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S. 249 (94th): Securities Acts Amendments


The text of the bill below is as of Jun 4, 1975 (Passed Congress).


PUBLIC LAW 94-29—JUNE 4, 1975                                      89 STAT. 97

Public Law 94-29
94th Congress
                                   An Act
To amend the Securities Exchange Act of 1934 to remove barriers to competi-           June 4, 1975
  tion, to foster the development of a national securities market system and a          [S. 249]
  national clearance and settlement system, to make uniform the Securities
  and Exchange Commission's authority over self-regulatory organizations, to
  provide for the regulation of brokers, dealers and banks trading in municipal
  securities, to facilitate the collection and public dissemination of information
  concerning the holdings of and transactions in securities by institutional
  Investment managers, and for other purposes.

    Be it enacted hy the Senate and House of Representatives of the
 United States of America in Congress assembled^ That this Act may                   Securities Acts
be cited as tlie "Securities Acts Amendments of 1975".                               Amendments of
    SEC. 2. Section 2 of the Securities Exchange Act of 1934 (15 U.S.C               1975.
78b) is amended by inserting immediately before the phrase "and to                   15 u s e 78a note.
                                                                                     Necessity for
impose requirements necessary to make such regulation and control                    regulation.
reasonably complete and effective," the following: "to remove impedi-
ments to and perfect the mechanisms of a national market system for
securities and a national system for the clearance and settlement of
securities transactions and the safeguarding of securities and funds
 related thereto,".
    SEC. 3. Section 3 of the Securities Exchange Act of 1934 (15                     Definitions.
U.S.C. 78c) is amended as follows:
    (1) Paragraph (3) of subsection (a) thereof is amended to read as
follows:
    "(3) (A) The term 'member' when used with respect to a national
securities exchange means (i) any natural person permitted to effect
transactions on the floor of the exchange without the services of
another person acting as broker, (ii) any registered broker or dealer
with which such a natural person is associated, (iii) any registered
broker or dealer permitted to designate as a representative such a
natural person, and (iv) any other registered broker or dealer which
 agrees to be I'egulated by such exchange and with I'espect to which
the exchange undertakes to enforce compliance with the provisions
 of this title, the rules and regulations thereunder, and its own rules.
For purposes 6f sections (b)(1), 6(b)(4), 6(b)(6), 6(b)(7), 6(d),
 17(d), 19(d), 19(e), 19(g), 19(h), and 21 of this title, the term                   Post, pp. 104,
'member' when used with respect to a national securities exchange                    137, 146, 154.
 also means, to the extent of the rules of the exchange specified by the
 Commission, any person required by the Commission to comply with
 such rules pursuant to section 6(f) of this title.
    "(B) The term 'member' when used with respect to a registered
securities association means any broker or dealer who agrees to be
 regulated by such association and with respect to whom the associa-
tion undertakes to enforce compliance with the provisions of this
 title, the rules and regulations thereunder, and its own rules.".
    (2) Paragraph (9) thereof is amended to read as follows:
    "(9) The term 'person' means a natural person, company, govern-
 ment, or political subdivision, agency, or instrumentality of a govern-
 ment.".
    (3) Paragraph (12) of subsection (a) thereof is amended to read
 as follows:
    "(12) The term 'exempted security' or 'exempted securities' includes
securities which are direct obligations of, or obligations guaranteed as
to principal or interest by, the United States; such securities issued or
guaranteed by corporations in which the United States has a direct or
indirect interest as shall be designated for exemption by the Secretary
of the Treasury as necessary or appropriate in the public interest or

89 STAT. 98 PUBLIC LAW 94-29—JUNE 4, 1975 for the protection of investors; municipal securities, as defined in sec- Post, p. 101. tion 3(a) (29) of this title: Provided, however, That municipal securi- ties shall not be deemed to be 'exempted securities' for purposes of sections 15, 15A (except subsections (b)(6), ( b ) ( l l ) , and (g)(2) Post, pp. 121, thereof), and 17A of this title; any interest or participation in any 127, 141. common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, or guardian; any interest or participation in a collective trust fund maintained by a bank or in a separate account maintained by an insur- ance company which interest or participation is issued in connection with (A) a stock bonus, pension, or profit-sharing plan which meets the requirements for qualification under section 401 of the Internal 26 use 401. Revenue Code of 1954, or (B) an annuity plan which meets the requirements for the deduction of the employer's contribution under 26 use 404. section 404(a)(2) of such Code, other than any plan described in clause (A) or (B) of this paragraph which covers employees some or all of whom are employees within the meaning of section 401 (c) (1) of such Code, and such other securities (which may include, among others, unregistered securities, the market in which is predominantly intrastate) as the Commission may, by such rules and regulations as it deems consistent with the public interest and the protection of investors, either unconditionally or upon specified terms and conditions or for stated periods, exempt from the operation of any one or more provisions of this title which by their terms do not apply to an 'exempted security' or to 'exempted securities'.". (4) Paragraphs (17), (18), and (19) of subsection (a) thereof are amended to read as follows: " (17) The term 'interstate commerce' means trade, commerce, trans- portation, or communication among the several States, or between any foreign country and any State, or between any State and any place or ship outside thereof. The term also includes intrastate use of (A) any facility of a national securities exchange or of a telephone or other interstate means of communication, or (B) any other interstate instrumentality. "(18) The term 'person associated with a broker or dealer' or 'asso- ciated person of a broker or dealer' means any partner, officer, director, or branch manager of such broker or dealer (or any person occvipying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with such broker or dealer, or any employee of such broker or dealer, except that any person associated with a broker or dealer whose functions are solely clerical or ministerial shall not be included in the meaning of Post, p. 121. such term for purposes of section 15(b) of this title (other than paragraph (6) thereof). "(19) The terms 'investment company', 'affiliated person', 'insurance company', 'separate account', and 'company' have the same meanings 15 use 80a-2. as in the Investment Company Act of 1940.". (5) Paragraph (21) of subsection (a) thereof is amended to read as follows: "(21) The term 'person associated with a member' or 'associated person of a member' when used with respect to a member of a national securities exchange or registered securities association means any partner, officer, director, or branch manager of such member (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with such member, or any employee of such member.". (6) Subsection (a) thereof is further amended by adding at the end thereof the following new paragraphs:
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 99 "(22) (A) The term 'securities information processor' means any person engaged in the business of (i) collecting, processing, or pre- paring for distribution or publication, or assisting, participating in, or coordinating the distribution or publication of, information with respect to transactions in or quotations for any security (other than an exempted security) or (ii) distributing or publishing (whether by means of a ticker tape, a communications network, a terminal display device, or otherwise) on a current and continuing basis, information with respect to such transactions or quotations. The term 'securities information processor' does not include any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, any self-regulatory organization, any bank, broker, dealer, building and loan, savings and loan, or homestead association, or cooperative bank, if such bank, broker, dealer, association, or coop- erative bank would be deemed to be a securities information processor solely by reason of functions performed by such institutions as part of customary banking, brokerage, dealing, association, or cooperative bank activities, or any common carrier, as defined in section 3(h) of the Communications Act of 1934, subject to the jurisdiction of the 47 USC 153. Federal Communications Commission or a State commission, as defined in section 3(t) of that Act, unless the Commission determines that such carrier is engaged in the business of collecting, processing, or preparing for distribution or publication, information Math respect to transactions in or quotations for any security. "(B) The term 'exclusive processor' means any securities informa- tion processor or self-regulatory organization which, directly or indi- rectly, engages on an exclusive basis on behalf of any national securities exchange or registered securities association or any national securities exchange or registered securities association which engages on an exclusive basis on its own behalf in collecting, processing, or preparing for distribution or publication any information with respect to (i) transactions or quotations on or effected or made by means of any facility of such exchange or (ii) quotations distributed or published by means of any electronic system operated or controlled by such association. "(23) (A) The term 'clearing agency' means any person who acts as an intermediary in making payments or deliveries or both in connection with transactions in securities or who provides facilities for comparison of data respecting the terms of settlement of securities transactions, to reduce the number of settlements of securities trans- actions, or for the allocation of securities settlement responsibilities. Such term also means any person, such as a securities depository, who (i) acts as a custodian of securities in connection with a system for the central handling of securities whereby all securities of a particular class or series of any issuer deposited within the system are treated as fungible and may be transferred, loaned, or pledged by bookkeeping entry without physical delivery of securities certificates, or (ii) other- wise permits or facilitates the settlement of securities transactions or the hypothecation or lending of securities without physical delivery of securities certificates. "(B) The term 'clearing agency' does not include (i) any Federal Reserve bank. Federal home loan bank, or Federal land bank; (ii) any national securities exchange or registered securities association solely by reason of its providing facilities for comparison of data respecting the terms of settlement of securities transactions effected on such exchange or by means of any electronic system operated or con- trolled by such association; (iii) any bank, broker, dealer, building and loan, savings and loan, or homestead association, or cooperative bank if such bank, broker, dealer, association, or cooperative bank
39 STAT. 100 PUBLIC LAW 94-29—JUNE 4, 1975 would be deemed to be a clearing agency solely by reason of functions performed by such institution as part of customary banking, broker- age, dealing, association, or cooperative banking activities, or solely by reason of acting on behalf of a clearing agency or a participant therein in connection with the furnishing by the clearing agency of services to its participants or the use of services of the clearing agency by its participants, unless the Commission, by rule, otherwise provides as necessary or appropriate to assure the prompt and accurate clear- ance and settlement of securities transactions or to prevent evasion of this title; (iv) any life insurance company, its registered separate accounts, or a subsidiary of such insurance company solely by reason of functions commonly performed by such entities in connection with variable annuity contracts or variable life policies issued by such insurance company or its separate accounts; (v) any registered open- end investment company or unit investment trust solely by reason of functions commonly performed by it in connection with shares in such registered open-end investment company or unit investment trust, or (vi) any person solely by reason of its performing functions described in paragraph 25(E) of this subsection, "(24) The term 'participant' when used with respect to a clearing agency means any person who uses a clearing agency to clear or settle securities transactions or to transfer, pledge, lend, or hypothecate securities. Such term does not include a person whose only use of a clearing agency is (A) through another person who is a participant or (B) as a pledgee of securities. "(25) The term 'transfer agent' means any person who engages on behalf of an issuer of securities or on behalf of itself as an issuer of securities in (A) countersigning such securities upon issuance; (B) monitoring the issuance of such securities with a view to preventing unauthorized issuance, a function commonly performed by a person called a registrar; (C) registering the transfer of such securities; (D) exchanging or converting such securities; or (E) transferring record ownership of securities by bookkeeping entry without physical issuance of securities certificates. The term 'transfer ajjent' does not include any insurance company or separate account which performs such functions solely with respect to variable annuity contracts or variable life policies which it issues or any registered clearing agency which performs such functions solely with respect to options contract which it issues. "(26) The term 'self-regulatory organization' means any national securities exchange, registered securities association, or registered clearing agency, or (solely for purposes of sections 19(b), 19(c), and Post, pp. 146, 23(b) of this title) the Municipal Securities Rulemaking Board estab- 1^^- lished by section 15B of this title. Post, p. 131. "(27) The term 'rules of an exchange', 'rules of an association', or 'rules of a clearing agency' means the constitution, articles of incor- poration, bylaws, and rules, or instruments corresponding to the fore- going, of an exchange, association of brokers and dealers, or clearing agency, respectively, and such of the stated policies, practices, and interpretations of such exchange, association, or clearing agency as the Commission, by rule, may deitermine to be necessary or appropriate in the public interest or for the protection of investors to be deemed to be rules of such exchange, association, or clearing agency. "(28) The term 'rules of a self-regulatory orfjanization' means the rules of an exchange which is a national securities exchange, the rules of an association of brokers and dealers which is a registered securities association, the rules of a clearing agency which is a registered clear- ing agency, or the rules of the Municipal Securities Rulemaking Board.
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 101 "(29) The term 'municipal securities' means securities which are direct obligations of, or obligations guaranteed as to principal or interest by, a State or any political subdivision thereof, or any agency or instrumentality of a State or any political subdivision thereof, or any municipal corporate instrumentality of one or more States, or any security which is an industrial development bond (as defined in section 103 (c) (2) of the Internal Kevenue Code of 1954) the interest on which 26 USC 103. is excludable from gross income under section 103(a) (1) of such Code if, by reason of the application of paragraph (4) or (6) of section 103 (c) of such Code (determined as if paragraphs (4) (A), (5), and (7) were not included in such section 103(c)), paragraph (1) of such sec- tion 103(c) does not apply to such security. "(30) The term 'municipal securities dealer' means any person (including a separately identifiable department or division of a bank) engaged in the business of buying and selling municipal securities for his own account, through a broker or otherwise, but does not include— "(A) any person insofar as he buys or sells such securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business; or "(B) a bank, unless the bank is engaged in the business of buy- ing and selling municipal securities for its own account other than in a fiduciary capacity, through a broker or othei-wise: Pro- vided, however, That if the bank is engaged in such business through a separately identifiable department or division (as defined by the Municipal Securities Rulemaking Board in accord- ance with section 15B(b) (2) (H) of this title), the department or Post, p. 131. division and not the bank itself shall be deemed to be the mimic- ipal securities dealer. " (31) The term 'municipal securities broker' means a broker engaged in the business of effecting transactions in municipal securities for the account of others. " (32) The term 'person associated with a municipal securities dealer' when used with respect to a municipal securities dealer which is a bank or a division or department of a bank means any person directly engaged in the management, direction, supervision, or performance of any of the municipal securities dealer's activities with respect to munic- ipal securities, and any person directly or indirectly controlling such activities or controlled by the municipal securities dealer in connection with such activities. " (33) The term 'municipal securities investment portfolio' means all municipal securities held for investment and not for sale as part of a regular business by a municipal securities dealer or by a person, directly or indirectly, controlling, controlled by, or under common con- trol with a municipal securities dealer. " (34) The term 'appropriate regulatory agency' means— "(A) When used with respect to a municipal securities dealer: "(i) the Comptroller of the Currency, in the case of a national bank or a bank operating under the Code of Law for the District of Columbia, or a subsidiary or a department or division of any such bank; "(ii) the Board of Governors of the Federal Reserve Sys- tem, in the case of a State member bank of the Federal Reserve System, a subsidiary or a department or division thereof, a bank holding company, a subsidiary of a bank holding com- pany which is a bank other than a bank specified in clause (i) or (iii) of this subparagraph, or a subsidiary or a depart- ment or division of such subsidiary; "(iii) the Federal Deposit Insurance Corporation, in the case of a bank insured by the Federal Deposit Insurance Cor- 57-194 O - 77 - 11
89 STAT. 102 PUBLIC LAW 94-29—JUNE 4, 1975 poration (other than a member of the Federal Reserve Sys- tem), or a subsidiary or department or division thereof; and "(iv) the Commission in the case of all other municipal securities dealers. "(B) When used with respect to a clearing agency or transfer agent: "(i) the Comptroller of the Currency, in the case of a national bank or a bank operating under the Code of Law for the District of Columbia, or a subsidiary of any such bank; "(ii) the Board of Governors of the Federal Reserve Sys- tem, in the case of a State member bank of the Federal Reserve System, a subsidiary thereof, a bank holding company, or a subsidiary of a bank holding company which is a bank other than a bank specified in clause (i) or (iii) of this subpara- graph; "(iii) the Federal Deposit Insurance Corporation, in the case of a bank insured by the Federal Deposit Insurance Cor- poration (other than a member of the Federal Reserve Sys- tem) , or a subsidiary thereof; and " (iv) the Commission in the case of all other clearing agen- cies and transfer agents. " (C) When used with respect to a participant or applicant to become a participant in a clearing agency or a person requesting or having access to ser\dces offered by a clearing agency: "(i) the Comptroller of the Currency, in the case of a national bank or a bank operating under the Code of Law for the District of Columbia when the appropriate regulatory agency for such clearing agency is not the Commission; "(ii) the Board of Governors of the Federal Reserve Sys- tem in the case of a state member bank of the Federal Reserve System, a bank holding company, or a subsidiary of a bank holding company, or a subsidiary of a bank holding company which is a bank other than a bank specified in clause (i) or (iii) of this subparagraph when the appropriate regulatory agency for such clearing agency is not the Commission; "(iii) the Federal Deposit Insurance Corporation, in the case of a bank insured by the Federal Deposit Insurance Corporation (other than a member of the Federal Reserve System) when the appropriate regulatory agency for such clearing agency is not the Commission; and " (iv) the O)mmission in all other cases. "(D) When used with respect to an institutional investment manager which is a bank the deposits of which are insured in 12 use 1811 accordance with the Federal Deposit Insurance Act: °°*®- "(i) the Comptroller of the Currency, in the case of a national bank or a bank operating under the Code of Law for the District of Columbia; "(ii) the Board of Governors of the Federal Reserve Sys- tem, in the case of any other member bank of the Federal Reserve System; and "(iii) the Federal Deposit Insurance Corporation, in the case oi any other insured bank, " ( E ) When used with respect to a national securities exchange or registered securities association, member thereof, person asso- ciated with a member thereof, applicant to become a member thereof or to become associated with a member thereof, or person requesting or having access to services offered by such exchange or association or member thereof, or the Municipal Securities Rulemaking Board, the Commission.
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 103 " (F) When used with respect to a person exercising investment discretion with respect to an account; "(i) the Comptroller of the Currency, in the case of a national bank or a bank operating under the Code of Law for the District of Columbia; " (ii) The Board of Governors of the Federal Keserve Sys- tem in the case of any other member bank of the Federal Reserve System; "(iii) the Federal Deposit Insurance Corporation, in the case of any other bank the deposits of which are insured in accordance wuth the P'ederal Deposit Insurance Act; and "(iv) the Commission in the case of all other such persons. As used in this paragraph, the terms 'bank holding company' and 'sub- sidiary of a bank holding company' have the meanings given them in section 2 of the Bank Holding Company Act of 1956. 12 USC 1841. "(35) A person exercises 'investment discretion' with respect to an account if, directly or indirectly, such person (A) is authorized to determine what securities or other property shall be purchased or sold by or for the account, (B) makes decisions as to what securities or other property shall be purchased or sold by or for the account even though some other person may have responsibility for such investment decisions, or (C) otherwise exercises such influence with respect to the purchase and sale of securities or other property by or for the account as the Commission, by rule, determines, in the public interest or for the protection of investors, should be subject to the operation of the provisions of this title and the rules and regulations thereunder. "(36) A class of persons or markets is subject to 'equal regulation' if no member of the class has a competitive advantage over any other member thereof resulting from a disparity in their regulation under this title Avhich the Commission determines is unfair and not neces- sary or appropriate in furtherance of the purposes of this title. "(37) The term 'records' means accounts, correspondence, memo- randums, tapes, discs, papers, books, and other documents or tran- scribed information of any type, whether expressed in ordinary or machine language. "(38) The term 'market maker' means any specialist permitted to act as a dealer, any dealer acting in the capacity of block positioner, and any dealer who, with respect to a security, holds himself out (by entering quotations in an inter-dealer communications system or other- wise) as being willing to buy and sell such security for his own account on a regular or continuous basis. "(39) A person is subject to a 'statutory disqualification' with respect to membership or participation in, or association with a mem- ber of, a self-regulatory organization, if such person— "(A) has been and is expelled or suspended from membership or participation in, or barred or suspended from being associated with a member of, any self-regulatory organization; "(B) is subject to an order of the Commission denying, sus- pending for a period not exceeding twelve months, revoking his registration as a broker, dealer, or municipal securities dealer, or barring his being associated with a broker, dealer, or municipal securities dealer; "(C) by his conduct while associated with a broker, dealer, or municipal securities dealer, has been found to be a cause of any effective suspension, expulsion, or order of the character described in subparagraph (A) or (B) of this paragraph, and in entering such a suspension, expulsion, or order, the Commission or any such self-regulatory organization shall have jurisdiction to find whether or not any person was a cause thereof;
89 STAT. 104 PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975 " ( D ) has associated with him any person who is known, or in the exercise of reasonable care should be known, to him to be a person described by s u b p a r a g r a p h ( A ) , ( B ) , or (C) of this para- g r a p h ; or " ( E ) has committed or omitted any act enumerated in sub- p a r a g r a p h ( D ) or ( E ) of p a r a g r a p h (4) of section 15(b) of this Post, p. 121. title, has been convicted of any offense specified in s u b p a r a g r a p h ( B ) of such p a r a g r a p h (4) within ten years of the date of the filing of an application for membership or participation in, or to become associated with a member of, such self-regulatory orga- nization, is enjoined from any action, conduct, or practice speci- fied in s u b p a r a g r a p h (C) of such p a r a g r a p h ( 4 ) , has willfully made or caused to be made in any application for membership or participation in, or to become associated with a member of, a self-regulatory organization, report required to be filed with a self-regulatory organization, or proceeding before a self-regula- tory organization, any statement which was at the time, and in t h e light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to state in any such application, report, or proceeding any material fact which is required to be stated therein.". Rules and (7) Subsection (b) thereof is amended to read as follows: regulations. " ( b ) The Commission and the B o a r d of Governors of the Federal Reserve System, as to matters within their respective jurisdictions, shall have power by rules and regulations to define technical, trade, accounting, and other terms used in this title, consistently with the provisions and purposes of this title.". (8) The section is further amended by adding at the end thereof the following new subsection: " ( d ) No issuer of municipal securities or officer or employee thereof acting in the course of his official duties as such shall be deemed to be a 'broker', 'dealer', or 'municipal securities dealer' solely by reason of buying, selling, or effecting transactions in the issuer's securities.". SEC. 4. Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended t o read as follows: " N A T I O N A L SECURITIES EXCHANGES Registration. " S E C . 6. (a) A n exchange may be registered as a national securities exchange under the terms and conditions hereinafter provided in this section and in accordance with the provisions of section 19(a) of this Post, p. 146. title, by filing with the Commission an application for registration in such form as the Commission, by rule, may prescribe containing the rules of the exchange and such other information and documents as the Commission, by rule, may prescribe as necessary or a p p r o p r i a t e in the public interest or for the protection of investors. " ( b ) A n exchange shall not be registered as a national securities exchange unless the Commission determines that— " ( 1 ) Such exchange is so organized and has the capacity to be able to carry out the purposes of this title and to comply, and (subject to any rule or order of the Commission p u r s u a n t to sec- Post, pp. 137, tion 17(d) or 19(g) (2) of this title) to enforce compliance by 146. its members and persons associated with its members, with the provisions of this title, the rules and regulations thereunder, and the rules of the exchange. " ( 2 ) Subject to the provisions of subsection (c) of this section, the rules of the exchange provide t h a t any registered broker or dealer or natural person associated with a registered broker or dealer may become a Inember of such exchange and any person may become associated with a member thereof.
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 105 " ( 3 ) The rules of the exchange assure a fair representation of its members in the selection of its directors and administration of its affairs and provide t h a t one or more directors shall be rep- resentative of issuers and investors and not be associated with a member of the exchange, broker, or dealer. " ( 4 ) The rules of the exchange provide for the equitable allo- cation of reasonable dues, fees, and other chai'ges among its mem- bers and issuers and other persons using its facilities. " ( 5 ) The rules of the exchange are designed to prevent fraudu- lent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordina- tion with persons engaged in regulating, clearing, settling, proc- essing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, or to regulate by virtue of any author- ity conferred by this title matters not related to the purposes of this title or the administration of the exchange. " ( 6 ) The rules of the exchange provide t h a t (subject to any rule or order of the Commission pursuant to section 17(d) or 19 (g) (2) of this title) its members and persons associated with its Post, pp. 137, members shall be appropriately disciplined for violation of the 146. provisions of this title, the rules or regulations thereunder, or the rules of t h e exchange, by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, being suspended or barred from being associated with a member-, or any other fit- ting sanction. " ( 7 ) The rules of the exchange ai-e in accordance with the pro- visions of subsection (d) of this section, and in general, provide a fair procedure for the disciplining of members and persons associated with members, the denial of membership to any person seeking membership therein, the b a r r i n g of any person from becoming associated w4th a member thereof, and the prohibition or limitation by the exchange of any person with respect to access to services offered by the exchange or a member thereof. " ( 8 ) The rules of the exchange do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this title. " ( c ) ( 1 ) A national securities exchange shall deny membership to Membership, ( A ) any person, other t h a n a n a t u r a l person, which is not a registered denial. broker or dealer or ( B ) any natural person who is not, or is not asso- ciated with, a registered broker or dealer. " ( 2 ) A national securities exchange may, and in cases in which the Commission, by order, directs as necessary or appropriate in the public interest or for the protection shall, deny membership t o any registered broker or dealer or natural person associated with a regis- tered broker or dealer, and bar from becoming associated with a mem- ber any person, w^ho is subject to a statutory disqualification. A national Notice. securities exchange shall file notice with the Commission not less t h a n t h i r t y days prior to admitting any person to membership or permitting any person to become associated with a member, if the exchange knew, or in the exercise of reasonable care should have known, that such person was subject to a statutory disqualification. T h e notice shall be in such form and contain such information as the Commission, by rule, m a y prescribe as necessary or appropriate in the public interest or for the protection of investors.
89 STAT. 106 PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975 " ( 3 ) ( A ) A national securities exchange may deny membership to, or condition t h e membership of, a registered broker or dealer if (i) snch broker or dealer does not meet such standards of financial respon- sibility or operational capability or such broker or dealer or any natural person association with such broker or dealer does not meet such stand- ards of training, experience, and competence as are prescribed by the rules of the exchange or (ii) such broker or dealer or person associated with such broker or dealer has engaged and there is a reasonable like- lihood he may again engage in acts or practices inconsistent with just and equitable principles of trade. A national securities exchange may examine and verify the qualifications of an applicant to become a member and the n a t u r a l persons associated with such an applicant in accordance with procedures established by the rules of the exchange. " ( B ) A national securities exchange may bar a n a t u r a l person from becoming a member or associated with a member, or condition the membership of a natural person or association of a natural person with a member, if such n a t u r a l person (i) does not meet such standards of training, experience, and competence as are prescribed by the rules of the exchange or (ii) has engaged and there is a reasonable likeli- hood he may again engage in acts or practices inconsistent with just and equitable principles of trade. A national securities exchange may examine and verify the qualifications of an applicant to become a person associated wnth a member in accordance with procedures estab- lished by the rules of the exchange and require any person associated with a member, or any class of such persons, to be registered with the exchange in accordance with procedures so established. " ( C ) A national securities exchange may bar any person from becoming associated wnth a member if such person does not agree (i) to supply the exchange with such information with respect to its rela- tionship and dealings with the member as may be specified in the rules of the exchange and (ii) to permit the examination of its books and records to verify the accuracy of any information so supplied. Membership, "('4) A national securities exchange may (A) limit t h e number of limitation. members of the exchange and ( B ) the number of members and desig- nated representatives of members permitted to effect transactions on the floor of the exchange without t h e services of another person acting as broker: Provided, hotvever, T h a t no national securities exchange shall have the authority to decrease the number of memberships in such exchange, or the number of members and designated representatives of members permitted to effect transactions on the floor of such exchange without the services of another person acting as broker, below such number in effect on May 1, 1975, or t h e date such exchange w^as reg- istered with the Commission, whichever is l a t e r : And provided further, T h a t the Commission, in accordance with the provisions of section Post, p. 146. 19(c) of this title, may amend the rules of any national securities exchange to increase (but not to decrease) or to remove any limitation on the number of memberships in such exchange or the number of members or designated representatives of members permitted to effect transactions on the floor of the exchange without the services of another person acting as broker, if t h e Commission finds t h a t such limitation imposes a burden on competition not necessary or a p p r o p r i a t e in fur- therance of the purposes of this title. Disciplinary " ( d ) ( 1 ) I n any proceeding by a national securities exchange to actions. determine whether a member or person associated with a member should be disciplined (other t h a n a summary proceeding p u r s u a n t to p a r a g r a p h (3) of this subsection), the exchange shall bring specific charges, notify such member or person of, and give him an opportunity to defend against, such charges, and keep a record. A determination
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 107 by the exchange to impose a disciplinary sanction shall be supported by a statement setting forth— "(A) any act or practice in which such member or person asso- ciated with a member has been found to have engaged, or which such member or person has been found to have omitted; "(B) the specific provision of this title, the rules or regulations thereunder, or the rules of the excl.ange which any such act or practice, or omission to act, is deemed to violate; and "(C) the sanction imposed and the reasons therefor. "(2) In any proceeding by a national securities exchange to deter- Notice and mine whether a person shall be denied membership, barred from hearing, becoming associated with a member, or prohibited or limited wnth respect to access to services offered by the exchange or a member thereof (other than a summary proceeding pursuant to paragraph (3) of this subsection), the exchange shall notify such person of, and give him an opportunity to be heard upon, the specific grounds for denial, bar, or prohibition or limitation under consideration and keep a record. A determination by the exchange to deny membership, bar a person from becoming associated with a member, or prohibit or limit a person with respect to access to services offered by the exchange or a member thereof shall be supported by a statement setting forth the specific grounds on which the denial, bar, or prohibition or limitation is based. "(3) A national securities exchange may summarily (A) suspend a Summary member or person associated with a member who has been and is suspension, expelled or suspended from any self-regulatory organization or barred or suspended from being associated with a member of any self-regula- tory organization, (B) suspend a member who is in such financial or operating difficulty that the exchange deteiinines and so notifies the Commission that the member cannot be permitted to continue to do business as a member with safety to investors, creditors, other mem- bers, or the exchange, or (C) limit or prohibit any person with respect to access to services offered by the exchange if subparagraph (A) or (B) of this paragraph is applicable to such person or, in the case of a person who is not a member, if the exchange determines that such per- son does not meet the qualification requirements or other prerequisites for such access and such person cannot be permitted to continue to have such access w'ith safety to investors, creditors, members, or the exchange. Any person aggrieved by any such summary action shall Hearing, be promptly afforded an opportunity for a hearing by the exchange in accordance with the provisions of paragraph (1) or (2) of this sub- section. The Commission, by order, may stay any such summary action Stay of action, on its own motion or upon application by any person aggrieved thereby, if the Commission determines summarily or after notice and opportunity for hearing (which hearing may consist solely of the sub- mission of affidavits or presentation of oral arguments) that such stay is consistent with the public interest and the protection of investors. "(e) (1) On and after the date of enactment of the Securities Acts Rates and fees. Amendments of 1975, no national securities exchange may impose any schedule or fix rates of commissions, allowances, discounts, or other fees to be charged by its members: Provided^ however. That until May 1, 1976, the preceding provisions of this paragraph shall not prohibit any such exchange from imposing or fixing any schedule of commis- sions, allowances, discounts, or other fees to be charged by its members for acting as broker on the floor of the exchange or as odd-lot dealer: And provided further. That the Commission, in accordance with the provisions of section 19(b) of this title as modified by the provisions Post, p. 146. of paragraph (4) of this section, may— "(A) permit a national securities exchange, by rule, to impose a reasonable schedule or fix reasonable rates of commissions.
8 9 STAT. 108 PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975 allowances, discounts, or other fees to be charged by its members for effecting transactions on such exchange prior to November 1, 1976, if the Commission finds t h a t such schedule or fixed rates of commissions, allowances, discounts, or other fees are in the public interest; and " ( B ) permit a national securities exchange, by rule, to impose a schedule or fix rates of commissions, allowances, discounts, or other fees to be charged by its members for effecting transactions on such exchange after November 1,1976, if the Commission finds t h a t such schedule or fixed rates of commissions, allowances, dis- counts, or other fees (i) are reasonable in relation to the costs of providing the service for which such fees are charged (and the Commission publishes the standards employed in adjudging reasonableness) and (ii) do not impose any burden on compe- tition not necessary or appropriate in furtherance of the purposes of this title, taking into consideration the competitive effects of permitting such schedule or fixed rates weighed against the com- petitive effects of other lawful actions which the Commission is authorized to take under this title. Post, p. 146. " ( 2 ) Notwithstanding the provisions of section 19(c) of this title, the Commission, by rule, may abrogate any exchange rule which imposes a schedule or fixes rates of commissions, allowances, discotmts, or other fees, if the Commission determines t h a t such schedule or fixed rates are no longer reasonable, in the public interest, or necessary to accomplish the purposes of this title. Information, " ( 3 ) Until December 31, 1976, the Commission, on a regular basis, filing with shall file with the Speaker of the House and the President of the Speaker of the Senate information concerning the effect on the public interest, pro- House and tection of investors, and maintenance of fair and orderly markets of President of the Senate. the absence of any schedule or fixed rates of commissions, allowances, discounts, or other fees to be charged by members of any national securities exchange for effecting transactions on such exchange. Oral " ( 4 ) (A) Before approving or disapproving any proposed rule presentations. change submitted by a national securities exchange wliich would impose a schedule or fix rates of commissions, allowances, discounts, or other fees to be charged by its members for effecting transactions on such exchange, the Commission shall afford interested persons (i) an opportunity for oral presentation of data, views, and arguments and (ii) with respect to any such rule concerning transactions effected after November 1, 1976, if the Commission determines there are dis- puted issues of material fact, to present such rebuttal submissions and to conduct (or have conducted under s u b p a r a g r a p h ( B ) of this para- g r a p h ) 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. Rules and " ( B ) The Commission shall prescribe rules and make rulings con- rulings. cerning any proceeding in accordance with s u b p a r a g r a p h (A) of this p a r a g r a p h designed to avoid unnecessary costs or delay. Such rules or rulings may (i) impose reasonable time limits on each interested person's oral presentations, and (ii) require any cross-examination to which a person may be entitled under s u b p a r a g r a p h ( A ) of this para- g r a p h to be conducted by the Commission on behalf of that person in such manner as the Commission determines to be appropriate and required for full disclosure and proper resolution of disputed issues of material fact. Class " ( C ) (i) I f any class of persons, t h e members of which are entitled representative. t o conduct (or have conducted) cross-examination under subpara- g r a p h s ( A ) and ( B ) of this p a r a g r a p h and which have, in t h e view of the Commission, the same or similar interests in the proceeding,
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 109 cannot agree upon a single representative of such interests for pur- poses of cross-examination, the Commission may make rules and rul- ings specifying the manner in which such interests shall be represented and such cross-examination conducted. "(ii) No member of any class of persons with respect to which the Commission has specified the manner in which its interests shall be represented pursuant to clause (i) of this subparagraph shall be denied, pursuant to such clause (i), the opportunity to conduct (or have conducted) cross-examination as to issues affecting his particu- lar interests if he satisfies the Commission that he has made a reasonable and good faith effort to reach agreement upon group representation and there are substantial and relevant issues which would not be presented adequately by group representation. "(D) A transcript shall be kept of any oral presentation and Transcript. cross-examination. " ( E ) In addition to the bases specified in subsection 25(a), a Post, p. 158. reviewing Court may set aside an order of the Commission under section 19(b) approving an exchange rule imposing a schedule or fixes Post, p. 146. lates of commissions, allowances, discounts, or other fees, if the Court finds— "(1) a Commission determination under paragraph (4) (A) that an interested person is not entitled to conduct cross-examina- tion or make rebuttal submissions, or "(2) a Commission rule or ruling under paragraph (4) (B) limiting the petitioner's cross-examination or rebuttal sub- missions, has precluded full disclosure and proper resolution of disputed issues of material fact which were necessary for fair determination by the Commission. "(f) The Commission, by rule or order, as it deems necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to assure equal regulation, may require— "(1) any person not a member or a designated representative of a member of a national securities exchange effecting trans- actions on such exchange without the services of another person acting as a broker, or "(2) any broker or dealer not a member of a national securities exchange effecting transactions on such exchange on a regular basis, to comply with such rules of such exchange as the Commission may specify.". SEC. 5. Section 8 of the Securities Exchange Act of 1934 (15 U.S.C. Borrowing by 78h) is amended as follows: members, (1) The first sentence thereof is amended by striking out the phrase brokers, and dealers, "any member of a national securities exchange, or any broker or dealer restrictions. who transacts a business in securities through the medium of any such member" and by inserting in lieu thereof the phrase "any registered broker or dealer, member of a national securities exchange, or broker or dealer who transacts a business in securities through the medium of any member of a national securities exchange". (2) The section is further amended by striking out subsection (b), redesignating subsections (c) and (d) thereof as subsections (b) and (c) respectively, and amending redesignated subsection (c) to read as follows: "(c) To lend or arrange for the lending of any securities carried for the account of any customer without the written consent of such cus- tomer or in contravention of such rules and regulations as the Com- mission shall prescribe for the protection of investors."
89 STAT. 110 PUBLIC LAW 94-29—JUNE 4, 1975 Trading by SEC. 6. Section 11 of the Securities Exchange Act of 1934 (15 U.S.C. members of 78k) is amended as follows : exchanges, (1) The title thereof is amended to r e a d : "TRADING BY MEMBERS OF brokers, and EXCHANGES, BROKERS, AND DEALERS". dealers. (2) Subsections (a) and (b) thereof are amended to read as follows: " (a) (1) I t shall be unlawful for any member of a national securities exchange to effect any transaction on such exchange for its own account, the account of an associated pereon, or an account with respect to which it or an associated person thereof exercises investment discretion: Provided^ however^ T h a t this p a r a g r a p h shall not make unlawful— " ( A ) any transaction by a dealer acting in the capacity of market m a k e r ; " ( B ) any transaction for the account of an odd-lot dealer in a security in which he is so registered; " ( C ) any stabilizing transaction effected in compliance with 15 use 78j. rules under section 10(b) of this title to facilitate a distribution of a security in which the member effecting such transaction is participating; " ( D ) any bona fide arbitrage transaction, any bona fide hedge transaction involving a long or short position in an equity secu- rity and a long or short position in a security entitling the holder to acquire or sell such equity security, or any risk arbitrage trans- action in connection with a merger, acquisition, tender offer, or similar transaction involving a recapitalization; " ( E ) any transaction for the account of a natural person, the estate of a n a t u r a l person, or a trust (other t h a n an investment company) created by a natural person for himself or another natural person; " ( F ) any transaction to offset a transaction made in e r r o r ; " ( G ) any other transaction for a member's own account pro- vided t h a t (i) such member is primarily engaged in the business of underwriting and distributing securities issued by other per- sons, selling securities to customers, and acting as broker, or any one or more of such activities, and whose gross income normally is derived principally from such business and related activities and (ii) such transaction is effected in compliance with rules of the Commission which, as a minimum, assure that the transaction is not inconsistent with the maintenance of fair and orderly markets and yields priority, parity, and precedence in execution to orders for the account of persons who are not members or asso- ciated with members of the exchange; and " ( H ) any other transaction of a kind which the Commission, by rule, determines is consistent with the purposes of this para- g r a p h , the protection of investors, and the maintenance of fair and orderly markets. " ( 2 ) T h e Commission, by rule, as it deems necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to assure equal regulation of exchange markets and markets occurring otherwise than on an exchange, may regulate or p r o h i b i t : " ( A ) transactions on a national securities exchange not unlaw- ful under p a r a g r a p h (1) of this subsection effected by any mem- ber thereof for its own account (unless such member is acting in the capacity of market maker or odd-lot dealer), the account of an associated person, or an account with respect to which such member or an associated person thereof exercises investment dis- cretion :
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. I l l "(B) transactions otherwise than on a national securities exchange effected by use of the mails or any means or instrumen- tality of interstate commerce by any member of a national secu- rities exchange, broker, or dealer for the account of such member, broker, or dealer (unless such member, broker, or dealer is acting in the capacity of a market maker) the account of an associated person, or an account with respect to Avhich such member, broker, or dealer or associated person thereof exercises investment discre- tion ; and "(C) transactions on a national securities exchange effected by any broker or dealer not a member thereof for the account of such broker or dealer (unless such broker or dealer is acting in the capacity of market maker), the account of an associated per- son, or an account with respect to which such broker or dealer or associated person thereof exercises investment discretion. "(8) The provisions of paragraph (1) of this subsection insofar as Effective date. they apply to transactions on a national securities exchange effected by a member thereof who was a member on May 1, 1975 shall not become effective until May 1, 1978. Nothing in this paragraph shall be construed to impair or limit the authority of the Commission to regulate or prohibit such transactions prior to May 1, 1978, pursuant to paragraph (2) of this subsection. "(b) When not in contravention of such rules and regulations as Odd-lot dealers tlie Commission may prescribe as necessary or appropriate in the pub- and specialists. lic intei'est and for the protection of investors, to maintain fair and oi-derly markets, or to remove impediments to and perfect the mech- anism of a national market system, the rules of a national securities exchange may permit (1) a member to be registered as an odd-lot dealer- and as such to buy and sell for his own account so far as may be reasonably necessary to carry on such odd-lot transactions, and (2) a member to be registered as a specialist. Under the rules and reguhitions of the Commission a specialist may be permitted to act as a bi'olver and dealer or limited to acting as a broker or dealer. I t shall be unlawful for a specialist or an official of the exchange to disclose infoT-mation in regard to orders placed with such specialist which is not available to all members of the exchange, to any person other than an official of the exchange, a representative of the Commission, or a specialist Avho may be acting for such specialist: Provided^ however^ That the Commission, by rule, may require disclosure to all members of tlie exchange of all orders placed with specialists, under such rules and T'egulations as the Commission may prescribe as necessary or appiopriate in the public interest or for the protection of investors. It shall also be unlawful for a specialist permitted to act as a broker and dealer to effect on the exchange as broker any transaction except upon a market or limited price order.". (8) Subsection (e) thereof is repealed. Repeal. SEC. 7. The Securities Exchange Act of 1934 is amended by inserting 15 use 78k. after section 11 (15 U.S.C. 78k) the following new section: NATIONAL MARKET SYSTEM FOR SECURITIES; SECURITIES INFORMATION PROCESSORS "SEC. IIA. (a) (1) The Congress finds that— 15 use 78k-l. "(A) The securities markets are an important national asset which must be preserved and strengthened. "(B) New data processing and communications techniques create the opportunity for more efficient and effective market operations.
89 STAT. 112 PUBLIC LAW 94-29—JUNE 4, 1975 " ( C ) I t is in the public interest and appropriate for the protec- tion of investors and t h e maintenance of fair and orderly markets to assure— " ( i ) economically efficient execution of securities transac- tions ; " ( i i ) fair competition among brokers and dealers, among exchange markets, and between exchange markets and mar- kets other t h a n exchange m a r k e t s ; " ( i i i ) the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities; " ( i v ) the practicability of brokers executing investors' orders in the best m a r k e t ; and " ( v ) an opportunity, consistent with the provisions of clauses (i) and (iv) of this subparagraph, for investors' orders to be executed without t h e participation of a dealer. " ( D ) The linking of all markets for qualified securities through communication and data processing facilities w^ill foster efficiency, enhance competition, increase the information available to brokers, dealers, and investors, facilitate the offsetting of investors' orders, and contribute to best execution of such orders. National market " ( 2 ) The Commission is directed, therefore, having due regard for system for the public interest, the protection of investors, and the maintenance securities, of fair and orderly markets, to use its authority under this title to establishment. facilitate the establishment of a national market system for securities (which may include subsystems for particular types of securities with unique t r a d i n g characteristics) in accordance with the findings and to carry out the objectives set forth in p a r a g r a p h (1) of this subsection. The Commission, by rule, shall designate the securities or classes of securities qualified for t r a d i n g in the national market system from among securities other than exempted securities. (Securities or classes of securities so designated hereinafter in this section referred to as 'qualified securities'.) " ( 3 ) The Commission is authorized in furtherance of the directive m p a r a g r a p h (2) of this subsection— Advisory " ( A ) to create one or more advisory committees pursuant to committees, the Federal Advisory Committee Act (which shall be in addi- establishment. tion to the National Market Advisory Board established pursuant 5 u s e app. I. to subsection (d) of this section) and to employ one or more out- side experts; " ( B ) by rule or order, to authorize or require self-regulatory organizations to act jointly with respect to matters as to which they share authority under this title in planning, developing, operating, or regulating a national market system (or a sub- system thereof) or one or more facilities thereof; and Studies and " ( C ) to conduct studies and make recommendations to the recommendations Congress from time to time as to the possible need for modifica- to Congress. tions of the scheme of self-regulation provided for in this title so as to a d a p t it to a national market system. Securities " ( b ) ( 1 ) Except as otherwise provided in this section, it shall be information unlawful for any securities information processor unless registered processors. in accordance with this subsection, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce Exemption. to perform the functions of a securities information processor. T h e Commission, by rule or order, upon its own motion or upon application, m a y conditionally or unconditionally exempt any securities informa- tion processor or class of securities information processors or security or class of securities from any provision of this section or the rules or regulations thereunder, if the Commission finds that such exemption
PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975 89 STAT. 113 is consistent with the public interest, the protection of investors, and the purposes of this section, including the maintenance of fair and orderly markets in securities and the removal of impediments to and perfection of the mechanism of a national market system: Provided, however, T h a t a securities information processor not acting as the exclusive processor of any information with respect to quotations for or transactions in securities is exempt from the requirement to register in accordance with this subsection unless the Commission, by rule or order, finds that the registration of such securities information proces- sor is necessary or appropriate in the public interest, for the protection of investors, or for the achievement of the purposes of this section. " (2) A securities information processor may be registered by filing Registration, with the Commission an application for registration in such form as the Commission, by rule, may prescribe containing the address of its principal office, or offices, the names of the securities and markets for w^hich it is then acting and for which it proposes to act as a securities information processor, and such other information and documents as the Commission, by rule, may prescribe with regard to performance capability, standards and procedures for the collection, processing, distribution, and publication of information with respect to quotations for and transaction in securities, personnel qualifications, financial con- dition, and such other matters as the Commission determines to be germane to the provisions of this title and the rules and regulations thereunder, or necessary or appropriate in furtherance of the purposes of this section. " ( 3 ) The Commission shall, upon the filing of an application for Application, registration pursuant to p a r a g r a p h (2) of this subsection, publish notice of filing, notice of the filing and afford interested persons an opportunity to sub- mit written data, views, and arguments concerning such application. W i t h i n ninety days of the date of the publication of such notice (or within such longer period as to which the applicant consents) the Com- mission shall— " (A) by order g r a n t such registration, or " ( B ) institute proceedings to determine whether registration should be denied. Such proceedings shall include notice of the Hearing, grounds for denial under consideration and opportunity for hear- ing and shall be concluded within one hundred eighty days of the date of publication of notice of the filing of the application for registration. A t the conclusion of such proceedings the Commis- sion, by order, shall g r a n t or deny such registration. T h e Commis- sion may extend the time for the conclusion of such proceedings for u p to sixty days if it finds good cause for such extension and publishes its reasons for so finding or for such longer periods as to which the applicant consents. The Commission shall grant the registration of a securities informa- tion processor if t h e Commission finds that such securities information processor is so organized, and has the capacity, to be able to assure the p r o m p t , accurate, a n d reliable performance of its functions as a securi- ties information processor, comply with the provisions of this title and the rules and regulations thereunder, carry out its functions in a manner consistent w^ith the purposes of this section, and. insofar as it is acting as an exclusive processor, operate fairly and efficientlv. T h e Commission shall deny the registration of a securities information processor if the Commission does not make any such finding. " (4) A registered securities information processor may, upon such Withdrawal from terms and conditions as the Commission deems necessary or aporopi'i- registration. ate in the public interest or for t h e protection of investors. withdraAV from registration by filing a written notice of withdrawal with the Commission. I f the Commission finds t h a t any registered securities
89 STAT. 114 PUBLIC LAW 94-29—JUNE 4, 1975 information processor is no longer in existence or has ceased to do busi- ness in t h e capacity specified in its application for registration, the Commission, by order, shall cancel the registration. Access to " ( 5 ) ( A ) I f any registered securities information processor pro- services, notice of hibits or limits any person in respect of access to services offered, prohibition or directly or indirectly, by such securities information processor, the reg- limitation.. istered securities information processor shall promptly file notice thereof with the Commission. The notice shall be in such form and con- tain such information as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection Review. of investors. A n y prohibition or limitation on access to services with respect to which a registered securities information processor is required by this p a r a g r a p h to file notice shall be subject to review by the Commission on its own motion, or upon application by any person aggrieved thereby filed within thirty days after such notice has been filed with the Commission and received by such aggrieved person, or within such longer period as the Commission may determine. Appli- cation to the Commission for review, or t h e institution of review by the Commission on its own motion, shall not operate as a stay of such pro- hibition or limitation, unless the Commission otherwise orders, sum- marily or after notice and oppoitunity for hearing on the question of a stay (which hearing may consist solely of t h e submission of affidavits or presentation of oral a r g u m e n t s ) . The Commission shall establish for appropriate cases an expedited procedure for consideration and deter- mination of the question of a stay. " ( B ) I n any proceeding to review the prohibition or limitation of any person in respect of access to services offered by a registered secu- rities information processor, if the Commission finds, after notice and opportunity for hearing, t h a t such prohibition or limitation is con- sistent with the provisions of this title and the rules and regulations thereunder and t h a t such person has not been discriminated against unfairly, the Commission, by order, shall dismiss the proceeding. I f the Commission does not make any such finding or if it finds t h a t such prohibition or limitation imposes any burden on competition not nec- essary or appropriate in furtherance of the purposes of this title, the Commission, by order, shall set aside the prohibition or limitation and require the registered securities information processor to permit such person access to services offered by the registered securities infor- mation processor. Limitation, " ( 6 ) The Commission, by order, may censure or place limitations suspension, or upon the activities, functions, or operations of any registered securities revocation of information processor or suspend for a period not exceeding twelve registration. months or revoke the registration of any such processor, if the Com- Notice and hearing. mission finds, on the record after notice and opportunity for hearing, t h a t such censure, placing of limitations, suspension, or revocation is in the public interest, necessary or appropriate for the protection of investors or to assure the prompt, accurate, or reliable performance of the functions of such securities information processor, and t h a t such securities information processor has violated or is unable to comply with any provision of this title or the rules or regulations thereunder. " ( c ) (1) No self-regulatory organization, member thereof, securities information processor, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to collect, process, distribute, publish, or prepare for distribution or publication any information with respect to quotations for or transactions in any secu- rity other than an exempted security, to assist, participate in, or coordi- nate the distribution or publication of such information, or to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any such security in contravention of siich rules and regulations as
PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975 89 STAT. 115 t h e Commission shall prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in further- ance of the purposes of this title to— " (A) prevent the use, distribution, or publication of fraudulent, deceptive, or manipulative information with respect to quotations for and transactions in such securities; " ( B ) assure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information; " ( C ) assure t h a t all securities information processors may, for purposes of distribution and publication, obtain on fair and rea- sonable terms such information with respect to quotations for and transactions in such securities as is collected, processed, or pre- pared for distribution or publication by any exclusive processor of such information acting in such capacity; " ( D ) assure t h a t all exchange members, brokers, dealers, securi- ties information processors, and, subject to such limitations as the Commission, by rule, may impose as necessary or appropriate for t h e protection of investors or maintenance of fair and orderly markets, all other persons may obtain on terms which are not unreasonably discriminatory such information with respect to quotations for and transactions in such securities as is published or distributed by any self-regulatory organization or securities information processor; " ( E ) assure t h a t all exchange members, brokers, and dealers transmit and direct orders for the purchase or sale of qualified securities in a manner consistent with the establishment and operation of a national market system; and " ( F ) assure equal regulation of all markets for qualified secu- rities and all exchange members, brokers, and dealers effecting transactions in such securities. " (2) T h e Commission, by rule, as it deems necessary or appropriate in the public interest or for the protection of investors, may require any person who has effected the purchase or sale of any qualified security by use of the mails or any means or instrumentality of inter- state commerce to report such purchase or sale to a registered securi- ties information processor, national securities exchange, or registered securities association and require such processor, exchange, or asso- ciation to make appropriate distribution and publication of information with respect to such purchase or sale. " (3) ( A ) T h e Commission, by rule, is authorized to prohibit brokers Notice and and dealers from effecting transactions in securities registered pursu- hearing, ant to section 12(b) otherwise t h a n on a national securities exchange, 15 USC 78Z. if the Commission finds, on the record after notice and opportunity for hearing, t h a t — " ( i ) as a result of transactions in such securities effected other- wise t h a n on a national securities exchange the fairness or order- liness of the markets for such securities has been affected in a manner contrary to the public interest or the protection of investors; " ( i i ) no rule of any national securities exchange unreasonably impairs the ability of any dealer to solicit or effect transactions in such securities for his own account or unreasonably restricts com- petition among dealers in such securities or between dealers acting in the capacity of market makers who are specialists in such securities and such dealers who are not specialists in such securities, and
89 STAT. 116 PUBLIC LAW 94-29—JUNE 4, 1975 (iii) the maintenance or restoration of fair and orderly mar- kets in such, securities may not be assured t h r o u g h other lawful means under this title. The Commission may conditionally or unconditionally exempt any security or transaction or any class of securities or transactions from any such prohibition if the Commission deems such exemption con- sistent with the public interest, the protection of investors, and the maintenance of fair and orderly markets. " ( B ) F o r the purposes of s u b p a r a g r a p h ( A ) of this p a r a g r a p h , the ability of a dealer to solicit or effect transactions in securities for his own account shall not be deemed to be unreasonably impaired by any rule of an exchange fairly and reasonably prescribing the sequence in which orders brought to the exchange must be executed or which has been adopted to effect compliance with a rule of the Commission promulgated under this title. Review. " ( 4 ) ( A ) T h e Commission is directed to review any and all rules of national securities exchanges which limit or condition the ability of members to effect transactions in securities otherwise t h a n on such Report to exchanges. On or before the ninetieth day following the day of Congress. enactment of the Securities Acts Amendments of 1975, the Commission shall (i) report to the Congress the results of its review, including the effects on competition of such rules, and (ii) commence a proceeding Post, p. 146. in accordance with the provisions of section 19(c) of this title to amend any such rule imposing a burden on competition which does not appear to the Commission to be necessary or appropriate in further- ance of the purposes of this title. The Commission shall conclude any such proceeding within ninety days of the date of publication of notice of its commencement. Post, p. 158. " ( B ) Review p u r s u a n t to section 25(b) of this title of any rule promulgated by the Commission in accordance with any proceeding commenced p u r s u a n t to s u b p a r a g r a p h ( A ) of this p a r a g r a p h shall, except as to causes the court considers of greater importance, take precedence on the docket over all other causes and shall be assigned for consideration at the earliest practicable date and expedited in every way. " ( 5 ) No national securities exchange or registered securities associa- tion may limit or condition the participation of any member in any registered clearing agency. National Market " ( d ) ( 1 ) N^ot later than one hundred eighty days after the date Advisory Board. of enactment of the Securities Acts Amendments of 1975, the Com- Establishment; mission shall establish a National Market Advisory Board (here- membership. inafter in this section referred to as the "Advisory B o a r d " ) to be composed of fifteen members, not all of whom shall be from the same geographical area of the United States, appointed bv the Commission for a term specified by the Commission of not less t h a n two years or more t h a n five years. The Advisory Board shall consist of persons associated with brokers and dealers (who shall be a majority) and persons not so associated who are representative of t h e public and, to the extent feasible, have knowledge of the securities markets of the U n i t e d States. " ( 2 ) I t shall be the responsibility of the Advisory Board to formu- late and furnish to the Commission its views on significant regulatory proposals made by the Commission or any self-regtdatory organization concerning the establishment, operation, and regulation of the markets for securities in the United States. Study and " ( 8 ) ( A ) The Advisory Board shall study and make recommenda- recommendations tions to the Commission as to the steps it finds appropriate to facilitate to the the establishment of a national market system. Tn so doing, the Commission. Advisory B o a r d shall assume the responsibilities of any advisory
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 117 committee appointed to advise the Commission with respect to the national market system which is in existence at the time of the estab- lishment of the Advisory Board. "(B) The Advisory Board shall study the possible need for modifi- cations of the scheme of self-regulation provided for in this title so as to adapt it to a national market system, including the need for the establishment of a new self-regulatory organization (hereinafter in this section referred to as a 'National Market Regulatory Board' or 'Regulatory Board') to administer the national market system. In the event the Advisory Board determines a National Market Regulatory Board should be established, it shall make recommendations as to: "(i) the point in time at which a Regulatory Board should be established; " (ii) the composition of a Regulatory Board; " (iii) the scope of the authority of a Regulatory Board; "(iv) the relationship of a Regulatory Board to the Commis- sion and to existing self-regulatory organizations; and " (v) the manner in Avhich a Regulatory Board should be funded. The Advisory Board shall report to the Congress, on or before Decem- Report to ber 31,1976, the results of such study and its recommendations, includ- Congress. ing such recommendations for legislation as it deems appropriate. Legislative "(C) In carrying out its responsibilities under this paragraph, the recommenda- tions. Advisory Board shall consult with self-regulatory organizations, Consultation. brokers, dealers, securities information processors, issuers, investors, representatives of Government agencies, and other persons interested or likely to participate in the establishment, operation, or regulation of the national market system. "(e) The Commission is authorized and directed to make a study Study. of the extent to which persons excluded from the definitions of 'broker' and 'dealer' maintain accounts on behalf of public customers for buying and selling securities registered u^ider section 12 of this title and whether such exclusions are consistent with the protection of 15 u s e 78/. investors and the other purposes of this title. The Commission shall Report to report to the Congress, on or before December 31, 1976, the results of Congress. its study together with such recommendations for legislation as it Legislative recommenda- deems advisable.". tions. SEC. 8. Section 12(f) of the Securities Exchange Act of 1934 (15 Registration U.S.C. 781 (f)) is amended as follows: requirements for (1) Paragraphs (1) and (2) thereof are amended to read as follows: securities. "(f) (1) Notwithstanding the foregoing provisions of this section, 15 u s e 78/. any national securities exchange, subject to the terms and conditions hereinafter set forth— "(A) may continue unlisted trading privileges to which a security had been admitted on such exchange prior to July 1,1964; "(B) upon application to and approval of such application by the Commission, may extend unlisted trading privileges to any security listed and registered on any other national securities exchange; and "(C) upon application to and approval of such application by the Commission, may extend unlisted trading privileges to any security registered pursuant to section 12 of this title or which would be required to be so registered except for the exemption from registration provided in subsection (g) (2) (B) or (g) (2) (G) of that section. If an extension of unlisted trading privileges to a security is based upon its listing and registration on another national securities ex- change, such privileges shall continue in effect only so long as such security remains listed and registered on a national securities exchange. RI-IOA r> _ 77 _ 19
89 STAT. 118 PUBLIC LAW 94-29—JUNE 4, 1975 Notice and " ( 2 ) No application pursuant to this subsection shall be approved hearing. unless t h e Commission finds, after notice and opportunity for hearing, t h a t the extension of unlisted t r a d i n g privileges pursuant to such application is consistent with the maintenance of fair and orderly markets and the protection of investors. I n considering an application for the extension of unlisted t r a d i n g privileges to a security not listed and registered on a national securities exchange, the Commission shall, among other matters, take account of the public t r a d i n g activity in such security, the character of such trading, the impact of such exten- sion on the existing markets for such securities, and the desirability of removing impediments to and t h e progress t h a t has been made toward the development of a national market system and shall not g r a n t any such application if any rule of the national securities exchange making application under this subsection would unreason- ably impair the ability of any dealer to solicit or effect transactions in such security for his own account, or would unreasonably restrict competition among dealers in such security or between such dealers acting in the capacity of market makers who are specialists and such dealei-s who are not specialists.". (2) P a r a g r a p h (6) thereof is amended by striking out "section 19(b) of". SEC. 9. Section 12 of the Securities pjxchange Act of 1934 (15 U.S.C. 781) is amended by adding at the end thereof the follov/ing new subsections: Registration, " ( j ) T h e Commission is authorized, by order, as it deems necessary denial, or appropriate for the protection of investors to deny, t o suspend the suspension, or effective date of, to suspend for a period not exceeding twelve months, revocation. Notice and or to revoke the registration of a security, if the Commission finds, hearing. on the record after notice and opportunity for hearing, t h a t t h e issuer of such security has failed to comply with any provision of this title or the rules and regulations thereunder. No member of a national securi- ties exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any trans- action in, or to induce the purchase or sale of, any security t h e registra- tion of which has been and is suspended or revoked pursuant to the preceding sentence. Summary " ( k ) If in its opinion the public interest and the protection of suspension. investors so require, t h e Commission is authorized summarily to sus- pend t r a d i n g in any security (other than an exempted security) for a period not exceeding ten days, or with the approval of the President, summarily to suspend all t r a d i n g on any national securities exchange or otherwise, in securities other t h a n exempted securities, for a period not exceeding ninety days. No member of a national securities exchange, broker, or dealer shall make use of t h e mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security in which t r a d i n g is so suspended. "(1) I t shall be unlawful for an issuer, any class of whose securities is registered pursuant to this section or would be required to be so registered except for the exemption from registration provided by subsection ( g ) ( 2 ) ( B ) or ( g ) ( 2 ) ( G ) of this section, by the use of any means or instrumentality of interstate commerce, or of the mails, to issue, either originaHy or upon transfer, any of such securities in a form or with a format which contravenes such rules and regu- lations as the Commission may prescribe as necessary or appropriate for the p r o m p t and accurate clearance and settlement of transactions in securities. The provisions of this subsection shall not apply to variable annuity contracts or variable life policies issued by an insur- ance company or its separate accounts.
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 119 " ( m ) The Commission is authorized and directed to make a study Study. a n d investigation of the practice of recording the ownership of secu- rities in the records of the issuer in other than the name of the bene- ficial owner of such securities to determine (1) whether such practice is consistent with the purposes of this title, with particular reference t o subsection (g) of this section and sections 13, 14, 1 5 ( d ) , 16, and 15 u s e 78m, 17A, and (2) whether steps can be taken to facilitate communica- 78n, 78o, 78p; tions between issuers and the beneficial owners of their securities while Post, p. 141. at the same time retaining the benefits of such practice. The Commis- Reports to sion shall report to the Congress its preliminary findings within six Congress. months after the date of enactment of the Securities Acts Amendments Recommenda- tions to Congress. of 1975, and its final conclusions and recommendations within one year of such date.". SEC. 10. Section 13 of the Securities Exchange Act of 1934 (16 Periodic reports. U.S.C. 78m) is amended by adding at the end thereof the following new subsection: " ( f ) ( 1 ) Every institutional investment manager which uses the mails, or any means or instrumentality of interstate commerce in the course of its business as an institutional investment manager and which exercises investment discretion with respect to accounts holding equity securities of a class described in section 13(d) (1) of this title having an aggregate fair market value on the last t r a d i n g day in any of the preceding twelve months of at least $100,000,000 or such lesser amount (but in no case less than $10,000,000) as the Commission, by rule, may determine, shall file reports with the Commission in such form, for such periods, and at such times after the end of such periods as the Commission, by rule, may presci'ibe, but in no event shall such reports be filed for periods longer than one year or shorter t h a n one quarter. Such reports shall include for each such equity security held Contents. on the last day of the reporting period by accounts (in aggregate or by type as the Commission, by rule, may prescribe) with respect to which the institutional investment manager exercises investment discretion (other t h a n securities held in amounts w^hich the Commission, by rule, determines to be insignificant for purposes of this subsection), the name of the issuer and the title, class, C U S I P number, number of shares or principal amount, and aggregate fair market value of each such security. Such reports may also include for accounts (in aggre- gate or by type) with respect to which the institutional investment manager exercises investment discretion such of the following infor- mation as the Commission, by rule, prescribes— " ( A ) the name of the issuer and the title, class, C U S I P num- ber, number of shares or principal amount, and aggregate fair market value or cost or amortized cost of each other security (other than an exempted security) held on the last day of the reporting period by such accounts; " ( B ) the aggregate fair market value or cost or amortized cost of exempted securities (in aggregate or by class) held on t h e last day of the reporting period by such accounts; " ( C ) the number of shares of each equity security of a class described in section 13(d) (1) of this title held on the last day of the reporting period by such accounts with respect to which the institutional investment manager possesses sole or shared author- ity to exercise the voting rights evidenced by such securities; " ( D ) the aggregate purchases and aggregate sales d u r i n g the reporting period of each security (other t h a n an exempted security) effected by or for such accounts; and " ( E ) w i t h respect to any transaction or series of transactions having a market value of at least $500,000 or such other amount as the Commission, by rule, may determine, effected d u r i n g t h e
89 STAT. 120 PUBLIC LAW 94-29—JUNE 4, 1975 15 use 78m. reporting period by or for such accounts in any equity security of a class described in section 13(d)(1) of this title— "(i) the name of the issuer and the title, class, and CUSIP number of the security; " (ii) the number of shares or principal amount of the secu- rity involved in the transaction; "(iii) whether the transaction was a purchase or sale; " (iv) the per share price or prices at which the transaction was effected; "(v) the date or dates of the transaction; " (vi) the date or dates of the settlement of the transaction; "(vii) the broker or dealer through whom the transaction was eft'ected; "(viii) the market or markets in which the transaction was effected; and " (ix) such other related information as the Commission, by rule, may prescribe. Exemption. "(2) The Commission, by rule or order, may exempt, conditionally or unconditionally, any institutional investment manager or security or any class of institutional investment managers or securities from any or all of the provisions of this subsection or the rules thereunder. Information, " (3) The Commission shall make available to the public for a reason- availability to able fee a list of all equity securities of a class described in section public. 13(d)(1) of this title, updated no less frequently than reports are required to be filed pursuant to paragraph (1) of this subsection. The Commission shall tabulate the information contained in any report filed pursuant to this subsection in a manner which will, in the view of the Commission, maximize the usefulness of the information to other Federal and State authorities and the public. Promptly after the filing of any such report, the Commission shall make the information con- tained therein conveniently available to the public for a reasonable fee in such form as the Commission, by rule, may prescribe, except that the Commission, as it determines to be necessary or appropriate in the pub- lic interest or for the protection of investors, may delay or prevent public disclosure of any such information in accordance with section 552 of title 5, United States Code. Notwithstanding the preceding sentence, any such information identifying the securities held by the account of a natural person or an estate or trust (other than a business trust or investment company) shall not be disclosed to the public. "(4) In exercising its authority under this subsection, the Commis- sion shall determine (and so state) that its action is necessary or appro- priate in the public interest and for the protection of investors or to maintain fair and orderly markets or, in granting an exemption, that its action is consistent with the protection of investors and the Consultation. jjurposes of this subsection. In exercising such authority the Commis- sion shall take such steps as are within its power, including consulting with the Comptroller General of the United States, the Director of the Office of Management and Budget, the appropriate regulatory agen- cies. Federal and State authorities which, directly or indirectly, require reports from institutional investment managers of information substantially similar to that called for by this subsection, national securities exchanges, and registered securities associations, (A) to achieve uniform, centralized reporting of information concerning the securities holdings of and transactions by or for accounts with respect to which institutional investment managers exercise investment discretion, and (B) consistently with the objective set forth in the preceding subparagraph, to avoid unnecessarily duplicative reporting by, and minimize the compliance burden on, institutional investment managers. Federal authorities which, directly or indirectly, require reports from institutional investment managers of information sub-
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 121 stantially similar to t h a t called for by this subsection shall cooperate with t h e Commission in t h e performance of its responsibilities under t h e preceding sentence. A n institutional investment manager which is Copies of reports, a bank, t h e deposits of which a r e insured in accordance with t h e filing. Federal Deposit Insurance Act, shall file with t h e appropriate regula- 12 u s e 1811 tory agency a copy of every report filed with the Commission pursuant note. to this subsection. " ( 5 ) ( A ) F o r purposes of this subsection t h e term 'institutional "Institution investment manager' includes any person, other than a natural person, investment investing in or buying and selling securities for its own account, and manager." any person exercising investment discretion with respect to the account of any other person. " ( B ) T h e Commission shall adopt such rules as it deems necessary Rules. or appropriate to prevent duplicative reporting pursuant to this sub- section by two or more institutional investment managers exercising investment discretion with respect to the same amoimt.". SEC. 11. Section 15 of the Securities Exchange A c t of 1934 (15 Registration and U.S.C. 78o) is amended as follows: regulation of (1) T h e title thereof is amended to r e a d : "REGISTRATION AND REGU- brokers and dealers. LATION OF BROKERS AND DEALERS". (2) Subsections ( a ) a n d (b) thereof are amended to read as follows: " (a) (1) I t shall be unlawful for any broker or dealer which is either a person other than a natural person or a natural person n o t associated with a broker or dealer which is a person other than a natural person (other than such a broker or dealer whose business is exclusively intra- state and who does not make use of any facility of a national securities exchange) t o make use of the mails or any means or ins*:rumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce t h e purchase or sale of, any security (other t h a n an exempted security or commercial paper, bankers' acceptances, or com- mercial bills) unless such broker o r dealer is registered in accordance with subsection (b) of this section. " ( 2 ) T h e Commission, by rule or order, as it deems consistent with Exemption. the public interest and t h e protection of investors, may conditionally or unconditionally exempt from p a r a g r a p h (1) of this subsection a n y broker or dealer or class of brokers or dealers specified in such rule or order. " ( b ) ( 1 ) A broker or dealer may be registered by filing with t h e Commission an application for registration in such form and contain- ing such information and documents concerning such broker or dealer and any persons associated with such broker or dealer as t h e Com- mission, b y rule, m a y prescribe as necessary o r appropriate i n t h e public interest or for t h e protection of investors. W i t h i n forty-five days of the date of t h e filing of such application (or within such longer period as to which t h e applicant consents), t h e Commission shall— " ( A ) by order g r a n t registration, o r " ( B ) institute proceedings to determine whether registration should be denied. Such proceedings shall include notice of t h e grounds for denial under consideration and opportunity for hearing a n d shall be concluded within one hundred twenty davs of t h e date of t h e filing of t h e application for registration. A t the conclusion of such proceedings, t h e Commission, by order, shall g r a n t or deny such registration. T h e Commission m a y extend t h e time for conclusion of such proceedings for u p to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the applicant consents. T h e Commission shall g r a n t such registration if t h e Commission finds t h a t the requirements of this section are satisfied. T h e Commis-
89 STAT. 122 PUBLIC LAW 94-29—JUNE 4, 1975 sion shall deny such registration if it does not make such a finding or if it finds t h a t if t h e applicant were so registered, its registration would be subject to suspension or revocation under p a r a g r a p h (4) of this subsection. " ( 2 ) ( A ) A n application for registration of a broker or dealer to be formed or organized may be made by a broker or dealer to which t h e broker or dealer to be formed or organized is to be t h e successor. Such application, in such form as the Commission, by rule, may pre- scribe, shall contain such information and documents concerning the applicant, the successor, and any persons associated with the appli- cant or the successor, as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. T h e g r a n t or denial of registration to such an applicant shall be in accordance with t h e procedures set forth in p a r a g r a p h (1) of this subsection. I f the Commission g r a n t s such regisitration, t h e registration shall terminate on t h e forty-fifth day after t h e effec- tive date thereof, unless prior thereto the successor shall, in accord- ance with such rules and regulations as the Commission may prescribe, adopt the application for registration as its own. " ( B ) A n y person who is a broker or dealer solely by reason of act- ing as a municipal securities dealer or municipal securities broker, who so acts t h r o u g h a separately identifiable department or division, and who so acted in such a manner on the date of enactment of the Securities Acts Amendments of 1975, may, in accordance with such terms and conditions as the Commission, by rule, prescribes as neces- sary and appropriate in the public interest and for t h e protection of investors, register such separately identifiable department or division in accordance with this subsection. If any such department or division is so registered, the department or division and not such person him- self shall be t h e broker or dealer for purposes of this title. " ( C ) W i t h i n six months of the date of the g r a n t i n g of registration to a broker or dealer, the Commission, or upon the authorization and direction of t h e Commission, a registered securities association or national securities exchange of which such broker or dealer is a mem- ber, shall conduct an inspection of the broker or dealer t o determine whether it is operating in conformity with t h e provisions of this title and the rules and regulations t h e r e u n d e r : Provided, however. T h a t the Commission may delay such inspection of any class of brokers or dealer-s for a period not to exceed six months. 15 u s e 78e. " (3) A n y provision of this title (other than section 5 and subsection (a) of this section) which prohibits any act, practice, or course of business if t h e mails or any means or instrumentality of interstate commerce is used in connection therewith shall also prohibit any such act, practice, or course of business by any registered broker or dealer or any person acting on behalf of such a broker or dealer, irrespective of any use of the mails or any means or instrumentality of interstate commerce in connection therewith. Suspension or " (4) The Commission, by order, shall censure, place limitations on revocation of the activities, functions, or operations of, suspend for a period not registration. exceeding twelve months, or revoke the registration of any broker or Notice and hearing. dealer if it finds, on the record after notice and opportunity for hear- ing, t h a t such censure, placing of limitations, suspension, or revoca- tion is in the public interest and that such broker or dealer, whether prior or subsequent to becoming such, or any person associated with such broker or dealer, whether prior or subsequent to becoming so associated— " ( A ) has willfully made or caused to be made in any applica- tion for registration or report required to be filed with the Commission under this title, or in any proceeding before the Com-
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 123 mission with respect to registration, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to state in any such application or report any material fact which is required to be stated therein. "(B) has been convicted within ten years preceding the filing of any application for registration or at any time thereafter of any felony or misdemeanor which the Commission finds— "(i) involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, or conspiracy to commit any such offense; "(ii) arises out of the conduct of the business of a broker, dealer, municipal securities dealer, investment adviser, bank, insurance company, or fiduciary; "(iii) involves the larceny, theft, robbery, extortion, for- gery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or secu- rities ; or "(iv) involves the violation of section 152, 1341, 1342, or 1343 or chapter 25 or 47 of title 18, United States Code. 18 u s e 471 et "(C) is permanently or temporarily enjoined by order, judg- seq., 1001 et seq. ment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, dealer, or munici- pal securities dealer, or as an affiliated person or employee of any investment company, bank, or insurance company, or from engag- ing in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security. "(D) has willfully violated any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment 15 u s e 77a. Company Act of 1940, this title, the rules or regulations under any 15 u s e 80b-20. of such statutes, or the rules of the Municipal Securities Rule- 15 u s e 80a-51. making Board, or is unable to comply with any such provision. " ( E ) has willfully aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, this title, the rules or regulations under any of such statutes, or the rules of the Municipal Securities Rulemaking Board, or has failed reason- ably to supervise, with a view to preventing violations of the provisions of such statutes, rules, and regulations, another person who commits such a violation, if such other person is subject to his supervision. For the purposes of this subparagraph (E) no person shall be deemed to have failed reasonably to supervise any other person, if— "(i) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and "(ii) such person has reasonably discharged the duties and obligations incumbent upon him by reason of such pro- cedures and system without reasonable cause to believe that such procedures and system were not being complied with. " ( F ) is subject to an order of the Commission entered pur- suant to paragraph (6) of this subsection ^b) barring or sus- pending the right of such person to be associated with a broker or dealer. "(5) Pending final determination whether any registration under Suspension. this subsection shall be revoked, the Commission, by order, may Notice and hearing.
89 STAT. 124 PUBLIC LAW 94-29—JUNE 4, 1975 suspend such registration, if such suspension appears to the Com- mission, after notice and opportunity for hearing, to be necessary or appropriate in the public interest or for the protection of investors. Any registered broker or dealer may, upon such terms and condi- tions as the Commission deems necessary or appropriate in the public interest or for the protection of investors, withdraw from registra- tion by filing a written notice of withdrawal with the Commission. If the Commission finds that any registered broker or dealer is no longer in existence or has ceased to do business as a broker or dealer, the Commission, by order, shall cancel the registration of such broker or dealer. Notice and "(6) The Commission, by order, shall censure or place limitations hearing. on the activities or functions of any person associated, or seeking to become associated, with a broker or dealer, or suspend for a period not exceeding twelve months or bar any such person from being associated with a broker or dealer, if the Commission finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such person has committed or omitted any act or omission enumerated in subparagraph (A), (D), or (E) of paragraph (4) of this subsection, has been convicted of any offense specified in sub- paragraph (B) of said paragraph (4) within ten years of the com- mencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in subparagraph (C) of said paragraph (4). It shall be unlawful for any person as to whom such an order suspending or barring him from being asso- ciated with a broker or dealer is in effect willfully to become, or to be, associated with a broker or dealer without the consent of the Commission, and it shall be unlawful for any broker or dealer to permit such a person to become, or remain, a person associated with him Avithout the consent of the Commission, if such broker or dealer knew, or in the exercise of reasonable care should have known, of such order. Standards of "(7) No registered broker or dealer shall effect any transaction operational in, or induce the purchase or sale of, any security unless such broker capability. or dealer meets such standards of operational capability and such broker or dealer and all natural persons associated with such broker or dealer meet such standards of training, experience, competence, and such other qualifications as the Commission finds necessary or appropriate in the public interest or for the protection of investors. Rules and The Commission shall establish such standards by rules and regula- regulations. tions, which may— "(A) specify that all or any portion of such standards shall be applicable to any class of brokers and dealers and persons associated with brokers and dealers; "(B) require pereons in any such class to pass tests prescribed in accordance with such rules and regulations, which tests shall, with respect to any class of partners, officers, or supervisory employees (which latter term may be defined by the Commission's rules and regulations and as so defined shall include branch man- agers of brokers or dealers) engaged in the management of the broker or dealer, include questions relating to bookkeeping, accounting, internal control over cash and securities, supervision of employees, maintenance of records, and other appropriate mat- ters; and "(C) provide that persons in any such class other than brokers and dealers and partners, officers, and supervisory employees of brokers or dealers, may be qualified solely on the basis of compli-
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 125 ance with such standards of training and such other qualifications as the Commission finds appropriate. The Commission, by rule, may prescribe reasonable fees and charges Fees and charges. to defray its costs in carrying out this p a r a g r a p h , including, but not limited to, fees for any test administered by it or under its direction. The Commission may cooperate with registered securities associations and national securities exchanges in devising and administering tests and may require registered brokers and dealers and persons associated with such brokers and dealers to pass tests administered by or on behalf of any such association or exchange and to pay such association or exchange reasonable fees or charges to defray the costs incurred by such association or exchange in administering such tests. " ( 8 ) I n addition to the fees and charges authorized by p a r a g r a p h Additional fees. (7) of this subsection, each registered broker or dealer not a member of a registered securities association shall pay to the Commission such reasonable fees and charges as may be necessary to defray the costs of the additional regulatory duties required to be performed by the Com- mission because such brokei- or dealer eifects transactions in securities otherwise than on a national securities exchange of which it is a mem- ber and is not a member of a registered securities association. The Commission, by rule, shall establish such fees and charges. " (9) No broker or dealer subject to p a r a g r a p h (8) of this subsection shall effect any transaction in, oi; induce the purchase or sale of, any security (otherwise than on a national securities exchange of which it is a member) in contravention of such rules and regulations as the Commission may prescribe designed to promote just and equitable principles of trade, to remove impediments to and perfect the mecha- nism of a free and open mai'ket and a national market system, and, in gener-al, to protect investors and the public interest. "(10) F o r the purposes of determining whether a person is subject "Commission." to a statutory disqualification under section 6(c) ( 2 ) , 15A(g) ( 2 ) , or l 7 A ( b ) (4) ( B ) of this title, the term 'Commission' in p a r a g r a p h (4) Ante, p. 104; ( B ) of this subsection shall mean 'exchange', 'association', or 'clearing Post, pp. 127, agency', respectively.". 141. (3) P a r a g r a p h s ( 1 ) , ( 2 ) , and (3) of subsection (c) thereof are 15 u s e 78o. amended to read as follows: " ( c ) ( 1 ) No broker or dealer shall make use of the mails or any Manipulative or means or instrumentality of interstate commerce to effect any trans- fraudulent action in, or to induce or attempt to induce the purchase or sale of, devices. any security (other t h a n commercial paper, bankers' acceptances, or commercial bills) otherwise t h a n on a national securities exchange of which it is a member by means of any manipulative, deceptive, or other fraudulent device or contrivance, and no municipal securities dealer shall make use of t h e mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal security by means of any manipulative, deceptive, or other fraudulent device or contrivance. T h e Commission shall, for t h e purposes of t h i s p a r a g r a p h , by rules and regulations define such devices or contrivances as are manipula- tive, deceptive, or otherwise fraudulent. " (2) No broker or dealer shall make use of t h e mails or any means Manipulative or or instrumentality of interstate commerce to effect any transaction in, fraudulent acts. or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) otherwise t h a n on a national secu- rities exchange of which it is a member, in connection with which such broker or dealer engages in any fraudulent, deceptive, or manip- ulative act or practice, or makes any fictitious quotation, and no municipal securities dealer shall make use of the mails or any means
89 STAT. 126 PUBLIC LAW 94-29—JUNE 4, 1975 or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce t h e purchase or sale of, any municipal security in connection with which such municipal securities dealer engages in any fraudulent, deceptive, or manipulative act or practice, or makes any fictitious quotation. T h e Commission shall, for t h e pur- poses of this p a r a g r a p h , by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative and such quotations as are fictitious. " ( 3 ) No broker or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any secu- rity (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) in contravention of such rules and regulations as t h e Commission shall prescribe as necessary or appro- priate in the public interest or for the protection of investors to provide safeguards with respect to the financial responsibility and related practices of brokers and dealers including, but not limited to, the acceptance of custody and use of customers' securities and the carrying and use of customers' deposits or credit balances. Such rules and regu- lations shall ( A ) require the maintenance of reserves with respect to customer's' deposits or credit balances, and ( B ) no later t h a n Sep- tember 1,1975, establish minimum financial responsibility requirements for all brokers and dealers.". 15 u s e 78o. (4) P a r a g r a p h (5) of subsection (c) thereof is amended to read as follows: " ( 5 ) No dealer (other than a specialist registered on a national securities exchange) acting in the capacity of market maker or other- wise shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or a municipal security) in contravention of such specified and appropriate standards with respect to dealing as the Commission, by rule, shall prescribe as necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to remove impediments to and perfect the mechanism of a national market system. U n d e r the rules of the Commission a dealer in a security may be prohibited from acting as a broker in t h a t security.". (5) Subsection (c) thereof is further amended by adding at the end thereof the following new p a r a g r a p h : " ( 6 ) No broker or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security, municipal security, commercial paper, bankers' acceptances, or commercial bills) in contravention of such rules and regulations as the Commission shall prescribe as neces- sary or appropriate in t h e public interest and for the protection of investors or to perfect or remove impediments to a national system for the prompt and accurate clearance and settlement of securities transac- tions, with respect to the time and method of, and the form and format of documents used in connection with, making settlements of and pay- ments for transactions in securities, making transfers and deliveries of securities, and closing accounts. Nothing in this p a r a g r a p h shall be construed ( A ) to affect the authority of the Board of Governors of the 15 u s e 78g. Federal Reserve System, pursuant to section 7 of this title, to prescribe rules and regulations for the purpose of preventing the excessive use of credit for the purchase or carrying of securities, or ( B ) to authorize the Commission to prescribe rules or regulations for such purpose.".
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 127 (6] The section is further amended by adding at the end thereof 15 USC 78o. the following new subsection: "(e) The Commission, by rule, as it deems necessary or appropriate in the public interest and for the protection of investors or to assure equal regulation, may require any member of a national securities exchange not required to register under section 15 of this title and any Ante, p. 121. person associated with any such member to comply with any provision of this title (other than section 15 (a)) or the rules or regulations there- under which by its terms regulates or prohibits any act, practice, or course of business by a 'broker or dealer' or 'registered broker or dealer' or a 'person associated with a broker or dealer,' respectively.". SEC. 12. Section 15A of the Securities Exchange Act of 1934 (15 Registered U.S.C. 78o-3) is amended as follows: securities (1) The title thereof is amended to read: "REGISTERED SECURITIES associations. ASSOCIATIONS". (2) Subsections (a) and (b) thereof are amended to read as follows: "(a) An association of brokers and dealers may be registered as a national securities association pursuant to subsection (b), or as an affil- iated securities association pursuant to subsection (d), under the terms and conditions hereinafter provided in this section and in accordance with the provisions of section 19(a) of this title, by filing with the Post, p. 146. Commission an application for registration in such form as the Com- mission, by rule, may prescribe containing the rules of the association and such other information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. "(b) An association of brokers and dealers shall not be registered as a national securities association unless the Commission determines * that— • "(1) By reason of the number and geographical distribution of its members and the scope of their transactions, such association will be able to carry out the purposes of this section. "(2) Such association is so organized and has the capacity to be able to carry out the purposes of this title and to comply, and (subject to any rule or order of the Commission pursuant to sec- tion 17(d) or 19(g)(2) of this title) to enforce compliance by Post, p. 137. its members and persons associated with its members, with the provisions of this title, the rules and regulations thereunder, the rules of the Municipal Securities Rulemaking Board, and the rules of the association. "(3) Subject to the provisions of subsection (g) of this section, the rules of the association provide that any registered broker or dealer may become a member of such association and any person may become associated with a member thereof. "(4) The rules of the association assure a fair representation of its members in the selection of its directors and administration of its affairs and provide that one or more directors shall be repre- sentative of issuers and investors and not be associated with a member of the association, broker, or dealer. "(5) The rules of the association provide for the equitable allocation of reasonable dues, fees, and other charges among mem- bers and issuers and other persons using any facility or system which the association operates or controls. " (6) The rules of the association are designed to prevent fraud- ulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordina- tion with persons engaged in regulating, clearing, settling, proc- essing information with respect to, and facilitating transactions
89 STAT. 128 PUBLIC LAW 94-29—JUNE 4, 1975 in securities, to remove impediments to and perfect the mecha- nism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination between cus- tomers, issuers, brokers, or dealers, to fix minimum profits, to impose any schedule or fix rates of commissions, allowances, dis- counts, or other fees to be charged by its members, or to regulate by virtue of any authority conferred by this title matters not related to the purposes of this title or the administration of the association. " ( 7 ) The rules of the association provide that (subject to any rule or order of the Commission pursuant to section 17(d) or Post, pp. 137, 19(g) (2) of this title) its members and persons associated with 146. its members shall be appropriately disciplined for violation of any provision of this title, the rules or regulations thereunder, the rules of the Municipal Securities Rulemaking Board, or the rules of the association, by expulsion, suspension, limitation of activi- ties, functions, and operations, fine, censure, being suspended or barred from being associated with a member, or any other fitting sanction. " ( 8 ) The rules of the association are in accordance with the provisions of subsection (h) of this section, and, in general, pro- vide a fair procedure for the disciplining of members and persons associated with members, the denial of membership to any per- son seeking membership therein, the b a r r i n g of any person from becoming associated with a member thereof, and the prohibition or limitation by the association of any person with respect to access to services offered by the association or a member thereof. " ( 9 ) The rules of the association do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this title. " (10) The requirements of subsection ( c ) , insofar as these may be applicable, are satisfied. " (11) T h e rules of the association include provisions governing the form and content of quotations relating to securities sold otherwise t h a n on a national securities exchange which may be distributed or published by any member or person associated with a member, and the persons to whom such quotations may be sup- plied. Such rules relating to quotations shall be designed to pro- duce fair and informative quotations, to prevent fictitious or misleading quotations, and to promote orderly procedures for collecting, distributing, and publishing quotations.". 15 u s e 78o-3. (3) T h e section is amended by striking out subsections ( e ) , ( f ) , ( g ) , ( h ) , ( j ) , ( k ) , (1), and (n) thereof, redesignating subsections (i) and (m) thereof as subsections (e) and ( f ) , respectively, and amending redesignated subsection (e) to read as follows: " ( e ) (1) The rules of a registered securities association may provide t h a t no member thereof shall deal with any nonmember professional (as defined in p a r a g r a p h (2) of this subsection) except at the same prices, for the same commissions or fees, and on the same terms and conditions as are by such member accorded to the general public. "Nonmember " (2) F o r the purposes of this subsection, the term 'nonmember pro- professional." fessional' shall include ( A ) with respect to transactions in securities other than municipal securities, any registered broker or dealer who is not a member of any registered securities association, except such a broker or dealer who deals exclusively in commercial paper, bankers' acceptances, and commercial bills, and ( B ) with respect to trans- actions in municipal securities, any municipal securities dealer (other t h a n a bank or division or department of a laank) who is not a member
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 129 of any registered securities association and any municipal securities broker who is not a member of any such association, " ( 3 ) Nothing in this subsection shall be so construed or applied as to prevent ( A ) any member of a registered securities association from g r a n t i n g to any other member of any registered securities asso- ciation any dealer's discount, allowance, commission, or special terms, in connection with the purchase or sale of securities, or ( B ) any mem- ber of a registered securities association or any municipal securities dealer which is a bank or a division or department of a bank from g r a n t i n g to any member of any registered securities association or any such municipal securities dealer any dealer's discount, allowance, com- mission, or special terms in connection with the purchase or sale of municipal securities: Provided, however, T h a t the g r a n t i n g of any such discount, allowance, commission, or special terms in connection with the purchase or sale of municipal securities shall be subject to rules of the Municipal Securities Rulemaking Board adopted pursuant to section 15B (b) (2) ( K ) of this title.". Post, p. 131. (4) The section is further amended by adding at the end thereof the Membership following new subsections: denial " ( g ) (1) A registered securities association shall deny membershij) 15 u s e 78o-3. to any person who is not a registered broker or dealer. " ( 2 ) A registered securities association may, and in cases in which the Commission, by order, directs as necessary or appropriate in the public interest or for the protection of investors shall, deny member- ship to any registered broker or dealer, and bar from becoming asso- ciated with a member any person, who is subject to a statutory disqualification. A registered securities association shall file notice Notice, with the Commission not less t h a n t h i r t y days p r i o r to admitting any registered broker or dealer to membership or permitting any person to become associated with a member, if the association knew, or in the exercise of reasonable care should have known, t h a t such broker or dealer or person was subject to a statutory disqualification. T h e notice shall be in such form and contain such information as the Commission, by rule, may prescribe as necessary or appropriate in the public inter- est or for the protection of investors. " ( 3 ) ( A ) A registered securities association m a y deny membership to, or condition the membership of, a registered broker or dealer if (i) such broker or dealer does not meet such standards of financial responsibility or operational capability or such broker or dealer or any natural person associated with such broker or dealer does not meet such standards of training, experience, and competence as are prescribed by the rules of the association or (ii) such broker or dealer or person associated with such broker or dealer has engaged and there is a reasonable likelihood he will again engage in acts or practices inconsistent wnth just and equitable principles of trade. A registered securities association m a y examine and verify the qualifications of an applicant to become a member and the n a t u r a l persons associated with such an applicant in accordance with procedures established by the rules of the association. " ( B ) A registered securities association may b a r a natural person from becoming associated with a member or condition the association of a natural person with a member if such natural person (i) does not meet such standards of training, experience, and competence as are pre- scribed by the rules of the association or (ii) has engaged and there is a reasonable likelihood he will again engage in acts or practices inconsistent with just and equitable principles of trade. A registered securities association may examine and verify the qualifications of an applicant to become a person associated w^ith a member in accordance with procedures established by the rules of the association and require
89 STAT. 130 PUBLIC LAW 94-29—JUNE 4, 1975 a n a t u r a l person associated with a member, or any class of such nat- u r a l persons, to be registered with the association in accordance with procedures so established. " ( C ) A registered securities association may b a r any person from becoming associated with a member if such person does not agree (i) to supply the association with such information with respect to its relationship and dealings with the member as may be specified in the rules of the association and (ii) to permit examination of its books and records to verify the accuracy of any information so supplied. " ( 4 ) A registered securities association may deny membership to a registered broker or dealer not engaged in a type of business in which the rules of the association require members to be engaged: Provided^ however^ T h a t no registered securities association may deny member- ship to a registered broker or dealer by reason of the amount of such type of business done by such broker or dealer or the other types of business in which he is engaged. Disciplinary " ( h ) (1) I n any proceeding by a registered securities association to proceedings, determine whether a member or person associated with a member notice. should be disciplined (other t h a n a summary proceeding pursuant to p a r a g r a p h (3) of this subsection) the association shall b r i n g specific charges, notify such member or person of, and give him an opportunity Statement. to defend against, such charges, and keep a record. A determination by the association to impose a disciplinary sanction shall be supported by a statement setting forth— " ( A ) any act or practice in which such member or person asso- ciated with a member has been found to have engaged, or which such member or person has been found to have omitted; " ( B ) the specific provision of this title, the rules or regulations thereunder, t h e rules of the Municipal Securities Rulemaking Board, or the rules of the association which any such act or prac- tice, or omission to act, is deemed to violate; and " ( C ) the sanction imposed and the reason therefor. Notice and " ( 2 ) I n any proceeding by a registered securities association to hearing. determine whether a person shall be denied membership, barred from becoming associated with a member, or prohibited or limited with respect to access to services offered by the association or a member thereof (other t h a n a summary proceeding p u r s u a n t to p a r a g r a p h (3) of this subsection), the association shall notify such person of and give him an opportunity to be heard upon, the specific grounds for denial, bar, or prohibition or limitation under consideration and keep a record. A determination by the association to deny membership, bar a person from becoming associated with a member, or prohibit or limit a person with respect to access to services offered by the associa- tion or a member thereof shall be supported by a statement setting forth the specific grounds on which the denial, bar, or prohibition or limitation is based. Summary " ( 3 ) A registered securities association may summarily ( A ) sus- suspension. pend a member or person associated with a member who has been and is expelled or suspended from any self-regulatory organization or barred or suspended from being associated with a member of any self-regulatory organization, ( B ) suspend a member who is in such financial or operating difficulty t h a t the association determines and so notifies the Commission t h a t the member cannot be permitted to continue to do business as a member with safety to investors, cred- itors, other members, or the association, or (C) limit or prohibit any person with respect to access to services offered by the association if subparagraph ( A ) or ( B ) of this p a r a g r a p h is applicable to such person or, in the case of a person who is not a member, if the associa-
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 131 tion determines that such person does not meet the qualification requirements or other prerequisites for such access and such person cannot be permitted to continue to have such access with safety to investors, creditors, members, or the association. Any person aggrieved Notice and hearing. by any such summary action shall be promptly afforded an oppor- tunity for a hearing by the association in accordance with the pro- visions of paragraph (1) or (2) of this subsection. The Commission, by order, may stay any such summary action on its own motion or upon application by any person aggrieved thereby, if the Commis- sion determines summarily or after notice and opportunity for hearing (which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that such stay is consistent with the public interest and the protection of investors.". SEC. 13. The Securities Exchange Act of 1934 is amended by insert- ing after section 15A (15 IJ.S.C. 78o-3) the following new section: "MUNICIPAL SECURITIES "SEC. 15B. (a) (1) It shall be unlawful for any municipal securities Dealer dealer (other than one registered as a broker or dealer under section registration. 15 of this title) to make use of the mails or any means or instrumen- 15 u s e 78o-4. Ante, p. 121. tality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal security unless such municipal securities dealer is registered in accordance with this subsection. "(2) A municipal securities dealer may be registered by filing with Application the Commission an application for registration in such form and filing. containing such information and documents concerning such munici- pal securities dealer and any persons associated with such municipal securities dealer as the Commission, by rule, may prescribe as neces- sary or appropriate in the public interest or for the protection of investors. Within forty-five days of the date of the filing of such appli- cation (or within such longer period as to which the applicant con- sents) , the Commission shall— " (A) by order grant registration, or "(B) institute proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred twenty days of the date of the filing of the application for registration. At the conclusion of such proceedings the Commission, by order, shall grant or deny such registration. The Commission may extend the time for the conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the applicant consents. The Commission shall grant the registration of a municipal securities dealer if the Commission finds that the requirements of this section are satisfied. The Commission shall deny such registration if it does not make such a finding or if it finds that if the applicant were so registered, its registration would be subject to suspension or revoca- tion under subsection (c) of this section. "(3) Any provision of this title (other than section 5 or paragraph (1) of this subsection) which prohibits any act, practice, or course 15 u s e 78e. of business if the mails or any means or instrumentality of interstate commerce is used in connection therewith shall also prohibit any such act, practice, or course of business by any registered municipal securities dealer or any person acting on behalf of such municipal
89 STAT. 132 PUBLIC LAW 94-29—JUNE 4, 1975 securities dealer, irrespective of any use of the mails or any means or instrumentality of interstate commerce in connection therewith. Exemption. "(4) The Commission, by rule or order, upon its own motion or upon application, may conditionally or unconditionally exempt any broker, dealer, or municipal securities dealer or class of brokers, deal- ers, or municipal securities dealers from any provision of this section or the rules or regulations thereunder, if the Commission finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of this section. Municipal "(b)(1) Not later than one hundred twenty days after the date Securities of enactment of the Securities Acts Amendments of 1975, the Com- Rulemaking mission shall establish a Municipal Securities Rulemaking Board Board. (hereinafter in this section referred to as the 'Board'), to be composed Establishment; initially of fifteen members appointed by the Commission, which membership. Term. shall perform the duties set forth in this section. The initial mem- bers of the Board shall serve as members for a term of two years, and shall consist of (A) five individuals who are not associated with any broker, dealer, or municipal securities dealer, at least one of Avhom shall be representative of investors in municipal securities, and at least one of whom shall be representative of issuers of municipal securities (which members are hereinafter referred to as 'public rep- resentatives') ; (B) five individuals wdio are associated with and rep- resentative of municipal securities brokers and municipal securities dealers which are not banks or subsidiaries or departments or divi- sions of banks (which members are hereinafter referred to as 'broker- dealer representatives'); and (C) five individuals who are associated with and representative of municipal securities dealers which are banks or subsidiaries or departments or divisions of banks (which members are hereinafter referred to as 'bank representatives'). Prior to the expiration of the terms of office of the iiiitial members of the Board, an election shall be held under rules adopted by the Board (pursuant to subsection (b) (2) (B) of this section) of the members to succeed such initial members. Rules. " (2) The Board shall propose and adopt rules to effect the purposes of this title with respect to transactions in municipal securities effected by brokers, dealers, and municipal securities dealers. (Such rules are hereinafter collectively referred to in this title as 'rules of the Board'.) The rules of the Board, as a minimum, shall: "(A) provide that no municipal securities broker or municipal securities dealer shall effect any transaction in, or indiice or attempt to induce the purchase or sale of, any municipal security unless such municipal securities broker or municipal securities dealer meets such standards of operational capability and such municipal securities broker or municipal securities dealer and every natural person associated with such municipal securities broker or municipal securities dealer meet such standards of training, experience, competence, and such other qualifications as the Board finds necessary or appropriate in the public interest or for the protection of investors. In connection with the definition and application of such standards the Board may— "(i) appropriately classify mimicipal securities brokers and municipal securities dealers (taking into account relevant matters, including types of business done, nature of securities other than municipal securities sold, and character of busi- ness organization), and persons associated with municipal securities brokers and municipal securities dealers; " (ii) specify that all or any portion of such standards shall be applicable to any such class;
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 133 "(iii) require persons in any such class to pass tests admin- istered in accordance with subsection (c) (7) of this section; and "(iv) provide that persons in any such class other than municipal securities brokers and municipal securities dealers and partners, officers, and supervisory employees of municipal securities brokers or municipal securities dealers, may be qualified solely on the basis of compliance with such stand- ards of training and such other qualifications as the Board finds appropriate. "(B) establish fair procedures for the nomination and election of members of the Board and assure fair representation in such nominations and elections of municipal securities brokers and municipal securities dealers. Such rules shall provide that the membei-ship of the Board shall at all times be equally divided among public representatives, broker-dealer representatives, and bank representatives, and that the public representatives shall be subject to approval by the Commission to assure that no one of them is associated with any broker, dealer, or municipal securities dealer and that at least one is representative of investors in municipal securities and at least one is representative of issuers of municipal securities. Such rules shall also specify the term mem- ber's shall serve and may increase the number of members which shall constitute the whole Board provided that such number is an odd number. "(C) be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest; and not be designed to permit unfair dis- crimination between customers, issuers, municipal securities brokers, or municipal securities dealers, to fix minimum profits, to impose any schedule or fix rates of commissions, allowances, discounts, or other fees to be charged by municipal securities broker's or municipal security dealers, to regulate by virtue of any authority conferred by this title matters not related to the pur- poses of this title or the securities or the administration of the Board, or to impose any burden or competition not necessary or appropriate in furtherance of the purposes of this title. "(D) if the Board deems appropriate, provide for the arbitra- tion of claims, disputes, and controversies relating to transactions in municipal securities: Provided^ however^ That no person other than a municipal securities broker, municipal securities dealer, or person associated with such a municipal securities broker or municipal securities dealer may be compelled to submit to such arbitration except at his instance and in accordance with sectic 29 of this title. 15USC78CC. " ( E ) provide for the periodic examination in accordance with subsection (c) (7) of this section of municipal securities brokers and municipal securities dealers to determine compliance with applicable provisions of this title, the rules and regulations there- under, and the rules of the Board. Such rules shall specify the minimum scope and frequency of such examinations and shall be designed to avoid unnecessary regulatory duplication or undue R7.1IU n . 77 . IS
89 STAT. 134 PUBLIC LAW 94-29—JUNE 4, 1975 regulatory burdens for any such municipal securities broker or municipal securities dealer. " ( F ) include provisions governing the form and content of quotations relating to municipal securities which may be distrib- uted or published by any municipal securities broker, municipal securities dealer, or person associated with such a municipal securities broker or municipal securities dealer, and the persons to whom such quotations may be supplied. Such rules relating to quotations shall be designed to produce fair and informative quotations, to prevent fictitious or misleading quotations, and to promote orderly procedures for collecting, distributing, and pub- lishing quotations. Recordkeeping. "(G) prescribe records to be made and kept by municipal securities brokers and municipal securities dealers and the periods for which such records shall be preserved. " ( H ) define the term 'separately identifiable department or Ante, p. 97. division', as that term is used in section 3(a) (30) of this title, in accordance with specified and appropriate standards to assure that a bank is not deemed to be engaged in the business of buying and selling municipal securities through a separately identifiable department or division unless such department or division is orga- nized and administered so as to permit independent examination and enforcement of applicable provisions of this title, the rules and regulations thereunder, and the rules of the Board. A sepa- rately identifiable department or division of a bank may be engaged in activities other than those relating to municipal securities. " (I) provide for the operation and administration of the Board, including the selection of a Chairman from among the members of the Board, the compensation of the members of the Board, and the appointment and compensation of such employees, attorneys, and consultants as may be necessary or appropriate to carry out the Board's functions under this section. Fees. " ( J ) provide that each municipal securities broker and each municipal securities dealer shall pay to the Board such reasonable fees and charges as may be necessary or appropriate to defray the costs and expenses of operating and administering the Board. Such rules shall specify the amount of such fees and charges. " ( K ) establish the terms and conditions under which any municipal securities dealer may sell, or prohibit any municipal securities dealer from selling, any part of a new issue of municipal securities to a municipal securities investment portfolio during the underwriting period. " (3) Nothing in this section shall be construed to impair or limit the power of the Commission under this title. Use of mail or " (c) (1) No broker, dealer, or municipal securities dealer shall make instrumentality of use of the mails or any means or instrumentality of interstate com- interstate merce to effect any transaction in, or to induce or attempt to induce commerce, prohibition. the purchase or sale of, any municipal security in contravention of any rule of the Board. Notice and "(2) The Commission, by order, shall censure, place limitations hearing. on the activities, functions, or operations, suspend for a period not exceeding twelve months, or revoke the registration of any municipal securities dealer, if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, denial, sus- pension, or revocation, is in the public interest and that such munici- pal securities dealer has committed or omitted any act or omission
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 135 enumerated in subparagraph (A), (D), or (E) of paragraph (4) of section 15 (b) of this title, has been convicted of any offense specified ^nte, p. 121 in subparagraph (B) of such paragraph (4) within ten years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in subpara- graph (C) of such paragraph (4). "(3) Pending final determination whether any registration under Registration, this section shall be revoked, the Commission, by order, may suspend suspension. such registration, if such suspension appears to the Commission, after Notice and hearing. notice and opportunity for hearing, to be necessary or appropriate in the public interest or for the protection of investors. Any registered municipal securities dealer may, upon such terms and conditions as the Commission may deem necessary in the public interest or for the protection of investors, withdraw^ from registration by filing a written notice of withdrawal with the Commission. If the Commission finds that any registered municipal securities dealer is no longer in exist- ence or has ceased to do business as a municipal securities dealer, the Commission, by order, shall cancel the registration of such municipal securities dealer. "(4) The Commission, by order, sihall censure any person associ- Censure. ated, or seeking to become associated with, a municipal securities dealer or suspend for a period not exceeding twelve months or bar any such person from being associated with a municipal securities dealer, if the Commission finds, on the record after notice and opportunity for Notice and hearing, that such censure, suspension, or bar is in the public interest hearing. and that such person has committed or omitted any act or omission enumerated in subparagraph (A), (D), or (E) of paragraph (4) of section 15(b) of this title, has been convicted of any offense specified in subparagraph (B) of such paragraph (4) within ten years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in subpara- graph (C) of such paragraph (4). It shall be unlawful for any person as to whom an order entered pursuant to this paragraph or paragraph (5) of this subsection suspending or barring him from being asso- ciated with a municipal securities dealer is in effect willfully to become, or to be, associated with a municipal securities dealer without the consent of the Commission, and it shall be unlawful for any munici- pal securities dealer to permit such a person to become, or remain, a person associated with him without the consent of the Commission, if such municipal securities dealer knew, or, in the exercise of reason- able care should have known, of such order. "(5) With respect to any municipal securities dealer for which the Commission is not the appropriate regulatory agency, the appropriate regulatory agency for such municipal securities dealer may sanction any such municipal securities dealer in the manner and for the reasons specified in paragraph (2) of this subsection and any person associ- ated with such municipal securities dealer in the manner and for the reasons specified in paragraph (4) of this subsection. In addition, such appropriate regulatory agency may, in accordance with section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818), enforce com- pliance by such municipal securities dealer or any person associated with such municipal securities dealer with the provisions of this sec- tion, section 17 of this title, the rules of the Board, and the rules of the Post, p. 137. Commission pertaining to municipal securities dealers, persons asso- ciated with municipal securities dealers, and transactions in municipal securities. For purposes of the preceding sentence, any violation of any such provision shall constitute adequate basis for the issuance of any order under section 8(b) or 8 (c) of the Federal Deposit Insurance
89 STAT. 136 PUBLIC LAW 94-29—JUNE 4, 1975 12 use 1818. Act, and the customers of any such municipal securities dealer shall be deemed to be 'depositors' as that term is used in section 8(c) of that Act. Nothing in this paragraph shall be construed to affect in any way the powers of such appropriate regulatory agency to proceed against such municipal securities dealer under any other provision of law. Notice. " (6) (A) The Commission, prior to the entry of an order of investi- gation, or commencement of any proceedings, against any municipal securities dealer, or person associated with any municipal securities dealer, for which the Commission is not the appropriate regulatory agency, for violation of any provision of this section, section 15(c) (1) Ante, p. 121. or 15(c) (2) of this title, any rule or regulation under any such section, or any rule of the board, shall (i) give notice to the appropriate regu- latory agency for such municipal securities dealer of the identity of such municipal securities dealer or person associated with such munici- pal securities dealer and the nature of and basis for such proposed action and (iij consult with such appropriate regulatory agency con- cerning the enect of such proposed action on sound banking practices and the feasibility and desirability of coordinating such action with any proceeding or proposed proceeding by such appropriate regulatory agency against such municipal securities dealer or associated person. (B) The appropriate regulatory agency for a municipal securities dealer (if other than the Commission), prior to the entry of an order of investigation, or commencement of any proceedings, against such municipal securities dealer or person associated with such municipal securities dealer, for violation of any provision of this section, the rules of the Board, or the rules or regulations of the Commission per- taining to municipal securities dealers, persons associated with munici- pal securities dealers, or transactions in municipal securities shall (i) give notice to the Commission of the identity of such municipal securities dealer or person associated with such municipal securities dealer and the nature of and basis for such proposed action and (ii) consult with the Commission concerning the effect of such proposed action on the protection of investors and the feasibility and desirabil- ity of coordinating such action with any proceeding or proposed pro- ceeding by the Commission against such municipal securities dealer or associated person. (C) Nothing in this paragraph shall be construed to impair or limit (other than by the requirement of prior consultation) the power of the Commission or the appropriate regulatory agency for a municipal securities dealer to initiate any action of a class described in this paragraph or to affect in any way the power of the Commission or such appropriate regulatory agency to initiate any other action pur- suant to this title or any other provision of law. Tests. "(7) (A) Tests required pursuant to subsection (b) (2) (A) (iii) of this section shall be administered by or on behalf of and periodic examinations pursuant to subsection ( b ) ( 2 ) ( E ) of this section shall be conducted by— "(i) a registered securities association, in the case of municipal securities brokers and municipal securities dealers who are mem- bers of such association; and "(ii) the appropriate regulatory agency for any municipal securities broker or municipal securities dealer, in the case of all other municipal securities brokers and municipal securities dealers. Reports to "(B) A registered securities association shall make a report of any Commission. examination conducted pursuant to subsection ( b ) ( 2 ) ( E ) of this Copies. section and promptly furnish the Commission a copy thereof and any
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 137 data supplied to it in connection with such examination. Subject to such limitations as the Commission, by rule, determines to be necessary or appropriate in the public interest or for the protection of investors, the Commission shall, on request, make available to the Board a copy of any report of an examination of a municipal securities broker or municipal securities dealer made by or furnished to the Commission pursuant to this paragraph or section 17(c) (3) of this title. Infra. "(8) The Commission is authorized, by order, if in its opinion such Board members action is necessary or appropriate in the public interest, for the pro- or employees, tection of investors, or otherwise, in furtherance of the purposes of this removal or title, to remove from office or censure any member or employee of the censure. Notice and Board, who, the Commission finds, on the record after notice and hearing. opportunity for hearing, has willfully (A) violated any provision of this title, the rules and regulations thereunder, or the rules of the Board or (B) abused his authority. "(d) (1) Neither the Commission nor the Board is authorized under this title, by rule or regulation, to require any issuer of municipal securities, directly or indirectly through a purchaser or prospective purchaser of securities from the issuer, to file with the Commission or the Board prior to the sale of such securities by the issuer any appli- cation, report, or document in connection with the issuance, sale, or distribution of such securities. "(2) The Board is not authorized under this title to require any issuer of municipal securities, directly or indirectly through a munici- pal securities broker or municipal securities dealer or otherwise, to furnish to the Board or to a purchaser or a prospective purchaser of such securities any application, report, document, or information with respect to such issuer: Provided^ however., That the Board may require municipal securities brokers and municipal securities dealers to fur- nish to the Board or purchasers or prospective purchasers of municipal securities applications, reports, documents, and information with respect to the issuer thereof which is generally available from a source other than such issuer. Nothing in this paragraph shall be construed to impair or limit the power of the Commission under any provision of this title." S E C 14. Section 17 of the Securities Exchange Act of 1934 (15 Recordkeeping U.S.C. 78q) is amended by striking subsection (a), redesignating subsection (b) as subsection (g), and inserting the following as sub- sections (a), (b), (c), (d), (e), and (f) : "(a) (1) Every national securities exchange, member thereof, broker or dealer who transacts a business in securities through the medium of any such member, registered securities association, registered broker or dealer, registered municipal securities dealer, registered securities information processor, registered transfer agent, and regis- tered clearing agency and the Municipal Securities Rulemaking Board shall make and keep for prescribed periods such records, furnish such copies thereof, and make and disseminate such reports as the Com- mission, by rule, prescribes as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title. "(2) Every registered clearing agency shall also make and keep for prescribed periods such records, furnish such copies thereof, and make and disseminate such reports, as the appropriate regulatory agency for such clearing agency, by rule, prescribes as necessary or appropriate for the safeguarding of securities and funds in the cus- tody or control of such clearing agency or for which it is responsible. "(3) Every registered transfer agent shall also make and keep for Copies. prescribed periods such records, furnish such copies thereof, and make
89 STAT. 138 PUBLIC LAW 94-29—JUNE 4, 1975 such reports as the appropriate regulatory agency for such transfer agent, by rule, prescribes as necessary or appropriate in furtherance Post, p. 141. of the purposes of section 17A of this title. Records, periodic "(b) All records of persons described in subsection (a) of this sec- examination. tion are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the Com- mission and the appropriate regulatory agency for such persons as the Commission or the appropriate regulatory agency for such persons deems necessary or appropriate in the public interest, for the protec- tion of investors, or otherwise in furtherance of the purposes of this Notice. title: Pro'vided^ JKnoever^ That the Commission shall, prior to con- ducting any such examination of a registered clearing agency, reg- istered transfer agent, or registered municipal securities dealer for which it is not the appropriate regulatory agency, give notice to the appropriate regulatory agency for such clearing agency, transfer agent, or municipal securities dealer of such proposed examination and consult with such appropriate regulatory agency concerning the feasibility and desirability of coordinating such examination with examinations conducted by such appropriate regulatory agency with a view to avoiding unnecessary regulatory duplication or imdue regu- latory burdens for such clearing agency, transfer agent, or municipal securities dealer. Nothing in the proviso to the preceding sentence shall be construed to impair or limit (other than by the requirement of prior consultation) the power of the Commission under this sub- section to examine any clearing agency, transfer agent, or municipal securities dealer or to affect in any way the power of the Commission under any other provision of this title or otherwise to inspect, examine, or investigate any such clearing agency, transfer agent, or municipal securities dealer. "(c) (1) Every clearing agency, transfer agent, and municipal secu- rities dealer for which the Commission is not the appropriate regula- tory agency shall (A) file with the appropriate regulatory agency for such clearing agency, transfer agent, or municipal securities dealer a copy of any application, notice, proposal, report, or document filed with the Commission by reason of its being a clearing agency, transfer agent, or municipal securities dealer and (B) file wnth the Commission a copy of any application, notice, proposal, report, or document filed with such appropriate regulatory agency by reason of its being a clearing agency, transfer agent, or municipal securities dealer. The Municipal Securities Rulemaking Board shall file with each agency Ante, p. 97. enumerated in section 3(a) (34) (A) of this title copies of every pro- posed rule change filed with the Commission pursuant to section 19(b) Post, p. 146. of this title. "(2) The appropriate regulatory agency for a clearing agency, transfer agent, or municipal securities dealer for which the Commis- sion is not the appropriate regulatory agency shall file with the Com- mission notice of the commencement of any proceeding and a copy of any order entered by such appropriate regulatory agency against such clearing agency, transfer agent, or municipal securities dealer, and the Commission shall file with such appropriate regulatory agency notice of the commencement of any proceeding and a copy of any order entered by the Commission against such clearing agency, trans- fer agent, or municipal securities dealer. Report of "(3) The Commission and the appropriate regulatory agency for a examination. clearing agency, transfer agent, or municipal securities dealer for which the Commission is not the appropriate regulatory agency shall each notify the other and make a report of any examination conducted by it of such clearing agency, transfer agent, or municipal securities
PUBLIC LAW 94^29—JUNE 4, 1975 89 STAT. 139 dealer, and, upon request, furnish to the other a copy of such report and any data supplied to it in connection with such examination. "(d) (1) The Commission, by rule or order, as it deems necessary Self-regulatoiy or appropriate in the public interest and for the protection of inves- organizations. tors, to foster cooperation and coordination among self-regulatory organizations, or to remove impediments to and foster the develop- ment of a national market system and national system for the clear- ance and settlement of securities transactions, may— " (A) with respect to any person who is a member of or partici- pant in more than one self-regulatory organization, relieve any such self-regulatory organization of any responsibility under this title (i) to receive regulatory reports from such person, (ii) to examine such person for compliance, or to enforce compliance by such person, with specified provisions of this title, the rules and regulations thereunder, and its own rules, or (iii) to carry out other specified regulatory functions with respect to such person, and "(B) allocate among self-regulatory organizations the author- ity to adopt rules with respect to mattere as to which, in the absence of such allocation, such self-regulatory organizations share authority under this title. In making any such rule or entering any such order, the Commission shall take into consideration the regulatory capabilities and procedures of the self-regulatory organizations, availability of staff, convenience of location, unnecessary regulatory duplication, and such other factors as the Commission may consider germane to the protection of investors, cooperation and coordination among self-regulatory organizations, and the development of a national market system and a national system for the clearance and settlement of securities transactions. The Commission, by rule or order, as it deems necessary or appropriate in the public interest and for the protection of investors, may require any self-regulatory organization relieved of any responsibility pursu- ant to this paragraph, and any person with respect to whom such responsibility relates, to take such steps as are specified in any such rule or order to notify customers of, and persons doing business with, such pereon of the limited nature of such self-regulatory organiza- tion's responsibility for such person's acts, practices, and course of business. "(2) A self-regulatory organization shall furnish copies of any report of examination of any person who is a member of or a par- ticipant in such self-regulatory organization to any other self-regula- tory organization of which such person is a member or in which such person is a participant upon the request of such person, such other self-regulatory organization, or the Commission. "(e) (1) (A) Every registered broker or dealer shall annually file Filing of balance with the Commission a balance sheet and income statement certified sheet and income by an independent public accountant, prepared on a calendar or fiscal statement. year basis, and such other financial statements (which shall, as the Commission specifies, be certified) and information concerning its financial condition as the Commission, by rule may prescribe as neces- sary or appropriate in the public interest or for the protection of investors. "(B) Every registered broker and dealer shall annually send to its Financial customers its certified balance sheet and such other financial state- statements to ments and information concerning its financial condition as the Com- customers. mission, by rule, may prescribe pursuant to subsection (a) of this section.
89 STAT. 140 PUBLIC LAW 94-29—JUNE 4, 1975 Exem]>tion. "(C) The Commission, by rule or order, may conditionally or unconditionally exempt any registered broker or dealer, or class of such brokers or dealers, from any provision of this paragraph if the Commission determines that such exemption is consistent with the public interest and the protection of investors. "(2) The Commission, by rule, as it deems necessary or appropriate in the public interest or for the protection of investors, may prescribe the form and content of financial statements filed pursuant to this title and the accounting principles and accounting standards used in their preparation. Missing, lost, "(f) (1) Every national securities exchange, member thereof, regis- counterfeit, or tered securities association, broker, dealer, municipal securities dealer, stolen securities, registered transfer agent, registered clearing agency, participant reporting. tlierein, member of the Federal Reserve System, and bank whose deposits are insured by the Federal Deposit Insurance Corporation shall— "(A) report to the Commission or other person designated by the Commission such information about missing, lost, counterfeit, or stolen securities, in such form and within such time as the Com- mission, by rule, determines is necessary or appropriate in the pub- lic interest or for the protection of investors; such information shall be available on request for a reasonable fee, to any such exchange, member, association, broker, dealer, municipal securities deader, transfer agent, clearing agency, participant, member of the Federal Reserve System, or insured bank, and such other per- sons as the Commission, by rule, designates; and "(B) make such inquiry with respect to information reported pursuant to this subsection as the Commission, by rule, prescribes as necessary or appropriate in the public interest or for the pro- tection of investors, to determine whether securities in their cus- tody or control, for which they are responsible, or in which they are effecting, clearing, or settling a transaction have been reported as missing, lost, counterfeit, or stolen. Fingerprints, " (2) Every member of a national securities exchange, broker, dealer, submittal to registered transfer agent, and registered clearing agency, shall require Attorney that each of its partners, directors, officers, and employees be finger- General. printed and shall submit such fingerprints, or cause the same to be submitted, to the Attorney General of the United States for identifi- Exemption. cation and appropriate processing. The Commission, by rule, may exempt from the provisions of this paragraph upon specified terms, conditions, and periods, any class of partners, directors, officers, or employees of any such member, broker, dealer, transfer agent, or clearing agency, if the Commission finds that such action is not incon- sistent with the public interest or the protection of investors. National Crime "(3) In order to carry out the authority under paragraphs (1) and Information (2) above, the Commission or its designee may enter into agreement Center facilities. with the Attorney General to use the facilities of the National Crime Information Center ("NCIC") to receive, store, and disseminate infor- mation in regard to missing, lost, counterfeit, or stolen securities and to permit direct inquiry access to NCIC's file on such securities for the financial community. Delegation of "(4) In regard to paragraphs (1), (2), and (3), above insofar authority. as such paragraphs apply to any bank or member of the Federal Reserve System, the Commission may delegate its authority to: "(A) the Comptroller of the Currency as to national banks and banks operating under the Code of Law for the District of Columbia; "(B) the Federal Reserve Board in regard to any member of the Federal Reserve System which is not a national bank or a
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 141 bank operating under the Code of Law for the District of Cokim- bia; and "(C) the Federal Deposit Insurance Corporation for any State bank which is insured by the Federal Deposit Insurance Cor- poration but which is not a member of the Federal Reserve System. "(5) The Commission shall encourage the insurance industry to require their insured to report expeditiously instances of missing, lost, counterfeit, or stolen securities to the Commission or to such other person as the Commission may, by ru^.e, designate to receive such information.". SEC. 15. The Securities Exchange Act of 1934 is amended by insert- ing after section 17 (15 U.S.C. 78q) the following new section: " N A T I O N A L S Y S T E M FOR C L E A R A N C E A N D S E T T L E M E N T o r SECURITIES TRANSACTIONS "SEC. 17A. (a)(1) The Congress finds that— 15 USC 78q.l. "(A) The prompt and accurate clearance and settlement of securities transactions, including the transfer of record ownership and the safeguarding of securities and funds related thereto, are necessary for the protection of investors and persons facilitating transactions by and acting on behalf of investors. "(B) Inefficient procedures for clearance and settlement impose unnecessary costs on investors and persons facilitating transac- tions by and acting on behalf of mvesitors. " ( C j New data processing and communications techniques create the opportunity for more efficient, effective, and safe pro- cedures for clearance and settlement. "(D) The linking of all clearance and settlement facilities and the development of uniform standards and procedures for clear- ance and settlement will reduce unnecessary costs and increase the protection of investors and persons facilitating transactions by and acting on behalf of investors. "(2) The Commission is directed, therefore, having due regard for the public interest, the protection of investors, the safeguarding of securities and funds, and maintenance of fair competition among brokers and dealers, clearing agencies, and transfer agents, to use its authority under this title to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of trans- actions in securities (other than exempted securities) in accordance with the findings and to carry out the objectives set forth in para- graph (1) of this subsection. The Commission shall use its authority under this title to assure equal regulation under this title of registered clearing agencies and registered transfer agents. "(b)(1) Except as otherwise provided in this section, it shall be Mails or unlawful for any clearing agency, unless registered in accordance instrumentality of with this subsection, directly or indirectly, to make use of the mails interstate or any means or instrumentality of interstate commerce to perform commerce, prohibition, use. the functions of a clearing agency with respect to any security (other than an exempted security). The Commission, by rule or order, upon Exemption its own motion or upon application, may conditionally or uncondi- tionally exempt any clearing agency or security or any class of clear- ing agencies or securities from any provisions of this section or the rules or regulations thereunder, if the Commission finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of this section, including the prompt and accurate clearance and settlement of securities transactions and the safeguarding of securities and funds. A clearing agency or transfer
89 STAT. 142 PUBLIC LAW 94-29—JUNE 4, 1975 agent shall not perform the functions of both a clearing agency and a transfer agent unless such clearing agency or transfer agent is regis- tered in accordance with this subsection and subsection (c) of this section. " (2) A clearing agency may be registered under the terms and con- ditions hereinafter provided in this subsection and in accordance with Post, p. 146. the provisions of section 19 (a) of this title, by filing with the Commis- sion an application for registration in such form as the Commission, by rule, may prescribe containing the rules of the clearing agency and such other information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the prompt and accurate clearance and settlement of securities trans- actions. Registration "(3) A clearing agency shall not be registered unless the Commis- requirements. sion determines that— "(A) Such clearing agency is so organized and has the capac- ity to be able to facilitate the prompt and accurate clearance and settlement of securities transactions for which it is responsible, to safeguard securities and funds in its custody or control or for which it is responsible, to comply with the provisions of this title Ante, p. 137. and the rules and regulations thereunder, to enforce (subject to Post, p. 146. any rule or order of the Commission pursuant to section 17(d) or 19(g)(2) of this title) compliance by its participants with the rules of the clearing agency, and to carry out the purposes of this section. "(B) Subject to the provisions of paragraph (4) of this sub- section, the rules of the clearing agency provide that any (i) reg- istered broker or dealer, (ii) other registered clearing agency, (iii) registered investment company, (iv) bank, (v) insurance com- pany, or (vi) other person or class of persons as the Com- mission, by rule, may from time to time designate as appropriate to the development of a national system for the prompt and accurate clearance and settlement of securities transactions may become a participant in such clearing agency. "(C) The rules of the clearing agency assure a fair representa- tion of its shareholders (or members) and participants in the selec- tion of its directors and administration of its affairs. (The Commission may determine that the representation of partici- pants is fair if they are afforded a reasonable opportunity to acquire voting stock of the clearing agency, directly or indirectly, in reasonable proportion to their use of such clearing agency.) "(D) The rules of the clearing agency provide for the equitable allocation of reasonable dues, fees, and other charges among its participants. " ( E ) The rules of the clearing agency do not impose any sched- ule of prices, or fix rates or other fees, for services rendered by its participants. " ( F ) The rules of the clearing agency are designed to promote the prompt and accurate clearance and settlement of securities transactions, to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible, to foster cooperation and coordination with persons engaged in the clearance and settlement of securities trans- actions, to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and set- tlement of securities transactions, and, in general, to protect investors and the f)ublic interest; and are not designed to permit unfair discrimination in the admission of participants or among
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 143 participants in the use of the clearing agency, or to regulate by virtue of any authority conferred by this title matters not related to the purposes of this section or the administration of the clear- ing agency. "(G) The rules of the clearing agency provide that (subject to any rule or order of the Commission pursuant to section 17(d) •^"•^^' P- 137. or 19(g) (2) of this title) its participants shall be appropriately Post, p. 146. disciplined for violation of any provision of the rules of the clear- ing agency by expulsion, suspension, limitation of activities, func- tions, and operations, fine, censure, or any other fitting sanction. " ( H ) The rules of the clearing agency are in accordance with the provis'ons of paragraph (5) of this subsection, and, in general, provide a fair procedure with respect to the disciplining of par- ticipants, the denial of participation to any person seeking par- ticipation therein, and the prohibition or limitation by the clearing agency of any person with respect to access to services offered by the clearing agency. " ( I ) The rules of the clearing agency do not impose any bur- den on competition not necessary or appropriate in furtherance of the purposes of this title. "(4) (A) A registered clearing agency may, and in cases in which Denial of the Commission, by order, directs as appropriate in the public interest participation. shall, deny participation to any person subject to a statutory dis- qualification. A registered clearing agency shall file notice with the Notice. Commission not less than thirty days prior to admitting any person to participation, if the clearing agency knew, or in the exercise of reasonable care should have known, that such person was subject to a statutory disqualification. The notice shall be in such form and contain such information as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. "(B) A registered clearing agency may deny participation to, or condition the participation of, any person if such person does not meet such standards of financial responsibility, operational capa- bility, experience, and competence as are prescribed by the rules of the clearing agency. A registered clearing agency may examine and Examination and verify the qualifications of an applicant to be a participant in accord- verification. ance with procedures established by the rules of the clearing agency. "(5) (A) In any proceeding by a registered clearing agency to Notice. determine whether a participant should be disciplined (other than a summary proceeding pursuant to subparagraph (C) of this para- graph), the clearing agency shall bring specific charges, notify such participant of, and give him an opportunity to defend against such charges, and keep a record. A determination by the clearing agency to impose a disciplinary sanction shall be supported by a statement setting forth— "(i) any act or practice in which such participant has been found to have engaged, or which such participant has been found to have omitted; "(ii) the specific provisions of the rules of the clearing agency which any such act or practice, or omission to act, is deemed to violate; and "(iii) the sanction imposed and the reasons therefor. "(B) In any proceeding by a registered clearing agency to deter- Notice and mine whether a person shall be denied participation or prohibited or hearing, limited with respect to access to services offered by the clearing agency, the clearing agency shall notify such person of, and give him an opportunity to be heard upon, the specific grounds for denial or
89 STAT. 144 PUBLIC LAW 94-29—JUNE 4, 1975 prohibition or limitation under consideration and keep a record. A determination by the clearing agency to deny participation or pro- hibit or limit a person with respect to access to services offered by the clearing agency shall be supported by a statement setting forth the specific grounds on which the denial or prohibition or limitation is based. Summary "(C) A registered clearing agency may summarily suspend and suspension. close the accounts of a participant who (i) has been and is expelled or suspended from any self-regulatory organization, (ii) is in default of any delivery of funds or securities to the clearing agency, or (iii) is in such financial or operating difficulty that the clearing agency determines and so notifies the appropriate regulatory agency for sucn participant that such suspension and closing of accounts are neces- sary for the protection of the clearing agency, its participants, Hearing. creditors, or investors. A participant so summarily suspended shall be promptly afforded an opportunity for a hearing by the clearing agency in accordance with the provisions of subparagraph (A) of Stay of this paragraph. The appropriate regulatory agency for such par- suspension. ticipant, by order, may stay any such summary suspension on its own motion or upon application by any person aggrieved thereby, if such appropriate regulatory agency determines summarily or after notice and opportunity for hearing (which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that such stay is consistent with the public interest and protection of investors. " (6) No registered clearing agency shall prohibit or limit access by any person to services offered by any participant therein. Use of mails or "(c)(1) Except as otherwise provided in this section, it shall be instrumentality of unlawful for any transfer agent, unless registered in accordance with interstate this section, directly or indirectly, to make use of the mails or any commerce, prohibition. means or instrumentality of interstate commerce to perform the func- 15 use 78/. tion of a transfer agent with respect to any security registered under section 12 of this title or which would be required to be registered except for the exemption from registration provided by subsection (g) (2) (B) or (g) (2) (G) of that section. The appropriate regulatory agency, by rule or order, upon its own motion or upon application, may conditionally or unconditionally exempt any person or security or class of persons or securities from any provision of this section or any rule or regulation prescribed under this section, if the appropriate regulatory agency finds (A) that such exemption is in the public interest and consistent with the protection of investors and the pur- poses of this section, including the prompt and accurate clearance and settlement of securities transactions and the safeguarding of securities and funds, and (B) the Commission does not object to such exemption. Transfer agents "(2) A transfer agent may be registered by filing with the appro- registration. priate regulatory agency for such transfer agent an application for registration in such form and containing such information and docu- ments concerning such transfer agent as such appropriate regulatory agency may prescribe as necessary or appropriate in furtherance of the purposes of this section. Except as hereinafter provided, such registra- tion shall become effective thirty days after receipt of such application by such appropriate regulatory agency or within such shorter period of time as such appropriate regulatory agency may determine. Denial. "(3) (A) The appropriate regulatory agency for a transfer agent, Notice and by order, shall deny registration to, censure, place limitations on the hearing. activities, functions, or operations of, suspend for a period not exceed- ing twelve months, or revoke the registration of such transfer agent, if such appropriate regulatory agency finds, on the record after notice
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 145 and opportunity for hearing, that such denial, censure, placing of limitations, suspension, or revocation is in the public interest and that such transfer agent has willfully violated or is unable to comply with any provision of this section or section 17 of this title or the rules or Ante, p. 137. regulations thereunder. "(B) Pending final determination whether any registration by a Notice and transfer agent under this subsection shall be denied, the appropriate hearing. regulatory agency for such transfer agent, by order, may postpone the effective date of such registi-ation for a period not to exceed fifteen days, but if, after notice and opportunity for hearing (which may consist solely of affidavits and oral arguments), it shall appear to such appropriate regulatory agency to be necessary or appropriate in the public interest or for the protection of in\ ostors to postpone the effec- tive date of such registration until final determination, such appro- priate regulatory agency shall so order. Pending final determination Notice and whether any registration under this subsection shall be revoked, such hearing. appropriate regulatory agency, by order, may suspend such registra- tion, if such suspension appears to such appropriate regulatory agency, after notice and opportunity for hearing, to be necessary or appro- priate in the public interest or for the protection of investors. "(C) A registered transfer agent may, upon such terms and con- Notice of ditions as the appropriate regulatory agency for such transfer agent withdrawal. deems necessary or appropriate in the public interest, for the protec- tion of investors, or in furtherance of the purposes of this section, withdraw from registration by filing a written notice of withdrawal with such appropriate regulatory agency. If such appropriate regula- tory agency finds that any transfer agent for which it is the appro- priate regulatory agency, is no longer in existence or has ceased to do business as a transfer agent, such appropriate regulatory agency, by order, shall cancel or deny the registration. "(d) (1) No registered clearing agency or registered transfer agent shall, directly or indirectly, engage in any activity as clearing agency or transfer a^ent in contravention of such rules and regulations (A) as the Commission may prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in further- ance of the purposes of this title, or (B) as the appropriate regulatory agency for such clearing agency or transfer agent may prescribe as necessary or appropriate for the safeguarding of securities and funds. " (2) With respect to any clearing agency or transfer agent for which the Commission is not the appropriate regulatory agency, the appro- priate regulatory agency for such clearing agency or transfer agent may, in accordance with section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818), enforce compliance by such clearing agency or trans- fer agent with the provisions of this section, sections 17 and 19 of this Post, p. 146. title, and the rules and regulations thereunder. For purposes of the preceding sentence, any violation of any such provision shall consti- tute adequate basis for the issuance of an order under section 8(b) or 8(c) of the Federal Deposit Insurance Act, and the participants in any such clearing agency and the persons doing business with any such transfer agent shall be deemed to be 'depositors' as that term is used in section 8 (c) of that Act. "(3) (A) With respect to any clearing agency or transfer agent for Consultation, which the Commission is not the appropriate regulatory agency, the Commission and the appropriate regulatory agency for such clearing agency or transfer agent shall consult and cooperate with each other, and, as may be appropriate, with State banking authorities having supervision over such clearing agency or transfer agent toward the end that, to the maximum extent practicable, theiir respective regulatory
89 STAT. 146 PUBLIC LAW 94-29—JUNE 4, 1975 responsibilities may be fulfilled and the rules and regulations appli- cable to such clearing agency or transfer agent may be in accord with both sound banking practices and a national system for the prompt and accurate clearance and settlement of securities transac- tions. I n accordance with this objective— "(i) the Commission and such appropriate regulatory agency shall, at least fifteen days prior to the issuance for public com- ment of any proposed rule or regulation or adoption of any rule or regulation concerning such clearing agency or transfer agent, consult and request the views of the other; and "(ii) such appropriate regulatory agency shall assume primary responsibility to examine and enforce compliance by such clearing agency or transfer agent with the provisions of this section and sec- Ante, p. 137. tions 17 and 19 of this title. ^'ifra. " ( B ) Nothing in the preceding subparagraph or elsewhere in this title shall be construed to impair or limit (other than by the require- ment of notification) the Commission's authority to make rules under any provision of this title or to enforce compliance pursuant to any provision of this title by any clearing agency or transfer agent with the provisions of this title and the rules and regulations thereunder. " (4) Nothing in this section shall be construed to impair the author- ity of any State banking authority or other State or Federal regu- latory authority having jurisdiction over a person registered as a clear- ing agency or transfer agent to make and enforce rules governing such person which are not inconsistent with this title and the rules and regulations thereunder. "(e) The Commission shall use its authority under this title to end the physical movement of securities certificates in connection with the settlement among brokers and dealers of transactions in securities con- summated by means of the mails or any means or instrumentalities of interstate commerce.". SEC. 16. Section 19 of the Securities Exchange Act of 1934 (15 U.S.C. 78s) is amended to read as follows: 'REGISTRATION, RESPONSIBILITIES, AND OVERSIGHT OF SELF-REGULATORY ORGANIZATIONS Notice of filing. "SEC. 19. (a) (1) The Commission shall, upon the filing of an appli- cation for registration as a national securities exchange, registered securities association, or registered clearing agency, pursuant to sec- Ante, pp. 104, tion 6, 15A, or 17A of this title, respectively, publish notice of such 127, 141. filing and afford interested persons an opportunity to submit written data, views, and arguments concerning such application. Within ninety days of the date of publication of such notice (or within such longer period as to which the applicant consents), the Commission shall— " (A) by order grant such registration, or Notice and "(B) institute proceedings to determine whether registration hearing. should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hear- ing and shall be concluded within one hundred eighty days of the date of a publication of notice of the filing of the application for registration. At the conclusion of such proceedings the Commis- Extension. sion, by order, shall grant or deny such registration. The Commis- sion may extend the time for conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the applicant consents. The Commission shall grant such registration if it finds that the requirements of this title and the rules and regulations thereunder
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 147 with respect to the applicant are satisfied. The Commission shall deny •such registration if it does not make such finding. "(2) With respect to an application for registration filed by a clearing agency for which the Commission is not the appropriate regulatory agency— "(A) The Commission shall not grant registration prior to the sixtieth day after the date of publication of notice of the filing of such application unless the appropriate regulatory agency for such clearing agency has notified the Commission of such appro- priate regulatory agency's determination that such clearing agency is so organized and has the capacity to be able to safe- guard securities and funds in its custody or control or for which it is responsible and that the rules of such clearing agency are designed to assure the safeguarding of such securities and funds. "(B) The Commission shall institute proceedings in accord- ance with paragraph (1) (B) of this subsection to determine whether registration should be denied if the appropriate regula- tory agency for such clearing agency notifies the Commisison within sixty days of the date of publication of notice of the filing of such application of such appropriate regulatory agency's (i) determination that such clearing agency may not be so organized or have the capacity to be able to safeguard securities or funds in its custody or control or for which it is responsible or that the rules of such clearing agency may not be designed to assure the safeguarding of such securities and funds and (ii) reasons for such determination. "(C) The Commission shall deny registration if the appropriate regulatory agency for such clearing agency notifies the Com- mission prior to the conclusion of proceedings instituted in accordance with paragraph (1) (B) of this subsection of such appropriate regulatory agency's (i) determination that such clear- ing agency is not so organized or does not have the capacity to be able to safeguard securities or funds in its custody or control or for which it is responsible or that the rules of such clearing agency are not designed to assure the safeguarding of such securities or funds and (ii) reasons for such determination. "(3) A self-regulatory organization may, upon such terms and Withdrawal from conditions as the Commission, by rule, deems necessary or appropriate registration. in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the Com- mission. If the Commission finds that any self-regulatory organiza- tion is no longer in existence or has ceased to do business in the capacity specified in its application for registration, the Commission, by order, shall cancel its registration. Upon the withdrawal of a national Affiliate securities association from registration or the cancellation, suspen- registration, sion, or revocation of the registration of a national securities associa- termination. tion, the registration of any association affiliated therewith shall automatically terminate, "(b) (1) Each self-regulatory organization shall file with the Com- Proposed rule mission, in accordance with such rules as the Commission may pre- change, filing. scribe, copies of any proposed rule or any proposed change in, addition to, or deletion from the rules of such self-regulatory organization (hereinafter in this subsection collectively referred to as a 'proposed rule change') accompanied by a concise general statement of the basis and purpose of such proposed rule change. The Commission shall, Notice. upon the filing of any proposed rule change, publish notice thereof together with the terms of substance of the proposed rule change or a description of the subjects and issues involved. The Commission
89 STAT. 148 PUBLIC LAW 94-29—JUNE 4, 1975 shall give interested persons an opportunity to submit written data, views, and arguments concerning such proposed rule change. No pro- posed rule change shall take effect unless approved by the Commission or otherwise permitted in accordance with the provisions of this subsection. "(2) Within thirty-five days of the date of publication of notice of the filing of a proposed rule change in accordance with paragraph (1) of this subsection, or within such longer period as the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall— " (A) by order approve such proposed rule change, or "(B) institute proceedings to determine whether the proposed Notice and rule change should be disapproved. Such proceedings shall include hearing. notice of the grounds for disapproval under consideration and opportunity for hearing and be concluded within one hundred eighty days of the date of publication of notice of the filing of the proposed rule change. At the conclusion of such proceedings the Commission, by order, shall approve or disapprove such pro- posed rule change. The Commission may extend the time for con- clusion of such proceedings for up to sixty days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the self-regulatory orga- nization consents. Approval. The Commission shall approve a proposed rule change of a self- regulatory organization if it finds that such proposed rule change is consistent witli the requirements of this title and the rules and regula- Disapproval. tions thereunder applicable to such organization. The Commission shall disapprove a proposed rule change of a self-regulatory organi- zation if it does not make such finding. The Commission shall not approve any proposed rule change prior to the thirtieth day after the date of publication of notice of the filing thereof, unless the Commis- sion finds good cause for so doing and publishes its reasons for so finding. "(3) (A) Notwithstanding the provisions of paragraph (2) of this subsection, a proposed rule change may take effect upon filing with the Commission if designated by the self-regulatory organization as (i) constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the self-regulatory organization, (ii) establishing or changing a due, fee, or other charge imposed by the self-regulatory organization, or (iii) concerned solely with the administration of the self-regulatory organization or other matters which the Commission, by rule, consist- ent with the public interest and the purposes of this subsection, may specify as without the provisions of such paragraph (2). "(B) Notwithstanding any other provision of this subsection, a proposed rule change may be put into effect summarily if it appears to the Commission that such action is necessary for the protection of investors, the maintenance of fair and orderly markets, or the safe- guarding of securities or funds. Any proposed rule change so put into effect shall be filed promptly thereafter in accordance with the provi- sions of paragraph (1) of this subsection. "(C) Any proposed rule change of a self-regulatory organization which has taken effect pursuant to subparagraph (A) or (B) of this paragraph may be enforced by such organization to the extent it is not inconsistent with the provisions of this title, the rules and regulations thereunder, and applicable Federal and State law. At any time within sixty days of the date of filing of such a proposed rule change in
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 149 accordance with the provisions of paragraph (1) of this subsection, the Commission summarily may abrogate the change in the rules of the self-regulatory organization made thereby and require that the pro- posed rule change be refiled in accordance with the provisions of paragraph (1) of this subsection and reviewed in accordance with the provisions of paragraph (2) of this subsection, if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title. Commission action pursuant to the pre- ceding sentence shall not affect the validity or force of the rule change during the period it was in effect and shall not be reviewable under section 25 of this title nor deemed to be 'final agency action' for pur- Post, p. 158. poses of section 704 of title 5, United States Code. "(4) With respect to a proposed rule change filed by a registered clearing agency for w^hich the Commission is not the appropriate regulatory agency—• "(A) The Commission shall not approve any such proposed rule change prior to the thirtieth day after the date of publication of notice of the filing thereof unless the appropriate regulatory agency for such clearing agency has notified the Commission of such appropriate regulatory agency's determination that the pro- posed rule change is consistent with the safeguarding of securities and funds in the custody or control of such clearing agency or for which it is responsible. "(B) The Commission shall institute proceedings in accordance with paragraph (2) (B) of this subsection to determine whether any such proposed rule change should be disapproved, if the appropriate regulatory agency for such clearing agency notifies the Commission within thirty days of the date of publication of notice of the filing of the proposed rule change of such appro- priate regulatory agency's (i) determination that the proposed rule change may be inconsistent with the safeguarding of secu- rities or funds in the custody or control of such clearing agencv or for which it is responsible and (ii) reasons for such determination. "(C) The Commission shall disapprove any such proposed rule change if the appropriate regulatory agency for such clearing agency notifies the Commission prior to the conclusion of pro- ceedings instituted in accordance with paragraph (2) (B) of this subsection of such appropiiate i-egulatory agency's (i) deter- mination that the proposed rule change is inconsistent wnth the safeguarding of securities or funds in the custodv or control of such clearing agency or for which it is responsible and (ii) rea- sons for such determination. "(D) The Commission shall abrogate any change in the rules of such a clearing agency made by a proposed rule change which has taken effect pursuant to paragraph (3) of this subsection, require that the proposed rule change be refiled in 'accordance with the provisions of paragraph (1) of this subsection, and reviewed in accordance 'with the provisions of paragraph (2) of this subsection, if the appropriate regulatory agency for such clearing agency notifies the Commission within thirty days of the date of filing of such proposed rule change of such appropriate regulatory agency's (i) determination that the rules of such clear- ing agency as so changed may be inconsistent with the safeguard- ing of securities or funds in the custody or control of such clearing agency or for which it is responsible and (ii) reasons for such determination. S7.104 n - 77 - 14
89 STAT. 150 PUBLIC LAW 94-29—JUNE 4, 1975 "(c) The Commission, by rule, may abrogate, add to, and delete from (hereinafter in this subsection collectively referred to as 'amend') the rules of a self-regulatoiy organization (oither than a registered clearing agency) as the Commission deems necessary or appropriate to insure the fair administration of the self-regulatory organization, to conform its rules to requirements of this title and the rules and regulations thereunder applicable to such organization, or otherwise in furtherance of the purposes of this title, in the following manner: Publication in "(1) The Commission shall notify the self-regulatory organi- Federal Register. zation and publish notice of the proposed rulemaking in the Fed- eral Register. The notice shall include the text of the proposed amendment to the rules of the self-regulatory organization and a statement of the Commission's reasons, including any pertinent facts, for commencing such proposed rulemaking. "(2) The Commission shall give interested persons an oppor- tunity for the oral presentation of data, views, and arguments, in addition to an opportunity to make written submissions. A tran- script shall be kept of any oral presentation. "(3) A rule adopted pui'suant to this subsection shall incor- porate the text of the amendment to the rules of the self-regulatory organization and a statement of the Commission's basis for and purpose in so amending such I'ules. This statement shall include an identification of any facts on which the Commission considers its determination so to amend the i"ules of the self-regulatory agency to be based, including the reasons for the Commission s conclusions as to any of such facts which were disputed in the rule- making. "(4) (A) Except as provided in paragraphs (1) through (3) of this subsection, rulemaking under this subsection shall be in accordance with the procedures specified in section 553 of title 5, United States Code, for rulemaking not on the record. "(B) Nothing in this subsection shall be construed to impair or limit the Commission's power to make, or to modify or alter the procedures the Commission may follow in making, rules and regulations pursuant to any other authority under this title. "(C) Any amendment to the rules of a self-regulatory organi- zation made by the Commission pursuant to this subsection shall be considered for all purposes of this title to be part of the rules of such self-regulatory organization and shall not be considered to be a rule of the Commission. Self-regulatory "(d) (1) If any self-regulatory organization imposes any final dis- organizations, ciplinary sanction on any member thereof or participant therein, denies final disciplinary membership or participation to any applicant, or prohibits or limits sanction, notice. any person in respect to access to services offered by such organization or member thereof or if any self-regulatory organization (other than a registered clearing agency) imposes any final disciplinary sanction on any person associated with a member or bars any person from becoming associated with a member, the self-regulatory organization shall promptly file notice thereof with the appropriate regulatory agency for the self-regulatory organization and (if other than the appropriate regulatory agency for the self-regulatory organization) the appropriate regulatory agency for such member, participant, appli- cant, or other person. The notice shall be in such form and contain such information as the appropriate regulatory agency for the self- regulatory organization, by rule, may prescribe as necessary or appropriate in furtherance of the purposes of this title. "(2) Any action with respect to which a self-regulatory organiza- tion is required by paragraph (1) of this subsection to file notice shall
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 151 be subject to review by the appropriate regulatory agency for such member, participant, applicant, or other person, on its own motion, or upon application by any person aggrieved thereby filed within thirty days after the date such notice was filed with such appropriate regulatory agency and received by such aggrieved person, or within such longer period as such appropriate regulatory agency may deter- mine. Application to such appropriate regulatory agency for review, or the institution of review by such appropriate regulatory agency on its own motion, shall not operate as a stay of such action unless such appropriate regulatory agency otherwise orders, summarily or after notice and opportunity for hearing on the question of a stay (which hearing may consist solely of the submission of affidavits or presenta- tion of oral arguments). Each appropriate regulatory agency shall establish for appropriate cases an expedited procedure for considera- tion and determination of the question of a stay. "(e) (1) In any proceeding to review a final disciplinary sanction Review. imposed by a self-regulatory organization on a member thereof or par- Notice and ticipant therein or a person associated with such a member, after hearing. notice and opportunity for hearing (which hearing may consist solely of consideration of the record before the self-regulatory organiza- tion and opportunity for the presentation of supporting reasons to affirm, modify, or set aside the sanction) — "(A) if the appropriate regulatory agency for such member, participant, or person associated with a member finds that such member, participant, or person associated with a member has engaged in such acts or practices, or has omitted such acts, as the self-regulatory organization has found him to have engaged in or omitted, that such acts or practices, or omissions to act, are in violation of such provisions of this title, the rules or regulations thereunder, the rules of the self-regulatory organization, or, in the case of a registered securities association, the rules of the Municipal Securities Rulemaking Board as have been specified in the determination of the self-regulatory organization, and that such provisions are, and were applied in a manner, consistent with the purposes of this title, such apropriate regulatory agency, by order, shall so declare and, as appropriate, affirm the sanction imposed by the self-regulatory organization, modify the sanction in accordance with paragraph (2) of this subsection, or remand to the self-regulatory organization for further proceedings; or "(B) if such appropriate regulatory agency does not make any such finding it shall, by order, set aside the sanction imposed by the self-regulatory organization and, if appropriate, remand to the self-regulatory organization for further proceedings. "(2) If the appropriate regulatory agency for a member, partici- pant, or person associated with a member, having due regard for the public interest and the protection of investors, finds after a proceeding in accordance with paragraph (1) of this subsection that a sanction imposed by a self-regulatory organization upon such member, partici- pant, or person associated with a member imposes any burden on com- petition not necessary or appropriate in furtherance of the purposes of this title or is excessive or oppressive, the appropriate regulatory agency may cancel, reduce, or require the remission of such sanction. "(f) In any proceeding to review the denial of membership or par- Dismissal of ticipation in a self-regulatory organization to any applicant, the bar- proceedings. ring of any person from becoming associated with a member of a Notice and self-regulatory organization, or the prohibition or limitation by a self- hearing. regulatory organization of any person with respect to access to services offered by the self-regulatory organization or any member thereof, if
89 STAT. 152 PUBLIC LAW 94-29—JUNE 4, 1975 the appropriate regulatory agency for such applicant or person, after notice and opportunity for hearing (which hearing may consist solely of consideration of the record before the self-regulatory organization and opportunity for the presentation of supporting reasons to dismiss the proceeding or set aside the action of the self-regulatory organiza- tion) finds t h a t the specific grounds on which such denial, bar, or pro- hibition or limitation is based exist in fact, t h a t such denial, bar, or prohibition or limitation is in accordance with the rules of the self- regulatory organization, and t h a t such rules are, and w'ere applied in a manner, consistent with the purposes of this title, such appropriate regulatory agency, by order, shall dismiss the proceeding. I f such appropriate regulatory agency does not make any such finding or if it finds t h a t such denial, bar, or prohibition or limitation imposes any burden on competition not necessary or a p p r o p r i a t e in furtherance of the purposes of this title, such appropriate regulatory agency, by order, shall set aside the action of the self-regulatory organization and require it to admit such applicant to membership or participation, permit such person to become associated with a member, or g r a n t such person access to services offered by the self-regulatory organization or member thereof. " ( g ) (1) Every self-regulatory organization shall comply with the provisions of t h i s title, the rules and regulations thereunder, and its Ante, p. 137. own rules, and (subject to the provisions of section 17(d) of this title, p a r a g r a p h (2) of this subsection, and the rules thereunder) absent reasonable justification or excuse enforce compliance— " ( A ) in the case of a national securities exchange, with such provisions by its members and persons associated with its members; " ( B ) in the case of a registered securities association, wnth such provisions and t h e provisions of the rules of the Municipal Secu- rities Kulemaking Board by its members and persons associated with its members; and " ( C ) in the case of a registered clearing agency, with its own rules by its participants, " ( 2 ) T h e Commission, by rule, consistent with t h e public interest, the protection of investors, and the other purposes of this title, may relieve any self-regulatory organization of any responsibility under this title to enforce compliance with any specified provision of this title or the rules or regulations thereunder by any member of such organization or person associated with such a member, or any class of such members or persons associated with a member. Registration, " ( h ) ( 1 ) T h e a p p r o p r i a t e regulatory agency for a eelf-regulatory suspension or organization is authorized, by order, if in its opinion such action is revocation. necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title, to suspend for a period not exceeding twelve months or revoke the regis- tration of such self-regulatory organization, or to censure or impose limitations upon the activities, functions, and operations of such self- regulatory organization, if such appropriate regulatory agency finds. Notice and on the record after notice and opportunity for hearing, t h a t such self- hearing. regulatory organization has violated or is unable to comply with any provision of this title, the rules or regulations thereunder, or its owm rules or without reasonable justification or excuse has failed to enforce compliance— " ( A ) in the case of a national securities exchange, with any such provision by a member thereof or a person associated w i t h a member thereof; " ( B ) in the case of a registered securities association, with any such provision or any provision of the rules of t h e Municipal
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 153 Securities Rulemaking B o a r d by a member thereof or a person associated with a member thereof; or " ( C ) in the case of a registered clearing agency, with any pro- vision of its own rules by a participant therein. " ( 2 ) T h e a p p r o p r i a t e regulatory agency for a self-regulatory orga- Notice and nization is authorized, by order, if in its opinion such action is necessary hearing, or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of t h e purposes of this title, to suspend for a period not exceeding twelve months or expel from such self- regulatory organization any member thereof or participant therein, if such member or participant is subject to an order of the Commission pursuant to section 15 (b) (4) of this title or if such appropriate regula- Ante, p. 121. tory agency finds, on t h e record after notice and opportunity for hearing, t h a t such member or participant has willfully violated or has effected any transaction for any other person who, such member or participant h a d reason to believe, was violating with respect to such transaction— " (A) in the case of a national securities exchange, any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, 15 u s e 77a, the Investment Company Act of 1940, this title, or the rules or 80b-20. regulations under any of such statutes; 15 u s e 80a-51. " ( B ) in t h e case of a registered securities association, any pro- vision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, this title, the rules or regulations under any of such statutes, or the rules of the Municipal Securities Rulemaking B o a r d ; or " ( C ) in the case of a registered clearing agency, any provision of the rules of the clearing agency. " ( 3 ) The appropriate regulatory agency for a national securities Notice and exchange or registered securities association is authorized, by order, if hearing. in its opinion such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title, to suspend for a period not exceeding twelve months or to bar any person from being associated with a member of such national securities exchange or registered securities association, if such person is subject to an order of the Commission pursuant to section 15(b) (6) or if such appropriate regulatory agency finds, on the record after notice and opportunity for hearing, t h a t such person has willfully violated or has effected any transaction for any other person who, such person associated with a member had reason to believe, was violating with respect to such transaction— " (A) in the case of a national securities exchange, any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, this title, or t h e rules or regulations under any of such statutes; or " ( B ) in the case of a registered securities association, any pro- vision of t h e Securities Act of 1933, the Investment Advisers A c t of 1940, the Investment Company Act of 1940, this title, the rules or regulations under any of the statutes, or the rules of the Munici- pal Securities Rulemaking Board. " ( 4 ) T h e appropriate regulatory agency for a self-regulatory orga- Notice and nization is authorized, by order, if in its opinion such action is neces- hearing, sary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title, to remove from office or censure any officer or director of such self- regulatory organization, if such appropriate regulatory agency finds, on the record after notice and opportunity for hearing, t h a t such officer or director has willfully violated any provision of this title, the rules
89 STAT. 154 PUBLIC LAW 94-29—JUNE 4, 1975 or regulations thereunder, or the rules of such self-regulatory orga- nization, willfully abused his authority, or without reasonable justifi- cation or excuse has failed to enforce compliance— "(A) in the case of a national securities exchange, with any such provision by any member or person associated with a member; "(B) in the case of a registered securities association, with any such provision or any provision of the rules of the Municipal Securities Rulemaking Board by any member or person associated with a member; or "(C) in the case of a registered clearing agency, with any provi- sion of the rules of the clearing agency by any participant. "(i) If a proceeding under subsection (h) (1) of this section results in the suspension or revocation of the registration of a clearing agency, the appropriate regulatory agency for such clearing agency may, upon notice to such clearing agency, apply to any court of competent juris- Infra. diction specified in section 21(d) or 27 of this title for the appoint- 15 u s e 78aa. ment of a trustee. In the event of such an application, the court may, to the extent it deems necessary or appropriate, take exclusive juris- diction of such clearing agency and the records and assets thereof, wherever located; and the court shall appoint the appropriate regu- latory agency for such clearing agency or a person designated by such appropriate regulatory agency as trustee with power to take possession and continue to operate or terminate the operations of such clearing agency in an orderly manner for the protection of participants and investors, subject to such terms and conditions as the court may prescribe.". Investigations. SEO. 17. Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended as follows: (1) Subsection (a) thereof is amended to read as follows: "(a) The Commission may, in its discretion, make such investiga- tions as it deems necessary to determine whether any person has vio- lated, is violating, or is about to violate any provision of this title, the rules or regulations thereunder, the rules of a national securities exchange or registered securities association of which such person is a member or a person associated with a member, the rules of a registered clearing agency in which such person is a participant, or the rules of the Municipal Securities Rulemaking Board, and may require or per- mit any person to file with it a statement in writing, under oath or otherwise as the Commission shall determine, as to all the facts and circumstances concerning the matter to be investigated. The Com- mission is authorized in its discretion, to publish information con- cerning any such violations, and to investigate any facts, conditions, practices, or matters which it may deem necessary or proper to aid in the enforcement of such provisions, in the prescribing of rules and regulations under this title, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this title relates.". Civil actions. (2) Subsections (e) and (f) thereof are redesignated (d) and (e), respectively, and amended to read as follows: ' ( d ) Wherever it shall appear to the Commission that any person is engaged or is about to engage in acts or practices constituting a violation of any provision of this title, the rules or regulations there- under, the rules of a national securities exchange or registered securi- ties association of which such person is a member or a person associated with a member, the rules of a registered clearing agency in which such person is a participant, or the rules of the Municipal Securities Rule-
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 155 making Board, it may in its discretion bring an action in the proper district court of the United States, the United States District Court for the District of Columbia, or the United States courts of any terri- tory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond. The Commission may transmit such evidence as may be avail- able concerning such acts or practices as may constitute a violation of any provision of this title or the rules or regulations thereunder to the Attorney General, who may, in his discretion, institute the neces- sary criminal proceedings under this title. "(e) Upon application of the Commission the district courts of the United States, the United States District Court for the District of Columbia, and the United States courts of any territory or other place subject to the jurisdiction of the United States shall have juris- diction to issue writs of mandamus, injunctions, and orders command- ing (1) any person to comply with the provisions of this title, the rules, regulations, and orders thereunder, the rules of a national secu- rities exchange or registered securities association of which such person is a member or person associated with a member, the rules of a registered clearing agency in which such person is a participant, the rules of the Municipal Securities Rulemaking Board, or any under- taking contained in a registration statement as provided in subsec- tion (d) of section 15 of this title, (2) any national securities exchange Ante, p. 121. or registered securities association to enforce compliance by its members and persons associated with its members with the provisions of this title, the rules, regulations, and orders thereunder, and the rules of such exchange or association, or (3) any registered clearing agency to enforce compliance by its participants with the provisions of the rules of such clearing agency.". (3) The section is further amended by adding at the end thereof 15 u s e 78u. the following new subsections: "(f) Notwithstanding any other provision of this title, the Com- mission shall not bring any action pursuant to subsection (d) or (e) of this section against any person for violation of, or to command compliance with, the rules of a self-regulatory organization unless it appears to the Commission that (1) such self-regulaitory organization is unable or unwilling to take appropriate action against such person in the public interest and for the protection of investors, or (2) such action is otherwise necessary or appropriate in the public interest or for the protection of investors. "(g) Notwithstanding the provisions of section 1407(a) of title 28, United States Code, or any other provision of law, no action for equi- table relief instituted by the Commission pursuant to the securities laws shall be consolidated or coordinated with other actions not brought by the Commission, even though such other actions may involve common questions of fact, unless such consolidation is con- sented to by the Commission. The term 'securities laws' as used herein "Securities includes the Securities Act of 1933 (15 U.S.C. 77 et seq.), the Securities laws." Exchange Act of 1934 (15 U.S.C. 78a et seq.), the Public Utility Hold- ing Company Act of 1935 (15 U.S.C. 79a et seq.), the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the Investment Company Act of 1940 (15 U.S.C. 80a-l et seq.), the Investment Advisers Act of 1940 (15 U.S.C. 80b-l et seq.), and the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.).". SEC. 18. Section 23 of the Securities Exchange Act of 1934 (15 U.S.C. 78w) is amended to read as follows:
89 STAT. 156 PUBLIC LAW 94-29—JUNE 4, 1975 RULES, REGULATIONS, AND ORDERS; A N N U A L REPORTS "SEC. 23. (a) (1) The Commission, the Board of Governors of the Federal Eeserve System, and the other agencies enumerated in section Ante, p. 97. 3(a) (34) of this title shall each have power to make such rules and regulations as may be necessary or appropriate to implement the pro- visions of this title for which they are responsible or for the execution of the functions vested in them by this title, and may for such pur- poses classify persons, securities, transactions, statements, applications, reports, and other matters within their respective jurisdictions, and prescribe greater, lesser, or different requirements for different classes thereof. No provision of this title imposing any liability shall apply to any act done or omitted in good faith in conformity with a rule, regu- lation, or order of the Commission, the Board of Governors of the Federal Reserve System, other agency enumerated in section 3(a) (34) of this title, any self-regulatory organization, notwithstanding that such rule, regulation, or order may thereafter be amended or rescinded or determined by judicial or other authority to be invalid for any reason. "(2) The Commission, in making rules and regulations pursuant to any provisions of this title, shall consider among other matters the impact any such rule or regulation would have on competition. The Commission shall not adopt any such rule or regulation which would impose a burden on competition not necessary or appropriate in fur- therance of the purposes of this title. The Commission shall include in the statement of basis and purpose incorporated in any rule or regulation adopted under this title, the reasons for the Commission's determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of this title. "(3) The Commission, in making rules and regulations pursuant to any provision of this title, considering any application for registra- Ante, p. 146. tion in accordance with section 19(a) of this title, or reviewing any proposed rule change of a self-regulatory organization in accordance with section 19 (b) of this title, keep in a public file and make available for copying all written statements filed with the Commission and all written communications between the Commission and any person relating to the proposed rule, regulation, application, or proposed rule change; Provided, however, That the Commission shall not be required to keep in a public file or make available for copying any such statement or communication which it may withhold from the public in accordance with the provisions of section 552 of title 5, United States Code. Annual report to "(b) (1) The Commission, the Board of Governors of the Federal Congress. Reserve System, and the other agencies enumerated in section 3 (a) (34) of this title, shall each make an annual report to the Congress on its work for the preceding year, and shall include in each such report whatever information, data, and recommendations for further legislation it considers advisable with regard to matters within its respective jurisdiction under this title. " (2) The appropriate regulatory agency for a self-regulatory orga- nization shall include in its annual report to the Congress for each fiscal year, a summary of its oversight activities under this title with respect to such self-regulatory organization, including a description of any examination condiicted as part of such activities of any such organization, any material recommendation presented as part of such activities to such organization for changes in its organization or rules, and any action by such organization in response to any such recommendation.
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 157 " (3) The appropriate regulatory agency for any class of municipal securities dealers shall include in its annual report to the Congress for each fiscal year a summary of its regulatory activities pursuant to this title with respect to such municipal securities dealers, including the nature of and reason for any sanction imposed pursuant to this title against any such municipal securities dealer. "(4) The Commission shall also include in its annual report to the Congress for each fiscal year— "(A) a summary of the Commission's oversight activities with respect to self-regulatory organizations for which it is not the appropriate regulatory agency, including a description of any examination of any such organization, any material recommenda- tion presented to any such organization for changes in its orga- nization or rules, and any action by any such organization in response to any such recommendations; "(B) a statement and analysis of the expenses and operations of each self-regulatory organization in connection with the per- formance of its responsibilities under this title, for which purpose data pertaining to such expenses and operations shall be made available by such organization to the Commission at its request; "(C) beginning in 1975 and ending in 1980, information, data, and recommendations with respect to the development of a national system for the prompt and accurate clearance and settle- ment of securities transactions, including a summary of the regu- latory activities, operational capabilities, financial resources, and plans of self-regulatory organizations and registered transfer agents with respect thereto; "(D) beginning in 1975 and ending in 1980, a description of the steps taken, and an evaluation of the progress made, toward the establishment of a national market system, and recommenda- tions for further legislation it considers advisable with respect to such system; " ( E ) the steps the Commission has taken and the progress it has made toward ending the physical movement of the securities certificate in connection with the settlement of securities trans- actions, and its recommendations, if any, for legislation to elim- inate the securities certificate; " ( F ) The number of requests for exemptions from provisions of this title received, the number granted, and the basis upon which any such exemption was granted: "(G) a summary of the Commission s regulatory activities with respect to municipal securities dealers for which it is not the appropriate regulatory agency, including the nature of, and reason for, any sanction imposed in proceedings against such municipal securities dealers; " ( H ) beginning in 1975 and ending in 1980, a description of the effect the absence of any schedule or fixed rates of commissions, allowances, discounts, or other fees to be charged by members for effecting transactions on a national securities exchange is having on the maintenance of fair and orderly markets and the develop- ment of a national market system for securities; " ( I ) a statement of the time elapsed between the filing of reports pursuant to section 13 (f) of this title and the public avail- ^"^e, p. 119. ability of the information contained therein, the costs involved in the Commission's processing of such reports and tabulating such information, the manner in which the Commission uses such information, and the steps the Commission has taken and the
89 STAT. 158 PUBLIC LAW 94-29—JUNE 4, 1975 progress it has made toward requiring such reports to be filed and such information to be made available to the public in machine language; " ( J ) information concerning (i) the effects its rules and regu- lations are having on the viability of small brokers and dealers; (ii) its attempts to reduce any imnecessary reporting burden on such brokers and dealers; and (iii) its efforts to help to assure the continued participation of small brokers and dealers in t h e United States securities m a r k e t s ; and " ( K ) a statement detailing its administration of the Freedom of Information Act, section 552 of title 5, United States Code, including a copy of the report filed p u r s u a n t to subsection (d) of such section. •'(c) T h e Connnission, by rule, shall prescribe the procedure appli- cable to every case p u r s u a n t to this title of adjudication (as defined in section 551 of title 5, United States Code) not required to be deter- mined on the record after notice and opportunity for hearing. Such rules shall, as a minimum, provide t h a t p r o m p t notice shall be given of any adverse action or final disposition and t h a t such notice and the entry of any order shall be accompanied by a statement of writ- ten reasons.". SEC. 19. Section 24 of the Securities Exchange Act of 1934 (15 U.S.C. 78x) is amended to read as follows: "PUBLIC AVAILABILITY or INFORMATION "Records." " S E C . 24. (a) F o r purposes of section 552 of title 5, United States Code, the term 'records' includes all applications, statements, reports, contracts, correspondence, notices, and other documents filed with or otherwise obtained by the Commission p u r s u a n t to this title or other- wise. " ( b ) I t shall be unlawful for any member, officer, or employee of the Commission to disclose to any person other t h a n a member, officer, or employee of the Commission, or to use for personal benefit, any information contained in any application, statement, report, contract, correspondence, notice, or other document filed with or otherwise obtained by the Commission (1) in contravention of the rules and reg- ulations of the Commission under section 552 of Title 5, United States Code, or (2) in circumstances where the Commission has determined pursuant to such rules to accord confidential treatment to such infor- mation. Nothing in this subsection shall authorize the Commission to Avithhold information from the Congress.". SEC. 20. Section 25 of the Securities Exchange Act of 1934 (15 U.S.C. 78y) is amended to read as follows: COURT REVIEW OF ORDERS AND RULES " S E C . 25. (a) (1) A person aggrieved by a final order of t h e Com- mission entered p u r s u a n t to this title may obtain review of the order in the United States Court of Appeals for the circuit in which he I'esides or has his principal place of business, or for t h e District of Columbia Circuit, by filing in such court, within sixty days after the entry of the order, a written petition requesting t h a t the order be modified or set aside in whole or in part. Petition, copy. " ( 2 ) A copy of t h e petition shall be transmitted forthwith by the clerk of the court to a member of the Commission or an officer desig- nated by the Commission for t h a t purpose. Thereupon t h e Commission shall file in t h e court the record on which the order complained of
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 159 is entered, as provided in section 2112 of title 28, United States Code, and the Federal Rules of Appellate Procedure. 28 USC app. "(3) On the filing of the petition, the court has jurisdiction, which Jurisdiction, becomes exclusive on the filing of the record, to affirm or modify and enforce or to set aside the order in whole or in part. " (4) The findings of the Commission as to the facts, if supported by substantial evidence, are conclusive. "(5) If either party applies to the court for leave to adduce addi- tional evidence and shows to the satisfaction of the court that the addi- tional evidence is material and that there was reasonable ground for failure to adduce it before the Commission, the court may remand the case to the Commission for further proceedings, in whatever manner and on whatever conditions the court considers appropriate. If the case is remanded to the Commission, it shall file in the court a supplemental record containing any new evidence, any further or modified findings, and any new order. "(b) (1) A person adversely affected by a rule of the Commission promulgated pursuant to section 6,11, l l A , 15(c) (5) or (6), 15A, 17, 17A, or 19 of this title may obtain review of this rule in the United Ante, pp. 104, States Court of Appeals for the circuit in which he resides or has his 110, 111, 121, principal place of business or for the District of Columbia Circuit, by 127, 137, 141, 146. filing in such court, within sixty days after the promulgation of the rule, a written petition requesting that the rule be set aside. "(2) A copy of the petition shall be transmitted forthwith by the clerk of the court to a member of the Commission or an officer desig- nated for that purpose. Thereupon, the Commission shall file in the court the rule under review and any documents referred to therein, the Commission's notice of proposed rulemaking and any documents referred to therein, all written submissions and the transcript of any oral presentations in the rulemaking, factual information not included in the foregoing that was considered by the Commission in the promul- gation of the rule or proffered by the Commission as pertinent to the rule, the report of any advisory committee received or considered by the Commission in the rulemaking, and any other materials prescribed by the court. "(3) On the filing of the petition, the court has jurisdiction, which Jurisdiction, becomes exclusive on the filing of the materials set forth in paragraph (2) of this subsection, to affirm and enforce or to set aside the rule. "(4) The findings of the Commission as to the facts identified by the Commission as the basis, in whole or in part, of the rule, if sup- ported by substantial evidence, are conclusive. The court shall affirm and enforce the rule unless the Commission's action in promulgating the rule is found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; or without observ- ance of procedure required by law. "(5) If proceedings have been instituted under this subsection in two or more courts of appeals with respect to the same rule, the Com- mission shall file the materials set forth in paragraph (2) of this sub- section in that court in which a proceeding was first instituted. The other courts shall thereupon transfer all such proceedings to the court in which the materials have been filed. For the convenience of the parties in the interest of justice that court may thereafter transfer all the proceedings to any other court of appeals. "(c) (1) No objection to an order or rule of the Commission, for which review is sought under this section, may be considered by the court unless it was urged before the Commission or there was reason- able ground for failure to do so.
89 STAT. 160 PUBLIC LAW 94-29—JUNE 4, 1975 "(2) The filing of a petition under this section does not operate as a stay of the Commission's order or rule. Until the court's jurisdiction becomes exclusive, the Commission may stay its order or rule pending judicial review if it finds that justice so requires. After the filing of a petition under this section, the court, on whatever conditions may be required and to the extent necessary to prevent irreparable injury, may issue all necessary and appropriate process to stay the order or rule or to preserve status or rights pending its review; but (notwith-- standing section 705 of title 5, United States Code) no such process may be issued by the court before the filing of the record or the mate- rials set forth in subsection (b)(2) of this section unless: (A) the Commission has denied a stay or failed to grant requested relief, (B) a reasonable period has expired since the filing of an application for a stay without a decision by the Commission, or (C) there was reason- able ground for failure to apply to the Commission. " (3) When the same order or rule is the subject of one or more peti- tions for review filed under this section and an action for enforcement filed in a district court of the United States under section 21 (d) or (e) Ante, p. 154. of this title, that court in w^hich the petition or the action is first filed has jurisdiction w'ith respect to the order or rule to the exclusion of any other court, and thereupon all such proceedings shall be trans- ferred to that court; but, for the convenience of the parties in the interest of justice, that court may thereafter transfer all the proceed- ings to any other court of appeals or district court of the United States, w^hether or not a petition for review or an action for enforce- ment was originally filed in the transferee court. The scope of review by a district court under section 21 (d) or (e) of this title is in all cases the same as by a court of appeals under this section. "(d) (1) For purposes of the preceding subsections of this section, the term 'Commission' includes the agencies enumerated in section Ante, p. 97. 3(a) (34) of this title insofar as such agencies are acting pursuant to this title. "(2) For purposes of subsection (a) (4) of this section and section 706 of title 5, United States Code, an order of the Commission pur- Ante, p. 146. suant to section 19(a) of this title denying registration to a clearing agency for which the Commission is not the appropriate regulatory agency or pursuant to section 19(b) of this title disapproving a pro- posed rule change by such a clearing agency shall be deemed to be an order of the appropriate regulatory agency for such clearing agency insofar as such order was entered by reason of a determination by such appropriate regulatory agency pursuant to section 19(a)(2)(C) or 19(b)(4)(C) of this title that such registration or proposed rule change would be inconsistent with the safeguarding of securities or funds.". SEC. 21. Section 28 of the Securities Exchange Act of 1934 (15 U.S.C. 78bb) is amended as follows: (1) Subsection (b) thereof is amended to read as follows: "(b) Nothing in this title shall be construed to modify existing law with regard to the binding effect (1) on any member of or participant in any self-regulatory organization of any action taken by the author- ities of such organization to settle disputes between its members or participants, (2) on any municipal securities dealer or municipal securities broker of any action taken pursuant to a procedure estab- lished by the Municipal Securities Rulemaking Board to settle dis- putes between municipal securities dealers and municipal securities brokers, or (3) of any action described in paragraph (1) or (2) on any person who has agreed to be bound thereby.". (2) The section is further amended by adding at the end thereof the following new subsections:
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 161 "(c) The stay, setting aside, or modification pursuant to section 19(e) of this title of any disciplinary sanction imposed by a self-regu- ^'^^C' P- 146. latory organization or a member thereof, person associated with a member, or participant therein, shall not affect the validity or force of any action taken as a result of such sanction by the self-regulatory organization prior to such stay, setting aside, or modification: Pro- vided^ That such action is not inconsistent with the provisions of this title or the rules or regulations thereunder. The rights of any person acting in good faith which arise out of any such action shall not be affected in any way by such stay, setting aside, or modification. "(d) N"o State or political subdivision thereof shall impose any tax Taxation, on any change in beneficial or record ownership of securities effected prohibition, through the facilities of a registered clearing agency or registered transfer agent or any nominee thereof or custodian therefor or upon the delivery or transfer of securities to or through or receipt from such agency or agent or any nominee thereof or custodian therefor, unless such change is beneficial or record ownership or such transfer or delivery or receipt would otherwise be taxable by such State or political subdivision if the facilities of such registered clearing agency, registered transfer agent, or any nominee thereof or custodian therefor were not physically located in the taxing State or political subdivision. No State or political subdivision thereof shall impose any tax on securities which are deposited in or retained by a registered clearing agency, registered transfer agent, or any nominee thereof or custodian therefor, unless such securities would otherwise be taxable by such State or political subdivision if the facilities of such registered clear- ing agency, registered transfer agent, or any nominee thereof or cus- todian therefor were not physically located in the taxing State or political subdivision. "(e)(1) No person using the mails, or any means or instrumentality of interstate commerce, in the exercise of investment discretion with respect to an account shall be deemed to have acted unlawfully or to have breached a fiduciary duty under State or Federal law unless expressly provided to the contrary by a law enacted by the Congress or any State subsequent to the date of enactment of the Securities Acts Amendments in 1975 solely by reason of his having caused the account to pay a member of an exchange, broker, or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of an exchange, broker, or dealer would have charged for effecting that transaction, if such person deter- mined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services pro- vided by such member, broker, or dealer, viewed in terms of either that particular transaction or his overall responsibilities with respect to the accounts as to which he exercises investment discretion. This subsection is exclusive and plenary insofar as conduct is covered by the foregoing, unless otherwise expressly provided by contract: Provided^ however, That nothing in this subsection shall be construed to impair or limit the power of the Commission under any other provision of this title or otherwise. "(2) A person exercising investment discretion with respect to Disclosure, an account shall make such disclosure of his policies and practices with respect to commissions that will be paid for effecting securities transactions, at such times and in such mannei-, as the appropriate regulatory agency, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. "(3) For purposes of this subsection a person provides brokerage and research services insofar as he—
89 STAT. 162 PUBLIC LAW 94-29—JUNE 4, 1975 " ( A ) furnishes advice, either directly or t h r o u g h publications or writings, as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the avail- ability of securities or purchasers or sellers of securities; " ( B ) furnishes analyses and reports concerning issuers, indus- tries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; or " ( C ) effects securities transactions and performs functions incidental thereto (such as clearance, settlement, and custody) or required in connection therewith by rules of the Commission or a self-regulatory organization of which such person is a member or person associated with a member or in which such person is a participant.". SEC. 22. Section 31 of the Securities Exchange Act of 1934 (15 U.S.C. 78ee) is amended to read as follows: "TRAXSACTIOK FEES " S E C . 31. E v e r y national securities exchange shall pay to the Com- mission on or before March 15 of each calendar year a fee in an amount equal to one three-hundredths of 1 per centum of the aggregate dollar amount of t h e sales of securities (other t h a n bonds, debentures, and other evidences of indebtedness) transacted on such national securities (exchange during each preceding calendar year to which this section applies. Every registered broker and dealer shall pay to the Commis- sion on or before March 15 of each calendar year a fee in an amount equal to one three-hundredths of 1 per centum of the aggregate dollar amount of the sales of securities registered on a national securities exchange (other than bonds, debentures, and other evidences of indebtedness) transacted by such broker or dealer otherwise t h a n on such an exchange during each preceding calendar y e a r : Provided^ however^ T h a t no payment shall be required for any calendar year in which such payment would be less t h a n one hundred dollars. The Com- mission, by rule, may exempt any sale of securities or any class of sales of securities from any fee imposed by this section, if the Commission finds that such exemption is consistent with the public interest, the equal regulation of markets and brokers and dealers, and t h e develop- ment of a national market system.". SEC. 23. Section 32 of the Securities Exchange Act of 1934 (15 U.S.C. 78ff) is amended as follows: (1) Subsection (a) thereof is amended by inserting after the phrase "section 15 of this t i t l e " the following: "or by any self-regulatory organization in connection with an application for membership or participation therein or to become associated with a member thereof,". (2) Subsection (c) thereof is deleted. SEC. 24. T h e Securities Exchange Act of 1934 (15 U.S.C. 78a ot seq.), is amended by adding at t h e end thereof the following new section: "AUTHORIZATION or APPROPRIATIONS 15 u s e 78kk. " S E C . 35. There are hereby authorized to be appropriated to carry out the functions, powers, and duties of the Commission not to exceed $51,000,000 for the fiscal year ending J u n e 30, 1976 and not to exceed $55,000,000 for the fiscal year ending September 30, 1977. F o r fiscal years succeeding the 1977 fiscal year, there may be appropriated such sums as the Congress may hereafter authorize by law.".
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 163 SEC. 25. The Act entitled "An Act to authorize the Securities and Exchange Commission to delegate certain functions", approved August 20, 1962 (15 U.S.C. 78d-l(b)), is amended as follows: (1) The last sentence of subsection (a) of the first section thereof is amended by striking the phrase "any rule, regulation, or order pursuant to section 19(b)" and inserting in lieu thereof "any rule pursuant to section 19 (c)". (2) Subsection (b) of the first section thereof is amended to read as Review follows: "(b) With respect to the delegation of any of its functions, as provided in subsection (a) of this section, the Commission shall retain a discretionary right to review the action of any such division of the Commission, individual Commissioner, hearing examiner, employee, or employee board, upon its own initiative or upon petition of a party to or intervenor in such action, within such time and in such manner as the Commission, by rule, shall prescribe: Provided, however, That the vote of one member of the Commission shall be sufficient to bring any such action before the Commission for review: And provided further, That a person or party shall be entitled to review by the Com- mission if he or it is adversely affected by action at a delegated level which (1) denies any request for action pursuant to section 8(a) or section 8(c) of the Securities Act of 1933 or the first sentence of section 15 use 77h. 12(d) of the Securities Exchange Act of 1934; (2) suspends trading 15 use 781. in a security pursuant to section 12 (k) of the Securities Exchange Act of 1934; or (3) is pursuant to any provision of the Securities Exchange Act of 1934 in a case of adjudication, as defined in section 551 of title Ante, p. 118. 5, United States Code, not required Ijy that Act to be determined on the record after notice and opportunity for hearing (except to the extent there is involved a matter described in section 554(a) (1) through (6) of title 5, United States Code).". SEC. 26. Section 9(c) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78iii(c)) is amended to read as follows: "(c) INSPECTIONS.—The self-regulatory organization of which a member of SIPC is a member shall inspect or examine such member for compliance with applicable financial responsibility rules, except that if a member of SIPC is a member of more than one self-regula- tory organization, the Commission, pursuant to section 17(d) of the Ante, p. 137. 1934 Act, shall designate one of such self-regulatory organizations as responsible for the examination of such member for compliance with applicable financial responsibility rules.". SEC. 27. (a) Section 24 of the Securities Act of 1933 (15 U.S.C. Penalties. 77x) is amended by changing the figure "5,000" to "10,000". (b) Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78ff(a)) is amended by changing the phrase "or imprisoned not more than two years" to read "or imprisoned not more than five years". (c) Section 29 of the Public Utility Holding Company Act of 1935 (15 U.S.C. 79z-3) is amended by changing the phrase "or imprisoned not more than two years" to read "or imprisoned not more than five years". (d) Section 325 of the Trust Indenture Act of 1939 (15 U.S.C. 77yyy) is amended by changing the figure "$5,000" to "$10,000". (e) Section 49 of the Investment Company Act of 1940 (15 U.S.C. 80a-48) is amended by changing the phrase "or imprisoned not more than two years" to read "or imprisoned not more than five years". (f) Section 217 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-17) is amended by changing the phrase "imprisoned for not more than two years" to read "imprisoned for not more than five years".
89 STAT. 164 PUBLIC LAW 94-29—JUNE 4, 1975 15 u s e 80a-51. SKC. 28. The Investment Company Aci of UHO (15 U.S.C. 80a-15) is amended as follows: 15 u s e 80a-15., (1) Section 15 thereof is amended by adding at the end thereof the following new subsection: " ( f ) (1) A n investment adviser, or a corporate trustee performing the functions of an investment adviser, of a registered investment company or an affiliated person of such investment adviser or corpo- rate trustee may receive any amount or benefit in connection with a sale of securities of, or a sale of any other interest in, such investment adviser or corporate trustee which results in an assignment of an investment advisory contract with such company or the change in control of or identity of such corporate trustee, if— " ( A ) for a period of three years after the time of such action, at least 75 per centum of the members of the board of directors of such registered company or such corporate trustee (or successor thereto, by reorganization or otherwise) are not (i) interested persons of the investment adviser of such company or such cor- porate trustee, or (ii) interested persons of the predecessor invest- ment adviser or such corporate trustee; and " ( B ) there is not imposed an unfair burden on such company as a result of such transaction or any express or implied terms, conditions, or understandings applicable thereto. " ( 2 ) (A) F o r the purpose of p a r a g r a p h (1) ( A ) of this subsection, interested persons of a corporate trustee shall be determined in accord- 15 u s e 80a-2. ance with section 2 ( a ) ( 1 9 ) ( B ) : Provided^ T h a t no person shall be deemed to be an interested person of a corporate trustee solely by reason of (i) his being a member of its board of directors or advisory board or (ii) his membership in t h e immediate family of any person specified in clause (i) of this subparagraph. " ( B ) F o r the purpose of p a r a g r a p h (1) ( B ) of this subsection, an unfair burden on a registered investment company includes any arrangement, d u r i n g the two-year period after the date on which any such transaction occurs, whereby the investment adviser or corporate trustee or predecessor or successor investment advisers or corporate trustee or any interested person of any such adviser or any such cor- porate trustee receives or is entitled t o receive any compensation directly or indirectly (i) from any person in connection with the pur- chase or sale of securities or other property to, from, or on behalf of such company, other t h a n bona fide ordinary compensation as princi- pal underwriter for such company, or (ii) from such company or its security holders for other t h a n bona fide investment advisory or other services. " ( 3 ) If— " ( A ) an assignment of an investment advisory contract with a registered investment company results in a successor investment adviser to such company, or if there is a change in control of or identity of a corporate trustee of a registered investment com- pany, and such adviser or trustee is then an investment adviser or corporate trustee with respect to other assets substantially greater in amount than the amount of assets of such company, or " ( B ) as a result of a merger of, or a sale of substantially all the assets by, a registered investment company with or to another registered investment company with assets substantially greater in amount, a transaction occurs which would be subject to para- g r a p h (1) ( A ) of this subsection, such discrepancy in size of assets shall be considered by the Commis- sion in determining whether or t o w h a t extent an application under section 6(c) for exemption from t h e provisions of p a r a g r a p h (1) ( A ) should be granted.
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 165 "(4) Paragraph (1)(A) of this subsection shall not apply to a transaction in which a controlling block of outstanding voting securi- ties of an investment adviser to a registered investment company or of a corporate trustee performing the functions of an investment adviser to a registered investment company is— "(A) distributed to the public and in which there is, in fact, no change in the identity of the persons who control such invest- ment adviser or corporate trustee, or "(B) transferred to the investment adviser or the corporate trustee, or an affiliated person or persons of such investment adviser or corporate trustee, or is transferred from the investment adviser or corporate trustee to an affiliated person or persons of the investment adviser or corporate trustee: Provided^ That (i) each transferee (other than such adviser or trustee) is a natural person and (ii) the transferees (other than such adviser or trustee) owned in the aggregate more than 25 per centum of such vot- ing securities for a period of at least six months prior to such transfer.", (2) Section 15(c) thereof is amended by adding at the end thereof 15 u s e 80a-15. a new sentence as follows: "It shall be unlawful for the directors of a registered investment company, in connection with their evaluation of the terms of any contract whereby a person undertakes regularly to serve or act as investment adviser of such company, to take into account the purchase price or other consideration any person may have paid in connection with a transaction of the type referred to in paragraph (1), (3), or (4) of subsection (f).". (3) Section 16 thereof is amended as follows: 15 u s e 80a-16. (A) in the first sentence of subsection (b) by striking out "The provisions of subsection (a) of this section" and inserting in lieu thereof "The foregoing provisions of this section"; (B) by redesignating subsection (b) as subsection (c), striking out "this subsection (b)" therein, and inserting in lieu thereof "this subsection (c)"; and (C) by adding after subsection (a) thereof the following new Registered subsection: investment "(b) Any vacancy on the board of directors of a registered invest- company, board ment company which occurs in connection with compliance with sec- of directors, vacancies. tion 15(f) (1) (A) and which must be filled by a person who is not an Ante, p. 164. interested person of either party to a transaction subject to section 15(f) (1) (A) shall be filled only by a person (1) who has been selected and proposed for election by a majority of the directors of such com- pany who are not such interested persons, and (2) who has been elected by the holders of the outstanding voting securities of such company, except that in the case of the death, disqualification, or bona fide res- ignation of a director selected and elected pursuant to clauses (1) and (2) of this subsection (b), the vacancy created thereby may be filled as provided in subsection (a).". (4) Section 13(b), 15(d), 18(i), and 32(a) thereof are amended 15 u s e 80a-13, by striking out the phrases "subsection (b) of section 16" and "section 80a-15, 80a-18, 16(b)" wherever they occur and inserting in lieu thereof "section 80a-31. 16(c)". (5) Section 10(e) thereof is amended to read as follows: 15 u s e 80a-10. "(e) If by reason of the death, disqualification, or bona fide resigna- tion of any director or directors, the requirements of the foregoing provisions of this section or of section 15(f) (1) in respect of directors shall not be met by a registered investment company, the operation of such provision shall be suspended as to such registered company— KW-i tkA. r« _ 77 - 15
89 STAT. 166 PUBLIC LAW 94-29—JUNE 4, 1975 " (1) for a period of thirty days if the vacancy or vacancies may be filled by action of the board of directors; "(2) for a period of sixty days if a vote of stockholders is required to fill the vacancj^ or vacancies; or "(3) for such longer period as the Commission may prescribe, by rules and regulations upon its own motion or by order upon application, as not inconsistent with the protection of investors.", "Investment (6) Section 9 thereof is amended by adding at the end thereof the adviser." following new subsection: 15 u s e 80a-9. "(d) For the purposes of subsection (a) through (c) of this sec- tion, the term 'investment adviser' includes a corporate or other trustee performing the functions of an investment adviser.". 15 u s e 80a-35. (7) Section 36 thereof is further amended by adding at the end thereof the following new subsection: "(d) For the purposes of subsections (a) through (c) of this sec- tion, the term 'investment adviser' includes a corporate or other trus- tee performing the functions of an investment adviser.". 15 u s e 80b-20. SEC. 29. The Investment Advisers Act of 1940 (15 U.S.C. 80b) is amended as follows: (1) Subsection (c) of section 203 thereof is amended to read as follows: Investment "(c) (1) An investment adviser, or any person who presently con- adviser, templates becoming an investment adviser, may be registered by fil- registration. ing with the Commission an application for registration in such form and containing such of the following information and documents as 15 u s e 80b-3. the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors: "(A) the name and form of organization under which the investment adviser engages or intends to engage in business; the name of the State or other sovereign power under which such investment adviser is organized; the location of his or its prin- cipal business office and branch offices, if any; the names and addresses of his or its partners, officers, directors, and persons performing similar functions or, if such an investment adviser be an individual, of such individual; and the number of his or its employees; "(B) the education, the business affiliations for the past ten years, and the present business affiliations of such investment adviser and of his or its partners, officers, directors, and persons performing similar functions and of any controlling person thereof; "(C) the nature of the business of such investment adviser, including the manner of giving advice and rendering analyses or reports; "(D) a balance sheet certified by an independent public accountant and other financial statements (which shall, as the Commission specifies, be certified); " ( E ) the nature and scope of the authority of such investment adviser with respect to clients' funds and accounts; " ( F ) the basis or bases upon which such investment adviser is compensated; "(G) whether such investment adviser, or any person associ- ated with such investment adviser, is subject to any disqualifica- tion which would be a basis for denial, suspension, or revocation of registration of such investment adviser under the provisions of subsection (e) of this section; and " ( H ) a statement as to whether the principal business of such investment adviser consists or is to consist of acting as invest-
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 167 ment adviser and a statement as to Avhether a substantial part of the business of such investment adviser, consists or is to consist of rendering investment supervisory services. "(2) Within forty-five days of the date of the filing of such appli- cation (or within such longer period as to which the applicant con- sents) the Commission shall— " (A) by order grant such registration; or "(B) institute proceedings to determine whether registration should be denied. Such proceedings shall include notice of the Notice and grounds for denial under consideration and opportunity for hear- hearing. ing and shall be concluded within one hundred twenty days of the date of the filing of the application for registration. At the conclusion of such proceedings the Commission, by order, shall grant or deny such registration. The Commission may extend the time for conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the applicant consents. The Commission shall grant such registration if the Commission finds that the requirements of this section are satisfied. The Commission shall deny such registration if it does not make such a finding or if it finds that if the applicant were so registered, its registration would Censure or be subject to suspension or revocation under subsection (e) of this revocation of section.". registration. (2) Subsection (e) of section 203 thereof, is amended to read as 15 use 80b-3. follows: "(e) The Commission, by order, shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding twelve months, or revoke the registration of any investment adviser if it finds, on the record after notice and opportunity for hear- Notice and ing, that such censure, placing of limitations, suspension, or revoca- hearing. tion 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 Commis- sion under this title, or in any proceeding before the Commission with respect to registration, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to state in any such application or report any material fact which is required to be stated therein. "(2) has been convicted within ten years preceding the filing of any application for registration or at any time thereafter of any felony or misdemeanor which the Commission finds— "(A) involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, or conspiracy to commit any such offense; "(B) arises out of the conduct of the business of a broker, dealer, municipal securities dealer, investment adviser, bank, insurance company, or fiduciary; "(C) involves the larceny, theft, robbery, extortion, for- gery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or secu- rities; or "(D) involves the violation of section 152, 1341, 1342, or 1343 or chapter 25 or 47 of title 18, United States Code. 18 u s e 471 et "(3) is permanently or temporarily enjoined by order, judg- seq., 1001 et seq. ment, or decree of any court of competent jurisdiction from acting
89 STAT. 168 PUBLIC LAW 94-29—JUNE 4, 1975 as an investment adviser, underwriter, broker, dealer, or municipal securities dealer, or as an affiliated person or employee of any investment company, bank, or insurance company, or from engag- ing in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security. "(4) has willfully violated any provision of the Securities Act 15 u s e 77a, 78a, of 1933, the Securities Exchange Act of 1934, the Investment 8ba-51. Company Act of 1940, this title, or the rules or regulations under any such statutes or any rule of the Municipal Securities Rule- making Board, or is unable to comply with any such provision. "(5) has willfully aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any pro- vision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, this title, the rules or regulations under any of such statutes, or the rules of the Municipal Securities Rulemaking Board, or has failed reasonably to supervise, with a view to preventing violations of the provisions of such statutes, rules, and regulations, another person who com- mits such a violation, if such other person is subject to his super- vision. For the purposes of this paragraph (5) no person shall be deemed to have failed reasonably to supervise any person, if— "(A) there have been established procedures, and a sys- tem for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and "(B) such person has reasonably discharged the duties and obligations incumbent upon him by reason of such pro- cedures and system without reasonable cause to believe that such procedures and system were not being complied with. "(6) is subject to an order of the Commission entered pursu- ant to subsection (f) of this section barring or suspending the right of such person to be associated with an investment adviser which order is in effect with respect to such person.". Censure or (3) Subsection (f) of section 203 thereof is amended to read as limitation. follows: 15 u s e 80b-3. "(f) The Commission, by order, shall censure or place limitations Notice and on the activities of any person associated or seeking to become associ- hearing. ated with an investment adviser, or suspend for a period not exceeding twelve months or bar any such person from being associated with an investment adviser, if the Commission finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such person has committed or omitted any act or omission enumerated in paragraph (1), (4), or (5) of subsection (e) of this section or has been convicted of any offense specified in paragraph (2) of said subsection (e) within ten years of the commencement of the proceedings under this subsec- tion, or is enjoined from any action, conduct, or practice specified in paragraph (3) of said subsection (e). It shall be unlawful for any person as to whom such an order suspending or barring him from being associated with an investment adviser is in effect willfully to become, or to be, associated with an investment adviser without the consent of the Commission, and it shall be unlawful for any investment adviser to permit such a person to become, or remain, a person asso- ciated with him without the consent of the Commission, if such invest- ment adviser knew, or in the exercise of reasonable care, should have known, of such order.".
PUBLIC LAW 94-29—JUNE 4, 1975 89 STAT. 169 (4) Section 203 thereof is further amended by striking out subsec- 15 use 80b-3. tion (g) thereof and redesignating subsections (h) and (i) thereof as subsections (g) and (h), respectively. (5) Section 204 thereof is amended to read as follows: Use of mails oir "SEC. 204. Every investment adviser who makes use of the mails or instrumentality of of any means or instrumentality of interstate commerce in connection interstate commerce, with his or its business as an investment adviser (other than one recordkeeping specifically exempted from registration pursuant to section 203(b) requirements. of this title), shall make and keep for prescribed periods such records 15 u s e 80b-4. (as defined in section 3(a) (37) of the Securities Exchange Act of Ante, p. 97. 1934), 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. All records (as so defined) of such investment advisers are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the Commission as the Commission deems necessary or appropriate in the public interest or for the protection of investors.". SEC. 30. Section 4 of the Securities Act of 1933 (15 U.S.C. 77(d)) Domestic security is amended by adding at the end thereof the following new paragraph: transactions, "(5) (A) Transactions involving offers or sales of one or more exemptions. promissory notes directly secured by a first lien on a single parcel of real estate upon which is located a dwelling or other residential or commercial structure, and participation interests in such notes— "(i) where such securities are originated by a savings and loan association, savings bank, commercial bank, or similar banking institution which is supervised and examined by a Federal or State authority, and are offered and sold subject to the following conditions: " (a) the minimum aggregate sales price per purchaser shall not be less than $250,000; "(b) the purchaser shall pay cash either at the time of the sale or within sixty days thereof; and "(c) each purchaser shall buy for his own account only; or "(ii) where such securities are originated by a mortgagee approved by the Secretary of Plousing and Urban Development pursuant to sections 203 and 211 of the National Housing Act 12 u s e 1709, and are offered or sold subject to the three conditions specified in 1715b. subparagraph (A) (i) to any institution described in such sub- paragraph or to any insurance company subject to the supervision of the insurance commissioner, or any agency or officer performing like function, of any State or territory of the United States or the District of Columbia, or the Federal Home Loan Mortgage Cor- poration, the Federal National Mortgage Association, or the Government National Mortgage Association. "(B) Transactions between any of the entities described in sub- paragraph (A)(i) or (A)(ii) hereof involving non-assignable con- tracts to buy or sell the foregoing securities which are to be completed within two years, where the seller of the foregoing securities pursuant to any such contract is one of the parties described in subparagraph (A)(i) or (A)(ii) who may originate such securities and the pur- chaser of such securities pursuant to any such contract is any institu- tion described in subparagraph (A) (i) or any insurance company described in subparagraph (A) (ii), the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Govern- ment National Mortgage Association and where the foregoing securities are subject to the three conditions for sale set forth in sub- paragraphs (A) (i) (a) through (c).
89 STAT. 170 PUBLIC LAW 94-29—JUNE 4, 1975 "(C) The exemption provided by subparagraphs (A) and (B) hereof shall not apply to resales of the securities acquired pursuant thereto, unless each of the conditions for sale contained in subpara- graphs (A) (1) (a) through (c) are satisfied.". Effective date. SEC. 31. (a) This Act shall become effective on the date of its enact- 15 use 78b note, ment except as hereinafter provided. The amendments made by this Act to sections 3(a) (12), 6(a) through (d), l l A ( b ) , 15(a), 15A, v4rete, pp.97,104, 15B(a), 17A(b) and (c), and 19(g) of the Securities Exchange Act 111, 121, 127, of 1934 shall become effective one hundred eighty days after the date 131, 141, 146. of enactment of this Act, and the amendments made by this Act to Ante, p. 162. section 31 of the Securities Exchange Act of 1934 shall become effec- tive on January 1, 1976. Neither the provisions of section 3(a)(3), 6(b)(2), or 6(c)(1) of the Securities Exchange Act of 1934 (as amended by this Act) nor any rule or regulation thereunder shall apply so as to deprive any person of membership in any national securities exchange (or its successor) of which such person was, on the date of enactment of this Act, a member or a member firm as defined in the constitution of such exchange, or so as to deny membership in any such exchange (or its successor) to any natural person who is or becomes associated with such member or member firm, 15 use 78f note. (b) If it appears to the Commission at any time within one year of the effective date of any amendment made by this Act to the Securities Exchange Act of 1934 that the organization or rules of any national securities exchange or registered securities association registered with the Commission on the date of enactment of this Act do not comply with such Act as amended, the Commission shall so notify such exchange or association in writing, specifying the respects in which the exchange or association is not in compliance with such Act. On and after the one hundred eightieth day following the date of receipt of such notice by a national securities exchange or registered securities association, the Commission, without regard to the provisions of sec- Ante, p. 146. tion 19(h) of the Securities Exchange Act of 1934, as amended by this Act, is authorized by order, to suspend the registration of any such exchange or association or impose limitations on the activities, functions, and operations of any such exchange or association, if the Commission finds, after notice and opportunity for hearing, that the organization or rules of such exchange or association do not comply with such Act. Any such suspension or limitation shall continue in effect until the Commission, by order, declares that such exchange or association is in compliance with such requirements. Approved June 4, 1975. LEGISLATIVE HISTORY: HOUSE REPORTS No. 94-123 accompanying H.R. 4111 (Comm. on Interstate and Foreign Commerce) and No. 94-229 (Comm. of Conference). SENATE REPORT No. 94-75 (Comm. on Banking, Housing and Urban Affairs). CONGRESSIONAL RECORD, Vol. 121 (1975): Apr. 17, considered and passed Senate. Apr. 24, considered and passed House, amended, in lieu of H.R. 4111. May 20, Senate agreed to conference report. May 22, House agreed to conference report. WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 11, No. 23: June 5, Presidential statement.