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S. 249 (94th): Securities Acts Amendments


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The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on May 19, 1975.


(Conference Report filed in House, H. Rept. 94-229) Securities Act Amendments - States that neither an issuer of municipal securities nor an employee of any such issuer acting in the course of his official duties shall be deemed to be a broker, dealer or municipal securities dealer for the regulatory purposes of the Act by reason of the purchase or sale of securities of the issuer. Establishes minimum statutory standards for exchange rules regarding membership and commission rates, as well as rulemaking and disciplinary procedures. Grants the Securities and Exchange Commission (SEC) authority to require an exchange to file such documents and information as it deems necessary or appropriate in the public interest or for the protection of investors. Sets statutory requirements that must be satisfied before an exchange may be registered as a national securities exchange, including that: (1) an exchange must be organized and have the capacity to carry out the purposes of the Securities Exchange Act and comply with such Act, the rules and regulations thereunder, and the rules of the exchange; (2) the rules of the exchange must provide that any registered broker or dealer or natural person associated with a registered broker or dealer may become a member of the exchange; (3) the rules of an exchange would be required to allocate equitably reasonable dues, fees and other charges among members, issuers and other persons utilizing the exchange's facilities; (4) exchange rules would be required to be designed to prevent fraudulent and manipulative acts and practices; and (5) an exchange's rules would be required to provide that members and persons associated with members will be appropriately disciplined for any violation of the Act, the rules and regulations thereunder or the rules of the exchange. Requires an exchange's rules to permit any registered broker dealer and any natural person associated with a registered broker or dealer to join the exchange and any person to become associated with a member. Authorizes an exchange to deny membership to any registered broker-dealer or natural person associated with a broker-dealer and bar from being associated with a member any person who is subject to a statutory disqualification, as defined in the Securities Exchange Act. Authorizes a national securities exchange to deny membership or condition the membership and to bar or condition on the basis of prescribed standards in the exchange rules of financial responsibility, operational capability, and competence. Prescribes exchange procedures for instituting disciplinary actions, denying membership, and summarily suspending a member or a person associated with a member of the exchange. Specifies the minimum procedural requirements which a national securities exchange would be required to observe in determining whether a member or person associated with a member should be disciplined. Prescribes the procedural requirements applicable to proceedings in respect of exchange action denying membership, barring persons from being associated with a member, or prohibiting or limiting access to services offered by an exchange or a member thereof. Authorizes a national securities exchange to take summary action against a member or person associated with a member or against any person permitted access to services offered by the exchange under limited circumstances and prescribe the procedures applicable to such exchange action. Specifies the authority of national securities exchanges to impose schedules or fix rates of commissions, allowances, discounts or other fees to be charged by its members for transacting business on the exchange. Permits the Commission to allow national securities exchanges to impose reasonable schedules or fix reasonable rates of commissions, allowances, discounts, or other fees to be charged by its members for effecting transactions on such exchanges prior to November 1, 1976, if such allowance would be in the public interest. Permits the Commissions to allow such exchanges to so act after such date if it finds that such rates are reasonable in relation to costs and do not impose any burden on competition not necessary in carrying out this title. States that before approving or disapproving any proposed rule change submitted by a national securities exchange which would impose a schedule or fix rates of commissions, allowances, discounts, or other fees to be charged by its members for effecting transactions on such exchange, the Commission shall afford interested persons an opportunity for oral presentation of data, views, and arguments; and with respect to any such rule concerning transactions effected after November 1, 1976, if the Commission determines there are disputed issues of material fact, to present such rebuttal submissions and to conduct (or have conducted) such cross-examination as the Commission determines to be appropriate and required for full disclosure and proper resolution of such disputed issues of material fact. Empowers the Commission to regulate any broker or dealer who effects transactions on an exchange on a regular basis but who is not a member of that exchange or any person effecting transactions on an exchange without the services of another person acting as broker. Prohibits stock exchange members from effecting any transaction on the exchange for their own account, the account of an associated person or an account with respect to which the member or an associated person exercised investment discretion. Creates the National Market System for Securities to maintain fair and orderly markets in securities and to remove impediments to the mechanism of a national market system. Empowers the Commission to designate securities qualified for trading in the national market system. Prohibits any securities information processor from making use of the mails or any instrumentality of interstate commerce to perform, directly or indirectly, the functions of a securities information processor unless registered with the Commission. Prescribes the procedures for the processing of an application for registration as a securities information processor. Provides for Commission review of any prohibition or limitation of access to services offered by a securities information processor. Authorizes the Commission, after appropriate notice and opportunity for hearing on the record, to suspend or revoke the registration of, or censure or place limitations upon the activities or operations of, any registered sucurities information processor. Makes it unlawful for any self-regulatory organization, member thereof, broker, dealer or securities information processor to perform the functions of a securities information processor with respect to any security (other than an exempted security) or to purchase or sell any such security in contravention of rules prescribed by the Commission as necessary or appropriate for the development of a national market system or for the regulation of the use and operation of communications and data processing facilities and services related to that system. Requires the Commission to prescribe rules to prevent the use, distribution or publication of fraudulent, deceptive or manipulative quotation and transaction information; and, second, to assure the prompt and accurate, reliable and fair collection, processing, distribution and publication of such information with respect to quotations and transactions. Requires the Commission to assure that all securities information processors, i.e., vendors, have access for purposes of distributing, or publishing, on reasonable and non-discriminatory terms to securities quotation and transaction information collected, processed, or prepared for distribution or publication by any exclusive processor of such information. States that if the Commission finds that allowances, discounts or other fees to be charged by its members for effecting transactions on such exchange have been eliminated so that the fairness or orderliness of the market for listed securities has been adversely affected by transactions in the third market, the Commission shall take appropriate action to eliminate or mitigate these consequences. Authorizes the Commission to prohibit brokers and dealers from effecting transactions in registered securities otherwise than on a national securities exchange, if the Commission finds, on the record after notice and opportunity for hearing, that as a result of transactions in such securities effected otherwise than on a national securities exchange the fairness or orderliness of the markets for such securities has been affected in a manner contrary to the public interest or the protection of investors. Directs the Commission to review any and all rules of national securities exchanges which limit or condition the ability of members to effect transactions in securities otherwise than on such exchanges. Requires the Commission to establish a National Market Advisory Board, to consist of persons associated with brokers and dealers (who shall be a majority) and persons not so associated who are representative of the public and, to the extent feasible, have knowledge of the securities markets of the United States. Makes it the responsibility of the Advisory Board to formulate and furnish to the Commission its views on significant regulatory proposals made by the Commission or any self-regulatory organization concerning the establishment, operation, and regulation of the markets for securities in the United States; and to study the possible need for modifications of the scheme of self-regulation, provided for in this title so as to adapt it to a national market system, including the need for the establishment of a new self-regulatory organization (to be called the National Market Regulatory Board) to administer the national market system. Makes it unlawful for an issuer, by use of any means or instrumentality of interstate commerce or of the mails, to issue, either originally or upon transfer, any security registered under the Act or exempted from registration by specified sections in a form or which a format which contravenes rules prescribed by the Commission for the prompt and accurate clearance and settlement of securities transactions. Authorizes the Commission to require institutional investment managers to file reports disclosing their securities portfolio holdings and transactions. Makes such information publicly available. Requires all persons utilizing an exchange's facilities to effect transactions to register with the Commission. States that within forty-five days of the date of the filing of such registration application (or within such longer period as to which the applicant consents), the Commission shall by order grant registration, or institute proceedings to determine whether registration should be denied. Requires the Commission to grant such registration if the Commission finds that the requirements are satisfied; and to deny such registration if it does not make such a finding or if it finds that if the applicant were so registered, its registration would be subject to suspension or revocation under this Act. Requires inspection of registrants, within six months after being registered, to determine if they are conforming to this title and rules hereunder. Subjects municipal securities dealers and associated persons thereof to the Commission's enforcement and disciplinary powers. Requires brokers and dealers or persons associated therewith to pass tests in accordance with rules and regulations establishing standards of operational capability. Requires any registered broker-dealer who is not a member of a registered securities association to pay the Commission fees imposed by it to defray the costs of the additional regulatory duties to be performed by the Commission. Prohibits any broker or dealer from making use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security in contravention of such rules and regulations as the Commission shall prescribe as necessary or appropriate in the public interest or for the protection of investors to provide safeguards with respect to the financial responsibility and related practices of brokers and dealers including, but not limited to the acceptance of custody and use of customers' securities and the carrying and use of customers' deposits or credit balances. Authorizes the Commission to regulate trading activities of market makers other than specialists registered on a national securities exchange. Requires that members of the National Association of Securities Dealers and persons associated with its members shall be appropriately disciplined for violations of the rules promulgated by the Municipal Securities Rulemaking Board. Prohibits any municipal securities dealer from making use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any municipal security unless registered with the Commission or exempted by rule or by order. Provides that within 45 days of the date of the filing of an application to be a municipal securities dealer the Commission shall by order grant registration, or institute proceedings to determine whether registration should be denied. Requires the Commission to grant the registration of a municipal securities dealer if the Commission finds that the requirements of this Act are satisfied. Requires the Commission to deny such registration if it does not make such a finding or if it finds that if the applicant were so registered, its registration would be subject to suspension or revocation under this Act. Establishes and delegates rulemaking responsibility to the Municipal Securities Rulemaking Board. Provides for the division of the Board's membership among representatives of, investors in, and issuers of, municipal securities who are not associated with any municipal securities professional. Requires the promulgation of rules establishing professional standards with respect to competence, experience and other qualifications deemed necessary for municipal securities professionals and natural persons associated with municipal securities brokers and dealers, including, the case of non-bank municipal securities professionals, the financial responsibility of such persons. Requires that the rules of the Board be designed to regulate the dealings of municipal securities professionals so as to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation with self-regulatory organizations and other persons, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and to protect investors and the public interest. Requires the Board to promulgate rules governing the form and content of quotations relating to municipal securities and the persons to whom such quotations may be supplied to provide fair and informative quotations. Authorizes the Commission, by order, after appropriate notice and opportunity for hearing on the record, to censure, suspend (for a period not exceeding 12 months) or revoke the registration of any municipal securities dealer if such action is necessary or appropriate in the public interest and such broker, dealer or municipal securities dealer has committed or omitted any act enumerated in the Securities Exchange Act; and to impose appropriate limitations on the activities, functions and operations of municipal securities dealers which it determines are in the public interest. Authorizes the Commission to censure or impose appropriate limitations on the functions and activities, or bar or suspend (for a period not to exceed 12 months) any person from being associated with a municipal securities dealer if it finds, on the record following notice and opportunity for a hearing, that such person has committed or omitted a specified act or omission. Vests primary responsibility and authority with the bank agencies to enforce compliance with the requirements and the rules of the Board by municipal securities dealers which are banks and persons associated with such dealers. Requires the Commission and the bank agencies to consult with each other prior to initiating any action against a municipal securities dealer which is a bank or a person associated with any such dealer bank. Authorizes the Commission to remove from office or censure, by order, any member, officer, or employee of the Board who is found, after notice and opportunity for a hearing on the record, to have willfully violated any provisions of the Securities Exchange Act respecting municipal securities, any rule or regulation promulgated under the Act or any rule of the Board, or to have abused his authority. Requires registered municipal securities dealers, the Municipal Securities Rulemaking Board; registered securities information processors, and registered clearing agencies to make and keep such records, to furnish copies thereof, and to make such reports as the Commission may prescribe. States that in the case of transfer agents organized as banks, or their subsidiaries, recordkeeping and reporting requirements would be established by the bank regulatory agencies. Authorizes representatives of the Commission to examine all records that are maintained by persons described in this Act. Authorizes the Commission to relieve self-regulatory organizations of regulatory responsibilities for persons who are members of or participants in more than one self-regulatory organization and to allocate among self-regulatory organizations the authority to exercise regulatory authority. Requires registered brokers or dealers to file with the Commission certified balance sheets prepared on a calendar or fiscal year basis, and to file such other information concerning their financial conditions as the Commission shall, by rule, require. Prohibits any clearing agency from making use of the mails or any instrumentality of interstate commerce to perform the functions of a clearing agency with respect to any security unless registered with, or exempted from registration by Commission rule, regulation or order. States that no transfer agent shall make use of the mails or any instrumentality of interstate commerce to perform the function of a transfer agent unless registered with the appropriate regulatory agency as provided in this Act or exempted by this Act. Empowers the Commission to prescribe such rules regulating the activities of clearing agencies and transfer agents as it deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act. Requires the Commission, the Federal Deposit Insurance Corporation, the Comptroller of the Currency and the Board of Governors of the Federal Reserve System to consult and cooperate with each other, and, where appropriate, with State banking authorities having supervision over banks operating as clearing agencies. Instructs the Commission to take such steps as are within its power to bring about the discontinuation of the physical movement of the negotiable stock certificate as a means of settlement among brokers or dealers of transactions in securities consummated on national securities exchanges or through instrumentalities of interstate commerce. Requires each self-regulatory organization to file with the Commission, in accordance with such rules as the Commission may prescribe, copies of any proposed rule or any proposed change in its rules, accompanied by a concise general statement of the basis and purpose of the proposed rule change; and that no proposed rule change could become effective without prior Commission approval. Provides for procedures for such approval. Provides that a bank clearing agency may not change its rules in a manner the appropriate regulatory agency determines to be contrary to appropriate standards for the safeguarding of securities and funds. Provides that if the Commission deems a change in a self-regulatory organization's rules to be necessary or appropriate in the public interest or for the protection of investors, to insure the fair administration of self-regulatory organizations, or to conform the rules of self-regulatory organizations to the applicable registration requirements it may, by rule, effect the change. States that in a proceeding to review a self-regulatory organization's disciplinary action against a member or a participant or a person associated with a member, the appropriate regulatory agency for the member, participant, or person associated with a member shall give notice and an opportunity for hearing. States that in any proceeding to review a self-regulatory organization's action denying membership or participation, barring any person from becoming associated with a member, or prohibiting or limiting any person's ability to obtain services offered by the organization or a member, the appropriate regulatory agency for the applicant or person shall give notice and opportunity for hearing. Authorizes the Commission to sanction a national securities exchange or registered securities association for violation of the Exchange Act and the rules and regulations thereunder, and for failure, without reasonable justification or excuse, to enforce compliance with the Exchange Act or the organization's rules by a member or a person associated with a member. Authorizes the appropriate regulatory agencies to sanction (suspend or expel) members of and participants in self-regulatory organizations. Confers upon District Courts of the United States, upon application by the Commission, the jurisdiction to (1) require a member or participant in a self-regulatory organization to comply with the provisions of the Act, and (2) require a self-regulatory organization to enforce compliance by its members and persons associated with its members with, the Exchange Act, the rules thereunder, and the organization's own rule, and (3) in the case of a registered clearing agency, to enforce compliance by participants with the rules of the clearing agency. Defines all applications, statements, reports, contracts, correspondence, notices, and other documents filed with or otherwise obtained by the Commission pursuant to the Exchange Act or otherwise obtained by the Commission pursuant to the Exchange Act or otherwise as "records" for the purposes of the Freedom of Information Act. Permits any person adversely affected by a rule promulgated by the Commission pursuant to the Securities Exchange Act to obtain direct review in an appropriate Court of Appeals. Requires the court to affirm and enforce the rule unless it determines that the Commission's action was arbitrary, capricious, an abuse to constitutional right, power, privilege or immunity; in excess of statutory jurisdiction; or that the rule was adopted without observance of procedures required by law. Extends the payment of the doing-business fee to transactions in listed securities which occur in the over-the-counter market. Authorizes to be appropriated to carry out the functions, powers, and duties of the Commission not to exceed $51,000,000 for fiscal year 1976 and not to exceed $55,000,000 for fiscal year 1977. Increases the possible penalties from $5,000 to $10,000 and/or from two years to five years imprisonment for specified violations of the Securities Act of 1933, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. Provides that an investment adviser to a registered investment company or an affiliated person of such an adviser may receive an amount or benefit in connection with a sale of securities, or any other interest in the adviser, if the adviser can establish that conditions are met which are designed to prevent any unfair burden from being imposed on the investment company in connection with such a transaction. Requires that, for a period of three years after the time of an assignment of an advisory contract with an investment company, at least 75 percent of the directors of the investment company not be interested persons of the outgoing or incoming investment adviser of such company. Provides that an investment adviser, or any person who presently contemplates becoming an investment adviser, may be registered by filing with the Commission an application for registration in such form and containing such information and documents as the Commission, by rule, may prescribe. States that the Commission, by order, shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any investment adviser if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is in the public interest and that such investment adviser, or any person associated with such investment adviser, whether prior to or subsequent to becoming so associated: (1) has willfully made or caused to be made in any application for registration or report required to be filed with the Commission under this title, or in any proceeding before the Commission with respect to registration, any statement which was at the time and in the light of the circumstances under which it was made false or misleading; or (2) has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, this title, or the rules or regulations under any such statutes or any rule of the Municipal Securities Rulemaking Board, or is unable to comply with any such provision. Requires every investment adviser who makes use of the mails or of any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser shall make and keep for prescribed periods such records, furnish such copies thereof, and make and disseminate such reports as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Bars persons who are convicted of specified crimes from serving an investment company as officer, director, principal underwriter, investment adviser or depositor. Authorizes the Commission after notice and opportunity for hearing, to suspend the registration of, or to impose appropriate limitations on the activities, functions, or operations of any national securities exchange or registered securities association that is not in compliance with requirements within 180 days after notice of possible deficiencies from the Commission.