79–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 115–405 

MARKET DATA PROTECTION ACT OF 2017 

NOVEMBER 9, 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 

[To accompany H.R. 3973] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 3973) to amend the Securities Exchange Act of 1934 to 

require certain entities to develop internal risk control mechanisms 

to safeguard and govern the storage of market data, having considered the same, report favorably thereon without amendment and 

recommend that the bill do pass. 

PURPOSE AND SUMMARY

On October 5, 2017, Representatives Warren Davidson and Brad 

Sherman introduced H.R. 3973, the ‘‘Market Data Protection Act of 

2017’’, which amends the Securities Exchange Act of 1934 (Exchange Act) to require, in consultation with the Securities and Exchange Commission’s (SEC) Chief Economist, the development of 

comprehensive internal risk control mechanisms to safeguard and 

govern the storage and use of market data by the SEC and the operators of the consolidated audit trail (CAT). The bill also halts 

market data reporting to the CAT until such internal risk control 

mechanisms are developed for the CAT. 

BACKGROUND AND NEED FOR LEGISLATION

On July 11, 2012, the SEC approved a final rule to require exchanges and the Financial Industry Regulatory Authority (FINRA) 

to jointly submit a comprehensive plan detailing how they would 

develop, implement, and maintain a consolidated audit trail that 

must collect and accurately identify every order, cancellation, modiVerDate Sep 11 2014 21:25 Nov 10, 2017 Jkt 079006 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\HR405.XXX HR405

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fication, and trade execution for all exchange-listed equities and equity options across all U.S. markets. 

The 2012 rule became effective 60 days after its publication in 

the Federal Register. Exchanges and FINRA were required to submit the plan to the SEC within 270 days of the rule’s publication 

in the Federal Register. Once the SEC approved the plan, the SROs 

were required to report the required data to the central repository 

within one year, and members of the exchanges and FINRA were 

required to report within two years. Certain small broker-dealers 

were given up to three years to report the data to the CAT. More 

than four years later, on November 15, 2016, the SEC finally approved a national market system (NMS) plan to create a single 

database known as the consolidated audit trail (CAT). 

In April 2016, the Government Accountability Office (GAO) identified weaknesses in the SEC’s information security protocols and 

noted the SEC’s failure to implement an agency-wide data security 

program. In May 2017, SEC Chairman Clayton initiated an assessment of the SEC’s internal cybersecurity risk profile and their approach to cybersecurity from a regulatory and oversight perspective. Based on the GAO’s April 2016 report and a subsequent July 

27, 2017 report, the SEC’s internal assessment was long overdue— 

both reports identified inadequate controls and serious cyber and 

data risks. While it is promising to see the SEC, under Chairman 

Clayton’s leadership of, take a concerted effort to reform and update its cyber and data security, Chairman Clayton’s data security 

review has cast more doubt as to the reliability of the SEC’s data 

and cyber security. 

On September 20, 2017, Chairman Clayton issued a statement 

on cybersecurity in which he revealed that a cyber breach ‘‘previously detected in 2016 may have provided illicit gain through 

trading.’’ Specifically, the SEC disclosed that a software vulnerability existed in the test filing component of the SEC’s Electronic 

Data Gathering Analysis and Retrieval (‘‘EDGAR’’) system which 

resulted in access to nonpublic information. While this breach provided the hackers access to highly sensitive material nonpublic information, at the time, the SEC believed ‘‘the intrusion did not result in unauthorized access to personally identifiable information 

(PII), jeopardize the operations of the Commission, or result in systemic risk.’’ However, in a follow-up disclosure shortly after, Chairman Clayton revealed that personally identifiable information including names, dates of birth, and social security numbers was 

compromised for two individuals. 

Although the SEC plans to proceed with the CAT plan to require 

self- regulatory organizations (SROs) to begin providing data to the 

CAT on November 15, 2017, the EDGAR security breach, as well 

as the September 7, 2017 revelation of the massive Equifax data 

breach through which sensitive information of 145.5 million Americans is believed to have been compromised, underscore the importance data security. Government and business alike must 

proactively mitigate potential cyber threat and safeguard the collection and storage of highly sensitive data. The CAT will contain 

such data and the SEC has an obligation to safeguard the data 

that it collects or directs entities under its oversight to collect. 

Largely in response to the 2010 ‘‘Flash Crash,’’ on November 15, 

2016, the SEC approved a plan for the CAT system, which will colVerDate Sep 11 2014 21:25 Nov 10, 2017 Jkt 079006 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\HR405.XXX HR405

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lect and identify every order, cancellation, and trade execution for 

all exchange-listed equities and options across all U.S. markets. 

The SROs selected Thesys Technologies in January 2017 to be the 

CAT’s plan processor. The plan calls for SROs to start reporting 

data to the CAT on November 15, 2017, with broker-dealers reporting information beginning in November 2018. 

Market participants have voiced concerns about the cost to build, 

implement and maintain such a system. Additionally, as the CAT 

will collect and store personally identifiable information (PII) concerns abound as to the security of such PII information, as well as 

who will have access to such information. In the 114th Congress, 

Members of the Committee on Financial Services wrote formerSEC Chair White to express serious concerns about the security of 

PII held within the CAT, especially given that some 3,000 individuals, including SEC staff members, will have access to the CAT 

data and the SEC does not have to follow the same security protocols as the CAT plan participants. In his September 7, 2017 testimony before the Subcommittee on Capital Markets, Securities, and 

Investment, FINRA’s President and CEO Robert Cook questioned 

whether the collection of PII was even necessary for the CAT to 

perform its function. 

The CAT can serve an important regulatory function to help prevent disruptions, identify anomalies and promote capital markets 

efficiency and operational integrity, but the SEC, the SROs and the 

CAT’s plan processor, must implement the CAT effectively, safely 

and securely to protect market integrity and investors. Given the 

SEC’s recent data breach and the amount of PII and market-sensitive data that the CAT will provide, the Commission needs to ensure that it has adequate data security controls before the CAT’s 

implementation. SEC Commissioner Michael Piwowar echoed these 

concerns about the CAT’s security ‘‘Deadlines are important, but 

[the SEC has] one chance to get this right. We have to make sure 

we have everything locked down. We can get it done, or we can get 

it done right. We need to get it done right.’’ On September 28, 

2017, Chairman Hensarling, Chairman Huizenga, and Vice-Chairman Hultgren wrote to SEC Chairman Clayton to ‘‘encourage the 

SEC to delay implementation of the CAT system until the SEC can 

implement information security safeguards and internal controls to 

ensure the security of confidential and sensitive data.’’ While 

Chairman Clayton testified that the SEC will not accept CAT data 

until it is ready to accept CAT data, Congress, the markets and the 

investing public do not have assurances that a CAT implementation delay is imminent. In the aftermath of the SEC’s EDGAR data 

breach, it is wholly appropriate for Congress to require the adoption of standards to ensure comprehensive risk controls are in place 

for any database that contains PII and market-moving data, such 

as the CAT. H.R. 3973 is bipartisan legislation that does not dictate the specific risk control mechanisms, rather it directs the SEC, 

through its Chief Economist (who leads the SEC’s Division of Economic and Risk Analysis) to coordinate the development of comprehensive internal risk control mechanisms to safeguard and govern the storage of all market data. 


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HEARINGS

The Committee on Financial Services held a hearing examining 

matters relating to H.R. 3973 on April 26, 2017, and September 7, 

2017. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on October 11, 2017, and October 12, 2017 and ordered H.R. 3973 to be 

reported favorably to the without amendment by a recorded vote of 

59 yeas to 1 nay (Record vote no. FC–88), 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 without amendment. The motion was agreed to by 

a recorded vote of 59 yeas to 1 nay (Record vote no. FC–88), a 

quorum being present. 


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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. 3973 will ensure that the SEC is properly securing critical data that supports 

financial markets as well as the personal information of millions of 

customers with broker-dealer accounts by mandating that the SEC 

and operator of the CAT, including the CAT plan processor, develop 

the proper internal risk control mechanisms to secure the data they 

collect and by stopping the reporting of market data to the CAT or 

access to such data, as applicable, until these controls are in place. 

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, November 8, 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. 3973, the Market Data 

Protection 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. 3973—Market Data Protection Act of 2017 

H.R. 3973 would require the Securities and Exchange Commission (SEC), national securities associations, and the operator of the 

consolidated audit trail (CAT, a database that will track trading in 


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equities and options markets) to develop internal risk control mechanisms to safeguard the storage and use of market data, including 

the use of such data for research. The SEC’s chief economist would 

be required to consult with the securities associations and the operator of the CAT on developing the controls, and the bill would 

delay any requirements to report market data to the CAT’s operator until the mechanisms were in place. 

Based on an analysis of information from the SEC, CBO estimates that implementing H.R. 3973 would cost $1 million over the 

2018–2022 period. That amount would cover the development and 

maintenance of the SEC’s internal risk controls and the commission’s continuous review of mechanisms put in place by the securities associations and the CAT’s operator. 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. 3973 would not affect direct spending or revenues; 

therefore, pay-as-you-go procedures do not apply. 

CBO estimates that enacting H.R. 3973 would not increase net 

direct spending or on-budget deficits in any of the four consecutive 

10-year periods beginning in 2028. 

H.R. 3973 contains no intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA). 

If the SEC increased fees to offset the costs of implementing the 

additional regulatory activities required by the bill, H.R. 3973 

would increase the cost of an existing mandate on private entities 

required to pay those fees. On the basis of information from the 

SEC, CBO estimates that an increase in fees to offset those costs 

would amount to about $1 million over the 2018–2022 period. The 

bill also would impose a private-sector mandate on national securities associations and on the CAT’s operator by requiring them to 

develop safeguards. Because the national securities associations 

and the CAT’s operator already are developing data safeguards 

that are expected to meet many of the bill’s requirements, CBO estimates that the incremental costs of the mandate would be small. 

The combined costs of both mandates would fall well below the annual threshold for private-sector mandates established in UMRA 

($156 million in 2017, adjusted annually for inflation). 

The CBO staff contacts for this estimate are Stephen Rabent (for 

federal costs) and Logan Smith (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. 


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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 rulemakings: The 

Committee estimates that the bill requires no directed rulemakings 

within the meaning of such section. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This Section cites H.R. 3973 as the ‘‘Market Data Protection Act 

of 2017’’. 

Section 2. Internal risk controls 

This section amends the Exchange Act by inserting a new section 

that states that, in consultation with the SEC Chief Economist, 

comprehensive internal risk control mechanisms be developed to 

safeguard and govern the storage and use of market data by the 

SEC and the operators of the CAT, including the CAT plan processor. This section also halts market data reporting to the CAT 

until the operator of the CAT until internal risk control mechanisms are developed. 


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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 

* * * * * * * 

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), 


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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 


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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 


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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 

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ment 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 GrammLeach-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 

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wise 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 ACTIVI- TIES.—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, 

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form 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 securitybased 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 securitybased 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 


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(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. 


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(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, votingtrust 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 

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pation 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), 


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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, 


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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 


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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 

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change, 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— 


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(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 


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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. 

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of, 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 


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26 

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 secuVerDate Sep 11 2014 21:25 Nov 10, 2017 Jkt 079006 PO 00000 Frm 00026 Fmt 6659 Sfmt 6602 E:\HR\OC\HR405.XXX HR405

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rity, 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 


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(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 selfregulatory 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 


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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 


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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. 


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(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 


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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 


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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; 


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(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 


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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 


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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; 


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(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 


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(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 securitybased swap participant for 1 or more categories of securitybased swaps without being classified as a major securityVerDate Sep 11 2014 21:25 Nov 10, 2017 Jkt 079006 PO 00000 Frm 00038 Fmt 6659 Sfmt 6602 E:\HR\OC\HR405.XXX HR405

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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 AGREE- MENTS.—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 securitybased 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-occurVerDate Sep 11 2014 21:25 Nov 10, 2017 Jkt 079006 PO 00000 Frm 00039 Fmt 6659 Sfmt 6602 E:\HR\OC\HR405.XXX HR405

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rence, 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 securitybased 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 securitybased 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 securitybased 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 


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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 securitybased 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 


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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 pre- vious 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. 

ø(80)¿ (81) 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. 

(82) CHIEF ECONOMIST.—The term ‘‘Chief Economist’’ means 

the Director of the Division of Economic and Risk Analysis, or 

an employee of the Commission with comparable authority, as 

determined by the Commission. 

(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. 


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(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, 


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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. 4F. INTERNAL RISK CONTROLS. 

(a) IN GENERAL.—Each of the following entities, in consultation 

with the Chief Economist, shall develop comprehensive internal risk 

control mechanisms to safeguard and govern the storage of all market data by such entity, all market data sharing agreements of such 

entity, and all academic research performed at such entity using 

market data: 

(1) The Commission. 

(2) Each national securities association registered pursuant to 

section 15A. 

(3) The operator of the consolidated audit trail created by a 

national market system plan approved pursuant to section 

242.613 of title 17, Code of Federal Regulations (or any successor regulation). 


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(b) CONSOLIDATED AUDIT TRAIL PROHIBITED FROM ACCEPTING

MARKET DATA UNTIL MECHANISMS DEVELOPED.—The operator described in paragraph (3) of subsection (a) may not accept market 

data (or shall cease accepting market data) until the operator has 

developed the mechanisms required by such subsection. Any requirement for a person to provide market data to the operator shall not 

apply during any time when the operator is prohibited by this subsection from accepting such data. 

(c) TREATMENT OF PREVIOUSLY DEVELOPED MECHANISMS.—The 

development of comprehensive internal risk control mechanisms required by subsection (a) may occur, in whole or in part, before the 

date of the enactment of this section, if such development and such 

mechanisms meet the requirements of such subsection (including 

consultation with the Chief Economist). 

* * * * * * * 

Æ 


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