In the Senate of the United States,

June 27, 1996.

Resolved, That the bill from the House of Representatives (H.R. 3005) entitled ‘‘An Act to amend the Federal securities laws in order to promote efficiency and capital formation in the financial markets, and to amend the Investment

Company Act of 1940 to promote more efficient management

of mutual funds, protect investors, and provide more effective

and less burdensome regulation.’’, do pass with the following

AMENDMENT:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

2 (a) SHORT TITLE.—This Act may be cited as the ‘‘Se3 curities Investment Promotion Act of 1996’’.

4 (b) TABLE OF CONTENTS.—The table of contents for

5 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Severability.

TITLE I—INVESTMENT ADVISERS SUPERVISION COORDINATION ACT

Sec. 101. Short title.

Sec. 102. Funding for enhanced enforcement priority.

Sec. 103. Improved supervision through State and Federal cooperation.
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Sec. 104. Interstate cooperation.

Sec. 105. Disqualification of convicted felons.

Sec. 106. Continued State authority.

Sec. 107. Effective date.

TITLE II—FACILITATING INVESTMENT IN MUTUAL FUNDS

Sec. 201. Short title.

Sec. 202. Funds of funds.

Sec. 203. Flexible registration of securities.

Sec. 204. Facilitating use of current information in advertising.

Sec. 205. Variable insurance contracts.

Sec. 206. Prohibition on deceptive investment company names.

Sec. 207. Excepted investment companies.

Sec. 208. Performance fees exemptions.

Sec. 209. Reports to the Commission and shareholders.

Sec. 210. Books, records, and inspections.

TITLE III—REDUCING THE COST OF SAVING AND INVESTMENT

Sec. 301. Exemption for economic, business, and industrial development companies.

Sec. 302. Intrastate closed-end investment company exemption.

Sec. 303. Definition of eligible portfolio company.

Sec. 304. Definition of business development company.

Sec. 305. Acquisition of assets by business development companies.

Sec. 306. Capital structure amendments.

Sec. 307. Filing of written statements.

Sec. 308. Facilitating national securities markets.

Sec. 309. Regulatory flexibility.

Sec. 310. Analysis of economic effects of regulation.

Sec. 311. Privatization of EDGAR.

Sec. 312. Improving coordination of supervision.

Sec. 313. Increased access to foreign business information.

Sec. 314. Short-form registration.

Sec. 315. Church employee pension plans.

Sec. 316. Promoting global preeminence of American securities markets.

Sec. 317. Broker-dealer exemption from State law for certain de minimis transactions.

Sec. 318. Studies and reports.

1 SEC. 2. SEVERABILITY.

2 If any provision of this Act, an amendment made by

3 this Act, or the application of such provision or amendment

4 to any person or circumstance is held to be unconstitu5 tional, the remainder of this Act, the amendments made by

6 this Act, and the application of the provisions of such to

7 any person or circumstance shall not be affected thereby.
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1 TITLE I—INVESTMENT ADVISERS

2 SUPERVISION COORDINATION

3 ACT

4 SEC. 101. SHORT TITLE.

5 This title may be cited as the ‘‘Investment Advisers

6 Supervision Coordination Act’’.

7 SEC. 102. FUNDING FOR ENHANCED ENFORCEMENT

8 PRIORITY.

9 There are authorized to be appropriated to the Securi10 ties and Exchange Commission, for the enforcement of the

11 Investment Advisers Act of 1940, not more than

12 $16,000,000 in each of fiscal years 1997 and 1998.

13 SEC. 103. IMPROVED SUPERVISION THROUGH STATE AND

14 FEDERAL COOPERATION.

15 (a) STATE AND FEDERAL RESPONSIBILITIES.—The

16 Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.)

17 is amended by inserting after section 203 the following new

18 section:

19 ‘‘SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

20 ‘‘(a) ADVISERS SUBJECT TO STATE AUTHORITIES.—

21 ‘‘(1) IN GENERAL.—No investment adviser that

22 is regulated or required to be regulated as an invest23 ment adviser in the State in which it maintains its

24 principal office and place of business shall register

25 under section 203, unless the investment adviser—
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1 ‘‘(A) has assets under management of not

2 less than $25,000,000, or such higher amount as

3 the Commission may, by rule, deem appropriate

4 in accordance with the purposes of this title; or

5 ‘‘(B) is an adviser to an investment com6 pany registered under title I of this Act, or a

7 company that has elected to be a business devel8 opment company pursuant to section 54 of title

9 I of this Act.

10 ‘‘(2) DEFINITION.—For purposes of this sub11 section, the term ‘assets under management’ means

12 the securities portfolios with respect to which an in13 vestment adviser provides continuous and regular su14 pervisory or management services.

15 ‘‘(b) ADVISERS SUBJECT TO COMMISSION

16 AUTHORITY.—

17 ‘‘(1) IN GENERAL.—No law of any State or po18 litical subdivision thereof requiring the registration,

19 licensing, or qualification as an investment adviser or

20 supervised person of an investment adviser shall

21 apply to any person—

22 ‘‘(A) that is registered under section 203 as

23 an investment adviser, or that is a supervised

24 person of such a person; or
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1 ‘‘(B) that is not registered under section

2 203 because that person is excepted from the defi3 nition of an investment adviser under section

4 202(a)(11).

5 ‘‘(2) LIMITATION.—Nothing in this subsection

6 shall prohibit the securities commission (or any agen7 cy or office performing like functions) of any State

8 from—

9 ‘‘(A) requiring the filing with such commis10 sion, agency, or office of any document filed with

11 the Commission by an investment adviser, to12 gether with a consent to service of process and

13 requisite fees; or

14 ‘‘(B) investigating and bringing enforce15 ment actions with respect to fraud or deceit

16 against an investment adviser or person associ17 ated with an investment adviser.

18 ‘‘(c) EXEMPTIONS.—Notwithstanding subsection (a),

19 the Commission, by rule or regulation upon its own motion,

20 or by order upon application, may permit the registration

21 with the Commission of any person or class of persons to

22 which the application of subsection (a) would be unfair, a

23 burden on interstate commerce, or otherwise inconsistent

24 with the purposes of this section.
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1 ‘‘(d) FILING DEPOSITORIES.—The Commission may,

2 by rule, require an investment adviser—

3 ‘‘(1) to file with the Commission any fee, appli4 cation, report, or notice required by this title or by

5 the rules issued under this title through any entity

6 designated by the Commission for that purpose; and

7 ‘‘(2) to pay the reasonable costs associated with

8 such filing.

9 ‘‘(e) STATE ASSISTANCE.—Upon request of the securi10 ties commissioner (or any agency or officer performing like

11 functions) of any State, the Commission may provide such

12 training, technical assistance, or other reasonable assistance

13 in connection with the regulation of investment advisers by

14 the State.’’.

15 (b) ADVISERS NOT ELIGIBLE TO REGISTER.—Section

16 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–

17 3) is amended—

18 (1) in subsection (c), in the matter immediately

19 following paragraph (2), by inserting ‘‘and that the

20 applicant is not prohibited from registering as an in21 vestment adviser under section 203A’’ after ‘‘satis22 fied’’; and

23 (2) in subsection (h), in the second sentence—

24 (A) by striking ‘‘existence or’’ and inserting

25 ‘‘existence,’’; and
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1 (B) by inserting ‘‘or is prohibited from reg2 istering as an investment adviser under section

3 203A,’’ after ‘‘adviser,’’.

4 (c) DEFINITION OF ‘‘SUPERVISED PERSON’’.—Section

5 202(a) of the Investment Advisers Act of 1940 (15 U.S.C.

6 80b–2(a)) is amended—

7 (1) by striking ‘‘requires—’’ and inserting ‘‘re8 quires, the following definitions shall apply:’’; and

9 (2) by adding at the end the following new para10 graph:

11 ‘‘(25) ‘Supervised person’ means any partner, of12 ficer, director (or other person occupying a similar

13 status or performing similar functions), or employee

14 of an investment adviser, or other person who pro15 vides investment advice on behalf of the investment

16 adviser and is subject to the supervision and control

17 of the investment adviser.’’.

18 (d) CONFORMING AMENDMENT.—Section 203(a) of the

19 Investment Advisers Act of 1940 (15 U.S.C. 80b–3(a)) is

20 amended by striking ‘‘subsection (b) of this section’’ and

21 inserting ‘‘subsection (b) and section 203A’’.

22 SEC. 104. INTERSTATE COOPERATION.

23 Section 222 of the Investment Advisers Act of 1940 (15

24 U.S.C. 80b–18a) is amended to read as follows:
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1 ‘‘SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.

2 ‘‘(a) JURISDICTION OF STATE REGULATORS.—Nothing

3 in this title shall affect the jurisdiction of the securities com4 missioner (or any agency or officer performing like func5 tions) of any State over any security or any person insofar

6 as it does not conflict with the provisions of this title or

7 the rules and regulations thereunder.

8 ‘‘(b) DUAL COMPLIANCE PURPOSES.—No State may

9 enforce any law or regulation that would require an invest10 ment adviser to maintain any books or records in addition

11 to those required under the laws of the State in which it

12 maintains its principal place of business, if the investment

13 adviser—

14 ‘‘(1) is registered or licensed as such in the State

15 in which it maintains its principal place of business;

16 and

17 ‘‘(2) is in compliance with the applicable books

18 and records requirements of the State in which it

19 maintains its principle place of business.

20 ‘‘(c) LIMITATION ON CAPITAL AND BOND REQUIRE21 MENTS.—No State may enforce any law or regulation that

22 would require an investment adviser to maintain a higher

23 minimum net capital or to post any bond in addition to

24 any that is required under the laws of the State in which

25 it maintains its principal place of business, if the invest26 ment adviser—
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1 ‘‘(1) is registered or licensed as such in the State

2 in which it maintains its principal place of business;

3 and

4 ‘‘(2) is in compliance with the applicable net

5 capital or bonding requirements of the State in which

6 it maintains its principal place of business.’’.

7 SEC. 105. DISQUALIFICATION OF CONVICTED FELONS.

8 (a) AMENDMENT.—Section 203(e) of the Investment

9 Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is amended—

10 (1) by redesignating paragraphs (3) through (7)

11 as paragraphs (4) through (8), respectively; and

12 (2) by inserting after paragraph (2) the follow13 ing new paragraph:

14 ‘‘(3) has been convicted during the 10-year pe15 riod preceding the date of filing of any application

16 for registration, or at any time thereafter, of—

17 ‘‘(A) any crime that is punishable by im18 prisonment for 1 or more years, and that is not

19 described in paragraph (2); or

20 ‘‘(B) a substantially equivalent crime by a

21 foreign court of competent jurisdiction.’’.

22 (b) CONFORMING AMENDMENTS.—Section 203 of the

23 Investment Advisers Act of 1940 (15 U.S.C. 80b–3) is

24 amended—
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1 (1) in subsection (e)(6) (as redesignated by sub2 section (a) of this section), by striking ‘‘this para3 graph (5)’’ and inserting ‘‘this paragraph’’;

4 (2) in subsection (f)—

5 (A) by striking ‘‘paragraph (1), (4), (5), or

6 (7) of subsection (e) of this section’’ and insert7 ing ‘‘paragraph (1), (5), (6), or (8) of subsection

8 (e)’’;

9 (B) by striking ‘‘paragraph (3)’’ and insert10 ing ‘‘paragraph (4)’’; and

11 (C) by striking ‘‘said subsection’’ each place

12 that term appears and inserting ‘‘subsection’’;

13 and

14 (3) in subsection (i)(1)(D), by striking ‘‘section

15 203(e)(5) of this title’’ and inserting ‘‘subsection

16 (e)(6)’’.

17 SEC. 106. CONTINUED STATE AUTHORITY.

18 Notwithstanding any other provision of this title, or

19 any amendment made by this title, a State or Territory

20 of the United States, or the District of Columbia may con21 tinue to collect filing, registration, or licensing fees in

22 amounts determined pursuant to State law as in effect on

23 the day before the date of enactment of this Act, until other24 wise specifically provided under a State law enacted on or

25 after that date of enactment.
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1 SEC. 107. EFFECTIVE DATE.

2 This title and the amendments made by this title shall

3 take effect 180 days after the date of enactment of this Act.

4 TITLE II—FACILITATING

5 INVESTMENT IN MUTUAL FUNDS

6 SEC. 201. SHORT TITLE.

7 This title may be cited as the ‘‘Investment Company

8 Amendments Act of 1996’’.

9 SEC. 202. FUNDS OF FUNDS.

10 Section 12(d)(1) of the Investment Company Act of

11 1940 (15 U.S.C. 80a–12(d)(1)) is amended—

12 (1) in subparagraph (E)(iii)—

13 (A) by striking ‘‘in the event such invest14 ment company is not a registered investment

15 company,’’; and

16 (B) by inserting ‘‘in the event that such in17 vestment company is not a registered investment

18 company,’’ after ‘‘(bb)’’;

19 (2) by redesignating subparagraphs (G) and (H)

20 as subparagraphs (H) and (I), respectively;

21 (3) by striking ‘‘this paragraph (1)’’ each place

22 that term appears and inserting ‘‘this paragraph’’;

23 (4) by inserting after subparagraph (F) the fol24 lowing new subparagraph:

25 ‘‘(G)(i) This paragraph does not apply to securities

26 of a registered open-end investment company or a registered
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1 unit investment trust (hereafter in this subparagraph re2 ferred to as the ‘acquired company’) purchased or otherwise

3 acquired by a registered open-end investment company or

4 a registered unit investment trust (hereafter in this sub5 paragraph referred to as the ‘acquiring company’) if—

6 ‘‘(I) the acquired company and the acquiring

7 company are part of the same group of investment

8 companies;

9 ‘‘(II) the securities of the acquired company, se10 curities of other registered open-end investment com11 panies and registered unit investment trusts that are

12 part of the same group of investment companies, Gov13 ernment securities, and short-term paper are the only

14 investments held by the acquiring company;

15 ‘‘(III)(aa) the acquiring company does not pay

16 and is not assessed any charges or fees for distribu17 tion-related activities with respect to securities of the

18 acquired company, unless the acquiring company does

19 not charge a sales load or other fees or charges for dis20 tribution-related activities; or

21 ‘‘(bb) any sales loads and other distribution-re22 lated fees charged with respect to securities of the ac23 quiring company, when aggregated with any sales

24 load and distribution-related fees paid by the acquir25 ing company with respect to securities of the acquired
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1 fund, are not excessive under rules adopted pursuant

2 to section 22(b) or section 22(c) by a securities asso3 ciation registered under section 15A of the Securities

4 Exchange Act of 1934 or the Commission;

5 ‘‘(IV) the acquired company has a policy that

6 prohibits it from acquiring any securities of reg7 istered open-end investment companies or registered

8 unit investment trusts in reliance on this subpara9 graph or subparagraph (F); and

10 ‘‘(V) such acquisition is not in contravention of

11 such rules and regulations as the Commission may

12 from time to time prescribe with respect to acquisi13 tions in accordance with this subparagraph, as nec14 essary and appropriate for the protection of investors.

15 ‘‘(ii) For purposes of this subparagraph, the term

16 ‘group of investment companies’ means any 2 or more reg17 istered investment companies that hold themselves out to in18 vestors as related companies for purposes of investment and

19 investor services.’’; and

20 (5) by adding at the end the following new sub21 paragraph:

22 ‘‘(J) The Commission, by rules and regulations, upon

23 its own motion, or by order upon application, may condi24 tionally or unconditionally exempt any person, security, or

25 transaction, or any class or classes of persons, securities,
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1 or transactions from any provision of this subsection, if and

2 to the extent that such exemption is consistent with the pub3 lic interest and the protection of investors.’’.

4 SEC. 203. FLEXIBLE REGISTRATION OF SECURITIES.

5 (a) AMENDMENTS TO REGISTRATION STATEMENTS.—

6 Section 24(e) of the Investment Company Act of 1940 (15

7 U.S.C. 80a–24(e)) is amended—

8 (1) by striking paragraphs (1) and (2);

9 (2) by striking ‘‘(3) For’’ and inserting ‘‘For’’;

10 and

11 (3) by striking ‘‘pursuant to this subsection or

12 otherwise’’.

13 (b) REGISTRATION OF INDEFINITE AMOUNT OF SECU14 RITIES.—Section 24(f) of the Investment Company Act of

15 1940 (15 U.S.C. 80a–24(f)) is amended to read as follows:

16 ‘‘(f) REGISTRATION OF INDEFINITE AMOUNT OF SECU17 RITIES.—

18 ‘‘(1) REGISTRATION OF SECURITIES.—Upon the

19 effective date of its registration statement, as provided

20 by section 8 of the Securities Act of 1933, a face21 amount certificate company, open-end management

22 company, or unit investment trust, shall be deemed to

23 have registered an indefinite amount of securities.

24 ‘‘(2) PAYMENT OF REGISTRATION FEES.—Not

25 later than 90 days after the end of the fiscal year of
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1 an entity referred to in paragraph (1), the entity

2 shall pay a registration fee to the Commission, cal3 culated in the manner specified in section 6(b) of the

4 Securities Act of 1933, based on the aggregate sales

5 price for which its securities (including, for purposes

6 of this paragraph, all securities issued pursuant to a

7 dividend reinvestment plan) were sold pursuant to a

8 registration of an indefinite amount of securities

9 under this subsection during the previous fiscal year

10 of the entity, reduced by—

11 ‘‘(A) the aggregate redemption or repur12 chase price of the securities of the entity during

13 that year; and

14 ‘‘(B) the aggregate redemption or repur15 chase price of the securities of the entity during

16 any prior fiscal year ending not more than 1

17 year before the date of enactment of the Invest18 ment Company Amendments Act of 1996, that

19 were not used previously by the entity to reduce

20 fees payable under this section.

21 ‘‘(3) INTEREST DUE ON LATE PAYMENT.—An en22 tity paying the fee required by this subsection or any

23 portion thereof more than 90 days after the end of the

24 fiscal year of the entity shall pay to the Commission

25 interest on unpaid amounts, compounded daily, at
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1 the underpayment rate established by the Secretary of

2 the Treasury pursuant to section 3717 of title 31,

3 United States Code. The payment of interest pursuant

4 to this paragraph shall not preclude the Commission

5 from bringing an action to enforce the requirements

6 of paragraph (2).

7 ‘‘(4) RULEMAKING AUTHORITY.—The Commis8 sion may adopt rules and regulations to implement

9 this subsection.’’.

10 (c) EFFECTIVE DATE.—The amendments made by this

11 section shall become effective on the earlier of—

12 (1) 1 year after the date of enactment of this Act;

13 or

14 (2) the effective date of final rules or regulations

15 issued in accordance with section 24(f) of the Invest16 ment Company Act of 1940, as amended by this sec17 tion.

18 SEC. 204. FACILITATING USE OF CURRENT INFORMATION

19 IN ADVERTISING.

20 Section 24 of the Investment Company Act of 1940 (15

21 U.S.C. 80a–24) is amended by adding at the end the follow22 ing new subsection:

23 ‘‘(g) ADDITIONAL PROSPECTUSES.—In addition to

24 any prospectus permitted or required by section 10(a) of

25 the Securities Act of 1933, the Commission shall permit,
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1 by rules or regulations deemed necessary or appropriate in

2 the public interest or for the protection of investors, the use

3 of a prospectus for the purposes of section 5(b)(1) of that

4 Act with respect to securities issued by a registered invest5 ment company. Such a prospectus, which may include in6 formation the substance of which is not included in the pro7 spectus specified in section 10(a) of the Securities Act of

8 1933, shall be deemed to be permitted by section 10(b) of

9 that Act.’’.

10 SEC. 205. VARIABLE INSURANCE CONTRACTS.

11 (a) UNIT INVESTMENT TRUST TREATMENT.—Section

12 26 of the Investment Company Act of 1940 (15 U.S.C. 80a–

13 26) is amended by adding at the end the following new sub14 section:

15 ‘‘(e) EXEMPTION.—

16 ‘‘(1) IN GENERAL.—Subsection (a) does not

17 apply to any registered separate account funding

18 variable insurance contracts, or to the sponsoring in19 surance company and principal underwriter of such

20 account.

21 ‘‘(2) LIMITATION ON SALES.—It shall be unlaw22 ful for any registered separate account funding vari23 able insurance contracts, or for the sponsoring insur24 ance company of such account, to sell any such con25 tract, unless—
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1 ‘‘(A) the fees and charges deducted under

2 the contract, in the aggregate, are reasonable in

3 relation to the services rendered, the expenses ex4 pected to be incurred, and the risks assumed by

5 the insurance company, and the insurance com6 pany so represents in the registration statement

7 for the contract; and

8 ‘‘(B) the insurance company—

9 ‘‘(i) complies with all other applicable

10 provisions of this section, as if it were a

11 trustee or custodian of the registered sepa12 rate account;

13 ‘‘(ii) files with the insurance regu14 latory authority of the State or territory of

15 the United States or of the District of Co16 lumbia in which is located the principal

17 place of business of the insurance company,

18 an annual statement of its financial condi19 tion, which most recent statement indicates

20 that the insurance company has a combined

21 capital and surplus, if a stock company, or

22 an unassigned surplus, if a mutual com23 pany, of not less than $1,000,000, or such

24 other amount as the Commission may from

25 time to time prescribe by rule, as necessary
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1 or appropriate in the public interest or for

2 the protection of investors; and

3 ‘‘(iii) together with its registered sepa4 rate accounts, is supervised and examined

5 periodically by the insurance authority of

6 such State, territory, or the District of Co7 lumbia.

8 ‘‘(3) FEES AND CHARGES.—For purposes of

9 paragraph (2), the fees and charges deducted under

10 the contract shall include all fees and charges imposed

11 for any purpose and in any manner.

12 ‘‘(4) REGULATORY AUTHORITY.—The Commis13 sion may issue such rules and regulations to carry

14 out paragraph (2)(A) as it determines are necessary

15 or appropriate in the public interest or for the protec16 tion of investors.’’.

17 (b) PERIODIC PAYMENT PLAN TREATMENT.—Section

18 27 of the Investment Company Act of 1940 (15 U.S.C. 80a–

19 27) is amended by adding at the end the following new sub20 section:

21 ‘‘(i)(1) This section does not apply to any registered

22 separate account funding variable insurance contracts, or

23 to the sponsoring insurance company and principal under24 writer of such account, except as provided in paragraph

25 (2).
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1 ‘‘(2) It shall be unlawful for any registered separate

2 account funding variable insurance contracts, or for the

3 sponsoring insurance company of such account, to sell any

4 such contract unless—

5 ‘‘(A) such contract is a redeemable security; and

6 ‘‘(B) the insurance company complies with sec7 tion 26(e) and any rules or regulations issued by the

8 Commission under section 26(e).’’.

9 SEC. 206. PROHIBITION ON DECEPTIVE INVESTMENT COM10 PANY NAMES.

11 Section 35(d) of the Investment Company Act of 1940

12 (15 U.S.C. 80a–34(d)) is amended to read as follows:

13 ‘‘(d) It shall be unlawful for any registered investment

14 company to adopt as a part of the name or title of such

15 company, or of any securities of which it is the issuer, any

16 word or words that the Commission finds are materially

17 deceptive or misleading. The Commission is authorized, by

18 rule, regulation, or order, to define such names or titles as

19 are materially deceptive or misleading.’’.

20 SEC. 207. EXCEPTED INVESTMENT COMPANIES.

21 (a) AMENDMENTS.—Section 3(c) of the Investment

22 Company Act of 1940 (15 U.S.C. 80a–3(c)) is amended—

23 (1) in paragraph (1), by inserting after the first

24 sentence the following: ‘‘Such issuer shall be deemed

25 to be an investment company for purposes of the limi-
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1 tations set forth in subparagraphs (A)(i) and (B)(i)

2 of section 12(d)(1) governing the purchase or other ac3 quisition by such issuer of any security issued by any

4 registered investment company and the sale of any se5 curity issued by any registered open-end investment

6 company to any such issuer.’’;

7 (2) in subparagraph (A) of paragraph (1)—

8 (A) by inserting after ‘‘issuer,’’ the first

9 place that term appears, the following: ‘‘and is

10 or, but for the exception provided for in this

11 paragraph or paragraph (7), would be an invest12 ment company,’’; and

13 (B) by striking ‘‘unless, as of’’ and all that

14 follows through the end of the subparagraph and

15 inserting a period;

16 (3) in paragraph (2)—

17 (A) by striking ‘‘and acting as broker,’’ and

18 inserting ‘‘acting as broker, and acting as mar19 ket intermediary,’’;

20 (B) by inserting ‘‘(A)’’ after ‘‘(2)’’; and

21 (C) by adding at the end the following new

22 subparagraph:

23 ‘‘(B) For purposes of this paragraph—

24 ‘‘(i) the term ‘market intermediary’ means

25 any person that regularly holds itself out as
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1 being willing contemporaneously to engage in,

2 and that is regularly engaged in, the business of

3 entering into transactions on both sides of the

4 market for a financial contract or one or more

5 such financial contracts; and

6 ‘‘(ii) the term ‘financial contract’ means

7 any arrangement that—

8 ‘‘(I) takes the form of an individually

9 negotiated contract, agreement, or option to

10 buy, sell, lend, swap, or repurchase, or other

11 similar individually negotiated transaction

12 commonly entered into by participants in

13 the financial markets;

14 ‘‘(II) is in respect of securities, com15 modities, currencies, interest or other rates,

16 other measures of value, or any other finan17 cial or economic interest similar in purpose

18 or function to any of the foregoing; and

19 ‘‘(III) is entered into in response to a

20 request from a counter party for a

21 quotation, or is otherwise entered into and

22 structured to accommodate the objectives of

23 the counter party to such arrangement.’’;

24 and
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1 (4) by striking paragraph (7) and inserting the

2 following:

3 ‘‘(7)(A) Any issuer, the outstanding securities of

4 which are owned exclusively by persons who, at the

5 time of acquisition of such securities, are qualified

6 purchasers, and which is not making and does not at

7 that time propose to make a public offering of such

8 securities. Securities that are owned by persons who

9 received the securities from a qualified purchaser as

10 a gift or bequest, or in a case in which the transfer

11 was caused by legal separation, divorce, death, or

12 other involuntary event, shall be deemed to be owned

13 by a qualified purchaser, subject to such rules, regula14 tions, and orders as the Commission may prescribe as

15 necessary or appropriate in the public interest or for

16 the protection of investors.

17 ‘‘(B) Notwithstanding subparagraph (A), an is18 suer is within the exception provided by this para19 graph if—

20 ‘‘(i) in addition to qualified purchasers,

21 outstanding securities of that issuer are bene22 ficially owned by not more than 100 persons who

23 are not qualified purchasers, if—

24 ‘‘(I) such persons acquired such securi25 ties on or before April 30, 1996; and
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1 ‘‘(II) at the time such securities were

2 acquired by such persons, the issuer was ex3 cepted by paragraph (1); and

4 ‘‘(ii) prior to availing itself of the exception

5 provided by this paragraph—

6 ‘‘(I) such issuer has disclosed to each

7 beneficial owner that future investors will

8 be limited to qualified purchasers, and that

9 ownership in such issuer is no longer lim10 ited to not more than 100 persons; and

11 ‘‘(II) concurrently with or after such

12 disclosure, such issuer has provided each

13 beneficial owner with a reasonable oppor14 tunity to redeem any part or all of their in15 terests in the issuer, notwithstanding any

16 agreement to the contrary between the issuer

17 and such persons, for that person’s propor18 tionate share of the issuer’s net assets.

19 ‘‘(C) Each person that elects to redeem under

20 subparagraph (B)(ii)(II) shall receive an amount in

21 cash equal to that person’s proportionate share of the

22 issuer’s net assets, unless the issuer elects to provide

23 such person with the option of receiving, and such

24 person agrees to receive, all or a portion of such per25 son’s share in assets of the issuer. If the issuer elects
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1 to provide such persons with such an opportunity,

2 disclosure concerning such opportunity shall be made

3 in the disclosure required by subparagraph (B)(ii)(I).

4 ‘‘(D) An issuer that is excepted under this para5 graph shall nonetheless be deemed to be an investment

6 company for purposes of the limitations set forth in

7 subparagraphs (A)(i) and (B)(i) of section 12(d)(1)

8 relating to the purchase or other acquisition by such

9 issuer of any security issued by any registered invest10 ment company and the sale of any security issued by

11 any registered open-end investment company to any

12 such issuer.

13 ‘‘(E) For purposes of determining compliance

14 with this paragraph and paragraph (1), an issuer

15 that is otherwise excepted under this paragraph and

16 an issuer that is otherwise excepted under paragraph

17 (1) shall not be treated by the Commission as being

18 a single issuer for purposes of determining whether

19 the outstanding securities of the issuer excepted under

20 paragraph (1) are beneficially owned by not more

21 than 100 persons or whether the outstanding securi22 ties of the issuer excepted under this paragraph are

23 owned by persons that are not qualified purchasers.

24 Nothing in this subparagraph shall be construed to es25 tablish that a person is a bona fide qualified pur-
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1 chaser for purposes of this paragraph or a bona fide

2 beneficial owner for purposes of paragraph (1).’’.

3 (b) DEFINITION OF QUALIFIED PURCHASER.—Section

4 2(a) of the Investment Company Act of 1940 (15 U.S.C.

5 80a–2(a)) is amended by adding at the end the following

6 new paragraph:

7 ‘‘(51)(A) ‘Qualified purchaser’ means—

8 ‘‘(i) any natural person (including any per9 son who holds a joint, community property, or

10 other similar shared ownership interest in an is11 suer that is excepted under section 3(c)(7) with

12 that person’s qualified purchaser spouse) who

13 owns not less than $5,000,000 in investments, as

14 defined by the Commission;

15 ‘‘(ii) any company that owns not less than

16 $5,000,000 in investments and that is owned di17 rectly or indirectly by or for 2 or more natural

18 persons who are related as siblings or spouse (in19 cluding former spouses), or direct lineal descend20 ants by birth or adoption, spouses of such per21 sons, the estates of such persons, or foundations,

22 charitable organizations, or trusts established by

23 or for the benefit of such persons;

24 ‘‘(iii) any trust that is not covered by sub25 paragraph (B) and that was not formed for the
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1 specific purpose of acquiring the securities of2 fered, as to which the trustee or other person au3 thorized to make decisions with respect to the

4 trust, and each settlor or other person who has

5 contributed assets to the trust, is a person de6 scribed in clause (i), (ii), or (iv);

7 ‘‘(iv) any person, acting for its own account

8 or the accounts of other qualified purchasers,

9 who in the aggregate owns and invests on a dis10 cretionary basis, not less than $25,000,000 in in11 vestments; or

12 ‘‘(v) any person that the Commission, by

13 rule or regulation, has determined does not need

14 the protections of this title, after consideration of

15 factors such as—

16 ‘‘(I) a high degree of financial sophis17 tication, including extensive knowledge of

18 and experience in financial matters;

19 ‘‘(II) a substantial amount of assets

20 owned or under management;

21 ‘‘(III) relationship with an issuer; and

22 ‘‘(IV) such other factors as the Com23 mission may determine to be consistent

24 with the purposes of this paragraph.
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1 ‘‘(B) The Commission may adopt such rules and

2 regulations applicable to the persons and trusts speci3 fied in clauses (i) through (v) of subparagraph (A) as

4 it determines are necessary or appropriate in the

5 public interest or for the protection of investors.

6 ‘‘(C) The term ‘qualified purchaser’ does not in7 clude a company that, but for the exceptions provided

8 for in paragraph (1) or (7) of section 3(c), would be

9 an investment company (hereafter in this paragraph

10 referred to as an ‘excepted investment company’), un11 less all beneficial owners of its outstanding securities

12 (other than short-term paper), determined in accord13 ance with section 3(c)(1)(A), that acquired such secu14 rities on or before April 30, 1996 (hereafter in this

15 paragraph referred to as ‘pre-amendment beneficial

16 owners’), and all pre-amendment beneficial owners of

17 the outstanding securities (other than short-term

18 paper) of any excepted investment company that, di19 rectly or indirectly, owns any outstanding securities

20 of such excepted investment company, have consented

21 to its treatment as a qualified purchaser. Unanimous

22 consent of all trustees, directors, or general partners

23 of a company or trust referred to in clause (ii) or

24 (iii) of subparagraph (A) shall constitute consent for

25 purposes of this subparagraph.’’.
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1 (c) CONFORMING AMENDMENTS.—Section 3(a) of the

2 Investment Company Act of 1940 (15 U.S.C. 80a–3(a)) is

3 amended—

4 (1) by striking ‘‘(1)’’ and inserting ‘‘(A)’’;

5 (2) by striking ‘‘(2)’’ and inserting ‘‘(B)’’;

6 (3) by striking ‘‘(3)’’ and inserting ‘‘(C)’’;

7 (4) by inserting ‘‘(1)’’ after ‘‘(a)’’;

8 (5) by striking ‘‘As used’’ and inserting ‘‘(2) As

9 used’’; and

10 (6) in paragraph (2)(C), as designated by para11 graph (5) of this subsection—

12 (A) by striking ‘‘which are’’ and inserting

13 the following: ‘‘which (i) are’’; and

14 (B) by inserting before the period at the

15 end, the following: ‘‘, and (ii) are not relying on

16 the exception from the definition of investment

17 company in paragraph (1) or (7) of subsection

18 (c)’’.

19 (d) RULEMAKING REQUIRED.—

20 (1) IMPLEMENTATION OF SECTION 3(c)(1)(B).—

21 Not later than 1 year after the date of enactment of

22 this Act, the Commission shall prescribe rules to im23 plement the requirements of section 3(c)(1)(B) of the

24 Investment Company Act of 1940 (15 U.S.C. 80a–

25 3(c)(1)(B)).
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1 (2) IDENTIFICATION OF INVESTMENTS.—Not

2 later than 180 days after the date of enactment of this

3 Act, the Commission shall prescribe rules defining the

4 term, or otherwise identifying, ‘‘investments’’ for pur5 poses of section 2(a)(51) of the Investment Company

6 Act of 1940, as added by this Act.

7 (3) EMPLOYEE EXCEPTION.—Not later than 1

8 year after the date of enactment of this Act, the Com9 mission shall prescribe rules pursuant to its authority

10 under section 6 of the Investment Company Act of

11 1940 to permit the ownership of securities by knowl12 edgeable employees of the issuer of the securities or an

13 affiliated person without loss of the exception of the

14 issuer under paragraph (1) or (7) of section 3(c) of

15 that Act from treatment as an investment company

16 under that Act.

17 (e) EFFECTIVE DATE.—The amendments made by this

18 section shall take effect on the earlier of—

19 (1) 180 days after the date of enactment of this

20 Act; or

21 (2) the date on which the rulemaking required

22 under subsection (d)(2) is completed.

23 SEC. 208. PERFORMANCE FEES EXEMPTIONS.

24 Section 205 of the Investment Advisers Act of 1940 (15

25 U.S.C. 80b–5) is amended—
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1 (1) in subsection (b)—

2 (A) in paragraph (2), by striking ‘‘or’’ at

3 the end;

4 (B) in paragraph (3), by striking the period

5 at the end and inserting a semicolon; and

6 (C) by adding at the end the following new

7 paragraphs:

8 ‘‘(4) apply to an investment advisory contract

9 with a company excepted from the definition of an

10 investment company under section 3(c)(7) of title I of

11 this Act; or

12 ‘‘(5) apply to an investment advisory contract

13 with a person who is not a resident of the United

14 States.’’; and

15 (2) by adding at the end the following new sub16 section:

17 ‘‘(e) The Commission, by rule or regulation, upon its

18 own motion, or by order upon application, may condi19 tionally or unconditionally exempt any person or trans20 action, or any class or classes of persons or transactions,

21 from subsection (a)(1), if and to the extent that the exemp22 tion relates to an investment advisory contract with any

23 person that the Commission determines does not need the

24 protections of subsection (a)(1), on the basis of such factors

25 as financial sophistication, net worth, knowledge of and ex-
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1 perience in financial matters, amount of assets under man2 agement, relationship with a registered investment adviser,

3 and such other factors as the Commission determines are

4 consistent with this section.’’.

5 SEC. 209. REPORTS TO THE COMMISSION AND SHAREHOLD6 ERS.

7 Section 30 of the Investment Company Act of 1940 (15

8 U.S.C. 80a–29) is amended—

9 (1) in subsection (b), by striking paragraph (1)

10 and inserting the following:

11 ‘‘(1) such information, documents, and reports

12 (other than financial statements), as the Commission

13 may require to keep reasonably current the informa14 tion and documents contained in the registration

15 statement of such company filed under this title;’’;

16 (2) by redesignating subsections (c), (d), (e), and

17 (f) as subsections (d), (e), (g), and (h), respectively;

18 (3) by inserting after subsection (b) the following

19 new subsection:

20 ‘‘(c)(1) The Commission shall take such action as it

21 deems necessary or appropriate, consistent with the public

22 interest and the protection of investors, to avoid unneces23 sary reporting by, and minimize the compliance burdens

24 on, registered investment companies and their affiliated

25 persons in exercising its authority—
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1 ‘‘(A) under subsection (f); and

2 ‘‘(B) under subsection (b)(1), if the Commission

3 requires the filing of information, documents, and re4 ports under that subsection on a basis more frequently

5 than semiannually.

6 ‘‘(2) Action taken by the Commission under paragraph

7 (1) shall include considering, and requesting public com8 ment on—

9 ‘‘(A) feasible alternatives that minimize the re10 porting burdens on registered investment companies;

11 and

12 ‘‘(B) the utility of such information, documents,

13 and reports to the Commission in relation to the costs

14 to registered investment companies and their affili15 ated persons of providing such information, docu16 ments, and reports.’’;

17 (4) by inserting after subsection (e) (as redesig18 nated by paragraph (2) of this section), the following

19 new subsection:

20 ‘‘(f) The Commission may, by rule, require that semi21 annual reports containing the information set forth in sub22 section (e) include such other information as the Commis23 sion deems necessary or appropriate in the public interest

24 or for the protection of investors.’’; and
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1 (5) in subsection (g) (as redesignated by para2 graph (2) of this section), by striking ‘‘subsections (a)

3 and (d)’’ and inserting ‘‘subsections (a) and (e)’’.

4 SEC. 210. BOOKS, RECORDS, AND INSPECTIONS.

5 Section 31 of the Investment Company Act of 1940 (15

6 U.S.C. 80a–30) is amended—

7 (1) by striking subsections (a) and (b) and in8 serting the following:

9 ‘‘(a)(1) Each registered investment company, and each

10 underwriter, broker, dealer, or investment adviser that is

11 a majority-owned subsidiary of such a company, shall

12 maintain and preserve such records (as defined in section

13 3(a)(37) of the Securities Exchange Act of 1934) for such

14 period or periods as the Commission, by rules and regula15 tions, may prescribe as necessary or appropriate in the

16 public interest or for the protection of investors. Each in17 vestment adviser that is not a majority-owned subsidiary

18 of, and each depositor of any registered investment com19 pany, and each principal underwriter for any registered

20 investment company other than a closed-end company, shall

21 maintain and preserve for such period or periods as the

22 Commission shall prescribe by rules and regulations, such

23 records as are necessary or appropriate to record such per24 son’s transactions with such registered company.
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1 ‘‘(2) In exercising its authority under this subsection,

2 the Commission shall take such steps as it deems necessary

3 or appropriate, consistent with the public interest and for

4 the protection of investors, to avoid unnecessary record5 keeping by, and minimize the compliance burden on, per6 sons required to maintain records under this subsection

7 (hereafter in this section referred to as ‘subject persons’).

8 Such steps shall include considering, and requesting public

9 comment on—

10 ‘‘(A) feasible alternatives that minimize the rec11 ordkeeping burdens on subject persons;

12 ‘‘(B) the necessity of such records in view of the

13 public benefits derived from the independent scrutiny

14 of such records through Commission examination;

15 ‘‘(C) the costs associated with maintaining the

16 information that would be required to be reflected in

17 such records; and

18 ‘‘(D) the effects that a proposed recordkeeping re19 quirement would have on internal compliance policies

20 and procedures.

21 ‘‘(b) All records required to be maintained and pre22 served in accordance with subsection (a) shall be subject at

23 any time and from time to time to such reasonable periodic,

24 special, and other examinations by the Commission, or any

25 member or representative thereof, as the Commission may
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1 prescribe. For purposes of such examinations, any subject

2 person shall make available to the Commission or its rep3 resentatives any copies or extracts from such records as may

4 be prepared without undue effort, expense, or delay as the

5 Commission or its representatives may reasonably request.

6 The Commission shall exercise its authority under this sub7 section with due regard for the benefits of internal compli8 ance policies and procedures and the effective implementa9 tion and operation thereof.’’;

10 (2) by redesignating subsections (c) and (d) as

11 subsections (e) and (f), respectively; and

12 (3) by inserting after subsection (b) the following

13 new subsections:

14 ‘‘(c) Notwithstanding any other provision of law, the

15 Commission shall not be compelled to disclose any internal

16 compliance or audit records, or information contained

17 therein, provided to the Commission under this section.

18 Nothing in this subsection shall authorize the Commission

19 to withhold information from the Congress or prevent the

20 Commission from complying with a request for information

21 from any other Federal department or agency requesting

22 the information for purposes within the scope of the juris23 diction of that department or agency, or complying with

24 an order of a court of the United States in an action

25 brought by the United States or the Commission. For pur-
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1 poses of section 552 of title 5, United States Code, this sec2 tion shall be considered a statute described in subsection

3 (b)(3)(B) of such section 552.

4 ‘‘(d) For purposes of this section—

5 ‘‘(1) the term ‘internal compliance policies and

6 procedures’ means policies and procedures designed

7 by subject persons to promote compliance with the

8 Federal securities laws; and

9 ‘‘(2) the term ‘internal compliance and audit

10 record’ means any record prepared by a subject per11 son in accordance with internal compliance policies

12 and procedures.’’.

13 TITLE III—REDUCING THE COST

14 OF SAVING AND INVESTMENT

15 SEC. 301. EXEMPTION FOR ECONOMIC, BUSINESS, AND IN16 DUSTRIAL DEVELOPMENT COMPANIES.

17 Section 6(a) of the Investment Company Act of 1940

18 (15 U.S.C. 80a–6(a)) is amended by adding at the end the

19 following new paragraph:

20 ‘‘(5)(A) Any company that is not engaged in the

21 business of issuing redeemable securities, the oper22 ations of which are subject to regulation by the State

23 in which the company is organized under a statute

24 governing entities that provide financial or manage-
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1 rial assistance to enterprises doing business, or pro2 posing to do business, in that State if—

3 ‘‘(i) the organizational documents of the

4 company state that the activities of the company

5 are limited to the promotion of economic, busi6 ness, or industrial development in the State

7 through the provision of financial or managerial

8 assistance to enterprises doing business, or pro9 posing to do business, in that State, and such

10 other activities that are incidental or necessary

11 to carry out that purpose;

12 ‘‘(ii) immediately following each sale of the

13 securities of the company by the company or any

14 underwriter for the company, not less than 80

15 percent of the securities of the company being of16 fered in such sale, on a class-by-class basis, are

17 held by persons who reside or who have a sub18 stantial business presence in that State;

19 ‘‘(iii) the securities of the company are sold,

20 or proposed to be sold, by the company or by any

21 underwriter for the company, solely to accredited

22 investors, as that term is defined in section 2(15)

23 of the Securities Act of 1933, or to such other

24 persons that the Commission, as necessary or ap25 propriate in the public interest and consistent
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1 with the protection of investors, may permit by

2 rule, regulation, or order; and

3 ‘‘(iv) the company does not purchase any

4 security issued by an investment company or by

5 any company that would be an investment com6 pany except for the exclusions from the definition

7 of the term ‘investment company’ under para8 graph (1) or (7) of section 3(c), other than—

9 ‘‘(I) any debt security that is rated in10 vestment grade by not less than 1 nation11 ally recognized statistical rating organiza12 tion; or

13 ‘‘(II) any security issued by a reg14 istered open-end investment company that

15 is required by its investment policies to in16 vest not less than 65 percent of its total as17 sets in securities described in subclause (I)

18 or securities that are determined by such

19 registered open-end investment company to

20 be comparable in quality to securities de21 scribed in subclause (I).

22 ‘‘(B) Notwithstanding the exemption provided by

23 this paragraph, section 9 (and, to the extent necessary

24 to enforce section 9, sections 38 through 51) shall

25 apply to a company described in this paragraph as
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1 if the company were an investment company reg2 istered under this title.

3 ‘‘(C) Any company proposing to rely on the ex4 emption provided by this paragraph shall file with

5 the Commission a notification stating that the com6 pany intends to do so, in such form and manner as

7 the Commission may prescribe by rule.

8 ‘‘(D) Any company meeting the requirements of

9 this paragraph may rely on the exemption provided

10 by this paragraph upon filing with the Commission

11 the notification required by subparagraph (C), until

12 such time as the Commission determines by order that

13 such reliance is not in the public interest or is not

14 consistent with the protection of investors.

15 ‘‘(E) The exemption provided by this paragraph

16 may be subject to such additional terms and condi17 tions as the Commission may by rule, regulation, or

18 order determine are necessary or appropriate in the

19 public interest or for the protection of investors.’’.

20 SEC. 302. INTRASTATE CLOSED-END INVESTMENT COM21 PANY EXEMPTION.

22 Section 6(d)(1) of the Investment Company Act of

23 1940 (15 U.S.C. 80a–6(d)(1)) is amended by striking

24 ‘‘$100,000’’ and inserting ‘‘$10,000,000, or such other
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1 amount as the Commission may set by rule, regulation, or

2 order’’.

3 SEC. 303. DEFINITION OF ELIGIBLE PORTFOLIO COMPANY.

4 Section 2(a)(46)(C) of the Investment Company Act of

5 1940 (15 U.S.C. 80a–2(a)(46)(C)) is amended—

6 (1) in clause (ii), by striking ‘‘or’’ at the end;

7 (2) by redesignating clause (iii) as clause (iv);

8 and

9 (3) by inserting after clause (ii) the following:

10 ‘‘(iii) it has total assets of not more

11 than $4,000,000, and capital and surplus

12 (shareholders’ equity less retained earnings)

13 of not less than $2,000,000, except that the

14 Commission may adjust such amounts by

15 rule, regulation, or order to reflect changes

16 in 1 or more generally accepted indices or

17 other indicators for small businesses; or’’.

18 SEC. 304. DEFINITION OF BUSINESS DEVELOPMENT COM19 PANY.

20 Section 2(a)(48)(B) of the Investment Company Act

21 of 1940 (15 U.S.C. 80a–2(a)(48)(B)) is amended by adding

22 at the end the following: ‘‘provided further that a business

23 development company need not make available significant

24 managerial assistance with respect to any company de25 scribed in paragraph (46)(C)(iii), or with respect to any
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1 other company that meets such criteria as the Commission

2 may by rule, regulation, or order permit, as consistent with

3 the public interest, the protection of investors, and the pur4 poses of this title; and’’.

5 SEC. 305. ACQUISITION OF ASSETS BY BUSINESS DEVELOP6 MENT COMPANIES.

7 Section 55(a)(1)(A) of the Investment Company Act

8 of 1940 (15 U.S.C. 80a–54(a)(1)(A)) is amended—

9 (1) by striking ‘‘or from any person’’ and insert10 ing ‘‘from any person’’; and

11 (2) by inserting before the semicolon ‘‘, or from

12 any other person, subject to such rules and regula13 tions as the Commission may prescribe as necessary

14 or appropriate in the public interest or for the protec15 tion of investors’’.

16 SEC. 306. CAPITAL STRUCTURE AMENDMENTS.

17 Section 61(a) of the Investment Company Act of 1940

18 (15 U.S.C. 80a–60(a)) is amended—

19 (1) in paragraph (2), by striking ‘‘if such busi20 ness development company’’ and all that follows

21 through the end of the paragraph and inserting a pe22 riod;

23 (2) in paragraph (3)(A)—

24 (A) by striking ‘‘senior securities represent25 ing indebtedness accompanied by’’;
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1 (B) by inserting ‘‘accompanied by securi2 ties,’’ after ‘‘of such company,’’; and

3 (C) in clause (ii), by striking ‘‘senior’’; and

4 (3) in paragraph (3)—

5 (A) in subparagraph (A), by striking ‘‘and’’

6 at the end;

7 (B) in subparagraph (B), by striking the

8 period at the end of clause (iv) and inserting ‘‘;

9 and’’; and

10 (C) by inserting immediately after subpara11 graph (B) the following new subparagraph:

12 ‘‘(C) a business development company may

13 issue warrants, options, or rights to subscribe to,

14 convert to, or purchase voting securities not ac15 companied by securities, if—

16 ‘‘(i) such warrants, options, or rights

17 satisfy the conditions in clauses (i) and

18 (iii) of subparagraph (A); and

19 ‘‘(ii) the proposal to issue such war20 rants, options, or rights is authorized by the

21 shareholders or partners of such business de22 velopment company, and such issuance is

23 approved by the required majority (as de24 fined in section 57(o)) of the directors of or

25 general partners in such company on the
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1 basis that such issuance is in the best inter2 ests of the company and its shareholders or

3 partners.’’.

4 SEC. 307. FILING OF WRITTEN STATEMENTS.

5 Section 64(b)(1) of the Investment Company Act of

6 1940 (15 U.S.C. 80a–63(b)(1)) is amended by inserting

7 ‘‘and capital structure’’ after ‘‘portfolio’’.

8 SEC. 308. FACILITATING NATIONAL SECURITIES MARKETS.

9 Section 18 of the Securities Act of 1933 (15 U.S.C.

10 77r) is amended to read as follows:

11 ‘‘SEC. 18. EXEMPTION FROM STATE CONTROL OF

12 SECURITIES OFFERINGS.

13 ‘‘(a) EXEMPTION FROM STATE LAW FOR REGISTERED

14 SECURITIES.—Except with respect to offerings described in

15 subsection (b) and as otherwise specifically provided in this

16 section, no law, rule, regulation, order, or other administra17 tive action of any State or Territory of the United States,

18 or the District of Columbia, or any political subdivision

19 thereof—

20 ‘‘(1) requiring, or with respect to, registration or

21 qualification of securities or securities transactions

22 shall directly or indirectly apply to an offering sub23 ject to a registration statement filed pursuant to this

24 title;
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1 ‘‘(2) shall directly or indirectly prohibit, limit,

2 or impose conditions upon the use of any offering doc3 ument, including any prospectus contained in a reg4 istration statement that has been filed with the Com5 mission; or

6 ‘‘(3) shall directly or indirectly prohibit, limit,

7 or impose conditions upon the offer or sale of any se8 curity registered with the Commission under this title

9 based on the merits of such offering or issuer.

10 ‘‘(b) SPECIAL RULES FOR CERTAIN OFFERINGS.—Ex11 cept with respect to a security of an investment company

12 that is registered under the Investment Company Act of

13 1940, the provisions of subsection (a) shall not apply to—

14 ‘‘(1) an offering—

15 ‘‘(A) by an issuer that is a blank check com16 pany, as defined in section 7(b), or a direct par17 ticipation investment program;

18 ‘‘(B) of penny stock; or

19 ‘‘(C) giving effect to a limited partnership

20 rollup transaction;

21 ‘‘(2) an offering of a security, if a person associ22 ated with the offering is subject to a statutory dis23 qualification, as defined in section 3(a)(39) of the Se24 curities Exchange Act of 1934, or any substantially

25 equivalent State law; or
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1 ‘‘(3) an offering of a security that—

2 ‘‘(A) is not listed on the New York Stock

3 Exchange, the American Stock Exchange, or the

4 National Market Segment of the National Asso5 ciation of Securities Dealers Automated

6 Quotation System Stock Market;

7 ‘‘(B) is not listed, authorized for listing, or

8 authorized for trading on a national securities

9 exchange (or tier or segment thereof) that has

10 standards for listing or for trading authorization

11 that the Commission determines, by rule (on its

12 own initiative or on the basis of a petition), are

13 substantially similar to the standards for listing

14 or for trading authorization that are applicable

15 to securities described in subparagraph (A); or

16 ‘‘(C) will not be listed or authorized for

17 trading as described in subparagraph (A) or (B)

18 upon completion of the transaction.

19 ‘‘(c) EXEMPTION FROM STATE LAW FOR TRANS20 ACTIONS IN SECURITIES WITH QUALIFIED PURCHASERS.—

21 Notwithstanding subsection (b), subsection (a) shall apply

22 with respect to offers and sales to qualified purchasers, as

23 defined by the Commission.

24 ‘‘(d) PRESERVATION OF FILING REQUIREMENTS.—
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1 ‘‘(1) IN GENERAL.—Nothing in this section shall

2 prohibit the securities commission (or any agency or

3 office performing like functions) of any State or Ter4 ritory of the United States, or the District of Colum5 bia, from requiring the filing of any documents filed

6 with the Commission pursuant to this title solely for

7 notice purposes, along with a consent to service of

8 process and requisite fee, except that no such filing,

9 consent, or fee may be required with respect to securi10 ties, or transactions relating to securities that are of

11 the same class, or are senior to such a class, as securi12 ties described in subsection (b)(3).

13 ‘‘(2) CONTINUED STATE AUTHORITY.—Notwith14 standing paragraph (1), a State or Territory of the

15 United States, or the District of Columbia may con16 tinue to collect filing or registration fees with respect

17 to securities or securities transactions in amounts de18 termined pursuant to State law as in effect on the

19 day before the date of enactment of the Securities In20 vestment Promotion Act of 1996, until otherwise spe21 cifically provided under a State law enacted on or

22 after that date of enactment.

23 ‘‘(e) PRESERVATION OF STATE AUTHORITY.—Nothing

24 in this section shall affect the jurisdiction of the securities

25 commission (or any agency or office performing like func-
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1 tions) of any State or Territory of the United States, or

2 the District of Columbia pursuant to the laws of such State

3 or Territory, with respect to any fraud or broker-dealer con4 duct in connection with securities or securities trans5 actions.’’.

6 SEC. 309. REGULATORY FLEXIBILITY.

7 (a) UNDER THE SECURITIES ACT OF 1933.—Title I

8 of the Securities Act of 1933 (15 U.S.C. 77a et seq.) is

9 amended by adding at the end the following new section:

10 ‘‘SEC. 28. GENERAL EXEMPTIVE AUTHORITY.

11 ‘‘The Commission, by rule or regulation, may condi12 tionally or unconditionally exempt any person, security, or

13 transaction, or any class or classes of persons, securities,

14 or transactions, from any provision or provisions of this

15 title or of any rule or regulation issued under this title,

16 to the extent that such exemption is necessary or appro17 priate in the public interest, and is consistent with the pro18 tection of investors.’’.

19 (b) UNDER THE SECURITIES EXCHANGE ACT OF

20 1934.—Title I of the Securities Exchange Act of 1934 (15

21 U.S.C. 78a et seq.) is amended by adding at the end the

22 following new section:

23 ‘‘SEC. 36. GENERAL EXEMPTIVE AUTHORITY.

24 ‘‘(a) IN GENERAL.—Except as provided in subsection

25 (b), the Commission, by rule, regulation, or order, may con-
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1 ditionally or unconditionally exempt any person, security,

2 or transaction, or any class or classes of persons, securities,

3 or transactions, from any provision or provisions of this

4 title or of any rule or regulation issued under this title,

5 to the extent that such exemption is necessary or appro6 priate in the public interest, and is consistent with the pro7 tection of investors. The Commission shall, by rule or regu8 lation, determine the procedures under which an exemptive

9 order under this section shall be granted and may, in its

10 sole discretion, decline to entertain any application for an

11 order of exemption under this section.

12 ‘‘(b) LIMITATION.—The Commission may not, under

13 this section, exempt any person, security, or transaction,

14 or any class or classes of persons, securities, or transactions

15 from section 15C or the rules or regulations issued there16 under or (for purposes of section 15C and the rules and

17 regulations issued thereunder) from the definitions in para18 graphs (42), (43), (44), or (45) of section 3(a).’’.

19 SEC. 310. ANALYSIS OF ECONOMIC EFFECTS OF REGULA20 TION.

21 (a) AUTHORIZATION OF APPROPRIATIONS.—There are

22 authorized to be appropriated to carry out the Economic

23 Analysis Program, including funding for the Office of Eco24 nomic Analysis of the Securities and Exchange Commis-
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1 sion, $6,000,000 for fiscal year 1997, and $6,000,000 for

2 fiscal year 1998.

3 (b) ANALYSIS OF ECONOMIC EFFECTS OF REGULA4 TION.—

5 (1) IN GENERAL.—The Chief Economist of the

6 Commission shall prepare a report on each proposed

7 regulation of the Commission. Such report shall be

8 provided to each Commissioner and shall be published

9 in the Federal Register before any such regulation of

10 the Commission may become effective.

11 (2) REPORT CONTENTS.—The report required by

12 this subsection shall include—

13 (A) an analysis of the likely effects of the

14 proposed regulation on the economy of the Unit15 ed States, and particularly upon the securities

16 markets and the participants in those markets;

17 and

18 (B) the estimated impact of the proposed

19 regulation upon economic and market behavior,

20 including any impact on market liquidity, the

21 costs of investment, and the financial risks of in22 vestment.

23 SEC. 311. PRIVATIZATION OF EDGAR.

24 Not later than 180 days after the date of enactment

25 of this Act, the Commission shall submit to the Congress
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1 a report on the Electronic Data Gathering Analysis and

2 Retrieval System consisting of the Commission’s plan for

3 promoting competition and innovation of the system

4 through privatization of all or any part of the system. Such

5 plan shall include such recommendations for action as may

6 be necessary to implement the plan.

7 SEC. 312. IMPROVING COORDINATION OF SUPERVISION.

8 Section 17 of the Securities Exchange Act of 1934 (15

9 U.S.C. 78q) is amended by adding at the end the following

10 new subsection:

11 ‘‘(i) COORDINATION OF EXAMINING AUTHORITIES.—

12 ‘‘(1) OBJECTIVE.—The Commission and the ex13 amining authorities shall promote effective and effi14 cient oversight of the activities of brokers and dealers,

15 avoiding redundancy, while maintaining the highest

16 level of examination and oversight quality.

17 ‘‘(2) ELIMINATION OF DUPLICATION.—The Com18 mission and the examining authorities, through co19 operation and coordination of examination and over20 sight activities, shall eliminate any unnecessary and

21 burdensome duplication in the examination process.

22 ‘‘(3) COORDINATION OF EXAMINATIONS.—The

23 Commission and the examining authorities shall

24 share such information, including reports of examina25 tions, customer complaint information, and other
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1 nonpublic regulatory information, as appropriate to

2 foster a coordinated approach to regulatory oversight

3 of brokers and dealers that are subject to examination

4 by more than one examining authority.

5 ‘‘(4) EXAMINATIONS FOR CAUSE.—At any time,

6 any examining authority may conduct an examina7 tion for cause of any broker or dealer subject to its

8 jurisdiction.

9 ‘‘(5) CONFIDENTIALITY.—

10 ‘‘(A) IN GENERAL.—The provisions of sec11 tion 24 shall apply to the sharing of information

12 in accordance with this subsection. The Commis13 sion shall take appropriate action under section

14 24(c) to assure that such information is not in15 appropriately disclosed.

16 ‘‘(B) APPROPRIATE DISCLOSURE NOT PRO17 HIBITED.—Nothing in this paragraph shall au18 thorize the Commission or any examining au19 thority to withhold information from the Con20 gress, or prevent the Commission or any examin21 ing authority from complying with a request for

22 information from any other Federal department

23 or agency requesting the information for pur24 poses within the scope of its jurisdiction, or com25 plying with an order of a court of the United
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1 States in an action brought by the United States

2 or the Commission.

3 ‘‘(6) DEFINITION.—For purposes of this sub4 section, the term ‘examining authority’ means the

5 self-regulatory organizations registered with the Com6 mission under this title (other than registered clearing

7 agencies) with the authority to examine, inspect, and

8 otherwise oversee the activities of a registered broker

9 or dealer.’’.

10 SEC. 313. INCREASED ACCESS TO FOREIGN BUSINESS IN11 FORMATION.

12 (a) THE SECURITIES ACT OF 1993.—Section 2(3) of

13 the Securities Act of 1933 (15 U.S.C. 77b(3)) is amended

14 in the third sentence—

15 (1) by striking ‘‘not include preliminary’’ and

16 inserting ‘‘not include (A) preliminary’’; and

17 (2) by inserting before the period ‘‘; or (B) solely

18 for purposes of section 5, press conferences held out19 side of the United States, public meetings with issuer

20 representatives conducted outside of the United States,

21 or press related materials released outside of the Unit22 ed States in which an offshore offering is discussed,

23 irrespective of whether journalists from the United

24 States or journalists for publications (including on25 line services) with circulation in the United States at-
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1 tend such press conferences or meetings or receive such

2 press related materials.’’.

3 (b) THE SECURITIES EXCHANGE ACT OF 1934.—Sec4 tion 14 of the Securities Exchange Act of 1934 (15 U.S.C.

5 78n) is amended by adding at the end the following new

6 subsection:

7 ‘‘(i) TREATMENT OF PRESS RELATED MATERIALS.—

8 ‘‘(1) IN GENERAL.—Any person making a tender

9 offer for, or a request or invitation for tenders of, the

10 securities of a foreign issuer may grant journalists

11 from the United States or journalists for publications

12 (including on-line services) with circulation in the

13 United States access to press conferences occurring

14 outside of the United States, meetings with its rep15 resentatives conducted outside of the United States, or

16 press related materials released outside of the United

17 States in which an offshore tender offer is discussed,

18 without being deemed to have used the jurisdictional

19 means specified in subsection (d)(1) or becoming sub20 ject to any regulations promulgated by the Commis21 sion, pursuant to subsection (e) of this section or sec22 tion 13(e), or otherwise, that relate to tender offers or

23 requests or invitations for tenders.
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1 ‘‘(2) DEFINITION.—For purposes of this sub2 section, the term ‘foreign issuer’ means any corpora3 tion or other organization—

4 ‘‘(A) that is incorporated or organized

5 under the laws of any foreign country; or

6 ‘‘(B) the principal place of business of

7 which is located in a foreign country.’’.

8 SEC. 314. SHORT-FORM REGISTRATION.

9 (a) IN GENERAL.—Not later than 180 days after the

10 date of enactment of this Act, the Commission shall amend

11 Form S–3 (17 C.F.R. 239.13, relating to registration under

12 the Securities Act of 1933, of securities of certain issuers

13 offered pursuant to certain types of transactions) to allow

14 such form, or its equivalent, to be used for primary offerings

15 by a registrant if—

16 (1) the outstanding stock of the registrant held

17 by nonaffiliates of the registrant has an adequate ag18 gregate market value, as determined by the Commis19 sion; and

20 (2) such registrant otherwise meets the eligibility

21 requirements for registration using such form, or its

22 equivalent.

23 (b) ADJUSTMENTS.—Any adjustment to the adequate

24 aggregate market value threshold referred to in subsection

25 (a)(1) by the Commission following the date of enactment
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1 of this Act shall apply equally to voting and nonvoting com2 mon shares and such other securities as the Commission

3 shall establish.

4 (c) DEFINITION.—For purposes of this section, the

5 term ‘‘stock’’ includes voting and nonvoting common shares,

6 and such other securities as the Commission shall establish.

7 SEC. 315. CHURCH EMPLOYEE PENSION PLANS.

8 (a) AMENDMENT TO THE INVESTMENT COMPANY ACT

9 OF 1940.—Section 3(c) of the Investment Company Act of

10 1940 (15 U.S.C. 80a–3(c)) is amended by adding at the

11 end the following new paragraph:

12 ‘‘(14) Any church plan described in section

13 414(e) of the Internal Revenue Code of 1986, if, under

14 any such plan, no part of the assets may be used for,

15 or diverted to, purposes other than the exclusive bene16 fit of plan participants or beneficiaries, or any com17 pany or account that is—

18 ‘‘(A) established by a person that is eligible

19 to establish and maintain such a plan under sec20 tion 414(e) of the Internal Revenue Code of 1986;

21 and

22 ‘‘(B) substantially all of the activities of

23 which consist of—

24 ‘‘(i) managing or holding assets con25 tributed to such church plans or other assets
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1 which are permitted to be commingled with

2 the assets of church plans under the Inter3 nal Revenue Code of 1986; or

4 ‘‘(ii) administering or providing bene5 fits pursuant to church plans.’’.

6 (b) AMENDMENT TO THE SECURITIES ACT OF 1933.—

7 Section 3(a) of the Securities Act of 1933 (15 U.S.C. 77c(a))

8 is amended by adding at the end the following new para9 graph:

10 ‘‘(13) Any security issued by or any interest or

11 participation in any church plan, company or ac12 count that is excluded from the definition of an in13 vestment company under section 3(c)(14) of the In14 vestment Company Act of 1940.’’.

15 (c) AMENDMENTS TO THE SECURITIES EXCHANGE ACT

16 OF 1934.—

17 (1) EXEMPTED SECURITIES.—Section

18 3(a)(12)(A) of the Securities Exchange Act of 1934

19 (15 U.S.C. 78c(a)(12)(A)) is amended—

20 (A) in clause (v), by striking ‘‘and’’ at the

21 end;

22 (B) by redesignating clause (vi) as clause

23 (vii); and

24 (C) by inserting after clause (v) the follow25 ing new clause:
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1 ‘‘(vi) solely for purposes of sections 12,

2 13, 14, and 16 of this title, any security is3 sued by or any interest or participation in

4 any church plan, company, or account that

5 is excluded from the definition of an invest6 ment company under section 3(c)(14) of the

7 Investment Company Act of 1940; and’’.

8 (2) EXEMPTION FROM BROKER-DEALER PROVI9 SIONS.—Section 3 of the Securities Exchange Act of

10 1934 (15 U.S.C. 78c) is amended by adding at the

11 end the following new subsection:

12 ‘‘(f) CHURCH PLANS.—No church plan described in

13 section 414(e) of the Internal Revenue Code of 1986, no per14 son or entity eligible to establish and maintain such a plan

15 under the Internal Revenue Code of 1986, no company or

16 account that is excluded from the definition of an invest17 ment company under section 3(c)(14) of the Investment

18 Company Act of 1940, and no trustee, director, officer or

19 employee of or volunteer for such plan, company, account

20 person, or entity, acting within the scope of that person’s

21 employment or activities with respect to such plan, shall

22 be deemed to be a ‘broker’, ‘dealer’, ‘municipal securities

23 broker’, ‘municipal securities dealer’, ‘government securities

24 broker’, ‘government securities dealer’, ‘clearing agency’, or

25 ‘transfer agent’ for purposes of this title—
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1 ‘‘(1) solely because such plan, company, person,

2 or entity buys, holds, sells, trades in, or transfers se3 curities or acts as an intermediary in making pay4 ments in connection with transactions in securities

5 for its own account in its capacity as trustee or ad6 ministrator of, or otherwise on behalf of, or for the ac7 count of, any church plan, company, or account that

8 is excluded from the definition of an investment com9 pany under section 3(c)(14) of the Investment Com10 pany Act of 1940; and

11 ‘‘(2) if no such person or entity receives a com12 mission or other transaction-related sales compensa13 tion in connection with any activities conducted in

14 reliance on the exemption provided by this sub15 section.’’.

16 (d) AMENDMENT TO THE INVESTMENT ADVISERS ACT

17 OF 1940.—Section 203(b) of the Investment Advisers Act

18 of 1940 (15 U.S.C. 80b–3(b)) is amended—

19 (1) in paragraph (3), by striking ‘‘or’’ at the

20 end;

21 (2) in paragraph (4), by striking the period at

22 the end and inserting ‘‘; or’’; and

23 (3) by adding at the end the following new para24 graph:
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1 ‘‘(5) any plan described in section 414(e) of the

2 Internal Revenue Code of 1986, any person or entity

3 eligible to establish and maintain such a plan under

4 the Internal Revenue Code of 1986, or any trustee, di5 rector, officer, or employee of or volunteer for any

6 such plan or person, if such person or entity provides

7 investment advice exclusively to any plan, person, or

8 entity or any company, account, or fund that is ex9 cluded from the definition of an investment company

10 under section 3(c)(14) of the Investment Company

11 Act of 1940.’’.

12 (e) AMENDMENT TO THE TRUST INDENTURE ACT OF

13 1939.—Section 304(a)(4)(A) of the Trust Indenture Act of

14 1939 (15 U.S.C. 77ddd(4)(A)) is amended by striking ‘‘or

15 (11)’’ and inserting ‘‘(11), or (14)’’.

16 (f) PROTECTION OF CHURCH EMPLOYEE BENEFIT

17 PLANS UNDER STATE LAW.—

18 (1) REGISTRATION REQUIREMENTS.—Any secu19 rity issued by or any interest or participation in any

20 church plan, company, or account that is excluded

21 from the definition of an investment company under

22 section 3(c)(14) of the Investment Company Act of

23 1940, as added by subsection (a) of this section, and

24 any offer, sale, or purchase thereof, shall be exempt
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1 from any law of a State that requires registration or

2 qualification of securities.

3 (2) TREATMENT OF CHURCH PLANS.—No church

4 plan described in section 414(e) of the Internal Reve5 nue Code of 1986, no person or entity eligible to es6 tablish and maintain such a plan under the Internal

7 Revenue Code of 1986, no company or account that

8 is excluded from the definition of an investment com9 pany under section 3(c)(14) of the Investment Com10 pany Act of 1940, as added by subsection (a) of this

11 section, and no trustee, director, officer, or employee

12 of or volunteer for any such plan, person, entity, com13 pany, or account shall be required to qualify, register,

14 or be subject to regulation as an investment company

15 or as a broker, dealer, investment adviser, or agent

16 under the laws of any State solely because such plan,

17 person, entity, company, or account buys, holds, sells,

18 or trades in securities for its own account or in its

19 capacity as a trustee or administrator of or otherwise

20 on behalf of, or for the account of, or provides invest21 ment advice to, for, or on behalf of, any such plan,

22 person, or entity or any company or account that is

23 excluded from the definition of an investment com24 pany under section 3(c)(14) of the Investment Com-
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1 pany Act of 1940, as added by subsection (a) of this

2 section.

3 (g) AMENDMENT TO THE INVESTMENT COMPANY ACT

4 OF 1940.—Section 30 of the Investment Company Act of

5 1940 (15 U.S.C. 80a–29) is amended by adding at the end

6 the following new subsections:

7 ‘‘(g) DISCLOSURE TO CHURCH PLAN PARTICIPANTS.—

8 A person that maintains a church plan that is excluded

9 from the definition of an investment company solely by rea10 son of section 3(c)(14) shall provide disclosure to plan par11 ticipants, in writing, and not less frequently than annually,

12 and for new participants joining such a plan after May

13 31, 1996, prior to joining such plan, that—

14 ‘‘(1) the plan, or any company or account main15 tained to manage or hold plan assets and interests in

16 such plan, company, or account, are not subject to

17 registration, regulation, or reporting under this title,

18 the Securities Act of 1933, the Securities Exchange

19 Act of 1934, or State securities laws; and

20 ‘‘(2) plan participants and beneficiaries therefore

21 will not be afforded the protections of those provisions.

22 ‘‘(h) NOTICE TO COMMISSION.—The Commission may

23 issue rules and regulations to require any person that

24 maintains a church plan that is excluded from the defini25 tion of an investment company solely by reason of section
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1 3(c)(14) to file a notice with the Commission containing

2 such information and in such form as the Commission may

3 prescribe as necessary or appropriate in the public interest

4 or consistent with the protection of investors.’’.

5 SEC. 316. PROMOTING GLOBAL PREEMINENCE OF AMER6 ICAN SECURITIES MARKETS.

7 It is the sense of the Congress that—

8 (1) the United States and foreign securities mar9 kets are increasingly becoming international

10 securities markets, as issuers and investors seek the

11 benefits of new capital and secondary market oppor12 tunities without regard to national borders;

13 (2) as issuers seek to raise capital across

14 national borders, they confront differing accounting

15 requirements in the various regulatory jurisdictions;

16 (3) the establishment of a high-quality com17 prehensive set of generally accepted international ac18 counting standards in cross-border securities offerings

19 would greatly facilitate international financing ac20 tivities and, most significantly, would enhance the

21 ability of foreign corporations to access and list in

22 United States markets;

23 (4) in addition to the efforts made before the date

24 of enactment of this Act by the Commission to re25 spond to the growing internationalization of securities
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1 markets, the Commission should enhance its vigorous

2 support for the development of high-quality inter3 national accounting standards as soon as practicable;

4 and

5 (5) the Commission, in view of its clear author6 ity under law to facilitate the access of foreign cor7 porations to list their securities in United States

8 markets, should report to the Congress, not later than

9 1 year after the date of enactment of this Act, on

10 progress in the development of international account11 ing standards and the outlook for successful comple12 tion of a set of international standards that would be

13 acceptable to the Commission for offerings and list14 ings by foreign corporations in United States mar15 kets.

16 SEC. 317. BROKER-DEALER EXEMPTION FROM STATE LAW

17 FOR CERTAIN DE MINIMIS TRANSACTIONS.

18 (a) IN GENERAL.—Section 15 of the Securities Ex19 change Act of 1934 (15 U.S.C. 78o) is amended by adding

20 at the end the following new subsection:

21 ‘‘(h) EXEMPTION FROM STATE LAW FOR CERTAIN DE

22 MINIMIS TRANSACTIONS.—

23 ‘‘(1) IN GENERAL.—No law, rule, regulation, or

24 order, or other administrative action of any State or

25 political subdivision thereof may prohibit an associ-
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1 ated person of a broker or dealer from affecting a

2 transaction described in paragraph (2) for a customer

3 in such State if—

4 ‘‘(A) such associated person is not ineligible

5 to register with such State for any reason other

6 than such a transaction;

7 ‘‘(B) such associated person is registered

8 with a registered securities association and at

9 least one State; and

10 ‘‘(C) the broker or dealer with which such

11 person is associated is registered with such State.

12 ‘‘(2) DESCRIBED TRANSACTIONS.—

13 ‘‘(A) IN GENERAL.—A transaction is de14 scribed in this paragraph if—

15 ‘‘(i) such transaction is effected—

16 ‘‘(I) on behalf of a customer that,

17 for 30 days prior to the day of the

18 transaction, maintained an account

19 with the broker or dealer; and

20 ‘‘(II) by an associated person of

21 the broker or dealer—

22 ‘‘(aa) to which the customer

23 was assigned for 14 days prior to

24 the day of the transaction; and
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1 ‘‘(bb) who is registered with

2 a State in which the customer was

3 a resident or was present for at

4 least 30 consecutive days during

5 the one-year period prior to the

6 day of the transaction;

7 ‘‘(ii) the transaction is effected—

8 ‘‘(I) on behalf of a customer that,

9 for 30 days prior to the day of the

10 transaction, maintains an account

11 with the broker or dealer; and

12 ‘‘(II) within the period beginning

13 on the date on which such associated

14 person files an application for registra15 tion with the State in which the trans16 action is effected and ending on the

17 earlier of—

18 ‘‘(aa) 60 days after the date

19 on which the application is filed;

20 or

21 ‘‘(bb) the date on which such

22 State notifies the associated per23 son that it has denied the applica24 tion for registration or has stayed
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1 the pendency of the application

2 for cause.

3 ‘‘(B) RULES OF CONSTRUCTION.—For pur4 poses of subparagraph (A)(i)(II)—

5 ‘‘(i) each of up to 3 associated persons

6 of a broker or dealer who are designated to

7 effect transactions during the absence or un8 availability of the principal associated per9 son for a customer may be treated as an as10 sociated person to which such customer is

11 assigned; and

12 ‘‘(ii) if the customer is present in an13 other State for 30 or more consecutive days

14 or has permanently changed his or her resi15 dence to another State, a transaction is not

16 described in this paragraph, unless the asso17 ciation person of the broker or dealer files

18 an application for registration with such

19 State not later than 10 business days after

20 the later of the date of the transaction, or

21 the date of the discovery of the presence of

22 the customer in the other State for 30 or

23 more consecutive days or the change in the

24 customer’s residence.’’.
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1 (b) TECHNICAL AMENDMENT.—Section 28(a) of the Se2 curities Exchange Act of 1934 (15 U.S.C. 78bb(a)) is

3 amended by striking ‘‘Nothing’’ and inserting ‘‘Except as

4 otherwise specifically provided in this title, nothing’’.

5 SEC. 318. STUDIES AND REPORTS.

6 (a) IMPACT OF TECHNOLOGICAL ADVANCES.—

7 (1) STUDY.—

8 (A) IN GENERAL.—The Commission shall

9 conduct a study of—

10 (i) the impact of technological ad11 vances and the use of on-line information

12 systems on the securities markets;

13 (ii) how such technologies have changed

14 the way in which the securities markets op15 erate; and

16 (iii) any steps taken by the Commis17 sion to address such changes.

18 (B) CONSIDERATIONS.—In conducting the

19 study under subparagraph (A), the Commission

20 shall consider how the Commission has adapted

21 its enforcement policies and practices in response

22 to technological developments with regard to—

23 (i) disclosure, prospectus delivery, and

24 other customer protection regulations;
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1 (ii) intermediaries and exchanges in

2 the domestic and international financial

3 services industry;

4 (iii) reporting by issuers, including

5 communications with holders of securities;

6 (iv) the relationship of the Commission

7 with other national regulatory authorities

8 and organizations to improve coordination

9 and cooperation; and

10 (v) the relationship of the Commission

11 with State regulatory authorities and orga12 nizations to improve coordination and co13 operation.

14 (2) REPORT.—Not later than 1 year after the

15 date of enactment of this Act, the Commission shall

16 submit a report to the Congress on the results of the

17 study conducted under paragraph (1).

18 (b) SHAREHOLDER PROPOSALS.—

19 (1) STUDY.—The Commission shall conduct a

20 study of—

21 (A) whether shareholder access to proxy

22 statements pursuant to section 14 of the Securi23 ties Exchange Act of 1934 has been impaired by

24 recent statutory, judicial, or regulatory changes;

25 and
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1 (B) the ability of shareholders to have pro2 posals relating to corporate practices and social

3 issues included as part of proxy statements.

4 (2) REPORT.—Not later than 1 year after the

5 date of enactment of this Act, the Commission shall

6 submit a report to the Congress on the results of the

7 study conducted under paragraph (1), together with

8 any recommendations for regulatory or legislative

9 changes that it considers necessary to improve share10 holder access to proxy statements.

11 (c) PREFERENCING.—

12 (1) STUDY.—The Commission shall conduct a

13 study of the impact on investors and the national

14 market system of the practice known as

15 ‘‘preferencing’’ on one or more registered securities ex16 changes, including consideration of—

17 (A) how preferencing impacts—

18 (i) the execution prices received by re19 tail securities customers whose orders are

20 preferenced; and

21 (ii) the ability of retail securities cus22 tomers in all markets to obtain executions

23 of their limit orders in preferenced securi24 ties; and
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1 (B) the costs of preferencing to such cus2 tomers.

3 (2) REPORT.—Not later than 6 months after the

4 date of enactment of this Act, the Commission shall

5 submit a report to the Congress on the results of the

6 study conducted under paragraph (1).

7 (3) DEFINITION.—For purposes of this sub8 section, the term ‘‘preferencing’’ refers to the practice

9 of a broker acting as a dealer on a national securities

10 exchange, directing the orders of customers to buy or

11 sell securities to itself for execution under rules that

12 permit the broker to take priority in execution over

13 same-priced orders or quotations entered prior in

14 time.

Attest:

Secretary.
104TH CONGRESS

2D SESSION H. R. 3005

AMENDMENT
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