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115th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 115-807
======================================================================
MAIN STREET GROWTH ACT
_______
July 10, 2018.--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
[To accompany H.R. 5877]
The Committee on Financial Services, to whom was referred
the bill (H.R. 5877) to amend the Securities Exchange Act of
1934 to allow for the registration of venture exchanges, and
for other purposes, having considered the same, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Main Street Growth Act''.
SEC. 2. VENTURE EXCHANGES.
(a) Securities Exchange Act of 1934.--Section 6 of the Securities
Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at the end
the following:
``(m) Venture Exchange.--
``(1) Registration.--
``(A) In general.--A person may register themself
(and a national securities exchange may register a
listing tier of such exchange) as a national securities
exchange solely for the purposes of trading venture
securities by filing an application with the Commission
pursuant to subsection (a) and the rules and
regulations thereunder.
``(B) Publication of notice.--The Commission shall,
upon the filing of an application under subparagraph
(A), publish notice of such filing and afford
interested persons an opportunity to submit written
data, views, and arguments concerning such application.
``(C) Approval or denial.--
``(i) In general.--Within 90 days of the date
of publication of a notice under subparagraph
(B) (or within such longer period as to which
the applicant consents), the Commission shall--
``(I) by order grant such
registration; or
``(II) institute a denial proceeding
under clause (ii) to determine whether
registration should be denied.
``(ii) Denial proceeding.--A proceeding under
clause (i)(II) shall include notice of the
grounds for denial under consideration and
opportunity for hearing and shall be concluded
within 180 days of the date of the publication
of a notice under subparagraph (B). At the
conclusion of such proceeding the Commission,
by order, shall grant or deny such
registration. The Commission may extend the
time for conclusion of such proceeding for up
to 90 days if the Commission finds good cause
for such extension and publishes the
Commission's reasons for so finding or for such
longer period as to which the applicant
consents.
``(iii) Criteria for approval or denial.--The
Commission shall grant a registration under
this paragraph if the Commission finds that the
requirements of this title and the rules and
regulations thereunder with respect to the
applicant are satisfied. The Commission shall
deny such registration if it does not make such
finding.
``(2) Powers and restrictions.--In addition to the powers and
restrictions otherwise applicable to a national securities
exchange, a venture exchange--
``(A) may only constitute, maintain, or provide a
market place or facilities for bringing together
purchasers and sellers of venture securities;
``(B) may not extend unlisted trading privileges to
any venture security;
``(C) may only, if the venture exchange is a listing
tier of another national securities exchange, allow
trading in securities that are registered under section
12(b) on a national securities exchange other than a
venture exchange; and
``(D) may, subject to the rule filing process under
section 19(b)--
``(i) determine the increment to be used for
quoting and trading venture securities on the
exchange; and
``(ii) choose to carry out periodic auctions
for the sale of a venture security instead of
providing continuous trading of the venture
security.
``(3) Treatment of certain exempted securities.--A security
that is exempt from registration pursuant to section 3(b) of
the Securities Act of 1933 shall be exempt from section 12(a)
of this title to the extent such securities are traded on a
venture exchange, if the issuer of such security is in
compliance with--
``(A) all disclosure obligations of such section 3(b)
and the regulations issued under such section; and
``(B) ongoing disclosure obligations of the
applicable venture exchange that are similar to those
provided by an issuer under tier 2 of Regulation A (17
C.F.R. 230.251 et seq).
``(4) Venture securities traded on venture exchanges may not
trade on non-venture exchanges.--A venture security may not be
traded on a national securities exchange that is not a venture
exchange during any period in which the venture security is
being traded on a venture exchange.
``(5) Rule of construction.--Nothing in this subsection may
be construed as requiring transactions in venture securities to
be effected on a national securities exchange.
``(6) Commission authority to limit certain trading.--The
Commission may limit transactions in venture securities that
are not effected on a national securities exchange as
appropriate to promote efficiency, competition, capital
formation, and to protect investors.
``(7) Disclosures to investors.--The Commission shall issue
regulations to ensure that persons selling or purchasing
venture securities on a venture exchange are provided
disclosures sufficient to understand--
``(A) the characteristics unique to venture
securities; and
``(B) in the case of a venture exchange that is a
listing tier of another national securities exchange,
that the venture exchange is distinct from the other
national securities exchange.
``(8) Definitions.--For purposes of this subsection:
``(A) Early-stage, growth company.--
``(i) In general.--The term `early-stage,
growth company' means an issuer--
``(I) that has not made any
registered initial public offering of
any securities of the issuer; and
``(II) with a public float of less
than or equal to the value of public
float required to qualify as a large
accelerated filer under section
240.12b-2 of title 17, Code of Federal
Regulations.
``(ii) Treatment when public float exceeds
threshold.--An issuer shall not cease to be an
early-stage, growth company by reason of the
public float of such issuer exceeding the
threshold specified in clause (i)(II) until the
later of the following:
``(I) The end of the period of 24
consecutive months during which the
public float of the issuer exceeds
$2,000,000,000 (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).
``(II) The end of the 1-year period
following the end of the 24-month
period described under subclause (I),
if the issuer requests such 1-year
extension from a venture exchange and
the venture exchange elects to provide
such extension.
``(B) Public float.--With respect to an issuer, the
term `public float' means the aggregate worldwide
market value of the voting and non-voting common equity
of the issuer held by non-affiliates.
``(C) Venture security.--
``(i) In general.--The term `venture
security' means--
``(I) securities of an early-stage,
growth company that are exempt from
registration pursuant to section 3(b)
of the Securities Act of 1933;
``(II) securities of an emerging
growth company; or
``(III) securities registered under
section 12(b) and listed on a venture
exchange (or, prior to listing on a
venture exchange, listed on a national
securities exchange) where--
``(aa) the issuer of such
securities has a public float
less than or equal to the value
of public float required to
qualify as a large accelerated
filer under section 240.12b-2
of title 17, Code of Federal
Regulations; or
``(bb) the average daily
trade volume is 75,000 shares
or less during a continuous 60-
day period.
``(ii) Treatment when public float exceeds
threshold.--Securities shall not cease to be
venture securities by reason of the public
float of the issuer of such securities
exceeding the threshold specified in clause
(i)(III)(aa) until the later of the following:
``(I) The end of the period of 24
consecutive months beginning on the
date--
``(aa) the public float of
such issuer exceeds
$2,000,000,000; and
``(bb) the average daily
trade volume of such securities
is 100,000 shares or more
during a continuous 60-day
period.
``(II) The end of the 1-year period
following the end of the 24-month
period described under subclause (I),
if the issuer of such securities
requests such 1-year extension from a
venture exchange and the venture
exchange elects to provide such
extension.''.
(b) Securities Act of 1933.--Section 18 of the Securities Act of 1933
(15 U.S.C. 77r) is amended--
(1) by redesignating subsection (d) as subsection (e); and
(2) by inserting after subsection (c) the following:
``(d) Treatment of Securities Listed on a Venture Exchange.--
Notwithstanding subsection (b), a security is not a covered security
pursuant to subsection (b)(1)(A) if the security is only listed, or
authorized for listing, on a venture exchange (as defined under section
6(m) of the Securities Exchange Act of 1934).''.
(c) Sense of Congress.--It is the sense of the Congress that the
Securities and Exchange Commission should--
(1) when necessary or appropriate in the public interest and
consistent with the protection of investors, make use of the
Commission's general exemptive authority under section 36 of
the Securities Exchange Act of 1934 (15 U.S.C. 78mm) with
respect to the provisions added by this section; and
(2) if the Commission determines appropriate, create an
Office of Venture Exchanges within the Commission's Division of
Trading and Markets.
(d) Rule of Construction.--Nothing in this section or the amendments
made by this section shall be construed to impair or limit the
construction of the antifraud provisions of the securities laws (as
defined in section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a))) or the authority of the Securities and Exchange
Commission under those provisions.
(e) Effective Date for Tiers of Existing National Securities
Exchanges.--In the case of a securities exchange that is registered as
a national securities exchange under section 6 of the Securities
Exchange Act of 1934 (15 U.S.C. 78f) on the date of the enactment of
this Act, any election for a listing tier of such exchange to be
treated as a venture exchange under subsection (m) of such section
shall not take effect before the date that is 180 days after such date
of enactment.
Purpose and Summary
On June 19, 2018, Representative Tom Emmer introduced H.R.
5877, the ``Main Street Growth Act''. As modified by an
amendment in the nature of a substitute, the Main Street Growth
Act allows for the creation and registration of venture
exchanges with the U.S. Securities and Exchange Commission
(SEC). Under the bill, securities eligible to trade on a
venture exchange are ``venture securities,'' which must be an
exempted transaction under Section 3(b) of the Securities Act
of 1933 from an ``early-stage, growth company,'' a security
offered by an emerging growth company (EGC) as defined by the
Jumpstart our Business Startups (JOBS) Act (P.L. 112-106), or a
security whose issuer's public float is less than that which
would qualify it as a large accelerated filer or whose
securities have an Average Daily Trade Volume (ADTV) of less
than 75,000 shares over a 60-day period. To concentrate and
enhance liquidity, the legislation prohibits venture exchanges
from extending Unlisted Trading Privileges (UTP) to any venture
security, which ensures venture securities only are traded on
the exchange on which it is listed. Venture exchanges also
would be exempt from decimalization.
Background and Need for Legislation
Currently, the trading environment for many small and
midsize issuers is less liquid and fragmented as compared to
the overall equity market. This market structure inhibits the
secondary trading of such issuers, and it hinders the ability
of other small and midsize companies from ever accessing the
capital markets. The goal of H.R. 5877 is to help smaller
issuers have greater access to investment and equity capital by
creating venture exchanges that can help concentrate liquidity.
As Edward Knight from NASDAQ noted in his May 23, 2018
testimony before the Subcommittee on Capital Markets,
Securities, and Investment, ``This liquidity dilemma stems from
a long-term trend towards fragmentation, where liquidity has
spread across an increasing number of trading venues. As
recently as 15 years ago, more than 90% of liquidity was often
concentrated in a single market with the small remainder spread
over an additional eight to ten other exchanges and electronic
communications networks. Today, liquidity is spread thinly
across fifty or more venues.''
Under H.R. 5877, the securities eligible to trade on
venture exchanges qualify as ``venture securities.'' To qualify
as a ``venture security,'' a security must either be an
exempted transaction under Section 3(b) of the Securities Act
of 1933 from an ``early-stage, growth company,'' a security
offered by an EGC, or a security whose issuer's public float is
less than that which would qualify it as a large accelerated
filer or whose securities have an ADTV of less than 75,000
shares over a 60 day period.
The bill also expresses the sense of Congress that the SEC
should use its general exemptive authority (15 U.S.Code
Sec. 78mm) to respond to unforeseen circumstances and that the
SEC should create an Office of Venture Exchanges, if
appropriate. The Main Street Growth Act includes a rule of
construction providing that the Act does not itself impair or
limit the application of the antifraud provisions of the
Federal securities laws or the SEC's authority under such
antifraud provisions.
A recent whitepaper by SEC staff discussed trading in the
shares of small public companies. The whitepaper found that
during 2013 U.S.-listed, U.S.-domiciled small cap stocks with
market capitalizations below $1 billion were much less liquid
than stocks with capitalizations between $1 billion and $5
billion. Small cap stocks had larger quoted and effective
spreads and traded much lower volumes than mid-cap stocks.
According to the whitepaper, liquidity improved with market
capitalization: for example, the smallest stocks with
capitalizations below $100 million exhibited the least
liquidity, whereas mid-cap stocks with capitalizations between
$2 billion and $5 billion exhibited the greatest liquidity.
Further, according to an April 20, 2018 SEC Staff report by
the Office of Analytics and Research at the Division of Trading
and Markets, approximately half of the more than 8,500 stocks
in the National Market System have an Average Daily Volume of
less than 100,000 shares, but collectively these stocks make up
just under 2% of all daily share volume.
This data suggests that a one-size-fits all regulatory
model for equity market structure needs to be retailored, and
in fulfilling its capital formation mandate, the SEC needs to
account for the varying nature and size of companies to ensure
all equities have the ability to be liquid. In a speech at the
Equity Market Structure Symposium, SEC Chairman Jay Clayton
remarked, ``Today, we have a single equity market structure for
all companies, large and small, liquid and illiquid. I believe
we should examine whether the current market structure meets
the needs of all types of companies that have the potential to
be public companies. For example, should a stock with only
30,000 shares of daily volume be regulated and traded in the
same way as a company with 9.6 million shares of daily
volume?''
Venture exchanges offer one possible solution to the
liquidity and capital access challenges faced by smaller
issuers. A venture exchange construct could expand access to
capital for entrepreneurs, enable earlier public participation
in the company's life-cycle, and attract post-issuance support
to include research, sales and capital commitments by market
makers. The legislation provides options to smaller companies
to find a market that suits its needs and the needs of its
investors. Further, the creation of a venture exchange, a
company's decision to list on a venture exchange, or an
investor's decision to invest in venture securities all are
completely optional.
Hearings
The Committee on Financial Services and the Subcommittee on
Capital Markets, Securities, and Investment held hearings
examining matters relating to H.R. 5877 on April 26, 2017,
April 27, 2017, and May 23, 2018.
Committee Consideration
The Committee on Financial Services met in open session on
June 7, 2018, and ordered H.R. 5877 to be reported favorably to
the House as amended by a recorded vote of 56 yeas to 0 nays
(recorded vote no. FC-181), a quorum being present. Before the
motion to report was offered, the Committee adopted an
amendment in the nature of a substitute offered by Mr. Emmer by
voice vote.
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 as amended by a recorded
vote of 56 yeas to 0 nays (recorded vote no. FC-181), a quorum
being present.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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. 5877
will help to expand access to capital for entrepreneurs, enable
earlier public participation in the company's life-cycle, and
attract post-issuance support to include research, sales and
capital commitments by market-makers by allowing for the
creation and registration of venture exchanges.
New Budget Authority, Entitlement Authority, and Tax Expenditures
The Committee has not received an estimate of new budget
authority contained in the cost estimate prepared by the
Director of the Congressional Budget Office pursuant to Sec.
402 of the Congressional Budget Act of 1974. In compliance with
clause 3(c)(2) of rule XIII of the Rules of the House, the
Committee opines that H.R. 5877 will not establish any new
budget or entitlement authority or create any tax expenditures.
Congressional Budget Office Estimates
The cost estimate prepared by the Director of the
Congressional Budget Office pursuant to Sec. 402 of the
Congressional Budget Act of 1974 was not submitted timely to
the Committee.
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 1
directed rulemaking within the meaning of such section. The
Commission is directed to issue regulations to ensure that
persons selling or purchasing venture securities on a venture
exchange are provided disclosures sufficient to understand the
characteristics unique to venture securities and in the case of
a venture exchange that is a listing tier, that the venture
exchange is distinct from the other national securities
exchange.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This Section cites H.R. 5877 as the ``Main Street Growth
Act''.
Section 2. Venture exchanges
This section allows for national securities exchanges to
elect to be treated as a venture exchange. This section would
define the securities eligible to trade on venture exchanges as
``venture securities.'' To qualify as a ``venture security,'' a
security must either be an exempted transaction under Section
3(b) of the Securities Act of 1933 from an ``early-stage,
growth company,'' a security offered by an emerging growth
company as defined by the JOBS Act, or a security whose
issuer's public float is less than that which would qualify it
as a large accelerated filer or whose securities have an ADTV
of less than 75,000 shares over a 60 day period.
Venture exchanges would be prohibited from extending
Unlisted Trading Privileges (UTP) to any venture security,
which would prevent venture securities from trading on other
exchanges other than the one that it is listed on in order to
concentrate liquidity onto the venture exchange. In addition,
venture exchanges would also be exempt from decimalization.
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 (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):
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
national securities exchanges
Sec. 6. (a) An exchange may be registered as a national
securities exchange under the terms and conditions hereinafter
provided in this section and in accordance with the provisions
of section 19(a) of this title, by filing with the Commission
an application for registration in such form as the Commission,
by rule, may prescribe containing the rules of the exchange and
such other information and documents as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
(b) An exchange shall not be registered as a national
securities exchange unless the Commission determines that--
(1) Such exchange is so organized and has the
capacity to be able to carry out the purposes of this
title and to comply, and (subject to any rule or order
of the Commission pursuant to section 17(d) or 19(g)(2)
of this title) to enforce compliance by its members and
persons associated with its members, with the
provisions of this title, the rules and regulations
thereunder, and the rules of the exchange.
(2) Subject to the provisions of subsection (c) of
this section, the rules of the exchange provide that
any registered broker or dealer or natural person
associated with a registered broker or dealer may
become a member of such exchange and any person may
become associated with a member thereof.
(3) The rules of the exchange assure a fair
representation of its members in the selection of its
directors and administration of its affairs and provide
that one or more directors shall be representative of
issuers and investors and not be associated with a
member of the exchange, broker, or dealer.
(4) The rules of the exchange provide for the
equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and other
persons using its facilities.
(5) The rules of the exchange are designed to prevent
fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to
foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing
information with respect to, and facilitating
transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect
investors and the public interest; and are not designed
to permit unfair discrimination between customers,
issuers, brokers, or dealers, or to regulate by virtue
of any authority conferred by this title matters not
related to the purposes of this title or the
administration of the exchange.
(6) The rules of the exchange provide that (subject
to any rule or order of the Commission pursuant to
section 17(d) or 19(g)(2) of this title) its members
and persons associated with its members shall be
appropriately disciplined for violation of the
provisions of this title, the rules or regulations
thereunder, or the rules of the exchange, by expulsion,
suspension, limitation of activities, functions, and
operations, fine, censure, being suspended or barred
from being associated with a member, or any other
fitting sanction.
(7) The rules of the exchange are in accordance with
the provisions of subsection (d) of this section, and
in general, provide a fair procedure for the
disciplining of members and persons associated with
members, the denial of membership to any person seeking
membership therein, the barring of any person from
becoming associated with a member thereof, and the
prohibition or limitation by the exchange of any person
with respect to access to services offered by the
exchange or a member thereof.
(8) The rules of the exchange do not impose any
burden on competition not necessary or appropriate in
furtherance of the purposes of this title.
(9)(A) The rules of the exchange prohibit the listing
of any security issued in a limited partnership rollup
transaction (as such term is defined in paragraphs (4)
and (5) of section 14(h)), unless such transaction was
conducted in accordance with procedures designed to
protect the rights of limited partners, including--
(i) the right of dissenting limited partners
to one of the following:
(I) an appraisal and compensation;
(II) retention of a security under
substantially the same terms and
conditions as the original issue;
(III) approval of the limited
partnership rollup transaction by not
less than 75 percent of the outstanding
securities of each of the participating
limited partnerships;
(IV) the use of a committee of
limited partners that is independent,
as determined in accordance with rules
prescribed by the exchange, of the
general partner or sponsor, that has
been approved by a majority of the
outstanding units of each of the
participating limited partnerships, and
that has such authority as is necessary
to protect the interest of limited
partners, including the authority to
hire independent advisors, to negotiate
with the general partner or sponsor on
behalf of the limited partners, and to
make a recommendation to the limited
partners with respect to the proposed
transaction; or
(V) other comparable rights that are
prescribed by rule by the exchange and
that are designed to protect dissenting
limited partners;
(ii) the right not to have their voting power
unfairly reduced or abridged;
(iii) the right not to bear an unfair portion
of the costs of a proposed limited partnership
rollup transaction that is rejected; and
(iv) restrictions on the conversion of
contingent interests or fees into non-
contingent interests or fees and restrictions
on the receipt of a non-contingent equity
interest in exchange for fees for services
which have not yet been provided.
(B) As used in this paragraph, the term ``dissenting
limited partner'' means a person who, on the date on
which soliciting material is mailed to investors, is a
holder of a beneficial interest in a limited
partnership that is the subject of a limited
partnership rollup transaction, and who casts a vote
against the transaction and complies with procedures
established by the exchange, except that for purposes
of an exchange or tender offer, such person shall file
an objection in writing under the rules of the exchange
during the period during which the offer is
outstanding.
(10)(A) The rules of the exchange prohibit any member
that is not the beneficial owner of a security
registered under section 12 from granting a proxy to
vote the security in connection with a shareholder vote
described in subparagraph (B), unless the beneficial
owner of the security has instructed the member to vote
the proxy in accordance with the voting instructions of
the beneficial owner.
(B) A shareholder vote described in this subparagraph
is a shareholder vote with respect to the election of a
member of the board of directors of an issuer,
executive compensation, or any other significant
matter, as determined by the Commission, by rule, and
does not include a vote with respect to the uncontested
election of a member of the board of directors of any
investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80b-1 et seq.).
(C) Nothing in this paragraph shall be construed to
prohibit a national securities exchange from
prohibiting a member that is not the beneficial owner
of a security registered under section 12 from granting
a proxy to vote the security in connection with a
shareholder vote not described in subparagraph (A).
(c)(1) A national securities exchange shall deny membership
to (A) any person, other than a natural person, which is not a
registered broker or dealer or (B) any natural person who is
not, or is not associated with, a registered broker or dealer.
(2) A national securities exchange may, and in cases in which
the Commission, by order, directs as necessary or appropriate
in the public interest or for the protection of investors
shall, deny membership to any registered broker or dealer or
natural person associated with a registered broker or dealer,
and bar from becoming associated with a member any person, who
is subject to a statutory disqualification. A national
securities exchange shall file notice with the Commission not
less than thirty days prior to admitting any person to
membership or permitting any person to become associated with a
member, if the exchange knew, or in the exercise of reasonable
care should have known, that such person was subject to a
statutory disqualification. The notice shall be in such form
and contain such information as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or
for the protection of investors.
(3)(A) A national securities exchange may deny membership to,
or condition the membership of, a registered broker or dealer
if (i) such broker or dealer does not meet such standards of
financial responsibility or operational capability or such
broker or dealer or any natural person associated with such
broker or dealer does not meet such standards of training,
experience, and competence as are prescribed by the rules of
the exchange or (ii) such broker or dealer or person associated
with such broker or dealer has engaged and there is a
reasonable likelihood he may again engage in acts or practices
inconsistent with just and equitable principles of trade. A
national securities exchange may examine and verify the
qualifications of an applicant to become a member and the
natural persons associated with such an applicant in accordance
with procedures established by the rules of the exchange.
(B) A national securities exchange may bar a natural person
from becoming a member or associated with a member, or
condition the membership of a natural person or association of
a natural person with a member, if such natural person (i) does
not meet such standards of training, experience, and competence
as are prescribed by the rules of the exchange or (ii) has
engaged and there is a reasonable likelihood he may again
engage in acts or practices inconsistent with just and
equitable principles of trade. A national securities exchange
may examine and verify the qualifications of an applicant to
become a person associated with a member in accordance with
procedures established by the rules of the exchange and require
any person associated with a member, or any class of such
persons, to be registered with the exchange in accordance with
procedures so established.
(C) A national securities exchange may bar any person from
becoming associated with a member if such person does not agree
(i) to supply the exchange with such information with respect
to its relationship and dealings with the member as may be
specified in the rules of the exchange and (ii) to permit the
examination of its books and records to verify the accuracy of
any information so supplied.
(4) A national securities exchange may limit (A) the number
of members of the exchange and (B) the number of members and
designated representatives of members permitted to effect
transactions on the floor of the exchange without the services
of another person acting as broker: Provided, however, That no
national securities exchange shall have the authority to
decrease the number of memberships in such exchange, or the
number of members and designated representatives of members
permitted to effect transactions on the floor of such exchange
without the services of another person acting as broker, below
such number in effect on May 1, 1975, or the date such exchange
was registered with the Commission, whichever is later: And
provided further, That the Commission, in accordance with the
provisions of section 19(c) of this title, may amend the rules
of any national securities exchange to increase (but not to
decrease) or to remove any limitation on the number of
memberships in such exchange or the number of members or
designated representatives of members permitted to effect
transactions on the floor of the exchange without the services
of another person acting as broker, if the Commission finds
that such limitation imposes a burden on competition not
necessary or appropriate in furtherance of the purposes of this
title.
(d)(1) In any proceeding by a national securities exchange to
determine whether a member or person associated with a member
should be disciplined (other than a summary proceeding pursuant
to paragraph (3) of this subsection), the exchange shall bring
specific charges, notify such member or person of, and give him
an opportunity to defend against, such charges, and keep a
record. A determination by the exchange to impose a
disciplinary sanction shall be supported by a statement setting
forth--
(A) any act or practice in which such member or
person associated with a member has been found to have
engaged, or which such member or person has been found
to have omitted;
(B) the specific provision of this title, the rules
or regulations thereunder, or the rules of the exchange
which any such act or practice, or omission to act, is
deemed to violate; and
(C) the sanction imposed and the reasons therefor.
(2) In any proceeding by a national securities exchange to
determine whether a person shall be denied membership, barred
from becoming associated with a member, or prohibited or
limited with respect to access to services offered by the
exchange or a member thereof (other than a summary proceeding
pursuant to paragraph (3) of this subsection), the exchange
shall notify such person of, and give him an opportunity to be
heard upon, the specific grounds for denial, bar, or
prohibition or limitation under consideration and keep a
record. A determination by the exchange to deny membership, bar
a person from becoming associated with a member, or prohibit or
limit a person with respect to access to services offered by
the exchange or a member thereof shall be supported by a
statement setting forth the specific grounds on which the
denial, bar, or prohibition or limitation is based.
(3) A national securities exchange may summarily (A) suspend
a member or person associated with a member who has been and is
expelled or suspended from any self-regulatory organization or
barred or suspended from being associated with a member of any
self-regulatory organization, (B) suspend a member who is in
such financial or operating difficulty that the exchange
determines and so notifies the Commission that the member
cannot be permitted to continue to do business as a member with
safety to investors, creditors, other members, or the exchange,
or (C) limit or prohibit any person with respect to access to
services offered by the exchange if subparagraph (A) or (B) of
this paragraph is applicable to such person or, in the case of
a person who is not a member, if the exchange determines that
such person does not meet the qualification requirements or
other prerequisites for such access and such person cannot be
permitted to continue to have such access with safety to
investors, creditors, members, or the exchange. Any person
aggrieved by any such summary action shall be promptly afforded
an opportunity for a hearing by the exchange in accordance with
the provisions of paragraph (1) or (2) of this subsection. The
Commission, by order, may stay any such summary action on its
own motion or upon application by any person aggrieved thereby,
if the Commission determines summarily or after notice and
opportunity for hearing (which hearing may consist solely of
the submission of affidavits or presentation of oral arguments)
that such stay is consistent with the public interest and the
protection of investors.
(e)(1) On and after the date of enactment of the Securities
Acts Amendments of 1975, no national securities exchange may
impose any schedule or fix rates of commissions, allowances,
discounts, or other fees to be charged by its members:
Provided, however, That until May 1, 1976, the preceding
provisions of this paragraph shall not prohibit any such
exchange from imposing or fixing any schedule of commissions,
allowances, discounts, or other fees to be charged by its
members for acting as broker on the floor of the exchange or as
odd-lot dealer: And provided further, That the Commission, in
accordance with the provisions of section 19(b) of this title
as modified by the provisions of paragraph (3) of this
subsection, may--
(A) permit a national securities exchange, by rule,
to impose a reasonable schedule or fix reasonable rates
of commissions, allowances, discounts, or other fees to
be charged by its members for effecting transactions on
such exchange prior to November 1, 1976, if the
Commission finds that such schedule or fixed rates of
commissions, allowances, discounts, or other fees are
in the public interest; and
(B) permit a national securities exchange, by rule,
to impose a schedule or fix rates of commissions,
allowances, discounts, or other fees to be charged by
its members for effecting transactions on such exchange
after November 1, 1976, if the Commission finds that
such schedule or fixed rates of commissions,
allowances, discounts, or other fees (i) are reasonable
in relation to the costs of providing the service for
which such fees are charged (and the Commission
publishes the standards employed in adjudging
reasonableness) and (ii) do not impose any burden on
competition not necessary or appropriate in furtherance
of the purposes of this title, taking into
consideration the competitive effects of permitting
such schedule or fixed rates weighed against the
competitive effects of other lawful actions which the
Commission is authorized to take under this title.
(2) Notwithstanding the provisions of section 19(c) of this
title, the Commission, by rule, may abrogate any exchange rule
which imposes a schedule or fixes rates of commissions,
allowances, discounts, or other fees, if the Commission
determines that such schedule or fixed rates are no longer
reasonable, in the public interest, or necessary to accomplish
the purposes of this title.
(3)(A) Before approving or disapproving any proposed rule
change submitted by a national securities exchange which would
impose a schedule or fix rates of commissions, allowances,
discounts, or other fees to be charged by its members for
effecting transactions on such exchange, the Commission shall
afford interested persons (i) an opportunity for oral
presentation of data, views, and arguments and (ii) with
respect to any such rule concerning transactions effected after
November 1, 1976, if the Commission determines there are
disputed issues of material fact, to present such rebuttal
submissions and to conduct (or have conducted under
subparagraph (B) of this paragraph) such cross-examination as
the Commission determines to be appropriate and required for
full disclosure and proper resolution of such disputed issues
of material fact.
(B) The Commission shall prescribe rules and make rulings
concerning any proceeding in accordance with subparagraph (A)
of this paragraph designed to avoid unnecessary costs or delay.
Such rules or rulings may (i) impose reasonable time limits on
each interested person's oral presentations, and (ii) require
any cross-examination to which a person may be entitled under
subparagraph (A) of this paragraph to be conducted by the
Commission on behalf of that person in such manner as the
Commission determines to be appropriate and required for full
disclosure and proper resolution of disputed issues of material
fact.
(C)(i) If any class of persons, the members of which are
entitled to conduct (or have conducted) cross-examination under
subparagraphs (A) and (B) of this paragraph and which have, in
the view of the Commission, the same or similar interests in
the proceeding, cannot agree upon a single representative of
such interests for purposes of cross-examination, the
Commission may make rules and rulings specifying the manner in
which such interests shall be represented and such cross-
examination conducted.
(ii) No member of any class of persons with respect to which
the Commission has specified the manner in which its interests
shall be represented pursuant to clause (i) of this
subparagraph shall be denied, pursuant to such clause (i), the
opportunity to conduct (or have conducted) cross-examination as
to issues affecting his particular interests if he satisfies
the Commission that he has made a reasonable and good faith
effort to reach agreement upon group representation and there
are substantial and relevant issues which would not be
presented adequately by group representation.
(D) A transcript shall be kept of any oral presentation and
cross-examination.
(E) In addition to the bases specified in subsection 25(a), a
reviewing Court may set aside an order of the Commission under
section 19(b) approving an exchange rule imposing a schedule or
fixing rates of commissions, allowances, discounts, or other
fees, if the Court finds--
(1) a Commission determination under subparagraph (A)
of this paragraph that an interested person is not
entitled to conduct cross-examination or make rebuttal
submissions, or
(2) a Commission rule or ruling under subparagraph
(B) of this paragraph limiting the petitioner's cross-
examination or rebuttal submissions,
has precluded full disclosure
and proper resolution of
disputed issues of material
fact which were necessary for
fair determination by the
Commission.
(f) The Commission, by rule or order, as it deems necessary
or appropriate in the public interest and for the protection of
investors, to maintain fair and orderly markets, or to assure
equal regulation, may require--
(1) any person not a member or a designated
representative of a member of a national securities
exchange effecting transactions on such exchange
without the services of another person acting as a
broker, or
(2) any broker or dealer not a member of a national
securities exchange effecting transactions on such
exchange on a regular basis,
to comply with such rules of such exchange as the Commission
may specify.
(g) Notice Registration of Security Futures Product
Exchanges.--
(1) Registration required.--An exchange that lists or
trades security futures products may register as a
national securities exchange solely for the purposes of
trading security futures products if--
(A) the exchange is a board of trade, as that
term is defined by the Commodity Exchange Act
(7 U.S.C. 1a(2)), that has been designated a
contract market by the Commodity Futures
Trading Commission and such designation is not
suspended by order of the Commodity Futures
Trading Commission; and
(B) such exchange does not serve as a market
place for transactions in securities other
than--
(i) security futures products; or
(ii) futures on exempted securities
or groups or indexes of securities or
options thereon that have been
authorized under section 2(a)(1)(C) of
the Commodity Exchange Act.
(2) Registration by notice filing.--
(A) Form and content.--An exchange required
to register only because such exchange lists or
trades security futures products may register
for purposes of this section by filing with the
Commission a written notice in such form as the
Commission, by rule, may prescribe containing
the rules of the exchange and such other
information and documents concerning such
exchange, comparable to the information and
documents required for national securities
exchanges under section 6(a), as the
Commission, by rule, may prescribe as necessary
or appropriate in the public interest or for
the protection of investors. If such exchange
has filed documents with the Commodity Futures
Trading Commission, to the extent that such
documents contain information satisfying the
Commission's informational requirements, copies
of such documents may be filed with the
Commission in lieu of the required written
notice.
(B) Immediate effectiveness.--Such
registration shall be effective
contemporaneously with the submission of
notice, in written or electronic form, to the
Commission, except that such registration shall
not be effective if such registration would be
subject to suspension or revocation.
(C) Termination.--Such registration shall be
terminated immediately if any of the conditions
for registration set forth in this subsection
are no longer satisfied.
(3) Public availability.--The Commission shall
promptly publish in the Federal Register an
acknowledgment of receipt of all notices the Commission
receives under this subsection and shall make all such
notices available to the public.
(4) Exemption of exchanges from specified
provisions.--
(A) Transaction exemptions.--An exchange that
is registered under paragraph (1) of this
subsection shall be exempt from, and shall not
be required to enforce compliance by its
members with, and its members shall not, solely
with respect to those transactions effected on
such exchange in security futures products, be
required to comply with, the following
provisions of this title and the rules
thereunder:
(i) Subsections (b)(2), (b)(3),
(b)(4), (b)(7), (b)(9), (c), (d), and
(e) of this section.
(ii) Section 8.
(iii) Section 11.
(iv) Subsections (d), (f), and (k) of
section 17.
(v) Subsections (a), (f), and (h) of
section 19.
(B) Rule change exemptions.--An exchange that
registered under paragraph (1) of this
subsection shall also be exempt from submitting
proposed rule changes pursuant to section 19(b)
of this title, except that--
(i) such exchange shall file proposed
rule changes related to higher margin
levels, fraud or manipulation,
recordkeeping, reporting, listing
standards, or decimal pricing for
security futures products, sales
practices for security futures products
for persons who effect transactions in
security futures products, or rules
effectuating such exchange's obligation
to enforce the securities laws pursuant
to section 19(b)(7);
(ii) such exchange shall file
pursuant to sections 19(b)(1) and
19(b)(2) proposed rule changes related
to margin, except for changes resulting
in higher margin levels; and
(iii) such exchange shall file
pursuant to section 19(b)(1) proposed
rule changes that have been abrogated
by the Commission pursuant to section
19(b)(7)(C).
(5) Trading in security futures products.--
(A) In general.--Subject to subparagraph (B),
it shall be unlawful for any person to execute
or trade a security futures product until the
later of--
(i) 1 year after the date of the
enactment of the Commodity Futures
Modernization Act of 2000; or
(ii) such date that a futures
association registered under section 17
of the Commodity Exchange Act has met
the requirements set forth in section
15A(k)(2) of this title.
(B) Principal-to-principal transactions.--
Notwithstanding subparagraph (A), a person may
execute or trade a security futures product
transaction if--
(i) the transaction is entered into--
(I) on a principal-to-
principal basis between parties
trading for their own accounts
or as described in section
1a(18)(B)(ii) of the Commodity
Exchange Act; and
(II) only between eligible
contract participants (as
defined in subparagraphs (A),
(B)(ii), and (C) of such
section 1a(18)) at the time at
which the persons enter into
the agreement, contract, or
transaction; and
(ii) the transaction is entered into
on or after the later of--
(I) 8 months after the date
of the enactment of the
Commodity Futures Modernization
Act of 2000; or
(II) such date that a futures
association registered under
section 17 of the Commodity
Exchange Act has met the
requirements set forth in
section 15A(k)(2) of this
title.
(h) Trading in Security Futures Products.--
(1) Trading on exchange or association required.--It
shall be unlawful for any person to effect transactions
in security futures products that are not listed on a
national securities exchange or a national securities
association registered pursuant to section 15A(a).
(2) Listing standards required.--Except as otherwise
provided in paragraph (7), a national securities
exchange or a national securities association
registered pursuant to section 15A(a) may trade only
security futures products that (A) conform with listing
standards that such exchange or association files with
the Commission under section 19(b) and (B) meet the
criteria specified in section 2(a)(1)(D)(i) of the
Commodity Exchange Act.
(3) Requirements for listing standards and conditions
for trading.--Such listing standards shall--
(A) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that any security
underlying the security future, including each
component security of a narrow-based security
index, be registered pursuant to section 12 of
this title;
(B) require that if the security futures
product is not cash settled, the market on
which the security futures product is traded
have arrangements in place with a registered
clearing agency for the payment and delivery of
the securities underlying the security futures
product;
(C) be no less restrictive than comparable
listing standards for options traded on a
national securities exchange or national
securities association registered pursuant to
section 15A(a) of this title;
(D) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that the security future
be based upon common stock and such other
equity securities as the Commission and the
Commodity Futures Trading Commission jointly
determine appropriate;
(E) require that the security futures product
is cleared by a clearing agency that has in
place provisions for linked and coordinated
clearing with other clearing agencies that
clear security futures products, which permits
the security futures product to be purchased on
one market and offset on another market that
trades such product;
(F) require that only a broker or dealer
subject to suitability rules comparable to
those of a national securities association
registered pursuant to section 15A(a) effect
transactions in the security futures product;
(G) require that the security futures product
be subject to the prohibition against dual
trading in section 4j of the Commodity Exchange
Act (7 U.S.C. 6j) and the rules and regulations
thereunder or the provisions of section 11(a)
of this title and the rules and regulations
thereunder, except to the extent otherwise
permitted under this title and the rules and
regulations thereunder;
(H) require that trading in the security
futures product not be readily susceptible to
manipulation of the price of such security
futures product, nor to causing or being used
in the manipulation of the price of any
underlying security, option on such security,
or option on a group or index including such
securities;
(I) require that procedures be in place for
coordinated surveillance among the market on
which the security futures product is traded,
any market on which any security underlying the
security futures product is traded, and other
markets on which any related security is traded
to detect manipulation and insider trading;
(J) require that the market on which the
security futures product is traded has in place
audit trails necessary or appropriate to
facilitate the coordinated surveillance
required in subparagraph (I);
(K) require that the market on which the
security futures product is traded has in place
procedures to coordinate trading halts between
such market and any market on which any
security underlying the security futures
product is traded and other markets on which
any related security is traded; and
(L) require that the margin requirements for
a security futures product comply with the
regulations prescribed pursuant to section
7(c)(2)(B), except that nothing in this
subparagraph shall be construed to prevent a
national securities exchange or national
securities association from requiring higher
margin levels for a security futures product
when it deems such action to be necessary or
appropriate.
(4) Authority to modify certain listing standard
requirements.--
(A) Authority to modify.--The Commission and
the Commodity Futures Trading Commission, by
rule, regulation, or order, may jointly modify
the listing standard requirements specified in
subparagraph (A) or (D) of paragraph (3) to the
extent such modification fosters the
development of fair and orderly markets in
security futures products, is necessary or
appropriate in the public interest, and is
consistent with the protection of investors.
(B) Authority to grant exemptions.--The
Commission and the Commodity Futures Trading
Commission, by order, may jointly exempt any
person from compliance with the listing
standard requirement specified in subparagraph
(E) of paragraph (3) to the extent such
exemption fosters the development of fair and
orderly markets in security futures products,
is necessary or appropriate in the public
interest, and is consistent with the protection
of investors.
(5) Requirements for other persons trading security
future products.--It shall be unlawful for any person
(other than a national securities exchange or a
national securities association registered pursuant to
section 15A(a)) to constitute, maintain, or provide a
marketplace or facilities for bringing together
purchasers and sellers of security future products or
to otherwise perform with respect to security future
products the functions commonly performed by a stock
exchange as that term is generally understood, unless a
national securities association registered pursuant to
section 15A(a) or a national securities exchange of
which such person is a member--
(A) has in place procedures for coordinated
surveillance among such person, the market
trading the securities underlying the security
future products, and other markets trading
related securities to detect manipulation and
insider trading;
(B) has rules to require audit trails
necessary or appropriate to facilitate the
coordinated surveillance required in
subparagraph (A); and
(C) has rules to require such person to
coordinate trading halts with markets trading
the securities underlying the security future
products and other markets trading related
securities.
(6) Deferral of options on security futures
trading.--No person shall offer to enter into, enter
into, or confirm the execution of any put, call,
straddle, option, or privilege on a security future,
except that, after 3 years after the date of the
enactment of this subsection, the Commission and the
Commodity Futures Trading Commission may by order
jointly determine to permit trading of puts, calls,
straddles, options, or privileges on any security
future authorized to be traded under the provisions of
this Act and the Commodity Exchange Act.
(7) Deferral of linked and coordinated clearing.--
(A) Notwithstanding paragraph (2), until the
compliance date, a national securities exchange
or national securities association registered
pursuant to section 15A(a) may trade a security
futures product that does not--
(i) conform with any listing standard
promulgated to meet the requirement
specified in subparagraph (E) of
paragraph (3); or
(ii) meet the criterion specified in
section 2(a)(1)(D)(i)(IV) of the
Commodity Exchange Act.
(B) The Commission and the Commodity Futures
Trading Commission shall jointly publish in the
Federal Register a notice of the compliance
date no later than 165 days before the
compliance date.
(C) For purposes of this paragraph, the term
``compliance date'' means the later of--
(i) 180 days after the end of the
first full calendar month period in
which the average aggregate comparable
share volume for all security futures
products based on single equity
securities traded on all national
securities exchanges, any national
securities associations registered
pursuant to section 15A(a), and all
other persons equals or exceeds 10
percent of the average aggregate
comparable share volume of options on
single equity securities traded on all
national securities exchanges and any
national securities associations
registered pursuant to section 15A(a);
or
(ii) 2 years after the date on which
trading in any security futures product
commences under this title.
(i) Consistent with this title, each national securities
exchange registered pursuant to subsection (a) of this section
shall issue such rules as are necessary to avoid duplicative or
conflicting rules applicable to any broker or dealer registered
with the Commission pursuant to section 15(b) (except paragraph
(11) thereof), that is also registered with the Commodity
Futures Trading Commission pursuant to section 4f(a) of the
Commodity Exchange Act (except paragraph (2) thereof), with
respect to the application of--
(1) rules of such national securities exchange of the
type specified in section 15(c)(3)(B) involving
security futures products; and
(2) similar rules of national securities exchanges
registered pursuant to section 6(g) and national
securities associations registered pursuant to section
15A(k) involving security futures products.
(j) Procedures and Rules for Security Future Products.--A
national securities exchange registered pursuant to subsection
(a) shall implement the procedures specified in section
6(h)(5)(A) of this title and adopt the rules specified in
subparagraphs (B) and (C) of section 6(h)(5) of this title not
later than 8 months after the date of receipt of a request from
an alternative trading system for such implementation and
rules.
(k)(1) To the extent necessary or appropriate in the public
interest, to promote fair competition, and consistent with the
promotion of market efficiency, innovation, and expansion of
investment opportunities, the protection of investors, and the
maintenance of fair and orderly markets, the Commission and the
Commodity Futures Trading Commission shall jointly issue such
rules, regulations, or orders as are necessary and appropriate
to permit the offer and sale of a security futures product
traded on or subject to the rules of a foreign board of trade
to United States persons.
(2) The rules, regulations, or orders adopted under paragraph
(1) shall take into account, as appropriate, the nature and
size of the markets that the securities underlying the security
futures product reflect.
(l) Security-based Swaps.--It shall be unlawful for any
person to effect a transaction in a security-based swap with or
for a person that is not an eligible contract participant,
unless such transaction is effected on a national securities
exchange registered pursuant to subsection (b).
(m) Venture Exchange.--
(1) Registration.--
(A) In general.--A person may register
themself (and a national securities exchange
may register a listing tier of such exchange)
as a national securities exchange solely for
the purposes of trading venture securities by
filing an application with the Commission
pursuant to subsection (a) and the rules and
regulations thereunder.
(B) Publication of notice.--The Commission
shall, upon the filing of an application under
subparagraph (A), publish notice of such filing
and afford interested persons an opportunity to
submit written data, views, and arguments
concerning such application.
(C) Approval or denial.--
(i) In general.--Within 90 days of
the date of publication of a notice
under subparagraph (B) (or within such
longer period as to which the applicant
consents), the Commission shall--
(I) by order grant such
registration; or
(II) institute a denial
proceeding under clause (ii) to
determine whether registration
should be denied.
(ii) Denial proceeding.--A proceeding
under clause (i)(II) shall include
notice of the grounds for denial under
consideration and opportunity for
hearing and shall be concluded within
180 days of the date of the publication
of a notice under subparagraph (B). At
the conclusion of such proceeding the
Commission, by order, shall grant or
deny such registration. The Commission
may extend the time for conclusion of
such proceeding for up to 90 days if
the Commission finds good cause for
such extension and publishes the
Commission's reasons for so finding or
for such longer period as to which the
applicant consents.
(iii) Criteria for approval or
denial.--The Commission shall grant a
registration under this paragraph if
the Commission finds that the
requirements of this title and the
rules and regulations thereunder with
respect to the applicant are satisfied.
The Commission shall deny such
registration if it does not make such
finding.
(2) Powers and restrictions.--In addition to the
powers and restrictions otherwise applicable to a
national securities exchange, a venture exchange--
(A) may only constitute, maintain, or provide
a market place or facilities for bringing
together purchasers and sellers of venture
securities;
(B) may not extend unlisted trading
privileges to any venture security;
(C) may only, if the venture exchange is a
listing tier of another national securities
exchange, allow trading in securities that are
registered under section 12(b) on a national
securities exchange other than a venture
exchange; and
(D) may, subject to the rule filing process
under section 19(b)--
(i) determine the increment to be
used for quoting and trading venture
securities on the exchange; and
(ii) choose to carry out periodic
auctions for the sale of a venture
security instead of providing
continuous trading of the venture
security.
(3) Treatment of certain exempted securities.--A
security that is exempt from registration pursuant to
section 3(b) of the Securities Act of 1933 shall be
exempt from section 12(a) of this title to the extent
such securities are traded on a venture exchange, if
the issuer of such security is in compliance with--
(A) all disclosure obligations of such
section 3(b) and the regulations issued under
such section; and
(B) ongoing disclosure obligations of the
applicable venture exchange that are similar to
those provided by an issuer under tier 2 of
Regulation A (17 C.F.R. 230.251 et seq).
(4) Venture securities traded on venture exchanges
may not trade on non-venture exchanges.--A venture
security may not be traded on a national securities
exchange that is not a venture exchange during any
period in which the venture security is being traded on
a venture exchange.
(5) Rule of construction.--Nothing in this subsection
may be construed as requiring transactions in venture
securities to be effected on a national securities
exchange.
(6) Commission authority to limit certain trading.--
The Commission may limit transactions in venture
securities that are not effected on a national
securities exchange as appropriate to promote
efficiency, competition, capital formation, and to
protect investors.
(7) Disclosures to investors.--The Commission shall
issue regulations to ensure that persons selling or
purchasing venture securities on a venture exchange are
provided disclosures sufficient to understand--
(A) the characteristics unique to venture
securities; and
(B) in the case of a venture exchange that is
a listing tier of another national securities
exchange, that the venture exchange is distinct
from the other national securities exchange.
(8) Definitions.--For purposes of this subsection:
(A) Early-stage, growth company.--
(i) In general.--The term ``early-
stage, growth company'' means an
issuer--
(I) that has not made any
registered initial public
offering of any securities of
the issuer; and
(II) with a public float of
less than or equal to the value
of public float required to
qualify as a large accelerated
filer under section 240.12b-2
of title 17, Code of Federal
Regulations.
(ii) Treatment when public float
exceeds threshold.--An issuer shall not
cease to be an early-stage, growth
company by reason of the public float
of such issuer exceeding the threshold
specified in clause (i)(II) until the
later of the following:
(I) The end of the period of
24 consecutive months during
which the public float of the
issuer exceeds $2,000,000,000
(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).
(II) The end of the 1-year
period following the end of the
24-month period described under
subclause (I), if the issuer
requests such 1-year extension
from a venture exchange and the
venture exchange elects to
provide such extension.
(B) Public float.--With respect to an issuer,
the term ``public float'' means the aggregate
worldwide market value of the voting and non-
voting common equity of the issuer held by non-
affiliates.
(C) Venture security.--
(i) In general.--The term ``venture
security'' means--
(I) securities of an early-
stage, growth company that are
exempt from registration
pursuant to section 3(b) of the
Securities Act of 1933;
(II) securities of an
emerging growth company; or
(III) securities registered
under section 12(b) and listed
on a venture exchange (or,
prior to listing on a venture
exchange, listed on a national
securities exchange) where--
(aa) the issuer of
such securities has a
public float less than
or equal to the value
of public float
required to qualify as
a large accelerated
filer under section
240.12b-2 of title 17,
Code of Federal
Regulations; or
(bb) the average
daily trade volume is
75,000 shares or less
during a continuous 60-
day period.
(ii) Treatment when public float
exceeds threshold.--Securities shall
not cease to be venture securities by
reason of the public float of the
issuer of such securities exceeding the
threshold specified in clause
(i)(III)(aa) until the later of the
following:
(I) The end of the period of
24 consecutive months beginning
on the date--
(aa) the public float
of such issuer exceeds
$2,000,000,000; and
(bb) the average
daily trade volume of
such securities is
100,000 shares or more
during a continuous 60-
day period.
(II) The end of the 1-year
period following the end of the
24-month period described under
subclause (I), if the issuer of
such securities requests such
1-year extension from a venture
exchange and the venture
exchange elects to provide such
extension.
* * * * * * *
----------
SECURITIES ACT OF 1933
TITLE I--
* * * * * * *
SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.
(a) Scope of Exemption.--Except as otherwise provided in this
section, no law, rule, regulation, or order, or other
administrative action of any State or any political subdivision
thereof--
(1) requiring, or with respect to, registration or
qualification of securities, or registration or
qualification of securities transactions, shall
directly or indirectly apply to a security that--
(A) is a covered security; or
(B) will be a covered security upon
completion of the transaction;
(2) shall directly or indirectly prohibit, limit, or
impose any conditions upon the use of--
(A) with respect to a covered security
described in subsection (b), any offering
document that is prepared by or on behalf of
the issuer; or
(B) any proxy statement, report to
shareholders, or other disclosure document
relating to a covered security or the issuer
thereof that is required to be and is filed
with the Commission or any national securities
organization registered under section 15A of
the Securities Exchange Act of 1934, except
that this subparagraph does not apply to the
laws, rules, regulations, or orders, or other
administrative actions of the State of
incorporation of the issuer; or
(3) shall directly or indirectly prohibit, limit, or
impose conditions, based on the merits of such offering
or issuer, upon the offer or sale of any security
described in paragraph (1).
(b) Covered Securities.--For purposes of this section, the
following are covered securities:
(1) Exclusive federal registration of nationally
traded securities.--A security is a covered security if
such security is--
(A) a security designated as qualified for
trading in the national market system pursuant
to section 11A(a)(2) of the Securities Exchange
Act of 1934 (15 U.S.C. 78k-1(a)(2)) that is
listed, or authorized for listing, on a
national securities exchange (or tier or
segment thereof) basis of a petition) are
substantially similar to the listing standards
applicable to securities described in
subparagraph (A); or
(B) a security of the same issuer that is
equal in seniority or that is a senior security
to a security described in subparagraph (A).
(2) Exclusive federal registration of investment
companies.--A security is a covered security if such
security is a security issued by an investment company
that is registered, or that has filed a registration
statement, under the Investment Company Act of 1940.
(3) Sales to qualified purchasers.--A security is a
covered security with respect to the offer or sale of
the security to qualified purchasers, as defined by the
Commission by rule. In prescribing such rule, the
Commission may define the term ``qualified purchaser''
differently with respect to different categories of
securities, consistent with the public interest and the
protection of investors.
(4) Exemption in connection with certain exempt
offerings.--A security is a covered security with
respect to a transaction that is exempt from
registration under this title pursuant to--
(A) paragraph (1) or (3) of section 4, and
the issuer of such security files reports with
the Commission pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934;
(B) section 4(4);
(C) section 4(6);
(D) a rule or regulation adopted pursuant to
section 3(b)(2) and such security is--
(i) offered or sold on a national
securities exchange; or
(ii) offered or sold to a qualified
purchaser, as defined by the Commission
pursuant to paragraph (3) with respect
to that purchase or sale;
(E) section 3(a), other than the offer or
sale of a security that is exempt from such
registration pursuant to paragraph (4), (10),
or (11) of such section, except that a
municipal security that is exempt from such
registration pursuant to paragraph (2) of such
section is not a covered security with respect
to the offer or sale of such security in the
State in which the issuer of such security is
located;
(F) Commission rules or regulations issued
under section 4(2), except that this
subparagraph does not prohibit a State from
imposing notice filing requirements that are
substantially similar to those required by rule
or regulation under section 4(2) that are in
effect on September 1, 1996; or
(G) section 4(a)(7).
(c) Preservation of Authority.--
(1) Fraud authority.--Consistent with this section,
the securities commission (or any agency or office
performing like functions) of any State shall retain
jurisdiction under the laws of such State to
investigate and bring enforcement actions, in
connection with securities or securities transactions
(A) with respect to--
(i) fraud or deceit; or
(ii) unlawful conduct by a broker or
dealer; and
(B) in connection to a transaction described
under section 4(6), with respect to--
(i) fraud or deceit; or
(ii) unlawful conduct by a broker,
dealer, funding portal, or issuer.
(2) Preservation of filing requirements.--
(A) Notice filings permitted.--Nothing in
this
section prohibits the securities commission (or
any agency or office performing like functions)
of any State from requiring the filing of any
document filed with the Commission pursuant to
this title, together with annual or periodic
reports of the value of securities sold or
offered to be sold to persons located in the
State (if such sales data is not included in
documents filed with the Commission), solely
for notice purposes and the assessment of any
fee, together with a consent to service of
process and any required fee.
(B) Preservation of fees.--
(i) In general.--Until otherwise
provided by law, rule, regulation, or
order, or other administrative action
of any State or any political
subdivision thereof, adopted after the
date of enactment of the National
Securities Markets Improvement Act of
1996, filing or registration fees with
respect to securities or securities
transactions shall continue to be
collected in amounts determined
pursuant to State law as in effect on
the day before such date.
(ii) Schedule.--The fees required by
this subparagraph shall be paid, and
all necessary supporting data on sales
or offers for sales required under
subparagraph (A), shall be reported on
the same
schedule as would have been applicable
had the issuer not relied on the
exemption provided in subsection (a).
(C) Availability of preemption contingent on
payment of fees.--
(i) In general.--During the period
beginning on the date of enactment of
the National Securities
Markets Improvement Act of 1996 and
ending 3 years after that date of
enactment, the securities commission
(or any agency or office performing
like functions) of any State may
require the registration of securities
issued by any issuer who refuses to pay
the fees required by subparagraph (B).
(ii) Delays.--For purposes of this
subparagraph, delays in payment of fees
or underpayments of fees that are
promptly remedied shall not constitute
a refusal to pay fees.
(D) Fees not permitted on listed
securities.--Notwithstanding subparagraphs (A),
(B), and (C), no filing or fee may be required
with respect to any security that is a covered
security pursuant to subsection (b)(1), or will
be such a covered security upon completion of
the transaction, or is a security of the same
issuer that is equal in seniority or that is a
senior security to a security that is a covered
security pursuant to subsection (b)(1).
(F) Fees not permitted on crowdfunded
securities.--Notwithstanding subparagraphs (A),
(B), and (C), no filing or fee may be required
with respect to any security that is a covered
security pursuant to subsection (b)(4)(B), or
will be such a covered security upon completion
of the transaction, except for the securities
commission (or any agency or office performing
like functions) of the State of the principal
place of business of the issuer, or any State
in which purchasers of 50 percent or greater of
the aggregate amount of the issue are
residents, provided that for purposes of this
subparagraph, the term ``State'' includes the
District of Columbia and the territories of the
United States.
(3) Enforcement of requirements.--Nothing in this
section shall prohibit the securities commission (or
any agency or office performing like functions) of any
State from suspending the offer or sale of securities
within such State as a result of the failure to submit
any filing or fee required under law and permitted
under this section.
(d) Treatment of Securities Listed on a Venture Exchange.--
Notwithstanding subsection (b), a security is not a covered
security pursuant to subsection (b)(1)(A) if the security is
only listed, or authorized for listing, on a venture exchange
(as defined under section 6(m) of the Securities Exchange Act
of 1934).
[(d)] (e) Definitions.--For purposes of this section, the
following definitions shall apply:
(1) Offering document.--The term ``offering
document''--
(A) has the meaning given the term
``prospectus'' in section 2(a)(10), but without
regard to the provisions of subparagraphs (a)
and (b) of that section; and
(B) includes a communication that is not
deemed to offer a security pursuant to a rule
of the Commission.
(2) Prepared by or on behalf of the issuer.--Not
later than 6 months after the date of enactment of the
National Securities Markets Improvement Act of 1996,
the Commission shall, by rule, define the term
``prepared by or on behalf of the issuer'' for purposes
of this section.
(3) State.--The term ``State'' has the same meaning
as in section 3 of the Securities Exchange Act of 1934.
(4) Senior security.--The term ``senior security''
means any bond, debenture, note, or similar obligation
or instrument constituting a security and evidencing
indebtedness, and any stock of a class having priority
over any other class as to distribution of assets or
payment of dividends.
* * * * * * *
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