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115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-451
======================================================================
CORPORATE GOVERNANCE REFORM AND TRANSPARENCY ACT OF 2017
_______
December 7, 2017.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 4015]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4015) to improve the quality of proxy advisory
firms for the protection of investors and the U.S. economy, and
in the public interest, by fostering accountability,
transparency, responsiveness, and competition in the proxy
advisory firm industry, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
Purpose and Summary
On October 11, 2017, Representative Sean Duffy introduced
the ``Corporate Governance Reform and Transparency Act of
2017'', which enhances transparency in the shareholder proxy
system by providing for, among other things, the registration
of proxy advisory firms with the U.S. Securities and Exchange
Commission (SEC), disclosure of proxy firms' potential
conflicts of interest and codes of ethics, and the disclosure
of proxy firms' methodologies for formulating proxy
recommendations and analyses.
Background and Need for Legislation
The goal of H.R. 4015 is to improve transparency in the
proxy system and enhance shareholder access to investment
information by requiring proxy advisory firms to register with
the SEC, disclose potential conflicts of interest and codes of
ethics, and make publicly available their methodologies for
formulating proxy recommendations and analyses.
Each year, public companies hold shareholder meetings at
which the company's shareholders vote for the company's
directors and on other significant corporate actions that
require shareholder approval. As part of this annual process,
the SEC requires public companies to provide their shareholders
with a proxy statement before shareholder meetings. A proxy
statement includes all important facts about the matters to be
voted on at a shareholder meeting, including, for example,
information on board of director candidates, director
compensation, executive compensation, related party
transactions, securities ownership by certain beneficial owners
and management, and eligible shareholder proposals. The
information contained in the statement must be filed with the
SEC before soliciting a shareholder vote on the election of
directors and the approval of other corporate actions.
Solicitations, whether by management or shareholders, must
disclose all important facts about the issues on which
shareholders are asked to vote.
In general, state corporate law governs shareholder voting
rights, including the types of corporate actions that require
shareholder approval. However, Section 14 of the Securities
Exchange Act of 1934 (Exchange Act) authorizes the SEC to
promulgate rules governing the solicitation of proxies for most
public companies. SEC Regulation 14A governs proxy
solicitations and sets forth the categories of information that
must be disclosed in proxy solicitations. Regulation 14A also
provides for shareholder access to certain information in
connection with proxy solicitations, sets forth when a company
must include a shareholder's proposal in its proxy statement,
and prohibits the making of materially false and misleading
statements or omissions in connection with a proxy
solicitation.
Institutional investors, including investment advisers to
mutual funds and pension funds, typically hold shares in a
large number of public companies. Each year, the investment
advisers to these funds vote billions of shares on behalf of
their clients, on thousands of proxy ballot items. In 2003, the
SEC adopted a rule under the Investment Advisers Act of 1940
requiring an investment adviser that exercises voting authority
over its clients' proxies to adopt policies and procedures
designed to ensure that the investment adviser votes those
proxies in the best interests of its clients. The SEC's release
adopting the rule clarified that ``an adviser could demonstrate
that the vote was not a product of a conflict of interest if it
voted client securities, in accordance with a pre-determined
policy, based upon the recommendations of an independent third
party.'' As a result, institutional investors increased their
reliance on proxy advisory firms to help them decide how to
vote their shares. In 2004, the SEC staff issued, without a
Commission vote, two no-action letters, which SEC Commissioner
Daniel M. Gallagher described in a 2013 speech as ``effectively
blessing the practice of investment advisers simply voting the
recommendations provided by a proxy adviser.''
Largely as a result of the SEC's regulations, proxy
advisory firms now wield outsized influence in the U.S. proxy
system. Studies have shown that the two largest proxy advisory
firms--Institutional Shareholder Services (ISS) and Glass Lewis
& Co.--collectively make up approximately 97% of the proxy
advisory industry and can control a significant percentage of
shareholder votes in corporate elections, sometimes as high as
40%. This outsized influence raises important public policy
concerns.
In particular, regulators, market participants, and
academic observers have highlighted potential conflicts of
interest inherent in the business models and activities of
proxy advisory firms. For example, as indicated above, proxy
advisory firms may feel pressured by their largest clients--
many of whom are activist investors--to issue vote
recommendations that reflect those clients' specific agendas.
In addition, proxy advisory firms often provide voting
recommendations to investment advisers on matters for which
they also provide consulting services to public companies.
According to a Mercatus Center study, ``these consulting
services are designed precisely to facilitate managers'
obtaining favorable recommendations.'' Some proxy advisory
firms also rate or score public companies on its governance
structure, policies, and practices, which provides another
avenue for proxy advisory firms to influence corporate
governance practices.
Given the major role proxy advisory firms play in the U.S.
proxy system through their ability to influence corporate
governance standards--by supplying voting recommendations and
other services despite the risk conflicts of interest, such as
those described above--proxy advisory firms have become the
subject of greater scrutiny. The Committee is aware of numerous
instances whereby the two largest proxy advisory firms have
issued vote recommendations to public company shareholders that
include errors, misstatements of fact, and incomplete analysis.
Some proxy advisory firms' recommendations have been made
without any contact to the public company, and these same proxy
advisory firms encourage companies to join their service in
order to have the privilege to ``influence'' an advisory firm's
recommendations.
Regulators, market participants, and academics have argued
that rather than using shareholder votes to maximize
shareholder value, proxy advisory firms have instead aligned
themselves with single-issue, narrow-issue shareholders,
activist shareholders or unions to push social and political
initiatives unrelated--and in many cases antithetical--to
increasing shareholder returns. In turn, corporate governance
decisions occur that are not in the best interest of
shareholders and the company. Critics of proxy advisory firms
attribute this hijacking of the proxy system to proxy advisory
firms generally having no financial interest in a public
company's performance and owing no duty to shareholders.
In response to these concerns, on June 30, 2014, the SEC's
Division of Corporate Finance and the Division of Investment
Management jointly issued a staff legal bulletin entitled
``Proxy Voting: Proxy Voting Responsibilities of Investment
Advisers and Availability of Exemptions from the Proxy Rules
for Proxy Advisory Firms.'' (``Bulletin'') The Bulletin
clarifies that an investment adviser and its clients ``have
flexibility in determining the scope of the investment
adviser's obligation to exercise proxy voting authority'' and
that SEC rules do not require investment advisers to vote every
proxy. The Bulletin also states that, in considering whether to
obtain the assistance of a proxy advisory firm, an investment
adviser should ascertain the proxy advisory firm's ``capacity
and competency to adequately analyze proxy issues'' and
``identify and address any conflicts of interest.'' The
Bulletin adds that, in order to comply with SEC rules,
investment advisers should adopt policies and procedures
``reasonably designed to provide sufficient ongoing oversight
of . . . third party [proxy advisers]'' in order to ensure that
proxies are voted in the best interest of the investment
adviser's clients. Finally, the Bulletin describes the
exemptions available to proxy advisory firms from the filing
and disclosure requirements of the SEC's proxy rules, and
clarifies that, in order to rely on these exemptions, proxy
advisers must make certain disclosures regarding significant
relationships and material interests, including material
conflicts that may arise from consulting services or client
relationships.
The Corporate Governance Reform and Transparency Act of
2017 addresses these issues in a manner that provides greater
accountability and transparency in regards to the proxy
advisory industry, thereby helping to ensure that the voting
recommendations that proxy advisory firms provide are in fact
in the interests of long-term shareholders. By requiring proxy
advisory firms to disclose any potential conflicts of interest
that may impact their voting recommendations, the amount of
impartial information provided to investors actually will be
increased, as investors for the first time can be certain that
they understand the biases that may be affecting the partiality
of the information they are reviewing.
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 4015 on March 22, 2017 April
26, 2017, April 28, 2017 and July 18, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
November 14, 2017, and November 15, 2017 and ordered H.R. 4015
to be reported favorably to the House by a recorded vote of 40
yeas to 20 nays (Record vote no. FC-109), a quorum being
present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House. The motion was agreed
to by a recorded vote of 40 yeas to 20 nays (Record vote no.
FC-109), a quorum being present.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 4015
will foster greater accountability, transparency,
responsiveness and competition in the proxy advisory firm
industry, thereby improving corporate governance and protecting
investors.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, December 5, 2017.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4015, the
Corporate Governance Reform and Transparency Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 4015--Corporate Governance Reform and Transparency Act of 2017
H.R. 4015 would require proxy advisory firms to register
with the Securities and Exchange Commission (SEC) and would
subject them to certain rules and reporting requirements. The
bill would define the term proxy advisory firm and direct the
SEC to require firms that fall within that definition to
register with the agency in order to operate. Such firms
provide voting recommendations to investment advisors who have
the authority to proxy vote for their clients. The bill also
would require registered proxy advisory firms to disclose
certain information to the SEC including their financial and
managerial resources and to identify any potential or actual
conflicts of interest in providing proxy advisory services.
H.R. 4015 also would direct the SEC to report annually on its
regulation of those firms.
Using information from the SEC, CBO estimates that
implementing H.R. 4015 would cost $5 million over the 2018-2022
period for the agency to hire four additional employees to
create and maintain the registry and to prepare the annual
reports. However, because the SEC is authorized to collect fees
sufficient to offset its annual appropriation, CBO estimates
that the net effect on discretionary spending would be
negligible, assuming appropriation actions consistent with that
authority.
Enacting H.R. 4015 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
CBO estimates that enacting H.R. 4015 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2028.
H.R. 4015 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA).
H.R. 4015 would impose private-sector mandates as defined
in UMRA, but CBO estimates that their aggregate cost would fall
well below the annual threshold for private-sector mandates
($156 million in 2017, adjusted annually for inflation). The
bill would establish new registration, disclosure, and
personnel requirements for proxy advisory firms. Information
from the SEC and industry sources indicates that the affected
firms would probably already meet many of the bill's
requirements. Consequently, CBO estimates that the incremental
cost to comply with those mandates would be small. Additional
fees collected by the SEC, as anticipated by CBO to implement
the bill, would increase the cost of an existing mandate on
private entities. CBO estimates that the incremental cost of
those fees would total no more than $5 million over the 2018-
2022 period.
The CBO staff contacts for this estimate are Stephen Rabent
(for federal costs) and Rachel Austin (for mandates). The
estimate was approved by H. Samuel Papenfuss, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires two
directed rule makings within the meaning of such section. The
first directs the Commission to issue final rules regarding the
form of the information a proxy advisory firm must file with
the Commission in an application for registration. The second
directs the Commission to issue final rules to prohibit or
require the management and disclosure of any conflicts of
interests related to the offering of proxy advisory services by
a registered proxy advisory firm. The third directs the
Commission to issue final rules to prohibit any act or practice
relating to the offering of proxy advisory services by a
registered proxy advisory firm that the Commission determines
to be unfair, coercive, or abusive.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This Section cites H.R. 4015 as the ``Corporate Governance
Reform and Transparency Act of 2017.''
Section 2. Definitions
This section amends Section 3(a) of the Exchange Act by
defining the term ``proxy advisory firm'' to mean any person
registered under section 15H who is engaged in the business of
providing proxy voting research, analysis, or recommendations
to clients, which constitutes a solicitation; by defining
``person associated with'' to mean any partner, officer,
employee, director or controller or under control of a proxy
advisory firm.
Section 3: Registration of proxy advisory firms
This section amends the Exchange Act by inserting Section
15H. This new section states that a proxy advisory firm must
file an application for registration with the Commission and
disclose any potential conflicts of interest and code of
ethics. Specifically, when applying for registration the proxy
advisory firm must include the following information: a
certification that the firm has the financial and managerial
resources to provide proxy advice; the procedures and
methodologies that the firm uses in developing proxy voting
recommendations; the organizational structure of the firm;
whether or not the firm has a code of ethics; any potential or
actual conflict of interest; policies and procedures to manage
conflicts of interest; and any other information that the
Commission deems necessary. The Commission is directed to issue
final rules regarding the form in which such information must
be filed with the Commission. The Commission also is directed
to issue final rules to prohibit or require the management and
disclosure of any conflicts of interests related to the
offering of proxy advisory services by a registered proxy
advisory firm. This section further sets forth that the
Commission shall issue final rules to prohibit any act that
they believe is unfair, coercive, or abusive relating to the
offering of proxy advisory services, as well as make publicly
available all information that was provided to them by the
proxy advisory firms.
Section 4: Commission annual report
This section requires that the Commission publicly release
an annual report that describes the methodologies that they
used for formulating proxy recommendations and analyses.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
SECURITIES EXCHANGE ACT OF 1934
* * * * * * *
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
definitions and application of title
Sec. 3. (a) When used in this title, unless the context
otherwise requires--
(1) The term ``exchange'' means any organization,
association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange as
that term is generally understood, and includes the
market place and the market facilities maintained by
such exchange.
(2) The term ``facility'' when used with respect to
an exchange includes its premises, tangible or
intangible property whether on the premises or not, any
right to the use of such premises or property or any
service thereof for the purpose of effecting or
reporting a transaction on an exchange (including,
among other things, any system of communication to or
from the exchange, by ticker or otherwise, maintained
by or with the consent of the exchange), and any right
of the exchange to the use of any property or service.
(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
regulated by such exchange and with respect 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 of sections
6(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
``member'' when used with respect to a national
securities exchange 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 association undertakes to
enforce compliance with the provisions of this title,
the rules and regulations thereunder, and its own
rules.
(4) Broker.--
(A) In general.--The term ``broker'' means
any person engaged in the business of effecting
transactions in securities for the account of
others.
(B) Exception for certain bank activities.--A
bank shall not be considered to be a broker
because the bank engages in any one or more of
the following activities under the conditions
described:
(i) Third party brokerage
arrangements.--The bank enters into a
contractual or other written
arrangement with a broker or dealer
registered under this title under which
the broker or dealer offers brokerage
services on or off the premises of the
bank if--
(I) such broker or dealer is
clearly identified as the
person performing the brokerage
services;
(II) the broker or dealer
performs brokerage services in
an area that is clearly marked
and, to the extent practicable,
physically separate from the
routine deposit-taking
activities of the bank;
(III) any materials used by
the bank to advertise or
promote generally the
availability of brokerage
services under the arrangement
clearly indicate that the
brokerage services are being
provided by the broker or
dealer and not by the bank;
(IV) any materials used by
the bank to advertise or
promote generally the
availability of brokerage
services under the arrangement
are in compliance with the
Federal securities laws before
distribution;
(V) bank employees (other
than associated persons of a
broker or dealer who are
qualified pursuant to the rules
of a self-regulatory
organization) perform only
clerical or ministerial
functions in connection with
brokerage transactions
including scheduling
appointments with the
associated persons of a broker
or dealer, except that bank
employees may forward customer
funds or securities and may
describe in general terms the
types of investment vehicles
available from the bank and the
broker or dealer under the
arrangement;
(VI) bank employees do not
receive incentive compensation
for any brokerage transaction
unless such employees are
associated persons of a broker
or dealer and are qualified
pursuant to the rules of a
self-regulatory organization,
except that the bank employees
may receive compensation for
the referral of any customer if
the compensation is a nominal
one-time cash fee of a fixed
dollar amount and the payment
of the fee is not contingent on
whether the referral results in
a transaction;
(VII) such services are
provided by the broker or
dealer on a basis in which all
customers that receive any
services are fully disclosed to
the broker or dealer;
(VIII) the bank does not
carry a securities account of
the customer except as
permitted under clause (ii) or
(viii) of this subparagraph;
and
(IX) the bank, broker, or
dealer informs each customer
that the brokerage services are
provided by the broker or
dealer and not by the bank and
that the securities are not
deposits or other obligations
of the bank, are not guaranteed
by the bank, and are not
insured by the Federal Deposit
Insurance Corporation.
(ii) Trust activities.--The bank
effects transactions in a trustee
capacity, or effects transactions in a
fiduciary capacity in its trust
department or other department that is
regularly examined by bank examiners
for compliance with fiduciary
principles and standards, and--
(I) is chiefly compensated
for such transactions,
consistent with fiduciary
principles and standards, on
the basis of an administration
or annual fee (payable on a
monthly, quarterly, or other
basis), a percentage of assets
under management, or a flat or
capped per order processing fee
equal to not more than the cost
incurred by the bank in
connection with executing
securities transactions for
trustee and fiduciary
customers, or any combination
of such fees; and
(II) does not publicly
solicit brokerage business,
other than by advertising that
it effects transactions in
securities in conjunction with
advertising its other trust
activities.
(iii) Permissible securities
transactions.--The bank effects
transactions in--
(I) commercial paper, bankers
acceptances, or commercial
bills;
(II) exempted securities;
(III) qualified Canadian
government obligations as
defined in section 5136 of the
Revised Statutes, in conformity
with section 15C of this title
and the rules and regulations
thereunder, or obligations of
the North American Development
Bank; or
(IV) any standardized, credit
enhanced debt security issued
by a foreign government
pursuant to the March 1989 plan
of then Secretary of the
Treasury Brady, used by such
foreign government to retire
outstanding commercial bank
loans.
(iv) Certain stock purchase plans.--
(I) Employee benefit plans.--
The bank effects transactions,
as part of its transfer agency
activities, in the securities
of an issuer as part of any
pension, retirement, profit-
sharing, bonus, thrift,
savings, incentive, or other
similar benefit plan for the
employees of that issuer or its
affiliates (as defined in
section 2 of the Bank Holding
Company Act of 1956), if the
bank does not solicit
transactions or provide
investment advice with respect
to the purchase or sale of
securities in connection with
the plan.
(II) Dividend reinvestment
plans.--The bank effects
transactions, as part of its
transfer agency activities, in
the securities of an issuer as
part of that issuer's dividend
reinvestment plan, if--
(aa) the bank does
not solicit
transactions or provide
investment advice with
respect to the purchase
or sale of securities
in connection with the
plan; and
(bb) the bank does
not net shareholders'
buy and sell orders,
other than for programs
for odd-lot holders or
plans registered with
the Commission.
(III) Issuer plans.--The bank
effects transactions, as part
of its transfer agency
activities, in the securities
of an issuer as part of a plan
or program for the purchase or
sale of that issuer's shares,
if--
(aa) the bank does
not solicit
transactions or provide
investment advice with
respect to the purchase
or sale of securities
in connection with the
plan or program; and
(bb) the bank does
not net shareholders'
buy and sell orders,
other than for programs
for odd-lot holders or
plans registered with
the Commission.
(IV) Permissible delivery of
materials.--The exception to
being considered a broker for a
bank engaged in activities
described in subclauses (I),
(II), and (III) will not be
affected by delivery of written
or electronic plan materials by
a bank to employees of the
issuer, shareholders of the
issuer, or members of affinity
groups of the issuer, so long
as such materials are--
(aa) comparable in
scope or nature to that
permitted by the
Commission as of the
date of the enactment
of the Gramm-Leach-
Bliley Act; or
(bb) otherwise
permitted by the
Commission.
(v) Sweep accounts.--The bank effects
transactions as part of a program for
the investment or reinvestment of
deposit funds into any no-load, open-
end management investment company
registered under the Investment Company
Act of 1940 that holds itself out as a
money market fund.
(vi) Affiliate transactions.--The
bank effects transactions for the
account of any affiliate of the bank
(as defined in section 2 of the Bank
Holding Company Act of 1956) other
than--
(I) a registered broker or
dealer; or
(II) an affiliate that is
engaged in merchant banking, as
described in section 4(k)(4)(H)
of the Bank Holding Company Act
of 1956.
(vii) Private securities offerings.--
The bank--
(I) effects sales as part of
a primary offering of
securities not involving a
public offering, pursuant to
section 3(b), 4(2), or 4(5) of
the Securities Act of 1933 or
the rules and regulations
issued thereunder;
(II) at any time after the
date that is 1 year after the
date of the enactment of the
Gramm-Leach-Bliley Act, is not
affiliated with a broker or
dealer that has been registered
for more than 1 year in
accordance with this Act, and
engages in dealing, market
making, or underwriting
activities, other than with
respect to exempted securities;
and
(III) if the bank is not
affiliated with a broker or
dealer, does not effect any
primary offering described in
subclause (I) the aggregate
amount of which exceeds 25
percent of the capital of the
bank, except that the
limitation of this subclause
shall not apply with respect to
any sale of government
securities or municipal
securities.
(viii) Safekeeping and custody
activities.--
(I) In general.--The bank, as
part of customary banking
activities--
(aa) provides
safekeeping or custody
services with respect
to securities,
including the exercise
of warrants and other
rights on behalf of
customers;
(bb) facilitates the
transfer of funds or
securities, as a
custodian or a clearing
agency, in connection
with the clearance and
settlement of its
customers' transactions
in securities;
(cc) effects
securities lending or
borrowing transactions
with or on behalf of
customers as part of
services provided to
customers pursuant to
division (aa) or (bb)
or invests cash
collateral pledged in
connection with such
transactions;
(dd) holds securities
pledged by a customer
to another person or
securities subject to
purchase or resale
agreements involving a
customer, or
facilitates the
pledging or transfer of
such securities by book
entry or as otherwise
provided under
applicable law, if the
bank maintains records
separately identifying
the securities and the
customer; or
(ee) serves as a
custodian or provider
of other related
administrative services
to any individual
retirement account,
pension, retirement,
profit sharing, bonus,
thrift savings,
incentive, or other
similar benefit plan.
(II) Exception for carrying
broker activities.--The
exception to being considered a
broker for a bank engaged in
activities described in
subclause (I) shall not apply
if the bank, in connection with
such activities, acts in the
United States as a carrying
broker (as such term, and
different formulations thereof,
are used in section 15(c)(3) of
this title and the rules and
regulations thereunder) for any
broker or dealer, unless such
carrying broker activities are
engaged in with respect to
government securities (as
defined in paragraph (42) of
this subsection).
(ix) Identified banking products.--
The bank effects transactions in
identified banking products as defined
in section 206 of the Gramm-Leach-
Bliley Act.
(x) Municipal securities.--The bank
effects transactions in municipal
securities.
(xi) De minimis exception.--The bank
effects, other than in transactions
referred to in clauses (i) through (x),
not more than 500 transactions in
securities in any calendar year, and
such transactions are not effected by
an employee of the bank who is also an
employee of a broker or dealer.
(C) Execution by broker or dealer.--The
exception to being considered a broker for a
bank engaged in activities described in clauses
(ii), (iv), and (viii) of subparagraph (B)
shall not apply if the activities described in
such provisions result in the trade in the
United States of any security that is a
publicly traded security in the United States,
unless--
(i) the bank directs such trade to a
registered broker or dealer for
execution;
(ii) the trade is a cross trade or
other substantially similar trade of a
security that--
(I) is made by the bank or
between the bank and an
affiliated fiduciary; and
(II) is not in contravention
of fiduciary principles
established under applicable
Federal or State law; or
(iii) the trade is conducted in some
other manner permitted under rules,
regulations, or orders as the
Commission may prescribe or issue.
(D) Fiduciary capacity.--For purposes of
subparagraph (B)(ii), the term ``fiduciary
capacity'' means--
(i) in the capacity as trustee,
executor, administrator, registrar of
stocks and bonds, transfer agent,
guardian, assignee, receiver, or
custodian under a uniform gift to minor
act, or as an investment adviser if the
bank receives a fee for its investment
advice;
(ii) in any capacity in which the
bank possesses investment discretion on
behalf of another; or
(iii) in any other similar capacity.
(E) Exception for entities subject to section
15(e).--The term ``broker'' does not include a
bank that--
(i) was, on the day before the date
of enactment of the Gramm-Leach-Bliley
Act, subject to section 15(e); and
(ii) is subject to such restrictions
and requirements as the Commission
considers appropriate.
(F) Joint rulemaking required.--The
Commission and the Board of Governors of the
Federal Reserve System shall jointly adopt a
single set of rules or regulations to implement
the exceptions in subparagraph (B).
(5) Dealer.--
(A) In general.--The term ``dealer'' means
any person engaged in the business of buying
and selling securities (not including security-
based swaps, other than security-based swaps
with or for persons that are not eligible
contract participants) for such person's own
account through a broker or otherwise.
(B) Exception for person not engaged in the
business of dealing.--The term ``dealer'' does
not include a person that buys or sells
securities (not including security-based swaps,
other than security-based swaps with or for
persons that are not eligible contract
participants) for such person's own account,
either individually or in a fiduciary capacity,
but not as a part of a regular business.
(C) Exception for certain bank activities.--A
bank shall not be considered to be a dealer
because the bank engages in any of the
following activities under the conditions
described:
(i) Permissible securities
transactions.--The bank buys or sells--
(I) commercial paper, bankers
acceptances, or commercial
bills;
(II) exempted securities;
(III) qualified Canadian
government obligations as
defined in section 5136 of the
Revised Statutes of the United
States, in conformity with
section 15C of this title and
the rules and regulations
thereunder, or obligations of
the North American Development
Bank; or
(IV) any standardized, credit
enhanced debt security issued
by a foreign government
pursuant to the March 1989 plan
of then Secretary of the
Treasury Brady, used by such
foreign government to retire
outstanding commercial bank
loans.
(ii) Investment, trustee, and
fiduciary transactions.--The bank buys
or sells securities for investment
purposes--
(I) for the bank; or
(II) for accounts for which
the bank acts as a trustee or
fiduciary.
(iii) Asset-backed transactions.--The
bank engages in the issuance or sale to
qualified investors, through a grantor
trust or other separate entity, of
securities backed by or representing an
interest in notes, drafts, acceptances,
loans, leases, receivables, other
obligations (other than securities of
which the bank is not the issuer), or
pools of any such obligations
predominantly originated by--
(I) the bank;
(II) an affiliate of any such
bank other than a broker or
dealer; or
(III) a syndicate of banks of
which the bank is a member, if
the obligations or pool of
obligations consists of
mortgage obligations or
consumer-related receivables.
(iv) Identified banking products.--
The bank buys or sells identified
banking products, as defined in section
206 of the Gramm-Leach-Bliley Act.
(6) The term ``bank'' means (A) a banking institution
organized under the laws of the United States or a
Federal savings association, as defined in section 2(5)
of the Home Owners' Loan Act, (B) a member bank of the
Federal Reserve System, (C) any other banking
institution or savings association, as defined in
section 2(4) of the Home Owners' Loan Act, whether
incorporated or not, doing business under the laws of
any State or of the United States, a substantial
portion of the business of which consists of receiving
deposits or exercising fiduciary powers similar to
those permitted to national banks under the authority
of the Comptroller of the Currency pursuant to the
first section of Public Law 87-722 (12 U.S.C. 92a), and
which is supervised and examined by State or Federal
authority having supervision over banks or savings
associations, and which is not operated for the purpose
of evading the provisions of this title, and (D) a
receiver, conservator, or other liquidating agent of
any institution or firm included in clauses (A), (B),
or (C) of this paragraph.
(7) The term ``director'' means any director of a
corporation or any person performing similar functions
with respect to any organization, whether incorporated
or unincorporated.
(8) The term ``issuer'' means any person who issues
or proposes to issue any security; except that with
respect to certificates of deposit for securities,
voting-trust certificates, or collateral-trust
certificates, or with respect to certificates of
interest or shares in an unincorporated investment
trust not having a board of directors or of the fixed,
restricted management, or unit type, the term
``issuer'' means the person or persons performing the
acts and assuming the duties of depositor or manager
pursuant to the provisions of the trust or other
agreement or instrument under which such securities are
issued; and except that with respect to equipment-trust
certificates or like securities, the term ``issuer''
means the person by whom the equipment or property is,
or is to be, used.
(9) The term ``person'' means a natural person,
company, government, or political subdivision, agency,
or instrumentality of a government.
(10) The term ``security'' means any note, stock,
treasury stock, security future, security-based
swap,bond, debenture, certificate of interest or
participation in any profit-sharing agreement or in any
oil, gas, or other mineral royalty or lease, any
collateral-trust certificate, preorganization
certificate or subscription, transferable share,
investment contract, voting-trust certificate,
certificate of deposit for a security, any put, call,
straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on a national securities
exchange relating to foreign currency, or in general,
any instrument commonly known as a ``security''; or any
certificate of interest or participation in, temporary
or interim certificate for, receipt for, or warrant or
right to subscribe to or purchase, any of the
foregoing; but shall not include currency or any note,
draft, bill of exchange, or banker's acceptance which
has a maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited.
(11) The term ``equity security'' means any stock or
similar security; or any security future on any such
security; or any security convertible, with or without
consideration, into such a security, or carrying any
warrant or right to subscribe to or purchase such a
security; or any such warrant or right; or any other
security which the Commission shall deem to be of
similar nature and consider necessary or appropriate,
by such rules and regulations as it may prescribe in
the public interest or for the protection of investors,
to treat as an equity security.
(12)(A) The term ``exempted security'' or ``exempted
securities'' includes--
(i) government securities, as defined in
paragraph (42) of this subsection;
(ii) municipal securities, as defined in
paragraph (29) of this subsection;
(iii) any interest or participation in any
common trust fund or similar fund that is
excluded from the definition of the term
``investment company'' under section 3(c)(3) of
the Investment Company Act of 1940;
(iv) any interest or participation in a
single trust fund, or a collective trust fund
maintained by a bank, or any security arising
out of a contract issued by an insurance
company, which interest, participation, or
security is issued in connection with a
qualified plan as defined in subparagraph (C)
of this paragraph;
(v) any security issued by or any interest or
participation in any pooled income fund,
collective trust fund, collective investment
fund, or similar fund that is excluded from the
definition of an investment company under
section 3(c)(10)(B) of the Investment Company
Act of 1940;
(vi) solely for purposes of sections 12, 13,
14, and 16 of this title, any security issued
by or any interest or participation in any
church plan, company, or account that is
excluded from the definition of an investment
company under section 3(c)(14) of the
Investment Company Act of 1940; and
(vii) 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''.
(B)(i) Notwithstanding subparagraph (A)(i) of this
paragraph, government securities shall not be deemed to
be ``exempted securities'' for the purposes of section
17A of this title.
(ii) Notwithstanding subparagraph (A)(ii) of this
paragraph, municipal securities shall not be deemed to
be ``exempted securities'' for the purposes of sections
15 and 17A of this title.
(C) For purposes of subparagraph (A)(iv) of this
paragraph, the term ``qualified plan'' means (i) a
stock bonus, pension, or profit-sharing plan which
meets the requirements for qualification under section
401 of the Internal Revenue Code of 1954, (ii) an
annuity plan which meets the requirements for the
deduction of the employer's contribution under section
404(a)(2) of such Code, (iii) a governmental plan as
defined in section 414(d) of such Code which has been
established by an employer for the exclusive benefit of
its employees or their beneficiaries for the purpose of
distributing to such employees or their beneficiaries
the corpus and income of the funds accumulated under
such plan, if under such plan it is impossible, prior
to the satisfaction of all liabilities with respect to
such employees and their beneficiaries, for any part of
the corpus or income to be used for, or diverted to,
purposes other than the exclusive benefit of such
employees or their beneficiaries, or (iv) a church
plan, company, or account that is excluded from the
definition of an investment company under section
3(c)(14) of the Investment Company Act of 1940, other
than any plan described in clause (i), (ii), or (iii)
of this subparagraph which (I) covers employees some or
all of whom are employees within the meaning of section
401(c) of such Code, or (II) is a plan funded by an
annuity contract described in section 403(b) of such
Code.
(13) The terms ``buy'' and ``purchase'' each include
any contract to buy, purchase, or otherwise acquire.
For security futures products, such term includes any
contract, agreement, or transaction for future
delivery. For security-based swaps, such terms include
the execution, termination (prior to its scheduled
maturity date), assignment, exchange, or similar
transfer or conveyance of, or extinguishing of rights
or obligations under, a security-based swap, as the
context may require.
(14) The terms ``sale'' and ``sell'' each include any
contract to sell or otherwise dispose of. For security
futures products, such term includes any contract,
agreement, or transaction for future delivery. For
security-based swaps, such terms include the execution,
termination (prior to its scheduled maturity date),
assignment, exchange, or similar transfer or conveyance
of, or extinguishing of rights or obligations under, a
security-based swap, as the context may require.
(15) The term ``Commission'' means the Securities and
Exchange Commission established by section 4 of this
title.
(16) The term ``State'' means any State of the United
States, the District of Columbia, Puerto Rico, the
Virgin Islands, or any other possession of the United
States.
(17) The term ``interstate commerce'' means trade,
commerce, transportation, 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 ``associated person of a broker or dealer''
means any partner, officer, director, or branch manager
of such broker or dealer (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 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 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 as in the
Investment Company Act of 1940.
(20) The terms ``investment adviser'' and
``underwriter'' have the same meanings as in the
Investment Advisers Act of 1940.
(21) The term ``persons 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.
(22)(A) The term ``securities information processor''
means any person engaged in the business of (i)
collecting, processing, or preparing 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 cooperative 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 of the
Communications Act of 1934, subject to the jurisdiction
of the Federal Communications Commission or a State
commission, as defined in section 3 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 with
respect to transactions in or quotations for any
security.
(B) The term ``exclusive processor'' means any
securities information processor or self-regulatory
organization which, directly or indirectly, 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 transactions, 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) otherwise 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 controlled 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 would be deemed to be
a clearing agency solely by reason of functions
performed by such institution as part of customary
banking, brokerage, 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 clearance 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 agent''
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 contracts 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 23(b) of
this title) the Municipal Securities Rulemaking Board
established by section 15B of this title.
(27) The term ``rules of an exchange'', ``rules of an
association'', or ``rules of a clearing agency'' means
the constitution, articles of incorporation, bylaws,
and rules, or instruments corresponding to the
foregoing, 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 determine 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
organization'' 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 clearing agency,
or the rules of the Municipal Securities Rulemaking
Board.
(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 Revenue Code of 1954)
the interest on which 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 section 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 buying and selling municipal
securities for its own account other than in a
fiduciary capacity, through a broker or
otherwise; Provided, 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 accordance with section
15B(b)(2)(H) of this title), the department or
division and not the bank itself shall be
deemed to be the municipal 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
municipal 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 control 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, a
subsidiary or a department or division
of any such bank, a Federal savings
association (as defined in section
3(b)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(2))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary or
department or division of any such
Federal savings association;
(ii) the Board of Governors of the
Federal Reserve System, 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 company which is a bank other
than a bank specified in clause (i),
(iii), or (iv) of this subparagraph, a
subsidiary or a department or division
of such subsidiary, or a savings and
loan holding company;
(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),
a subsidiary or department or division
of any such bank, a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary or a
department or division of any such
State savings association; 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, a
subsidiary of any such bank, a Federal
savings association (as defined in
section 3(b)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(2))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary of any
such Federal savings association;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a subsidiary thereof, a
bank holding company, a subsidiary of a
bank holding company that is a bank
other than a bank specified in clause
(i) or (iii) of this subparagraph, or a
savings and loan holding company;
(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),
a subsidiary of any such bank, a State
savings association (as defined in
section 3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary of any
such State savings association; and
(iv) the Commission in the case of
all other clearing agencies 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 services offered by a clearing
agency:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation when the
appropriate regulatory agency for such
clearing agency is not the Commission;
(ii) the Board of Governors of the
Federal Reserve System 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, a subsidiary of a bank holding
company that is a bank other than a
bank specified in clause (i) or (iii)
of this subparagraph, or a savings and
loan holding company 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)
or a State savings association (as
defined in section 3(b)(3) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(b)(3))), the deposits of
which are insured by the Federal
Deposit Insurance Corporation; and when
the appropriate regulatory agency for
such clearing agency is not the
Commission;
(iv) the Commission 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
accordance with the Federal Deposit Insurance
Act:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
any other member bank of the Federal
Reserve System; and
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
insured bank or a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation.
(E) When used with respect to a national
securities exchange or registered securities
association, member thereof, person associated
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.
(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
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation;
(ii) the Board of Governors of the
Federal Reserve System 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 with the Federal Deposit
Insurance Act or a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation; and
(iv) the Commission in the case of
all other such persons.
(G) When used with respect to a government
securities broker or government securities
dealer, or person associated with a government
securities broker or government securities
dealer:
(i) the Comptroller of the Currency,
in the case of a national bank, a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act), the deposits of
which are insured by the Federal
Deposit Insurance Corporation, or a
Federal branch or Federal agency of a
foreign bank (as such terms are used in
the International Banking Act of 1978);
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a foreign bank, an
uninsured State branch or State agency
of a foreign bank, a commercial lending
company owned or controlled by a
foreign bank (as such terms are used in
the International Banking Act of 1978),
or a corporation organized or having an
agreement with the Board of Governors
of the Federal Reserve System pursuant
to section 25 or section 25A of the
Federal Reserve Act;
(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 or
a Federal savings bank), a State
savings association (as defined in
section 3(b)(3) of the Federal Deposit
Insurance Act), the deposits of which
are insured by the Federal Deposit
Insurance Corporation, or an insured
State branch of a foreign bank (as such
terms are used in the International
Banking Act of 1978); and
(iv) the Commission, in the case of
all other government securities brokers
and government securities dealers.
(H) When used with respect to an institution
described in subparagraph (D), (F), or (G) of
section 2(c)(2), or held under section 4(f), of
the Bank Holding Company Act of 1956--
(i) the Comptroller of the Currency,
in the case of a national bank;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System or any corporation
chartered under section 25A of the
Federal Reserve Act;
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
bank the deposits of which are insured
in accordance with the Federal Deposit
Insurance Act; or
(iv) the Commission in the case of
all other such institutions.
As used in this paragraph, the terms ``bank holding
company'' and ``subsidiary of a bank holding company''
have the meanings given them in section 2 of the Bank
Holding Company Act of 1956. As used in this paragraph,
the term ``savings and loan holding company'' has the
same meaning as in section 10(a) of the Home Owners'
Loan Act (12 U.S.C. 1467a(a)).
(35) A person exercises ``investment discretion''
with respect to an account if, directly or indirectly,
such person (A) is authorized to determine what
securities or other property shall be purchased or sold
by or for the account, (B) makes decisions as to what
securities or other property shall be purchased or sold
by or for the account even though some other person may
have responsibility for such investment decisions, or
(C) otherwise exercises such influence with respect to
the purchase and sale of securities or other property
by or for the account as the Commission, by rule,
determines, in the public interest or for the
protection of investors, should be subject to the
operation of the provisions of this title and rules and
regulations thereunder.
(36) A class of persons or markets is subject to
``equal regulation'' if no member of the class has a
competitive advantage over any other member thereof
resulting from a disparity in their regulation under
this title which the Commission determines is unfair
and not necessary or appropriate in furtherance of the
purposes of this title.
(37) The term ``records'' means accounts,
correspondence, memorandums, tapes, discs, papers,
books, and other documents or transcribed information
of any type, whether expressed in ordinary or machine
language.
(38) The term ``market maker'' means any specialist
permitted to act as a dealer, any dealer acting in the
capacity of block positioner, and any dealer who, with
respect to a security, holds himself out (by entering
quotations in an inter-dealer communications system or
otherwise) 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 member of, a
self-regulatory organization, if such person--
(A) has been and is expelled or suspended
from membership or participation in, or barred
or suspended from being associated with a
member of, any self-regulatory organization,
foreign equivalent of a self-regulatory
organization, foreign or international
securities exchange, contract market designated
pursuant to section 5 of the Commodity Exchange
Act (7 U.S.C. 7), or any substantially
equivalent foreign statute or regulation, or
futures association registered under section 17
of such Act (7 U.S.C. 21), or any substantially
equivalent foreign statute or regulation, or
has been and is denied trading privileges on
any such contract market or foreign equivalent;
(B) is subject to--
(i) an order of the Commission, other
appropriate regulatory agency, or foreign
financial regulatory authority--
(I) denying, suspending for a period
not exceeding 12 months, or revoking
his registration as a broker, dealer,
municipal securities dealer, government
securities broker, government
securities dealer, security-based swap
dealer, or major security-based swap
participant or limiting his activities
as a foreign person performing a
function substantially equivalent to
any of the above; or
(II) barring or suspending for a
period not exceeding 12 months his
being associated with a broker, dealer,
municipal securities dealer, government
securities broker, government
securities dealer, security-based swap
dealer, major security-based swap
participant, or foreign person
performing a function substantially
equivalent to any of the above;
(ii) an order of the Commodity Futures
Trading Commission denying, suspending, or
revoking his registration under the Commodity
Exchange Act (7 U.S.C. 1 et seq.); or
(iii) an order by a foreign financial
regulatory authority denying, suspending, or
revoking the person's authority to engage in
transactions in contracts of sale of a
commodity for future delivery or other
instruments traded on or subject to the rules
of a contract market, board of trade, or
foreign equivalent thereof;
(C) by his conduct while associated with a
broker, dealer, municipal securities dealer,
government securities broker, government
securities dealer, security-based swap dealer,
or major security-based swap participant, or
while associated with an entity or person
required to be registered under the Commodity
Exchange Act, has been found to be a cause of
any effective suspension, expulsion, or order
of the character described in subparagraph (A)
or (B) of this paragraph, and in entering such
a suspension, expulsion, or order, the
Commission, an appropriate regulatory agency,
or any such self-regulatory organization shall
have jurisdiction to find whether or not any
person was a cause thereof;
(D) by his conduct while associated with any
broker, dealer, municipal securities dealer,
government securities broker, government
securities dealer, security-based swap dealer,
major security-based swap participant, or any
other entity engaged in transactions in
securities, or while associated with an entity
engaged in transactions in contracts of sale of
a commodity for future delivery or other
instruments traded on or subject to the rules
of a contract market, board of trade, or
foreign equivalent thereof, has been found to
be a cause of any effective suspension,
expulsion, or order by a foreign or
international securities exchange or foreign
financial regulatory authority empowered by a
foreign government to administer or enforce its
laws relating to financial transactions as
described in subparagraph (A) or (B) of this
paragraph;
(E) has associated with him any person who is
known, or in the exercise of reasonable care
should be known, to him to be a person
described by subparagraph (A), (B), (C), or (D)
of this paragraph; or
(F) has committed or omitted any act, or is
subject to an order or finding, enumerated in
subparagraph (D), (E), (H), or (G) of paragraph
(4) of section 15(b) of this title, has been
convicted of any offense specified in
subparagraph (B) of such paragraph (4) or any
other felony within ten years of the date of
the filing of an application for membership or
participation in, or to become associated with
a member of, such self-regulatory organization,
is enjoined from any action, conduct, or
practice specified in subparagraph (C) of such
paragraph (4), has willfully made or caused to
be made in any application for membership or
participation in, or to become associated with
a member of, a self-regulatory organization,
report required to be filed with a self-
regulatory organization, or proceeding before a
self-regulatory organization, any statement
which was at the time, and in the light of the
circumstances under which it was made, false or
misleading with respect to any material fact,
or has omitted to state in any such
application, report, or proceeding any material
fact which is required to be stated therein.
(40) The term ``financial responsibility rules''
means the rules and regulations of the Commission or
the rules and regulations prescribed by any self-
regulatory organization relating to financial
responsibility and related practices which are
designated by the Commission, by rule or regulation, to
be financial responsibility rules.
(41) The term ``mortgage related security'' means a
security that meets standards of credit-worthiness as
established by the Commission, and either:
(A) represents ownership of one or more
promissory notes or certificates of interest or
participation in such notes (including any
rights designed to assure servicing of, or the
receipt or timeliness of receipt by the holders
of such notes, certificates, or participations
of amounts payable under, such notes,
certificates, or participations), which notes:
(i) are directly secured by a first
lien on a single parcel of real estate,
including stock allocated to a dwelling
unit in a residential cooperative
housing corporation, upon which is
located a dwelling or mixed residential
and commercial structure, on a
residential manufactured home as
defined in section 603(6) of the
National Manufactured Housing
Construction and Safety Standards Act
of 1974, whether such manufactured home
is considered real or personal property
under the laws of the State in which it
is to be located, or on one or more
parcels of real estate upon which is
located one or more commercial
structures; and
(ii) were originated by a savings and
loan association, savings bank,
commercial bank, credit union,
insurance company, or similar
institution which is supervised and
examined by a Federal or State
authority, or by a mortgage approved by
the Secretary of Housing and Urban
Development pursuant to sections 203
and 211 of the National Housing Act,
or, where such notes involve a lien on
the manufactured home, by any such
institution or by any financial
institution approved for insurance by
the Secretary of Housing and Urban
Development pursuant to section 2 of
the National Housing Act; or
(B) is secured by one or more promissory
notes or certificates of interest or
participations in such notes (with or without
recourse to the issuer thereof) and, by its
terms, provides for payments of principal in
relation to payments, or reasonable projections
of payments, on notes meeting the requirements
of subparagraphs (A) (i) and (ii) or
certificates of interest or participations in
promissory notes meeting such requirements.
For the purpose of this paragraph, the term
``promissory note'', when used in connection with a
manufactured home, shall also include a loan, advance,
or credit sale as evidence by a retail installment
sales contract or other instrument.
(42) The term ``government securities'' means--
(A) securities which are direct obligations
of, or obligations guaranteed as to principal
or interest by, the United States;
(B) securities which are issued or guaranteed
by the Tennessee Valley Authority or by
corporations in which the United States has a
direct or indirect interest and which are
designated by the Secretary of the Treasury for
exemption as necessary or appropriate in the
public interest or for the protection of
investors;
(C) securities issued or guaranteed as to
principal or interest by any corporation the
securities of which are designated, by statute
specifically naming such corporation, to
constitute exempt securities within the meaning
of the laws administered by the Commission;
(D) for purposes of sections 15C and 17A, any
put, call, straddle, option, or privilege on a
security described in subparagraph (A), (B), or
(C) other than a put, call, straddle, option,
or privilege--
(i) that is traded on one or more
national securities exchanges; or
(ii) for which quotations are
disseminated through an automated
quotation system operated by a
registered securities association; or
(E) for purposes of sections 15, 15C, and 17A
as applied to a bank, a qualified Canadian
government obligation as defined in section
5136 of the Revised Statutes of the United
States.
(43) The term ``government securities broker'' means
any person regularly engaged in the business of
effecting transactions in government securities for the
account of others, but does not include--
(A) any corporation the securities of which
are government securities under subparagraph
(B) or (C) of paragraph (42) of this
subsection; or
(B) any person registered with the Commodity
Futures Trading Commission, any contract market
designated by the Commodity Futures Trading
Commission, such contract market's affiliated
clearing organization, or any floor trader on
such contract market, solely because such
person effects transactions in government
securities that the Commission, after
consultation with the Commodity Futures Trading
Commission, has determined by rule or order to
be incidental to such person's futures-related
business.
(44) The term ``government securities dealer'' means
any person engaged in the business of buying and
selling government securities for his own account,
through a broker or otherwise, but does not include--
(A) any person insofar as he buys or sells
such securities for his own account, either
individually or in some fiduciary capacity, but
not as a part of a regular business;
(B) any corporation the securities of which
are government securities under subparagraph
(B) or (C) of paragraph (42) of this
subsection;
(C) any bank, unless the bank is engaged in
the business of buying and selling government
securities for its own account other than in a
fiduciary capacity, through a broker or
otherwise; or
(D) any person registered with the Commodity
Futures Trading Commission, any contract market
designated by the Commodity Futures Trading
Commission, such contract market's affiliated
clearing organization, or any floor trader on
such contract market, solely because such
person effects transactions in government
securities that the Commission, after
consultation with the Commodity Futures Trading
Commission, has determined by rule or order to
be incidental to such person's futures-related
business.
(45) The term ``person associated with a government
securities broker or government securities dealer''
means any partner, officer, director, or branch manager
of such government securities broker or government
securities dealer (or any person occupying a similar
status or performing similar functions), and any other
employee of such government securities broker or
government securities dealer who is engaged in the
management, direction, supervision, or performance of
any activities relating to government securities, and
any person directly or indirectly controlling,
controlled by, or under common control with such
government securities broker or government securities
dealer.
(46) The term ``financial institution'' means--
(A) a bank (as defined in paragraph (6) of
this subsection);
(B) a foreign bank (as such term is used in
the International Banking Act of 1978); and
(C) a savings association (as defined in
section 3(b) of the Federal Deposit Insurance
Act) the deposits of which are insured by the
Federal Deposit Insurance Corporation.
(47) The term ``securities laws'' means the
Securities Act of 1933 (15 U.S.C. 78a et seq.), the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.), the Sarbanes-Oxley Act of 2002, the Trust
Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.), the Investment Advisers Act of 1940 (15 U.S.C.
80b et seq.), and the Securities Investor Protection
Act of 1970 (15 U.S.C. 78aaa et seq.).
(48) The term ``registered broker or dealer'' means a
broker or dealer registered or required to register
pursuant to section 15 or 15B of this title, except
that in paragraph (3) of this subsection and sections 6
and 15A the term means such a broker or dealer and a
government securities broker or government securities
dealer registered or required to register pursuant to
section 15C(a)(1)(A) of this title.
(49) The terms ``person associated with a transfer
agent'' and ``associated person of a transfer agent''
mean any person (except an employee whose functions are
solely clerical or ministerial) directly engaged in the
management, direction, supervision, or performance of
any of the transfer agent's activities with respect to
transfer agent functions, and any person directly or
indirectly controlling such activities or controlled by
the transfer agent in connection with such activities.
(50) The term ``foreign securities authority'' means
any foreign government, or any governmental body or
regulatory organization empowered by a foreign
government to administer or enforce its laws as they
relate to securities matters.
(51)(A) The term ``penny stock'' means any equity
security other than a security that is--
(i) registered or approved for registration
and traded on a national securities exchange
that meets such criteria as the Commission
shall prescribe by rule or regulation for
purposes of this paragraph;
(ii) authorized for quotation on an automated
quotation system sponsored by a registered
securities association, if such system (I) was
established and in operation before January 1,
1990, and (II) meets such criteria as the
Commission shall prescribe by rule or
regulation for purposes of this paragraph;
(iii) issued by an investment company
registered under the Investment Company Act of
1940;
(iv) excluded, on the basis of exceeding a
minimum price, net tangible assets of the
issuer, or other relevant criteria, from the
definition of such term by rule or regulation
which the Commission shall prescribe for
purposes of this paragraph; or
(v) exempted, in whole or in part,
conditionally or unconditionally, from the
definition of such term by rule, regulation, or
order prescribed by the Commission.
(B) The Commission may, by rule, regulation, or
order, designate any equity security or class of equity
securities described in clause (i) or (ii) of
subparagraph (A) as within the meaning of the term
``penny stock'' if such security or class of securities
is traded other than on a national securities exchange
or through an automated quotation system described in
clause (ii) of subparagraph (A).
(C) In exercising its authority under this paragraph
to prescribe rules, regulations, and orders, the
Commission shall determine that such rule, regulation,
or order is consistent with the public interest and the
protection of investors.
(52) The term ``foreign financial regulatory
authority'' means any (A) foreign securities authority,
(B) other governmental body or foreign equivalent of a
self-regulatory organization empowered by a foreign
government to administer or enforce its laws relating
to the regulation of fiduciaries, trusts, commercial
lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments
traded on or subject to the rules of a contract market,
board of trade, or foreign equivalent, or other
financial activities, or (C) membership organization a
function of which is to regulate participation of its
members in activities listed above.
(53)(A) The term ``small business related security''
means a security that meets standards of credit-
worthiness as established by the Commission, and
either--
(i) represents an interest in 1 or more
promissory notes or leases of personal property
evidencing the obligation of a small business
concern and originated by an insured depository
institution, insured credit union, insurance
company, or similar institution which is
supervised and examined by a Federal or State
authority, or a finance company or leasing
company; or
(ii) is secured by an interest in 1 or more
promissory notes or leases of personal property
(with or without recourse to the issuer or
lessee) and provides for payments of principal
in relation to payments, or reasonable
projections of payments, on notes or leases
described in clause (i).
(B) For purposes of this paragraph--
(i) an ``interest in a promissory note or a
lease of personal property'' includes ownership
rights, certificates of interest or
participation in such notes or leases, and
rights designed to assure servicing of such
notes or leases, or the receipt or timely
receipt of amounts payable under such notes or
leases;
(ii) the term ``small business concern''
means a business that meets the criteria for a
small business concern established by the Small
Business Administration under section 3(a) of
the Small Business Act;
(iii) the term ``insured depository
institution'' has the same meaning as in
section 3 of the Federal Deposit Insurance Act;
and
(iv) the term ``insured credit union'' has
the same meaning as in section 101 of the
Federal Credit Union Act.
(54) Qualified investor.--
(A) Definition.--Except as provided in
subparagraph (B), for purposes of this title,
the term ``qualified investor'' means--
(i) any investment company registered
with the Commission under section 8 of
the Investment Company Act of 1940;
(ii) any issuer eligible for an
exclusion from the definition of
investment company pursuant to section
3(c)(7) of the Investment Company Act
of 1940;
(iii) any bank (as defined in
paragraph (6) of this subsection),
savings association (as defined in
section 3(b) of the Federal Deposit
Insurance Act), broker, dealer,
insurance company (as defined in
section 2(a)(13) of the Securities Act
of 1933), or business development
company (as defined in section 2(a)(48)
of the Investment Company Act of 1940);
(iv) any small business investment
company licensed by the United States
Small Business Administration under
section 301 (c) or (d) of the Small
Business Investment Act of 1958;
(v) any State sponsored employee
benefit plan, or any other employee
benefit plan, within the meaning of the
Employee Retirement Income Security Act
of 1974, other than an individual
retirement account, if the investment
decisions are made by a plan fiduciary,
as defined in section 3(21) of that
Act, which is either a bank, savings
and loan association, insurance
company, or registered investment
adviser;
(vi) any trust whose purchases of
securities are directed by a person
described in clauses (i) through (v) of
this subparagraph;
(vii) any market intermediary exempt
under section 3(c)(2) of the Investment
Company Act of 1940;
(viii) any associated person of a
broker or dealer other than a natural
person;
(ix) any foreign bank (as defined in
section 1(b)(7) of the International
Banking Act of 1978);
(x) the government of any foreign
country;
(xi) any corporation, company, or
partnership that owns and invests on a
discretionary basis, not less than
$25,000,000 in investments;
(xii) any natural person who owns and
invests on a discretionary basis, not
less than $25,000,000 in investments;
(xiii) any government or political
subdivision, agency, or instrumentality
of a government who owns and invests on
a discretionary basis not less than
$50,000,000 in investments; or
(xiv) any multinational or
supranational entity or any agency or
instrumentality thereof.
(B) Altered thresholds for asset-backed
securities and loan participations.--For
purposes of section 3(a)(5)(C)(iii) of this
title and section 206(a)(5) of the Gramm-Leach-
Bliley Act, the term ``qualified investor'' has
the meaning given such term by subparagraph (A)
of this paragraph except that clauses (xi) and
(xii) shall be applied by substituting
``$10,000,000'' for ``$25,000,000''.
(C) Additional authority.--The Commission
may, by rule or order, define a ``qualified
investor'' as any other person, taking into
consideration such factors as the financial
sophistication of the person, net worth, and
knowledge and experience in financial matters.
(55)(A) The term ``security future'' means a contract
of sale for future delivery of a single security or of
a narrow-based security index, including any interest
therein or based on the value thereof, except an
exempted security under section 3(a)(12) of this title
as in effect on the date of the enactment of the
Futures Trading Act of 1982 (other than any municipal
security as defined in section 3(a)(29) as in effect on
the date of the enactment of the Futures Trading Act of
1982). The term ``security future'' does not include
any agreement, contract, or transaction excluded from
the Commodity Exchange Act under section 2(c), 2(d),
2(f), or 2(g) of the Commodity Exchange Act (as in
effect on the date of the enactment of the Commodity
Futures Modernization Act of 2000) or title IV of the
Commodity Futures Modernization Act of 2000.
(B) The term ``narrow-based security index'' means an
index--
(i) that has 9 or fewer component securities;
(ii) in which a component security comprises
more than 30 percent of the index's weighting;
(iii) in which the five highest weighted
component securities in the aggregate comprise
more than 60 percent of the index's weighting;
or
(iv) in which the lowest weighted component
securities comprising, in the aggregate, 25
percent of the index's weighting have an
aggregate dollar value of average daily trading
volume of less than $50,000,000 (or in the case
of an index with 15 or more component
securities, $30,000,000), except that if there
are two or more securities with equal weighting
that could be included in the calculation of
the lowest weighted component securities
comprising, in the aggregate, 25 percent of the
index's weighting, such securities shall be
ranked from lowest to highest dollar value of
average daily trading volume and shall be
included in the calculation based on their
ranking starting with the lowest ranked
security.
(C) Notwithstanding subparagraph (B), an index is not
a narrow-based security index if--
(i)(I) it has at least nine component
securities;
(II) no component security comprises more
than 30 percent of the index's weighting; and
(III) each component security is--
(aa) registered pursuant to section
12 of the Securities Exchange Act of
1934;
(bb) one of 750 securities with the
largest market capitalization; and
(cc) one of 675 securities with the
largest dollar value of average daily
trading volume;
(ii) a board of trade was designated as a
contract market by the Commodity Futures
Trading Commission with respect to a contract
of sale for future delivery on the index,
before the date of the enactment of the
Commodity Futures Modernization Act of 2000;
(iii)(I) a contract of sale for future
delivery on the index traded on a designated
contract market or registered derivatives
transaction execution facility for at least 30
days as a contract of sale for future delivery
on an index that was not a narrow-based
security index; and
(II) it has been a narrow-based security
index for no more than 45 business days over 3
consecutive calendar months;
(iv) a contract of sale for future delivery
on the index is traded on or subject to the
rules of a foreign board of trade and meets
such requirements as are jointly established by
rule or regulation by the Commission and the
Commodity Futures Trading Commission;
(v) no more than 18 months have passed since
the date of the enactment of the Commodity
Futures Modernization Act of 2000 and--
(I) it is traded on or subject to the
rules of a foreign board of trade;
(II) the offer and sale in the United
States of a contract of sale for future
delivery on the index was authorized
before the date of the enactment of the
Commodity Futures Modernization Act of
2000; and
(III) the conditions of such
authorization continue to be met; or
(vi) a contract of sale for future delivery
on the index is traded on or subject to the
rules of a board of trade and meets such
requirements as are jointly established by
rule, regulation, or order by the Commission
and the Commodity Futures Trading Commission.
(D) Within 1 year after the enactment of the
Commodity Futures Modernization Act of 2000, the
Commission and the Commodity Futures Trading Commission
jointly shall adopt rules or regulations that set forth
the requirements under clause (iv) of subparagraph (C).
(E) An index that is a narrow-based security index
solely because it was a narrow-based security index for
more than 45 business days over 3 consecutive calendar
months pursuant to clause (iii) of subparagraph (C)
shall not be a narrow-based security index for the 3
following calendar months.
(F) For purposes of subparagraphs (B) and (C) of this
paragraph--
(i) the dollar value of average daily trading
volume and the market capitalization shall be
calculated as of the preceding 6 full calendar
months; and
(ii) the Commission and the Commodity Futures
Trading Commission shall, by rule or
regulation, jointly specify the method to be
used to determine market capitalization and
dollar value of average daily trading volume.
(56) The term ``security futures product'' means a
security future or any put, call, straddle, option, or
privilege on any security future.
(57)(A) The term ``margin'', when used with respect
to a security futures product, means the amount, type,
and form of collateral required to secure any extension
or maintenance of credit, or the amount, type, and form
of collateral required as a performance bond related to
the purchase, sale, or carrying of a security futures
product.
(B) The terms ``margin level'' and ``level of
margin'', when used with respect to a security futures
product, mean the amount of margin required to secure
any extension or maintenance of credit, or the amount
of margin required as a performance bond related to the
purchase, sale, or carrying of a security futures
product.
(C) The terms ``higher margin level'' and ``higher
level of margin'', when used with respect to a security
futures product, mean a margin level established by a
national securities exchange registered pursuant to
section 6(g) that is higher than the minimum amount
established and in effect pursuant to section
7(c)(2)(B).
(58) Audit committee.--The term ``audit committee''
means--
(A) a committee (or equivalent body)
established by and amongst the board of
directors of an issuer for the purpose of
overseeing the accounting and financial
reporting processes of the issuer and audits of
the financial statements of the issuer; and
(B) if no such committee exists with respect
to an issuer, the entire board of directors of
the issuer.
(59) Registered public accounting firm.--The term
``registered public accounting firm'' has the same
meaning as in section 2 of the Sarbanes-Oxley Act of
2002.
(60) Credit rating.--The term ``credit rating'' means
an assessment of the creditworthiness of an obligor as
an entity or with respect to specific securities or
money market instruments.
(61) Credit rating agency.--The term ``credit rating
agency'' means any person--
(A) engaged in the business of issuing credit
ratings on the Internet or through another
readily accessible means, for free or for a
reasonable fee, but does not include a
commercial credit reporting company;
(B) employing either a quantitative or
qualitative model, or both, to determine credit
ratings; and
(C) receiving fees from either issuers,
investors, or other market participants, or a
combination thereof.
(62) Nationally recognized statistical rating
organization.--The term ``nationally recognized
statistical rating organization'' means a credit rating
agency that--
(A) issues credit ratings certified by
qualified institutional buyers, in accordance
with section 15E(a)(1)(B)(ix), with respect
to--
(i) financial institutions, brokers,
or dealers;
(ii) insurance companies;
(iii) corporate issuers;
(iv) issuers of asset-backed
securities (as that term is defined in
section 1101(c) of part 229 of title
17, Code of Federal Regulations, as in
effect on the date of enactment of this
paragraph);
(v) issuers of government securities,
municipal securities, or securities
issued by a foreign government; or
(vi) a combination of one or more
categories of obligors described in any
of clauses (i) through (v); and
(B) is registered under section 15E.
(63) Person associated with a nationally recognized
statistical rating organization.--The term ``person
associated with'' a nationally recognized statistical
rating organization means any partner, officer,
director, or branch manager of a nationally recognized
statistical rating organization (or any person
occupying a similar status or performing similar
functions), any person directly or indirectly
controlling, controlled by, or under common control
with a nationally recognized statistical rating
organization, or any employee of a nationally
recognized statistical rating organization.
(64) Qualified institutional buyer.--The term
``qualified institutional buyer'' has the meaning given
such term in section 230.144A(a) of title 17, Code of
Federal Regulations, or any successor thereto.
(79) Asset-backed security.--The term ``asset-backed
security''--
(A) means a fixed-income or other security
collateralized by any type of self-liquidating
financial asset (including a loan, a lease, a
mortgage, or a secured or unsecured receivable)
that allows the holder of the security to
receive payments that depend primarily on cash
flow from the asset, including--
(i) a collateralized mortgage
obligation;
(ii) a collateralized debt
obligation;
(iii) a collateralized bond
obligation;
(iv) a collateralized debt obligation
of asset-backed securities;
(v) a collateralized debt obligation
of collateralized debt obligations; and
(vi) a security that the Commission,
by rule, determines to be an asset-
backed security for purposes of this
section; and
(B) does not include a security issued by a
finance subsidiary held by the parent company
or a company controlled by the parent company,
if none of the securities issued by the finance
subsidiary are held by an entity that is not
controlled by the parent company.
(65) Eligible contract participant.--The term
``eligible contract participant'' has the same meaning
as in section 1a of the Commodity Exchange Act (7
U.S.C. 1a).
(66) Major swap participant.--The term ``major swap
participant'' has the same meaning as in section 1a of
the Commodity Exchange Act (7 U.S.C. 1a).
(67) Major security-based swap participant.--
(A) In general.--The term ``major security-
based swap participant'' means any person--
(i) who is not a security-based swap
dealer; and
(ii)(I) who maintains a substantial
position in security-based swaps for
any of the major security-based swap
categories, as such categories are
determined by the Commission, excluding
both positions held for hedging or
mitigating commercial risk and
positions maintained by any employee
benefit plan (or any contract held by
such a plan) as defined in paragraphs
(3) and (32) of section 3 of the
Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1002) for the
primary purpose of hedging or
mitigating any risk directly associated
with the operation of the plan;
(II) whose outstanding security-based
swaps create substantial counterparty
exposure that could have serious
adverse effects on the financial
stability of the United States banking
system or financial markets; or
(III) that is a financial entity
that--
(aa) is highly leveraged
relative to the amount of
capital such entity holds and
that is not subject to capital
requirements established by an
appropriate Federal banking
agency; and
(bb) maintains a substantial
position in outstanding
security-based swaps in any
major security-based swap
category, as such categories
are determined by the
Commission.
(B) Definition of substantial position.--For
purposes of subparagraph (A), the Commission
shall define, by rule or regulation, the term
``substantial position'' at the threshold that
the Commission determines to be prudent for the
effective monitoring, management, and oversight
of entities that are systemically important or
can significantly impact the financial system
of the United States. In setting the definition
under this subparagraph, the Commission shall
consider the person's relative position in
uncleared as opposed to cleared security-based
swaps and may take into consideration the value
and quality of collateral held against
counterparty exposures.
(C) Scope of designation.--For purposes of
subparagraph (A), a person may be designated as
a major security-based swap participant for 1
or more categories of security-based swaps
without being classified as a major security-
based swap participant for all classes of
security-based swaps.
(68) Security-based swap.--
(A) In general.--Except as provided in
subparagraph (B), the term ``security-based
swap'' means any agreement, contract, or
transaction that--
(i) is a swap, as that term is
defined under section 1a of the
Commodity Exchange Act (without regard
to paragraph (47)(B)(x) of such
section); and
(ii) is based on--
(I) an index that is a
narrow-based security index,
including any interest therein
or on the value thereof;
(II) a single security or
loan, including any interest
therein or on the value
thereof; or
(III) the occurrence,
nonoccurrence, or extent of the
occurrence of an event relating
to a single issuer of a
security or the issuers of
securities in a narrow-based
security index, provided that
such event directly affects the
financial statements, financial
condition, or financial
obligations of the issuer.
(B) Rule of construction regarding master
agreements.--The term ``security-based swap''
shall be construed to include a master
agreement that provides for an agreement,
contract, or transaction that is a security-
based swap pursuant to subparagraph (A),
together with all supplements to any such
master agreement, without regard to whether the
master agreement contains an agreement,
contract, or transaction that is not a
security-based swap pursuant to subparagraph
(A), except that the master agreement shall be
considered to be a security-based swap only
with respect to each agreement, contract, or
transaction under the master agreement that is
a security-based swap pursuant to subparagraph
(A).
(C) Exclusions.--The term ``security-based
swap'' does not include any agreement,
contract, or transaction that meets the
definition of a security-based swap only
because such agreement, contract, or
transaction references, is based upon, or
settles through the transfer, delivery, or
receipt of an exempted security under paragraph
(12), as in effect on the date of enactment of
the Futures Trading Act of 1982 (other than any
municipal security as defined in paragraph (29)
as in effect on the date of enactment of the
Futures Trading Act of 1982), unless such
agreement, contract, or transaction is of the
character of, or is commonly known in the trade
as, a put, call, or other option.
(D) Mixed swap.--The term ``security-based
swap'' includes any agreement, contract, or
transaction that is as described in
subparagraph (A) and also is based on the value
of 1 or more interest or other rates,
currencies, commodities, instruments of
indebtedness, indices, quantitative measures,
other financial or economic interest or
property of any kind (other than a single
security or a narrow-based security index), or
the occurrence, non-occurrence, or the extent
of the occurrence of an event or contingency
associated with a potential financial,
economic, or commercial consequence (other than
an event described in subparagraph
(A)(ii)(III)).
(E) Rule of construction regarding use of the
term index.--The term ``index'' means an index
or group of securities, including any interest
therein or based on the value thereof.
(69) Swap.--The term ``swap'' has the same meaning as
in section 1a of the Commodity Exchange Act (7 U.S.C.
1a).
(70) Person associated with a security-based swap
dealer or major security-based swap participant.--
(A) In general.--The term ``person associated
with a security-based swap dealer or major
security-based swap participant'' or
``associated person of a security-based swap
dealer or major security-based swap
participant'' means--
(i) any partner, officer, director,
or branch manager of such security-
based swap dealer or major security-
based swap participant (or any person
occupying a similar status or
performing similar functions);
(ii) any person directly or
indirectly controlling, controlled by,
or under common control with such
security-based swap dealer or major
security-based swap participant; or
(iii) any employee of such security-
based swap dealer or major security-
based swap participant.
(B) Exclusion.--Other than for purposes of
section 15F(l)(2), the term ``person associated
with a security-based swap dealer or major
security-based swap participant'' or
``associated person of a security-based swap
dealer or major security-based swap
participant'' does not include any person
associated with a security-based swap dealer or
major security-based swap participant whose
functions are solely clerical or ministerial.
(71) Security-based swap dealer.--
(A) In general.--The term ``security-based
swap dealer'' means any person who--
(i) holds themself out as a dealer in
security-based swaps;
(ii) makes a market in security-based
swaps;
(iii) regularly enters into security-
based swaps with counterparties as an
ordinary course of business for its own
account; or
(iv) engages in any activity causing
it to be commonly known in the trade as
a dealer or market maker in security-
based swaps.
(B) Designation by type or class.--A person
may be designated as a security-based swap
dealer for a single type or single class or
category of security-based swap or activities
and considered not to be a security-based swap
dealer for other types, classes, or categories
of security-based swaps or activities.
(C) Exception.--The term ``security-based
swap dealer'' does not include a person that
enters into security-based swaps for such
person's own account, either individually or in
a fiduciary capacity, but not as a part of
regular business.
(D) De minimis exception.--The Commission
shall exempt from designation as a security-
based swap dealer an entity that engages in a
de minimis quantity of security-based swap
dealing in connection with transactions with or
on behalf of its customers. The Commission
shall promulgate regulations to establish
factors with respect to the making of any
determination to exempt.
(72) Appropriate federal banking agency.--The term
``appropriate Federal banking agency'' has the same
meaning as in section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q)).
(73) Board.--The term ``Board'' means the Board of
Governors of the Federal Reserve System.
(74) Prudential regulator.--The term ``prudential
regulator'' has the same meaning as in section 1a of
the Commodity Exchange Act (7 U.S.C. 1a).
(75) Security-based swap data repository.--The term
``security-based swap data repository'' means any
person that collects and maintains information or
records with respect to transactions or positions in,
or the terms and conditions of, security-based swaps
entered into by third parties for the purpose of
providing a centralized recordkeeping facility for
security-based swaps.
(76) Swap dealer.--The term ``swap dealer'' has the
same meaning as in section 1a of the Commodity Exchange
Act (7 U.S.C. 1a).
(77) Security-based swap execution facility.--The
term ``security-based swap execution facility'' means a
trading system or platform in which multiple
participants have the ability to execute or trade
security-based swaps by accepting bids and offers made
by multiple participants in the facility or system,
through any means of interstate commerce, including any
trading facility, that--
(A) facilitates the execution of security-
based swaps between persons; and
(B) is not a national securities exchange.
(78) Security-based swap agreement.--
(A) In general.--For purposes of sections 9,
10, 16, 20, and 21A of this Act, and section 17
of the Securities Act of 1933 (15 U.S.C. 77q),
the term ``security-based swap agreement''
means a swap agreement as defined in section
206A of the Gramm-Leach-Bliley Act (15 U.S.C.
78c note) of which a material term is based on
the price, yield, value, or volatility of any
security or any group or index of securities,
or any interest therein.
(B) Exclusions.--The term ``security-based
swap agreement'' does not include any security-
based swap.
(80) Emerging growth company.--The term ``emerging
growth company'' means an issuer that had total annual
gross revenues of less than $1,000,000,000 (as such
amount is indexed for inflation every 5 years by the
Commission to reflect the change in the Consumer Price
Index for All Urban Consumers published by the Bureau
of Labor Statistics, setting the threshold to the
nearest 1,000,000) during its most recently completed
fiscal year. An issuer that is an emerging growth
company as of the first day of that fiscal year shall
continue to be deemed an emerging growth company until
the earliest of--
(A) the last day of the fiscal year of the
issuer during which it had total annual gross
revenues of $1,000,000,000 (as such amount is
indexed for inflation every 5 years by the
Commission to reflect the change in the
Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics,
setting the threshold to the nearest 1,000,000)
or more;
(B) the last day of the fiscal year of the
issuer following the fifth anniversary of the
date of the first sale of common equity
securities of the issuer pursuant to an
effective registration statement under the
Securities Act of 1933;
(C) the date on which such issuer has, during
the previous 3-year period, issued more than
$1,000,000,000 in non-convertible debt; or
(D) the date on which such issuer is deemed
to be a ``large accelerated filer'', as defined
in section 240.12b-2 of title 17, Code of
Federal Regulations, or any successor thereto.
(80) Funding portal.--The term ``funding portal''
means any person acting as an intermediary in a
transaction involving the offer or sale of securities
for the account of others, solely pursuant to section
4(6) of the Securities Act of 1933 (15 U.S.C. 77d(6)),
that does not--
(A) offer investment advice or
recommendations;
(B) solicit purchases, sales, or offers to
buy the securities offered or displayed on its
website or portal;
(C) compensate employees, agents, or other
persons for such solicitation or based on the
sale of securities displayed or referenced on
its website or portal;
(D) hold, manage, possess, or otherwise
handle investor funds or securities; or
(E) engage in such other activities as the
Commission, by rule, determines appropriate.
(81) Proxy advisory firm.--The term ``proxy advisory
firm'' means any person who is primarily engaged in the
business of providing proxy voting research, analysis,
ratings, or recommendations to clients, which conduct
constitutes a solicitation within the meaning of
section 14 and the Commission's rules and regulations
thereunder, except to the extent that the person is
exempted by such rules and regulations from
requirements otherwise applicable to persons engaged in
a solicitation.
(82) Person associated with a proxy advisory firm.--
The term ``person associated with'' a proxy advisory
firm means any partner, officer, or director of a proxy
advisory firm (or any person occupying a similar status
or performing similar functions), any person directly
or indirectly controlling, controlled by, or under
common control with a proxy advisory firm, or any
employee of a proxy advisory firm, except that persons
associated with a proxy advisory firm whose functions
are clerical or ministerial shall not be included in
the meaning of such term. The Commission may by rules
and regulations classify, for purposes or any portion
or portions of this Act, persons, including employees
controlled by a proxy advisory firm.
(b) The Commission and the Board of Governors of the Federal
Reserve System, as to matters within their respective
jurisdictions, shall have power by rules and regulations to
define technical, trade, accounting, and other terms used in
this title, consistently with the provisions and purposes of
this title.
(c) No provision of this title shall apply to, or be deemed
to include, any executive department or independent
establishment of the United States, or any lending agency which
is wholly owned, directly or indirectly, by the United States,
or any officer, agent, or employee of any such department,
establishment, or agency, acting in the course of his official
duty as such, unless such provision makes specific reference to
such department, establishment, or agency.
(d) No issuer of municipal securities or officer or employee
thereof acting in the course of his official duties as such
shall be deemed to be a ``broker'', ``dealer'', or ``municipal
securities dealer'' solely by reason of buying, selling, or
effecting transactions in the issuer's securities.
(e) Charitable Organizations.--
(1) Exemption.--Notwithstanding any other provision
of this title, but subject to paragraph (2) of this
subsection, a charitable organization, as defined in
section 3(c)(10)(D) of the Investment Company Act of
1940, or any trustee, director, officer, employee, or
volunteer of such a charitable organization acting
within the scope of such person's employment or duties
with such organization, shall not be deemed to be a
``broker'', ``dealer'', ``municipal securities
broker'', ``municipal securities dealer'', ``government
securities broker'', or ``government securities
dealer'' for purposes of this title solely because such
organization or person buys, holds, sells, or trades in
securities for its own account in its capacity as
trustee or administrator of, or otherwise on behalf of
or for the account of--
(A) such a charitable organization;
(B) a fund that is excluded from the
definition of an investment company under
section 3(c)(10)(B) of the Investment Company
Act of 1940; or
(C) a trust or other donative instrument
described in section 3(c)(10)(B) of the
Investment Company Act of 1940, or the settlors
(or potential settlors) or beneficiaries of any
such trust or other instrument.
(2) Limitation on compensation.--The exemption
provided under paragraph (1) shall not be available to
any charitable organization, or any trustee, director,
officer, employee, or volunteer of such a charitable
organization, unless each person who, on or after 90
days after the date of enactment of this subsection,
solicits donations on behalf of such charitable
organization from any donor to a fund that is excluded
from the definition of an investment company under
section 3(c)(10)(B) of the Investment Company Act of
1940, is either a volunteer or is engaged in the
overall fund raising activities of a charitable
organization and receives no commission or other
special compensation based on the number or the value
of donations collected for the fund.
(f) Consideration of Promotion of Efficiency, Competition,
and Capital Formation.--Whenever pursuant to this title the
Commission is engaged in rulemaking, or in the review of a rule
of a self-regulatory organization, and is required to consider
or determine whether an action is necessary or appropriate in
the public interest, the Commission shall also consider, in
addition to the protection of investors, whether the action
will promote efficiency, competition, and capital formation.
(g) Church Plans.--No church plan described in section 414(e)
of the Internal Revenue Code of 1986, no person or entity
eligible to establish and maintain such a plan under the
Internal Revenue Code of 1986, no company or account that is
excluded from the definition of an investment company under
section 3(c)(14) of the Investment Company Act of 1940, and no
trustee, director, officer or employee of or volunteer for such
plan, company, account, person, or entity, acting within the
scope of that person's employment or activities with respect to
such plan, shall be deemed to be a ``broker'', ``dealer'',
``municipal securities broker'', ``municipal securities
dealer'', ``government securities broker'', ``government
securities dealer'', ``clearing agency'', or ``transfer agent''
for purposes of this title--
(1) solely because such plan, company, person, or
entity buys, holds, sells, trades in, or transfers
securities or acts as an intermediary in making
payments in connection with transactions in securities
for its own account in its capacity as trustee or
administrator of, or otherwise on behalf of, or for the
account of, any church plan, company, or account that
is excluded from the definition of an investment
company under section 3(c)(14) of the Investment
Company Act of 1940; and
(2) if no such person or entity receives a commission
or other transaction-related sales compensation in
connection with any activities conducted in reliance on
the exemption provided by this subsection.
(h) Limited Exemption for Funding Portals.--
(1) In general.--The Commission shall, by rule,
exempt, conditionally or unconditionally, a registered
funding portal from the requirement to register as a
broker or dealer under section 15(a)(1), provided that
such funding portal--
(A) remains subject to the examination,
enforcement, and other rulemaking authority of
the Commission;
(B) is a member of a national securities
association registered under section 15A; and
(C) is subject to such other requirements
under this title as the Commission determines
appropriate under such rule.
(2) National securities association membership.--For
purposes of sections 15(b)(8) and 15A, the term
``broker or dealer'' includes a funding portal and the
term ``registered broker or dealer'' includes a
registered funding portal, except to the extent that
the Commission, by rule, determines otherwise, provided
that a national securities association shall only
examine for and enforce against a registered funding
portal rules of such national securities association
written specifically for registered funding portals.
* * * * * * *
SEC. 15H. REGISTRATION OF PROXY ADVISORY FIRMS.
(a) Conduct Prohibited.--It shall be unlawful for a proxy
advisory firm to make use of the mails or any means or
instrumentality of interstate commerce to provide proxy voting
research, analysis, or recommendations to any client, unless
such proxy advisory firm is registered under this section.
(b) Registration Procedures.--
(1) Application for registration.--
(A) In general.--A proxy advisory firm must
file with the Commission an application for
registration, in such form as the Commission
shall require, by rule or regulation, and
containing the information described in
subparagraph (B).
(B) Required information.--An application for
registration under this section shall contain
information regarding--
(i) a certification that the
applicant is able to consistently
provide proxy advice based on accurate
information;
(ii) the procedures and methodologies
that the applicant uses in developing
proxy voting recommendations, including
whether and how the applicant considers
the size of a company when making proxy
voting recommendations;
(iii) the organizational structure of
the applicant;
(iv) whether or not the applicant has
in effect a code of ethics, and if not,
the reasons therefor;
(v) any potential or actual conflict
of interest relating to the ownership
structure of the applicant or the
provision of proxy advisory services by
the applicant, including whether the
proxy advisory firm engages in services
ancillary to the provision of proxy
advisory services such as consulting
services for corporate issuers, and if
so the revenues derived therefrom;
(vi) the policies and procedures in
place to manage conflicts of interest
under subsection (f); and
(vii) any other information and
documents concerning the applicant and
any person associated with such
applicant as the Commission, by rule,
may prescribe as necessary or
appropriate in the public interest or
for the protection of investors.
(2) Review of application.--
(A) Initial determination.--Not later than 90
days after the date on which the application
for registration is filed with the Commission
under paragraph (1) (or within such longer
period as to which the applicant consents) the
Commission shall--
(i) by order, grant registration; or
(ii) institute proceedings to
determine whether registration should
be denied.
(B) Conduct of proceedings.--
(i) Content.--Proceedings referred to
in subparagraph (A)(ii) shall--
(I) include notice of the
grounds for denial under
consideration and an
opportunity for hearing; and
(II) be concluded not later
than 120 days after the date on
which the application for
registration is filed with the
Commission under paragraph (1).
(ii) Determination.--At the
conclusion of such proceedings, the
Commission, by order, shall grant or
deny such application for registration.
(iii) Extension authorized.--The
Commission may extend the time for
conclusion of such proceedings for not
longer than 90 days, if it finds good
cause for such extension and publishes
its reasons for so finding, or for such
longer period as to which the applicant
consents.
(C) Grounds for decision.--The Commission
shall grant registration under this
subsection--
(i) if the Commission finds that the
requirements of this section are
satisfied; and
(ii) unless the Commission finds (in
which case the Commission shall deny
such registration) that--
(I) the applicant has failed
to certify to the Commission's
satisfaction that it is able to
consistently provide proxy
advice based on accurate
information and to materially
comply with the procedures and
methodologies disclosed under
paragraph (1)(B) and with
subsections (f) and (g); or
(II) if the applicant were so
registered, its registration
would be subject to suspension
or revocation under subsection
(e).
(3) Public availability of information.--Subject to
section 24, the Commission shall make the information
and documents submitted to the Commission by a proxy
advisory firm in its completed application for
registration, or in any amendment submitted under
paragraph (1) or (2) of subsection (c), publicly
available on the Commission's website, or through
another comparable, readily accessible means.
(c) Update of Registration.--
(1) Update.--Each registered proxy advisory firm
shall promptly amend and update its application for
registration under this section if any information or
document provided therein becomes materially
inaccurate, except that a registered proxy advisory
firm is not required to amend the information required
to be filed under subsection (b)(1)(B)(i) by filing
information under this paragraph, but shall amend such
information in the annual submission of the
organization under paragraph (2) of this subsection.
(2) Certification.--Not later than 90 calendar days
after the end of each calendar year, each registered
proxy advisory firm shall file with the Commission an
amendment to its registration, in such form as the
Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the
protection of investors--
(A) certifying that the information and
documents in the application for registration
of such registered proxy advisory firm continue
to be accurate in all material respects; and
(B) listing any material change that occurred
to such information or documents during the
previous calendar year.
(d) Censure, Denial, or Suspension of Registration; Notice
and Hearing.--The Commission, by order, shall censure, place
limitations on the activities, functions, or operations of,
suspend for a period not exceeding 12 months, or revoke the
registration of any registered proxy advisory firm if the
Commission finds, on the record after notice and opportunity
for hearing, that such censure, placing of limitations,
suspension, or revocation is necessary for the protection of
investors and in the public interest and that such registered
proxy advisory firm, or any person associated with such an
organization, whether prior to or subsequent to becoming so
associated--
(1) has committed or omitted any act, or is subject
to an order or finding, enumerated in subparagraph (A),
(D), (E), (H), or (G) of section 15(b)(4), has been
convicted of any offense specified in section
15(b)(4)(B), or is enjoined from any action, conduct,
or practice specified in subparagraph (C) of section
15(b)(4), during the 10-year period preceding the date
of commencement of the proceedings under this
subsection, or at any time thereafter;
(2) has been convicted during the 10-year period
preceding the date on which an application for
registration is filed with the Commission under this
section, or at any time thereafter, of--
(A) any crime that is punishable by
imprisonment for one or more years, and that is
not described in section 15(b)(4)(B); or
(B) a substantially equivalent crime by a
foreign court of competent jurisdiction;
(3) is subject to any order of the Commission barring
or suspending the right of the person to be associated
with a registered proxy advisory firm;
(4) fails to furnish the certifications required
under subsections (b)(2)(C)(ii)(I) and (c)(2);
(5) has engaged in one or more prohibited acts
enumerated in paragraph (1); or
(6) fails to maintain adequate financial and
managerial resources to consistently offer advisory
services with integrity, including by failing to comply
with subsections (f) or (g).
(e) Termination of Registration.--
(1) Voluntary withdrawal.--A registered proxy
advisory firm may, upon such terms and conditions as
the Commission may establish as necessary in the public
interest or for the protection of investors, which
terms and conditions shall include at a minimum that
the registered proxy advisory firm will no longer
conduct such activities as to bring it within the
definition of proxy advisory firm in section 3(a)(81)
of the Securities Exchange Act of 1934, withdraw from
registration by filing a written notice of withdrawal
to the Commission.
(2) Commission authority.--In addition to any other
authority of the Commission under this title, if the
Commission finds that a registered proxy advisory firm
is no longer in existence or has ceased to do business
as a proxy advisory firm, the Commission, by order,
shall cancel the registration under this section of
such registered proxy advisory firm.
(f) Management of Conflicts of Interest.--
(1) Organization policies and procedures.--Each
registered proxy advisory firm shall establish,
maintain, and enforce written policies and procedures
reasonably designed, taking into consideration the
nature of the business of such registered proxy
advisory firm and associated persons, to address and
manage any conflicts of interest that can arise from
such business.
(2) Commission authority.--The Commission shall issue
final rules to prohibit, or require the management and
disclosure of, any conflicts of interest relating to
the offering of proxy advisory services by a registered
proxy advisory firm, including, without limitation,
conflicts of interest relating to--
(A) the manner in which a registered proxy
advisory firm is compensated by the client, or
any affiliate of the client, for providing
proxy advisory services;
(B) the provision of consulting, advisory, or
other services by a registered proxy advisory
firm, or any person associated with such
registered proxy advisory firm, to the client;
(C) business relationships, ownership
interests, or any other financial or personal
interests between a registered proxy advisory
firm, or any person associated with such
registered proxy advisory firm, and any client,
or any affiliate of such client;
(D) transparency around the formulation of
proxy voting policies;
(E) the execution of proxy votes if such
votes are based upon recommendations made by
the proxy advisory firm in which someone other
than the issuer is a proponent;
(F) issuing recommendations where proxy
advisory firms provide advisory services to a
company; and
(G) any other potential conflict of interest,
as the Commission deems necessary or
appropriate in the public interest or for the
protection of investors.
(g) Reliability of Proxy Advisory Firm Services.--
(1) In general.--Each registered proxy advisory firm
shall have staff sufficient to produce proxy voting
recommendations that are based on accurate and current
information. Each registered proxy advisory firm shall
detail procedures sufficient to permit companies
receiving proxy advisory firm recommendations access in
a reasonable time to the draft recommendations, with an
opportunity to provide meaningful comment thereon,
including the opportunity to present details to the
person responsible for developing the recommendation in
person or telephonically. Each registered proxy
advisory firm shall employ an ombudsman to receive
complaints about the accuracy of voting information
used in making recommendations from the subjects of the
proxy advisory firm's voting recommendations, and shall
seek to resolve those complaints in a timely fashion
and in any event prior to voting on the matter to which
the recommendation relates. If the ombudsman is unable
to resolve such complaints prior to voting on the
matter, the proxy advisory firm shall include in its
final report to its clients a statement from the
company detailing its complaints, if requested in
writing by the company.
(2) Reasonable time defined.--For purposes of this
subsection, the term ``reasonable time''--
(A) means not less than 3 business days
unless otherwise defined through a final rule
issued by the Commission; and
(B) shall not otherwise interfere with a
proxy advisory firm's ability to provide its
clients with timely access to accurate proxy
voting research, analysis, or recommendations.
(3) Draft recommendations defined.--For purposes of
this subsection, the term ``draft recommendations''--
(A) means the overall conclusions of proxy
voting recommendations prepared for the clients
of a proxy advisory firm, including any public
data cited therein, any company information or
substantive analysis impacting the
recommendation, and the specific voting
recommendations on individual proxy ballot
issues; and
(B) does not include the entirety of the
proxy advisory firm's final report to its
clients.
(h) Designation of Compliance Officer.--Each registered proxy
advisory firm shall designate an individual responsible for
administering the policies and procedures that are required to
be established pursuant to subsections (f) and (g), and for
ensuring compliance with the securities laws and the rules and
regulations thereunder, including those promulgated by the
Commission pursuant to this section.
(i) Prohibited Conduct.--
(1) Prohibited acts and practices.--The Commission
shall issue final rules to prohibit any act or practice
relating to the offering of proxy advisory services by
a registered proxy advisory firm that the Commission
determines to be unfair, coercive, or abusive,
including any act or practice relating to--
(A) conditioning a voting recommendation or
other proxy advisory firm recommendation on the
purchase by an issuer or an affiliate thereof
of other services or products, of the
registered proxy advisory firm or any person
associated with such registered proxy advisory
firm; and
(B) modifying a voting recommendation or
otherwise departing from its adopted systematic
procedures and methodologies in the provision
of proxy advisory services, based on whether an
issuer, or affiliate thereof, subscribes or
will subscribe to other services or product of
the registered proxy advisory firm or any
person associated with such organization.
(2) Rule of construction.--Nothing in paragraph (1),
or in any rules or regulations adopted thereunder, may
be construed to modify, impair, or supersede the
operation of any of the antitrust laws (as defined in
the first section of the Clayton Act, except that such
term includes section 5 of the Federal Trade Commission
Act, to the extent that such section 5 applies to
unfair methods of competition).
(j) Statements of Financial Condition.--Each registered proxy
advisory firm shall, on a confidential basis, file with the
Commission, at intervals determined by the Commission, such
financial statements, certified (if required by the rules or
regulations of the Commission) by an independent public
auditor, and information concerning its financial condition, as
the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.
(k) Annual Report.--Each registered proxy advisory firm
shall, at the beginning of each fiscal year of such firm,
report to the Commission on the number of shareholder proposals
its staff reviewed in the prior fiscal year, the number of
recommendations made in the prior fiscal year, the number of
staff who reviewed and made recommendations on such proposals
in the prior fiscal year, and the number of recommendations
made in the prior fiscal year where the proponent of such
recommendation was a client of or received services from the
proxy advisory firm.
(l) Transparent Policies.--Each registered proxy advisory
firm shall file with the Commission and make publicly available
its methodology for the formulation of proxy voting policies
and voting recommendations.
(m) Rules of Construction.--
(1) No waiver of rights, privileges, or defenses.--
Registration under and compliance with this section
does not constitute a waiver of, or otherwise diminish,
any right, privilege, or defense that a registered
proxy advisory firm may otherwise have under any
provision of State or Federal law, including any rule,
regulation, or order thereunder.
(2) No private right of action.--Nothing in this
section may be construed as creating any private right
of action, and no report filed by a registered proxy
advisory firm in accordance with this section or
section 17 shall create a private right of action under
section 18 or any other provision of law.
(n) Regulations.--
(1) New provisions.--Such rules and regulations as
are required by this section or are otherwise necessary
to carry out this section, including the application
form required under subsection (a)--
(A) shall be issued by the Commission, not
later than 180 days after the date of enactment
of this section; and
(B) shall become effective not later than 1
year after the date of enactment of this
section.
(2) Review of existing regulations.--Not later than
270 days after the date of enactment of this section,
the Commission shall--
(A) review its existing rules and regulations
which affect the operations of proxy advisory
firms;
(B) amend or revise such rules and
regulations in accordance with the purposes of
this section, and issue such guidance, as the
Commission may prescribe as necessary or
appropriate in the public interest or for the
protection of investors; and
(C) direct Commission staff to withdraw the
Egan Jones Proxy Services (May 27, 2004), and
Institutional Shareholder Services, Inc.
(September 15, 2004), no-action letters.
(o) Applicability.--This section, other than subsection (n),
which shall apply on the date of enactment of this section,
shall apply on the earlier of--
(1) the date on which regulations are issued in final
form under subsection (n)(1); or
(2) 270 days after the date of enactment of this
section.
* * * * * * *
accounts and records, examinations of exchanges, members, and others
Sec. 17. (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 municipal advisor,, registered
securities information processor, registered transfer agent,
nationally recognized statistical rating organization, proxy
advisory firm, and registered clearing agency and the Municipal
Securities Rulemaking Board shall make and keep for prescribed
periods such records, furnish such copies thereof, and make and
disseminate such reports as the Commission, by rule, prescribes
as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the
purposes of this title. Any report that a nationally recognized
statistical rating organization is required by Commission rules
under this paragraph to make and disseminate to the Commission
shall be deemed furnished to the Commission.
(2) Every registered clearing agency shall also make and keep
for prescribed periods such records, furnish such copies
thereof, and make and disseminate such reports, as the
appropriate regulatory agency for such clearing agency, by
rule, prescribes as necessary or appropriate for the
safeguarding of securities and funds in the custody or control
of such clearing agency or for which it is responsible.
(3) Every registered transfer agent shall also make and keep
for prescribed periods such records, furnish such copies
thereof, and make such reports as the appropriate regulatory
agency for such transfer agent, by rule, prescribes as
necessary or appropriate in furtherance of the purposes of
section 17A of this title.
(b) Records Subject to Examination.--
(1) Procedures for cooperation with other agencies.--
All records of persons described in subsection (a) of
this section are subject at any time, or from time to
time, to such reasonable periodic, special, or other
examinations by representatives of the Commission and
the appropriate regulatory agency for such persons as
the Commission or the appropriate regulatory agency for
such persons deems necessary or appropriate in the
public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title:
Provided, however, That the Commission shall, prior to
conducting any such examination of a--
(A) registered clearing agency, registered
transfer agent, or registered municipal
securities dealer for which it is not the
appropriate regulatory agency, give notice to
the appropriate regulatory agency for such
clearing agency, transfer agent, or municipal
securities dealer of such proposed examination
and consult with such appropriate regulatory
agency concerning the feasibility and
desirability of coordinating such examination
with examinations conducted by such appropriate
regulatory agency with a view to avoiding
unnecessary regulatory duplication or undue
regulatory burdens for such clearing agency,
transfer agent, or municipal securities dealer;
or
(B) broker or dealer registered pursuant to
section 15(b)(11), exchange registered pursuant
to section 6(g), or national securities
association registered pursuant to section
15A(k), give notice to the Commodity Futures
Trading Commission of such proposed examination
and consults with the Commodity Futures Trading
Commission concerning the feasibility and
desirability of coordinating such examination
with examinations conducted by the Commodity
Futures Trading Commission in order to avoid
unnecessary regulatory duplication or undue
regulatory burdens for such broker or dealer or
exchange.
(2) Furnishing data and reports to cftc.--The
Commission shall notify the Commodity Futures Trading
Commission of any examination conducted of any broker
or dealer registered pursuant to section 15(b)(11),
exchange registered pursuant to section 6(g), or
national securities association registered pursuant to
section 15A(k) and, upon request, furnish to the
Commodity Futures Trading Commission any examination
report and data supplied to, or prepared by, the
Commission in connection with such examination.
(3) Use of cftc reports.--Prior to conducting an
examination under paragraph (1), the Commission shall
use the reports of examinations, if the information
available therein is sufficient for the purposes of the
examination, of--
(A) any broker or dealer registered pursuant
to section 15(b)(11);
(B) exchange registered pursuant to section
6(g); or
(C) national securities association
registered pursuant to section 15A(k);
that is made by the Commodity Futures Trading
Commission, a national securities association
registered pursuant to section 15A(k), or an exchange
registered pursuant to section 6(g).
(4) Rules of construction.--
(A) Notwithstanding any other provision of
this subsection, the records of a broker or
dealer registered pursuant to section
15(b)(11), an exchange registered pursuant to
section 6(g), or a national securities
association registered pursuant to section
15A(k) described in this subparagraph shall not
be subject to routine periodic examinations by
the Commission.
(B) Any recordkeeping rules adopted under
this subsection for a broker or dealer
registered pursuant to section 15(b)(11), an
exchange registered pursuant to section 6(g),
or a national securities association registered
pursuant to section 15A(k) shall be limited to
records with respect to persons, accounts,
agreements, contracts, and transactions
involving security futures products.
(C) Nothing in the proviso in paragraph (1)
shall be construed to impair or limit (other
than by the requirement of prior consultation)
the power of the Commission under this
subsection to examine any clearing agency,
transfer agent, or municipal securities dealer
or to affect in any way the power of the
Commission under any other provision of this
title or otherwise to inspect, examine, or
investigate any such clearing agency, transfer
agent, or municipal securities dealer.
(c)(1) Every clearing agency, transfer agent, and municipal
securities dealer for which the Commission is not the
appropriate regulatory agency shall (A) file with the
appropriate regulatory agency for such clearing agency,
transfer agent, or municipal securities dealer a copy of any
application, notice, proposal, report, or document filed with
the Commission by reason of its being a clearing agency,
transfer agent, or municipal securities dealer and (B) file
with the Commission a copy of any application, notice,
proposal, report, or document filed with such appropriate
regulatory agency by reason of its being a clearing agency,
transfer agent, or municipal securities dealer. The Municipal
Securities Rulemaking Board shall file with each agency
enumerated in section 3(a)(34)(A) of this title copies of every
proposed rule change filed with the Commission pursuant to
section 19(b) of this title.
(2) The appropriate regulatory agency for a clearing agency,
transfer agent, or municipal securities dealer for which the
Commission is not the appropriate regulatory agency shall file
with the Commission notice of the commencement of any
proceeding and a copy of any order entered by such appropriate
regulatory agency against any clearing agency, transfer agent,
municipal securities dealer, or person associated with a
transfer agent or municipal securities dealer, and the
Commission shall file with such appropriate regulatory agency,
if any, notice of the commencement of any proceeding and a copy
of any order entered by the Commission against the clearing
agency, transfer agent, or municipal securities dealer, or
against any person associated with a transfer agent or
municipal securities dealer for which the agency is the
appropriate regulatory agency.
(3) The Commission and the appropriate regulatory agency for
a clearing agency, transfer agent, or municipal securities
dealer for which the Commission is not the appropriate
regulatory agency shall each notify the other and make a report
of any examination conducted by it of such clearing agency,
transfer agent, or municipal securities dealer, and, upon
request, furnish to the other a copy of such report and any
data supplied to it in connection with such examination.
(4) The Commission or the appropriate regulatory agency may
specify that documents required to be filed pursuant to this
subsection with the Commission or such agency, respectively,
may be retained by the originating clearing agency, transfer
agent, or municipal securities dealer, or filed with another
appropriate regulatory agency. The Commission or the
appropriate regulatory agency (as the case may be) making such
a specification shall continue to have access to the document
on request.
(d)(1) The Commission, by rule or order, as it deems
necessary or appropriate in the public interest and for the
protection of investors, to foster cooperation and coordination
among self-regulatory organizations, or to remove impediments
to and foster the development of a national market system and
national system for the clearance and settlement of securities
transactions, may--
(A) with respect to any person who is a member of or
participant in more than one self-regulatory
organization, relieve any such self-regulatory
organization of any responsibility under this title (i)
to receive regulatory reports from such person, (ii) to
examine such person for compliance, or to enforce
compliance by such person, with specified provisions of
this title, the rules and regulations thereunder, and
its own rules, or (iii) to carry out other specified
regulatory functions with respect to such person, and
(B) allocate among self-regulatory organizations the
authority to adopt rules with respect to matters as to
which, in the absence of such allocation, such self-
regulatory organizations share authority under this
title.
In making any such rule or entering any such order, the
Commission shall take into consideration the regulatory
capabilities and procedures of the self-regulatory
organizations, availability of staff, convenience of location,
unnecessary regulatory duplication, and such other factors as
the Commission may consider germane to the protection of
investors, cooperation and coordination among 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 pursuant
to this paragraph, and any person with respect to whom such
responsibility relates, to take such steps as are specified in
any such rule or order to notify customers of, and persons
doing business with, such person of the limited nature of such
self-regulatory organization's responsibility for such person's
acts, practices, and course of business.
(2) A self-regulatory organization shall furnish copies of
any report of examination of any person who is a member of or a
participant in such self-regulatory organization to any other
self-regulatory organization of which such person is a member
or in which such person is a participant upon the request of
such person, such other self-regulatory organization, or the
Commission.
(e)(1)(A) Every registered broker or dealer shall annually
file with the Commission a balance sheet and income statement
certified by a independent public accounting firm, or by a
registered public accounting firm if the firm is required to be
registered under the Sarbanes-Oxley Act of 2002,, prepared on a
calendar or fiscal year basis, and such other financial
statements (which shall, as the Commission specifies, be
certified) and information concerning its financial condition
as the Commission, by rule may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.
(B) Every registered broker and dealer shall annually send to
its customers its certified balance sheet and such other
financial statements and information concerning its financial
condition as the Commission, by rule, may prescribe pursuant to
subsection (a) of this section.
(C) The Commission, by rule or order, may conditionally or
unconditionally exempt any registered broker or dealer, or
class of such brokers or dealers, from any provision of this
paragraph if the Commission determines that such exemption is
consistent with the public interest and the protection of
investors.
(2) The Commission, by rule, as it deems necessary or
appropriate in the public interest or for the protection of
investors, may prescribe the form and content of financial
statements filed pursuant to this title and the accounting
principles and accounting standards used in their preparation.
(f)(1) Every national securities exchange, member thereof,
registered securities association, broker, dealer, municipal
securities dealer, government securities broker, government
securities dealer, registered transfer agent, registered
clearing agency, participant therein, member of the Federal
Reserve System, and bank whose deposits are insured by the
Federal Deposit Insurance Corporation shall--
(A) report to the Commission or other person
designated by the Commission and, in the case of
securities issued pursuant to chapter 31 of title 31,
United States Code, to the Secretary of the Treasury
such information about securities that are missing,
lost, counterfeit, stolen, or cancelled, in such form
and within such time as the Commission, by rule,
determines is necessary or appropriate in the public
interest or for the protection of investors; such
information shall be available on request for a
reasonable fee, to any such exchange, member,
association, broker, dealer, municipal securities
dealer, transfer agent, clearing agency, participant,
member of the Federal Reserve System, or insured bank,
and such other persons as the Commission, by rule,
designates; and
(B) make such inquiry with respect to information
reported pursuant to this subsection as the Commission,
by rule, prescribes as necessary or appropriate in the
public interest or for the protection of investors, to
determine whether securities in their custody or
control, for which they are responsible, or in which
they are effecting, clearing, or settling a transaction
have been reported as missing, lost, counterfeit,
stolen, cancelled, or reported in such other manner as
the Commission, by rule, may prescribe.
(2) Every member of a national securities exchange, broker,
dealer, registered transfer agent, registered clearing agency,
registered securities information processor, national
securities exchange, and national securities association shall
require that each of its partners, directors, officers, and
employees be fingerprinted and shall submit such fingerprints,
or cause the same to be submitted, to the Attorney General of
the United States for identification and appropriate
processing. The Commission, by rule, may exempt from the
provisions of this paragraph upon specified terms, conditions,
and periods, any class of partners, directors, officers, or
employees of any such member, broker, dealer, transfer agent,
clearing agency, securities information processor, national
securities exchange, or national securities association, if the
Commission finds that such action is not inconsistent with the
public interest or the protection of investors. Notwithstanding
any other provision of law, in providing identification and
processing functions, the Attorney General shall provide the
Commission and self-regulatory organizations designated by the
Commission with access to all criminal history record
information.
(3)(A) In order to carry out the authority under paragraph
(1) above, the Commission or its designee may enter into
agreement with the Attorney General to use the facilities of
the National Crime Information Center (``NCIC'') to receive,
store, and disseminate information in regard to missing, lost,
counterfeit, or stolen securities and to permit direct inquiry
access to NCIC's file on such securities for the financial
community.
(B) In order to carry out the authority under paragraph (1)
of this subsection, the Commission or its designee and the
Secretary of the Treasury shall enter into an agreement whereby
the Commission or its designee will receive, store, and
disseminate information in the possession, and which comes into
the possession, of the Department of the Treasury in regard to
missing, lost, counterfeit, or stolen securities.
(4) In regard to paragraphs (1), (2), and (3), above insofar
as such paragraphs apply to any bank or member of the Federal
Reserve System, the Commission may delegate its authority to:
(A) the Comptroller of the Currency as to national
banks;
(B) the Federal Reserve Board in regard to any member
of the Federal Reserve System which is not a national
bank; and
(C) the Federal Deposit Insurance Corporation for any
State bank which is insured by the Federal Deposit
Insurance Corporation but which is not a member of the
Federal Reserve System.
(5) The Commission shall encourage the insurance industry to
require their insured to report expeditiously instances of
missing, lost, counterfeit, or stolen securities to the
Commission or to such other person as the Commission may, by
rule, designate to receive such information.
(g) Any broker, dealer, or other person extending credit who
is subject to the rules and regulations prescribed by the Board
of Governors of the Federal Reserve System pursuant to this
title shall make such reports to the Board as it may require as
necessary or appropriate to enable it to perform the functions
conferred upon it by this title. If any such broker, dealer, or
other person shall fail to make any such report or fail to
furnish full information therein, or, if in the judgment of the
Board it is otherwise necessary, such broker, dealer, or other
person shall permit such inspections to be made by the Board
with respect to the business operations of such broker, dealer,
or other person as the Board may deem necessary to enable it to
obtain the required information.
(h) Risk Assessment for Holding Company Systems.--
(1) Obligations to obtain, maintain, and report
information.--Every person who is (A) a registered
broker or dealer, or (B) a registered municipal
securities dealer for which the Commission is the
appropriate regulatory agency, shall obtain such
information and make and keep such records as the
Commission by rule prescribes concerning the registered
person's policies, procedures, or systems for
monitoring and controlling financial and operational
risks to it resulting from the activities of any of its
associated persons, other than a natural person. Such
records shall describe, in the aggregate, each of the
financial and securities activities conducted by, and
the customary sources of capital and funding of, those
of its associated persons whose business activities are
reasonably likely to have a material impact on the
financial or operational condition of such registered
person, including its net capital, its liquidity, or
its ability to conduct or finance its operations. The
Commission, by rule, may require summary reports of
such information to be filed with the Commission no
more frequently than quarterly.
(2) Authority to require additional information.--If,
as a result of adverse market conditions or based on
reports provided to the Commission pursuant to
paragraph (1) of this subsection or other available
information, the Commission reasonably concludes that
it has concerns regarding the financial or operational
condition of (A) any registered broker or dealer, or
(B) any registered municipal securities dealer,
government securities broker, or government securities
dealer for which the Commission is the appropriate
regulatory agency, the Commission may require the
registered person to make reports concerning the
financial and securities activities of any of such
person's associated persons, other than a natural
person, whose business activities are reasonably likely
to have a material impact on the financial or
operational condition of such registered person. The
Commission, in requiring reports pursuant to this
paragraph, shall specify the information required, the
period for which it is required, the time and date on
which the information must be furnished, and whether
the information is to be furnished directly to the
Commission or to a self-regulatory organization with
primary responsibility for examining the registered
person's financial and operational condition.
(3) Special provisions with respect to associated
persons subject to federal banking agency regulation.--
(A) Cooperation in implementation.--In
developing and implementing reporting
requirements pursuant to paragraph (1) of this
subsection with respect to associated persons
subject to examination by or reporting
requirements of a Federal banking agency, the
Commission shall consult with and consider the
views of each such Federal banking agency. If a
Federal banking agency comments in writing on a
proposed rule of the Commission under this
subsection that has been published for comment,
the Commission shall respond in writing to such
written comment before adopting the proposed
rule. The Commission shall, at the request of
the Federal banking agency, publish such
comment and response in the Federal Register at
the time of publishing the adopted rule.
(B) Use of banking agency reports.--A
registered broker, dealer, or municipal
securities dealer shall be in compliance with
any recordkeeping or reporting requirement
adopted pursuant to paragraph (1) of this
subsection concerning an associated person that
is subject to examination by or reporting
requirements of a Federal banking agency if
such broker, dealer, or municipal securities
dealer utilizes for such recordkeeping or
reporting requirement copies of reports filed
by the associated person with the Federal
banking agency pursuant to section 5211 of the
Revised Statutes, section 9 of the Federal
Reserve Act, section 7(a) of the Federal
Deposit Insurance Act, section 10(b) of the
Home Owners' Loan Act, or section 8 of the Bank
Holding Company Act of 1956. The Commission
may, however, by rule adopted pursuant to
paragraph (1), require any broker, dealer, or
municipal securities dealer filing such reports
with the Commission to obtain, maintain, or
report supplemental information if the
Commission makes an explicit finding that such
supplemental information is necessary to inform
the Commission regarding potential risks to
such broker, dealer, or municipal securities
dealer. Prior to requiring any such
supplemental information, the Commission shall
first request the Federal banking agency to
expand its reporting requirements to include
such information.
(C) Procedure for requiring additional
information.--Prior to making a request
pursuant to paragraph (2) of this subsection
for information with respect to an associated
person that is subject to examination by or
reporting requirements of a Federal banking
agency, the Commission shall--
(i) notify such agency of the
information required with respect to
such associated person; and
(ii) consult with such agency to
determine whether the information
required is available from such agency
and for other purposes, unless the
Commission determines that any delay
resulting from such consultation would
be inconsistent with ensuring the
financial and operational condition of
the broker, dealer, municipal
securities dealer, government
securities broker, or government
securities dealer or the stability or
integrity of the securities markets.
(D) Exclusion for examination reports.--
Nothing in this subsection shall be construed
to permit the Commission to require any
registered broker or dealer, or any registered
municipal securities dealer, government
securities broker, or government securities
dealer for which the Commission is the
appropriate regulatory agency, to obtain,
maintain, or furnish any examination report of
any Federal banking agency or any supervisory
recommendations or analysis contained therein.
(E) Confidentiality of information
provided.--No information provided to or
obtained by the Commission from any Federal
banking agency pursuant to a request by the
Commission under subparagraph (C) of this
paragraph regarding any associated person which
is subject to examination by or reporting
requirements of a Federal banking agency may be
disclosed to any other person (other than a
self-regulatory organization), without the
prior written approval of the Federal banking
agency. Nothing in this subsection shall
authorize the Commission to withhold
information from Congress, or prevent the
Commission from complying with a request for
information from any other Federal department
or agency requesting the information for
purposes within the scope of its jurisdiction,
or complying with an order of a court of the
United States in an action brought by the
United States or the Commission.
(F) Notice to banking agencies concerning
financial and operational condition concerns.--
The Commission shall notify the Federal banking
agency of any concerns of the Commission
regarding significant financial or operational
risks resulting from the activities of any
registered broker or dealer, or any registered
municipal securities dealer, government
securities broker, or government securities
dealer for which the Commission is the
appropriate regulatory agency, to any
associated person thereof which is subject to
examination by or reporting requirements of the
Federal banking agency.
(G) Definition.--For purposes of this
paragraph, the term ``Federal banking agency''
shall have the same meaning as the term
``appropriate Federal bank agency'' in section
3(q) of the Federal Deposit Insurance Act (12
U.S.C. 1813(q)).
(4) Exemptions.--The Commission by rule or order may
exempt any person or class of persons, under such terms
and conditions and for such periods as the Commission
shall provide in such rule or order, from the
provisions of this subsection, and the rules
thereunder. In granting such exemptions, the Commission
shall consider, among other factors--
(A) whether information of the type required
under this subsection is available from a
supervisory agency (as defined in section
1101(6) of the Right to Financial Privacy Act
of 1978 (12 U.S.C. 3401(6))), a State insurance
commission or similar State agency, the
Commodity Futures Trading Commission, or a
similar foreign regulator;
(B) the primary business of any associated
person;
(C) the nature and extent of domestic or
foreign regulation of the associated person's
activities;
(D) the nature and extent of the registered
person's securities activities; and
(E) with respect to the registered person and
its associated persons, on a consolidated
basis, the amount and proportion of assets
devoted to, and revenues derived from,
activities in the United States securities
markets.
(5) Authority to limit disclosure of information.--
Notwithstanding any other provision of law, the
Commission shall not be compelled to disclose any
information required to be reported under this
subsection, or any information supplied to the
Commission by any domestic or foreign regulatory agency
that relates to the financial or operational condition
of any associated person of a registered broker,
dealer, government securities broker, government
securities dealer, or municipal securities dealer.
Nothing in this subsection shall authorize the
Commission to withhold information from Congress, or
prevent the Commission from complying with a request
for information from any other Federal department or
agency requesting the information for purposes within
the scope of its jurisdiction, or complying with an
order of a court of the United States in an action
brought by the United States or the Commission. For
purposes of section 552 of title 5, United States Code,
this subsection shall be considered a statute described
in subsection (b)(3)(B) of such section 552. In
prescribing regulations to carry out the requirements
of this subsection, the Commission shall designate
information described in or obtained pursuant to
subparagraph (B) or (C) of paragraph (3) of this
subsection as confidential information for purposes of
section 24(b)(2) of this title.
(i) Authority To Limit Disclosure of Information.--
Notwithstanding any other provision of law, the Commission
shall not be compelled to disclose any information required to
be reported under subsection (h) or (i) or any information
supplied to the Commission by any domestic or foreign
regulatory agency that relates to the financial or operational
condition of any associated person of a broker or dealer,
investment bank holding company, or any affiliate of an
investment bank holding company. Nothing in this subsection
shall authorize the Commission to withhold information from
Congress, or prevent the Commission from complying with a
request for information from any other Federal department or
agency or any self-regulatory organization requesting the
information for purposes within the scope of its jurisdiction,
or complying with an order of a court of the United States in
an action brought by the United States or the Commission. For
purposes of section 552 of title 5, United States Code, this
subsection shall be considered a statute described in
subsection (b)(3)(B) of such section 552. In prescribing
regulations to carry out the requirements of this subsection,
the Commission shall designate information described in or
obtained pursuant to subparagraphs (A), (B), and (C) of
subsection (i)(5) as confidential information for purposes of
section 24(b)(2) of this title.
(j) Coordination of Examining Authorities.--
(1) Elimination of duplication.--The Commission and
the examining authorities, through cooperation and
coordination of examination and oversight activities,
shall eliminate any unnecessary and burdensome
duplication in the examination process.
(2) Coordination of examinations.--The Commission and
the examining authorities shall share such information,
including reports of examinations, customer complaint
information, and other nonpublic regulatory
information, as appropriate to foster a coordinated
approach to regulatory oversight of brokers and dealers
that are subject to examination by more than one
examining authority.
(3) Examinations for cause.--At any time, any
examining authority may conduct an examination for
cause of any broker or dealer subject to its
jurisdiction.
(4) Confidentiality.--
(A) In general.--Section 24 shall apply to
the sharing of information in accordance with
this subsection. The Commission shall take
appropriate action under section 24(c) to
ensure that such information is not
inappropriately disclosed.
(B) Appropriate disclosure not prohibited.--
Nothing in this paragraph authorizes the
Commission or any examining authority to
withhold information from the Congress, or
prevent the Commission or any examining
authority from complying with a request for
information from any other Federal department
or agency requesting the information for
purposes within the scope of its jurisdiction,
or complying with an order of a court of the
United States in an action brought by the
United States or the Commission.
(5) Definition.--For purposes of this subsection, the
term ``examining authority'' means a self-regulatory
organization registered with the Commission under this
title (other than a registered clearing agency) with
the authority to examine, inspect, and otherwise
oversee the activities of a registered broker or
dealer.
* * * * * * *
MINORITY VIEWS
H.R. 4015, the ``Corporate Governance Reform and
Transparency Act of 2017,'' would create a costly and untested
regulatory regime for proxy advisory firms--or firms that
provide research and voting recommendations to shareholders.
The bill purports to foster ``accountability, transparency,
responsiveness, and competition in the proxy advisory firm
industry.'' In truth, the bill interferes with shareholders'
access to impartial analysis used to inform proxy voting
decisions, and thus undermines shareholders' ability to hold
corporate management accountable. Additionally, H.R. 4015 would
stifle, rather than promote, competition in the industry by
erecting significant barriers to entry for new proxy advisory
firms.
First, H.R. 4015 is premised on the factually inaccurate
belief that shareholders are too powerful, and that proxy
advisory firms--in providing voting recommendations--
reflexively serve ``activist'' shareholder interests. On the
contrary, the largest proxy advisory firm, for example, sided
with company management on 88 out of every 100 executive pay
proposals in 2017. When the advisor recommended a ``no'' vote
on these proposals a majority of shareholders agreed less than
2 percent of the time.
Second, H.R. 4015 would compromise the independence of
proxy advisory firms by subjecting them to mandatory lobbying
from companies before they can issue voting recommendations.
This requirement would also further reduce the already limited
time shareholders have to develop independent and informed
voting decisions.
Finally, stakeholders writing to the Committee have noted
that H.R. 4015 would likely reduce the number of firms offering
independent proxy advisory services, since the costs of
registering with the Securities and Exchange Commission and
complying with the bill's burdensome requirements would
disproportionately impact new or smaller firms. As a result,
shareholders could be forced to pay increasingly higher fees to
obtain research from the remaining provider(s).
Stakeholders from all over America have written letters to
the Financial Services Committee voicing their concerns with
H.R. 4015. The bill's opponents include public pension funds
and government officials from the states of California,
Colorado, Connecticut, Florida, Illinois, New York, Ohio,
Oregon, and Washington. According to these entities, H.R. 4015
``would weaken corporate governance in the United States;
undercut proxy advisory firms' ability to uphold their
fiduciary obligation to their investor clients; and reorient
any surviving firms to serve companies rather than investors.''
Proponents of effective corporate governance, including
Americans for Financial Reform, Consumer Federation of America,
Public Citizen, and Principles for Responsible Investment, also
wrote letters opposing H.R. 4015. As stated by Americans for
Financial Reform, ``H.R. 4015 is a naked effort by powerful
corporate interests to cripple the ability of independent
advisory services that empower shareholders to have a stronger
voice in corporate behavior.''
In summary, we believe that corporate governance works best
when shareholders are empowered with independent, impartial
information when voting on important corporate issues. H.R.
4015 is a harmful bill that would allow corporate management to
unreasonably insert themselves in the relationship between
investors and the entities whom investors hire for independent
advice on these decisions.
For these reasons, we oppose H.R. 4015.
Wm. Lacy Clay.
Maxine Waters.
