission shall issue an order (ii) NOTICE AND COMMENT NOT REQUIRED.— approving or disapproving the proposed The rules promulgated by the Commission rule change. under clause (i) are not required to include (II) EXTENSION OF TIME PERIOD.—The republication of proposed rule changes or so- Commission may extend the period for is- licitation of public comment. suance under clause (I) by not more than (3)(A) Notwithstanding the provisions of para- 60 days, if— graph (2) of this subsection, a proposed rule (aa) the Commission determines that a change shall take effect upon filing with the longer period is appropriate and pub- Commission if designated by the self-regulatory lishes the reasons for such determina- organization as (i) constituting a stated policy, tion; or practice, or interpretation with respect to the (bb) the self-regulatory organization meaning, administration, or enforcement of an that filed the proposed rule change con- existing rule of the self-regulatory organization, sents to the longer period. (ii) establishing or changing a due, fee, or other (C) STANDARDS FOR APPROVAL AND DIS- charge imposed by the self-regulatory organiza- APPROVAL.— tion on any person, whether or not the person is (i) APPROVAL.—The Commission shall ap- a member of the self-regulatory organization, or prove a proposed rule change of a self-regu- (iii) concerned solely with the administration of latory organization if it finds that such pro- the self-regulatory organization or other mat- posed rule change is consistent with the re- ters which the Commission, by rule, consistent quirements of this chapter and the rules and with the public interest and the purposes of this regulations issued under this chapter that subsection, may specify as without the provi- are applicable to such organization. sions of such paragraph (2). (ii) DISAPPROVAL.—The Commission shall (B) Notwithstanding any other provision of disapprove a proposed rule change of a self- this subsection, a proposed rule change may be regulatory organization if it does not make put into effect summarily if it appears to the a finding described in clause (i). Commission that such action is necessary for (iii) TIME FOR APPROVAL.—The Commission the protection of investors, the maintenance of may not approve a proposed rule change ear- fair and orderly markets, or the safeguarding of lier than 30 days after the date of publica- securities or funds. Any proposed rule change so tion under paragraph (1), unless the Commis- put into effect shall be filed promptly thereafter sion finds good cause for so doing and pub- in accordance with the provisions of paragraph lishes the reason for the finding. (1) of this subsection. (C) Any proposed rule change of a self-regu- (D) RESULT OF FAILURE TO INSTITUTE OR CON- latory organization which has taken effect pur- CLUDE PROCEEDINGS.—A proposed rule change suant to subparagraph (A) or (B) of this para- shall be deemed to have been approved by the graph may be enforced by such organization to Commission, if— the extent it is not inconsistent with the provi- (i) the Commission does not approve or sions of this chapter, the rules and regulations disapprove the proposed rule change or begin thereunder, and applicable Federal and State proceedings under subparagraph (B) within law. At any time within the 60-day period begin- the period described in subparagraph (A); or ning on the date of filing of such a proposed rule (ii) the Commission does not issue an order change in accordance with the provisions of approving or disapproving the proposed rule paragraph (1), the Commission summarily may change under subparagraph (B) within the temporarily suspend the change in the rules of period described in subparagraph (B)(ii). the self-regulatory organization made thereby, (E) PUBLICATION DATE BASED ON FEDERAL if it appears to the Commission that such action REGISTER PUBLISHING.—For purposes of this is necessary or appropriate in the public inter- paragraph, if, after filing a proposed rule est, for the protection of investors, or otherwise change with the Commission pursuant to para- in furtherance of the purposes of this chapter. If graph (1), a self-regulatory organization pub- the Commission takes such action, the Commis- lishes a notice of the filing of such proposed sion shall institute proceedings under paragraph rule change, together with the substantive (2)(B) to determine whether the proposed rule Page 359 TITLE 15—COMMERCE AND TRADE § 78s should be approved or disapproved. Commission (5) The Commission shall consult with and action pursuant to this subparagraph shall not consider the views of the Secretary of the Treas- affect the validity or force of the rule change ury prior to approving a proposed rule filed by a during the period it was in effect and shall not registered securities association that primarily be reviewable under section 78y of this title nor concerns conduct related to transactions in gov- deemed to be ‘‘final agency action’’ for purposes ernment securities, except where the Commis- of section 704 of title 5. sion determines that an emergency exists re- (4) With respect to a proposed rule change filed quiring expeditious or summary action and pub- by a registered clearing agency for which the lishes its reasons therefor. If the Secretary of Commission is not the appropriate regulatory the Treasury comments in writing to the Com- agency— mission on a proposed rule that has been pub- (A) The Commission shall not approve any lished for comment, the Commission shall re- such proposed rule change prior to the thirti- spond in writing to such written comment be- eth day after the date of publication of notice fore approving the proposed rule. If the Sec- of the filing whereof unless the appropriate retary of the Treasury determines, and notifies regulatory agency for such clearing agency the Commission, that such rule, if implemented, has notified the Commission of such appro- would, or as applied does (i) adversely affect the priate regulatory agency’s determination that liquidity or efficiency of the market for govern- the proposed rule change is consistent with ment securities; or (ii) impose any burden on the safeguarding of securities and funds in the competition not necessary or appropriate in fur- custody or control of such clearing agency or therance of the purposes of this section, the for which it is responsible. Commission shall, prior to adopting the pro- (B) The Commission shall institute proceed- posed rule, find that such rule is necessary and ings in accordance with paragraph (2)(B) of appropriate in furtherance of the purposes of this subsection to determine whether any such this section notwithstanding the Secretary’s de- proposed rule change should be disapproved, if termination. the appropriate regulatory agency for such (6) In approving rules described in paragraph clearing agency notifies the Commission with- (5), the Commission shall consider the suffi- in thirty days of the date of publication of no- ciency and appropriateness of then existing laws tice of the filing of the proposed rule change of and rules applicable to government securities such appropriate regulatory agency’s (i) deter- brokers, government securities dealers, and per- mination that the proposed rule change may sons associated with government securities bro- be inconsistent with the safeguarding of secu- kers and government securities dealers. rities or funds in the custody or control of (7) SECURITY FUTURES PRODUCT RULE such clearing agency or for which it is respon- CHANGES.— sible and (ii) reasons for such determination. (A) FILING REQUIRED.—A self-regulatory or- (C) The Commission shall disapprove any ganization that is an exchange registered with such proposed rule change if the appropriate the Commission pursuant to section 78f(g) of regulatory agency for such clearing agency this title or that is a national securities asso- notifies the Commission prior to the conclu- ciation registered pursuant to section 78o–3(k) sion of proceedings instituted in accordance of this title shall file with the Commission, in with paragraph (2)(B) of this subsection of accordance with such rules as the Commission such appropriate regulatory agency’s (i) deter- may prescribe, copies of any proposed rule mination that the proposed rule change is in- change or any proposed change in, addition to, consistent with the safeguarding of securities or deletion from the rules of such self-regu- or funds in the custody or control of such latory organization (hereinafter in this para- clearing agency or for which it is responsible graph collectively referred to as a ‘‘proposed and (ii) reasons for such determination. rule change’’) that relates to higher margin (D)(i) The Commission shall order the tem- levels, fraud or manipulation, recordkeeping, porary suspension of any change in the rules reporting, listing standards, or decimal pric- of a clearing agency made by a proposed rule ing for security futures products, sales prac- change that has taken effect under paragraph tices for security futures products for persons (3), if the appropriate regulatory agency for who effect transactions in security futures the clearing agency notifies the Commission products, or rules effectuating such self-regu- not later than 30 days after the date on which latory organization’s obligation to enforce the the proposed rule change was filed of— securities laws. Such proposed rule change (I) the determination by the appropriate shall be accompanied by a concise general regulatory agency that the rules of such statement of the basis and purpose of such clearing agency, as so changed, may be in- proposed rule change. The Commission shall, consistent with the safeguarding of securi- upon the filing of any proposed rule change, ties or funds in the custody or control of promptly publish notice thereof together with such clearing agency or for which it is re- the terms of substance of the proposed rule sponsible; and change or a description of the subjects and issues involved. The Commission shall give in- (II) the reasons for the determination de- terested persons an opportunity to submit scribed in subclause (I). data, views, and arguments concerning such (ii) If the Commission takes action under proposed rule change. clause (i), the Commission shall institute pro- (B) FILING WITH CFTC.—A proposed rule ceedings under paragraph (2)(B) to determine change filed with the Commission pursuant to if the proposed rule change should be approved subparagraph (A) shall be filed concurrently or disapproved. with the Commodity Futures Trading Com- § 78s TITLE 15—COMMERCE AND TRADE Page 360

mission. Such proposed rule change may take Commission may extend the time for con- effect upon filing of a written certification clusion of such proceedings for up to 60 with the Commodity Futures Trading Com- days if the Commission finds good cause mission under section 7a–2(c) of title 7, upon a for such extension and publishes its rea- determination by the Commodity Futures sons for so finding or for such longer pe- Trading Commission that review of the pro- riod as to which the self-regulatory orga- posed rule change is not necessary, or upon ap- nization consents. proval of the proposed rule change by the (ii) GROUNDS FOR APPROVAL.—The Commis- Commodity Futures Trading Commission. sion shall approve a proposed rule change of (C) ABROGATION OF RULE CHANGES.—Any pro- a self-regulatory organization under this posed rule change of a self-regulatory organi- subparagraph if the Commission finds that zation that has taken effect pursuant to sub- such proposed rule change does not unduly paragraph (B) may be enforced by such self- burden competition or efficiency, does not regulatory organization to the extent such conflict with the securities laws, and is not rule is not inconsistent with the provisions of inconsistent with the public interest or the this chapter, the rules and regulations there- protection of investors. The Commission under, and applicable Federal law. At any shall disapprove such a proposed rule change time within 60 days of the date of the filing of of a self-regulatory organization if it does a written certification with the Commodity not make such finding. The Commission Futures Trading Commission under section shall not approve any proposed rule change 7a–2(c) of title 7, the date the Commodity Fu- prior to the 30th day after the date of publi- tures Trading Commission determines that re- cation of notice of the filing thereof, unless view of such proposed rule change is not nec- the Commission finds good cause for so essary, or the date the Commodity Futures doing and publishes its reasons for so find- Trading Commission approves such proposed ing. rule change, the Commission, after consultation with the Commodity Futures Trading (8) DECIMAL PRICING.—Not later than 9 months Commission, may summarily abrogate the after the date on which trading in any security proposed rule change and require that the pro- futures product commences under this chapter, posed rule change be refiled in accordance all self-regulatory organizations listing or trad- with the provisions of paragraph (1), if it ap- ing security futures products shall file proposed pears to the Commission that such proposed rule changes necessary to implement decimal rule change unduly burdens competition or ef- pricing of security futures products. The Com- ficiency, conflicts with the securities laws, or mission may not require such rules to contain is inconsistent with the public interest and equal minimum increments in such decimal the protection of investors. Commission ac- pricing. tion pursuant to the preceding sentence shall (9) CONSULTATION WITH CFTC.— not affect the validity or force of the rule (A) CONSULTATION REQUIRED.—The Commis- change during the period it was in effect and sion shall consult with and consider the views shall not be reviewable under section 78y of of the Commodity Futures Trading Commis- this title nor deemed to be a final agency ac- sion prior to approving or disapproving a pro- tion for purposes of section 704 of title 5. posed rule change filed by a national securi- (D) REVIEW OF RESUBMITTED ABROGATED ties association registered pursuant to section RULES.— 78o–3(a) of this title or a national securities (i) PROCEEDINGS.—Within 35 days of the exchange subject to the provisions of sub- date of publication of notice of the filing of section (a) of this section that primarily con- a proposed rule change that is abrogated in cerns conduct related to transactions in secu- accordance with subparagraph (C) and rity futures products, except where the Com- refiled in accordance with paragraph (1), or mission determines that an emergency exists within such longer period as the Commission requiring expeditious or summary action and may designate up to 90 days after such date publishes its reasons therefor. if the Commission finds such longer period (B) RESPONSES TO CFTC COMMENTS AND FIND- to be appropriate and publishes its reasons INGS.—If the Commodity Futures Trading for so finding or as to which the self-regu- Commission comments in writing to the Com- latory organization consents, the Commis- mission on a proposed rule that has been pub- sion shall— lished for comment, the Commission shall re- (I) by order approve such proposed rule spond in writing to such written comment be- change; or fore approving or disapproving the proposed (II) after consultation with the Commod- rule. If the Commodity Futures Trading Com- ity Futures Trading Commission, institute mission determines, and notifies the Commis- proceedings to determine whether the pro- sion, that such rule, if implemented or as ap- posed rule change should be disapproved. plied, would— Proceedings under subclause (II) shall in- (i) adversely affect the liquidity or effi- clude notice of the grounds for disapproval ciency of the market for security futures under consideration and opportunity for products; or hearing and be concluded within 180 days (ii) impose any burden on competition not after the date of publication of notice of necessary or appropriate in furtherance of the filing of the proposed rule change. At the purposes of this section, the conclusion of such proceedings, the the Commission shall, prior to approving or Commission, by order, shall approve or disapproving the proposed rule, find that such disapprove such proposed rule change. The rule is necessary and appropriate in further- Page 361 TITLE 15—COMMERCE AND TRADE § 78s

ance of the purposes of this section notwith- (2) The Commission shall give interested standing the Commodity Futures Trading persons an opportunity for the oral presen- Commission’s determination. tation of data, views, and arguments, in addi- (10) 1 RULE OF CONSTRUCTION RELATING TO FIL- tion to an opportunity to make written sub- ING DATE OF PROPOSED RULE CHANGES.— missions. A transcript shall be kept of any (A) IN GENERAL.—For purposes of this sub- oral presentation. section, the date of filing of a proposed rule (3) A rule adopted pursuant to this sub- change shall be deemed to be the date on section shall incorporate the text of the which the Commission receives the proposed amendment to the rules of the self-regulatory rule change. organization and a statement of the Commis- (B) EXCEPTION.—A proposed rule change has sion’s basis for and purpose in so amending not been received by the Commission for pur- such rules. This statement shall include an poses of subparagraph (A) if, not later than 7 identification of any facts on which the Com- business days after the date of receipt by the mission considers its determination so to Commission, the Commission notifies the self- amend the rules of the self-regulatory agency regulatory organization that such proposed to be based, including the reasons for the Com- rule change does not comply with the rules of the Commission relating to the required form mission’s conclusions as to any of such facts of a proposed rule change, except that if the which were disputed in the rulemaking. Commission determines that the proposed rule (4)(A) Except as provided in paragraphs (1) change is unusually lengthy and is complex or through (3) of this subsection, rulemaking raises novel regulatory issues, the Commission under this subsection shall be in accordance shall inform the self-regulatory organization with the procedures specified in section 553 of of such determination not later than 7 busi- title 5 for rulemaking not on the record. ness days after the date of receipt by the Com- (B) Nothing in this subsection shall be con- mission and, for the purposes of subparagraph strued to impair or limit the Commission’s (A), a proposed rule change has not been re- power to make, or to modify or alter the pro- ceived by the Commission, if, not later than 21 cedures the Commission may follow in mak- days after the date of receipt by the Commis- ing, rules and regulations pursuant to any sion, the Commission notifies the self-regu- other authority under this chapter. latory organization that such proposed rule (C) Any amendment to the rules of a self- change does not comply with the rules of the regulatory organization made by the Commis- Commission relating to the required form of a sion pursuant to this subsection shall be con- proposed rule change. sidered for all purposes of this chapter to be (10) 1 Notwithstanding paragraph (2), the time part of the rules of such self-regulatory orga- period within which the Commission is required nization and shall not be considered to be a by order to approve a proposed rule change or rule of the Commission. institute proceedings to determine whether the (5) With respect to rules described in sub- proposed rule change should be disapproved is section (b)(5) of this section, the Commission stayed pending a determination by the Commis- shall consult with and consider the views of sion upon the request of the Commodity Futures the Secretary of the Treasury before abrogat- Trading Commission or its Chairman that the ing, adding to, and deleting from such rules, Commission issue a determination as to whether except where the Commission determines that a product that is the subject of such proposed an emergency exists requiring expeditious or rule change is a security pursuant to section summary action and publishes its reasons 8306 of this title. therefor. (c) Amendment by Commission of rules of self- (d) Notice of disciplinary action taken by self- regulatory organizations regulatory organization against a member or The Commission, by rule, may abrogate, add participant; review of action by appropriate to, and delete from (hereinafter in this sub- regulatory agency; procedure section collectively referred to as ‘‘amend’’) the (1) If any self-regulatory organization imposes rules of a self-regulatory organization (other any final disciplinary sanction on any member than a registered clearing agency) as the Com- thereof or participant therein, denies member- mission deems necessary or appropriate to in- ship or participation to any applicant, or pro- sure the fair administration of the self-regu- hibits or limits any person in respect to access latory organization, to conform its rules to re- to services offered by such organization or mem- quirements of this chapter and the rules and ber thereof or if any self-regulatory organiza- regulations thereunder applicable to such orga- tion (other than a registered clearing agency) nization, or otherwise in furtherance of the pur- imposes any final disciplinary sanction on any poses of this chapter, in the following manner: person associated with a member or bars any (1) The Commission shall notify the self-reg- person from becoming associated with a mem- ulatory organization and publish notice of the ber, the self-regulatory organization shall proposed rulemaking in the Federal Register. promptly file notice thereof with the appro- The notice shall include the text of the propriate regulatory agency for the self-regulatory posed amendment to the rules of the self-regu- organization and (if other than the appropriate latory organization and a statement of the regulatory agency for the self-regulatory orga- Commission’s reasons, including any pertinent nization) the appropriate regulatory agency for facts, for commencing such proposed rule- such member, participant, applicant, or other making. person. The notice shall be in such form and contain such information as the appropriate reg- 1 So in original. Two pars. (10) have been enacted. ulatory agency for the self-regulatory organiza- § 78s TITLE 15—COMMERCE AND TRADE Page 362 tion, by rule, may prescribe as necessary or ap- istered securities association, the rules of the propriate in furtherance of the purposes of this Municipal Securities Rulemaking Board as chapter. have been specified in the determination of (2) Any action with respect to which a self-reg- the self-regulatory organization, and that such ulatory organization is required by paragraph provisions are, and were applied in a manner, (1) of this subsection to file notice shall be sub- consistent with the purposes of this chapter, ject to review by the appropriate regulatory such appropriate regulatory agency, by order, agency for such member, participant, applicant, shall so declare and, as appropriate, affirm the or other person, on its own motion, or upon ap- sanction imposed by the self-regulatory orga- plication by any person aggrieved thereby filed nization, modify the sanction in accordance within thirty days after the date such notice with paragraph (2) of this subsection, or re- was filed with such appropriate regulatory agen- mand to the self-regulatory organization for cy and received by such aggrieved person, or further proceedings; or within such longer period as such appropriate (B) if such appropriate regulatory agency regulatory agency may determine. Application does not make any such finding it shall, by to such appropriate regulatory agency for re- order, set aside the sanction imposed by the view, or the institution of review by such appro- self-regulatory organization and, if appropriate regulatory agency on its own motion, priate, remand to the self-regulatory organiza- shall not operate as a stay of such action unless tion for further proceedings. such appropriate regulatory agency otherwise (2) If the appropriate regulatory agency for a orders, summarily or after notice and oppor- member, participant, or person associated with tunity for hearing on the question of a stay a member, having due regard for the public in- (which hearing may consist solely of the submis- terest and the protection of investors, finds sion of affidavits or presentation of oral argu- after a proceeding in accordance with paragraph ments). Each appropriate regulatory agency (1) of this subsection that a sanction imposed by shall establish for appropriate cases an expe- a self-regulatory organization upon such mem- dited procedure for consideration and deter- ber, participant, or person associated with a mination of the question of a stay. member imposes any burden on competition not (3) The provisions of this subsection shall necessary or appropriate in furtherance of the apply to an exchange registered pursuant to sec- purposes of this chapter or is excessive or option 78f(g) of this title or a national securities pressive, the appropriate regulatory agency may association registered pursuant to section cancel, reduce, or require the remission of such 78o–3(k) of this title only to the extent that such sanction. exchange or association imposes any final dis- (f) Dismissal of review proceeding ciplinary sanction for— (A) a violation of the Federal securities laws In any proceeding to review the denial of or the rules and regulations thereunder; or membership or participation in a self-regulatory (B) a violation of a rule of such exchange or organization to any applicant, the barring of association, as to which a proposed change any person from becoming associated with a would be required to be filed under this sec- member of a self-regulatory organization, or the tion, except that, to the extent that the ex- prohibition or limitation by a self-regulatory or- change or association rule violation relates to ganization of any person with respect to access any account, agreement, contract, or trans- to services offered by the self-regulatory organi- action, this subsection shall apply only to the zation or any member thereof, if the appropriate extent such violation involves a security fu- regulatory agency for such applicant or person, tures product. after notice and opportunity for hearing (which hearing may consist solely of consideration of (e) Disposition of review; cancellation, reduction, the record before the self-regulatory organiza- or remission of sanction tion and opportunity for the presentation of sup- (1) In any proceeding to review a final discipli- porting reasons to dismiss the proceeding or set nary sanction imposed by a self-regulatory orga- aside the action of the self-regulatory organiza- nization on a member thereof or participant tion) finds that the specific grounds on which therein or a person associated with such a mem- such denial, bar, or prohibition or limitation is ber, after notice and opportunity for hearing based exist in fact, that such denial, bar, or pro- (which hearing may consist solely of consider- hibition or limitation is in accordance with the ation of the record before the self-regulatory or- rules of the self-regulatory organization, and ganization and opportunity for the presentation that such rules are, and were applied in a man- of supporting reasons to affirm, modify, or set ner, consistent with the purposes of this chap- aside the sanction)— ter, such appropriate regulatory agency, by (A) if the appropriate regulatory agency for order, shall dismiss the proceeding. If such ap- such member, participant, or person associ- propriate regulatory agency does not make any ated with a member finds that such member, such finding or if it finds that such denial, bar, participant, or person associated with a mem- or prohibition or limitation imposes any burden ber has engaged in such acts or practices, or on competition not necessary or appropriate in has omitted such acts, as the self-regulatory furtherance of the purposes of this chapter, such organization has found him to have engaged in appropriate regulatory agency, by order, shall or omitted, that such acts or practices, or set aside the action of the self-regulatory orga- omissions to act, are in violation of such pro- nization and require it to admit such applicant visions of this chapter, the rules or regula- to membership or participation, permit such tions thereunder, the rules of the self-regu- person to become associated with a member, or latory organization, or, in the case of a reg- grant such person access to services offered by Page 363 TITLE 15—COMMERCE AND TRADE § 78s the self-regulatory organization or member tection of investors, or otherwise in furtherance thereof. of the purposes of this chapter, to suspend for a (g) Compliance with rules and regulations period not exceeding twelve months or expel from such self-regulatory organization any (1) Every self-regulatory organization shall member thereof or participant therein, if such comply with the provisions of this chapter, the member or participant is subject to an order of rules and regulations thereunder, and its own the Commission pursuant to section 78o(b)(4) of rules, and (subject to the provisions of section this title or if such appropriate regulatory agen- 78q(d) of this title, paragraph (2) of this sub- cy finds, on the record after notice and oppor- section, and the rules thereunder) absent rea- tunity for hearing, that such member or partici- sonable justification or excuse enforce compli- pant has willfully violated or has effected any ance— (A) in the case of a national securities ex- transaction for any other person who, such change, with such provisions by its members member or participant had reason to believe, and persons associated with its members; was violating with respect to such transaction— (A) in the case of a national securities ex- (B) in the case of a registered securities as- change, any provision of the Securities Act of sociation, with such provisions and the provi- 1933 [15 U.S.C. 77a et seq.], the Investment Ad- sions of the rules of the Municipal Securities visers Act of 1940 [15 U.S.C. 80b–1 et seq.], the Rulemaking Board by its members and per- Investment Company Act of 1940 [15 U.S.C. sons associated with its members; and (C) in the case of a registered clearing agen- 80a–1 et seq.], this chapter, or the rules or reg- cy, with its own rules by its participants. ulations under any of such statutes; (B) in the case of a registered securities as- (2) The Commission, by rule, consistent with sociation, any provision of the Securities Act the public interest, the protection of investors, of 1933, the Investment Advisers Act of 1940, and the other purposes of this chapter, may re- the Investment Company Act of 1940, this lieve any self-regulatory organization of any re- chapter, the rules or regulations under any of sponsibility under this chapter to enforce com- such statutes, or the rules of the Municipal pliance with any specified provision of this Securities Rulemaking Board; or chapter or the rules or regulations thereunder (C) in the case of a registered clearing agen- by any member of such organization or person cy, any provision of the rules of the clearing associated with such a member, or any class of agency. such members or persons associated with a (3) The appropriate regulatory agency for a member. national securities exchange or registered secu- (h) Suspension or revocation of self-regulatory rities association is authorized, by order, if in organization’s registration; censure; other its opinion such action is necessary or appro- sanctions priate in the public interest, for the protection (1) The appropriate regulatory agency for a of investors, or otherwise in furtherance of the self-regulatory organization is authorized, by purposes of this chapter, to suspend for a period order, if in its opinion such action is necessary not exceeding twelve months or to bar any per- or appropriate in the public interest, for the pro- son from being associated with a member of tection of investors, or otherwise in furtherance such national securities exchange or registered of the purposes of this chapter, to suspend for a securities association, if such person is subject period not exceeding twelve months or revoke to an order of the Commission pursuant to sec- the registration of such self-regulatory organi- tion 78o(b)(6) of this title or if such appropriate zation, or to censure or impose limitations upon regulatory agency finds, on the record after no- the activities, functions, and operations of such tice and opportunity for hearing, that such per- self-regulatory organization, if such appropriate son has willfully violated or has effected any regulatory agency finds, on the record after no- transaction for any other person who, such per- tice and opportunity for hearing, that such self- son associated with a member had reason to be- regulatory organization has violated or is un- lieve, was violating with respect to such trans- able to comply with any provision of this chap- action— ter, the rules or regulations thereunder, or its (A) in the case of a national securities ex- own rules or without reasonable justification or change, any provision of the Securities Act of excuse has failed to enforce compliance— 1933, the Investment Advisers Act of 1940, the (A) in the case of a national securities ex- Investment Company Act of 1940, this chapter, change, with any such provision by a member or the rules or regulations under any of such thereof or a person associated with a member statutes; or thereof; (B) in the case of a registered securities as- (B) in the case of a registered securities association, any provision of the Securities Act sociation, with any such provision or any proof 1933, the Investment Advisers Act of 1940, vision of the rules of the Municipal Securities the Investment Company Act of 1940, this Rulemaking Board by a member thereof or a chapter, the rules or regulations under any of person associated with a member thereof; or the statutes, or the rules of the Municipal Se- (C) in the case of a registered clearing agen- curities Rulemaking Board. cy, with any provision of its own rules by a (4) The appropriate regulatory agency for a participant therein. self-regulatory organization is authorized, by (2) The appropriate regulatory agency for a order, if in its opinion such action is necessary self-regulatory organization is authorized, by or appropriate in the public interest, for the pro- order, if in its opinion such action is necessary tection of investors, or otherwise in furtherance or appropriate in the public interest, for the proof the purposes of this chapter, to remove from § 78s TITLE 15—COMMERCE AND TRADE Page 364 office or censure any person who is, or at the was in the original ‘‘this title’’. See References in Text time of the alleged misconduct was, an officer or note set out under section 78a of this title. director of such self-regulatory organization, if The Securities Act of 1933, referred to in subsec. (h), such appropriate regulatory agency finds, on the is act May 27, 1933, ch. 38, title I, 48 Stat. 74, as amended, which is classified generally to subchapter I (§ 77a et record after notice and opportunity for hearing, seq.) of chapter 2A of this title. For complete classifica- that such person has willfully violated any pro- tion of this Act to the Code, see section 77a of this title vision of this chapter, the rules or regulations and Tables. thereunder, or the rules of such self-regulatory The Investment Advisers Act of 1940, referred to in organization, willfully abused his authority, or subsec. (h), is title II of act Aug. 22, 1940, ch. 686, 54 without reasonable justification or excuse has Stat. 847, as amended, which is classified generally to failed to enforce compliance— subchapter II (§ 80b–1 et seq.) of chapter 2D of this title. (A) in the case of a national securities ex- For complete classification of this Act to the Code, see change, with any such provision by any mem- section 80b–20 of this title and Tables. ber or person associated with a member; The Investment Company Act of 1940, referred to in subsec. (h), is title I of act Aug. 22, 1940, ch. 686, 54 Stat. (B) in the case of a registered securities as- 789, as amended, which is classified generally to sub- sociation, with any such provision or any pro- chapter I (§ 80a–1 et seq.) of chapter 2D of this title. For vision of the rules of the Municipal Securities complete classification of this Act to the Code, see sec- Rulemaking Board by any member or person tion 80a–51 of this title and Tables. associated with a member; or (C) in the case of a registered clearing agen- AMENDMENTS cy, with any provision of the rules of the 2010—Subsec. (b)(1). Pub. L. 111–203, § 916(b)(2), sub- clearing agency by any participant. stituted ‘‘as soon as practicable after the date of the filing’’ for ‘‘upon the filing’’. (i) Appointment of trustee Subsec. (b)(2). Pub. L. 111–203, § 916(a), added par. (2) If a proceeding under subsection (h)(1) of this and struck out former par. (2) which related to ap- section results in the suspension or revocation proval of rule change or institution of proceedings re- of the registration of a clearing agency, the ap- garding disapproval of such change within thirty-five propriate regulatory agency for such clearing days of publication of notice or within such longer pe- agency may, upon notice to such clearing agen- riod as the Commission may designate up to ninety cy, apply to any court of competent jurisdiction days of such date. Subsec. (b)(3)(A). Pub. L. 111–203, § 916(c)(1), sub- specified in section 78u(d) or 78aa of this title for stituted ‘‘shall take effect’’ for ‘‘may take effect’’ and the appointment of a trustee. In the event of inserted ‘‘on any person, whether or not the person is such an application, the court may, to the ex- a member of the self-regulatory organization’’ after tent it deems necessary or appropriate, take ex- ‘‘charge imposed by the self-regulatory organization’’. clusive jurisdiction of such clearing agency and Subsec. (b)(3)(C). Pub. L. 111–203, § 916(c)(2), sub- the records and assets thereof, wherever located; stituted second sentence for former second sentence and the court shall appoint the appropriate reg- which read as follows: ‘‘At any time within sixty days ulatory agency for such clearing agency or a of the date of filing of such a proposed rule change in person designated by such appropriate regu- accordance with the provisions of paragraph (1) of this subsection, the Commission summarily may abrogate latory agency as trustee with power to take pos- the change in the rules of the self-regulatory organiza- session and continue to operate or terminate the tion made thereby and require that the proposed rule operations of such clearing agency in an orderly change be refiled in accordance with the provisions of manner for the protection of participants and paragraph (1) of this subsection and reviewed in accord- investors, subject to such terms and conditions ance with the provisions of paragraph (2) of this sub- as the court may prescribe. section, if it appears to the Commission that such action is necessary or appropriate in the public interest, (June 6, 1934, ch. 404, title I, § 19, 48 Stat. 898; for the protection of investors, or otherwise in further- Pub. L. 87–196, Sept. 5, 1961, 75 Stat. 465; Pub. L. ance of the purposes of this chapter.’’, added third sen- 87–561, July 27, 1962, 76 Stat. 247; Pub. L. 90–438, tence, and substituted ‘‘this subparagraph’’ for ‘‘the July 29, 1968, 82 Stat. 453; Pub. L. 91–94, Oct. 20, preceding sentence’’ in last sentence. 1969, 83 Stat. 141; Pub. L. 91–410, Sept. 25, 1970, 84 Subsec. (b)(4)(D). Pub. L. 111–203, § 916(d), amended Stat. 862; Pub. L. 94–29, § 16, June 4, 1975, 89 Stat. subpar. (D) generally. Prior to amendment, subpar. (D) 146; Pub. L. 103–202, title I, § 106(c), Dec. 17, 1993, read as follows: ‘‘The Commission shall abrogate any 107 Stat. 2350; Pub. L. 105–353, title III, change in the rules of such a clearing agency made by a proposed rule change which has taken effect pursuant § 301(b)(11), Nov. 3, 1998, 112 Stat. 3236; Pub. L. to paragraph (3) of this subsection, require that the 106–554, § 1(a)(5) [title II, § 202(b), (c)], Dec. 21, proposed rule change be refiled in accordance with the 2000, 114 Stat. 2763, 2763A–418, 2763A–421; Pub. L. provisions of paragraph (1) of this subsection, and re- 111–203, title VII, § 717(c), title IX, §§ 916, 929F(e), viewed in accordance with the provisions of paragraph July 21, 2010, 124 Stat. 1652, 1833, 1854.) (2) of this subsection, if the appropriate regulatory agency for such clearing agency notifies the Commis- AMENDMENT OF SECTION sion within thirty days of the date of filing of such pro- Unless otherwise provided, amendment by posed rule change of such appropriate regulatory agen- subtitle A (§§ 711–754) of title VII of Pub. L. cy’s (i) determination that the rules of such clearing 111–203 effective on the later of 360 days after agency as so changed may be inconsistent with the July 21, 2010, or, to the extent a provision of safeguarding of securities or funds in the custody or subtitle A requires a rulemaking, not less than control of such clearing agency or for which it is responsible and (ii) reasons for such determination.’’ 60 days after publication of the final rule or Subsec. (b)(10). Pub. L. 111–203, § 916(b)(1), added par. regulation implementing such provision of sub- (10) relating to rule of construction relating to filing title A, see 2010 Amendment notes and Effective date of proposed rule changes. Date of 2010 Amendment note below. Pub. L. 111–203, § 717(c), added par. (10) relating to stay pending determination whether product is a secu- REFERENCES IN TEXT rity pursuant to section 8306 of this title. This chapter, referred to in subsecs. (a)(1), (b)(2)(C)(i), Subsec. (h)(4). Pub. L. 111–203, § 929F(e), in introduc- (3)(C), (7)(C), (8), (c), (d)(1), (e)(1)(A), (2), (f), (g), and (h), tory provisions, substituted ‘‘any person who is, or at Page 365 TITLE 15—COMMERCE AND TRADE § 78t the time of the alleged misconduct was, an officer or eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under director’’ for ‘‘any officer or director’’ and ‘‘such per- section 78d of this title. son’’ for ‘‘such officer or director’’. REVIEW OF REGULATORY STRUCTURES AND PROCEDURES 2000—Subsec. (b)(7). Pub. L. 106–554, § 1(a)(5) [title II, WITH RESPECT TO PENNY STOCKS; REPORT § 202(b)(1)], added par. (7). Subsec. (b)(8). Pub. L. 106–554, § 1(a)(5) [title II, Pub. L. 101–429, title V, § 510, Oct. 15, 1990, 104 Stat. § 202(b)(2)], added par. (8). 957, directed Comptroller General, in consultation with Subsec. (b)(9). Pub. L. 106–554, § 1(a)(5) [title II, Securities and Exchange Commission, to conduct a re- § 202(b)(3)], added par. (9). view of rules, procedures, facilities, and oversight and Subsec. (d)(3). Pub. L. 106–554, § 1(a)(5) [title II, enforcement activities of self-regulatory organizations § 202(c)], added par. (3). under Securities Exchange Act of 1934, with respect to 1998—Subsec. (c)(5). Pub. L. 105–353 realigned margins. penny stocks (within the meaning of 15 U.S.C. 1993—Subsec. (b)(5), (6). Pub. L. 103–202, § 106(c)(1), 78c(a)(51)), and, within one year after Oct. 15, 1990, to added pars. (5) and (6). submit a report on the review including a statement of Subsec. (c)(5). Pub. L. 103–202, § 106(c)(2), added par. findings and such recommendations as the Comptroller (5). General considered appropriate with respect to legisla- 1975—Pub. L. 94–29 amended section generally, sub- tive or administrative changes. stituting provisions covering the registration, responsibilities, and oversight of self-regulatory organiza- § 78t. Liability of controlling persons and persons tions by the Commission for provisions covering only who aid and abet violations the Commission’s powers with respect to exchanges and (a) Joint and several liability; good faith defense securities, with a view to consolidating and expanding the Commission’s oversight powers with respect to self- Every person who, directly or indirectly, con- regulatory organizations, their members, participants, trols any person liable under any provision of and officers, and with a view to giving the Commission this chapter or of any rule or regulation there- identical powers over all self-regulatory organizations, under shall also be liable jointly and severally including registered clearing agencies, and substan- with and to the same extent as such controlled tially strengthening the Commission’s ability to assure person to any person to whom such controlled that these organizations carry out their statutory re- person is liable (including to the Commission in sponsibilities. any action brought under paragraph (1) or (3) of 1970—Subsec. (e)(1). Pub. L. 91–410 substituted ‘‘De- cember 31, 1970’’ for ‘‘September 1, 1970’’. section 78u(d) of this title), unless the control- 1969—Subsec. (e). Pub. L. 91–94 substituted ‘‘Septem- ling person acted in good faith and did not di- ber 1, 1970’’ for ‘‘September 1, 1969’’ in par. (1), and rectly or indirectly induce the act or acts con- ‘‘$945,000’’ for ‘‘$875,000’’ in par. (4). stituting the violation or cause of action. 1968—Subsec. (e). Pub. L. 90–438 added subsec. (e). (b) Unlawful activity through or by means of any 1962—Subsec. (d). Pub. L. 87–561 substituted ‘‘April 3, other person 1963’’ for ‘‘January 3, 1963’’ and ‘‘$950,000’’ for ‘‘$750,000’’. 1961—Subsec. (d). Pub. L. 87–196 added subsec. (d). It shall be unlawful for any person, directly or indirectly, to do any act or thing which it would EFFECTIVE DATE OF 2010 AMENDMENT be unlawful for such person to do under the pro- Amendment by sections 916 and 929F(e) of Pub. L. visions of this chapter or any rule or regulation 111–203 effective 1 day after July 21, 2010, except as thereunder through or by means of any other otherwise provided, see section 4 of Pub. L. 111–203, set person. out as an Effective Date note under section 5301 of Title (c) Hindering, delaying, or obstructing the mak- 12, Banks and Banking. Amendment by section 717(c) of Pub. L. 111–203 effec- ing or filing of any document, report, or in- tive on the later of 360 days after July 21, 2010, or, to formation the extent a provision of subtitle A (§§ 711–754) of title It shall be unlawful for any director or officer VII of Pub. L. 111–203 requires a rulemaking, not less of, or any owner of any securities issued by, any than 60 days after publication of the final rule or regu- issuer required to file any document, report, or lation implementing such provision of subtitle A, see information under this chapter or any rule or section 754 of Pub. L. 111–203, set out as a note under section 1a of Title 7, Agriculture. regulation thereunder without just cause to hinder, delay, or obstruct the making or filing EFFECTIVE DATE OF 1975 AMENDMENT of any such document, report, or information. Amendment by Pub. L. 94–29 effective June 4, 1975, ex- (d) Liability for trading in securities while in cept for amendment of subsec. (g) by Pub. L. 94–29 possession of material nonpublic information which is effective 180 days after June 4, 1975, see section 31(a) of Pub. L. 94–29, set out as a note under section 78b Wherever communicating, or purchasing or of this title. selling a security while in possession of, material nonpublic information would violate, or re- CONSTRUCTION OF 1993 AMENDMENT sult in liability to any purchaser or seller of the Amendment by Pub. L. 103–202 not to be construed to security under any provisions of this chapter, or govern initial issuance of any public debt obligation or any rule or regulation thereunder, such conduct to grant any authority to (or extend any authority of) in connection with a purchase or sale of a put, the Securities and Exchange Commission, any appro- call, straddle, option, privilege or security-based priate regulatory agency, or a self-regulatory organiza- swap agreement with respect to such security or tion to prescribe any procedure, term, or condition of such initial issuance, to promulgate any rule or regula- with respect to a group or index of securities in- tion governing such initial issuance, or to otherwise cluding such security, shall also violate and re- regulate in any manner such initial issuance, see sec- sult in comparable liability to any purchaser or tion 111 of Pub. L. 103–202, set out as a note under sec- seller of that security under such provision, tion 78o–5 of this title. rule, or regulation. TRANSFER OF FUNCTIONS (e) Prosecution of persons who aid and abet violations For transfer of functions of Securities and Exchange Commission, with certain exceptions, to Chairman of For purposes of any action brought by the such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, Commission under paragraph (1) or (3) of section § 78t–1 TITLE 15—COMMERCE AND TRADE Page 366

78u(d) of this title, any person that knowingly or 1995—Pub. L. 104–67, § 104(1), substituted ‘‘liability of recklessly provides substantial assistance to an- controlling persons and persons who aid and abet viola- other person in violation of a provision of this tions’’ for ‘‘Liabilities of controlling persons’’ in sec- chapter, or of any rule or regulation issued tion catchline. Subsec. (f). Pub. L. 104–67, § 104(2), added subsec. (f). under this chapter, shall be deemed to be in vio- 1984—Subsec. (d). Pub. L. 98–376 added subsec. (d). lation of such provision to the same extent as 1964—Subsec. (c). Pub. L. 88–467 extended application the person to whom such assistance is provided. of provisions of subsec. (c) by substituting the prohibi- (f) Limitation on Commission authority tion against any officer or director of, or an owner of securities issued by, a company from hindering, delay- The authority of the Commission under this ing, or obstructing the preparation or filing of any re- section with respect to security-based swap port, document, or information required to be filed agreements shall be subject to the restrictions under this chapter for existing provisions applicable and limitations of section 78c–1(b) of this title. only to filings by companies with securities registered on a national securities exchange or subject to the pro- (June 6, 1934, ch. 404, title I, § 20, 48 Stat. 899; visions of section 78o(d) of this title. May 27, 1936, ch. 462, § 6, 49 Stat. 1379; Pub. L. 1936—Subsec. (c). Act May 27, 1936, inserted ‘‘or any 88–467, § 9, Aug. 20, 1964, 78 Stat. 579; Pub. L. undertaking contained in a registration statement as 98–376, § 5, Aug. 10, 1984, 98 Stat. 1265; Pub. L. provided in subsection (d) of section 78o of this title’’. 104–67, title I, § 104, Dec. 22, 1995, 109 Stat. 757; EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 105–353, title III, § 301(b)(12), Nov. 3, 1998, 112 Stat. 3236; Pub. L. 106–554, § 1(a)(5) [title II, Amendment by sections 929O and 929P(c) of Pub. L. 111–203 effective 1 day after July 21, 2010, except as § 205(a)(3), title III, § 303(i), (j)], Dec. 21, 2000, 114 otherwise provided, see section 4 of Pub. L. 111–203, set Stat. 2763, 2763A–426, 2763A–456; Pub. L. 111–203, out as an Effective Date note under section 5301 of Title title VII, § 762(d)(6), title IX, §§ 929O, 929P(c), July 12, Banks and Banking. 21, 2010, 124 Stat. 1761, 1862, 1865.) Amendment by section 762(d)(6) of Pub. L. 111–203 effective on the later of 360 days after July 21, 2010, or, AMENDMENT OF SECTION to the extent a provision of subtitle B (§§ 761–774) of Unless otherwise provided, amendment by title VII of Pub. L. 111–203 requires a rulemaking, not subtitle B (§§ 761–774) of title VII of Pub. L. less than 60 days after publication of the final rule or 111–203 effective on the later of 360 days after regulation implementing such provision of subtitle B, July 21, 2010, or, to the extent a provision of see section 774 of Pub. L. 111–203, set out as a note subtitle B requires a rulemaking, not less than under section 77b of this title. 60 days after publication of the final rule or EFFECTIVE DATE OF 1995 AMENDMENT regulation implementing such provision of sub- Amendment by Pub. L. 104–67 not to affect or apply title B, see 2010 Amendment notes and Effective to any private action arising under this chapter or title Date of 2010 Amendment note below. I of the Securities Act of 1933 (15 U.S.C. 77a et seq.), commenced before and pending on Dec. 22, 1995, see sec- REFERENCES IN TEXT tion 108 of Pub. L. 104–67, set out as a note under sec- This chapter, referred to in text, was in the original tion 77l of this title. ‘‘this title’’. See References in Text note set out under section 78a of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–376 effective Aug. 10, 1984, AMENDMENTS see section 7 of Pub. L. 98–376, set out as a note under 2010—Subsec. (a). Pub. L. 111–203, § 929P(c), inserted section 78c of this title. ‘‘(including to the Commission in any action brought under paragraph (1) or (3) of section 78u(d) of this EFFECTIVE DATE OF 1964 AMENDMENT title)’’ after ‘‘controlled person is liable’’. Amendment by Pub. L. 88–467 effective Aug. 20, 1964, Subsec. (d). Pub. L. 111–203, § 762(d)(6)(A), struck out see section 13 of Pub. L. 88–467, set out as a note under ‘‘(as defined in section 206B of the Gramm-Leach-Bliley section 78c of this title. Act)’’ after ‘‘security-based swap agreement’’. Subsec. (e). Pub. L. 111–203, § 929O, inserted ‘‘or reck- CONSTRUCTION OF 1995 AMENDMENT lessly’’ after ‘‘knowingly’’. Nothing in amendment by Pub. L. 104–67 to be deemed Subsec. (f). Pub. L. 111–203, § 762(d)(6)(B), struck out to create or ratify any implied right of action, or to ‘‘(as defined in section 206B of the Gramm-Leach-Bliley prevent Commission, by rule or regulation, from re- Act)’’ after ‘‘security-based swap agreements’’. stricting or otherwise regulating private actions under 2000—Subsec. (d). Pub. L. 106–554, § 1(a)(5) [title III, this chapter, see section 203 of Pub. L. 104–67, set out as § 303(i)], amended subsec. (d) generally. Prior to amend- a Construction note under section 78j–1 of this title. ment, subsec. (d) read as follows: ‘‘Wherever communicating, or purchasing or selling a security while in § 78t–1. Liability to contemporaneous traders for possession of, material nonpublic information would insider trading violate, or result in liability to any purchaser or seller of the security under any provision of this chapter, or (a) Private rights of action based on contempora- any rule or regulation thereunder, such conduct in con- neous trading nection with a purchase or sale of a put, call, straddle, Any person who violates any provision of this option,, privilege, or security futures product with respect to such security or with respect to a group or chapter or the rules or regulations thereunder index of securities including such security, shall also by purchasing or selling a security while in pos- violate and result in comparable liability to any pur- session of material, nonpublic information shall chaser or seller of that security under such provision, be liable in an action in any court of competent rule, or regulation.’’ jurisdiction to any person who, contempora- Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(3)], sub- neously with the purchase or sale of securities stituted ‘‘, privilege, or security futures product’’ for that is the subject of such violation, has pur- ‘‘or privilege’’. Subsec. (f). Pub. L. 106–554, § 1(a)(5) [title III, § 303(j)], chased (where such violation is based on a sale added subsec. (f). of securities) or sold (where such violation is 1998—Subsecs. (e), (f). Pub. L. 105–353 redesignated based on a purchase of securities) securities of subsec. (f) as (e). the same class. Page 367 TITLE 15—COMMERCE AND TRADE § 78u

(b) Limitations on liability § 78u. Investigations and actions (1) Contemporaneous trading actions limited (a) Authority and discretion of Commission to in- to profit gained or loss avoided vestigate violations The total amount of damages imposed under (1) The Commission may, in its discretion, subsection (a) of this section shall not exceed make such investigations as it deems necessary the profit gained or loss avoided in the trans- to determine whether any person has violated, is action or transactions that are the subject of violating, or is about to violate any provision of the violation. this chapter, the rules or regulations there- (2) Offsetting disgorgements against liability under, the rules of a national securities exchange or registered securities association of The total amount of damages imposed which such person is a member or a person asso- against any person under subsection (a) of this ciated, or, as to any act or practice, or omission section shall be diminished by the amounts, if to act, while associated with a member, for- any, that such person may be required to dis- merly associated with a member, the rules of a gorge, pursuant to a court order obtained at registered clearing agency in which such person the instance of the Commission, in a proceed- is a participant, or, as to any act or practice, or ing brought under section 78u(d) of this title omission to act, while a participant, was a par- relating to the same transaction or trans- ticipant, the rules of the Public Company Ac- actions. counting Oversight Board, of which such person (3) Controlling person liability is a registered public accounting firm, a person No person shall be liable under this section associated with such a firm, or, as to any act, solely by reason of employing another person practice, or omission to act, while associated who is liable under this section, but the liabil- with such firm, a person formerly associated ity of a controlling person under this section with such a firm, or the rules of the Municipal shall be subject to section 78t(a) of this title. Securities Rulemaking Board, and may require or permit any person to file with it a statement (4) Statute of limitations in writing, under oath or otherwise as the Com- No action may be brought under this section mission shall determine, as to all the facts and more than 5 years after the date of the last circumstances concerning the matter to be in- transaction that is the subject of the viola- vestigated. The Commission is authorized in its tion. discretion, to publish information concerning (c) Joint and several liability for communicating any such violations, and to investigate any facts, conditions, practices, or matters which it Any person who violates any provision of this may deem necessary or proper to aid in the en- chapter or the rules or regulations thereunder forcement of such provisions, in the prescribing by communicating material, nonpublic informa- of rules and regulations under this chapter, or in tion shall be jointly and severally liable under securing information to serve as a basis for rec- subsection (a) of this section with, and to the ommending further legislation concerning the same extent as, any person or persons liable matters to which this chapter relates. under subsection (a) of this section to whom the (2) On request from a foreign securities au- communication was directed. thority, the Commission may provide assistance (d) Authority not to restrict other express or im- in accordance with this paragraph if the re- plied rights of action questing authority states that the requesting Nothing in this section shall be construed to authority is conducting an investigation which limit or condition the right of any person to it deems necessary to determine whether any bring an action to enforce a requirement of this person has violated, is violating, or is about to chapter or the availability of any cause of ac- violate any laws or rules relating to securities tion implied from a provision of this chapter. matters that the requesting authority admin- isters or enforces. The Commission may, in its (e) Provisions not to affect public prosecutions discretion, conduct such investigation as the This section shall not be construed to bar or Commission deems necessary to collect informa- limit in any manner any action by the Commis- tion and evidence pertinent to the request for sion or the Attorney General under any other assistance. Such assistance may be provided provision of this chapter, nor shall it bar or without regard to whether the facts stated in limit in any manner any action to recover pen- the request would also constitute a violation of alties, or to seek any other order regarding pen- the laws of the United States. In deciding alties. whether to provide such assistance, the Commis- (June 6, 1934, ch. 404, title I, § 20A, as added Pub. sion shall consider whether (A) the requesting L. 100–704, § 5, Nov. 19, 1988, 102 Stat. 4680.) authority has agreed to provide reciprocal assistance in securities matters to the Commis- REFERENCES IN TEXT sion; and (B) compliance with the request would This chapter, referred to in subsecs. (a), (c), (d), and prejudice the public interest of the United (e), was in the original ‘‘this title’’. See References in States. Text note set out under section 78a of this title. (b) Attendance of witnesses; production of EFFECTIVE DATE records Section not applicable to actions occurring before For the purpose of any such investigation, or Nov. 19, 1988, see section 9 of Pub. L. 100–704 set out as any other proceeding under this chapter, any an Effective Date of 1988 Amendment note under sec- member of the Commission or any officer des- tion 78o of this title. ignated by it is empowered to administer oaths § 78u TITLE 15—COMMERCE AND TRADE Page 368 and affirmations, subpena witnesses, compel a violation of any provision of this chapter or their attendance, take evidence, and require the the rules or regulations thereunder to the Attor- production of any books, papers, correspond- ney General, who may, in his discretion, insti- ence, memoranda, or other records which the tute the necessary criminal proceedings under Commission deems relevant or material to the this chapter. inquiry. Such attendance of witnesses and the (2) AUTHORITY OF COURT TO PROHIBIT PERSONS production of any such records may be required FROM SERVING AS OFFICERS AND DIRECTORS.—In from any place in the United States or any any proceeding under paragraph (1) of this sub- State at any designated place of hearing. section, the court may prohibit, conditionally or (c) Judicial enforcement of investigative power unconditionally, and permanently or for such of Commission; refusal to obey subpena; period of time as it shall determine, any person criminal sanctions who violated section 78j(b) of this title or the In case of contumacy by, or refusal to obey a rules or regulations thereunder from acting as subpena issued to, any person, the Commission an officer or director of any issuer that has a may invoke the aid of any court of the United class of securities registered pursuant to section States within the jurisdiction of which such in- 78l of this title or that is required to file reports vestigation or proceeding is carried on, or where pursuant to section 78o(d) of this title if the per- such person resides or carries on business, in re- son’s conduct demonstrates unfitness to serve as quiring the attendance and testimony of wit- an officer or director of any such issuer. nesses and the production of books, papers, cor- (3) MONEY PENALTIES IN CIVIL ACTIONS.— (A) AUTHORITY OF COMMISSION.—Whenever it respondence, memoranda, and other records. shall appear to the Commission that any per- And such court may issue an order requiring son has violated any provision of this chapter, such person to appear before the Commission or member or officer designated by the Commis- the rules or regulations thereunder, or a sion, there to produce records, if so ordered, or cease-and-desist order entered by the Commis- to give testimony touching the matter under in- sion pursuant to section 78u–3 of this title, vestigation or in question; and any failure to other than by committing a violation subject obey such order of the court may be punished by to a penalty pursuant to section 78u–1 of this such court as a contempt thereof. All process in title, the Commission may bring an action in any such case may be served in the judicial dis- a United States district court to seek, and the trict whereof such person is an inhabitant or court shall have jurisdiction to impose, upon a wherever he may be found. Any person who proper showing, a civil penalty to be paid by shall, without just cause, fail or refuse to attend the person who committed such violation. (B) AMOUNT OF PENALTY.— and testify or to answer any lawful inquiry or to (i) FIRST TIER.—The amount of the penalty produce books, papers, correspondence, memo- shall be determined by the court in light of randa, and other records, if in his power so to the facts and circumstances. For each viola- do, in obedience to the subpena of the Commis- tion, the amount of the penalty shall not ex- sion, shall be guilty of a misdemeanor and, upon ceed the greater of (I) $5,000 for a natural conviction, shall be subject to a fine of not more person or $50,000 for any other person, or (II) than $1,000 or to imprisonment for a term of not the gross amount of pecuniary gain to such more than one year, or both. defendant as a result of the violation. (d) Injunction proceedings; authority of court to (ii) SECOND TIER.—Notwithstanding clause prohibit persons from serving as officers and (i), the amount of penalty for each such vio- directors; money penalties in civil actions lation shall not exceed the greater of (I) (1) Whenever it shall appear to the Commis- $50,000 for a natural person or $250,000 for sion that any person is engaged or is about to any other person, or (II) the gross amount of engage in acts or practices constituting a viola- pecuniary gain to such defendant as a result tion of any provision of this chapter, the rules of the violation, if the violation described in or regulations thereunder, the rules of a na- subparagraph (A) involved fraud, deceit, mational securities exchange or registered securi- nipulation, or deliberate or reckless dis- ties association of which such person is a mem- regard of a regulatory requirement. ber or a person associated with a member, the (iii) THIRD TIER.—Notwithstanding clauses rules of a registered clearing agency in which (i) and (ii), the amount of penalty for each such person is a participant, the rules of the such violation shall not exceed the greater Public Company Accounting Oversight Board, of of (I) $100,000 for a natural person or $500,000 which such person is a registered public ac- for any other person, or (II) the gross counting firm or a person associated with such amount of pecuniary gain to such defendant a firm, or the rules of the Municipal Securities as a result of the violation, if— Rulemaking Board, it may in its discretion (aa) the violation described in subpara- bring an action in the proper district court of graph (A) involved fraud, deceit, manipula- the United States, the United States District tion, or deliberate or reckless disregard of Court for the District of Columbia, or the a regulatory requirement; and United States courts of any territory or other (bb) such violation directly or indirectly place subject to the jurisdiction of the United resulted in substantial losses or created a States, to enjoin such acts or practices, and significant risk of substantial losses to upon a proper showing a permanent or tem- other persons. porary injunction or restraining order shall be (C) PROCEDURES FOR COLLECTION.— granted without bond. The Commission may (i) PAYMENT OF PENALTY TO TREASURY.—A transmit such evidence as may be available con- penalty imposed under this section shall be cerning such acts or practices as may constitute payable into the Treasury of the United Page 369 TITLE 15—COMMERCE AND TRADE § 78u

States, except as otherwise provided in sec- to include other activities, and may, by rule, tion 7246 of this title and section 78u–6 of regulation, or order, exempt any person or this title. class of persons, in whole or in part, condi- (ii) COLLECTION OF PENALTIES.—If a person tionally or unconditionally, from inclusion in upon whom such a penalty is imposed shall such term. fail to pay such penalty within the time pre- (e) Mandamus scribed in the court’s order, the Commission Upon application of the Commission the dis- may refer the matter to the Attorney Gen- trict courts of the United States and the United eral who shall recover such penalty by ac- States courts of any territory or other place tion in the appropriate United States dis- subject to the jurisdiction of the United States trict court. shall have jurisdiction to issue writs of manda- (iii) REMEDY NOT EXCLUSIVE.—The actions mus, injunctions, and orders commanding (1) authorized by this paragraph may be any person to comply with the provisions of this brought in addition to any other action that chapter, the rules, regulations, and orders there- the Commission or the Attorney General is under, the rules of a national securities ex- entitled to bring. change or registered securities association of (iv) JURISDICTION AND VENUE.—For pur- which such person is a member or person associ- poses of section 78aa of this title, actions ated with a member, the rules of a registered under this paragraph shall be actions to en- clearing agency in which such person is a par- force a liability or a duty created by this ticipant, the rules of the Public Company Ac- chapter. counting Oversight Board, of which such person (D) SPECIAL PROVISIONS RELATING TO A VIOLA- is a registered public accounting firm or a per- TION OF A CEASE-AND-DESIST ORDER.—In an ac- son associated with such a firm, the rules of the tion to enforce a cease-and-desist order en- Municipal Securities Rulemaking Board, or any tered by the Commission pursuant to section undertaking contained in a registration state- 78u–3 of this title, each separate violation of ment as provided in subsection (d) of section 78o such order shall be a separate offense, except of this title, (2) any national securities exchange that in the case of a violation through a con- or registered securities association to enforce tinuing failure to comply with the order, each compliance by its members and persons associ- day of the failure to comply shall be deemed a ated with its members with the provisions of separate offense. this chapter, the rules, regulations, and orders (4) PROHIBITION OF ATTORNEYS’ FEES PAID FROM thereunder, and the rules of such exchange or COMMISSION DISGORGEMENT FUNDS.—Except as association, or (3) any registered clearing agen- otherwise ordered by the court upon motion by cy to enforce compliance by its participants the Commission, or, in the case of an adminis- with the provisions of the rules of such clearing trative action, as otherwise ordered by the Com- agency. mission, funds disgorged as the result of an ac- (f) Rules of self-regulatory organizations or tion brought by the Commission in Federal Board court, or as a result of any Commission adminis- Notwithstanding any other provision of this trative action, shall not be distributed as pay- chapter, the Commission shall not bring any ac- ment for attorneys’ fees or expenses incurred by tion pursuant to subsection (d) or (e) of this sec- private parties seeking distribution of the dis- tion against any person for violation of, or to gorged funds. command compliance with, the rules of a self- (5) EQUITABLE RELIEF.—In any action or pro- regulatory organization or the Public Company ceeding brought or instituted by the Commis- Accounting Oversight Board unless it appears to sion under any provision of the securities laws, the Commission that (1) such self-regulatory or- the Commission may seek, and any Federal ganization or the Public Company Accounting court may grant, any equitable relief that may Oversight Board is unable or unwilling to take be appropriate or necessary for the benefit of inappropriate action against such person in the vestors. public interest and for the protection of inves- (6) AUTHORITY OF A COURT TO PROHIBIT PERSONS tors, or (2) such action is otherwise necessary or FROM PARTICIPATING IN AN OFFERING OF PENNY appropriate in the public interest or for the pro- STOCK.— tection of investors. (A) IN GENERAL.—In any proceeding under (g) Consolidation of actions; consent of Commis- paragraph (1) against any person participating sion in, or, at the time of the alleged misconduct who was participating in, an offering of penny Notwithstanding the provisions of section stock, the court may prohibit that person 1407(a) of title 28, or any other provision of law, from participating in an offering of penny no action for equitable relief instituted by the stock, conditionally or unconditionally, and Commission pursuant to the securities laws permanently or for such period of time as the shall be consolidated or coordinated with other court shall determine. actions not brought by the Commission, even though such other actions may involve common (B) DEFINITION.—For purposes of this paragraph, the term ‘‘person participating in an of- questions of fact, unless such consolidation is fering of penny stock’’ includes any person en- consented to by the Commission. gaging in activities with a broker, dealer, or (h) Access to records issuer for purposes of issuing, trading, or in- (1) The Right to Financial Privacy Act of 1978 ducing or attempting to induce the purchase [12 U.S.C. 3401 et seq.] shall apply with respect or sale of, any penny stock. The Commission to the Commission, except as otherwise provided may, by rule or regulation, define such term in this subsection. § 78u TITLE 15—COMMERCE AND TRADE Page 370

(2) Notwithstanding section 1105 or 1107 of the Right to Financial Privacy Act of 1978 [12 U.S.C. Right to Financial Privacy Act of 1978 [12 U.S.C. 3409(a), (b)(1), or (b)(2)]. 3405 or 3407], the Commission may have access to (C) Upon expiration of the period of delay of and obtain copies of, or the information con- notification ordered under subparagraph (A) or tained in financial records of a customer from a (B), the customer shall be served with or mailed financial institution without prior notice to the a copy of the subpena insofar as it applies to the customer upon an ex parte showing to an appro- customer together with the following notice priate United States district court that the which shall describe with reasonable specificity Commission seeks such financial records pursu- the nature of the investigation for which the ant to a subpena issued in conformity with the Commission sought the financial records: requirements of section 19(b) 1 of the Securities ‘‘Records or information concerning your Act of 1933, section 21(b) of the Securities Ex- transactions which are held by the financial in- change Act of 1934 [15 U.S.C. 78u(b)], section stitution named in the attached subpena were 42(b) of the Investment Company Act of 1940 [15 supplied to the Securities and Exchange Com- U.S.C. 80a–41(b)], or section 209(b) of the Invest- mission on (date). Notification was withheld pursuant to a determination by the (title of ment Advisers Act of 1940 [15 U.S.C. 80b–9(b)], court so ordering) under section 21(h) of the Se- and that the Commission has reason to believe curities Exchange Act of 1934 that (state rea- that— son). The purpose of the investigation or official (A) delay in obtaining access to such finan- proceeding was (state purpose).’’ cial records, or the required notice, will result (5) Upon application by the Commission, all in— proceedings pursuant to paragraphs (2) and (4) (i) flight from prosecution; shall be held in camera and the records thereof (ii) destruction of or tampering with evi- sealed until expiration of the period of delay or dence; such other date as the presiding judge or mag- (iii) transfer of assets or records outside istrate judge may permit. the territorial limits of the United States; (6) The Commission shall compile an annual (iv) improper conversion of investor assets; tabulation of the occasions on which the Com- or mission used each separate subparagraph or (v) impeding the ability of the Commission clause of paragraph (2) of this subsection or the to identify or trace the source or disposition provisions of the Right to Financial Privacy Act of funds involved in any securities trans- of 1978 [12 U.S.C. 3401 et seq.] to obtain access to action; financial records of a customer and include it in (B) such financial records are necessary to its annual report to the Congress. Section identify or trace the record or beneficial own- 1121(b) 1 of the Right to Financial Privacy Act of ership interest in any security; 1978 shall not apply with respect to the Commis- (C) the acts, practices or course of conduct sion. under investigation involve— (7)(A) Following the expiration of the period of (i) the dissemination of materially false or delay of notification ordered by the court pursu- misleading information concerning any se- ant to paragraph (4) of this subsection, the cus- curity, issuer, or market, or the failure to tomer may, upon motion, reopen the proceeding make disclosures required under the securi- in the district court which issued the order. If ties laws, which remain uncorrected; or the presiding judge or magistrate judge finds (ii) a financial loss to investors or other that the movant is the customer to whom the persons protected under the securities laws records obtained by the Commission pertain, which remains substantially uncompen- and that the Commission has obtained financial sated; or records or information contained therein in violation of this subsection, other than paragraph (D) the acts, practices or course of conduct (1), it may order that the customer be granted under investigation— civil penalties against the Commission in an (i) involve significant financial specula- amount equal to the sum of— tion in securities; or (i) $100 without regard to the volume of rec- (ii) endanger the stability of any financial ords involved; or investment intermediary. (ii) any out-of-pocket damages sustained by (3) Any application under paragraph (2) for a the customer as a direct result of the disclo- delay in notice shall be made with reasonable sure; and specificity. (iii) if the violation is found to have been (4)(A) Upon a showing described in paragraph willful, intentional, and without good faith, (2), the presiding judge or magistrate judge shall such punitive damages as the court may allow, enter an ex parte order granting the requested together with the costs of the action and rea- delay for a period not to exceed ninety days and sonable attorney’s fees as determined by the an order prohibiting the financial institution in- court. volved from disclosing that records have been (B) Upon a finding that the Commission has obtained or that a request for records has been obtained financial records or information con- made. tained therein in violation of this subsection, (B) Extensions of the period of delay of notice other than paragraph (1), the court, in its discre- provided in subparagraph (A) of up to ninety tion, may also or in the alternative issue injunc- days each may be granted by the court upon ap- tive relief to require the Commission to comply plication, but only in accordance with this sub- with this subsection with respect to any subpena section or section 1109(a), (b)(1), or (b)(2) of the which the Commission issues in the future for financial records of such customer for purposes of 1 See References in Text note below. the same investigation. Page 371 TITLE 15—COMMERCE AND TRADE § 78u

(C) Whenever the court determines that the of such Act [12 U.S.C. 3409] regarding delay of Commission has failed to comply with this sub- notice. section, other than paragraph (1), and the court (10) Any government authority violating para- finds that the circumstances raise questions of graph (9) shall be subject to the procedures and whether an officer or employee of the Commis- penalties applicable to the Commission under sion acted in a willful and intentional manner paragraph (7)(A) with respect to a violation by and without good faith with respect to the viola- the Commission in obtaining financial records. tion, the Office of Personnel Management shall (11) Notwithstanding the provisions of this promptly initiate a proceeding to determine subsection, the Commission may obtain finan- whether disciplinary action is warranted against cial records from a financial institution or the agent or employee who was primarily re- transfer such records in accordance with provi- sponsible for the violation. After investigating sions of the Right to Financial Privacy Act of and considering the evidence submitted, the Of- 1978 [12 U.S.C. 3401 et seq.]. fice of Personnel Management shall submit its (12) Nothing in this subsection shall enlarge or findings and recommendations to the Commis- restrict any rights of a financial institution to sion and shall send copies of the findings and challenge requests for records made by the Com- recommendations to the officer or employee or mission under existing law. Nothing in this sub- his representative. The Commission shall take section shall entitle a customer to assert any the corrective action that the Office of Person- rights of a financial institution. nel Management recommends. (13) Unless the context otherwise requires, all (8) The relief described in paragraphs (7) and terms defined in the Right to Financial Privacy (10) shall be the only remedies or sanctions Act of 1978 [12 U.S.C. 3401 et seq.] which are com- available to a customer for a violation of this mon to this subsection shall have the same subsection, other than paragraph (1), and noth- meaning as in such Act. ing herein or in the Right to Financial Privacy (i) Information to CFTC Act of 1978 [12 U.S.C. 3401 et seq.] shall be deemed to prohibit the use in any investigation The Commission shall provide the Commodity or proceeding of financial records, or the infor- Futures Trading Commission with notice of the mation contained therein, obtained by a sub- commencement of any proceeding and a copy of pena issued by the Commission. In the case of an any order entered by the Commission against unsuccessful action under paragraph (7), the any broker or dealer registered pursuant to sec- court shall award the costs of the action and at- tion 78o(b)(11) of this title, any exchange reg- torney’s fees to the Commission if the presiding istered pursuant to section 78f(g) of this title, or judge or magistrate judge finds that the cus- any national securities association registered tomer’s claims were made in bad faith. pursuant to section 78o–3(k) of this title. (9)(A) The Commission may transfer financial (June 6, 1934, ch. 404, title I, § 21, 48 Stat. 899; records or the information contained therein to May 27, 1936, ch. 462, § 7, 49 Stat. 1379; Pub. L. any government authority if the Commission 91–452, title II, § 212, Oct. 15, 1970, 84 Stat. 929; proceeds as a transferring agency in accordance Pub. L. 94–29, § 17, June 4, 1975, 89 Stat. 154; Pub. with section 1112 of the Right to Financial Pri- L. 96–433, §§ 3, 4, Oct. 10, 1980, 94 Stat. 1855, 1858; vacy Act of 1978 [12 U.S.C. 3412], except that the Pub. L. 98–376, § 2, Aug. 10, 1984, 98 Stat. 1264; customer notice required under section 1112(b) Pub. L. 100–181, title III, § 323, Dec. 4, 1987, 101 or (c) of such Act [12 U.S.C. 3412(b) or (c)] may Stat. 1259; Pub. L. 100–704, §§ 3(a)(1), 6(b), Nov. 19, be delayed upon a showing by the Commission, 1988, 102 Stat. 4677, 4681; Pub. L. 101–429, title II, in accordance with the procedure set forth in § 201, Oct. 15, 1990, 104 Stat. 935; Pub. L. 101–650, paragraphs (4) and (5), that one or more of subtitle III, § 321, Dec. 1, 1990, 104 Stat. 5117; Pub. L. paragraphs (A) through (D) of paragraph (2) 104–67, title I, § 103(b)(2), Dec. 22, 1995, 109 Stat. apply. 756; Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(5)], (B) The Commission may, without notice to Dec. 21, 2000, 114 Stat. 2763, 2763A–426; Pub. L. the customer pursuant to section 1112 or the 107–204, § 3(b)(2), title III, §§ 305(a)(1), (b), 308(d)(1), Right to Financial Privacy Act of 1978 [12 U.S.C. title VI, § 603(a), July 30, 2002, 116 Stat. 749, 778, 3412], transfer financial records or the informa- 779, 785, 794; Pub. L. 111–203, title IX, §§ 923(b)(1), tion contained therein to a State securities 929F(c), (d), (g)(2), 986(a)(3), July 21, 2010, 124 agency or to the Department of Justice. Finan- Stat. 1849, 1854, 1855, 1935.) cial records or information transferred by the Commission to the Department of Justice or to REFERENCES IN TEXT a State securities agency pursuant to the provi- This chapter, referred to in subsecs. (a)(1), (b), (d), (e), sions of this subparagraph may be disclosed or and (f), was in the original ‘‘this title’’. See References used only in an administrative, civil, or crimi- in Text note set out under section 78a of this title. The Right to Financial Privacy Act of 1978, referred nal action or investigation by the Department to in subsec. (h)(1), (6), (8), (9)(B), (11), and (13), is title of Justice or the State securities agency which XI of Pub. L. 95–630, Nov. 10, 1978, 92 Stat. 3697, which arises out of or relates to the acts, practices, or is classified generally to chapter 35 (§ 3401 et seq.) of courses of conduct investigated by the Commis- Title 12, Banks and Banking. Section 1121(b) of the Act, sion, except that if the Department of Justice or which was classified to section 3421(b) of Title 12, was the State securities agency determines that the repealed by Pub. L. 104–66, title III, § 3001(d), Dec. 21, information should be disclosed or used for any 1995, 109 Stat. 734. For complete classification of this other purpose, it may do so if it notifies the cus- Act to the Code, see Short Title note set out under section 3401 of Title 12 and Tables. tomer, except as otherwise provided in the Right Section 19(b) of the Securities Act of 1933, referred to to Financial Privacy Act of 1978 [12 U.S.C. 3401 in subsec. (h)(2), was redesignated section 19(c) by Pub. et seq.], within 30 days of its determination, or L. 107–204, title I, § 108(a)(1), July 30, 2002, 116 Stat. 768, complies with the requirements of section 1109 and is classified to section 77s(c) of this title. § 78u TITLE 15—COMMERCE AND TRADE Page 372

Section 21(h) of the Securities Exchange Act of 1934, 1980—Subsec. (g). Pub. L. 96–433, § 4, inserted ‘‘and in referred to in the paragraph within quotation marks subsection (h) of this section.’’ following subsec. (h)(4)(C), is classified to subsection (h) Subsec. (h). Pub. L. 96–433, § 3, added subsec. (h). of this section. 1975—Subsec. (a). Pub. L. 94–29, § 17(1), expanded the Commission’s power to conduct investigations to in- AMENDMENTS clude violations of the rules of a national securities ex- 2010—Subsec. (a)(1). Pub. L. 111–203, § 929F(g)(2), in change, registered securities association, registered first sentence, substituted ‘‘, a person associated with clearing agency, or the Municipal Securities Rule- such a firm, or, as to any act, practice, or omission to making Board. act, while associated with such firm, a person formerly Subsec. (d). Pub. L. 94–29, § 17(2), redesignated subsec. associated with such a firm’’ for ‘‘or a person associ- (e) as (d) and amended it generally, substituting ‘‘has ated with such a firm’’. engaged, is engaged, or is about to engage’’ for ‘‘is en- Pub. L. 111–203, § 929F(c), (d), in first sentence, in- gaged or about to engage’’, ‘‘any provision’’ for ‘‘the serted ‘‘, or, as to any act or practice, or omission to provisions’’, ‘‘the rules or regulations’’ for ‘‘or of any act, while associated with a member, formerly associ- rule or regulation’’, and ‘‘such a showing’’ for ‘‘a proper ated’’ after ‘‘member or a person associated’’ and ‘‘or, showing’’, and inserting ‘‘the rules of a national securi- as to any act or practice, or omission to act, while a ties exchange or registered securities association of which such persons is a member or a person associated participant, was a participant,’’ after ‘‘in which such with a member, the rules of a registered clearing agen- person is a participant,’’. Subsec. (d)(3)(C)(i). Pub. L. 111–203, § 923(b)(1), inserted cy in which such person is a participant, or the rules of the Municipal Securities Rulemaking Board,’’ in first ‘‘and section 78u–6 of this title’’ after ‘‘section 7246 of sentence and inserting ‘‘as may constitute a violation this title’’. Subsec. (h)(2). Pub. L. 111–203, § 986(a)(3), struck out of any provision of this chapter or the rules or regulations thereunder’’ in second sentence. Former subsec. ‘‘section 18(c) of the Public Utility Holding Company (d) was repealed by Pub. L. 91–452. See 1970 Amendment Act of 1935,’’ after ‘‘section 21(b) of the Securities Ex- note below. change Act of 1934,’’. Subsec. (e). Pub. L. 94–29, § 17(2), redesignated subsec. 2002—Subsec. (a)(1). Pub. L. 107–204, § 3(b)(2)(A), in- (f) as (e) and amended it generally, substituting ‘‘man- serted ‘‘the rules of the Public Company Accounting damus, injunctions, and orders commanding (1) any Oversight Board, of which such person is a registered person to comply with the provisions of this chapter, public accounting firm or a person associated with such the rules, regulations, and orders thereunder, the rules a firm,’’ after ‘‘is a participant,’’. of a national securities exchange or registered securi- Subsec. (d)(1). Pub. L. 107–204, § 3(b)(2)(B), inserted ties association of which such person is a member or ‘‘the rules of the Public Company Accounting Over- person associated with a member, the rules of a reg- sight Board, of which such person is a registered public istered clearing agency in which such person is a par- accounting firm or a person associated with such a ticipant, the rules of the Municipal Securities Rule- firm,’’ after ‘‘is a participant,’’. making Board, or any undertaking contained in a reg- Subsec. (d)(2). Pub. L. 107–204, § 305(a)(1), substituted istration statement as provided in subsection (d) of sec- ‘‘unfitness’’ for ‘‘substantial unfitness’’. tion 78o of this title’’ for ‘‘mandamus commanding any Subsec. (d)(3)(C)(i). Pub. L. 107–204, § 308(d)(1), inserted person to comply with the provisions of this chapter or ‘‘, except as otherwise provided in section 7246 of this any order of the Commission made in pursuance thereof title’’ before period at end. or with any undertaking contained in a registration Subsec. (d)(5). Pub. L. 107–204, § 305(b), added par. (5). statement as provided in subsection (d) of section 78o of Subsec. (d)(6). Pub. L. 107–204, § 603(a), added par. (6). this title’’ and adding cls. (2) and (3). Former subsec. (e) Subsec. (e). Pub. L. 107–204, § 3(b)(2)(C), inserted ‘‘the redesignated (d). rules of the Public Company Accounting Oversight Subsecs. (f), (g). Pub. L. 94–29, § 17(3), added subsecs. Board, of which such person is a registered public ac- (f) and (g). Former subsec. (f) redesignated (e). counting firm or a person associated with such a firm,’’ 1970—Subsec. (d). Pub. L. 91–452 struck out subsec. (d) after ‘‘is a participant,’’. which related to immunity from prosecution of any in- Subsec. (f). Pub. L. 107–204, § 3(b)(2)(D), inserted ‘‘or dividual compelled to testify or produce evidence, docu- the Public Company Accounting Oversight Board’’ mentary or otherwise, after claiming his privilege after ‘‘self-regulatory organization’’ in two places. against self-incrimination. 2000—Subsec. (i). Pub. L. 106–554 added subsec. (i). 1936—Subsec. (f). Act May 27, 1936, inserted ‘‘or with 1995—Subsec. (d)(4). Pub. L. 104–67 added par. (4). any undertaking contained in a registration statement 1990—Subsec. (d). Pub. L. 101–429 designated existing as provided in subsection (d) of section 78o of this provision as par. (1) and added pars. (2) and (3). title’’. 1988—Subsec. (a). Pub. L. 100–704, § 6(b), designated existing provisions as par. (1) and added par. (2). CHANGE OF NAME Subsec. (d). Pub. L. 100–704, § 3(a)(1), redesignated par. Words ‘‘magistrate judge’’ substituted for ‘‘mag- (1) as entire subsec. (d) and struck out par. (2) which istrate’’ wherever appearing in subsec. (h)(4)(A), (5), provided civil penalties for purchasing or selling securi- (7)(A), (8) pursuant to section 321 of Pub. L. 101–650, set ties while in possession of material nonpublic informa- out as a note under section 631 of Title 28, Judiciary tion. and Judicial Procedure. 1987—Subsec. (d). Pub. L. 100–181, § 323(1), substituted ‘‘Whenever’’ for ‘‘Wherever’’. EFFECTIVE DATE OF 2010 AMENDMENT Subsec. (e). Pub. L. 100–181, § 323(2), struck out ‘‘, the Amendment by Pub. L. 111–203 effective 1 day after United States District Court for the District of Colum- July 21, 2010, except as otherwise provided, see section bia,’’ after ‘‘the district courts of the United States’’. 4 of Pub. L. 111–203, set out as an Effective Date note Subsec. (g). Pub. L. 100–181, § 323(3), struck out ‘‘The under section 5301 of Title 12, Banks and Banking. term ‘securities laws’ as used herein and in subsection (h) of this section includes the Securities Act of 1933 (15 EFFECTIVE DATE OF 1995 AMENDMENT U.S.C. 77a et seq.), the Securities Exchange Act of 1934 Amendment by Pub. L. 104–67 not to affect or apply (15 U.S.C. 78a et seq.), the Public Utility Holding Com- to any private action arising under this chapter or title pany Act of 1935 (15 U.S.C. 79 et seq.), the Trust Inden- I of the Securities Act of 1933 (15 U.S.C. 77a et seq.), ture Act of 1939 (15 U.S.C. 77aaa et seq.), the Investment commenced before and pending on Dec. 22, 1995, see sec- Company Act of 1940 (15 U.S.C. 80a–1 et seq.), the In- tion 108 of Pub. L. 104–67, set out as a note under sec- vestment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.), tion 77l of this title. and the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.).’’ See 15 U.S.C. 78c(a)(47). EFFECTIVE DATE OF 1990 AMENDMENT 1984—Subsec. (d). Pub. L. 98–376 designated existing Amendment by Pub. L. 101–429 effective Oct. 15, 1990, provisions as par. (1) and added par. (2). with provisions relating to civil penalties and account- Page 373 TITLE 15—COMMERCE AND TRADE § 78u–1 ing and disgorgement, see section 1(c)(1), (2) of Pub. L. by a State securities commission of an alleged viola- 101–429, set out in a note under section 77g of this title. tion of State securities laws. ‘‘(b) REPORT.—Not later than 24 months after the date EFFECTIVE DATE OF 1988 AMENDMENT of enactment of this Act [Nov. 3, 1998], the Securities Amendment by section 3(a)(1) of Pub. L. 100–704 not and Exchange Commission (hereafter in this section re- applicable to actions occurring before Nov. 19, 1988, see ferred to as the ‘Commission’) shall submit a report to section 9 of Pub. L. 100–704 set out as a note under sec- the Congress— tion 78o of this title. ‘‘(1) identifying the States that have adopted laws described in subsection (a); EFFECTIVE DATE OF 1984 AMENDMENT ‘‘(2) describing the actions undertaken by the Com- mission and State securities commissions to promote Amendment by Pub. L. 98–376 effective Aug. 10, 1984, the adoption of such laws; and see section 7 of Pub. L. 98–376, set out as a note under ‘‘(3) identifying any further actions that the Com- section 78c of this title. mission recommends for such purposes.’’ EFFECTIVE DATE OF 1980 AMENDMENT § 78u–1. Civil penalties for insider trading Pub. L. 96–433, § 5, Oct. 10, 1980, 94 Stat. 1858, provided that: (a) Authority to impose civil penalties ‘‘(a) The amendments made by section 1 of this Act (1) Judicial actions by Commission authorized [amending section 78fff–3 of this title] shall take effect Whenever it shall appear to the Commission on the date of enactment of this Act [Oct. 10, 1980]. ‘‘(b) The amendments made by sections 2, 3, and 4 of that any person has violated any provision of this Act [amending this section and section 3422 of this chapter or the rules or regulations there- Title 12, Banks and Banking] shall take effect on No- under by purchasing or selling a security or vember 10, 1980. Nothing in this Act [amending this sec- security-based swap agreement while in pos- tion and section 78fff–3 of this title and section 3422 of session of material, nonpublic information in, Title 12] or in the Right to Financial Privacy Act of or has violated any such provision by commu- 1978 [12 U.S.C. 3401 et seq.] shall apply to any Securities nicating such information in connection with, and Exchange Commission subpena issued prior to such a transaction on or through the facilities of a date.’’ national securities exchange or from or EFFECTIVE DATE OF 1975 AMENDMENT through a broker or dealer, and which is not Amendment by Pub. L. 94–29 effective June 4, 1975, part of a public offering by an issuer of securi- see section 31(a) of Pub. L. 94–29, set out as a note under ties other than standardized options or secu- section 78b of this title. rity futures products, the Commission— (A) may bring an action in a United States EFFECTIVE DATE OF 1970 AMENDMENT district court to seek, and the court shall Amendment by Pub. L. 91–452 effective on sixtieth have jurisdiction to impose, a civil penalty day following Oct. 15, 1970, see section 260 of Pub. L. to be paid by the person who committed 91–452, set out as an Effective Date; Savings Provision such violation; and note under section 6001 of Title 18, Crimes and Criminal (B) may, subject to subsection (b)(1) of this Procedure. section, bring an action in a United States SAVINGS PROVISION district court to seek, and the court shall Amendment by Pub. L. 91–452 not to affect any immu- have jurisdiction to impose, a civil penalty nity to which any individual is entitled under this sec- to be paid by a person who, at the time of tion by reason of any testimony given before the six- the violation, directly or indirectly con- tieth day following Oct. 15, 1970, see section 260 of Pub. trolled the person who committed such vio- L. 91–452, set out as an Effective Date; Savings Provi- lation. sion note under section 6001 of Title 18, Crimes and (2) Amount of penalty for person who commit- Criminal Procedure. ted violation CONSTRUCTION OF 1995 AMENDMENT The amount of the penalty which may be Nothing in amendment by Pub. L. 104–67 to be deemed imposed on the person who committed such to create or ratify any implied right of action, or to violation shall be determined by the court in prevent Commission, by rule or regulation, from re- light of the facts and circumstances, but shall stricting or otherwise regulating private actions under not exceed three times the profit gained or this chapter, see section 203 of Pub. L. 104–67, set out as a Construction note under section 78j–1 of this title. loss avoided as a result of such unlawful purchase, sale, or communication. TRANSFER OF FUNCTIONS (3) Amount of penalty for controlling person For transfer of functions of Securities and Exchange The amount of the penalty which may be Commission, with certain exceptions, to Chairman of imposed on any person who, at the time of the such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, violation, directly or indirectly controlled the eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title. person who committed such violation, shall be determined by the court in light of the facts PROMOTION OF RECIPROCAL SUBPOENA ENFORCEMENT and circumstances, but shall not exceed the Pub. L. 105–353, title I, § 102, Nov. 3, 1998, 112 Stat. greater of $1,000,000, or three times the amount 3233, provided that: of the profit gained or loss avoided as a result ‘‘(a) COMMISSION ACTION.—The Securities and Ex- of such controlled person’s violation. If such change Commission, in consultation with State securi- controlled person’s violation was a violation ties commissions (or any agencies or offices performing by communication, the profit gained or loss like functions), shall seek to encourage the adoption of avoided as a result of the violation shall, for State laws providing for reciprocal enforcement by State securities commissions of subpoenas issued by purposes of this paragraph only, be deemed to another State securities commission seeking to compel be limited to the profit gained or loss avoided persons to attend, testify in, or produce documents or by the person or persons to whom the con- records in connection with an action or investigation trolled person directed such communication. § 78u–1 TITLE 15—COMMERCE AND TRADE Page 374

(b) Limitations on liability chase or sale. This section shall not be con- (1) Liability of controlling persons strued to bar or limit in any manner any action by the Commission or the Attorney Gen- No controlling person shall be subject to a eral under any other provision of this chapter, penalty under subsection (a)(1)(B) of this sec- nor shall it bar or limit in any manner any action unless the Commission establishes that— tion to recover penalties, or to seek any other (A) such controlling person knew or reck- order regarding penalties, imposed in an ac- lessly disregarded the fact that such con- tion commenced within 5 years of such trans- trolled person was likely to engage in the action. act or acts constituting the violation and failed to take appropriate steps to prevent (e) Definition such act or acts before they occurred; or For purposes of this section, ‘‘profit gained’’ (B) such controlling person knowingly or or ‘‘loss avoided’’ is the difference between the recklessly failed to establish, maintain, or purchase or sale price of the security and the enforce any policy or procedure required value of that security as measured by the trad- under section 78o(f) 1 of this title or section ing price of the security a reasonable period 80b–4a of this title and such failure substan- after public dissemination of the nonpublic in- tially contributed to or permitted the occur- formation. rence of the act or acts constituting the vio- (f) Limitation on Commission authority lation. The authority of the Commission under this (2) Additional restrictions on liability section with respect to security-based swap No person shall be subject to a penalty under agreements shall be subject to the restrictions subsection (a) of this section solely by reason and limitations of section 78c–1(b) of this title. of employing another person who is subject to a penalty under such subsection, unless such (June 6, 1934, ch. 404, title I, § 21A, as added Pub. employing person is liable as a controlling L. 100–704, § 3(a)(2), Nov. 19, 1988, 102 Stat. 4677; person under paragraph (1) of this subsection. amended Pub. L. 101–429, title II, § 202(b), Oct. 15, Section 78t(a) of this title shall not apply to 1990, 104 Stat. 938; Pub. L. 106–554, § 1(a)(5) [title actions under subsection (a) of this section. II, § 205(a)(4), title III, § 303(k), (l)], Dec. 21, 2000, 114 Stat. 2763, 2763A–426, 2763A–456, 2763A–457; (c) Authority of Commission Pub. L. 107–204, title III, § 308(d)(2), July 30, 2002, The Commission, by such rules, regulations, 116 Stat. 785; Pub. L. 111–203, title VII, § 762(d)(7), and orders as it considers necessary or appro- title IX, § 923(b)(2), July 21, 2010, 124 Stat. 1761, priate in the public interest or for the protec- 1850.) tion of investors, may exempt, in whole or in part, either unconditionally or upon specific AMENDMENT OF SECTION terms and conditions, any person or transaction Unless otherwise provided, amendment by or class of persons or transactions from this sec- subtitle B (§§ 761–774) of title VII of Pub. L. tion. 111–203 effective on the later of 360 days after (d) Procedures for collection July 21, 2010, or, to the extent a provision of subtitle B requires a rulemaking, not less than (1) Payment of penalty to Treasury 60 days after publication of the final rule or A penalty imposed under this section shall regulation implementing such provision of sub- be payable into the Treasury of the United title B, see 2010 Amendment notes and Effective States, except as otherwise provided in section Date of 2010 Amendment note below. 7246 of this title and section 78u–6 of this title. REFERENCES IN TEXT (2) Collection of penalties This chapter, referred to in subsecs. (a) and (d)(4), (5), If a person upon whom such a penalty is im- was in the original ‘‘this title’’. See References in Text posed shall fail to pay such penalty within the note set out under section 78a of this title. time prescribed in the court’s order, the Com- Subsec. (f) of section 78o of this title, referred to in mission may refer the matter to the Attorney subsec. (b)(1)(B), was redesignated (g) by Pub. L. General who shall recover such penalty by ac- 111–203, title IX, § 929X(c)(1), July 21, 2010, 124 Stat. 1870. tion in the appropriate United States district AMENDMENTS court. (3) Remedy not exclusive 2010—Subsec. (a)(1). Pub. L. 111–203, § 762(d)(7)(A), struck out ‘‘(as defined in section 206B of the Gramm- The actions authorized by this section may Leach-Bliley Act)’’ after ‘‘security-based swap agree- be brought in addition to any other actions ment’’ in introductory provisions. that the Commission or the Attorney General Subsec. (d)(1). Pub. L. 111–203, § 923(b)(2)(A), struck are entitled to bring. out ‘‘(subject to subsection (e) of this section)’’ after ‘‘shall’’ and inserted ‘‘and section 78u–6 of this title’’ (4) Jurisdiction and venue after ‘‘section 7246 of this title’’. For purposes of section 78aa of this title, ac- Subsec. (e). Pub. L. 111–203, § 923(b)(2)(B), (C), redesig- tions under this section shall be actions to en- nated subsec. (f) as (e) and struck out former subsec. force a liability or a duty created by this (e). Prior to amendment, text of subsec. (e) read as follows: ‘‘Notwithstanding the provisions of subsection chapter. (d)(1) of this section, there shall be paid from amounts (5) Statute of limitations imposed as a penalty under this section and recovered No action may be brought under this section by the Commission or the Attorney General, such sums, not to exceed 10 percent of such amounts, as the more than 5 years after the date of the pur- Commission deems appropriate, to the person or persons who provide information leading to the imposition 1 See References in Text note below. of such penalty. Any determinations under this sub- Page 375 TITLE 15—COMMERCE AND TRADE § 78u–2 section, including whether, to whom, or in what COMMISSION RECOMMENDATIONS FOR ADDITIONAL CIVIL amount to make payments, shall be in the sole discre- PENALTY AUTHORITY REQUIRED tion of the Commission, except that no such payment Pub. L. 100–704, § 3(c), Nov. 19, 1988, 102 Stat. 4680, pro- shall be made to any member, officer, or employee of vided that: ‘‘The Securities and Exchange Commission any appropriate regulatory agency, the Department of shall, within 60 days after the date of enactment of this Justice, or a self-regulatory organization. Any such de- Act [Nov. 19, 1988], submit to each House of the Con- termination shall be final and not subject to judicial gress any recommendations the Commission considers review.’’ appropriate with respect to the extension of the Com- Subsec. (f). Pub. L. 111–203, § 923(b)(2)(C), redesignated mission’s authority to seek civil penalties or impose subsec. (g) as (f). Former subsec. (f) redesignated (e). administrative fines for violations other than those de- Pub. L. 111–203, § 762(d)(7)(B), which directed amend- scribed in section 21A of the Securities Exchange Act of ment of subsec. (g) by striking out ‘‘(as defined in sec- 1934 [15 U.S.C. 78u–1] (as added by this section).’’ tion 206B of the Gramm-Leach-Bliley Act)’’, was executed by making the strike out after ‘‘security-based § 78u–2. Civil remedies in administrative pro- swap agreements’’ in subsec. (f), to reflect the probable ceedings intent of Congress and the redesignation of subsec. (g) as (f) by Pub. L. 111–203, § 923(b)(2)(C). See above and Ef- (a) Commission authority to assess money pen- fective Date of 2010 Amendment note below. alties Subsec. (g). Pub. L. 111–203, § 923(b)(2)(C), redesignated subsec. (g) as (f). (1) In general 2002—Subsec. (d)(1). Pub. L. 107–204 inserted ‘‘, except In any proceeding instituted pursuant to as otherwise provided in section 7246 of this title’’ be- sections 78o(b)(4), 78o(b)(6), 78o–6, 78o–4, 78o–5, fore period at end. 78o–7, or 78q–1 of this title against any person, 2000—Subsec. (a)(1). Pub. L. 106–554, § 1(a)(5) [title III, the Commission or the appropriate regulatory § 303(k)], inserted ‘‘or security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley agency may impose a civil penalty if it finds, Act)’’ after ‘‘purchasing or selling a security’’ in intro- on the record after notice and opportunity for ductory provisions. hearing, that such penalty is in the public in- Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(4)], sub- terest and that such person— stituted ‘‘standardized options or security futures prod- (A) has willfully violated any provision of ucts, the Commission—’’ for ‘‘standardized options, the the Securities Act of 1933 [15 U.S.C. 77a et Commission—’’ in introductory provisions. seq.], the Investment Company Act of 1940 Subsec. (g). Pub. L. 106–554, § 1(a)(5) [title III, § 303(l)], [15 U.S.C. 80a–1 et seq.], the Investment Ad- added subsec. (g). 1990—Pub. L. 101–429 inserted ‘‘for insider trading’’ in visers Act of 1940 [15 U.S.C. 80b–1 et seq.], or section catchline. this chapter, or the rules or regulations thereunder, or the rules of the Municipal Se- EFFECTIVE DATE OF 2010 AMENDMENT curities Rulemaking Board; Amendment by section 923(b)(2) of Pub. L. 111–203 ef- (B) has willfully aided, abetted, counseled, fective 1 day after July 21, 2010, except as otherwise commanded, induced, or procured such a vio- provided, see section 4 of Pub. L. 111–203, set out as an lation by any other person; Effective Date note under section 5301 of Title 12, (C) has willfully made or caused to be Banks and Banking. made in any application for registration or Amendment by section 762(d)(7) of Pub. L. 111–203 ef- report required to be filed with the Commis- fective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of sion or with any other appropriate regu- title VII of Pub. L. 111–203 requires a rulemaking, not latory agency under this chapter, or in any less than 60 days after publication of the final rule or proceeding before the Commission with re- regulation implementing such provision of subtitle B, spect to registration, any statement which see section 774 of Pub. L. 111–203, set out as a note was, at the time and in the light of the cir- under section 77b of this title. cumstances under which it was made, false EFFECTIVE DATE OF 1990 AMENDMENT or misleading with respect to any material fact, or has omitted to state in any such ap- Amendment by Pub. L. 101–429 effective Oct. 15, 1990, with provisions relating to civil penalties and account- plication or report any material fact which ing and disgorgement, see section 1(c)(1), (2) of Pub. L. is required to be stated therein; or 101–429, set out in a note under section 77g of this title. (D) has failed reasonably to supervise, within the meaning of section 78o(b)(4)(E) of EFFECTIVE DATE this title, with a view to preventing viola- Section not applicable to actions occurring before tions of the provisions of such statutes, rules Nov. 19, 1988, see section 9 of Pub. L. 100–704 set out as and regulations, another person who com- an Effective Date of 1988 Amendment note under sec- mits such a violation, if such other person is tion 78o of this title. subject to his supervision; 1 CONGRESSIONAL FINDINGS (2) Cease-and-desist proceedings Pub. L. 100–704, § 2, Nov. 19, 1988, 102 Stat. 4677, pro- In any proceeding instituted under section vided that: ‘‘The Congress finds that— 78u–3 of this title against any person, the Com- ‘‘(1) the rules and regulations of the Securities and mission may impose a civil penalty, if the Exchange Commission under the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] governing trading Commission finds, on the record after notice while in possession of material, nonpublic informa- and opportunity for hearing, that such per- tion are, as required by such Act, necessary and ap- son— propriate in the public interest and for the protection (A) is violating or has violated any provi- of investors; sion of this chapter, or any rule or regula- ‘‘(2) the Commission has, within the limits of action issued under this chapter; or cepted administrative and judicial construction of (B) is or was a cause of the violation of any such rules and regulations, enforced such rules and provision of this chapter, or any rule or reg- regulations vigorously, effectively, and fairly; and ‘‘(3) nonetheless, additional methods are appro- ulation issued under this chapter. priate to deter and prosecute violations of such rules and regulations.’’ 1 So in original. The semicolon probably should be a period. § 78u–2 TITLE 15—COMMERCE AND TRADE Page 376

(b) Maximum amount of penalty pay such penalty. The Commission or the appro- (1) First tier priate regulatory agency may, in its discretion, consider such evidence in determining whether The maximum amount of penalty for each such penalty is in the public interest. Such evi- act or omission described in subsection (a) of dence may relate to the extent of such person’s this section shall be $5,000 for a natural person ability to continue in business and the collect- or $50,000 for any other person. ability of a penalty, taking into account any (2) Second tier other claims of the United States or third par- Notwithstanding paragraph (1), the maxi- ties upon such person’s assets and the amount of mum amount of penalty for each such act or such person’s assets. omission shall be $50,000 for a natural person (e) Authority to enter order requiring account- or $250,000 for any other person if the act or ing and disgorgement omission described in subsection (a) of this In any proceeding in which the Commission or section involved fraud, deceit, manipulation, the appropriate regulatory agency may impose a or deliberate or reckless disregard of a regu- penalty under this section, the Commission or latory requirement. the appropriate regulatory agency may enter an (3) Third tier order requiring accounting and disgorgement, Notwithstanding paragraphs (1) and (2), the including reasonable interest. The Commission maximum amount of penalty for each such act is authorized to adopt rules, regulations, and or- or omission shall be $100,000 for a natural per- ders concerning payments to investors, rates of son or $500,000 for any other person if— interest, periods of accrual, and such other mat- (A) the act or omission described in sub- ters as it deems appropriate to implement this section (a) of this section involved fraud, de- subsection. ceit, manipulation, or deliberate or reckless (f) Security-based swaps disregard of a regulatory requirement; and (1) Clearing agency (B) such act or omission directly or indirectly resulted in substantial losses or cre- Any clearing agency that knowingly or ated a significant risk of substantial losses recklessly evades or participates in or facili- to other persons or resulted in substantial tates an evasion of the requirements of section pecuniary gain to the person who committed 78c–3 of this title shall be liable for a civil the act or omission. money penalty in twice the amount otherwise available for a violation of section 78c–3 of this (c) Determination of public interest title. In considering under this section whether a (2) Security-based swap dealer or major secu- penalty is in the public interest, the Commis- rity-based swap participant sion or the appropriate regulatory agency may Any security-based swap dealer or major se- consider— curity-based swap participant that knowingly (1) whether the act or omission for which or recklessly evades or participates in or fa- such penalty is assessed involved fraud, deceit, cilitates an evasion of the requirements of sec- manipulation, or deliberate or reckless dis- tion 78c–3 of this title shall be liable for a civil regard of a regulatory requirement; money penalty in twice the amount otherwise (2) the harm to other persons resulting ei- available for a violation of section 78c–3 of this ther directly or indirectly from such act or title. omission; (3) the extent to which any person was un- (June 6, 1934, ch. 404, title I, § 21B, as added Pub. justly enriched, taking into account any res- L. 101–429, title II, § 202(a), Oct. 15, 1990, 104 Stat. titution made to persons injured by such be- 937; amended Pub. L. 107–204, title V, § 501(b), havior; July 30, 2002, 116 Stat. 793; Pub. L. 109–291, (4) whether such person previously has been § 4(b)(1)(B), Sept. 29, 2006, 120 Stat. 1337; Pub. L. found by the Commission, another appropriate 111–203, title VII, § 773, title IX, § 929P(a)(2), July regulatory agency, or a self-regulatory organi- 21, 2010, 124 Stat. 1802, 1863.) zation to have violated the Federal securities AMENDMENT OF SECTION laws, State securities laws, or the rules of a self-regulatory organization, has been en- Unless otherwise provided, amendment by joined by a court of competent jurisdiction subtitle B (§§ 761–774) of title VII of Pub. L. from violations of such laws or rules, or has 111–203 effective on the later of 360 days after been convicted by a court of competent juris- July 21, 2010, or, to the extent a provision of diction of violations of such laws or of any fel- subtitle B requires a rulemaking, not less than ony or misdemeanor described in section 60 days after publication of the final rule or 78o(b)(4)(B) of this title; regulation implementing such provision of sub- (5) the need to deter such person and other title B, see 2010 Amendment notes and Effective persons from committing such acts or omis- Date of 2010 Amendment note below. sions; and REFERENCES IN TEXT (6) such other matters as justice may re- The Securities Act of 1933, referred to in subsec. quire. (a)(1)(A), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, (d) Evidence concerning ability to pay which is classified generally to subchapter I (§ 77a et seq.) of chapter 2A of this title. For complete classifica- In any proceeding in which the Commission or tion of this Act to the Code, see section 77a of this title the appropriate regulatory agency may impose a and Tables. penalty under this section, a respondent may The Investment Company Act of 1940, referred to in present evidence of the respondent’s ability to subsec. (a)(1)(A), is title I of act Aug. 22, 1940, ch. 686, Page 377 TITLE 15—COMMERCE AND TRADE § 78u–3

54 Stat. 789, which is classified generally to subchapter ance or steps to effect future compliance, either I (§ 80a–1 et seq.) of chapter 2D of this title. For com- permanently or for such period of time as the plete classification of this Act to the Code, see section Commission may specify, with such provision, 80a–51 of this title and Tables. rule, or regulation with respect to any security, The Investment Advisers Act of 1940, referred to in subsec. (a)(1)(A), is title II of act Aug. 22, 1940, ch. 686, any issuer, or any other person. 54 Stat. 847, which is classified generally to subchapter (b) Hearing II (§ 80b–1 et seq.) of chapter 2D of this title. For complete classification of this Act to the Code, see section The notice instituting proceedings pursuant to 80b–20 of this title and Tables. subsection (a) of this section shall fix a hearing This chapter, referred to in subsec. (a)(1)(A), (C), (2), date not earlier than 30 days nor later than 60 was in the original ‘‘this title’’. See References in Text days after service of the notice unless an earlier note set out under section 78a of this title. or a later date is set by the Commission with the consent of any respondent so served. AMENDMENTS (c) Temporary order 2010—Subsec. (a). Pub. L. 111–203, § 929P(a)(2), designated existing provisions as par. (1) and inserted (1) In general heading, inserted ‘‘that such penalty is in the public in- Whenever the Commission determines that terest and’’ before ‘‘that such person—’’ in introductory provisions, redesignated former pars. (1) to (4) as sub- the alleged violation or threatened violation pars. (A) to (D), respectively, of par. (1) and realigned specified in the notice instituting proceedings margins, struck out concluding provisions which read pursuant to subsection (a) of this section, or ‘‘and that such penalty is in the public interest.’’, and the continuation thereof, is likely to result in added par. (2). significant dissipation or conversion of assets, Subsec. (f). Pub. L. 111–203, § 773, added subsec. (f). significant harm to investors, or substantial 2006—Subsec. (a). Pub. L. 109–291 inserted ‘‘78o–7,’’ harm to the public interest, including, but not after ‘‘78o–5,’’ in introductory provisions. limited to, losses to the Securities Investor 2002—Subsec. (a). Pub. L. 107–204 inserted ‘‘78o–6,’’ before ‘‘78o–4,’’ in introductory provisions. Protection Corporation, prior to the completion of the proceedings, the Commission may EFFECTIVE DATE OF 2010 AMENDMENT enter a temporary order requiring the re- Amendment by section 929P(a)(2) of Pub. L. 111–203 ef- spondent to cease and desist from the viola- fective 1 day after July 21, 2010, except as otherwise tion or threatened violation and to take such provided, see section 4 of Pub. L. 111–203, set out as an action to prevent the violation or threatened Effective Date note under section 5301 of Title 12, violation and to prevent dissipation or conver- Banks and Banking. sion of assets, significant harm to investors, Amendment by section 773 of Pub. L. 111–203 effective or substantial harm to the public interest as on the later of 360 days after July 21, 2010, or, to the ex- the Commission deems appropriate pending tent a provision of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203 requires a rulemaking, not less than 60 completion of such proceedings. Such an order days after publication of the final rule or regulation shall be entered only after notice and oppor- implementing such provision of subtitle B, see section tunity for a hearing, unless the Commission 774 of Pub. L. 111–203, set out as a note under section determines that notice and hearing prior to 77b of this title. entry would be impracticable or contrary to the public interest. A temporary order shall EFFECTIVE DATE become effective upon service upon the re- Section effective Oct. 15, 1990, with provisions relat- spondent and, unless set aside, limited, or sus- ing to civil penalties and accounting and disgorgement, pended by the Commission or a court of com- see section 1(c)(1), (2) of Pub. L. 101–429, set out in an petent jurisdiction, shall remain effective and Effective Date of 1990 Amendment note under section 77g of this title. enforceable pending the completion of the proceedings. § 78u–3. Cease-and-desist proceedings (2) Applicability (a) Authority of Commission Paragraph (1) shall apply only to a respond- If the Commission finds, after notice and op- ent that acts, or, at the time of the alleged portunity for hearing, that any person is violat- misconduct acted, as a broker, dealer, investing, has violated, or is about to violate any pro- ment adviser, investment company, municipal vision of this chapter, or any rule or regulation securities dealer, government securities thereunder, the Commission may publish its broker, government securities dealer, reg- findings and enter an order requiring such per- istered public accounting firm (as defined in son, and any other person that is, was, or would section 7201 of this title), or transfer agent, or be a cause of the violation, due to an act or is, or was at the time of the alleged mis- omission the person knew or should have known conduct, an associated person of, or a person would contribute to such violation, to cease and seeking to become associated with, any of the desist from committing or causing such viola- foregoing. tion and any future violation of the same provi- (3) Temporary freeze sion, rule, or regulation. Such order may, in ad- (A) In general dition to requiring a person to cease and desist from committing or causing a violation, require (i) Issuance of temporary order such person to comply, or to take steps to effect Whenever, during the course of a lawful compliance, with such provision, rule, or regula- investigation involving possible violations tion, upon such terms and conditions and within of the Federal securities laws by an issuer such time as the Commission may specify in of publicly traded securities or any of its such order. Any such order may, as the Commis- directors, officers, partners, controlling sion deems appropriate, require future compli- persons, agents, or employees, it shall ap- § 78u–3 TITLE 15—COMMERCE AND TRADE Page 378

pear to the Commission that it is likely mission to have the order set aside, limited, or that the issuer will make extraordinary suspended. If the respondent has been served payments (whether compensation or other- with a temporary cease-and-desist order en- wise) to any of the foregoing persons, the tered without a prior Commission hearing, the Commission may petition a Federal dis- respondent may, within 10 days after the date trict court for a temporary order requiring on which the order was served, request a hear- the issuer to escrow, subject to court suing on such application and the Commission pervision, those payments in an interest- shall hold a hearing and render a decision on bearing account for 45 days. such application at the earliest possible time. (ii) Standard (2) Judicial review A temporary order shall be entered Within— under clause (i), only after notice and op- (A) 10 days after the date the respondent portunity for a hearing, unless the court was served with a temporary cease-and-de- determines that notice and hearing prior sist order entered with a prior Commission to entry of the order would be impractica- hearing, or ble or contrary to the public interest. (B) 10 days after the Commission renders a (iii) Effective period decision on an application and hearing under paragraph (1), with respect to any temporary A temporary order issued under clause cease-and-desist order entered without a (i) shall— prior Commission hearing, (I) become effective immediately; (II) be served upon the parties subject the respondent may apply to the United States to it; and district court for the district in which the re- (III) unless set aside, limited or sus- spondent resides or has its principal place of pended by a court of competent jurisdic- business, or for the District of Columbia, for tion, shall remain effective and enforce- an order setting aside, limiting, or suspending able for 45 days. the effectiveness or enforcement of the order, and the court shall have jurisdiction to enter (iv) Extensions authorized such an order. A respondent served with a The effective period of an order under temporary cease-and-desist order entered this subparagraph may be extended by the without a prior Commission hearing may not court upon good cause shown for not apply to the court except after hearing and de- longer than 45 additional days, provided cision by the Commission on the respondent’s that the combined period of the order shall application under paragraph (1) of this sub- not exceed 90 days. section. (B) Process on determination of violations (3) No automatic stay of temporary order (i) Violations charged The commencement of proceedings under If the issuer or other person described in paragraph (2) of this subsection shall not, un- subparagraph (A) is charged with any vio- less specifically ordered by the court, operate lation of the Federal securities laws before as a stay of the Commission’s order. the expiration of the effective period of a (4) Exclusive review temporary order under subparagraph (A) Section 78y of this title shall not apply to a (including any applicable extension pe- temporary order entered pursuant to this sec- riod), the order shall remain in effect, sub- tion. ject to court approval, until the conclusion of any legal proceedings related there- (e) Authority to enter order requiring account- to, and the affected issuer or other person, ing and disgorgement shall have the right to petition the court In any cease-and-desist proceeding under sub- for review of the order. section (a) of this section, the Commission may (ii) Violations not charged enter an order requiring accounting and disgorgement, including reasonable interest. The If the issuer or other person described in Commission is authorized to adopt rules, regula- subparagraph (A) is not charged with any tions, and orders concerning payments to inves- violation of the Federal securities laws be- tors, rates of interest, periods of accrual, and fore the expiration of the effective period such other matters as it deems appropriate to of a temporary order under subparagraph implement this subsection. (A) (including any applicable extension period), the escrow shall terminate at the ex- (f) Authority of the Commission to prohibit per- piration of the 45-day effective period (or sons from serving as officers or directors the expiration of any extension period, as In any cease-and-desist proceeding under sub- applicable), and the disputed payments section (a) of this section, the Commission may (with accrued interest) shall be returned issue an order to prohibit, conditionally or un- to the issuer or other affected person. conditionally, and permanently or for such pe- (d) Review of temporary orders riod of time as it shall determine, any person who has violated section 78j(b) of this title or (1) Commission review the rules or regulations thereunder, from acting At any time after the respondent has been as an officer or director of any issuer that has a served with a temporary cease-and-desist class of securities registered pursuant to section order pursuant to subsection (c) of this sec- 78l of this title, or that is required to file reports tion, the respondent may apply to the Com- pursuant to section 78o(d) of this title, if the Page 379 TITLE 15—COMMERCE AND TRADE § 78u–4 conduct of that person demonstrates unfitness subject of the complaint during the class to serve as an officer or director of any such is- period specified in the complaint; suer. (v) identifies any other action under this chapter, filed during the 3-year period pre- (June 6, 1934, ch. 404, title I, § 21C, as added Pub. ceding the date on which the certification L. 101–429, title II, § 203, Oct. 15, 1990, 104 Stat. is signed by the plaintiff, in which the 939; amended Pub. L. 107–204, § 3(b)(3), title XI, plaintiff has sought to serve as a rep- §§ 1103, 1105(a), July 30, 2002, 116 Stat. 749, 807, 809; resentative party on behalf of a class; and Pub. L. 111–203, title IX, § 985(b)(8), July 21, 2010, (vi) states that the plaintiff will not ac- 124 Stat. 1934.) cept any payment for serving as a rep- REFERENCES IN TEXT resentative party on behalf of a class be- This chapter, referred to in subsec. (a), was in the yond the plaintiff’s pro rata share of any original ‘‘this title’’. See References in Text note set recovery, except as ordered or approved by out under section 78a of this title. the court in accordance with paragraph (4). Section 7201 of this title, referred to in subsec. (c)(2), (B) Nonwaiver of attorney-client privilege was in the original ‘‘section 2 of the Sarbanes-Oxley Act of 2002’’, Pub. L. 107–204, which enacted section 7201 The certification filed pursuant to sub- of this title and amended section 78c of this title. paragraph (A) shall not be construed to be a waiver of the attorney-client privilege. AMENDMENTS (3) Appointment of lead plaintiff 2010—Subsec. (c)(2). Pub. L. 111–203 substituted ‘‘Para- graph (1)’’ for ‘‘paragraph (1) subsection’’. (A) Early notice to class members 2002—Subsec. (c)(2). Pub. L. 107–204, § 1103(b), sub- (i) In general stituted ‘‘paragraph (1)’’ for ‘‘This’’. Pub. L. 107–204, § 3(b)(3), inserted ‘‘registered public Not later than 20 days after the date on accounting firm (as defined in section 7201 of this which the complaint is filed, the plaintiff title),’’ after ‘‘government securities dealer,’’. or plaintiffs shall cause to be published, in Subsec. (c)(3). Pub. L. 107–204, § 1103(a), added par. (3). a widely circulated national business-ori- Subsec. (f). Pub. L. 107–204, § 1105(a), added subsec. (f). ented publication or wire service, a notice EFFECTIVE DATE OF 2010 AMENDMENT advising members of the purported plaintiff class— Amendment by Pub. L. 111–203 effective 1 day after (I) of the pendency of the action, the July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as an Effective Date note claims asserted therein, and the pur- under section 5301 of Title 12, Banks and Banking. ported class period; and (II) that, not later than 60 days after EFFECTIVE DATE the date on which the notice is pub- Section effective Oct. 15, 1990, with provisions relat- lished, any member of the purported ing to civil penalties and accounting and disgorgement, class may move the court to serve as see section 1(c)(1), (2) of Pub. L. 101–429, set out in an lead plaintiff of the purported class. Effective Date of 1990 Amendment note under section 77g of this title. (ii) Multiple actions If more than one action on behalf of a § 78u–4. Private securities litigation class asserting substantially the same (a) Private class actions claim or claims arising under this chapter (1) In general is filed, only the plaintiff or plaintiffs in the first filed action shall be required to The provisions of this subsection shall apply cause notice to be published in accordance in each private action arising under this chap- with clause (i). ter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Proce- (iii) Additional notices may be required dure. under Federal rules (2) Certification filed with complaint Notice required under clause (i) shall be in addition to any notice required pursu- (A) In general ant to the Federal Rules of Civil Proce- Each plaintiff seeking to serve as a rep- dure. resentative party on behalf of a class shall (B) Appointment of lead plaintiff provide a sworn certification, which shall be personally signed by such plaintiff and filed (i) In general with the complaint, that— Not later than 90 days after the date on (i) states that the plaintiff has reviewed which a notice is published under subpara- the complaint and authorized its filing; graph (A)(i), the court shall consider any (ii) states that the plaintiff did not pur- motion made by a purported class member chase the security that is the subject of in response to the notice, including any the complaint at the direction of plain- motion by a class member who is not indi- tiff’s counsel or in order to participate in vidually named as a plaintiff in the com- any private action arising under this chap- plaint or complaints, and shall appoint as ter; lead plaintiff the member or members of (iii) states that the plaintiff is willing to the purported plaintiff class that the court serve as a representative party on behalf of determines to be most capable of ade- a class, including providing testimony at quately representing the interests of class deposition and trial, if necessary; members (hereafter in this paragraph re- (iv) sets forth all of the transactions of ferred to as the ‘‘most adequate plaintiff’’) the plaintiff in the security that is the in accordance with this subparagraph. § 78u–4 TITLE 15—COMMERCE AND TRADE Page 380

(ii) Consolidated actions (4) Recovery by plaintiffs If more than one action on behalf of a The share of any final judgment or of any class asserting substantially the same settlement that is awarded to a representative claim or claims arising under this chapter party serving on behalf of a class shall be has been filed, and any party has sought to equal, on a per share basis, to the portion of consolidate those actions for pretrial pur- the final judgment or settlement awarded to poses or for trial, the court shall not make all other members of the class. Nothing in this the determination required by clause (i) paragraph shall be construed to limit the until after the decision on the motion to award of reasonable costs and expenses (in- consolidate is rendered. As soon as prac- cluding lost wages) directly relating to the ticable after such decision is rendered, the representation of the class to any representa- court shall appoint the most adequate tive party serving on behalf of a class. plaintiff as lead plaintiff for the consoli- (5) Restrictions on settlements under seal dated actions in accordance with this paragraph. The terms and provisions of any settlement agreement of a class action shall not be filed (iii) Rebuttable presumption under seal, except that on motion of any party (I) In general to the settlement, the court may order filing Subject to subclause (II), for purposes under seal for those portions of a settlement of clause (i), the court shall adopt a pre- agreement as to which good cause is shown for sumption that the most adequate plain- such filing under seal. For purposes of this tiff in any private action arising under paragraph, good cause shall exist only if publi- this chapter is the person or group of cation of a term or provision of a settlement persons that— agreement would cause direct and substantial (aa) has either filed the complaint or harm to any party. made a motion in response to a notice (6) Restrictions on payment of attorneys’ fees under subparagraph (A)(i); and expenses (bb) in the determination of the Total attorneys’ fees and expenses awarded court, has the largest financial inter- by the court to counsel for the plaintiff class est in the relief sought by the class; shall not exceed a reasonable percentage of and the amount of any damages and prejudgment (cc) otherwise satisfies the require- interest actually paid to the class. ments of Rule 23 of the Federal Rules (7) Disclosure of settlement terms to class of Civil Procedure. members (II) Rebuttal evidence Any proposed or final settlement agreement The presumption described in sub- that is published or otherwise disseminated to clause (I) may be rebutted only upon the class shall include each of the following proof by a member of the purported statements, along with a cover page summa- plaintiff class that the presumptively rizing the information contained in such most adequate plaintiff— statements: (aa) will not fairly and adequately (A) Statement of plaintiff recovery protect the interests of the class; or (bb) is subject to unique defenses The amount of the settlement proposed to that render such plaintiff incapable of be distributed to the parties to the action, adequately representing the class. determined in the aggregate and on an average per share basis. (iv) Discovery (B) Statement of potential outcome of case For purposes of this subparagraph, discovery relating to whether a member or (i) Agreement on amount of damages members of the purported plaintiff class is If the settling parties agree on the aver- the most adequate plaintiff may be con- age amount of damages per share that ducted by a plaintiff only if the plaintiff would be recoverable if the plaintiff pre- first demonstrates a reasonable basis for a vailed on each claim alleged under this finding that the presumptively most ade- chapter, a statement concerning the aver- quate plaintiff is incapable of adequately age amount of such potential damages per representing the class. share. (v) Selection of lead counsel (ii) Disagreement on amount of damages The most adequate plaintiff shall, sub- If the parties do not agree on the average ject to the approval of the court, select amount of damages per share that would and retain counsel to represent the class. be recoverable if the plaintiff prevailed on (vi) Restrictions on professional plaintiffs each claim alleged under this chapter, a statement from each settling party con- Except as the court may otherwise per- cerning the issue or issues on which the mit, consistent with the purposes of this parties disagree. section, a person may be a lead plaintiff, or an officer, director, or fiduciary of a (iii) Inadmissibility for certain purposes lead plaintiff, in no more than 5 securities A statement made in accordance with class actions brought as plaintiff class ac- clause (i) or (ii) concerning the amount of tions pursuant to the Federal Rules of damages shall not be admissible in any Civil Procedure during any 3-year period. Federal or State judicial action or admin- Page 381 TITLE 15—COMMERCE AND TRADE § 78u–4

istrative proceeding, other than an action the complaint shall specify each statement al- or proceeding arising out of such state- leged to have been misleading, the reason or ment. reasons why the statement is misleading, and, (C) Statement of attorneys’ fees or costs if an allegation regarding the statement or sought omission is made on information and belief, the complaint shall state with particularity If any of the settling parties or their coun- all facts on which that belief is formed. sel intend to apply to the court for an award of attorneys’ fees or costs from any fund es- (2) Required state of mind tablished as part of the settlement, a state- (A) In general ment indicating which parties or counsel in- Except as provided in subparagraph (B), in tend to make such an application, the any private action arising under this chapter amount of fees and costs that will be sought in which the plaintiff may recover money (including the amount of such fees and costs damages only on proof that the defendant determined on an average per share basis), acted with a particular state of mind, the and a brief explanation supporting the fees complaint shall, with respect to each act or and costs sought. Such information shall be omission alleged to violate this chapter, clearly summarized on the cover page of any state with particularity facts giving rise to notice to a party of any proposed or final a strong inference that the defendant acted settlement agreement. with the required state of mind. (D) Identification of lawyers’ representatives (B) Exception The name, telephone number, and address In the case of an action for money dam- of one or more representatives of counsel for ages brought against a credit rating agency the plaintiff class who will be reasonably or a controlling person under this chapter, it available to answer questions from class shall be sufficient, for purposes of pleading members concerning any matter contained any required state of mind in relation to in any notice of settlement published or such action, that the complaint state with otherwise disseminated to the class. particularity facts giving rise to a strong in- (E) Reasons for settlement ference that the credit rating agency know- A brief statement explaining the reasons ingly or recklessly failed— why the parties are proposing the settle- (i) to conduct a reasonable investigation ment. of the rated security with respect to the (F) Other information factual elements relied upon by its own methodology for evaluating credit risk; or Such other information as may be required (ii) to obtain reasonable verification of by the court. such factual elements (which verification (8) Security for payment of costs in class ac- may be based on a sampling technique that tions does not amount to an audit) from other In any private action arising under this sources that the credit rating agency con- chapter that is certified as a class action pur- sidered to be competent and that were suant to the Federal Rules of Civil Procedure, independent of the issuer and underwriter. the court may require an undertaking from (3) Motion to dismiss; stay of discovery the attorneys for the plaintiff class, the plain- (A) Dismissal for failure to meet pleading re- tiff class, or both, or from the attorneys for quirements the defendant, the defendant, or both, in such proportions and at such times as the court de- In any private action arising under this termines are just and equitable, for the pay- chapter, the court shall, on the motion of ment of fees and expenses that may be award- any defendant, dismiss the complaint if the ed under this subsection. requirements of paragraphs (1) and (2) are not met. (9) Attorney conflict of interest (B) Stay of discovery If a plaintiff class is represented by an attorney who directly owns or otherwise has a ben- In any private action arising under this eficial interest in the securities that are the chapter, all discovery and other proceedings subject of the litigation, the court shall make shall be stayed during the pendency of any a determination of whether such ownership or motion to dismiss, unless the court finds other interest constitutes a conflict of inter- upon the motion of any party that particu- est sufficient to disqualify the attorney from larized discovery is necessary to preserve representing the plaintiff class. evidence or to prevent undue prejudice to (b) Requirements for securities fraud actions that party. (1) Misleading statements and omissions (C) Preservation of evidence In any private action arising under this (i) In general chapter in which the plaintiff alleges that the During the pendency of any stay of dis- defendant— covery pursuant to this paragraph, unless (A) made an untrue statement of a mate- otherwise ordered by the court, any party rial fact; or to the action with actual notice of the al- (B) omitted to state a material fact nec- legations contained in the complaint shall essary in order to make the statements treat all documents, data compilations (in- made, in the light of the circumstances in cluding electronically recorded or stored which they were made, not misleading; data), and tangible objects that are in the § 78u–4 TITLE 15—COMMERCE AND TRADE Page 382

custody or control of such person and that party of the reasonable attorneys’ fees and are relevant to the allegations, as if they other expenses incurred in the action. were the subject of a continuing request (B) Rebuttal evidence for production of documents from an opposing party under the Federal Rules of The presumption described in subpara- Civil Procedure. graph (A) may be rebutted only upon proof by the party or attorney against whom sanc- (ii) Sanction for willful violation tions are to be imposed that— A party aggrieved by the willful failure (i) the award of attorneys’ fees and other of an opposing party to comply with clause expenses will impose an unreasonable bur- (i) may apply to the court for an order den on that party or attorney and would awarding appropriate sanctions. be unjust, and the failure to make such an (D) Circumvention of stay of discovery award would not impose a greater burden on the party in whose favor sanctions are Upon a proper showing, a court may stay to be imposed; or discovery proceedings in any private action (ii) the violation of Rule 11(b) of the Fed- in a State court, as necessary in aid of its ju- eral Rules of Civil Procedure was de mini- risdiction, or to protect or effectuate its mis. judgments, in an action subject to a stay of (C) Sanctions discovery pursuant to this paragraph. If the party or attorney against whom (4) Loss causation sanctions are to be imposed meets its burden In any private action arising under this under subparagraph (B), the court shall chapter, the plaintiff shall have the burden of award the sanctions that the court deems proving that the act or omission of the defend- appropriate pursuant to Rule 11 of the Fed- ant alleged to violate this chapter caused the eral Rules of Civil Procedure. loss for which the plaintiff seeks to recover (d) Defendant’s right to written interrogatories damages. In any private action arising under this chap- (c) Sanctions for abusive litigation ter in which the plaintiff may recover money (1) Mandatory review by court damages, the court shall, when requested by a In any private action arising under this defendant, submit to the jury a written inter- chapter, upon final adjudication of the action, rogatory on the issue of each such defendant’s the court shall include in the record specific state of mind at the time the alleged violation findings regarding compliance by each party occurred. and each attorney representing any party with (e) Limitation on damages each requirement of Rule 11(b) of the Federal (1) In general Rules of Civil Procedure as to any complaint, Except as provided in paragraph (2), in any responsive pleading, or dispositive motion. private action arising under this chapter in (2) Mandatory sanctions which the plaintiff seeks to establish damages If the court makes a finding under paragraph by reference to the market price of a security, (1) that a party or attorney violated any re- the award of damages to the plaintiff shall not quirement of Rule 11(b) of the Federal Rules of exceed the difference between the purchase or Civil Procedure as to any complaint, respon- sale price paid or received, as appropriate, by sive pleading, or dispositive motion, the court the plaintiff for the subject security and the shall impose sanctions on such party or attor- mean trading price of that security during the ney in accordance with Rule 11 of the Federal 90-day period beginning on the date on which Rules of Civil Procedure. Prior to making a the information correcting the misstatement finding that any party or attorney has vio- or omission that is the basis for the action is lated Rule 11 of the Federal Rules of Civil Pro- disseminated to the market. cedure, the court shall give such party or at- (2) Exception torney notice and an opportunity to respond. In any private action arising under this (3) Presumption in favor of attorneys’ fees and chapter in which the plaintiff seeks to estab- costs lish damages by reference to the market price (A) In general of a security, if the plaintiff sells or repurchases the subject security prior to the expira- Subject to subparagraphs (B) and (C), for tion of the 90-day period described in para- purposes of paragraph (2), the court shall graph (1), the plaintiff’s damages shall not ex- adopt a presumption that the appropriate ceed the difference between the purchase or sanction— sale price paid or received, as appropriate, by (i) for failure of any responsive pleading the plaintiff for the security and the mean or dispositive motion to comply with any trading price of the security during the period requirement of Rule 11(b) of the Federal beginning immediately after dissemination of Rules of Civil Procedure is an award to the information correcting the misstatement or opposing party of the reasonable attor- omission and ending on the date on which the neys’ fees and other expenses incurred as a plaintiff sells or repurchases the security. direct result of the violation; and (ii) for substantial failure of any com- (3) ‘‘Mean trading price’’ defined plaint to comply with any requirement of For purposes of this subsection, the ‘‘mean Rule 11(b) of the Federal Rules of Civil trading price’’ of a security shall be an aver- Procedure is an award to the opposing age of the daily trading price of that security, Page 383 TITLE 15—COMMERCE AND TRADE § 78u–4

determined as of the close of the market each (C) Factors for consideration day during the 90-day period referred to in In determining the percentage of respon- paragraph (1). sibility under this paragraph, the trier of (f) Proportionate liability fact shall consider— (1) Applicability (i) the nature of the conduct of each covered person found to have caused or con- Nothing in this subsection shall be contributed to the loss incurred by the plain- strued to create, affect, or in any manner tiff or plaintiffs; and modify, the standard for liability associated (ii) the nature and extent of the causal with any action arising under the securities relationship between the conduct of each laws. such person and the damages incurred by (2) Liability for damages the plaintiff or plaintiffs. (A) Joint and several liability (4) Uncollectible share Any covered person against whom a final (A) In general judgment is entered in a private action shall Notwithstanding paragraph (2)(B), upon 1 be liable for damages jointly and severally motion made not later than 6 months after only if the trier of fact specifically deter- a final judgment is entered in any private mines that such covered person knowingly action, the court determines that all or part committed a violation of the securities laws. of the share of the judgment of the covered (B) Proportionate liability person is not collectible against that cov- (i) In general ered person, and is also not collectible Except as provided in subparagraph (A), against a covered person described in para- a covered person against whom a final graph (2)(A), each covered person described judgment is entered in a private action in paragraph (2)(B) shall be liable for the un- shall be liable solely for the portion of the collectible share as follows: judgment that corresponds to the percent- (i) Percentage of net worth age of responsibility of that covered per- Each covered person shall be jointly and son, as determined under paragraph (3). severally liable for the uncollectible share (ii) Recovery by and costs of covered per- if the plaintiff establishes that— son (I) the plaintiff is an individual whose In any case in which a contractual rela- recoverable damages under the final tionship permits, a covered person that judgment are equal to more than 10 per- prevails in any private action may recover cent of the net worth of the plaintiff; and the attorney’s fees and costs of that cov- (II) the net worth of the plaintiff is ered person in connection with the action. equal to less than $200,000. (3) Determination of responsibility (ii) Other plaintiffs (A) In general With respect to any plaintiff not described in subclauses (I) and (II) of clause In any private action, the court shall in- (i), each covered person shall be liable for struct the jury to answer special interrog- the uncollectible share in proportion to atories, or if there is no jury, shall make the percentage of responsibility of that findings, with respect to each covered person covered person, except that the total li- and each of the other persons claimed by any ability of a covered person under this of the parties to have caused or contributed clause may not exceed 50 percent of the to the loss incurred by the plaintiff, includ- proportionate share of that covered per- ing persons who have entered into settle- son, as determined under paragraph (3)(B). ments with the plaintiff or plaintiffs, concerning— (iii) Net worth (i) whether such person violated the se- For purposes of this subparagraph, net curities laws; worth shall be determined as of the date (ii) the percentage of responsibility of immediately preceding the date of the pur- such person, measured as a percentage of chase or sale (as applicable) by the plain- the total fault of all persons who caused or tiff of the security that is the subject of contributed to the loss incurred by the the action, and shall be equal to the fair plaintiff; and market value of assets, minus liabilities, (iii) whether such person knowingly including the net value of the investments committed a violation of the securities of the plaintiff in real and personal prop- laws. erty (including personal residences). (B) Contents of special interrogatories or (B) Overall limit findings In no case shall the total payments re- The responses to interrogatories, or find- quired pursuant to subparagraph (A) exceed ings, as appropriate, under subparagraph (A) the amount of the uncollectible share. shall specify the total amount of damages (C) Covered persons subject to contribution that the plaintiff is entitled to recover and the percentage of responsibility of each cov- A covered person against whom judgment ered person found to have caused or contrib- is not collectible shall be subject to con- uted to the loss incurred by the plaintiff or plaintiffs. 1 So in original. Probably should be preceded by ‘‘if,’’. § 78u–4 TITLE 15—COMMERCE AND TRADE Page 384

tribution and to any continuing liability to later than 6 months after the entry of a final, the plaintiff on the judgment. nonappealable judgment in the action, except (5) Right of contribution that an action for contribution brought by a To the extent that a covered person is recovered person who was required to make an quired to make an additional payment pursu- additional payment pursuant to paragraph (4) ant to paragraph (4), that covered person may may be brought not later than 6 months after recover contribution— the date on which such payment was made. (A) from the covered person originally lia- (10) Definitions ble to make the payment; For purposes of this subsection— (B) from any covered person liable jointly (A) a covered person ‘‘knowingly commits and severally pursuant to paragraph (2)(A); a violation of the securities laws’’— (C) from any covered person held propor- (i) with respect to an action that is based tionately liable pursuant to this paragraph on an untrue statement of material fact or who is liable to make the same payment and omission of a material fact necessary to has paid less than his or her proportionate make the statement not misleading, if— share of that payment; or (I) that covered person makes an un- (D) from any other person responsible for true statement of a material fact, with the conduct giving rise to the payment that actual knowledge that the representa- would have been liable to make the same tion is false, or omits to state a fact nec- payment. essary in order to make the statement (6) Nondisclosure to jury made not misleading, with actual knowl- The standard for allocation of damages edge that, as a result of the omission, under paragraphs (2) and (3) and the procedure one of the material representations of for reallocation of uncollectible shares under the covered person is false; and paragraph (4) shall not be disclosed to mem- (II) persons are likely to reasonably bers of the jury. rely on that misrepresentation or omis- (7) Settlement discharge sion; and (A) In general (ii) with respect to an action that is A covered person who settles any private based on any conduct that is not described action at any time before final verdict or in clause (i), if that covered person en- judgment shall be discharged from all claims gages in that conduct with actual knowl- for contribution brought by other persons. edge of the facts and circumstances that Upon entry of the settlement by the court, make the conduct of that covered person a the court shall enter a bar order constitut- violation of the securities laws; ing the final discharge of all obligations to the plaintiff of the settling covered person (B) reckless conduct by a covered person arising out of the action. The order shall bar shall not be construed to constitute a know- all future claims for contribution arising out ing commission of a violation of the securi- of the action— ties laws by that covered person; (i) by any person against the settling (C) the term ‘‘covered person’’ means— covered person; and (i) a defendant in any private action (ii) by the settling covered person arising under this chapter; or against any person, other than a person (ii) a defendant in any private action whose liability has been extinguished by arising under section 77k of this title, who the settlement of the settling covered per- is an outside director of the issuer of the son. securities that are the subject of the action; and (B) Reduction If a covered person enters into a settle- (D) the term ‘‘outside director’’ shall have ment with the plaintiff prior to final verdict the meaning given such term by rule or reg- or judgment, the verdict or judgment shall ulation of the Commission. be reduced by the greater of— (June 6, 1934, ch. 404, title I, § 21D, as added and (i) an amount that corresponds to the amended Pub. L. 104–67, title I, § 101(b), title II, percentage of responsibility of that cov- § 201(a), Dec. 22, 1995, 109 Stat. 743, 758; Pub. L. ered person; or 105–353, title I, § 101(b)(2), title III, § 301(b)(13), (ii) the amount paid to the plaintiff by Nov. 3, 1998, 112 Stat. 3233, 3236; Pub. L. 111–203, that covered person. title IX, § 933(b), July 21, 2010, 124 Stat. 1883.) (8) Contribution REFERENCES IN TEXT A covered person who becomes jointly and severally liable for damages in any private ac- This chapter, referred to in text, was in the original tion may recover contribution from any other ‘‘this title’’. See References in Text note set out under section 78a of this title. person who, if joined in the original action, The Federal Rules of Civil Procedure, referred to in would have been liable for the same damages. subsecs. (a)(1), (3)(A)(iii), (B)(iii)(I)(cc), (vi), (8), A claim for contribution shall be determined (b)(3)(C)(i), and (c), are set out in the Appendix to Title based on the percentage of responsibility of 28, Judiciary and Judicial Procedure. the claimant and of each person against whom AMENDMENTS a claim for contribution is made. (9) Statute of limitations for contribution 2010—Subsec. (b)(2). Pub. L. 111–203 designated existing provisions as subpar. (A), inserted heading, sub- In any private action determining liability, stituted ‘‘Except as provided in subparagraph (B), in an action for contribution shall be brought not any’’ for ‘‘In any’’, and added subpar. (B). Page 385 TITLE 15—COMMERCE AND TRADE § 78u–5

1998—Subsec. (b)(3)(D). Pub. L. 105–353, § 101(b)(2), (ii) has been made the subject of a judi- added subpar. (D). cial or administrative decree or order aris- Subsecs. (f), (g). Pub. L. 105–353, § 301(b)(13)(B), redes- ing out of a governmental action that— ignated subsec. (g) as (f). (I) prohibits future violations of the Subsec. (g)(2)(B)(i). Pub. L. 105–353, § 301(b)(13)(A), substituted ‘‘subparagraph (A)’’ for ‘‘paragraph (1)’’. antifraud provisions of the securities 1995—Subsec. (g). Pub. L. 104–67, § 201(a), added subsec. laws; (g). (II) requires that the issuer cease and desist from violating the antifraud pro- EFFECTIVE DATE OF 2010 AMENDMENT visions of the securities laws; or Amendment by Pub. L. 111–203 effective 1 day after (III) determines that the issuer vio- July 21, 2010, except as otherwise provided, see section lated the antifraud provisions of the se- 4 of Pub. L. 111–203, set out as an Effective Date note curities laws; under section 5301 of Title 12, Banks and Banking. (B) makes the forward-looking statement EFFECTIVE DATE OF 1998 AMENDMENT in connection with an offering of securities Amendment by section 101(b)(2) of Pub. L. 105–353 not by a blank check company; to affect or apply to any action commenced before and (C) issues penny stock; pending on Nov. 3, 1998, see section 101(c) of Pub. L. (D) makes the forward-looking statement 105–353, set out as a note under section 77p of this title. in connection with a rollup transaction; or EFFECTIVE DATE OF 1995 AMENDMENT (E) makes the forward-looking statement in connection with a going private trans- Amendment by Pub. L. 104–67 not to affect or apply to any private action arising under securities laws action; or commenced before and pending on Dec. 22, 1995, see sec- (2) that is— tion 202 of Pub. L. 104–67, set out as a note under sec- (A) included in a financial statement pre- tion 77k of this title. pared in accordance with generally accepted EFFECTIVE DATE accounting principles; (B) contained in a registration statement This section not to affect or apply to any private action arising under this chapter or title I of the Securi- of, or otherwise issued by, an investment ties Act of 1933 (15 U.S.C. 77a et seq.), commenced be- company; fore and pending on Dec. 22, 1995, see section 108 of Pub. (C) made in connection with a tender offer; L. 104–67, set out as an Effective Date of 1995 Amend- (D) made in connection with an initial ment note under section 77l of this title. public offering; CONSTRUCTION (E) made in connection with an offering by, or relating to the operations of, a part- Nothing in section to be deemed to create or ratify nership, limited liability company, or a di- any implied right of action, or to prevent Commission, rect participation investment program; or by rule or regulation, from restricting or otherwise regulating private actions under this chapter, see section (F) made in a disclosure of beneficial own- 203 of Pub. L. 104–67, set out as a note under section ership in a report required to be filed with 78j–1 of this title. the Commission pursuant to section 78m(d) of this title. § 78u–5. Application of safe harbor for forward- (c) Safe harbor looking statements (1) In general (a) Applicability Except as provided in subsection (b) of this This section shall apply only to a forward- section, in any private action arising under looking statement made by— this chapter that is based on an untrue state- (1) an issuer that, at the time that the statement of a material fact or omission of a mate- ment is made, is subject to the reporting re- rial fact necessary to make the statement not quirements of section 78m(a) of this title or misleading, a person referred to in subsection section 78o(d) of this title; (a) of this section shall not be liable with re- (2) a person acting on behalf of such issuer; spect to any forward-looking statement, (3) an outside reviewer retained by such is- whether written or oral, if and to the extent suer making a statement on behalf of such is- that— suer; or (A) the forward-looking statement is— (4) an underwriter, with respect to informa- (i) identified as a forward-looking state- tion provided by such issuer or information ment, and is accompanied by meaningful derived from information provided by such is- cautionary statements identifying impor- suer. tant factors that could cause actual re- (b) Exclusions sults to differ materially from those in the forward-looking statement; or Except to the extent otherwise specifically (ii) immaterial; or provided by rule, regulation, or order of the Commission, this section shall not apply to a (B) the plaintiff fails to prove that the for- forward-looking statement— ward-looking statement— (1) that is made with respect to the business (i) if made by a natural person, was made or operations of the issuer, if the issuer— with actual knowledge by that person that (A) during the 3-year period preceding the the statement was false or misleading; or date on which the statement was first (ii) if made by a business entity; 1 was— made— (I) made by or with the approval of an (i) was convicted of any felony or mis- executive officer of that entity; and demeanor described in clauses (i) through (iv) of section 78o(b)(4)(B) of this title; or 1 So in original. The semicolon probably should be a comma. § 78u–5 TITLE 15—COMMERCE AND TRADE Page 386

(II) made or approved by such officer statement within the meaning of this section; with actual knowledge by that officer and that the statement was false or mislead- (2) the exemption provided for in this section ing. precludes a claim for relief. (2) Oral forward-looking statements (g) Exemption authority In the case of an oral forward-looking state- In addition to the exemptions provided for in ment made by an issuer that is subject to the this section, the Commission may, by rule or reporting requirements of section 78m(a) of regulation, provide exemptions from or under this title or section 78o(d) of this title, or by any provision of this chapter, including with re- a person acting on behalf of such issuer, the spect to liability that is based on a statement or requirement set forth in paragraph (1)(A) shall that is based on projections or other forward- be deemed to be satisfied— looking information, if and to the extent that (A) if the oral forward-looking statement any such exemption is consistent with the pub- is accompanied by a cautionary statement— lic interest and the protection of investors, as (i) that the particular oral statement is determined by the Commission. a forward-looking statement; and (h) Effect on other authority of Commission (ii) that the actual results might differ Nothing in this section limits, either expressly materially from those projected in the for- or by implication, the authority of the Commis- ward-looking statement; and sion to exercise similar authority or to adopt (B) if— similar rules and regulations with respect to (i) the oral forward-looking statement is forward-looking statements under any other accompanied by an oral statement that ad- statute under which the Commission exercises ditional information concerning factors rulemaking authority. that could cause actual results to materi- (i) Definitions ally differ from those in the forward-look- For purposes of this section, the following ing statement is contained in a readily definitions shall apply: available written document, or portion (1) Forward-looking statement thereof; (ii) the accompanying oral statement re- The term ‘‘forward-looking statement’’ ferred to in clause (i) identifies the docu- means— ment, or portion thereof, that contains the (A) a statement containing a projection of additional information about those factors revenues, income (including income loss), relating to the forward-looking statement; earnings (including earnings loss) per share, and capital expenditures, dividends, capital (iii) the information contained in that structure, or other financial items; (B) a statement of the plans and objectives written document is a cautionary state- of management for future operations, in- ment that satisfies the standard estab- cluding plans or objectives relating to the lished in paragraph (1)(A). products or services of the issuer; (3) Availability (C) a statement of future economic per- Any document filed with the Commission or formance, including any such statement generally disseminated shall be deemed to be contained in a discussion and analysis of fi- readily available for purposes of paragraph (2). nancial condition by the management or in (4) Effect on other safe harbors the results of operations included pursuant to the rules and regulations of the Commis- The exemption provided for in paragraph (1) sion; shall be in addition to any exemption that the (D) any statement of the assumptions un- Commission may establish by rule or regula- derlying or relating to any statement de- tion under subsection (g) of this section. scribed in subparagraph (A), (B), or (C); (d) Duty to update (E) any report issued by an outside re- Nothing in this section shall impose upon any viewer retained by an issuer, to the extent person a duty to update a forward-looking state- that the report assesses a forward-looking ment. statement made by the issuer; or (F) a statement containing a projection or (e) Dispositive motion estimate of such other items as may be spec- On any motion to dismiss based upon sub- ified by rule or regulation of the Commis- section (c)(1) of this section, the court shall con- sion. sider any statement cited in the complaint and (2) Investment company any cautionary statement accompanying the forward-looking statement, which are not sub- The term ‘‘investment company’’ has the ject to material dispute, cited by the defendant. same meaning as in section 80a–3(a) of this title. (f) Stay pending decision on motion (3) Going private transaction In any private action arising under this chapter, the court shall stay discovery (other than The term ‘‘going private transaction’’ has discovery that is specifically directed to the ap- the meaning given that term under the rules plicability of the exemption provided for in this or regulations of the Commission issued pur- section) during the pendency of any motion by a suant to section 78m(e) of this title. defendant for summary judgment that is based (4) Person acting on behalf of an issuer on the grounds that— The term ‘‘person acting on behalf of an is- (1) the statement or omission upon which suer’’ means any officer, director, or employee the complaint is based is a forward-looking of such issuer. Page 387 TITLE 15—COMMERCE AND TRADE § 78u–6

(5) Other terms section 308(b) of the Sarbanes-Oxley Act of The terms ‘‘blank check company’’, ‘‘rollup 2002 (15 U.S.C. 7246(b)), as a result of such ac- transaction’’, ‘‘partnership’’, ‘‘limited liability tion or any settlement of such action. company’’, ‘‘executive officer of an entity’’ (5) Related action and ‘‘direct participation investment pro- The term ‘‘related action’’, when used with gram’’, have the meanings given those terms respect to any judicial or administrative ac- by rule or regulation of the Commission. tion brought by the Commission under the se- (June 6, 1934, ch. 404, title I, § 21E, as added Pub. curities laws, means any judicial or adminis- L. 104–67, title I, § 102(b), Dec. 22, 1995, 109 Stat. trative action brought by an entity described 753.) in subclauses (I) through (IV) of subsection (h)(2)(D)(i) that is based upon the original in- REFERENCES IN TEXT formation provided by a whistleblower pursu- This chapter, referred to in subsecs. (c)(1), (f), and (g), ant to subsection (a) that led to the successful was in the original ‘‘this title’’. See References in Text enforcement of the Commission action. note set out under section 78a of this title. (6) Whistleblower EFFECTIVE DATE The term ‘‘whistleblower’’ means any indi- This section not to affect or apply to any private ac- vidual who provides, or 2 or more individuals tion arising under this chapter or title I of the Securi- acting jointly who provide, information relat- ties Act of 1933 (15 U.S.C. 77a et seq.), commenced being to a violation of the securities laws to the fore and pending on Dec. 22, 1995, see section 108 of Pub. Commission, in a manner established, by rule L. 104–67, set out as an Effective Date of 1995 Amend- ment note under section 77l of this title. or regulation, by the Commission. (b) Awards CONSTRUCTION (1) In general Nothing in section to be deemed to create or ratify any implied right of action, or to prevent Commission, In any covered judicial or administrative ac- by rule or regulation, from restricting or otherwise reg- tion, or related action, the Commission, under ulating private actions under this chapter, see section regulations prescribed by the Commission and 203 of Pub. L. 104–67, set out as a note under section subject to subsection (c), shall pay an award or 78j–1 of this title. awards to 1 or more whistleblowers who volun- § 78u–6. Securities whistleblower incentives and tarily provided original information to the protection Commission that led to the successful enforcement of the covered judicial or administrative (a) Definitions action, or related action, in an aggregate In this section the following definitions shall amount equal to— apply: (A) not less than 10 percent, in total, of (1) Covered judicial or administrative action what has been collected of the monetary sanctions imposed in the action or related The term ‘‘covered judicial or administra- actions; and tive action’’ means any judicial or administra- (B) not more than 30 percent, in total, of tive action brought by the Commission under what has been collected of the monetary the securities laws that results in monetary sanctions imposed in the action or related sanctions exceeding $1,000,000. actions. (2) Fund (2) Payment of awards The term ‘‘Fund’’ means the Securities and Any amount paid under paragraph (1) shall Exchange Commission Investor Protection be paid from the Fund. Fund. (c) Determination of amount of award; denial of (3) Original information award The term ‘‘original information’’ means in- (1) Determination of amount of award formation that— (A) is derived from the independent knowl- (A) Discretion edge or analysis of a whistleblower; The determination of the amount of an (B) is not known to the Commission from award made under subsection (b) shall be in any other source, unless the whistleblower is the discretion of the Commission. the original source of the information; and (B) Criteria (C) is not exclusively derived from an alle- In determining the amount of an award gation made in a judicial or administrative made under subsection (b), the Commis- hearing, in a governmental report, hearing, sion— audit, or investigation, or from the news (i) shall take into consideration— media, unless the whistleblower is a source (I) the significance of the information of the information. provided by the whistleblower to the suc- (4) Monetary sanctions cess of the covered judicial or adminis- The term ‘‘monetary sanctions’’, when used trative action; with respect to any judicial or administrative (II) the degree of assistance provided action, means— by the whistleblower and any legal rep- (A) any monies, including penalties, dis- resentative of the whistleblower in a gorgement, and interest, ordered to be paid; covered judicial or administrative ac- and tion; (B) any monies deposited into a dis- (III) the programmatic interest of the gorgement fund or other fund pursuant to Commission in deterring violations of § 78u–6 TITLE 15—COMMERCE AND TRADE Page 388

the securities laws by making awards to Commission. Any such determination, except whistleblowers who provide information the determination of the amount of an award if that lead to the successful enforcement the award was made in accordance with sub- of such laws; and section (b), may be appealed to the appropriate (IV) such additional relevant factors as court of appeals of the United States not more the Commission may establish by rule or than 30 days after the determination is issued by regulation; and the Commission. The court shall review the determination made by the Commission in accord- (ii) shall not take into consideration the ance with section 706 of title 5. balance of the Fund. (g) Investor Protection Fund (2) Denial of award (1) Fund established No award under subsection (b) shall be There is established in the Treasury of the made— United States a fund to be known as the ‘‘Se- (A) to any whistleblower who is, or was at curities and Exchange Commission Investor the time the whistleblower acquired the Protection Fund’’. original information submitted to the Com- mission, a member, officer, or employee of— (2) Use of Fund (i) an appropriate regulatory agency; The Fund shall be available to the Commis- (ii) the Department of Justice; sion, without further appropriation or fiscal (iii) a self-regulatory organization; year limitation, for— (iv) the Public Company Accounting (A) paying awards to whistleblowers as Oversight Board; or provided in subsection (b); and (v) a law enforcement organization; (B) funding the activities of the Inspector General of the Commission under section (B) to any whistleblower who is convicted 78d(i) of this title. of a criminal violation related to the judicial or administrative action for which the (3) Deposits and credits whistleblower otherwise could receive an (A) In general award under this section; There shall be deposited into or credited to (C) to any whistleblower who gains the in- the Fund an amount equal to— formation through the performance of an (i) any monetary sanction collected by audit of financial statements required under the Commission in any judicial or admin- the securities laws and for whom such sub- istrative action brought by the Commis- mission would be contrary to the require- sion under the securities laws that is not ments of section 78j–1 of this title; or added to a disgorgement fund or other fund (D) to any whistleblower who fails to sub- under section 308 of the Sarbanes-Oxley mit information to the Commission in such Act of 2002 (15 U.S.C. 7246) or otherwise dis- form as the Commission may, by rule, re- tributed to victims of a violation of the se- quire. curities laws, or the rules and regulations (d) Representation thereunder, underlying such action, unless the balance of the Fund at the time the (1) Permitted representation monetary sanction is collected exceeds Any whistleblower who makes a claim for an $300,000,000; award under subsection (b) may be represented (ii) any monetary sanction added to a by counsel. disgorgement fund or other fund under sec- (2) Required representation tion 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) that is not distributed to (A) In general the victims for whom the Fund was estab- Any whistleblower who anonymously lished, unless the balance of the dis- makes a claim for an award under sub- gorgement fund at the time the determina- section (b) shall be represented by counsel if tion is made not to distribute the mone- the whistleblower anonymously submits the tary sanction to such victims exceeds information upon which the claim is based. $200,000,000; and (B) Disclosure of identity (iii) all income from investments made under paragraph (4). Prior to the payment of an award, a (B) Additional amounts whistleblower shall disclose the identity of the whistleblower and provide such other in- If the amounts deposited into or credited formation as the Commission may require, to the Fund under subparagraph (A) are not directly or through counsel for the whistle- sufficient to satisfy an award made under blower. subsection (b), there shall be deposited into or credited to the Fund an amount equal to (e) No contract necessary the unsatisfied portion of the award from No contract with the Commission is necessary any monetary sanction collected by the for any whistleblower to receive an award under Commission in the covered judicial or ad- subsection (b), unless otherwise required by the ministrative action on which the award is Commission by rule or regulation. based. (f) Appeals (4) Investments Any determination made under this section, (A) Amounts in Fund may be invested including whether, to whom, or in what amount The Commission may request the Sec- to make awards, shall be in the discretion of the retary of the Treasury to invest the portion Page 389 TITLE 15—COMMERCE AND TRADE § 78u–6

of the Fund that is not, in the discretion of any other law, rule, or regulation subject the Commission, required to meet the cur- to the jurisdiction of the Commission. rent needs of the Fund. (B) Enforcement (B) Eligible investments (i) Cause of action Investments shall be made by the Sec- An individual who alleges discharge or retary of the Treasury in obligations of the other discrimination in violation of sub- United States or obligations that are guar- paragraph (A) may bring an action under anteed as to principal and interest by the this subsection in the appropriate district United States, with maturities suitable to court of the United States for the relief the needs of the Fund as determined by the provided in subparagraph (C). Commission on the record. (ii) Subpoenas (C) Interest and proceeds credited A subpoena requiring the attendance of a The interest on, and the proceeds from the witness at a trial or hearing conducted sale or redemption of, any obligations held under this section may be served at any in the Fund shall be credited to the Fund. place in the United States. (iii) Statute of limitations (5) Reports to Congress (I) In general Not later than October 30 of each fiscal year An action under this subsection may beginning after July 21, 2010, the Commission not be brought— shall submit to the Committee on Banking, (aa) more than 6 years after the date Housing, and Urban Affairs of the Senate, and on which the violation of subparagraph the Committee on Financial Services of the (A) occurred; or House of Representatives a report on— (bb) more than 3 years after the date (A) the whistleblower award program, es- when facts material to the right of ac- tablished under this section, including— tion are known or reasonably should (i) a description of the number of awards have been known by the employee al- granted; and leging a violation of subparagraph (A). (ii) the types of cases in which awards were granted during the preceding fiscal (II) Required action within 10 years year; Notwithstanding subclause (I), an action under this subsection may not in (B) the balance of the Fund at the begin- any circumstance be brought more than ning of the preceding fiscal year; 10 years after the date on which the vio- (C) the amounts deposited into or credited lation occurs. to the Fund during the preceding fiscal year; (D) the amount of earnings on investments (C) Relief made under paragraph (4) during the preced- Relief for an individual prevailing in an ing fiscal year; action brought under subparagraph (B) shall (E) the amount paid from the Fund during include— the preceding fiscal year to whistleblowers (i) reinstatement with the same senior- pursuant to subsection (b); ity status that the individual would have (F) the balance of the Fund at the end of had, but for the discrimination; the preceding fiscal year; and (ii) 2 times the amount of back pay (G) a complete set of audited financial otherwise owed to the individual, with in- statements, including— terest; and (iii) compensation for litigation costs, (i) a balance sheet; expert witness fees, and reasonable attor- (ii) income statement; and neys’ fees. (iii) cash flow analysis. (2) Confidentiality (h) Protection of whistleblowers (A) In general (1) Prohibition against retaliation Except as provided in subparagraphs (B) (A) In general and (C), the Commission and any officer or No employer may discharge, demote, sus- employee of the Commission shall not dis- pend, threaten, harass, directly or indi- close any information, including informa- rectly, or in any other manner discriminate tion provided by a whistleblower to the against, a whistleblower in the terms and Commission, which could reasonably be ex- conditions of employment because of any pected to reveal the identity of a whistle- lawful act done by the whistleblower— blower, except in accordance with the provi- (i) in providing information to the Com- sions of section 552a of title 5, unless and mission in accordance with this section; until required to be disclosed to a defendant (ii) in initiating, testifying in, or assist- or respondent in connection with a public ing in any investigation or judicial or ad- proceeding instituted by the Commission or ministrative action of the Commission any entity described in subparagraph (C). based upon or related to such information; For purposes of section 552 of title 5, this or paragraph shall be considered a statute de- (iii) in making disclosures that are re- scribed in subsection (b)(3)(B) of such sec- quired or protected under the Sarbanes- tion. Oxley Act of 2002 (15 U.S.C. 7201 et seq.), (B) Exempted statute this chapter, including section 78j–1(m) of For purposes of section 552 of title 5, this this title, section 1513(e) of title 18, and paragraph shall be considered a statute de- § 78u–7 TITLE 15—COMMERCE AND TRADE Page 390

scribed in subsection (b)(3)(B) of such section essary or appropriate to implement the provi- 552. sions of this section consistent with the pur- (C) Rule of construction poses of this section. Nothing in this section is intended to (June 6, 1934, ch. 404, title I, § 21F, as added Pub. limit, or shall be construed to limit, the L. 111–203, title IX, § 922(a), July 21, 2010, 124 ability of the Attorney General to present Stat. 1841.) such evidence to a grand jury or to share REFERENCES IN TEXT such evidence with potential witnesses or defendants in the course of an ongoing The Sarbanes-Oxley Act of 2002, referred to in subsec. criminal investigation. (h)(1)(A)(iii), is Pub. L. 107–204, July 30, 2002, 116 Stat. 745. For complete classification of this Act to the Code, (D) Availability to government agencies see Short Title note set out under section 7201 of this (i) In general title and Tables. Without the loss of its status as con- This chapter, referred to in subsec. (h)(1)(A)(iii), was fidential in the hands of the Commission, in the original ‘‘the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)’’. This chapter, referred to in subsec. all information referred to in subpara- (h)(2)(D)(i), was in the original ‘‘this Act’’. See Ref- graph (A) may, in the discretion of the erences in Text note set out under section 78a of this Commission, when determined by the title. Commission to be necessary to accomplish EFFECTIVE DATE the purposes of this chapter and to protect investors, be made available to— Section effective 1 day after July 21, 2010, except as (I) the Attorney General of the United otherwise provided, see section 4 of Pub. L. 111–203, set States; out as a note under section 5301 of Title 12, Banks and (II) an appropriate regulatory author- Banking. ity; § 78u–7. Implementation and transition provi- (III) a self-regulatory organization; sions for whistleblower protection (IV) a State attorney general in connection with any criminal investigation; (a) Implementing rules (V) any appropriate State regulatory The Commission shall issue final regulations authority; implementing the provisions of section 78u–6 of (VI) the Public Company Accounting this title, as added by this subtitle, not later Oversight Board; than 270 days after July 21, 2010. (VII) a foreign securities authority; and (b) Original information (VIII) a foreign law enforcement au- Information provided to the Commission in thority. writing by a whistleblower shall not lose the (ii) Confidentiality status of original information (as defined in sec- (I) In general tion 78u–6(a)(3) of this title, as added by this subtitle) solely because the whistleblower pro- Each of the entities described in sub- vided the information prior to the effective date clauses (I) through (VI) of clause (i) shall of the regulations, if the information is provided maintain such information as confiden- by the whistleblower after July 21, 2010. tial in accordance with the requirements established under subparagraph (A). (c) Awards (II) Foreign authorities A whistleblower may receive an award pursuant to section 78u–6 of this title, as added by Each of the entities described in sub- this subtitle, regardless of whether any viola- clauses (VII) and (VIII) of clause (i) shall tion of a provision of the securities laws, or a maintain such information in accord- rule or regulation thereunder, underlying the ju- ance with such assurances of confiden- dicial or administrative action upon which the tiality as the Commission determines award is based, occurred prior to July 21, 2010. appropriate. (d) Administration and enforcement (3) Rights retained Nothing in this section shall be deemed to The Securities and Exchange Commission diminish the rights, privileges, or remedies of shall establish a separate office within the Com- any whistleblower under any Federal or State mission to administer and enforce the provisions 1 law, or under any collective bargaining agree- of section 78u–6 of this title (as add by section 2 ment. 922(a)). Such office shall report annually to the Committee on Banking, Housing, and Urban Af- (i) Provision of false information fairs of the Senate and the Committee on Finan- A whistleblower shall not be entitled to an cial Services of the House of Representatives on award under this section if the whistleblower— its activities, whistleblower complaints, and the (1) knowingly and willfully makes any false, response of the Commission to such complaints. fictitious, or fraudulent statement or representation; or (Pub. L. 111–203, title IX, § 924, July 21, 2010, 124 (2) uses any false writing or document know- Stat. 1850.) ing the writing or document contains any REFERENCES IN TEXT false, fictitious, or fraudulent statement or This subtitle, referred to in subsecs. (a) to (c), means entry. subtitle B (§§ 921–929Z) of title IX of Pub. L. 111–203. (j) Rulemaking authority

The Commission shall have the authority to 1 So in original. Probably should be ‘‘added’’. issue such rules and regulations as may be nec- 2 See References in Text note below. Page 391 TITLE 15—COMMERCE AND TRADE § 78w

Section 922(a), referred to in subsec. (d), means section not necessary or appropriate in furtherance tion 922(a) of Pub. L. 111–203. of the purposes of this chapter. The Commission CODIFICATION and the Secretary of the Treasury shall include in the statement of basis and purpose incor- Section was enacted as part of the Investor Protec- porated in any rule or regulation adopted under tion and Securities Reform Act of 2010, and also as part of the Dodd-Frank Wall Street Reform and Consumer this chapter, the reasons for the Commission’s Protection Act, and not as part of the Securities Ex- or the Secretary’s determination that any bur- change Act of 1934 which comprises this chapter. den on competition imposed by such rule or regulation is necessary or appropriate in further- EFFECTIVE DATE ance of the purposes of this chapter. Section effective 1 day after July 21, 2010, except as (3) The Commission and the Secretary, in otherwise provided, see section 4 of Pub. L. 111–203, set making rules and regulations pursuant to any out as a note under section 5301 of Title 12, Banks and provision of this chapter, considering any appli- Banking. cation for registration in accordance with sec- DEFINITIONS tion 78s(a) of this title, or reviewing any pro- For definitions of ‘‘Commission’’ and ‘‘securities posed rule change of a self-regulatory organiza- laws’’ as used in this section, see section 5301 of Title tion in accordance with section 78s(b) of this 12, Banks and Banking. title, shall keep in a public file and make available for copying all written statements filed § 78v. Hearings by Commission with the Commission and the Secretary and all Hearings may be public and may be held be- written communications between the Commis- fore the Commission, any member or members sion or the Secretary and any person relating to thereof, or any officer or officers of the Commis- the proposed rule, regulation, application, or sion designated by it, and appropriate records proposed rule change: Provided, however, That thereof shall be kept. the Commission and the Secretary shall not be required to keep in a public file or make avail- (June 6, 1934, ch. 404, title I, § 22, 48 Stat. 901.) able for copying any such statement or commu- TRANSFER OF FUNCTIONS nication which it may withhold from the public in accordance with the provisions of section 552 For transfer of functions of Securities and Exchange of title 5. Commission, with certain exceptions, to Chairman of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, (b) Annual report to Congress eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under (1) The Commission, the Board of Governors of section 78d of this title. the Federal Reserve System, and the other agen- § 78w. Rules, regulations, and orders; annual re- cies enumerated in section 78c(a)(34) of this title ports shall each make an annual report to the Con- gress on its work for the preceding year, and (a) Power to make rules and regulations; consid- shall include in each such report whatever infor- erations; public disclosure mation, data, and recommendations for further (1) The Commission, the Board of Governors of legislation it considers advisable with regard to the Federal Reserve System, and the other agen- matters within its respective jurisdiction under cies enumerated in section 78c(a)(34) of this title this chapter. shall each have power to make such rules and (2) The appropriate regulatory agency for a regulations as may be necessary or appropriate self-regulatory organization shall include in its to implement the provisions of this chapter for annual report to the Congress for each fiscal which they are responsible or for the execution year, a summary of its oversight activities of the functions vested in them by this chapter, under this chapter with respect to such self-reg- and may for such purposes classify persons, se- ulatory organization, including a description of curities, transactions, statements, applications, any examination conducted as part of such ac- reports, and other matters within their respec- tivities of any such organization, any material tive jurisdictions, and prescribe greater, lesser, recommendation presented as part of such ac- or different requirements for different classes tivities to such organization for changes in its thereof. No provision of this chapter imposing organization or rules, and any action by such or- any liability shall apply to any act done or ganization in response to any such recommenda- omitted in good faith in conformity with a rule, tion. regulation, or order of the Commission, the (3) The appropriate regulatory agency for any Board of Governors of the Federal Reserve Sys- class of municipal securities dealers shall in- tem, other agency enumerated in section clude in its annual report to the Congress for 78c(a)(34) of this title, or any self-regulatory or- each fiscal year a summary of its regulatory ac- ganization, notwithstanding that such rule, reg- tivities pursuant to this chapter with respect to ulation, or order may thereafter be amended or such municipal securities dealers, including the rescinded or determined by judicial or other au- nature of and reason for any sanction imposed thority to be invalid for any reason. pursuant to this chapter against any such mu- (2) The Commission and the Secretary of the nicipal securities dealer. Treasury, in making rules and regulations pur- (4) The Commission shall also include in its suant to any provisions of this chapter, shall annual report to the Congress for each fiscal consider among other matters the impact any year— such rule or regulation would have on competi- (A) a summary of the Commission’s over- tion. The Commission and the Secretary of the sight activities with respect to self-regulatory Treasury shall not adopt any such rule or regu- organizations for which it is not the appro- lation which would impose a burden on competi- priate regulatory agency, including a descrip- § 78w TITLE 15—COMMERCE AND TRADE Page 392

tion of any examination of any such organiza- persons are willing to trade with respect to tion, any material recommendation presented such bids and offers). to any such organization for changes in its or- (c) Procedure for adjudication ganization or rules, and any action by any such organization in response to any such rec- The Commission, by rule, shall prescribe the ommendations; procedure applicable to every case pursuant to (B) a statement and analysis of the expenses this chapter of adjudication (as defined in sec- and operations of each self-regulatory organi- tion 551 of title 5) not required to be determined zation in connection with the performance of on the record after notice and opportunity for its responsibilities under this chapter, for hearing. Such rules shall, as a minimum, pro- which purpose data pertaining to such ex- vide that prompt notice shall be given of any ad- penses and operations shall be made available verse action or final disposition and that such by such organization to the Commission at its notice and the entry of any order shall be ac- request; companied by a statement of written reasons. (C) the steps the Commission has taken and (d) Cease-and-desist procedures the progress it has made toward ending the Within 1 year after October 15, 1990, the Com- physical movement of the securities certifi- mission shall establish regulations providing for cate in connection with the settlement of se- the expeditious conduct of hearings and render- curities transactions, and its recommenda- ing of decisions under section 78u–3 of this title, tions, if any, for legislation to eliminate the section 77h–1 of this title, section 80a–9(f) of this securities certificate; title, and section 80b–3(k) of this title. (D) the number of requests for exemptions from provisions of this chapter received, the (June 6, 1934, ch. 404, title I, § 23, 48 Stat. 901; number granted, and the basis upon which any Aug. 23, 1935, ch. 614, § 203(a), 49 Stat. 704; May 27, such exemption was granted; 1936, ch. 462, § 8, 49 Stat. 1379; Pub. L. 88–467, § 10, (E) a summary of the Commission’s regu- Aug. 20, 1964, 78 Stat. 580; Pub. L. 94–29, § 18, June latory activities with respect to municipal se- 4, 1975, 89 Stat. 155; Pub. L. 99–571, title I, § 102(j), curities dealers for which it is not the appro- Oct. 28, 1986, 100 Stat. 3220; Pub. L. 100–181, title priate regulatory agency, including the nature III, §§ 324, 325, Dec. 4, 1987, 101 Stat. 1259; Pub. L. of, and reason for, any sanction imposed in 101–429, title II, § 204, Oct. 15, 1990, 104 Stat. 940; proceedings against such municipal securities Pub. L. 103–202, title I, § 107, Dec. 17, 1993, 107 dealers; Stat. 2351; Pub. L. 109–351, title IV, § 401(a)(3), (F) a statement of the time elapsed between Oct. 13, 2006, 120 Stat. 1973; Pub. L. 111–203, title the filing of reports pursuant to section 78m(f) III, § 376(4), July 21, 2010, 124 Stat. 1569.) of this title and the public availability of the information contained therein, the costs in- REFERENCES IN TEXT volved in the Commission’s processing of such This chapter, referred to in subsecs. (a) to (c), was in reports and tabulating such information, the the original ‘‘this title’’. See References in Text note manner in which the Commission uses such in- set out under section 78a of this title. formation, and the steps the Commission has AMENDMENTS taken and the progress it has made toward re- 2010—Subsec. (b)(1). Pub. L. 111–203 struck out quiring such reports to be filed and such infor- ‘‘, other than the Office of Thrift Supervision,’’ before mation to be made available to the public in ‘‘shall each make’’. machine language; 2006—Subsec. (b)(1). Pub. L. 109–351 inserted ‘‘other (G)information concerning (i) the effects its than the Office of Thrift Supervision,’’ before ‘‘shall rules and regulations are having on the viabil- each’’. ity of small brokers and dealers; (ii) its at- 1993—Subsec. (b)(4)(C) to (K). Pub. L. 103–202, § 107, re- tempts to reduce any unnecessary reporting designated subpars. (E) to (G) and (I) to (K) as (C) to (E) burden on such brokers and dealers; and (iii) and (F) to (H), respectively, added a new subpar. (I), its efforts to help to assure the continued par- and struck out former subpars. (C), (D), and (H). Prior to amendment, subpars. (C), (D), and (H) read as fol- ticipation of small brokers and dealers in the lows: United States securities markets; ‘‘(C) beginning in 1975 and ending in 1980, informa- (H) a statement detailing its administration tion, data, and recommendations with respect to the of the Freedom of Information Act, section 552 development of a national system for the prompt and of title 5, including a copy of the report filed accurate clearance and settlement of securities trans- pursuant to subsection (d) of such section; and actions, including a summary of the regulatory activi- (I) the steps that have been taken and the ties, operational capabilities, financial resources, and progress that has been made in promoting the plans of self-regulatory organizations and registered timely public dissemination and availability transfer agents with respect thereto; ‘‘(D) beginning in 1975 and ending in 1980, a descrip- for analytical purposes (on a fair, reasonable, tion of the steps taken, and an evaluation of the and nondiscriminatory basis) of information progress made, toward the establishment of a national concerning government securities trans- market system, and recommendations for further legis- actions and quotations, and its recommenda- lation it considers advisable with respect to such sys- tions, if any, for legislation to assure timely tem; dissemination of (i) information on trans- ‘‘(H) beginning in 1975 and ending in 1980, a descrip- actions in regularly traded government securi- tion of the effect the absence of any schedule or fixed ties sufficient to permit the determination of rates of commissions, allowances, discounts, or other fees to be charged by members for effecting trans- the prevailing market price for such securi- actions on a national securities exchange is having on ties, and (ii) reports of the highest published the maintenance of fair and orderly markets and the bids and lowest published offers for govern- development of a national market system for securi- ment securities (including the size at which ties;’’. Page 393 TITLE 15—COMMERCE AND TRADE § 78x

1990—Subsec. (d). Pub. L. 101–429 added subsec. (d). EFFECTIVE DATE OF 1964 AMENDMENT 1987—Subsec. (a)(1). Pub. L. 100–181, § 324(1), inserted Amendment by Pub. L. 88–467 effective Aug. 20, 1964, ‘‘or’’ before ‘‘any self-regulatory organization’’ in last see section 13 of Pub. L. 88–467, set out as a note under sentence. Subsec. (a)(3). Pub. L. 100–181, § 324(2), inserted section 78c of this title. ‘‘shall’’ after ‘‘section 78s(b) of this title,’’. CONSTRUCTION OF 1993 AMENDMENT Subsec. (b)(4)(F). Pub. L. 100–181, § 325, substituted ‘‘the’’ for ‘‘The’’. Amendment by Pub. L. 103–202 not to be construed to 1986—Subsec. (a)(2). Pub. L. 99–571, § 102(j)(1), (2), in- govern initial issuance of any public debt obligation or serted ‘‘and the Secretary of the Treasury’’ in three to grant any authority to (or extend any authority of) places and ‘‘or the Secretary’s’’ in one place. the Securities and Exchange Commission, any appro- Subsec. (a)(3). Pub. L. 99–571, § 102(j)(3), (4), inserted priate regulatory agency, or a self-regulatory organiza- ‘‘and the Secretary’’ in three places and ‘‘or the Sec- tion to prescribe any procedure, term, or condition of retary’’ in one place. such initial issuance, to promulgate any rule or regula- 1975—Subsec. (a). Pub. L. 94–29 designated existing tion governing such initial issuance, or to otherwise provisions as par. (1), inserted references to other agen- regulate in any manner such initial issuance, see sec- cies enumerated in section 78c(a)(34) of this title, regu- tion 111 of Pub. L. 103–202, set out as a note under sec- lations appropriate to implement the provisions of this tion 78o–5 of this title. chapter for which the agencies are responsible, the classification of persons, transactions, statements, ap- TERMINATION OF REPORTING REQUIREMENTS plications, and reports, the prescribing of greater, less- For termination, effective May 15, 2000, of provisions er, or different requirements for different classifica- of law requiring submittal to Congress of any annual, tions, and the non-liability of self-regulatory organiza- semiannual, or other regular periodic report listed in tion, and added pars. (2) and (3). House Document No. 103–7 (in which the 2nd item on Subsec. (b). Pub. L. 94–29 designated existing provi- page 143, the 18th item on page 167, the 7th item on sions as par. (1), substituted ‘‘The Commission, the page 172, and 18th item on page 190 identify a reporting Board of Governors of the Federal Reserve System, and provision which, as subsequently amended, is contained the other agencies enumerated in section 78c(a)(34) of in subsec. (b) of this section), see section 3003 of Pub. this title, shall each make an annual report to the Con- L. 104–66, as amended, set out as a note under section gress on its work for the preceding year, and shall in- 1113 of Title 31, Money and Finance. clude in each such report whatever information, data, and recommendations for further legislation it consid- TRANSFER OF FUNCTIONS ers advisable with regard to matters within its respec- For transfer of functions of Securities and Exchange tive jurisdiction under this chapter’’ for ‘‘The Commis- Commission, with certain exceptions, to Chairman of sion and the Board of Governors of the Federal Reserve such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, System, respectively, shall include in their annual reports to Congress such information, data, and recom- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under mendation for further legislation as they may deem ad- section 78d of this title. visable with regard to matters within their respective § 78x. Public availability of information jurisdictions under this chapter. The Commission shall include in its annual reports to the Congress for the fis- (a) ‘‘Records’’ defined cal years ended on June 30 of 1965, 1966, and 1967 infor- For purposes of section 552 of title 5 the term mation, data, and recommendations specifically related to the operation of the amendments to this chapter ‘‘records’’ includes all applications, statements, made by the Securities Acts Amendments of 1964’’, and reports, contracts, correspondence, notices, and added pars. (2) to (4). other documents filed with or otherwise ob- Subsec. (c). Pub. L. 94–29 added subsec. (c). tained by the Commission pursuant to this chap- 1964—Subsec. (b). Pub. L. 88–467 required the Commis- ter or otherwise. sion in its annual reports to Congress for fiscal years ending June 30, 1965, 1966, and 1967, to furnish informa- (b) Disclosure or personal use tion, data, and recommendations specifically related to It shall be unlawful for any member, officer, the operations of the amendments to the Securities Ex- or employee of the Commission to disclose to change Act of 1934 made by the Securities Act Amend- any person other than a member, officer, or em- ments of 1964. 1936—Subsec. (a). Act May 27, 1936, inserted second ployee of the Commission, or to use for personal sentence. benefit, any information contained in any application, statement, report, contract, correspond- CHANGE OF NAME ence, notice, or other document filed with or Section 203(a) of act Aug. 23, 1935, substituted ‘‘Board otherwise obtained by the Commission (1) in of Governors of the Federal Reserve System’’ for ‘‘Fed- contravention of the rules and regulations of the eral Reserve Board’’. Commission under section 552 of title 5, or (2) in EFFECTIVE DATE OF 2010 AMENDMENT circumstances where the Commission has deter- Amendment by Pub. L. 111–203 effective on the trans- mined pursuant to such rules to accord con- fer date, see section 351 of Pub. L. 111–203, set out as a fidential treatment to such information. note under section 906 of Title 2, The Congress. (c) Confidential disclosures EFFECTIVE DATE OF 1990 AMENDMENT The Commission may, in its discretion and Amendment by Pub. L. 101–429 effective Oct. 15, 1990, upon a showing that such information is needed, with provisions relating to civil penalties and account- provide all ‘‘records’’ (as defined in subsection ing and disgorgement, see section 1(c)(1), (2) of Pub. L. (a) of this section) and other information in its 101–429, set out in a note under section 77g of this title. possession to such persons, both domestic and EFFECTIVE DATE OF 1986 AMENDMENT foreign, as the Commission by rule deems appro- Amendment by Pub. L. 99–571 effective 270 days after priate if the person receiving such records or in- Oct. 28, 1986, see section 401 of Pub. L. 99–571, set out as formation provides such assurances of confiden- an Effective Date note under section 78o–5 of this title. tiality as the Commission deems appropriate.

EFFECTIVE DATE OF 1975 AMENDMENT (d) Records obtained from foreign securities authorities Amendment by Pub. L. 94–29 effective June 4, 1975, see section 31(a) of Pub. L. 94–29, set out as a note under Except as provided in subsection (g) of this section 78b of this title. section, the Commission shall not be compelled § 78x TITLE 15—COMMERCE AND TRADE Page 394 to disclose records obtained from a foreign secu- sight Board with respect to information used rities authority if (1) the foreign securities au- by the Commission in an action against such thority has in good faith determined and rep- organization. resented to the Commission that public disclo- (4) Definitions sure of such records would violate the laws applicable to that foreign securities authority, and For purposes of this subsection— (2) the Commission obtains such records pursu- (A) the term ‘‘privilege’’ includes any ant to (A) such procedure as the Commission work-product privilege, attorney-client may authorize for use in connection with the ad- privilege, governmental privilege, or other ministration or enforcement of the securities privilege recognized under Federal, State, or laws, or (B) a memorandum of understanding. foreign law; For purposes of section 552 of title 5, this sub- (B) the term ‘‘foreign law enforcement au- section shall be considered a statute described thority’’ means any foreign authority that is in subsection (b)(3)(B) of such section 552. empowered under foreign law to detect, investigate or prosecute potential violations (e) Freedom of Information Act of law; and For purposes of section 552(b)(8) of title 5 (C) the term ‘‘State securities or law en- (commonly referred to as the Freedom of Infor- forcement authority’’ means the authority mation Act)— of any State or territory that is empowered (1) the Commission is an agency responsible under State or territory law to detect, inves- for the regulation or supervision of financial tigate, or prosecute potential violations of institutions; and law. (2) any entity for which the Commission is (g) Savings provision responsible for regulating, supervising, or examining under this chapter is a financial insti- Nothing in this section shall— tution. (1) alter the Commission’s responsibilities under the Right to Financial Privacy Act (12 (f) Sharing privileged information with other au- U.S.C. 3401 et seq.), as limited by section thorities 78u(h) of this title, with respect to transfers of (1) Privileged information provided by the records covered by such statutes, or Commission (2) authorize the Commission to withhold in- The Commission shall not be deemed to have formation from the Congress or prevent the waived any privilege applicable to any infor- Commission from complying with an order of mation by transferring that information to or a court of the United States in an action com- permitting that information to be used by— menced by the United States or the Commis- (A) any agency (as defined in section 6 of sion. title 18); (June 6, 1934, ch. 404, title I, § 24, 48 Stat. 901; (B) the Public Company Accounting Over- Aug. 23, 1935, ch. 614, § 203(a), 49 Stat. 704; Pub. L. sight Board; 94–29, § 19, June 4, 1975, 89 Stat. 158; Pub. L. (C) any self-regulatory organization; 101–550, title II, § 202(a), Nov. 15, 1990, 104 Stat. (D) any foreign securities authority; 2715; Pub. L. 111–203, title IX, §§ 929I(a), 929K, (E) any foreign law enforcement authority; July 21, 2010, 124 Stat. 1857, 1860; Pub. L. 111–257, or § 1(a), Oct. 5, 2010, 124 Stat. 2646.) (F) any State securities or law enforcement authority. REFERENCES IN TEXT (2) Nondisclosure of privileged information This chapter, referred to in subsecs. (a) and (e)(2), was provided to the Commission in the original ‘‘this title’’. See References in Text note set out under section 78a of this title. The Commission shall not be compelled to The Right to Financial Privacy Act, referred to in disclose privileged information obtained from subsec. (g)(1), probably means the Right to Financial any foreign securities authority, or foreign Privacy Act of 1978, title XI of Pub. L. 95–630, Nov. 10, law enforcement authority, if the authority 1978, 92 Stat. 3697, which is classified generally to chap- has in good faith determined and represented ter 35 (§ 3401 et seq.) of Title 12, Banks and Banking. For to the Commission that the information is complete classification of this Act to the Code, see Short Title note set out under section 3401 of Title 12 privileged. and Tables. (3) Nonwaiver of privileged information provided to the Commission AMENDMENTS (A) In general 2010—Subsec. (d). Pub. L. 111–203, § 929K(1), substituted ‘‘subsection (g)’’ for ‘‘subsection (f)’’. Federal agencies, State securities and law Pub. L. 111–203, § 929I(a)(1), substituted ‘‘subsection enforcement authorities, self-regulatory or- (f)’’ for ‘‘subsection (e)’’. ganizations, and the Public Company Ac- Subsec. (e). Pub. L. 111–257 added subsec. (e) and counting Oversight Board shall not be struck out former subsec. (e). Prior to amendment, text deemed to have waived any privilege appli- read as follows: ‘‘(1) IN GENERAL.—Except as provided in subsection cable to any information by transferring (g), the Commission shall not be compelled to disclose that information to or permitting that infor- records or information obtained pursuant to section mation to be used by the Commission. 78q(b) of this title, or records or information based (B) Exception upon or derived from such records or information, if such records or information have been obtained by the The provisions of subparagraph (A) shall Commission for use in furtherance of the purposes of not apply to a self-regulatory organization this chapter, including surveillance, risk assessments, or the Public Company Accounting Over- or other regulatory and oversight activities. Page 395 TITLE 15—COMMERCE AND TRADE § 78y

‘‘(2) TREATMENT OF INFORMATION.—For purposes of § 78y. Court review of orders and rules section 552 of title 5, this subsection shall be considered a statute described in subsection (b)(3)(B) of such sec- (a) Final Commission orders; persons aggrieved; tion 552. Collection of information pursuant to section petition; record; findings; affirmance, modi- 78q of this title shall be an administrative action in- fication, enforcement, or setting aside of or- volving an agency against specific individuals or agen- ders; remand to adduce additional evidence cies pursuant to section 3518(c)(1) of title 44.’’ Pub. L. 111–203, § 929K(2), substituted ‘‘subsection (g)’’ (1) A person aggrieved by a final order of the for ‘‘subsection (f)’’ in par. (1). Commission entered pursuant to this chapter Pub. L. 111–203, § 929I(a)(3), added subsec. (e). Former may obtain review of the order in the United subsec. (e) redesignated (f). States Court of Appeals for the circuit in which Subsec. (f). Pub. L. 111–203, § 929K(4), added subsec. (f). he resides or has his principal place of business, Former subsec. (f) redesignated (g). or for the District of Columbia Circuit, by filing Pub. L. 111–203, § 929I(a)(2), redesignated subsec. (e) as in such court, within sixty days after the entry (f). Subsec. (g). Pub. L. 111–203, § 929K(3), redesignated of the order, a written petition requesting that subsec. (f) as (g). the order be modified or set aside in whole or in 1990—Subsec. (b). Pub. L. 101–550, § 202(a)(1), struck part. out at end ‘‘Nothing in this subsection shall authorize (2) A copy of the petition shall be transmitted the Commission to withhold information from the Con- forthwith by the clerk of the court to a member gress.’’ of the Commission or an officer designated by Subsecs. (c) to (e). Pub. L. 101–550, § 202(a)(2), added the Commission for that purpose. Thereupon the subsecs. (c) to (e). Commission shall file in the court the record on 1975—Subsec. (a). Pub. L. 94–29 substituted ‘‘For pur- which the order complained of is entered, as proposes of section 552 of title 5, the term ‘records’ includes all applications, statements, reports, contracts, vided in section 2112 of title 28 and the Federal correspondence, notices, and other documents filed Rules of Appellate Procedure. with or otherwise obtained by the Commission pursu- (3) On the filing of the petition, the court has ant to this chapter or otherwise’’ for ‘‘Nothing in this jurisdiction, which becomes exclusive on the fil- chapter shall be construed to require, or to authorize ing of the record, to affirm or modify and en- the Commission to require, the revealing of trade se- force or to set aside the order in whole or in crets or processes in any application, report, or docu- part. ment filed with the Commission under this chapter’’. (4) The findings of the Commission as to the Subsecs. (b), (c). Pub. L. 94–29 redesignated subsec. (c) as (b) and substituted ‘‘application, statement, report, facts, if supported by substantial evidence, are contract, correspondence, notice, or other document conclusive. filed with or otherwise obtained by the Commission (1) (5) If either party applies to the court for leave in contravention of the rules and regulations of the to adduce additional evidence and shows to the Commission under section 552 of title 5, or (2) in cir- satisfaction of the court that the additional evi- cumstances where the Commission has determined pur- dence is material and that there was reasonable suant to such rules to accord confidential treatment ground for failure to adduce it before the Com- for such information. Nothing in this subsection shall mission, the court may remand the case to the authorize the Commission to withhold information from Congress’’ for ‘‘application, report, or document Commission for further proceedings, in whatever filed with the Commission which is not made available manner and on whatever conditions the court to the public pursuant to subsection (b) of this section: considers appropriate. If the case is remanded to Provided, That the Commission may make available to the Commission, it shall file in the court a sup- the Board of Governors of the Federal Reserve System plemental record containing any new evidence, any information requested by the Board for the purpose any further or modified findings, and any new of enabling it to perform its duties under this chapter’’. order. Former subsec. (b), providing for written objection to public disclosure of information, was struck out. (b) Commission rules; persons adversely affected; petition; record; affirmance, enforcement, or

CHANGE OF NAME setting aside of rules; findings; transfer of proceedings Section 203(a) of act Aug. 23, 1935, substituted ‘‘Board of Governors of the Federal Reserve System’’ for ‘‘Fed- (1) A person adversely affected by a rule of the eral Reserve Board’’. Commission promulgated pursuant to section 78f, 78i(h)(2), 78k, 78k–1, 78o(c)(5) or (6), 78o–3, 78q, 78q–1, or 78s of this title may obtain review of EFFECTIVE DATE OF 2010 AMENDMENT this rule in the United States Court of Appeals Amendment by Pub. L. 111–203 effective 1 day after for the circuit in which he resides or has his July 21, 2010, except as otherwise provided, see section principal place of business or for the District of 4 of Pub. L. 111–203, set out as an Effective Date note Columbia Circuit, by filing in such court, within under section 5301 of Title 12, Banks and Banking. sixty days after the promulgation of the rule, a written petition requesting that the rule be set EFFECTIVE DATE OF 1975 AMENDMENT aside. Amendment by Pub. L. 94–29 effective June 4, 1975, (2) A copy of the petition shall be transmitted see section 31(a) of Pub. L. 94–29, set out as a note under forthwith by the clerk of the court to a member section 78b of this title. of the Commission or an officer designated for that purpose. Thereupon, the Commission shall TRANSFER OF FUNCTIONS file in the court the rule under review and any documents referred to therein, the Commission’s For transfer of functions of Securities and Exchange Commission, with certain exceptions, to Chairman of notice of proposed rulemaking and any docu- such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, ments referred to therein, all written submis- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under sions and the transcript of any oral presen- section 78d of this title. tations in the rulemaking, factual information § 78y TITLE 15—COMMERCE AND TRADE Page 396 not included in the foregoing that was consid- in a district court of the United States under ered by the Commission in the promulgation of section 78u(d) or (e) of this title, that court in the rule or proffered by the Commission as per- which the petition or the action is first filed has tinent to the rule, the report of any advisory jurisdiction with respect to the order or rule to committee received or considered by the Com- the exclusion of any other court, and thereupon mission in the rulemaking, and any other mate- all such proceedings shall be transferred to that rials prescribed by the court. court; but, for the convenience of the parties in (3) On the filing of the petition, the court has the interest of justice, that court may there- jurisdiction, which becomes exclusive on the fil- after transfer all the proceedings to any other ing of the materials set forth in paragraph (2) of court of appeals or district court of the United this subsection, to affirm and enforce or to set States, whether or not a petition for review or aside the rule. an action for enforcement was originally filed in (4) The findings of the Commission as to the the transferee court. The scope of review by a facts identified by the Commission as the basis, district court under section 78u(d) or (e) of this in whole or in part, of the rule, if supported by title is in all cases the same as by a court of ap- substantial evidence, are conclusive. The court peals under this section. shall affirm and enforce the rule unless the (d) Other appropriate regulatory agencies Commission’s action in promulgating the rule is found to be arbitrary, capricious, an abuse of (1) For purposes of the preceding subsections discretion, or otherwise not in accordance with of this section, the term ‘‘Commission’’ includes law; contrary to constitutional right, power, the agencies enumerated in section 78c(a)(34) of privilege, or immunity; in excess of statutory this title insofar as such agencies are acting jurisdiction, authority, or limitations, or short pursuant to this chapter and the Secretary of of statutory right; or without observance of pro- the Treasury insofar as he is acting pursuant to o cedure required by law. section 78 –5 of this title. (5) If proceedings have been instituted under (2) For purposes of subsection (a)(4) of this sec- this subsection in two or more courts of appeals tion and section 706 of title 5, an order of the with respect to the same rule, the Commission Commission pursuant to section 78s(a) of this shall file the materials set forth in paragraph (2) title denying registration to a clearing agency of this subsection in that court in which a pro- for which the Commission is not the appropriate ceeding was first instituted. The other courts regulatory agency or pursuant to section 78s(b) shall thereupon transfer all such proceedings to of this title disapproving a proposed rule change the court in which the materials have been filed. by such a clearing agency shall be deemed to be For the convenience of the parties in the inter- an order of the appropriate regulatory agency est of justice that court may thereafter transfer for such clearing agency insofar as such order all the proceedings to any other court of ap- was entered by reason of a determination by peals. such appropriate regulatory agency pursuant to section 78s(a)(2)(C) or 78s(b)(4)(C) of this title (c) Objections not urged before Commission; stay that such registration or proposed rule change of orders and rules; transfer of enforcement would be inconsistent with the safeguarding of or review proceedings securities or funds. (1) No objection to an order or rule of the (June 6, 1934, ch. 404, title I, § 25, 48 Stat. 901; Commission, for which review is sought under June 7, 1934, ch. 426, 48 Stat. 926; June 25, 1948, this section, may be considered by the court un- ch. 646, § 32(a), 62 Stat. 991; May 24, 1949, ch. 139, less it was urged before the Commission or there § 127, 63 Stat. 107; Pub. L. 85–791, § 10, Aug. 28, was reasonable ground for failure to do so. 1958, 72 Stat. 945; Pub. L. 94–29, § 20, June 4, 1975, (2) The filing of a petition under this section 89 Stat. 158; Pub. L. 99–571, title I, § 102(k), Oct. does not operate as a stay of the Commission’s 28, 1986, 100 Stat. 3220; Pub. L. 101–432, § 6(b), Oct. order or rule. Until the court’s jurisdiction be- 16, 1990, 104 Stat. 975.) comes exclusive, the Commission may stay its order or rule pending judicial review if it finds REFERENCES IN TEXT that justice so requires. After the filing of a pe- This chapter, referred to in subsecs. (a)(1) and (d)(1), tition under this section, the court, on whatever was in the original ‘‘this title’’. See References in Text conditions may be required and to the extent note set out under section 78a of this title. necessary to prevent irreparable injury, may The Federal Rules of Appellate Procedure, referred to issue all necessary and appropriate process to in subsec. (a)(2), are set out in the Appendix to Title 28, stay the order or rule or to preserve status or Judiciary and Judicial Procedure. rights pending its review; but (notwithstanding AMENDMENTS section 705 of title 5) no such process may be is- 1990—Subsec. (b)(1). Pub. L. 101–432 inserted sued by the court before the filing of the record ‘‘78i(h)(2),’’ after ‘‘section 78f,’’. or the materials set forth in subsection (b)(2) of 1986—Subsec. (d)(1). Pub. L. 99–571 inserted ‘‘and the this section unless: (A) the Commission has de- Secretary of the Treasury insofar as he is acting pursu- nied a stay or failed to grant requested relief, ant to section 78o–5 of this title’’. (B) a reasonable period has expired since the fil- 1975—Subsec. (a). Pub. L. 94–29 revised existing provi- ing of an application for a stay without a decisions into five numbered paragraphs. sion by the Commission, or (C) there was reason- Subsec. (b). Pub. L. 94–29 substituted provisions per- able ground for failure to apply to the Commis- mitting persons adversely affected by any rule promulgated by the Commission pursuant to sections 78f, 78k, sion. 78k–1, 78o(c)(5) or (6), 78o–3, 78q, 78q–1, or 78s of this title (3) When the same order or rule is the subject to obtain direct review in an appropriate Court of Ap- of one or more petitions for review filed under peals for provisions that commencement of proceedings this section and an action for enforcement filed under subsec. (a) shall not, unless specifically ordered Page 397 TITLE 15—COMMERCE AND TRADE § 78aa by the court, operate as a stay of the Commission’s such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, order. eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under Subsecs. (c), (d). Pub. L. 94–29 added subsecs. (c) and section 78d of this title. (d). 1958—Subsec. (a). Pub. L. 85–791, in second sentence, § 78aa. Jurisdiction of offenses and suits substituted ‘‘transmitted by the clerk of the court to’’ for ‘‘served upon’’, struck out ‘‘certify and’’ before ‘‘file (a) In general in the court’’, struck out ‘‘a transcript of’’ after ‘‘file The district courts of the United States and in the court’’, and inserted ‘‘as provided in section 2112 the United States courts of any Territory or of title 28’’, and, in third sentence, substituted ‘‘peti- other place subject to the jurisdiction of the tion’’ for ‘‘transcript’’, and ‘‘jurisdiction, which upon United States shall have exclusive jurisdiction the filing of the record shall be exclusive’’ for ‘‘exclusive jurisdiction’’. of violations of this chapter or the rules and regulations thereunder, and of all suits in equity CHANGE OF NAME and actions at law brought to enforce any liabil- Act June 25, 1948, eff. Sept. 1, 1948, as amended by act ity or duty created by this chapter or the rules May 24, 1949, substituted ‘‘court of appeals’’ for ‘‘circuit and regulations thereunder. Any criminal pro- court of appeals’’. ceeding may be brought in the district wherein Act June 7, 1934, substituted ‘‘United States Court of any act or transaction constituting the viola- Appeals for the District of Columbia’’ for ‘‘Court of Ap- tion occurred. Any suit or action to enforce any peals for District of Columbia’’. liability or duty created by this chapter or rules EFFECTIVE DATE OF 1986 AMENDMENT and regulations thereunder, or to enjoin any Amendment by Pub. L. 99–571 effective 270 days after violation of such chapter or rules and regula- Oct. 28, 1986, see section 401 of Pub. L. 99–571, set out as tions, may be brought in any such district or in an Effective Date note under section 78o–5 of this title. the district wherein the defendant is found or is EFFECTIVE DATE OF 1975 AMENDMENT an inhabitant or transacts business, and process in such cases may be served in any other district Amendment by Pub. L. 94–29 effective June 4, 1975, of which the defendant is an inhabitant or wher- see section 31(a) of Pub. L. 94–29, set out as a note under section 78b of this title. ever the defendant may be found. In any action or proceeding instituted by the Commission TRANSFER OF FUNCTIONS under this chapter in a United States district For transfer of functions of Securities and Exchange court for any judicial district, a subpoena issued Commission, with certain exceptions, to Chairman of to compel the attendance of a witness or the such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, production of documents or tangible things (or eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under both) at a hearing or trial may be served at any section 78d of this title. place within the United States. Rule § 78z. Unlawful representations 45(c)(3)(A)(ii) of the Federal Rules of Civil Proce- dure shall not apply to a subpoena issued under No action or failure to act by the Commission the preceding sentence. Judgments and decrees or the Board of Governors of the Federal Re- so rendered shall be subject to review as pro- serve System, in the administration of this vided in sections 1254, 1291, 1292, and 1294 of title chapter shall be construed to mean that the par- 28. No costs shall be assessed for or against the ticular authority has in any way passed upon Commission in any proceeding under this chap- the merits of, or given approval to, any security ter brought by or against it in the Supreme or any transaction or transactions therein, nor Court or such other courts. shall such action or failure to act with regard to any statement or report filed with or examined (b) Extraterritorial jurisdiction by such authority pursuant to this chapter or The district courts of the United States and rules and regulations thereunder, be deemed a the United States courts of any Territory shall finding by such authority that such statement have jurisdiction of an action or proceeding or report is true and accurate on its face or that brought or instituted by the Commission or the it is not false or misleading. It shall be unlawful United States alleging a violation of the anti- to make, or cause to be made, to any prospec- fraud provisions of this chapter involving— tive purchaser or seller of a security any rep- (1) conduct within the United States that resentation that any such action or failure to constitutes significant steps in furtherance of act by any such authority is to be so construed the violation, even if the securities trans- or has such effect. action occurs outside the United States and involves only foreign investors; or (June 6, 1934, ch. 404, title I, § 26, 48 Stat. 902; (2) conduct occurring outside the United Pub. L. 105–353, title III, § 301(b)(5), Nov. 3, 1998, States that has a foreseeable substantial ef- 112 Stat. 3236.) fect within the United States. REFERENCES IN TEXT (June 6, 1934, ch. 404, title I, § 27, 48 Stat. 902; This chapter, referred to in text, was in the original June 25, 1936, ch. 804, 49 Stat. 1921; June 25, 1948, ‘‘this title’’. See References in Text note set out under ch. 646, § 32(b), 62 Stat. 991; May 24, 1949, ch. 139, section 78a of this title. § 127, 63 Stat. 107; Pub. L. 100–181, title III, § 326, AMENDMENTS Dec. 4, 1987, 101 Stat. 1259; Pub. L. 111–203, title 1998—Pub. L. 105–353 substituted ‘‘Board of Governors IX, §§ 929E(b), 929P(b)(2), July 21, 2010, 124 Stat. of the Federal Reserve System’’ for ‘‘Federal Reserve 1853, 1865.) Board’’. REFERENCES IN TEXT TRANSFER OF FUNCTIONS This chapter, referred to in text, was in the original For transfer of functions of Securities and Exchange ‘‘this title’’. See References in Text note set out under Commission, with certain exceptions, to Chairman of section 78a of this title. § 78aa–1 TITLE 15—COMMERCE AND TRADE Page 398

The Federal Rules of Civil Procedure, referred to in (2) which would have been timely filed under subsec. (a), are set out in the Appendix to Title 28, Ju- the limitation period provided by the laws ap- diciary and Judicial Procedure. plicable in the jurisdiction, including prin- CODIFICATION ciples of retroactivity, as such laws existed on June 19, 1991, As originally enacted section contained references to the Supreme Court of the District of Columbia. Act shall be reinstated on motion by the plaintiff June 25, 1936, substituted ‘‘the district court of the not later than 60 days after December 19, 1991. United States for the District of Columbia’’ for ‘‘the Supreme Court of the District of Columbia’’, and act (June 6, 1934, ch. 404, title I, § 27A, as added Pub. June 25, 1948, as amended by act May 24, 1949, sub- L. 102–242, title IV, § 476, Dec. 19, 1991, 105 Stat. stituted ‘‘United States District Court for the District 2387.) of Columbia’’ for ‘‘district court of the United States for the District of Columbia’’. Pub. L. 100–181 struck § 78bb. Effect on existing law out reference to the United States District Court for (a) Limitation on judgments the District of Columbia. Previously, such words had been editorially eliminated as superfluous in view of (1) In general section 132(a) of Title 28, Judiciary and Judicial Proce- No person permitted to maintain a suit for dure, which provides that ‘‘There shall be in each judi- damages under the provisions of this chapter cial district a district court which shall be a court of shall recover, through satisfaction of judg- record known as the United States District Court for ment in 1 or more actions, a total amount in the district’’, and section 88 of Title 28 which provides excess of the actual damages to that person on that ‘‘the District of Columbia constitutes one judicial district’’. account of the act complained of. Except as otherwise specifically provided in this chapter, AMENDMENTS nothing in this chapter shall affect the juris- 2010—Pub. L. 111–203, § 929P(b)(2), designated existing diction of the securities commission (or any provisions as subsec. (a), inserted heading, and added agency or officer performing like functions) of subsec. (b). any State over any security or any person in- Pub. L. 111–203, § 929E(b), inserted ‘‘In any action or sofar as it does not conflict with the provi- proceeding instituted by the Commission under this sions of this chapter or the rules and regula- chapter in a United States district court for any judi- tions under this chapter. cial district, a subpoena issued to compel the attendance of a witness or the production of documents or (2) Rule of construction tangible things (or both) at a hearing or trial may be Except as provided in subsection (f), the served at any place within the United States. Rule rights and remedies provided by this chapter 45(c)(3)(A)(ii) of the Federal Rules of Civil Procedure shall be in addition to any and all other rights shall not apply to a subpoena issued under the preced- and remedies that may exist at law or in eq- ing sentence.’’ after ‘‘defendant may be found.’’ 1987—Pub. L. 100–181 struck out ‘‘, the United States uity. District Court for the District of Columbia,’’ after ‘‘dis- (3) State bucket shop laws trict courts of the United States’’ and substituted ‘‘sec- No State law which prohibits or regulates tions 1254, 1291, 1292, and 1294 of title 28’’ for ‘‘sections the making or promoting of wagering or gam- 128 and 240 of the Judicial Code, as amended (U.S.C., ing contracts, or the operation of ‘‘bucket title 28, secs. 225 and 347)’’. See Codification note above. shops’’ or other similar or related activities, EFFECTIVE DATE OF 2010 AMENDMENT shall invalidate— Amendment by Pub. L. 111–203 effective 1 day after (A) any put, call, straddle, option, privi- July 21, 2010, except as otherwise provided, see section lege, or other security subject to this chap- 4 of Pub. L. 111–203, set out as an Effective Date note ter (except any security that has a pari-mu- under section 5301 of Title 12, Banks and Banking. tuel payout or otherwise is determined by the Commission, acting by rule, regulation, TRANSFER OF FUNCTIONS or order, to be appropriately subject to such For transfer of functions of Securities and Exchange laws), or apply to any activity which is inci- Commission, with certain exceptions, to Chairman of dental or related to the offer, purchase, sale, such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, exercise, settlement, or closeout of any such eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under security; section 78d of this title. (B) any security-based swap between eligi- § 78aa–1. Special provision relating to statute of ble contract participants; or limitations on private causes of action (C) any security-based swap effected on a national securities exchange registered pur- (a) Effect on pending causes of action suant to section 78f(b) of this title. The limitation period for any private civil ac- (4) Other State provisions tion implied under section 78j(b) of this title No provision of State law regarding the that was commenced on or before June 19, 1991, offer, sale, or distribution of securities shall shall be the limitation period provided by the apply to any transaction in a security-based laws applicable in the jurisdiction, including swap or a security futures product, except that principles of retroactivity, as such laws existed this paragraph may not be construed as limit- on June 19, 1991. ing any State antifraud law of general applica- (b) Effect on dismissed causes of action bility. A security-based swap may not be regu- Any private civil action implied under section lated as an insurance contract under any pro- 78j(b) of this title that was commenced on or be- vision of State law. fore June 19, 1991— (b) Modification of disciplinary procedures (1) which was dismissed as time barred sub- Nothing in this chapter shall be construed to sequent to June 19, 1991, and modify existing law with regard to the binding Page 399 TITLE 15—COMMERCE AND TRADE § 78bb effect (1) on any member of or participant in any to the contrary by a law enacted by the Con- self-regulatory organization of any action taken gress or any State subsequent to June 4, 1975, by the authorities of such organization to settle solely by reason of his having caused the ac- disputes between its members or participants, count to pay a member of an exchange, broker, (2) on any municipal securities dealer or munici- or dealer an amount of commission for effecting pal securities broker of any action taken pursu- a securities transaction in excess of the amount ant to a procedure established by the Municipal of commission another member of an exchange, Securities Rulemaking Board to settle disputes broker, or dealer would have charged for effect- between municipal securities dealers and munic- ing that transaction, if such person determined ipal securities brokers, or (3) of any action de- in good faith that such amount of commission scribed in paragraph (1) or (2) on any person who was reasonable in relation to the value of the has agreed to be bound thereby. brokerage and research services provided by (c) Continuing validity of disciplinary sanctions such member, broker, or dealer, viewed in terms of either that particular transaction or his over- The stay, setting aside, or modification pursu- all responsibilities with respect to the accounts ant to section 78s(e) of this title of any discipli- as to which he exercises investment discretion. nary sanction imposed by a self-regulatory orga- This subsection is exclusive and plenary insofar nization on a member thereof, person associated as conduct is covered by the foregoing, unless with a member, or participant therein, shall not otherwise expressly provided by contract: Pro- affect the validity or force of any action taken vided, however, That nothing in this subsection as a result of such sanction by the self-regu- shall be construed to impair or limit the power latory organization prior to such stay, setting of the Commission under any other provision of aside, or modification: Provided, That such ac- this chapter or otherwise. tion is not inconsistent with the provisions of (2) A person exercising investment discretion this chapter or the rules or regulations therewith respect to an account shall make such dis- under. The rights of any person acting in good closure of his policies and practices with respect faith which arise out of any such action shall to commissions that will be paid for effecting se- not be affected in any way by such stay, setting curities transactions, at such times and in such aside, or modification. manner, as the appropriate regulatory agency, (d) Physical location of facilities of registered by rule, may prescribe as necessary or appro- clearing agencies or registered transfer priate in the public interest or for the protec- agents not to subject changes in beneficial or tion of investors. record ownership of securities to State or (3) For purposes of this subsection a person local taxes provides brokerage and research services insofar No State or political subdivision thereof shall as he— impose any tax on any change in beneficial or (A) furnishes advice, either directly or record ownership of securities effected through through publications or writings, as to the the facilities of a registered clearing agency or value of securities, the advisability of invest- registered transfer agent or any nominee thereof ing in, purchasing, or selling securities, and or custodian therefor or upon the delivery or the availability of securities or purchasers or transfer of securities to or through or receipt sellers of securities; from such agency or agent or any nominee (B) furnishes analyses and reports concern- thereof or custodian therefor, unless such ing issuers, industries, securities, economic change in beneficial or record ownership or such factors and trends, portfolio strategy, and the transfer or delivery or receipt would otherwise performance of accounts; or be taxable by such State or political subdivision (C) effects securities transactions and per- if the facilities of such registered clearing agen- forms functions incidental thereto (such as cy, registered transfer agent, or any nominee clearance, settlement, and custody) or re- thereof or custodian therefor were not phys- quired in connection therewith by rules of the ically located in the taxing State or political Commission or a self-regulatory organization subdivision. No State or political subdivision of which such person is a member or person as- thereof shall impose any tax on securities which sociated with a member or in which such per- are deposited in or retained by a registered son is a participant. clearing agency, registered transfer agent, or (4) The provisions of this subsection shall not any nominee thereof or custodian therefor, un- apply with regard to securities that are security less such securities would otherwise be taxable futures products. by such State or political subdivision if the fa- (f) Limitations on remedies cilities of such registered clearing agency, reg- (1) Class action limitations istered transfer agent, or any nominee thereof or custodian therefor were not physically lo- No covered class action based upon the stat- cated in the taxing State or political subdivi- utory or common law of any State or subdivision. sion thereof may be maintained in any State or Federal court by any private party alleg- (e) Exchange, broker, and dealer commissions; ing— brokerage and research services (A) a misrepresentation or omission of a (1) No person using the mails, or any means or material fact in connection with the pur- instrumentality of interstate commerce, in the chase or sale of a covered security; or exercise of investment discretion with respect to (B) that the defendant used or employed an account shall be deemed to have acted unlaw- any manipulative or deceptive device or con- fully or to have breached a fiduciary duty under trivance in connection with the purchase or State or Federal law unless expressly provided sale of a covered security. § 78bb TITLE 15—COMMERCE AND TRADE Page 400

(2) Removal of covered class actions (D) Remand of removed actions Any covered class action brought in any In an action that has been removed from a State court involving a covered security, as State court pursuant to paragraph (2), if the set forth in paragraph (1), shall be removable Federal court determines that the action to the Federal district court for the district in may be maintained in State court pursuant which the action is pending, and shall be sub- to this subsection, the Federal court shall ject to paragraph (1). remand such action to such State court. (3) Preservation of certain actions (4) Preservation of State jurisdiction (A) Actions under State law of State of incor- The securities commission (or any agency or poration office performing like functions) of any State (i) Actions preserved shall retain jurisdiction under the laws of such State to investigate and bring enforcement ac- Notwithstanding paragraph (1) or (2), a tions. covered class action described in clause (ii) (5) Definitions of this subparagraph that is based upon the statutory or common law of the State For purposes of this subsection, the follow- in which the issuer is incorporated (in the ing definitions shall apply: case of a corporation) or organized (in the (A) Affiliate of the issuer case of any other entity) may be main- The term ‘‘affiliate of the issuer’’ means a tained in a State or Federal court by a pri- person that directly or indirectly, through vate party. one or more intermediaries, controls or is (ii) Permissible actions controlled by or is under common control with, the issuer. A covered class action is described in this clause if it involves— (B) Covered class action (I) the purchase or sale of securities by The term ‘‘covered class action’’ means— the issuer or an affiliate of the issuer ex- (i) any single lawsuit in which— clusively from or to holders of equity se- (I) damages are sought on behalf of curities of the issuer; or more than 50 persons or prospective class (II) any recommendation, position, or members, and questions of law or fact other communication with respect to the common to those persons or members of sale of securities of an issuer that— the prospective class, without reference (aa) is made by or on behalf of the is- to issues of individualized reliance on an suer or an affiliate of the issuer to alleged misstatement or omission, pre- holders of equity securities of the is- dominate over any questions affecting suer; and only individual persons or members; or (bb) concerns decisions of such eq- (II) one or more named parties seek to uity holders with respect to voting recover damages on a representative their securities, acting in response to a basis on behalf of themselves and other unnamed parties similarly situated, and tender or exchange offer, or exercising questions of law or fact common to those dissenters’ or appraisal rights. persons or members of the prospective (B) State actions class predominate over any questions af- (i) In general fecting only individual persons or mem- Notwithstanding any other provision of bers; or this subsection, nothing in this subsection (ii) any group of lawsuits filed in or may be construed to preclude a State or pending in the same court and involving political subdivision thereof or a State common questions of law or fact, in pension plan from bringing an action in- which— volving a covered security on its own be- (I) damages are sought on behalf of half, or as a member of a class comprised more than 50 persons; and solely of other States, political subdivi- (II) the lawsuits are joined, consoli- sions, or State pension plans that are dated, or otherwise proceed as a single named plaintiffs, and that have authorized action for any purpose. participation, in such action. (C) Exception for derivative actions (ii) State pension plan defined Notwithstanding subparagraph (B), the For purposes of this subparagraph, the term ‘‘covered class action’’ does not include term ‘‘State pension plan’’ means a pen- an exclusively derivative action brought by sion plan established and maintained for one or more shareholders on behalf of a cor- its employees by the government of a poration. State or political subdivision thereof, or (D) Counting of certain class members by any agency or instrumentality thereof. For purposes of this paragraph, a corpora- (C) Actions under contractual agreements be- tion, investment company, pension plan, tween issuers and indenture trustees partnership, or other entity, shall be treated Notwithstanding paragraph (1) or (2), a as one person or prospective class member, covered class action that seeks to enforce a but only if the entity is not established for contractual agreement between an issuer the purpose of participating in the action. and an indenture trustee may be maintained (E) Covered security in a State or Federal court by a party to the The term ‘‘covered security’’ means a se- agreement or a successor to such party. curity that satisfies the standards for a cov- Page 401 TITLE 15—COMMERCE AND TRADE § 78cc

ered security specified in paragraph (1) or (2) Subsec. (f). Pub. L. 105–353, § 101(b)(1)(B), added sub- of section 18(b) of the Securities Act of 1933 sec. (f). [15 U.S.C. 77r(b)], at the time during which it 1996—Subsec. (a). Pub. L. 104–290 substituted ‘‘Except is alleged that the misrepresentation, omis- as otherwise specifically provided in this chapter, nothing’’ for ‘‘Nothing’’. sion, or manipulative or deceptive conduct 1987—Subsec. (c). Pub. L. 100–181, § 327, substituted occurred, except that such term shall not in- ‘‘on’’ for ‘‘or’’ after ‘‘self-regulatory organization’’. clude any debt security that is exempt from Subsec. (d). Pub. L. 100–181, § 328, substituted ‘‘change registration under the Securities Act of 1933 in beneficial’’ for ‘‘change is beneficial’’. [15 U.S.C. 77a et seq.] pursuant to rules is- Subsec. (e)(1). Pub. L. 100–181, § 329, substituted ‘‘sub- sued by the Commission under section 4(2) of sequent to the date of enactment of the Securities Acts that Act [15 U.S.C. 77d(2)]. Amendments of 1975’’ for ‘‘subsequent to the date of enactment of the Securities Acts Amendments in 1975’’, (F) Rule of construction which for purposes of codification was translated as Nothing in this paragraph shall be con- ‘‘subsequent to June 4, 1975,’’ thus requiring no change strued to affect the discretion of a State in text. court in determining whether actions filed 1982—Subsec. (a). Pub. L. 97–303 inserted provision that no State law which prohibits or regulates the in such court should be joined, consolidated, making or promoting of wagering or gaming contracts, or otherwise allowed to proceed as a single or the operation of ‘‘bucket shops’’ or other similar or action. related activities, shall invalidate any put, call, strad- (June 6, 1934, ch. 404, title I, § 28, 48 Stat. 903; dle, option, privilege, or other security, or apply to any Pub. L. 94–29, § 21, June 4, 1975, 89 Stat. 160; Pub. activity which is incidental or related to the offer, purchase, sale, exercise, settlement, or closeout of any L. 97–303, § 4, Oct. 13, 1982, 96 Stat. 1409; Pub. L. such instrument, if such instrument is traded pursuant 100–181, title III, §§ 327–329, Dec. 4, 1987, 101 Stat. to rules and regulations of a self-regulatory organiza- 1259; Pub. L. 104–290, title I, § 103(b), Oct. 11, 1996, tion that are filed with the Commission pursuant to 110 Stat. 3422; Pub. L. 105–353, title I, § 101(b)(1), section 78s(b) of this title. Nov. 3, 1998, 112 Stat. 3230; Pub. L. 106–554, 1975—Subsec. (b). Pub. L. 94–29, § 21(1), struck out pro- § 1(a)(5) [title II, §§ 203(a)(2), 210], Dec. 21, 2000, 114 visions that nothing in this chapter be construed to Stat. 2763, 2763A–422, 2763A–436; Pub. L. 111–203, modify existing law with regard to the binding effect on any member of an exchange of any disciplinary ac- title VII, § 767, July 21, 2010, 124 Stat. 1799.) tion taken by the authorities of an exchange and made AMENDMENT OF SECTION the remaining provisions applicable to all members of and participants in all self-regulatory organizations as Unless otherwise provided, amendment by well as municipal securities professionals. subtitle B (§§ 761–774) of title VII of Pub. L. Subsecs. (c) to (e). Pub. L. 94–29, § 21(2), added subsecs. 111–203 effective on the later of 360 days after (c) to (e). July 21, 2010, or, to the extent a provision of subtitle B requires a rulemaking, not less than EFFECTIVE DATE OF 2010 AMENDMENT 60 days after publication of the final rule or Amendment by Pub. L. 111–203 effective on the later regulation implementing such provision of sub- of 360 days after July 21, 2010, or, to the extent a provi- title B, see 2010 Amendment notes and Effective sion of subtitle B (§§ 761–774) of title VII of Pub. L. Date of 2010 Amendment note below. 111–203 requires a rulemaking, not less than 60 days after publication of the final rule or regulation imple- REFERENCES IN TEXT menting such provision of subtitle B, see section 774 of Pub. L. 111–203, set out as a note under section 77b of This chapter, referred to in subsecs. (a) to (c) and (e), this title. was in the original ‘‘this title’’. See References in Text note set out under section 78a of this title. EFFECTIVE DATE OF 1998 AMENDMENT The Securities Act of 1933, referred to in subsec. Amendment by Pub. L. 105–353 not to affect or apply (f)(5)(E), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, to any action commenced before and pending on Nov. 3, as amended, which is classified generally to subchapter 1998, see section 101(c) of Pub. L. 105–353, set out as a I (§ 77a et seq.) of chapter 2A of this title. For complete note under section 77p of this title. classification of this Act to the Code, see section 77a of this title and Tables. EFFECTIVE DATE OF 1975 AMENDMENT AMENDMENTS Amendment by Pub. L. 94–29 effective June 4, 1975, 2010—Subsec. (a). Pub. L. 111–203 amended subsec. (a) see section 31(a) of Pub. L. 94–29, set out as a note under generally. Prior to amendment, subsec. (a) related to section 78b of this title. rights and remedies provided by this chapter and appli- TRANSFER OF FUNCTIONS cability of certain State securities laws. 2000—Subsec. (a). Pub. L. 106–554, § 1(a)(5) [title II, For transfer of functions of Securities and Exchange § 210], inserted ‘‘subject to this chapter’’ after ‘‘privi- Commission, with certain exceptions, to Chairman of lege, or other security’’, substituted ‘‘any such secu- such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, rity’’ for ‘‘any such instrument, if such instrument is eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under traded pursuant to rules and regulations of a self-regu- section 78d of this title. latory organization that are filed with the Commission § 78cc. Validity of contracts pursuant to section 78s(b) of this title’’, and inserted at end ‘‘No provision of State law regarding the offer, (a) Waiver provisions sale, or distribution of securities shall apply to any Any condition, stipulation, or provision bind- transaction in a security futures product, except that this sentence shall not be construed as limiting any ing any person to waive compliance with any State antifraud law of general applicability.’’ provision of this chapter or of any rule or regu- Subsec. (e)(4). Pub. L. 106–554, § 1(a)(5) [title II, lation thereunder, or of any rule of a self-regu- § 203(a)(2)], added par. (4). latory organization, shall be void. 1998—Subsec. (a). Pub. L. 105–353, § 101(b)(1)(A), sub- (b) Contract provisions in violation of chapter stituted ‘‘Except as provided in subsection (f) of this section, the rights and remedies’’ for ‘‘The rights and Every contract made in violation of any provi- remedies’’. sion of this chapter or of any rule or regulation § 78dd TITLE 15—COMMERCE AND TRADE Page 402 thereunder, and every contract (including any REFERENCES IN TEXT contract for listing a security on an exchange) This chapter, referred to in text, was in the original heretofore or hereafter made, the performance ‘‘this title’’. See References in Text note set out under of which involves the violation of, or the con- section 78a of this title. tinuance of any relationship or practice in violation of, any provision of this chapter or any rule AMENDMENTS or regulation thereunder, shall be void (1) as re- 2010—Subsec. (a). Pub. L. 111–203, §§ 927, 929T, amended gards the rights of any person who, in violation subsec. (a) identically, substituting ‘‘a self-regulatory of any such provision, rule, or regulation, shall organization,’’ for ‘‘an exchange required thereby’’. have made or engaged in the performance of any 1990—Subsec. (b). Pub. L. 101–429 substituted in cl. (A) such contract, and (2) as regards the rights of ‘‘paragraph (3)’’ for ‘‘paragraph (2) or (3)’’ and in cl. (B) ‘‘paragraph (1) or (2)’’ for ‘‘paragraph (1)’’, and inserted any person who, not being a party to such con- at end ‘‘The Commission may, in a rule or regulation tract, shall have acquired any right thereunder prescribed pursuant to such paragraph (2) of such sec- with actual knowledge of the facts by reason of tion 78o(c) of this title, designate such rule or regula- which the making or performance of such con- tion, or portion thereof, as a rule or regulation, or por- tract was in violation of any such provision, tion thereof, a contract in violation of which shall not rule, or regulation: Provided, (A) That no con- be void by reason of this subsection.’’ tract shall be void by reason of this subsection 1938—Subsec. (b). Act June 25, 1938, inserted proviso. because of any violation of any rule or regula- EFFECTIVE DATE OF 2010 AMENDMENT tion prescribed pursuant to paragraph (3) of subsection (c) of section 78o of this title, and (B) Amendment by Pub. L. 111–203 effective 1 day after July 21, 2010, except as otherwise provided, see section that no contract shall be deemed to be void by 4 of Pub. L. 111–203, set out as an Effective Date note reason of this subsection in any action main- under section 5301 of Title 12, Banks and Banking. tained in reliance upon this subsection, by any person to or for whom any broker or dealer sells, EFFECTIVE DATE OF 1990 AMENDMENT or from or for whom any broker or dealer pur- Amendment by Pub. L. 101–429 effective Oct. 15, 1990, chases, a security in violation of any rule or reg- with provisions relating to civil penalties and account- ulation prescribed pursuant to paragraph (1) or ing and disgorgement, see section 1(c)(1), (2) of Pub. L. (2) of subsection (c) of section 78o of this title, 101–429, set out in a note under section 77g of this title. unless such action is brought within one year after the discovery that such sale or purchase § 78dd. Foreign securities exchanges involves such violation and within three years (a) Unlawful transactions on foreign securities after such violation. The Commission may, in a exchanges rule or regulation prescribed pursuant to such It shall be unlawful for any broker or dealer, paragraph (2) of such section 78o(c) of this title, directly or indirectly, to make use of the mails designate such rule or regulation, or portion or of any means or instrumentality of interstate thereof, as a rule or regulation, or portion there- commerce for the purpose of effecting on an ex- of, a contract in violation of which shall not be change not within or subject to the jurisdiction void by reason of this subsection. of the United States, any transaction in any se- (c) Validity of loans, extensions of credit, and curity the issuer of which is a resident of, or is creation of liens; actual knowledge of viola- organized under the laws of, or has its principal tion place of business in, a place within or subject to Nothing in this chapter shall be construed (1) the jurisdiction of the United States, in con- to affect the validity of any loan or extension of travention of such rules and regulations as the credit (or any extension or renewal thereof) Commission may prescribe as necessary or ap- made or of any lien created prior or subsequent propriate in the public interest or for the pro- to the enactment of this chapter, unless at the tection of investors or to prevent the evasion of time of the making of such loan or extension of this chapter. credit (or extension or renewal thereof) or the (b) Business without the jurisdiction of the creating of such lien, the person making such United States loan or extension of credit (or extension or renewal thereof) or acquiring such lien shall have The provisions of this chapter or of any rule or actual knowledge of facts by reason of which the regulation thereunder shall not apply to any making of such loan or extension of credit (or person insofar as he transacts a business in secu- extension or renewal thereof) or the acquisition rities without the jurisdiction of the United of such lien is a violation of the provisions of States, unless he transacts such business in con- this chapter or any rule or regulation there- travention of such rules and regulations as the under, or (2) to afford a defense to the collection Commission may prescribe as necessary or ap- of any debt or obligation or the enforcement of propriate to prevent the evasion of this chapter. any lien by any person who shall have acquired (c) Rule of construction such debt, obligation, or lien in good faith for No provision of this chapter that was added by value and without actual knowledge of the vio- the Wall Street Transparency and Accountabil- lation of any provision of this chapter or any ity Act of 2010, or any rule or regulation there- rule or regulation thereunder affecting the le- under, shall apply to any person insofar as such gality of such debt, obligation, or lien. person transacts a business in security-based (June 6, 1934, ch. 404, title I, § 29, 48 Stat. 903; swaps without the jurisdiction of the United June 25, 1938, ch. 677, § 3, 52 Stat. 1076; Pub. L. States, unless such person transacts such busi- 101–429, title V, § 507, Oct. 15, 1990, 104 Stat. 956; ness in contravention of such rules and regula- Pub. L. 111–203, title IX, §§ 927, 929T, July 21, 2010, tions as the Commission may prescribe as nec- 124 Stat. 1852, 1867.) essary or appropriate to prevent the evasion of Page 403 TITLE 15—COMMERCE AND TRADE § 78dd–1 any provision of this chapter that was added by (ii) inducing such foreign official to do or the Wall Street Transparency and Accountabil- omit to do any act in violation of the lawful ity Act of 2010. This subsection shall not be con- duty of such official, or (iii) securing any strued to limit the jurisdiction of the Commis- improper advantage; or sion under any provision of this chapter, as in (B) inducing such foreign official to use his effect prior to July 21, 2010. influence with a foreign government or instrumentality thereof to affect or influence (June 6, 1934, ch. 404, title I, § 30, 48 Stat. 904; any act or decision of such government or Pub. L. 111–203, title VII, § 772(b), July 21, 2010, instrumentality, 124 Stat. 1802.) in order to assist such issuer in obtaining or AMENDMENT OF SECTION retaining business for or with, or directing Unless otherwise provided, amendment by business to, any person; subtitle B (§§ 761–774) of title VII of Pub. L. (2) any foreign political party or official 111–203 effective on the later of 360 days after thereof or any candidate for foreign political July 21, 2010, or, to the extent a provision of office for purposes of— subtitle B requires a rulemaking, not less than (A)(i) influencing any act or decision of 60 days after publication of the final rule or such party, official, or candidate in its or his regulation implementing such provision of sub- official capacity, (ii) inducing such party, of- title B, see 2010 Amendment notes and Effective ficial, or candidate to do or omit to do an Date of 2010 Amendment note below. act in violation of the lawful duty of such REFERENCES IN TEXT party, official, or candidate, or (iii) securing any improper advantage; or This chapter, referred to in text, was in the original (B) inducing such party, official, or can- ‘‘this title’’. See References in Text note set out under section 78a of this title. didate to use its or his influence with a for- The Wall Street Transparency and Accountability eign government or instrumentality thereof Act of 2010, referred to in subsec. (c), is title VII of Pub. to affect or influence any act or decision of L. 111–203, July 21, 2010, 124 Stat. 1641, which enacted such government or instrumentality, chapter 109 (§ 8301 et seq.) of this title and enacted and amended numerous other sections and notes in the in order to assist such issuer in obtaining or Code. For complete classification of this Act to the retaining business for or with, or directing Code, see Short Title note set out under section 8301 of business to, any person; or this title and Tables. (3) any person, while knowing that all or a portion of such money or thing of value will be AMENDMENTS offered, given, or promised, directly or indi- 2010—Subsec. (c). Pub. L. 111–203 added subsec. (c). rectly, to any foreign official, to any foreign EFFECTIVE DATE OF 2010 AMENDMENT political party or official thereof, or to any candidate for foreign political office, for pur- Amendment by Pub. L. 111–203 effective on the later poses of— of 360 days after July 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of title VII of Pub. L. (A)(i) influencing any act or decision of 111–203 requires a rulemaking, not less than 60 days such foreign official, political party, party after publication of the final rule or regulation imple- official, or candidate in his or its official ca- menting such provision of subtitle B, see section 774 of pacity, (ii) inducing such foreign official, po- Pub. L. 111–203, set out as a note under section 77b of litical party, party official, or candidate to this title. do or omit to do any act in violation of the TRANSFER OF FUNCTIONS lawful duty of such foreign official, political party, party official, or candidate, or (iii) se- For transfer of functions of Securities and Exchange curing any improper advantage; or Commission, with certain exceptions, to Chairman of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, (B) inducing such foreign official, political eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under party, party official, or candidate to use his section 78d of this title. or its influence with a foreign government or instrumentality thereof to affect or influ- § 78dd–1. Prohibited foreign trade practices by ence any act or decision of such government issuers or instrumentality, (a) Prohibition in order to assist such issuer in obtaining or It shall be unlawful for any issuer which has a retaining business for or with, or directing class of securities registered pursuant to section business to, any person. 78l of this title or which is required to file re- (b) Exception for routine governmental action ports under section 78o(d) of this title, or for any Subsections (a) and (g) of this section shall officer, director, employee, or agent of such is- not apply to any facilitating or expediting pay- suer or any stockholder thereof acting on behalf ment to a foreign official, political party, or of such issuer, to make use of the mails or any party official the purpose of which is to expedite means or instrumentality of interstate com- or to secure the performance of a routine gov- merce corruptly in furtherance of an offer, pay- ernmental action by a foreign official, political ment, promise to pay, or authorization of the party, or party official. payment of any money, or offer, gift, promise to give, or authorization of the giving of anything (c) Affirmative defenses of value to— It shall be an affirmative defense to actions (1) any foreign official for purposes of— under subsection (a) or (g) of this section that— (A)(i) influencing any act or decision of (1) the payment, gift, offer, or promise of such foreign official in his official capacity, anything of value that was made, was lawful § 78dd–1 TITLE 15—COMMERCE AND TRADE Page 404

under the written laws and regulations of the previous requests. In any action brought under foreign official’s, political party’s, party offi- the applicable provisions of this section, there cial’s, or candidate’s country; or shall be a rebuttable presumption that conduct, (2) the payment, gift, offer, or promise of which is specified in a request by an issuer and anything of value that was made, was a rea- for which the Attorney General has issued an sonable and bona fide expenditure, such as opinion that such conduct is in conformity with travel and lodging expenses, incurred by or on the Department of Justice’s present enforce- behalf of a foreign official, party, party offi- ment policy, is in compliance with the preceding cial, or candidate and was directly related to— provisions of this section. Such a presumption (A) the promotion, demonstration, or ex- may be rebutted by a preponderance of the evi- planation of products or services; or dence. In considering the presumption for pur- (B) the execution or performance of a con- poses of this paragraph, a court shall weigh all tract with a foreign government or agency relevant factors, including but not limited to thereof. whether the information submitted to the At- (d) Guidelines by Attorney General torney General was accurate and complete and whether it was within the scope of the conduct Not later than one year after August 23, 1988, specified in any request received by the Attor- the Attorney General, after consultation with ney General. The Attorney General shall estab- the Commission, the Secretary of Commerce, lish the procedure required by this paragraph in the United States Trade Representative, the accordance with the provisions of subchapter II Secretary of State, and the Secretary of the of chapter 5 of title 5 and that procedure shall be Treasury, and after obtaining the views of all in- subject to the provisions of chapter 7 of that terested persons through public notice and com- title. ment procedures, shall determine to what extent (2) Any document or other material which is compliance with this section would be enhanced provided to, received by, or prepared in the De- and the business community would be assisted partment of Justice or any other department or by further clarification of the preceding provi- agency of the United States in connection with sions of this section and may, based on such de- a request by an issuer under the procedure es- termination and to the extent necessary and ap- tablished under paragraph (1), shall be exempt propriate, issue— from disclosure under section 552 of title 5 and (1) guidelines describing specific types of shall not, except with the consent of the issuer, conduct, associated with common types of ex- be made publicly available, regardless of wheth- port sales arrangements and business con- er the Attorney General responds to such a re- tracts, which for purposes of the Department quest or the issuer withdraws such request be- of Justice’s present enforcement policy, the fore receiving a response. Attorney General determines would be in con- (3) Any issuer who has made a request to the formance with the preceding provisions of this Attorney General under paragraph (1) may with- section; and draw such request prior to the time the Attor- (2) general precautionary procedures which ney General issues an opinion in response to issuers may use on a voluntary basis to con- such request. Any request so withdrawn shall form their conduct to the Department of Jus- have no force or effect. tice’s present enforcement policy regarding (4) The Attorney General shall, to the maxi- the preceding provisions of this section. mum extent practicable, provide timely guidance concerning the Department of Justice’s The Attorney General shall issue the guidelines present enforcement policy with respect to the and procedures referred to in the preceding sen- preceding provisions of this section to potential tence in accordance with the provisions of sub- exporters and small businesses that are unable chapter II of chapter 5 of title 5 and those guide- to obtain specialized counsel on issues pertain- lines and procedures shall be subject to the pro- ing to such provisions. Such guidance shall be visions of chapter 7 of that title. limited to responses to requests under para- (e) Opinions of Attorney General graph (1) concerning conformity of specified pro- (1) The Attorney General, after consultation spective conduct with the Department of Jus- with appropriate departments and agencies of tice’s present enforcement policy regarding the the United States and after obtaining the views preceding provisions of this section and general of all interested persons through public notice explanations of compliance responsibilities and and comment procedures, shall establish a proof potential liabilities under the preceding procedure to provide responses to specific inquiries visions of this section. by issuers concerning conformance of their con- (f) Definitions duct with the Department of Justice’s present For purposes of this section: enforcement policy regarding the preceding pro- (1)(A) The term ‘‘foreign official’’ means any visions of this section. The Attorney General officer or employee of a foreign government or shall, within 30 days after receiving such a re- any department, agency, or instrumentality quest, issue an opinion in response to that re- thereof, or of a public international organiza- quest. The opinion shall state whether or not tion, or any person acting in an official capac- certain specified prospective conduct would, for ity for or on behalf of any such government or purposes of the Department of Justice’s present department, agency, or instrumentality, or for enforcement policy, violate the preceding provi- or on behalf of any such public international sions of this section. Additional requests for organization. opinions may be filed with the Attorney General (B) For purposes of subparagraph (A), the regarding other specified prospective conduct term ‘‘public international organization’’ that is beyond the scope of conduct specified in means— Page 405 TITLE 15—COMMERCE AND TRADE § 78dd–1

(i) an organization that is designated by ing of anything of value to any of the persons or Executive order pursuant to section 288 of entities set forth in paragraphs (1), (2), and (3) of title 22; or subsection (a) of this section for the purposes (ii) any other international organization set forth therein, irrespective of whether such that is designated by the President by Exec- issuer or such officer, director, employee, agent, utive order for the purposes of this section, or stockholder makes use of the mails or any effective as of the date of publication of such means or instrumentality of interstate com- order in the Federal Register. merce in furtherance of such offer, gift, pay- (2)(A) A person’s state of mind is ‘‘knowing’’ ment, promise, or authorization. with respect to conduct, a circumstance, or a (2) As used in this subsection, the term result if— ‘‘United States person’’ means a national of the (i) such person is aware that such person is United States (as defined in section 1101 of title engaging in such conduct, that such circum- 8) or any corporation, partnership, association, stance exists, or that such result is substan- joint-stock company, business trust, unincor- tially certain to occur; or porated organization, or sole proprietorship or- (ii) such person has a firm belief that such ganized under the laws of the United States or circumstance exists or that such result is any State, territory, possession, or common- substantially certain to occur. wealth of the United States, or any political subdivision thereof. (B) When knowledge of the existence of a particular circumstance is required for an of- (June 6, 1934, ch. 404, title I, § 30A, as added Pub. fense, such knowledge is established if a per- L. 95–213, title I, § 103(a), Dec. 19, 1977, 91 Stat. son is aware of a high probability of the exist- 1495; amended Pub. L. 100–418, title V, § 5003(a), ence of such circumstance, unless the person Aug. 23, 1988, 102 Stat. 1415; Pub. L. 105–366, actually believes that such circumstance does § 2(a)–(c), Nov. 10, 1998, 112 Stat. 3302, 3303.) not exist. AMENDMENTS (3)(A) The term ‘‘routine governmental ac- 1998—Subsec. (a)(1)(A). Pub. L. 105–366, § 2(a)(1), tion’’ means only an action which is ordinarily amended subpar. (A) generally. Prior to amendment, and commonly performed by a foreign official subpar. (A) read as follows: in— ‘‘(A)(i) influencing any act or decision of such foreign (i) obtaining permits, licenses, or other of- official in his official capacity, or (ii) inducing such ficial documents to qualify a person to do foreign official to do or omit to do any act in violation business in a foreign country; of the lawful duty of such official, or’’. (ii) processing governmental papers, such Subsec. (a)(2)(A). Pub. L. 105–366, § 2(a)(2), amended subpar. (A) generally. Prior to amendment, subpar. (A) as visas and work orders; read as follows: (iii) providing police protection, mail pick- ‘‘(A)(i) influencing any act or decision of such party, up and delivery, or scheduling inspections official, or candidate in its or his official capacity, or associated with contract performance or in- (ii) inducing such party, official, or candidate to do or spections related to transit of goods across omit to do an act in violation of the lawful duty of such country; party, official, or candidate,’’. (iv) providing phone service, power and Subsec. (a)(3)(A). Pub. L. 105–366, § 2(a)(3), amended water supply, loading and unloading cargo, subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: or protecting perishable products or com- ‘‘(A)(i) influencing any act or decision of such foreign modities from deterioration; or official, political party, party official, or candidate in (v) actions of a similar nature. his or its official capacity, or (ii) inducing such foreign (B) The term ‘‘routine governmental action’’ official, political party, party official, or candidate to do or omit to do any act in violation of the lawful duty does not include any decision by a foreign offi- of such foreign official, political party, party official, cial whether, or on what terms, to award new or candidate, or’’. business to or to continue business with a par- Subsec. (b). Pub. L. 105–366, § 2(c)(2), substituted ‘‘Sub- ticular party, or any action taken by a foreign sections (a) and (g)’’ for ‘‘Subsection (a)’’. official involved in the decisionmaking proc- Subsec. (c). Pub. L. 105–366, § 2(c)(3), substituted ‘‘sub- ess to encourage a decision to award new busi- section (a) or (g)’’ for ‘‘subsection (a)’’. ness to or continue business with a particular Subsec. (f)(1). Pub. L. 105–366, § 2(b), amended par. (1) party. generally. Prior to amendment, par. (1) read as follows: ‘‘The term ‘foreign official’ means any officer or em- (g) Alternative jurisdiction ployee of a foreign government or any department, (1) It shall also be unlawful for any issuer or- agency, or instrumentality thereof, or any person act- ganized under the laws of the United States, or ing in an official capacity for or on behalf of any such a State, territory, possession, or commonwealth government or department, agency, or instrumentality.’’ of the United States or a political subdivision Subsec. (g). Pub. L. 105–366, § 2(c)(1), added subsec. (g). thereof and which has a class of securities reg- 1988—Pub. L. 100–418 substituted ‘‘Prohibited foreign istered pursuant to section 78l of this title or trade’’ for ‘‘Foreign corrupt’’ in section catchline and which is required to file reports under section amended text generally, revising and restating provi- 78o(d) of this title, or for any United States per- sions of subsec. (a) relating to prohibitions, adding sub- son that is an officer, director, employee, or secs. (b) to (e), and redesignating provisions of subsec. agent of such issuer or a stockholder thereof (b) relating to definitions as subsec. (f) and amending acting on behalf of such issuer, to corruptly do those provisions generally. any act outside the United States in furtherance TREATMENT OF INTERNATIONAL ORGANIZATIONS of an offer, payment, promise to pay, or author- PROVIDING COMMERCIAL COMMUNICATIONS SERVICES ization of the payment of any money, or offer, Pub. L. 105–366, § 5, Nov. 10, 1998, 112 Stat. 3309, pro- gift, promise to give, or authorization of the giv- vided that: § 78dd–1 TITLE 15—COMMERCE AND TRADE Page 406

‘‘(a) DEFINITION.—For purposes of this section: this section shall affect any immunity from suit or ‘‘(1) INTERNATIONAL ORGANIZATION PROVIDING COM- legal process of an international organization providing MERCIAL COMMUNICATIONS SERVICES.—The term ‘inter- commercial communications services, or the privatized national organization providing commercial commu- affiliates or successors thereof, for acts or omissions— nications services’ means— ‘‘(1) under chapter 119, 121, 206, or 601 of title 18, ‘‘(A) the International Telecommunications Sat- United States Code, the Foreign Intelligence Surveil- ellite Organization established pursuant to the lance Act of 1978 (50 U.S.C. 1801 et seq.), section 514 of Agreement Relating to the International Tele- the Comprehensive Drug Abuse Prevention and Con- communications Satellite Organization; and trol Act of 1970 (21 U.S.C. 884), or Rule 104, 501, or 608 ‘‘(B) the International Mobile Satellite Organiza- of the Federal Rules of Evidence [28 U.S.C. App.]; tion established pursuant to the Convention on the ‘‘(2) under similar State laws providing protection International Maritime Satellite Organization. to service providers cooperating with law enforce- ‘‘(2) PRO-COMPETITIVE PRIVATIZATION.—The term ment agencies pursuant to State electronic surveil- ‘pro-competitive privatization’ means a privatization lance or evidence laws, rules, regulations, or proce- that the President determines to be consistent with dures; or the United States policy of obtaining full and open ‘‘(3) pursuant to a court order. competition to such organizations (or their succes- ‘‘(f) RULES OF CONSTRUCTION.— sors), and nondiscriminatory market access, in the ‘‘(1) NEGOTIATIONS.—Nothing in this section shall provision of satellite services. affect the President’s existing constitutional author- ‘‘(b) TREATMENT AS PUBLIC INTERNATIONAL ORGANIZA- ity regarding the time, scope, and objectives of inter- TIONS.— national negotiations. ‘‘(1) TREATMENT.—An international organization ‘‘(2) PRIVATIZATION.—Nothing in this section shall providing commercial communications services shall be construed as legislative authorization for the pri- be treated as a public international organization for vatization of INTELSAT or Inmarsat, nor to increase purposes of section 30A of the Securities Exchange the President’s authority with respect to negotia- Act of 1934 (15 U.S.C. 78dd–1) and sections 104 and 104A tions concerning such privatization.’’ of the Foreign Corrupt Practices Act of 1977 (15 U.S.C. [Memorandum of President of the United States, Nov. 78dd–2 [and 78dd–3]) until such time as the President 16, 1998, 63 F.R. 65997, delegated to Secretary of State certifies to the Committee on Commerce [now Com- functions and authorities vested in the President by mittee on Energy and Commerce] of the House of section 5(d)(2) of Pub. L. 105–366, set out above.] Representatives and the Committees on Banking, ENFORCEMENT AND MONITORING Housing and Urban Affairs and Commerce, Science, Pub. L. 105–366, § 6, Nov. 10, 1998, 112 Stat. 3311, pro- and Transportation that such international organiza- vided that: tion providing commercial communications services ‘‘(a) REPORTS REQUIRED.—Not later than July 1 of 1999 has achieved a pro-competitive privatization. and each of the 5 succeeding years, the Secretary of ‘‘(2) LIMITATION ON EFFECT OF TREATMENT.—The re- Commerce shall submit to the House of Representa- quirement for a certification under paragraph (1), and tives and the Senate a report that contains the follow- any certification made under such paragraph, shall ing information with respect to implementation of the not be construed to affect the administration by the Convention: Federal Communications Commission of the Commu- ‘‘(1) RATIFICATION.—A list of the countries that nications Act of 1934 [47 U.S.C. 151 et seq.] in author- have ratified the Convention, the dates of ratification izing the provision of services to, from, or within the by such countries, and the entry into force for each United States over space segment of the inter- such country. national satellite organizations, or the privatized af- ‘‘(2) DOMESTIC LEGISLATION.—A description of do- filiates or successors thereof. mestic laws enacted by each party to the Convention ‘‘(c) EXTENSION OF LEGAL PROCESS.— that implement commitments under the Convention, ‘‘(1) IN GENERAL.—Except as required by inter- and assessment of the compatibility of such laws national agreements to which the United States is a with the Convention. party, an international organization providing com- ‘‘(3) ENFORCEMENT.—As assessment of the measures mercial communications services, its officials and taken by each party to the Convention during the employees, and its records shall not be accorded im- previous year to fulfill its obligations under the Con- munity from suit or legal process for any act or omis- vention and achieve its object and purpose includ- sion taken in connection with such organization’s ca- ing— pacity as a provider, directly or indirectly, of com- ‘‘(A) an assessment of the enforcement of the do- mercial telecommunications services to, from, or mestic laws described in paragraph (2); within the United States. ‘‘(B) an assessment of the efforts by each such ‘‘(2) NO EFFECT ON PERSONAL LIABILITY.—Paragraph party to promote public awareness of such domestic (1) shall not affect any immunity from personal li- laws and the achievement of such object and pur- ability of any individual who is an official or em- pose; and ployee of an international organization providing ‘‘(C) an assessment of the effectiveness, trans- commercial communications services. parency, and viability of the monitoring process for ‘‘(3) EFFECTIVE DATE.—This subsection shall take the Convention, including its inclusion of input effect on May 1, 1999. from the private sector and nongovernmental orga- ‘‘(d) ELIMINATION OR LIMITATION OF EXCEPTIONS.— nizations. ‘‘(1) ACTION REQUIRED.—The President shall, in a ‘‘(4) LAWS PROHIBITING TAX DEDUCTION OF BRIBES.— manner that is consistent with requirements in inter- An explanation of the domestic laws enacted by each national agreements to which the United States is a party to the Convention that would prohibit the de- party, expeditiously take all appropriate actions nec- duction of bribes in the computation of domestic essary to eliminate or to reduce substantially all taxes. privileges and immunities that are accorded to an ‘‘(5) NEW SIGNATORIES.—A description of efforts to international organization described in subparagraph expand international participation in the Convention (A) or (B) of subsection (a)(1), its officials, its employ- by adding new signatories to the Convention and by ees, or its records, and that are not eliminated pursu- assuring that all countries which are or become mem- ant to subsection (c). bers of the Organization for Economic Cooperation ‘‘(2) DESIGNATION OF AGREEMENTS.—The President and Development are also parties to the Convention. shall designate which agreements constitute inter- ‘‘(6) SUBSEQUENT EFFORTS.—An assessment of the national agreements to which the United States is a status of efforts to strengthen the Convention by ex- party for purposes of this section. tending the prohibitions contained in the Convention ‘‘(e) PRESERVATION OF LAW ENFORCEMENT AND INTEL- to cover bribes to political parties, party officials, LIGENCE FUNCTIONS.—Nothing in subsection (c) or (d) of and candidates for political office. Page 407 TITLE 15—COMMERCE AND TRADE § 78dd–2

‘‘(7) ADVANTAGES.—Advantages, in terms of immu- ‘‘(iii) an assessment of the current and future role nities, market access, or otherwise, in the countries of private initiatives in curtailing such acts.’’ or regions served by the organizations described in [For delegation of functions of the President under section 5(a) [set out as a note above], the reason for section 5003(d)(1) of Pub. L. 100–418 to the Secretary of such advantages, and an assessment of progress to- State, see section 3–101 of Ex. Ord. No. 12661, Dec. 27, ward fulfilling the policy described in that section. 1988, 54 F.R. 779, set out as a note under section 2901 of ‘‘(8) BRIBERY AND TRANSPARENCY.—An assessment of Title 19, Customs Duties.] anti-bribery programs and transparency with respect EX. ORD. NO. 13259. DESIGNATION OF PUBLIC INTER- to each of the international organizations covered by NATIONAL ORGANIZATIONS FOR PURPOSES OF THE SECU- this Act [enacting section 78dd–3 of this title, amend- RITIES EXCHANGE ACT OF 1934 AND THE FOREIGN COR- ing this section and sections 78dd–2 and 78ff of this RUPT PRACTICES ACT OF 1977 title, and enacting provisions set out as notes under this section]. Ex. Ord. No. 13259, Mar. 19, 2002, 67 F.R. 13239, pro- ‘‘(9) PRIVATE SECTOR REVIEW.—A description of the vided: steps taken to ensure full involvement of United By the authority vested in me as President by the States private sector participants and representa- Constitution and the laws of the United States of tives of nongovernmental organizations in the mon- America, including section 30A(f)(1)(B)(ii) of the Secu- itoring and implementation of the Convention. rities Exchange Act of 1934 (15 U.S.C. 78dd–1(f)(1)(B)(ii)) ‘‘(10) ADDITIONAL INFORMATION.—In consultation and sections 104(h)(2)(B)(ii) and 104A(f)(2)(B)(ii) of the with the private sector participants and representa- Foreign Corrupt Practices Act of 1977 (15 U.S.C. tives of nongovernmental organizations described in 78dd–2(h)(2)(B)(ii), 78dd–3(f)(2)(B)(ii)), I hereby designate paragraph (9), a list of additional means for enlarging as ‘‘public international organizations’’ for the pur- the scope of the Convention and otherwise increasing poses of application of section 30A of the Securities Ex- its effectiveness. Such additional means shall in- change Act of 1934 and sections 104 and 104A of the For- clude, but not be limited to, improved recordkeeping eign Corrupt Practices Act of 1977: provisions and the desirability of expanding the ap- (a) The European Union, including: the European plicability of the Convention to additional individ- Communities (the European Community, the European Coal & Steel Community, and the European Atomic En- uals and organizations and the impact on United ergy Community); institutions of the European Union, States business of section 30A of the Securities Ex- such as the European Commission, the Council of the change Act of 1934 [15 U.S.C. 78dd–1] and sections 104 European Union, the European Parliament, the Euro- and 104A of the Foreign Corrupt Practices Act of 1977 pean Court of Justice, the European Court of Auditors, [15 U.S.C. 78dd–2, 78dd–3]. the Economic and Social Committee, the Committee of ‘‘(b) DEFINITION.—For purposes of this section, the the Regions, the European Central Bank, and the Euro- term ‘Convention’ means the Convention on Combating pean Investment Bank; and any departments, agencies, Bribery of Foreign Public Officials in International and instrumentalities thereof; and Business Transactions adopted on November 21, 1997, (b) The European Police Office (Europol), including and signed on December 17, 1997, by the United States any departments, agencies, and instrumentalities and 32 other nations.’’ thereof. INTERNATIONAL AGREEMENTS CONCERNING ACTS PRO- Designation in this Executive Order is intended sole- HIBITED WITH RESPECT TO ISSUERS AND DOMESTIC ly to further the purposes of the statutes mentioned CONCERNS; REPORT TO CONGRESS above and is not determinative of whether an entity is a public international organization for the purpose of Pub. L. 100–418, title V, § 5003(d), Aug. 23, 1988, 102 other statutes or regulations. Stat. 1424, provided that: GEORGE W. BUSH. ‘‘(1) NEGOTIATIONS.—It is the sense of the Congress that the President should pursue the negotiation of an § 78dd–2. Prohibited foreign trade practices by international agreement, among the members of the domestic concerns Organization of Economic Cooperation and Develop- ment, to govern persons from those countries concern- (a) Prohibition ing acts prohibited with respect to issuers and domestic It shall be unlawful for any domestic concern, concerns by the amendments made by this section other than an issuer which is subject to section [amending sections 78dd–1, 78dd–2, and 78ff of this title]. Such international agreement should include a process 78dd–1 of this title, or for any officer, director, by which problems and conflicts associated with such employee, or agent of such domestic concern or acts could be resolved. any stockholder thereof acting on behalf of such ‘‘(2) REPORT TO CONGRESS.—(A) Within 1 year after the domestic concern, to make use of the mails or date of the enactment of this Act [Aug. 23, 1988], the any means or instrumentality of interstate com- President shall submit to the Congress a report on— merce corruptly in furtherance of an offer, pay- ‘‘(i) the progress of the negotiations referred to in ment, promise to pay, or authorization of the paragraph (1),[;] ‘‘(ii) those steps which the executive branch and the payment of any money, or offer, gift, promise to Congress should consider taking in the event that give, or authorization of the giving of anything these negotiations do not successfully eliminate any of value to— competitive disadvantage of United States businesses (1) any foreign official for purposes of— that results when persons from other countries com- (A)(i) influencing any act or decision of mit the acts described in paragraph (1); and such foreign official in his official capacity, ‘‘(iii) possible actions that could be taken to pro- (ii) inducing such foreign official to do or mote cooperation by other countries in international omit to do any act in violation of the lawful efforts to prevent bribery of foreign officials, can- duty of such official, or (iii) securing any didates, or parties in third countries. ‘‘(B) The President shall include in the report submit- improper advantage; or ted under subparagraph (A)— (B) inducing such foreign official to use his ‘‘(i) any legislative recommendations necessary to influence with a foreign government or in- give the President the authority to take appropriate strumentality thereof to affect or influence action to carry out clauses (ii) and (iii) of subpara- any act or decision of such government or graph (A); instrumentality, ‘‘(ii) an analysis of the potential effect on the interests of the United States, including United States na- in order to assist such domestic concern in ob- tional security, when persons from other countries taining or retaining business for or with, or di- commit the acts described in paragraph (1); and recting business to, any person; § 78dd–2 TITLE 15—COMMERCE AND TRADE Page 408

(2) any foreign political party or official (d) Injunctive relief thereof or any candidate for foreign political (1) When it appears to the Attorney General office for purposes of— that any domestic concern to which this section (A)(i) influencing any act or decision of applies, or officer, director, employee, agent, or such party, official, or candidate in its or his stockholder thereof, is engaged, or about to en- official capacity, (ii) inducing such party, of- gage, in any act or practice constituting a viola- ficial, or candidate to do or omit to do an tion of subsection (a) or (i) of this section, the act in violation of the lawful duty of such Attorney General may, in his discretion, bring a party, official, or candidate, or (iii) securing civil action in an appropriate district court of any improper advantage; or the United States to enjoin such act or practice, (B) inducing such party, official, or can- and upon a proper showing, a permanent injunc- didate to use its or his influence with a for- tion or a temporary restraining order shall be eign government or instrumentality thereof granted without bond. to affect or influence any act or decision of (2) For the purpose of any civil investigation such government or instrumentality, which, in the opinion of the Attorney General, is in order to assist such domestic concern in ob- necessary and proper to enforce this section, the taining or retaining business for or with, or di- Attorney General or his designee are empowered recting business to, any person; or to administer oaths and affirmations, subpoena (3) any person, while knowing that all or a witnesses, take evidence, and require the proportion of such money or thing of value will be duction of any books, papers, or other docu- offered, given, or promised, directly or indi- ments which the Attorney General deems rel- rectly, to any foreign official, to any foreign evant or material to such investigation. The at- political party or official thereof, or to any tendance of witnesses and the production of doc- candidate for foreign political office, for pur- umentary evidence may be required from any poses of— place in the United States, or any territory, pos- (A)(i) influencing any act or decision of session, or commonwealth of the United States, such foreign official, political party, party at any designated place of hearing. official, or candidate in his or its official ca- (3) In case of contumacy by, or refusal to obey pacity, (ii) inducing such foreign official, po- a subpoena issued to, any person, the Attorney litical party, party official, or candidate to General may invoke the aid of any court of the do or omit to do any act in violation of the United States within the jurisdiction of which lawful duty of such foreign official, political such investigation or proceeding is carried on, party, party official, or candidate, or (iii) se- or where such person resides or carries on busi- curing any improper advantage; or ness, in requiring the attendance and testimony (B) inducing such foreign official, political of witnesses and the production of books, papers, party, party official, or candidate to use his or other documents. Any such court may issue or its influence with a foreign government an order requiring such person to appear before or instrumentality thereof to affect or influ- the Attorney General or his designee, there to ence any act or decision of such government produce records, if so ordered, or to give testi- or instrumentality, mony touching the matter under investigation. Any failure to obey such order of the court may in order to assist such domestic concern in ob- be punished by such court as a contempt there- taining or retaining business for or with, or di- of. All process in any such case may be served in recting business to, any person. the judicial district in which such person resides (b) Exception for routine governmental action or may be found. The Attorney General may Subsections (a) and (i) of this section shall not make such rules relating to civil investigations apply to any facilitating or expediting payment as may be necessary or appropriate to imple- to a foreign official, political party, or party of- ment the provisions of this subsection. ficial the purpose of which is to expedite or to (e) Guidelines by Attorney General secure the performance of a routine govern- Not later than 6 months after August 23, 1988, mental action by a foreign official, political the Attorney General, after consultation with party, or party official. the Securities and Exchange Commission, the (c) Affirmative defenses Secretary of Commerce, the United States Trade It shall be an affirmative defense to actions Representative, the Secretary of State, and the under subsection (a) or (i) of this section that— Secretary of the Treasury, and after obtaining (1) the payment, gift, offer, or promise of the views of all interested persons through pub- anything of value that was made, was lawful lic notice and comment procedures, shall deter- under the written laws and regulations of the mine to what extent compliance with this sec- foreign official’s, political party’s, party offi- tion would be enhanced and the business com- cial’s, or candidate’s country; or munity would be assisted by further clarifica- (2) the payment, gift, offer, or promise of tion of the preceding provisions of this section anything of value that was made, was a rea- and may, based on such determination and to sonable and bona fide expenditure, such as the extent necessary and appropriate, issue— travel and lodging expenses, incurred by or on (1) guidelines describing specific types of behalf of a foreign official, party, party offi- conduct, associated with common types of ex- cial, or candidate and was directly related to— port sales arrangements and business con- (A) the promotion, demonstration, or ex- tracts, which for purposes of the Department planation of products or services; or of Justice’s present enforcement policy, the (B) the execution or performance of a con- Attorney General determines would be in contract with a foreign government or agency formance with the preceding provisions of this thereof. section; and Page 409 TITLE 15—COMMERCE AND TRADE § 78dd–2

(2) general precautionary procedures which (1) may withdraw such request prior to the time domestic concerns may use on a voluntary the Attorney General issues an opinion in re- basis to conform their conduct to the Depart- sponse to such request. Any request so with- ment of Justice’s present enforcement policy drawn shall have no force or effect. regarding the preceding provisions of this sec- (4) The Attorney General shall, to the maxi- tion. mum extent practicable, provide timely guid- The Attorney General shall issue the guidelines ance concerning the Department of Justice’s and procedures referred to in the preceding sen- present enforcement policy with respect to the tence in accordance with the provisions of sub- preceding provisions of this section to potential chapter II of chapter 5 of title 5 and those guide- exporters and small businesses that are unable lines and procedures shall be subject to the pro- to obtain specialized counsel on issues pertain- visions of chapter 7 of that title. ing to such provisions. Such guidance shall be (f) Opinions of Attorney General limited to responses to requests under paragraph (1) concerning conformity of specified pro- (1) The Attorney General, after consultation spective conduct with the Department of Jus- with appropriate departments and agencies of tice’s present enforcement policy regarding the the United States and after obtaining the views preceding provisions of this section and general of all interested persons through public notice explanations of compliance responsibilities and and comment procedures, shall establish a procedure to provide responses to specific inquiries of potential liabilities under the preceding pro- by domestic concerns concerning conformance visions of this section. of their conduct with the Department of Jus- (g) Penalties tice’s present enforcement policy regarding the (1)(A) Any domestic concern that is not a nat- preceding provisions of this section. The Attor- ural person and that violates subsection (a) or ney General shall, within 30 days after receiving (i) of this section shall be fined not more than such a request, issue an opinion in response to $2,000,000. that request. The opinion shall state whether or (B) Any domestic concern that is not a natural not certain specified prospective conduct would, person and that violates subsection (a) or (i) of for purposes of the Department of Justice’s this section shall be subject to a civil penalty of present enforcement policy, violate the preced- not more than $10,000 imposed in an action ing provisions of this section. Additional re- brought by the Attorney General. quests for opinions may be filed with the Attor- (2)(A) Any natural person that is an officer, di- ney General regarding other specified prospec- rector, employee, or agent of a domestic con- tive conduct that is beyond the scope of conduct cern, or stockholder acting on behalf of such do- specified in previous requests. In any action mestic concern, who willfully violates sub- brought under the applicable provisions of this section (a) or (i) of this section shall be fined not section, there shall be a rebuttable presumption more than $100,000 or imprisoned not more than that conduct, which is specified in a request by 5 years, or both. a domestic concern and for which the Attorney (B) Any natural person that is an officer, di- General has issued an opinion that such conduct rector, employee, or agent of a domestic con- is in conformity with the Department of Jus- cern, or stockholder acting on behalf of such do- tice’s present enforcement policy, is in compli- mestic concern, who violates subsection (a) or ance with the preceding provisions of this sec- (i) of this section shall be subject to a civil pen- tion. Such a presumption may be rebutted by a alty of not more than $10,000 imposed in an ac- preponderance of the evidence. In considering tion brought by the Attorney General. the presumption for purposes of this paragraph, a court shall weigh all relevant factors, includ- (3) Whenever a fine is imposed under para- ing but not limited to whether the information graph (2) upon any officer, director, employee, submitted to the Attorney General was accurate agent, or stockholder of a domestic concern, and complete and whether it was within the such fine may not be paid, directly or indirectly, scope of the conduct specified in any request re- by such domestic concern. ceived by the Attorney General. The Attorney (h) Definitions General shall establish the procedure required For purposes of this section: by this paragraph in accordance with the provi- (1) The term ‘‘domestic concern’’ means— sions of subchapter II of chapter 5 of title 5 and (A) any individual who is a citizen, na- that procedure shall be subject to the provisions tional, or resident of the United States; and of chapter 7 of that title. (B) any corporation, partnership, associa- (2) Any document or other material which is tion, joint-stock company, business trust, provided to, received by, or prepared in the De- unincorporated organization, or sole propri- partment of Justice or any other department or etorship which has its principal place of agency of the United States in connection with business in the United States, or which is or- a request by a domestic concern under the pro- ganized under the laws of a State of the cedure established under paragraph (1), shall be United States or a territory, possession, or exempt from disclosure under section 552 of title commonwealth of the United States. 5 and shall not, except with the consent of the domestic concern, be made publicly available, (2)(A) The term ‘‘foreign official’’ means any regardless of whether the Attorney General re- officer or employee of a foreign government or sponds to such a request or the domestic con- any department, agency, or instrumentality cern withdraws such request before receiving a thereof, or of a public international organiza- response. tion, or any person acting in an official capac- (3) Any domestic concern who has made a re- ity for or on behalf of any such government or quest to the Attorney General under paragraph department, agency, or instrumentality, or for § 78dd–2 TITLE 15—COMMERCE AND TRADE Page 410

or on behalf of any such public international the United States in furtherance of an offer, organization. payment, promise to pay, or authorization of (B) For purposes of subparagraph (A), the the payment of any money, or offer, gift, prom- term ‘‘public international organization’’ ise to give, or authorization of the giving of any- means— thing of value to any of the persons or entities (i) an organization that is designated by set forth in paragraphs (1), (2), and (3) of sub- Executive order pursuant to section 288 of section (a) of this section, for the purposes set title 22; or forth therein, irrespective of whether such (ii) any other international organization United States person makes use of the mails or that is designated by the President by Exec- any means or instrumentality of interstate com- utive order for the purposes of this section, merce in furtherance of such offer, gift, pay- effective as of the date of publication of such ment, promise, or authorization. order in the Federal Register. (2) As used in this subsection, the term (3)(A) A person’s state of mind is ‘‘knowing’’ ‘‘United States person’’ means a national of the with respect to conduct, a circumstance, or a United States (as defined in section 1101 of title result if— 8) or any corporation, partnership, association, (i) such person is aware that such person is joint-stock company, business trust, unincor- engaging in such conduct, that such circum- porated organization, or sole proprietorship or- stance exists, or that such result is substan- ganized under the laws of the United States or tially certain to occur; or any State, territory, possession, or common- (ii) such person has a firm belief that such wealth of the United States, or any political circumstance exists or that such result is subdivision thereof. substantially certain to occur. (Pub. L. 95–213, title I, § 104, Dec. 19, 1977, 91 Stat. (B) When knowledge of the existence of a 1496; Pub. L. 100–418, title V, § 5003(c), Aug. 23, particular circumstance is required for an of- 1988, 102 Stat. 1419; Pub. L. 103–322, title XXXIII, fense, such knowledge is established if a per- § 330005, Sept. 13, 1994, 108 Stat. 2142; Pub. L. son is aware of a high probability of the exist- 105–366, § 3, Nov. 10, 1998, 112 Stat. 3304.) ence of such circumstance, unless the person actually believes that such circumstance does CODIFICATION not exist. Section was enacted as part of Pub. L. 95–213, the For- (4)(A) The term ‘‘routine governmental ac- eign Corrupt Practices Act of 1977, and not as part of tion’’ means only an action which is ordinarily act June 6, 1934, ch. 404, 48 Stat. 881, the Securities Ex- and commonly performed by a foreign official change Act of 1934, which comprises this chapter. in— (i) obtaining permits, licenses, or other of- AMENDMENTS ficial documents to qualify a person to do 1998—Subsec. (a)(1)(A). Pub. L. 105–366, § 3(a)(1), business in a foreign country; amended subpar. (A) generally. Prior to amendment, (ii) processing governmental papers, such subpar. (A) read as follows: as visas and work orders; ‘‘(A)(i) influencing any act or decision of such foreign (iii) providing police protection, mail pick- official in his official capacity, or (ii) inducing such up and delivery, or scheduling inspections foreign official to do or omit to do any act in violation associated with contract performance or in- of the lawful duty of such official, or’’. spections related to transit of goods across Subsec. (a)(2)(A). Pub. L. 105–366, § 3(a)(2), amended country; subpar. (A) generally. Prior to amendment, subpar. (A) (iv) providing phone service, power and read as follows: ‘‘(A)(i) influencing any act or decision of such party, water supply, loading and unloading cargo, official, or candidate in its or his official capacity, or or protecting perishable products or com- (ii) inducing such party, official, or candidate to do or modities from deterioration; or omit to do an act in violation of the lawful duty of such (v) actions of a similar nature. party, official, or candidate,’’. (B) The term ‘‘routine governmental action’’ Subsec. (a)(3)(A). Pub. L. 105–366, § 3(a)(3), amended does not include any decision by a foreign offi- subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: cial whether, or on what terms, to award new ‘‘(A)(i) influencing any act or decision of such foreign business to or to continue business with a par- official, political party, party official, or candidate in ticular party, or any action taken by a foreign his or its official capacity, or (ii) inducing such foreign official involved in the decision-making proc- official, political party, party official, or candidate to ess to encourage a decision to award new busi- do or omit to do any act in violation of the lawful duty ness to or continue business with a particular of such foreign official, political party, party official, party. or candidate, or’’. (5) The term ‘‘interstate commerce’’ means Subsec. (b). Pub. L. 105–366, § 3(d)(2), substituted trade, commerce, transportation, or commu- ‘‘Subsections (a) and (i)’’ for ‘‘Subsection (a)’’. Subsec. (c). Pub. L. 105–366, § 3(d)(3), substituted ‘‘sub- nication among the several States, or between section (a) or (i)’’ for ‘‘subsection (a)’’ in introductory any foreign country and any State or between provisions. any State and any place or ship outside there- Subsec. (d)(1). Pub. L. 105–366, § 3(d)(4), substituted of, and such term includes the intrastate use ‘‘subsection (a) or (i)’’ for ‘‘subsection (a)’’. of— Subsec. (g)(1). Pub. L. 105–366, § 3(b)(1), amended par. (A) a telephone or other interstate means (1) generally. Prior to amendment, par. (1) read as fol- of communication, or lows: (B) any other interstate instrumentality. ‘‘(1)(A) Any domestic concern that violates sub- (i) Alternative jurisdiction section (a) of this section shall be fined not more than $2,000,000. (1) It shall also be unlawful for any United ‘‘(B) Any domestic concern that violates subsection States person to corruptly do any act outside (a) of this section shall be subject to a civil penalty of Page 411 TITLE 15—COMMERCE AND TRADE § 78dd–3 not more than $10,000 imposed in an action brought by (2) any foreign political party or official the Attorney General.’’ thereof or any candidate for foreign political Subsec. (g)(2). Pub. L. 105–366, § 3(b)(2), amended par. office for purposes of— (2) generally. Prior to amendment, par. (2) read as fol- (A)(i) influencing any act or decision of lows: ‘‘(2)(A) Any officer or director of a domestic concern, such party, official, or candidate in its or his or stockholder acting on behalf of such domestic con- official capacity, (ii) inducing such party, of- cern, who willfully violates subsection (a) of this sec- ficial, or candidate to do or omit to do an tion shall be fined not more than $100,000, or impris- act in violation of the lawful duty of such oned not more than 5 years, or both. party, official, or candidate, or (iii) securing ‘‘(B) Any employee or agent of a domestic concern any improper advantage; or who is a United States citizen, national, or resident or (B) inducing such party, official, or can- is otherwise subject to the jurisdiction of the United States (other than an officer, director, or stockholder didate to use its or his influence with a for- acting on behalf of such domestic concern), and who eign government or instrumentality thereof willfully violates subsection (a) of this section, shall be to affect or influence any act or decision of fined not more than $100,000, or imprisoned not more such government or instrumentality, than 5 years, or both. ‘‘(C) Any officer, director, employee, or agent of a do- in order to assist such person in obtaining or mestic concern, or stockholder acting on behalf of such retaining business for or with, or directing domestic concern, who violates subsection (a) of this business to, any person; or section shall be subject to a civil penalty of not more (3) any person, while knowing that all or a than $10,000 imposed in an action brought by the Attor- portion of such money or thing of value will be ney General.’’ offered, given, or promised, directly or indi- Subsec. (h)(2). Pub. L. 105–366, § 3(c), amended par. (2) rectly, to any foreign official, to any foreign generally. Prior to amendment, par. (2) read as follows: ‘‘The term ‘foreign official’ means any officer or em- political party or official thereof, or to any ployee of a foreign government or any department, candidate for foreign political office, for pur- agency, or instrumentality thereof, or any person act- poses of— ing in an official capacity for or on behalf of any such (A)(i) influencing any act or decision of government or department, agency, or instrumental- such foreign official, political party, party ity.’’ official, or candidate in his or its official ca- Subsec. (h)(4)(A). Pub. L. 105–366, § 3(e), substituted pacity, (ii) inducing such foreign official, po- ‘‘The’’ for ‘‘For purposes of paragraph (1), the’’ in intro- litical party, party official, or candidate to ductory provisions. Subsec. (i). Pub. L. 105–366, § 3(d)(1), added subsec. (i). do or omit to do any act in violation of the 1994—Subsec. (a)(3). Pub. L. 103–322 substituted ‘‘do- lawful duty of such foreign official, political mestic concern’’ for ‘‘issuer’’ in closing provisions. party, party official, or candidate, or (iii) se- 1988—Pub. L. 100–418 substituted ‘‘Prohibited foreign curing any improper advantage; or trade’’ for ‘‘Foreign corrupt’’ in section catchline and (B) inducing such foreign official, political amended text generally, revising and restating as sub- party, party official, or candidate to use his secs. (a) to (h) provisions of former subsecs. (a) to (d). or its influence with a foreign government § 78dd–3. Prohibited foreign trade practices by or instrumentality thereof to affect or influ- persons other than issuers or domestic con- ence any act or decision of such government cerns or instrumentality, (a) Prohibition in order to assist such person in obtaining or It shall be unlawful for any person other than retaining business for or with, or directing an issuer that is subject to section 78dd–1 of this business to, any person. title or a domestic concern (as defined in section (b) Exception for routine governmental action 78dd–2 of this title), or for any officer, director, Subsection (a) of this section shall not apply employee, or agent of such person or any stock- to any facilitating or expediting payment to a holder thereof acting on behalf of such person, foreign official, political party, or party official while in the territory of the United States, cor- the purpose of which is to expedite or to secure ruptly to make use of the mails or any means or the performance of a routine governmental ac- instrumentality of interstate commerce or to do tion by a foreign official, political party, or any other act in furtherance of an offer, pay- party official. ment, promise to pay, or authorization of the (c) Affirmative defenses payment of any money, or offer, gift, promise to It shall be an affirmative defense to actions give, or authorization of the giving of anything under subsection (a) of this section that— of value to— (1) the payment, gift, offer, or promise of (1) any foreign official for purposes of— anything of value that was made, was lawful (A)(i) influencing any act or decision of under the written laws and regulations of the such foreign official in his official capacity, foreign official’s, political party’s, party offi- (ii) inducing such foreign official to do or cial’s, or candidate’s country; or omit to do any act in violation of the lawful (2) the payment, gift, offer, or promise of duty of such official, or (iii) securing any anything of value that was made, was a rea- improper advantage; or sonable and bona fide expenditure, such as (B) inducing such foreign official to use his travel and lodging expenses, incurred by or on influence with a foreign government or in- behalf of a foreign official, party, party offi- strumentality thereof to affect or influence cial, or candidate and was directly related to— any act or decision of such government or (A) the promotion, demonstration, or ex- instrumentality, planation of products or services; or in order to assist such person in obtaining or (B) the execution or performance of a con- retaining business for or with, or directing tract with a foreign government or agency business to, any person; thereof. § 78dd–3 TITLE 15—COMMERCE AND TRADE Page 412

(d) Injunctive relief (f) Definitions (1) When it appears to the Attorney General For purposes of this section: that any person to which this section applies, or (1) The term ‘‘person’’, when referring to an officer, director, employee, agent, or stock- offender, means any natural person other than holder thereof, is engaged, or about to engage, a national of the United States (as defined in in any act or practice constituting a violation of section 1101 of title 8 1 or any corporation, subsection (a) of this section, the Attorney Gen- partnership, association, joint-stock company, eral may, in his discretion, bring a civil action business trust, unincorporated organization, in an appropriate district court of the United or sole proprietorship organized under the law States to enjoin such act or practice, and upon of a foreign nation or a political subdivision a proper showing, a permanent injunction or a thereof. temporary restraining order shall be granted (2)(A) The term ‘‘foreign official’’ means any without bond. officer or employee of a foreign government or (2) For the purpose of any civil investigation any department, agency, or instrumentality which, in the opinion of the Attorney General, is thereof, or of a public international organization, or any person acting in an official capac- necessary and proper to enforce this section, the ity for or on behalf of any such government or Attorney General or his designee are empowered department, agency, or instrumentality, or for to administer oaths and affirmations, subpoena or on behalf of any such public international witnesses, take evidence, and require the pro- organization. duction of any books, papers, or other docu- (B) For purposes of subparagraph (A), the ments which the Attorney General deems rel- term ‘‘public international organization’’ evant or material to such investigation. The at- means— tendance of witnesses and the production of doc- (i) an organization that is designated by umentary evidence may be required from any Executive order pursuant to section 288 of place in the United States, or any territory, pos- title 22; or session, or commonwealth of the United States, (ii) any other international organization at any designated place of hearing. that is designated by the President by Exec- (3) In case of contumacy by, or refusal to obey utive order for the purposes of this section, a subpoena issued to, any person, the Attorney effective as of the date of publication of such General may invoke the aid of any court of the order in the Federal Register. United States within the jurisdiction of which (3)(A) A person’s state of mind is knowing, such investigation or proceeding is carried on, with respect to conduct, a circumstance or a or where such person resides or carries on busi- result if— ness, in requiring the attendance and testimony (i) such person is aware that such person is of witnesses and the production of books, papers, engaging in such conduct, that such circum- or other documents. Any such court may issue stance exists, or that such result is substan- an order requiring such person to appear before tially certain to occur; or the Attorney General or his designee, there to (ii) such person has a firm belief that such produce records, if so ordered, or to give testi- circumstance exists or that such result is mony touching the matter under investigation. substantially certain to occur. Any failure to obey such order of the court may be punished by such court as a contempt there- (B) When knowledge of the existence of a particular circumstance is required for an of- of. (4) All process in any such case may be served fense, such knowledge is established if a per- in the judicial district in which such person re- son is aware of a high probability of the existence of such circumstance, unless the person sides or may be found. The Attorney General actually believes that such circumstance does may make such rules relating to civil investiga- not exist. tions as may be necessary or appropriate to im- (4)(A) The term ‘‘routine governmental ac- plement the provisions of this subsection. tion’’ means only an action which is ordinarily (e) Penalties and commonly performed by a foreign official (1)(A) Any juridical person that violates sub- in— section (a) of this section shall be fined not (i) obtaining permits, licenses, or other of- more than $2,000,000. ficial documents to qualify a person to do (B) Any juridical person that violates sub- business in a foreign country; section (a) of this section shall be subject to a (ii) processing governmental papers, such civil penalty of not more than $10,000 imposed in as visas and work orders; an action brought by the Attorney General. (iii) providing police protection, mail pick- (2)(A) Any natural person who willfully vio- up and delivery, or scheduling inspections lates subsection (a) of this section shall be fined associated with contract performance or in- not more than $100,000 or imprisoned not more spections related to transit of goods across than 5 years, or both. country; (B) Any natural person who violates sub- (iv) providing phone service, power and section (a) of this section shall be subject to a water supply, loading and unloading cargo, civil penalty of not more than $10,000 imposed in or protecting perishable products or com- an action brought by the Attorney General. modities from deterioration; or (v) actions of a similar nature. (3) Whenever a fine is imposed under paragraph (2) upon any officer, director, employee, (B) The term ‘‘routine governmental action’’ agent, or stockholder of a person, such fine may does not include any decision by a foreign offi- not be paid, directly or indirectly, by such person. 1 So in original. A closing parenthesis probably should appear. Page 413 TITLE 15—COMMERCE AND TRADE § 78ee

cial whether, or on what terms, to award new otherwise than on a national securities ex- business to or to continue business with a par- change, except that for fiscal year 2007 and each ticular party, or any action taken by a foreign succeeding fiscal year such assessment shall be official involved in the decision-making proc- equal to $0.0042 for each such transaction. ess to encourage a decision to award new busi- (e) Dates for payments ness to or continue business with a particular party. The fees and assessments required by sub- (5) The term ‘‘interstate commerce’’ means sections (b), (c), and (d) of this section shall be trade, commerce, transportation, or commu- paid— nication among the several States, or between (1) on or before March 15, with respect to any foreign country and any State or between transactions and sales occurring during the any State and any place or ship outside there- period beginning on the preceding September 1 of, and such term includes the intrastate use and ending at the close of the preceding De- of— cember 31; and (A) a telephone or other interstate means (2) on or before September 25, with respect of communication, or to transactions and sales occurring during the (B) any other interstate instrumentality. period beginning on the preceding January 1 and ending at the close of the preceding Au- (Pub. L. 95–213, title I, § 104A, as added Pub. L. gust 31. 105–366, § 4, Nov. 10, 1998, 112 Stat. 3306.) (f) Exemptions CODIFICATION The Commission, by rule, may exempt any Section was enacted as part of Pub. L. 95–213, the For- sale of securities or any class of sales of securi- eign Corrupt Practices Act of 1977, and not as part of ties from any fee or assessment imposed by this act June 6, 1934, ch. 404, 48 Stat. 881, the Securities Ex- section, if the Commission finds that such exchange Act of 1934, which comprises this chapter. emption is consistent with the public interest, the equal regulation of markets and brokers and § 78ee. Transaction fees dealers, and the development of a national mar- (a) Recovery of costs of annual appropriation ket system. The Commission shall, in accordance with this (g) Publication section, collect transaction fees and assessments The Commission shall publish in the Federal that are designed to recover the costs to the Register notices of the fee and assessment rates Government of the annual appropriation to the applicable under this section for each fiscal year Commission by Congress. not later than 30 days after the date on which an (b) Exchange-traded securities Act making a regular appropriation to the Com- mission for such fiscal year is enacted, together Subject to subsection (j) of this section, each with any estimates or projections on which such national securities exchange shall pay to the fees are based. Commission a fee at a rate equal to $15 per $1,000,000 of the aggregate dollar amount of sales (h) Pro rata application of securities (other than bonds, debentures, The rates per $1,000,000 required by this sec- other evidences of indebtedness, security futures tion shall be applied pro rata to amounts and products, and options on securities indexes (ex- balances of less than $1,000,000. cluding a narrow-based security index)) trans- (i) Deposit of fees acted on such national securities exchange. (1) Offsetting collections (c) Off-exchange trades of exchange registered Fees collected pursuant to subsections (b), and last-sale-reported securities (c), and (d) of this section for any fiscal year— Subject to subsection (j) of this section, each (A) shall be deposited and credited as off- national securities association shall pay to the setting collections to the account providing Commission a fee at a rate equal to $15 per appropriations to the Commission; and $1,000,000 of the aggregate dollar amount of sales (B) except as provided in subsection (k) of transacted by or through any member of such this section, shall not be collected for any association otherwise than on a national securi- fiscal year except to the extent provided in ties exchange of securities (other than bonds, advance in appropriation Acts. debentures, other evidences of indebtedness, se- (2) General revenues prohibited curity futures products, and options on securities indexes (excluding a narrow-based security No fees collected pursuant to subsections index)) registered on a national securities ex- (b), (c), and (d) of this section for fiscal year change or subject to prompt last sale reporting 2002 or any succeeding fiscal year shall be de- pursuant to the rules of the Commission or a posited and credited as general revenue of the registered national securities association. Treasury. (d) Assessments on security futures transactions (j) Adjustments to fee rates Each national securities exchange and na- (1) Annual adjustment tional securities association shall pay to the Subject to subsections (i)(1)(B) and (k), for Commission an assessment equal to $0.009 for each fiscal year, the Commission shall by each round turn transaction (treated as includ- order adjust each of the rates applicable under ing one purchase and one sale of a contract of subsections (b) and (c) for such fiscal year to sale for future delivery) on a security future a uniform adjusted rate that, when applied to traded on such national securities exchange or the baseline estimate of the aggregate dollar by or through any member of such association amount of sales for such fiscal year, is reason- § 78ee TITLE 15—COMMERCE AND TRADE Page 414

ably likely to produce aggregate fee collec- (l) Baseline estimate of the aggregate dollar tions under this section (including assess- amount of sales ments collected under subsection (d) of this The baseline estimate of the aggregate dollar section) that are equal to the regular appro- amount of sales for any fiscal year is the base- priation to the Commission by Congress for line estimate of the aggregate dollar amount of such fiscal year. sales of securities (other than bonds, debentures, (2) Mid-year adjustment other evidences of indebtedness, security futures products, and options on securities indexes (ex- Subject to subsections (i)(1)(B) and (k), for cluding a narrow-based security index)) to be each fiscal year, the Commission shall deter- transacted on each national securities exchange mine, by March 1 of such fiscal year, whether, and by or through any member of each national based on the actual aggregate dollar volume of securities association (otherwise than on a na- sales during the first 5 months of such fiscal tional securities exchange) during such fiscal year, the baseline estimate of the aggregate year as determined by the Commission, after dollar volume of sales used under paragraph consultation with the Congressional Budget Of- (1) for such fiscal year is reasonably likely to fice and the Office of Management and Budget, be 10 percent (or more) greater or less than the using the methodology required for making pro- actual aggregate dollar volume of sales for jections pursuant to section 907 of title 2. such fiscal year. If the Commission so determines, the Commission shall by order, no later (m) Transmittal of Commission budget requests than March 1, adjust each of the rates applica- (1) Budget required ble under subsections (b) and (c) for such fiscal For fiscal year 2012, and each fiscal year year to a uniform adjusted rate that, when ap- thereafter, the Commission shall prepare and plied to the revised estimate of the aggregate submit a budget to the President. Whenever dollar amount of sales for the remainder of the Commission submits a budget estimate or such fiscal year, is reasonably likely to request to the President or the Office of Man- produce aggregate fee collections under this agement and Budget, the Commission shall section (including fees collected during such concurrently transmit copies of the estimate five-month period and assessments collected or request to the Committee on Appropria- under subsection (d) of this section) that are tions of the Senate, the Committee on Appro- equal to the regular appropriation to the Com- priations of the House of Representatives, the mission by Congress for such fiscal year. In Committee on Banking, Housing, and Urban making such revised estimate, the Commis- Affairs of the Senate, and the Committee on sion shall, after consultation with the Con- Financial Services of the House of Representa- gressional Budget Office and the Office of tives. Management and Budget, use the same methodology required by subsection (l). (2) Submission to Congress (3) Review The President shall submit each budget submitted under paragraph (1) to Congress, in un- In exercising its authority under this sub- altered form, together with the annual budget section, the Commission shall not be required for the Administration submitted by the to comply with the provisions of section 553 of President. title 5. An adjusted rate prescribed under paragraph (1) or (2) and published under subsection (3) Contents (g) shall not be subject to judicial review. The Commission shall include in each budget submitted under paragraph (1)— (4) Effective date (A) an itemization of the amount of funds (A) Annual adjustment necessary to carry out the functions of the Subject to subsections (i)(1)(B) and (k), an Commission. adjusted rate prescribed under paragraph (1) (B) an amount to be designated as contin- shall take effect on the later of— gency funding to be used by the Commission (i) the first day of the fiscal year to to address unanticipated needs; and which such rate applies; or (C) a designation of any activities of the (ii) 60 days after the date on which an Commission for which multi-year budget au- Act making a regular appropriation to the thority would be suitable. Commission for such fiscal year is enacted. (June 6, 1934, ch. 404, title I, § 31, 48 Stat. 904; (B) Mid-year adjustment Mar. 17, 1944, ch. 101, 58 Stat. 117; Pub. L. 94–29, § 22, June 4, 1975, 89 Stat. 162; Pub. L. 104–290, An adjusted rate prescribed under para- title IV, § 405(a), Oct. 11, 1996, 110 Stat. 3442; Pub. graph (2) shall take effect on April 1 of the L. 105–353, title III, § 301(b)(14), Nov. 3, 1998, 112 fiscal year to which such rate applies. Stat. 3236; Pub. L. 106–554, § 1(a)(5) [title II, (k) Lapse of appropriation § 206(f)], Dec. 21, 2000, 114 Stat. 2763, 2763A–432; Pub. L. 107–123, §§ 2, 3, Jan. 16, 2002, 115 Stat. 2390; If on the first day of a fiscal year a regular ap- Pub. L. 111–203, title IX, § 991(a)(1), (d)(1), July 21, propriation to the Commission has not been en- 2010, 124 Stat. 1950, 1954.) acted, the Commission shall continue to collect (as offsetting collections) the fees and assess- AMENDMENTS ments under subsections (b), (c), and (d) of this 2010—Subsec. (a). Pub. L. 111–203, § 991(a)(1)(A), added section at the rate in effect during the preceding subsec. (a) and struck out former subsec. (a). Prior to fiscal year, until 60 days after the date such a amendment, text read as follows: ‘‘The Commission regular appropriation is enacted. shall, in accordance with this section, collect trans- Page 415 TITLE 15—COMMERCE AND TRADE § 78ee action fees and assessments that are designed to re- amount of sale’’ before period at end of par. (1), was ex- cover the costs to the Government of the supervision ecuted by making the amendment in subsec. (c), to re- and regulation of securities markets and securities pro- flect the probable intent of Congress and the amend- fessionals, and costs related to such supervision and ment by Pub. L. 107–123, § 3(a)(3), which redesignated regulation, including enforcement activities, policy subsec. (d) as (c). See above. and rulemaking activities, administration, legal serv- Subsec. (d). Pub. L. 107–123, § 3(a)(4), (6), redesignated ices, and international regulatory activities.’’ subsec. (e) as (d) and substituted ‘‘except that for fiscal Subsec. (e)(2). Pub. L. 111–203, § 991(a)(1)(B), sub- year 2007 and each succeeding fiscal year such assess- stituted ‘‘September 25’’ for ‘‘September 30’’. ment shall be equal to $0.0042 for each such trans- Subsec. (g). Pub. L. 111–203, § 991(a)(1)(C), substituted action’’ for ‘‘except that for fiscal year 2007 or any suc- ‘‘30 days after the date on which an Act making a regu- ceeding fiscal year such assessment shall be equal to lar appropriation to the Commission for such fiscal $0.0075 for each such transaction. Assessments collected year is enacted’’ for ‘‘April 30 of the fiscal year preced- pursuant to this subsection shall be deposited and col- ing the fiscal year to which such rate applies’’. lected as general revenue of the Treasury’’. Former Subsec. (j). Pub. L. 111–203, § 991(a)(1)(D), added sub- subsec. (d) redesignated (c). sec. (j) and struck out former subsec. (j) which related Pub. L. 107–123, § 2(5), which directed that subsec. (e) to recapture of projection windfalls for further rate re- be amended by substituting ‘‘$0.009’’ for ‘‘$0.02’’, was ex- ductions. ecuted by making the amendment in subsec. (d), to re- Subsec. (k). Pub. L. 111–203, § 991(a)(1)(E), substituted flect the probable intent of Congress and the amend- ‘‘60 days’’ for ‘‘30 days’’. ment by Pub. L. 107–123, § 3(a)(4), (6) which redesignated Subsec. (l). Pub. L. 111–203, § 991(a)(1)(F), substituted subsec. (e) as (d). See above. ‘‘Baseline estimate of the aggregate dollar amount of Subsec. (e). Pub. L. 107–123, § 3(a)(5), (6), redesignated sales’’ for ‘‘Definitions’’ in heading and struck out in- subsec. (f) as (e) and substituted ‘‘Dates for payments’’ troductory provisions ‘‘For purposes of this section:’’, for ‘‘Dates for payment of fees’’ in heading and ‘‘The par. (2) designation and heading ‘‘Baseline estimate of fees and assessments required’’ for ‘‘The fees required’’ the aggregate dollar amount of sales’’, and par. (1) in introductory provisions. Former subsec. (e) redesig- which provided table of target offsetting collection nated (d). amounts for fiscal years 2002 through 2011. Subsec. (f). Pub. L. 107–123, § 3(a)(6), redesignated sub- Subsec. (m). Pub. L. 111–203, § 991(d)(1), added subsec. sec. (g) as (f). Former subsec. (f) redesignated (e). (m). Subsec. (g). Pub. L. 107–123, § 3(a)(6), (b)(2), redesig- 2002—Subsec. (b). Pub. L. 107–123, § 3(a)(1), substituted nated subsec. (h) as (g) and inserted before period at ‘‘Subject to subsection (j) of this section, each’’ for end ‘‘not later than April 30 of the fiscal year preceding ‘‘Every’’ and struck out at end ‘‘Fees collected pursu- the fiscal year to which such rate applies, together ant to this subsection shall be deposited and collected with any estimates or projections on which such fees as general revenue of the Treasury.’’ are based’’. Former subsec. (g) redesignated (f). Pub. L. 107–123, § 2(1)–(3), substituted ‘‘$15 per Subsec. (h). Pub. L. 107–123, § 3(a)(6), redesignated sub- $1,000,000’’ for ‘‘1⁄300 of one percent’’ and ‘‘security fu- sec. (i), as enacted by Pub. L. 107–123, § 2(6), as (h). See tures products, and options on securities indexes (ex- below. Former subsec. (h) redesignated (g). cluding a narrow-based security index)’’ for ‘‘and secu- Subsec. (i). Pub. L. 107–123, § 3(a)(7), added subsec. (i). rity futures products’’ and struck out ‘‘, except that for Pub. L. 107–123, § 2(6), added subsec. (i). fiscal year 2007 or any succeeding fiscal year such rate Subsecs. (j) to (l). Pub. L. 107–123, § 3(b)(1), added sub- shall be equal to 1⁄800 of one percent of such aggregate secs. (j) to (l). dollar amount of sales’’ before period at end of first 2000—Subsec. (a). Pub. L. 106–554, § 1(a)(5) [title II, sentence. § 206(f)(1)], inserted ‘‘and assessments’’ after ‘‘fees’’. Subsec. (c). Pub. L. 107–123, § 3(a)(3), redesignated sub- Subsecs. (b), (c), (d)(1). Pub. L. 106–554, § 1(a)(5) [title sec. (d) as (c), substituted ‘‘Off-exchange trades of ex- II, § 206(f)(2)], substituted ‘‘other evidences of indebted- change registered and last-sale-reported securities’’ for ness, and security futures products’’ for ‘‘and other evi- ‘‘Off-exchange trades of last-sale-reported securities’’ dences of indebtedness’’. in subsec. heading, struck out par. (1) heading, sub- Subsec. (e). Pub. L. 106–554, § 1(a)(5) [title II, stituted ‘‘Subject to subsection (j) of this section, each § 206(f)(6)], added subsec. (e). Former subsec. (e) redesig- national securities’’ for ‘‘Each national securities’’, in- nated (f). serted ‘‘registered on a national securities exchange Subsec. (f). Pub. L. 106–554, § 1(a)(5) [title II, § 206(f)(5)], or’’ after ‘‘narrow-based security index))’’, struck out redesignated subsec. (e) as (f). Former subsec. (f) redes- ‘‘, excluding any sales for which a fee is paid under sub- ignated (g). section (c) of this section’’ after ‘‘national securities Pub. L. 106–554, § 1(a)(5) [title II, § 206(f)(3)], inserted association’’, and struck out pars. (2) and (3), which re- ‘‘or assessment’’ after ‘‘fee’’. lated to deposit of fees and lapse of appropriations. Subsec. (g). Pub. L. 106–554, § 1(a)(5) [title II, Pub. L. 107–123, § 3(a)(2), struck out heading and text § 206(f)(5)], redesignated subsec. (f) as (g). Former sub- of former subsec. (c). Text read as follows: ‘‘Each na- sec. (g) redesignated (h). tional securities association shall pay to the Commis- Pub. L. 106–554, § 1(a)(5) [title II, § 206(f)(4)], inserted sion a fee at a rate equal to 1⁄300 of one percent of the ‘‘and assessment’’ after ‘‘fee’’. aggregate dollar amount of sales transacted by or Subsec. (h). Pub. L. 106–554, § 1(a)(5) [title II, through any member of such association otherwise § 206(f)(5)], redesignated subsec. (g) as (h). than on a national securities exchange of securities 1998—Subsec. (a). Pub. L. 105–353 substituted ‘‘this registered on such an exchange (other than bonds, de- section’’ for ‘‘this subsection’’. bentures, other evidences of indebtedness, and security 1996—Pub. L. 104–290 reenacted section catchline futures products), except that for fiscal year 2007 or any without change and amended text generally. Prior to succeeding fiscal year such rate shall be equal to 1⁄800 of amendment, text read as follows: ‘‘Every national secu- one percent of such aggregate dollar amount of sales. rities exchange shall pay to the Commission on or be- Fees collected pursuant to this subsection shall be de- fore March 15 of each calendar year a fee in an amount posited and collected as general revenue of the Treas- equal to one three-hundredths of 1 per centum of the ury.’’ aggregate dollar amount of the sales of securities Pub. L. 107–123, § 2(1),(2), (4), which directed that sub- (other than bonds, debentures, and other evidences of sec. (d) be amended by substituting ‘‘$15 per $1,000,000’’ indebtedness) transacted on such national securities for ‘‘1⁄300 of one percent’’ and ‘‘security futures prod- exchange during each preceding calendar year to which ucts, and options on securities indexes (excluding a this section applies. Every registered broker and dealer narrow-based security index)’’ for ‘‘and security futures shall pay to the Commission on or before March 15 of products’’, and striking out ‘‘, except that for fiscal each calendar year a fee in an amount equal to one year 2007, or any succeeding fiscal year, such rate shall three-hundredths of 1 per centum of the aggregate dol- be equal to 1⁄800 of one percent of such aggregate dollar lar amount of the sales of securities registered on a na- § 78ee TITLE 15—COMMERCE AND TRADE Page 416 tional securities exchange (other than bonds, deben- TRANSFER OF FUNCTIONS tures, and other evidences of indebtedness) transacted For transfer of functions of Securities and Exchange by such broker or dealer otherwise than on such an ex- Commission, with certain exceptions, to Chairman of change during each preceding calendar year: Provided, such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, however, That no payment shall be required for any cal- eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under endar year in which such payment would be less than section 78d of this title. one hundred dollars. The Commission, by rule, may exempt any sale of securities or any class of sales of secu- BUDGET OF THE PRESIDENT rities from any fee imposed by this section, if the Com- Pub. L. 111–203, title IX, § 991(d)(2), July 21, 2010, 124 mission finds that such exemption is consistent with Stat. 1954, provided that: ‘‘For fiscal year 2012, and each the public interest, the equal regulation of markets and fiscal year thereafter, the annual budget for the Ad- brokers and dealers, and the development of a national ministration submitted by the President to Congress market system.’’ shall reflect the amendments made by this section 1975—Pub. L. 94–29 amended section generally, ex- [amending this section and sections 77f, 78d, 78m, 78n, tending provisions requiring the payment of fees to in- and 78kk of this title].’’ clude transactions in listed securities which occur in the over-the-counter market. STUDY OF THE EFFECT OF FEE REDUCTIONS 1944—Act Mar. 17, 1944, amended section generally, in- Pub. L. 107–123, § 9, Jan. 16, 2002, 115 Stat. 2400, pro- serting provisions exempting from the payment of the vided that: fee securities designated for exemption by the Sec- ‘‘(a) STUDY.—The Office of Economic Analysis of the retary of the Treasury. Securities and Exchange Commission (hereinafter referred to as the ‘Office’) shall conduct a study of the ex- EFFECTIVE DATE OF 2010 AMENDMENT tent to which the benefits of reductions in fees effected Amendment by section 991(d)(1) of Pub. L. 111–203 ef- as a result of this Act [see Short Title of 2002 Amend- fective 1 day after July 21, 2010, except as otherwise ment note set out under section 78a of this title] are provided, see section 4 of Pub. L. 111–203, set out as an passed on to investors. Effective Date note under section 5301 of Title 12, ‘‘(b) FACTORS FOR CONSIDERATION.—In conducting the Banks and Banking. study under subsection (a), the Office shall— Pub. L. 111–203, title IX, § 991(a)(2), July 21, 2010, 124 ‘‘(1) consider the various elements of the securities Stat. 1951, provided that: ‘‘The amendments made by industry directly and indirectly benefiting from the this subsection [amending this section] shall take ef- fee reductions, including purchasers and sellers of se- fect on the later of— curities, members of national securities exchanges, ‘‘(A) October 1, 2011; or issuers, broker-dealers, underwriters, participants in ‘‘(B) the date of enactment of an Act making a reg- investment companies, retirement programs, and ular appropriation to the [Securities and Exchange] others; Commission for fiscal year 2012 [Div. C of Pub. L. ‘‘(2) consider the impact on different types of inves- 112–74, approved Dec. 23, 2011].’’ tors, such as individual equity holders, individual investment company shareholders, businesses, and EFFECTIVE DATE OF 2002 AMENDMENT other types of investors; ‘‘(3) include in the interpretation of the term ‘in- Pub. L. 107–123, § 11, Jan. 16, 2002, 115 Stat. 2401, pro- vestor’ shareholders of entities subject to the fee re- vided that: ductions; and ‘‘(a) IN GENERAL.—Except as provided in subsections ‘‘(4) consider the economic benefits to investors (b) and (c), the amendments made by this Act [see flowing from the fee reductions to include such fac- Short Title of 2002 Amendment note set out under sec- tors as market efficiency, expansion of investment tion 78a of this title] shall take effect on October 1, opportunities, and enhanced liquidity and capital for- 2001. mation. ‘‘(b) IMMEDIATE TRANSACTION FEE REDUCTIONS.—The ‘‘(c) REPORT TO CONGRESS.—Not later than 2 years amendments made by section 2 [amending this section] after the date of the enactment of this Act [Jan. 16, shall take effect on the later of— 2002], the Securities and Exchange Commission shall ‘‘(1) the first day of fiscal year 2002; or submit to the Congress the report prepared by the Of- ‘‘(2) thirty days after the date on which a regular fice on the findings of the study conducted under sub- appropriation to the Commission for such fiscal year section (a).’’ is enacted. ‘‘(c) ADDITIONAL EXCEPTIONS.—The authorities pro- FEES FROM NATIONAL SECURITIES ASSOCIATIONS FOR vided by section 6(b)(9) of the Securities Act of 1933 [15 MEMBER TRANSACTIONS OTHER THAN ON NATIONAL U.S.C. 77f(b)(9)] and sections 13(e)(9), 14(g)(9), and 31(k) SECURITIES EXCHANGES of the Securities Exchange Act of 1934 [15 U.S.C. Pub. L. 104–208, div. A, title I, § 101(a) [title V], Sept. 78m(e)(9), 78n(g)(9), and 78ee(k)], as so designated by 30, 1996, 110 Stat. 3009, 3009–61, provided in part: ‘‘That this Act, shall not apply until October 1, 2002.’’ effective January 1, 1997, every national securities association shall pay to the Commission a fee at a rate of EFFECTIVE DATE OF 1996 AMENDMENT one-three-hundredth of one percentum of the aggregate Pub. L. 104–290, title IV, § 405(b), Oct. 11, 1996, 110 Stat. dollar amount of sales transacted by or through any 3443, provided that: member of such association otherwise than on a na- ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), tional securities exchange (other than bonds, deben- the amendment made by subsection (a) [amending this tures, and other evidences of indebtedness) subject to section] shall apply with respect to transactions in se- prompt last sale reporting pursuant to the rules of the curities that occur on or after October 1, 1997. Commission or a registered national securities associa- ‘‘(2) OFF-EXCHANGE TRADES OF LAST SALE REPORTED tion, excluding any sales for which a fee is paid under TRANSACTIONS.—The amendment made by subsection section 31 of the Securities Exchange Act of 1934 (15 (a) [amending this section] shall apply with respect to U.S.C. 78ee), and such increase shall be deposited as an transactions described in section 31(d)(1) of the Securi- offsetting collection to this appropriation, to remain ties Exchange Act of 1934 [subsec. (d)(1) of this section] available until expended, to recover the costs to the (as amended by subsection (a) of this section) that Government of the supervision and regulation of secu- occur on or after September 1, 1997.’’ rities markets and securities professionals: Provided further, That the fee due from every national securities EFFECTIVE DATE OF 1975 AMENDMENT association shall be paid on or before September 30, Amendment by Pub. L. 94–29 effective Jan. 1, 1976, see 1997, with respect to transactions and sales occurring section 31(a) of Pub. L. 94–29, set out as a note under during the period beginning on January 1, 1997, and section 78b of this title. ending at the close of August 31, 1997’’. Page 417 TITLE 15—COMMERCE AND TRADE § 78ff

§ 78ff. Penalties (June 6, 1934, ch. 404, title I, § 32, 48 Stat. 904; (a) Willful violations; false and misleading state- May 27, 1936, ch. 462, § 9, 49 Stat. 1380; June 25, ments 1938, ch. 677, § 4, 52 Stat. 1076; Pub. L. 88–467, § 11, Aug. 20, 1964, 78 Stat. 580; Pub. L. 94–29, §§ 23, Any person who willfully violates any provi- 27(b), June 4, 1975, 89 Stat. 162, 163; Pub. L. sion of this chapter (other than section 78dd–1 of 95–213, title I, § 103(b), Dec. 19, 1977, 91 Stat. 1496; this title), or any rule or regulation thereunder Pub. L. 98–376, § 3, Aug. 10, 1984, 98 Stat. 1265; the violation of which is made unlawful or the Pub. L. 100–418, title V, § 5003(b), Aug. 23, 1988, 102 observance of which is required under the terms Stat. 1419; Pub. L. 100–704, § 4, Nov. 19, 1988, 102 of this chapter, or any person who willfully and Stat. 4680; Pub. L. 105–366, § 2(d), Nov. 10, 1998, 112 knowingly makes, or causes to be made, any Stat. 3303; Pub. L. 107–204, title XI, § 1106, July statement in any application, report, or docu- 30, 2002, 116 Stat. 810.) ment required to be filed under this chapter or any rule or regulation thereunder or any under- REFERENCES IN TEXT taking contained in a registration statement as This chapter, referred to in subsec. (a), was in the provided in subsection (d) of section 78o of this original ‘‘this title’’. See References in Text note set title, or by any self-regulatory organization in out under section 78a of this title. connection with an application for membership AMENDMENTS or participation therein or to become associated 2002—Subsec. (a). Pub. L. 107–204 substituted with a member thereof which statement was ‘‘$5,000,000, or imprisoned not more than 20 years’’ for false or misleading with respect to any material ‘‘$1,000,000, or imprisoned not more than 10 years’’ and fact, shall upon conviction be fined not more ‘‘$25,000,000’’ for ‘‘$2,500,000’’. than $5,000,000, or imprisoned not more than 20 1998—Subsec. (c)(1). Pub. L. 105–366, § 2(d)(1), (2), sub- years, or both, except that when such person is stituted ‘‘subsection (a) or (g) of section 78dd–1’’ for a person other than a natural person, a fine not ‘‘section 78dd–1(a)’’ in subpars. (A) and (B). exceeding $25,000,000 may be imposed; but no Subsec. (c)(2). Pub. L. 105–366, § 2(d)(3), amended par. person shall be subject to imprisonment under (2) generally. Prior to amendment, par. (2) read as follows: this section for the violation of any rule or regu- ‘‘(2)(A) Any officer or director of an issuer, or stock- lation if he proves that he had no knowledge of holder acting on behalf of such issuer, who willfully such rule or regulation. violates section 78dd–1(a) of this title shall be fined not (b) Failure to file information, documents, or re- more than $100,000, or imprisoned not more than 5 ports years, or both. ‘‘(B) Any employee or agent of an issuer who is a Any issuer which fails to file information, doc- United States citizen, national, or resident or is other- uments, or reports required to be filed under wise subject to the jurisdiction of the United States subsection (d) of section 78o of this title or any (other than an officer, director, or stockholder acting rule or regulation thereunder shall forfeit to the on behalf of such issuer), and who willfully violates sec- United States the sum of $100 for each and every tion 78dd–1(a) of this title, shall be fined not more than day such failure to file shall continue. Such for- $100,000, or imprisoned not more than 5 years, or both. ‘‘(C) Any officer, director, employee, or agent of an feiture, which shall be in lieu of any criminal issuer, or stockholder acting on behalf of such issuer, penalty for such failure to file which might be who violates section 78dd–1(a) of this title shall be sub- deemed to arise under subsection (a) of this sec- ject to a civil penalty of not more than $10,000 imposed tion, shall be payable into the Treasury of the in an action brought by the Commission.’’ United States and shall be recoverable in a civil 1988—Subsec. (a). Pub. L. 100–704 substituted suit in the name of the United States. ‘‘$1,000,000’’ for ‘‘$100,000’’, ‘‘10 years’’ for ‘‘five years’’, ‘‘is a person other than a natural person’’ for ‘‘is an ex- (c) Violations by issuers, officers, directors, change’’, and ‘‘$2,500,000’’ for ‘‘$500,000’’. stockholders, employees, or agents of issuers Subsec. (c). Pub. L. 100–418 amended subsec. (c) gener- (1)(A) Any issuer that violates subsection (a) ally. Prior to amendment, subsec. (c) read as follows: or (g) of section 78dd–1 of this title shall be fined ‘‘(1) Any issuer which violates section 78dd–1(a) of not more than $2,000,000. this title shall, upon conviction, be fined not more than (B) Any issuer that violates subsection (a) or $1,000,000. ‘‘(2) Any officer or director of an issuer, or any stock- (g) of section 78dd–1 of this title shall be subject holder acting on behalf of such issuer, who willfully to a civil penalty of not more than $10,000 im- violates section 78dd–1(a) of this title shall, upon con- posed in an action brought by the Commission. viction, be fined not more than $10,000, or imprisoned (2)(A) Any officer, director, employee, or agent not more than five years, or both. of an issuer, or stockholder acting on behalf of ‘‘(3) Whenever an issuer is found to have violated sec- such issuer, who willfully violates subsection (a) tion 78dd–1(a) of this title, any employee or agent of or (g) of section 78dd–1 of this title shall be fined such issuer who is a United States citizen, national, or not more than $100,000, or imprisoned not more resident or is otherwise subject to the jurisdiction of the United States (other than an officer, director, or than 5 years, or both. stockholder of such issuer), and who willfully carried (B) Any officer, director, employee, or agent of out the act or practice constituting such violation an issuer, or stockholder acting on behalf of shall, upon conviction, be fined not more than $10,000, such issuer, who violates subsection (a) or (g) of or imprisoned not more than five years, or both. section 78dd–1 of this title shall be subject to a ‘‘(4) Whenever a fine is imposed under paragraph (2) civil penalty of not more than $10,000 imposed in or (3) of this subsection upon any officer, director, an action brought by the Commission. stockholder, employee, or agent of an issuer, such fine (3) Whenever a fine is imposed under para- shall not be paid, directly or indirectly, by such issuer.’’ graph (2) upon any officer, director, employee, 1984—Subsec. (a). Pub. L. 98–376 substituted ‘‘$100,000’’ agent, or stockholder of an issuer, such fine may for ‘‘$10,000’’. not be paid, directly or indirectly, by such is- 1977—Subsec. (a). Pub. L. 95–213, § 103(b)(1), inserted suer. ‘‘(other than section 78dd–1 of this title)’’ after ‘‘Any § 78gg TITLE 15—COMMERCE AND TRADE Page 418 person who willfully violates any provision of this § 78hh–1. Effective date of certain sections chapter’’. Subsec. (c). Pub. L. 95–213, § 103(b)(2), added subsec. This Act shall become effective on May 27, (c). 1936; except that clause (2) of subsection (f) of 1975—Subsec. (a). Pub. L. 94–29, §§ 23(1), 27(b), inserted section 78l of this title, and subsections (a) and ‘‘or by any self-regulatory organization in connection (d) of section 78o of this title, shall become ef- with an application for membership or participation fective ninety days after May 27, 1936, and that therein or to become associated with a member there- clause (3) of subsection (f) of section 78l of this of,’’ and substituted ‘‘or imprisoned not more than five years’’ for ‘‘or imprisoned not more than two years’’. title shall become effective six months after Subsec. (c). Pub. L. 94–29, § 23(2), struck out subsec. (c) May 27, 1936. which rendered this section inapplicable to violations (May 27, 1936, ch. 462, § 12, 49 Stat. 1380.) of any rule or regulation prescribed pursuant to paragraph (3) of subsection (c) of section 78o of this title. REFERENCES IN TEXT 1964—Subsec. (b). Pub. L. 88–467 substituted ‘‘required to be filed under’’ for ‘‘pursuant to an undertaking con- This Act, referred to in text, is act May 27, 1936, ch. tained in a registration statement as provided in’’ and 462, 49 Stat. 1375, popularly known as the Unlisted Se- inserted ‘‘or any rule or regulation thereunder’’ after curities Trading Act, which enacted sections 78l–1, ‘‘section 78o of this title.’’ 78o–1, 78o–2, and 78hh–1 of this title, and amended sec- 1938—Subsec. (c). Act June 25, 1938, added subsec. (c). tions 78l, 78o, 78q, 78r, 78t, 78u, 78w, and 78ff of this title. 1936—Subsec. (a). Act May 27, 1936, inserted ‘‘or any CODIFICATION undertaking contained in a registration statement as provided in subsection (d) of section 78o of this title’’. Section was not enacted as a part of the Securities Subsec. (b). Act May 27, 1936, added subsec. (b). Exchange Act of 1934 which comprises this chapter. EFFECTIVE DATE OF 1988 AMENDMENT § 78ii. Omitted Amendment by Pub. L. 100–704 not applicable to ac- CODIFICATION tions occurring before Nov. 19, 1988, see section 9 of Pub. L. 100–704, set out as a note under section 78o of Section, act June 6, 1934, ch. 404, title II, § 210, 48 Stat. this title. 908, transferred the powers, duties and functions of the Federal Trade Commission under subchapter I of chap- EFFECTIVE DATE OF 1984 AMENDMENT ter 2A of this title to the Securities and Exchange Com- Amendment by Pub. L. 98–376 effective Aug. 10, 1984, mission. Pending proceedings before the Federal Trade see section 7 of Pub. L. 98–376, set out as a note under Commission were continued before the Securities and section 78c of this title. Exchange Commission. EFFECTIVE DATE OF 1975 AMENDMENT § 78jj. Repealed. Pub. L. 100–181, title III, § 330, Amendment by Pub. L. 94–29 effective June 4, 1975, Dec. 4, 1987, 101 Stat. 1259 see section 31(a) of Pub. L. 94–29, set out as a note under section 78b of this title. Section, act June 6, 1934, ch. 404, title II, § 211, 48 Stat. 909, provided for a study and report by Securities and EFFECTIVE DATE OF 1964 AMENDMENT Exchange Commission of reorganization proceedings. Amendment by Pub. L. 88–467 effective Aug. 20, 1964, Study as basis for Trust Indenture Act of 1939, see sec- see section 13 of Pub. L. 88–467, set out as a note under tion 77bbb of this title. section 78c of this title. § 78kk. Authorization of appropriations § 78gg. Separability In addition to any other funds authorized to be If any provision of this chapter, or the applica- appropriated to the Commission, there are au- tion of such provision to any person or circum- thorized to be appropriated to carry out the stances, shall be held invalid, the remainder of functions, powers, and duties of the Commis- the chapter and the application of such provision— sion to persons or circumstances other than (1) for fiscal year 2011, $1,300,000,000; those as to which it is held invalid, shall not be (2) for fiscal year 2012, $1,500,000,000; affected thereby. (3) for fiscal year 2013, $1,750,000,000; (4) for fiscal year 2014, $2,000,000,000; and (June 6, 1934, ch. 404, title I, § 33, 48 Stat. 905.) (5) for fiscal year 2015, $2,250,000,000. REFERENCES IN TEXT (June 6, 1934, ch. 404, title I, § 35, as added Pub. This chapter, referred to in text, was in the original L. 94–29, § 24, June 4, 1975, 89 Stat. 162; amended ‘‘this Act’’. See References in Text note set out under Pub. L. 95–20, Apr. 13, 1977, 91 Stat. 47; Pub. L. section 78a of this title. 95–211, Dec. 19, 1977, 91 Stat. 1492; Pub. L. 95–425, § 78hh. Effective date § 1, Oct. 6, 1978, 92 Stat. 962; Pub. L. 96–477, title IV, § 401, Oct. 21, 1980, 94 Stat. 2291; Pub. L. This chapter shall become effective on July 1, 100–181, title I, § 101, Dec. 4, 1987, 101 Stat. 1249; 1934, except that sections 78f and 78l(b to e) of Pub. L. 100–704, § 8, Nov. 19, 1988, 102 Stat. 4683; this title shall become effective on September 1, Pub. L. 101–550, title I, § 102, Nov. 15, 1990, 104 1934; and sections 78e, 78g, 78h, 78i(a)(6), 78j, 78k, Stat. 2713; Pub. L. 104–290, title IV, § 403, Oct. 11, 78l(a), 78m, 78n, 78o, 78p, 78q, 78r, 78s, and 78dd of 1996, 110 Stat. 3441; Pub. L. 105–353, title II, § 201, this title shall become effective on October 1, Nov. 3, 1998, 112 Stat. 3233; Pub. L. 107–204, title 1934. VI, § 601, July 30, 2002, 116 Stat. 793; Pub. L. (June 6, 1934, ch. 404, title I, § 34, 48 Stat. 905.) 111–203, title IX, § 991(c), July 21, 2010, 124 Stat. 1953.) REFERENCES IN TEXT CODIFICATION This chapter, referred to in text, was in the original ‘‘This Act’’. See References in Text note set out under Pub. L. 94–29, which directed amendment of the Secu- section 78a of this title. rities Exchange Act of 1934 by adding this section at Page 419 TITLE 15—COMMERCE AND TRADE § 78ll the end, is reflected in the source credit above as add- EFFECTIVE DATE OF 2010 AMENDMENT ing this section to title I of the Securities Exchange Amendment by Pub. L. 111–203 effective 1 day after Act of 1934, to reflect the probable intent of Congress. July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as an Effective Date note AMENDMENTS under section 5301 of Title 12, Banks and Banking. 2010—Pub. L. 111–203 amended section generally. Prior to amendment, section related to appropriation for fis- EFFECTIVE DATE OF 1988 AMENDMENT cal year 2003 and specified amounts to fund certain ad- Amendment by Pub. L. 100–704 not applicable to ac- ditional compensation, for mitigation activities after tions occurring before Nov. 19, 1988, see section 9 of the Sept. 11, 2001, attacks, and to add additional over- Pub. L. 100–704 set out as a note under section 78o of sight personnel and improve investigative and discipli- this title. nary efforts. 2002—Pub. L. 107–204 amended section generally, up- EFFECTIVE DATE dating fiscal year from 1999 to 2003, striking out subsec. designations, and substituting provisions relating to Section effective June 4, 1975, see section 31(a) of Pub. funding of additional compensation, terrorist-related L. 94–29, set out as a note under section 78b of this title. information technology, security enhancements, and ll recovery and mitigation activities, and an additional § 78 . Requirements for the EDGAR system 200 qualified professionals to provide enhanced over- The Commission, by rule or regulation— sight for provisions relating to miscellaneous expenses (1) shall provide that any information in the such as meetings and official functions. 1998—Pub. L. 105–353 amended section generally. Prior EDGAR system that is required to be dissemi- to amendment, text read as follows: ‘‘There are author- nated by the contractor— ized to be appropriated to carry out the functions, pow- (A) may be sold or disseminated by the ers, and duties of the Commission $300,000,000 for fiscal contractor only pursuant to a uniform year 1997, in addition to any other funds authorized to schedule of fees prescribed by the Commis- be appropriated to the Commission.’’ sion; 1996—Pub. L. 104–290 amended section generally. Prior (B) may be obtained by a purchaser by di- to amendment, text read as follows: ‘‘There are author- rect interconnection with the EDGAR sys- ized to be appropriated to carry out the functions, powers, and duties of the Commission— tem; ‘‘(1) $178,023,000 for the fiscal year ending September (C) shall be equally available on equal 30, 1990; and terms to all persons; and ‘‘(2) $212,609,000 for the fiscal year ending September (D) may be used, resold, or redisseminated 30, 1991.’’ by any person who has lawfully obtained 1990—Pub. L. 101–550 amended section generally, sub- such information without restriction and stituting present provisions for former provisions without payment of additional fees or royal- which provided for fiscal years 1988 and 1989: in subsec. ties; and (a), for authorization of appropriations for the Commis- sion; in subsec. (b), for amounts for the EDGAR system; (2) shall require that persons, or classes of and in subsec. (c), for amounts for reception and rep- persons, required to make filings with the resentation expenses and for membership in the Inter- Commission submit such filings in a form and national Organization of Securities Commissions. manner suitable for entry into the EDGAR 1988—Subsec. (c). Pub. L. 100–704 added subsec. (c). 1987—Pub. L. 100–181 amended section generally. Prior system and shall specify the date that such re- to amendment, text read as follows: ‘‘There are author- quirement is effective with respect to that ized to be appropriated to carry out the functions, pow- person or class; except that the Commission ers, and duties of the Commission not to exceed may exempt persons or classes of persons, or $51,000,000 for the fiscal year ending June 30, 1976, filings or classes of filings, from such rules or $56,500,000 for the fiscal year ending September 30, 1977, regulations in order to prevent hardships or to $63,750,000 for the fiscal year ending September 30, 1978, avoid imposing unreasonable burdens or as $69,000,000 for the fiscal year ending September 30, 1979, otherwise may be necessary or appropriate. $79,000,000 for the fiscal year ending September 30, 1980, $85,500,000 for the fiscal year ending September 30, 1981, (June 6, 1934, ch. 404, title I, § 35A, as added Pub. $96,640,000 for the fiscal year ending September 30, 1982, L. 100–181, title I, § 102, Dec. 4, 1987, 101 Stat. 1249; and $106,610,000 for the fiscal year ending September 30, amended Pub. L. 105–353, title II, § 202, Nov. 3, 1983. For fiscal years succeeding fiscal year 1983, there 1998, 112 Stat. 3234.) may be appropriated such sums as the Congress may hereafter authorize by law.’’ CODIFICATION 1980—Pub. L. 96–477 authorized appropriations of $85,500,000 for fiscal year ending Sept. 30, 1981, Pub. L. 100–181, which directed amendment of the Se- $96,640,000 for fiscal year ending Sept. 30, 1982, and curities Exchange Act of 1934 by adding this section $106,610,000 for fiscal year ending Sept. 30, 1983, and pro- after section 35 of the Act, is reflected in the source vided that for fiscal years succeeding 1983, there may be credit above as adding this section to title I of the Se- appropriated such sums as Congress may authorize by curities Exchange Act of 1934, to reflect the probable law. intent of Congress. See Codification note set out under 1978—Pub. L. 95–425 inserted provision authorizing ap- section 78kk of this title. propriations of not to exceed $69,000,000, and $79,000,000 AMENDMENTS for fiscal years ending Sept. 30, 1979 and 1980, respectively, and substituted ‘‘fiscal year 1980’’ for ‘‘fiscal 1998—Subsecs. (a) to (c). Pub. L. 105–353, § 202(1), year 1978’’. struck out subsecs. (a) to (c) which: in subsec. (a) re- 1977—Pub. L. 95–211 authorized appropriations of not quired certifications and reports as prerequisite to obli- to exceed $63,750,000 for fiscal year ending Sept. 30, 1978, gation or expenditure of funds for establishment or op- and substituted ‘‘For the fiscal years succeeding fiscal eration of EDGAR system, and provided that former year 1978’’ for ‘‘For fiscal years succeeding the 1977 fis- section 78kk(b) amounts were to be exclusive source of cal year’’ in provisions relating to appropriations for funds for systems procurement and operation; in sub- succeeding fiscal years. sec. (b) required report on status of EDGAR develop- Pub. L. 95–20 substituted ‘‘$56,500,000’’ for ment, implementation, and progress to certain Con- ‘‘$55,000,000’’. gressional committees at six-month intervals; and in § 78mm TITLE 15—COMMERCE AND TRADE Page 420 subsec. (c) required certification to Congressional com- spect to paragraphs (65), (66), (68), (69), (70), (71), mittees of total costs, cost/benefit analysis, assurances (72), (73), (74), (75), (76), and (79) 1 of section 78c(a) of compliance, capabilities of system, competence of of this title, and sections 78j–2(a), 78j–2(b), personnel, and review of test group filings prior to en- 78j–2(c), 78m–1, 78o–10, 78q–1(g), 78q–1(h), 78q–1(i), tering into contract for EDGAR system. Subsec. (d). Pub. L. 105–353, § 202(2), struck out ‘‘(d)’’ 78q–1(j), 78q–1(k), and 78q–1(l) of this title; pro- before ‘‘The Commission’’ in introductory provisions, vided that the Commission shall have exemptive in par. (2) substituted period for ‘‘; and’’ at end, and authority under this chapter with respect to se- struck out par. (3) which read as follows: ‘‘shall require curity-based swaps as to the same matters that all persons who make any filing with the Commission, the Commodity Futures Trading Commission in addition to complying with such other rules concern- has under the Wall Street Transparency and Ac- ing the form and manner of filing as the Commission countability Act of 2010 with respect to swaps, may prescribe, to submit such filings in written or including under section 6(c) of title 7. printed form— ‘‘(A) for a period of at least one year after the effec- (June 6, 1934, ch. 404, title I, § 36, as added Pub. tive date specified for such person or class under L. 104–290, title I, § 105(b), Oct. 11, 1996, 110 Stat. paragraph (2); or 3424; amended Pub. L. 111–203, title VII, § 772(a), ‘‘(B) for a shorter period if the Commission deter- July 21, 2010, 124 Stat. 1801.) mines that the EDGAR system (i) is reliable, (ii) provides a suitable alternative to such written and print- AMENDMENT OF SECTION ed filings, and (iii) assures that the provision of information through the EDGAR system is as effective Unless otherwise provided, amendment by and efficient for filers, users, and disseminators as subtitle B (§§ 761–774) of title VII of Pub. L. provision of such information in written or printed 111–203 effective on the later of 360 days after form.’’ July 21, 2010, or, to the extent a provision of Subsec. (e). Pub. L. 105–353, § 202(1), struck out subsec. subtitle B requires a rulemaking, not less than (e) which read as follows: ‘‘For the purposes of carrying 60 days after publication of the final rule or out its responsibilities under subsection (d)(3) of this regulation implementing such provision of subsection, the Commission shall consult with representa- title B, see 2010 Amendment notes and Effective tives of persons filing, disseminating, and using information contained in filings with the Commission.’’ Date of 2010 Amendment note below. REFERENCES IN TEXT § 78mm. General exemptive authority This chapter, referred to in subsecs. (a)(1) and (c), was (a) Authority in the original ‘‘this title’’. See References in Text note (1) In general set out under section 78a of this title. The Wall Street Transparency and Accountability Except as provided in subsection (b) of this Act of 2010, referred to in subsec. (c), is title VII of Pub. section, but notwithstanding any other provi- L. 111–203, July 21, 2010, 124 Stat. 1641, which enacted sion of this chapter, the Commission, by rule, chapter 109 (§ 8301 et seq.) of this title and enacted and regulation, or order, may conditionally or un- amended numerous other sections and notes in the conditionally exempt any person, security, or Code. Subtitle B of the Act enacted subchapter II (§ 8341 transaction, or any class or classes of persons, et seq.) of chapter 109 and sections 78c–3 to 78c–5, 78j–2, 78m–1, and 78o–10 of this title, amended sections 77b, securities, or transactions, from any provision 77b–1, 77e, 77q, 78c, 78c–1, 78f, 78i, 78j, 78m, 78o, 78p, 78q–1, or provisions of this chapter or of any rule or 78t, 78u–1, 78u–2, 78bb, 78dd, 78mm, 80a–2, and 80b–2 of regulation thereunder, to the extent that such this title, enacted provisions set out as a note under exemption is necessary or appropriate in the section 77b of this title, and amended provisions set out public interest, and is consistent with the pro- as a note under section 78c of this title. For complete tection of investors. classification of this Act to the Code, see Short Title note set out under section 8301 of this title and Tables. (2) Procedures AMENDMENTS The Commission shall, by rule or regulation, determine the procedures under which an ex- 2010—Subsec. (c). Pub. L. 111–203 added subsec. (c). emptive order under this section shall be EFFECTIVE DATE OF 2010 AMENDMENT granted and may, in its sole discretion, decline to entertain any application for an order of ex- Amendment by Pub. L. 111–203 effective on the later of 360 days after July 21, 2010, or, to the extent a provi- emption under this section. sion of subtitle B (§§ 761–774) of title VII of Pub. L. (b) Limitation 111–203 requires a rulemaking, not less than 60 days after publication of the final rule or regulation imple- The Commission may not, under this section, menting such provision of subtitle B, see section 774 of exempt any person, security, or transaction, or Pub. L. 111–203, set out as a note under section 77b of any class or classes of persons, securities, or this title. transactions from section 78o–5 of this title or the rules or regulations issued thereunder or § 78nn. Tennessee Valley Authority (for purposes of section 78o–5 of this title and (a) In general the rules and regulations issued thereunder) from any definition in paragraph (42), (43), (44), Commencing with the issuance by the Ten- or (45) of section 78c(a) of this title. nessee Valley Authority of an annual report on Commission Form 10–K (or any successor there- (c) Derivatives to) for fiscal year 2006 and thereafter, the Ten- Unless the Commission is expressly authorized nessee Valley Authority shall file with the Com- by any provision described in this subsection to mission, in accordance with such rules and regu- grant exemptions, the Commission shall not lations as the Commission has prescribed or grant exemptions, with respect to amendments made by subtitle B of the Wall Street Trans- 1 So in original. No par. (79) of section 78c(a) of this title has parency and Accountability Act of 2010, with re- been enacted. Page 421 TITLE 15—COMMERCE AND TRADE § 78pp may prescribe, such periodic, current, and sup- 78l(g) of this title, not later than 120 days after plementary information, documents, and reports July 30, 2008, and shall thereafter maintain as would be required pursuant to section 78m of such registration and be treated for purposes this title if the Tennessee Valley Authority of this chapter as an ‘‘issuer’’, the securities of were an issuer of a security registered pursuant which are required to be registered under sec- to section 78l of this title. Notwithstanding the tion 78l of this title, regardless of the number preceding sentence, the Tennessee Valley Au- of members holding such stock at any given thority shall not be required to register any se- time. curities under this chapter, and shall not be (2) Standards relating to audit committees deemed to have registered any securities under this chapter. Each Federal Home Loan Bank shall comply with the rules issued by the Commission under (b) Limited treatment as issuer section 78j–1(m) of this title. Commencing with the issuance by the Ten- (c) Definitions nessee Valley Authority of an annual report on Commission Form 10–K (or any successor there- For purposes of this section, the following to) for fiscal year 2006 and thereafter, the Ten- definitions shall apply: nessee Valley Authority shall be deemed to be (1) Federal Home Loan Bank; member an issuer for purposes of section 78j–1 of this The terms ‘‘Federal Home Loan Bank’’ and title, other than for subsection (m)(1) or (m)(3) ‘‘member’’, have the same meanings as in sec- of section 78j–1 of this title. The Tennessee Val- tion 1422 of title 12. ley Authority shall not be required by this subsection to comply with the rules issued by any (2) Federal National Mortgage Association national securities exchange or national securi- The term ‘‘Federal National Mortgage Asso- ties association in response to rules issued by ciation’’ means the corporation created by the the Commission pursuant to section 78j–1(m)(1) Federal National Mortgage Association Char- of this title. ter Act [12 U.S.C. 1716 et seq.]. (c) No effect on TVA authority (3) Federal Home Loan Mortgage Corporation Nothing in this section shall be construed to The term ‘‘Federal Home Loan Mortgage diminish, impair, or otherwise affect the author- Corporation’’ means the corporation created ity of the Board of Directors of the Tennessee by the Federal Home Loan Mortgage Corpora- Valley Authority to carry out its statutory tion Act [12 U.S.C. 1451 et seq.]. functions under the Tennessee Valley Authority Act of 1933 [16 U.S.C. 831 et seq.]. (June 6, 1934, ch. 404, title I, § 38, as added Pub. L. 110–289, div. A, title I, § 1112, July 30, 2008, 122 (June 6, 1934, ch. 404, title I, § 37, as added Pub. Stat. 2677.) L. 108–447, div. H, title V, § 520(2), Dec. 8, 2004, 118 Stat. 3267.) REFERENCES IN TEXT This chapter, referred to in subsec. (b)(1), was in the REFERENCES IN TEXT original ‘‘this title’’. See References in Text note set This chapter, referred to in subsec. (a), was in the out under section 78a of this title and Codification note original ‘‘this title’’. See References in Text note set below. out under section 78a of this title and Codification note The Federal National Mortgage Association Charter below. Act, referred to in subsec. (c)(2), is title III of act June The Tennessee Valley Authority Act of 1933, referred 27, 1934, ch. 847, 48 Stat. 1252, which is classified gener- to in subsec. (c), is act May 18, 1933, ch. 32, 48 Stat. 58, ally to subchapter III (§ 1716 et seq.) of chapter 13 of as amended, which is classified generally to chapter Title 12, Banks and Banking. For complete classifica- 12A (§ 831 et seq.) of Title 16, Conservation. For com- tion of this Act to the Code, see Short Title note set plete classification of this Act to the Code, see section out under section 1716 of Title 12 and Tables. 831 of Title 16 and Tables. The Federal Home Loan Mortgage Corporation Act, referred to in subsec. (c)(3), is title III of Pub. L. 91–351, CODIFICATION July 24, 1970, 84 Stat. 451, which is classified generally Pub. L. 108–447, which directed amendment of the Se- to chapter 11A (§ 1451 et seq.) of Title 12, Banks and curities Exchange Act of 1934 by adding this section at Banking. For complete classification of this Act to the the end, is reflected in the source credit above as add- Code, see Short Title and Statement of Purpose note ing this section to title I of the Securities Exchange set out under section 1451 of Title 12 and Tables. Act of 1934, to reflect the probable intent of Congress. CODIFICATION oo § 78 . Federal National Mortgage Association, Pub. L. 110–289, which directed amendment of the Se- Federal Home Loan Mortgage Corporation, curities Exchange Act of 1934 by adding this section at Federal Home Loan Banks the end, is reflected in the source credit above as add- (a) Federal National Mortgage Association and ing this section to title I of the Securities Exchange Act of 1934, to reflect the probable intent of Congress. Federal Home Loan Mortgage Corporation No class of equity securities of the Federal Na- § 78pp. Investor Advisory Committee tional Mortgage Association or the Federal (a) Establishment and purpose Home Loan Mortgage Corporation shall be treated as an exempted security for purposes of (1) Establishment section 78l, 78m, 78n, or 78p of this title. There is established within the Commission (b) Federal Home Loan Banks the Investor Advisory Committee (referred to (1) Registration in this section as the ‘‘Committee’’). Each Federal Home Loan Bank shall register (2) Purpose a class of its common stock under section The Committee shall— § 78pp TITLE 15—COMMERCE AND TRADE Page 422

(A) advise and consult with the Commis- (A) not less frequently than twice annu- sion on— ally, at the call of the chairman of the Com- (i) regulatory priorities of the Commis- mittee; and sion; (B) from time to time, at the call of the (ii) issues relating to the regulation of Commission. securities products, trading strategies, and (2) Notice fee structures, and the effectiveness of dis- The chairman of the Committee shall give closure; the members of the Committee written notice (iii) initiatives to protect investor inter- of each meeting, not later than 2 weeks before est; and the date of the meeting. (iv) initiatives to promote investor confidence and the integrity of the securities (e) Compensation and travel expenses marketplace; and Each member of the Committee who is not a full-time employee of the United States shall— (B) submit to the Commission such find- (1) be entitled to receive compensation at a ings and recommendations as the Committee rate not to exceed the daily equivalent of the determines are appropriate, including rec- annual rate of basic pay in effect for a position ommendations for proposed legislative at level V of the Executive Schedule under changes. section 5316 of title 5 for each day during (b) Membership which the member is engaged in the actual (1) In general performance of the duties of the Committee; The members of the Committee shall be— and (A) the Investor Advocate; (2) while away from the home or regular (B) a representative of State securities place of business of the member in the per- commissions; formance of services for the Committee, be al- (C) a representative of the interests of sen- lowed travel expenses, including per diem in ior citizens; and lieu of subsistence, in the same manner as per- (D) not fewer than 10, and not more than sons employed intermittently in the Govern- 20, members appointed by the Commission, ment service are allowed expenses under sec- from among individuals who— tion 5703(b) 1 of title 5. (i) represent the interests of individual (f) Staff equity and debt investors, including inves- The Commission shall make available to the tors in mutual funds; Committee such staff as the chairman of the (ii) represent the interests of institu- Committee determines are necessary to carry tional investors, including the interests of out this section. pension funds and registered investment (g) Review by Commission companies; (iii) are knowledgeable about investment The Commission shall— issues and decisions; and (1) review the findings and recommendations (iv) have reputations of integrity. of the Committee; and (2) each time the Committee submits a find- (2) Term ing or recommendation to the Commission, Each member of the Committee appointed promptly issue a public statement— under paragraph (1)(B) shall serve for a term (A) assessing the finding or recommenda- of 4 years. tion of the Committee; and (3) Members not Commission employees (B) disclosing the action, if any, the Com- mission intends to take with respect to the Members appointed under paragraph (1)(B) finding or recommendation. shall not be deemed to be employees or agents of the Commission solely because of member- (h) Committee findings ship on the Committee. Nothing in this section shall require the Com- (c) Chairman; vice chairman; secretary; assistant mission to agree to or act upon any finding or secretary recommendation of the Committee. (1) In general (i) Federal Advisory Committee Act The members of the Committee shall elect, The Federal Advisory Committee Act (5 U.S.C. from among the members of the Committee— App.) shall not apply with respect to the Com- (A) a chairman, who may not be employed mittee and its activities. by an issuer; (j) Authorization of appropriations (B) a vice chairman, who may not be em- There is authorized to be appropriated to the ployed by an issuer; Commission such sums as are necessary to carry (C) a secretary; and out this section. (D) an assistant secretary. (June 6, 1934, ch. 404, title I, § 39, as added Pub. (2) Term L. 111–203, title IX, § 911, July 21, 2010, 124 Stat. Each member elected under paragraph (1) 1822.) shall serve for a term of 3 years in the capac- REFERENCES IN TEXT ity for which the member was elected under paragraph (1). The Federal Advisory Committee Act, referred to in subsec. (i), is Pub. L. 92–463, Oct. 6, 1972, 86 Stat. 770, (d) Meetings (1) Frequency of meetings 1 So in original. Section 5703 of Title 5 does not contain a sub- The Committee shall meet— sec. (b). Page 423 TITLE 15—COMMERCE AND TRADE § 78ccc which is set out in the Appendix to Title 5, Government § 78ccc. Securities Investor Protection Corpora- Organization and Employees. tion

EFFECTIVE DATE (a) Creation and membership Section effective 1 day after July 21, 2010, except as (1) Creation otherwise provided, see section 4 of Pub. L. 111–203, set There is hereby established a body corporate out as a note under section 5301 of Title 12, Banks and to be known as the ‘‘Securities Investor Pro- Banking. tection Corporation’’ (hereafter in this chapter referred to as ‘‘SIPC’’). SIPC shall be a CHAPTER 2B–1—SECURITIES INVESTOR nonprofit corporation and shall have succes- PROTECTION sion until dissolved by Act of the Congress. Sec. SIPC shall— 78aaa. Short title. (A) not be an agency or establishment of 78bbb. Application of Securities Exchange Act of the United States Government; and 1934. (B) except as otherwise provided in this 78ccc. Securities Investor Protection Corporation. chapter, be subject to, and have all the pow- 78ddd. SIPC Fund. ers conferred upon a nonprofit corporation 78eee. Protection of customers. 78fff. General provisions of a liquidation proceed- by, the District of Columbia Nonprofit Cor- ing. poration Act. 78fff–1. Powers and duties of a trustee. (2) Membership 78fff–2. Special provisions of a liquidation proceed- (A) Members of SIPC ing. 78fff–3. SIPC advances. SIPC shall be a membership corporation 78fff–4. Direct payment procedure. the members of which shall be all persons 78ggg. SEC functions. registered as brokers or dealers under sec- 78hhh. Examining authority functions. tion 78o(b) of this title, other than— 78iii. Functions of self-regulatory organizations. (i) persons whose principal business, in 78jjj. Prohibited acts. 78kkk. Miscellaneous provisions. the determination of SIPC, taking into ac- 78lll. Definitions. count business of affiliated entities, is conducted outside the United States and its § 78aaa. Short title territories and possessions; (ii) persons whose business as a broker or This chapter may be cited as the ‘‘Securities dealer consists exclusively of (I) the dis- Investor Protection Act of 1970’’. tribution of shares of registered open end (Pub. L. 91–598, § 1(a), Dec. 30, 1970, 84 Stat. 1636.) investment companies or unit investment trusts, (II) the sale of variable annuities, REFERENCES IN TEXT (III) the business of insurance, or (IV) the This chapter, referred to in text, was in the original business of rendering investment advisory ‘‘This Act’’, meaning Pub. L. 91–598, Dec. 30, 1970, 84 services to one or more registered invest- Stat. 1636. For complete classification of this Act to ment companies or insurance company the Code, see Tables. separate accounts; and (iii) persons who are registered as a SHORT TITLE OF 1978 AMENDMENT broker or dealer pursuant to section Pub. L. 95–283, § 1, May 21, 1978, 92 Stat. 249, provided 78o(b)(11)(A) of this title. that: ‘‘This Act [enacting sections 78fff–1 to 78fff–4 of (B) Commission review this title, amending sections 77c, 78c, 78k, and 78ccc to 78lll of this title and enacting provisions set out as a SIPC shall file with the Commission a note under section 78k of this title] may be cited as the copy of any determination made pursuant to ‘Securities Investor Protection Act Amendments of subparagraph (A)(i). Within thirty days after 1978’.’’ the date of such filing, or within such longer period as the Commission may designate of § 78bbb. Application of Securities Exchange Act not more than ninety days after such date if of 1934 it finds such longer period to be appropriate and publishes its reasons for so finding, the Except as otherwise provided in this chapter, Commission shall, consistent with the public the provisions of the Securities Exchange Act of interest and the purposes of this chapter, af- 1934 [15 U.S.C. 78a et seq.] (hereinafter referred firm, reverse, or amend any such determina- to as the ‘‘1934 Act’’) apply as if this chapter tion of SIPC. constituted an amendment to, and was included as a section of, such Act. (C) Additional members (Pub. L. 91–598, § 2, Dec. 30, 1970, 84 Stat. 1637.) SIPC shall provide by rule that persons excluded from membership in SIPC under sub- REFERENCES IN TEXT paragraph (A)(i) may become members of SIPC under such conditions and upon such This chapter, referred to in text, was in the original ‘‘this Act’’, meaning Pub. L. 91–598, Dec. 30, 1970, 84 terms as SIPC shall require by rule, taking Stat. 1636. For complete classification of this Act to into account such matters as the availabil- the Code, see Tables. ity of assets and the ability to conduct a liq- The Securities Exchange Act of 1934, referred to in uidation if necessary. text, is act June 6, 1934, ch. 404, 48 Stat. 881, which is (D) Disclosure classified principally to chapter 2B (§ 78a et seq.) of this title. For complete classification of this Act to the Any broker or dealer excluded from mem- Code, see section 78a of this title and Tables. bership in SIPC under subparagraph (A)(i)