I

104TH CONGRESS

1ST SESSION H. R. 2131

To amend the Federal securities laws in order to promote efficiency and

capital formation in the financial markets.

IN THE HOUSE OF REPRESENTATIVES

JULY 27, 1995

Mr. FIELDS of Texas (for himself, Mr. FRISA, Mr. OXLEY, Mr. GILLMOR, Mr.

PAXON, Mr. HASTERT, Mr. BARTON of Texas, and Mr. WHITE) introduced the following bill; which was referred to the Committee on Commerce

A BILL

To amend the Federal securities laws in order to promote

efficiency and capital formation in the financial markets.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Capital Markets Deregulation and Liberalization Act of

6 1995’’.

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

8 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Investment recommendations to institutional clients.

Sec. 3. Creation of national securities markets.
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Sec. 4. Securities margin requirements.

Sec. 5. Minimizing transaction costs of corporate organization.

Sec. 6. Prospectus delivery.

Sec. 7. Exemptive authority.

Sec. 8. Promotion of efficiency, competition, and capital formation.

Sec. 9. Reduction in number of members of Commission.

Sec. 10. Privatization of EDGAR.

Sec. 11. Rules of self-regulatory organizations.

Sec. 12. Designation of primary SRO and examining authority.

Sec. 13. Treatment of press conferences.

Sec. 14. Repeal of Trust Indenture Act of 1939.

1 SEC. 2. INVESTMENT RECOMMENDATIONS TO INSTITU2 TIONAL CLIENTS.

3 (a) RULES OF NATIONAL SECURITIES EXCHANGES

4 PERTAINING TO INVESTMENT RECOMMENDATIONS TO IN5 STITUTIONAL CLIENTS.—Section 6(b) of the Securities

6 Exchange Act of 1934 (15 U.S.C. 78f(b)) is amended by

7 inserting after paragraph (9) the following new paragraph:

8 ‘‘(10) INVESTMENT RECOMMENDATIONS TO IN9 STITUTIONAL CLIENTS.—

10 ‘‘(A) IN GENERAL.—The rules of the ex11 change do not provide that a member is respon12 sible for the investment decisions of an institu13 tional client, except that the rules of the asso14 ciation may contain a provision in accordance

15 with subparagraph (B).

16 ‘‘(B) PROVISION FOR WRITTEN AGREE17 MENTS.—The rules of the exchange may pro18 vide that a broker or dealer is responsible for

19 an investment decision of an institutional client

20 if the following conditions are met—
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1 ‘‘(i) the broker or dealer and the insti2 tutional client expressly agree in writing,

3 prior to or contemporaneously with the

4 recommendation, that the recommendation

5 will be made by the broker or dealer on a

6 reasonable belief that the recommendation

7 is suitable for such institutional client,

8 based upon facts disclosed by such institu9 tional client as to its other security hold10 ings and as to its financial situation and

11 needs; and

12 ‘‘(ii) such other conditions as the ex13 change may establish in accordance with

14 the requirements of this section.

15 ‘‘(C) DEFINITION OF INSTITUTIONAL CLI16 ENT.—For purposes of this paragraph, the

17 term ‘institutional client’ means any person

18 other than a natural person that has at least

19 $10,000,000 invested in securities in the aggre20 gate in its portfolio.’’.

21 (b) PRESUMPTION IN ACTIONS PERTAINING TO REC22 OMMENDATIONS TO INSTITUTIONAL CLIENTS.—Section

23 15 of the Securities Exchange Act of 1934 (15 U.S.C.

24 78o) is amended by inserting after subsection (g) the fol25 lowing new subsection:
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1 ‘‘(h) INVESTMENT RECOMMENDATIONS TO INSTITU2 TIONAL CLIENTS.—

3 ‘‘(1) PRESUMPTION.—In any action brought

4 against a broker or dealer or a person associated

5 with a broker or dealer under this title or under any

6 rule or regulation thereunder pertaining to an in7 vestment recommendation to an institutional client,

8 the broker or dealer or associated person shall be en9 titled to a presumption that it is not liable for the

10 investment decisions of an institutional client.

11 ‘‘(2) STANDARD FOR REBUTTING PRESUMP12 TION.—The presumption set out in paragraph (1)

13 may only be rebutted by proof that the broker or

14 dealer or associated person and the institutional cli15 ent expressly agreed in writing, prior to or contem16 poraneously with the recommendation, that the rec17 ommendation would be made by the broker or dealer

18 or associated person on a reasonable belief that the

19 recommendation would be suitable for such institu20 tional client, based upon facts disclosed by such in21 stitutional client as to its other security holdings and

22 as to its financial situation and needs.

23 ‘‘(3) DEFINITION OF INSTITUTIONAL CLIENT.—

24 For purposes of this subsection, the term ‘institu25 tional client’ means any person other than a natural
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1 person that has at least $10,000,000 invested in se2 curities in the aggregate in its portfolio.

3 ‘‘(4) LIMITATION.—This subsection shall not be

4 deemed to create or affirm any private right of ac5 tion against a broker or dealer or associated person

6 for any investment recommendation to an institu7 tional client.’’.

8 (c) RULES OF SECURITIES ASSOCIATIONS.—Section

9 15A(b) of the Securities Exchange Act of 1934 (15 U.S.C.

10 78o–3(b)) is amended by inserting after paragraph (13)

11 the following new paragraph:

12 ‘‘(14) INVESTMENT RECOMMENDATIONS TO IN13 STITUTIONAL CLIENTS.—

14 ‘‘(A) IN GENERAL.—The rules of the asso15 ciation do not provide that a member is respon16 sible for the investment decisions of an institu17 tional client, except that the rules of the asso18 ciation may contain a provision in accordance

19 with subparagraph (B).

20 ‘‘(B) PROVISION FOR WRITTEN AGREE21 MENTS.—The rules of the association may pro22 vide that a broker or dealer is responsible for

23 an investment decision of an institutional client

24 if the following conditions are met—
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1 ‘‘(i) the broker or dealer and the insti2 tutional client expressly agree in writing,

3 prior to or contemporaneously with the

4 recommendation, that the recommendation

5 will be made by the broker or dealer on a

6 reasonable belief that the recommendation

7 is suitable for such institutional client,

8 based upon facts disclosed by such institu9 tional client as to its other security hold10 ings and as to its financial situation and

11 needs; and

12 ‘‘(ii) such other conditions as the as13 sociation may establish in accordance with

14 the requirements of this section.

15 ‘‘(C) DEFINITION OF INSTITUTIONAL CLI16 ENT.—For purposes of this paragraph, the

17 term ‘institutional client’ means any person

18 other than a natural person that has at least

19 $10,000,000 invested in securities in the aggre20 gate in its portfolio.’’.

21 SEC. 3. CREATION OF NATIONAL SECURITIES MARKETS.

22 (a) SECURITIES ACT OF 1933.—

23 (1) EXEMPTION FROM STATE CONTROL.—Sec24 tion 18 of the Securities Act of 1933 (15 U.S.C.

25 77r) is amended to read as follows:
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1 ‘‘SEC. 18. EXEMPTION FROM STATE CONTROL OF SECURI2 TIES OFFERINGS.

3 ‘‘(a) EXEMPTION FROM STATE LAW FOR REG4 ISTERED SECURITIES.—No law of any State or Territory

5 of the United States, or the District of Columbia, or any

6 political subdivision thereof, requiring, or with respect to,

7 registration or qualification of securities or securities

8 transactions shall apply to any securities that are offered

9 or sold using any means or instruments of transportation

10 or communication in interstate commerce or of the mails

11 pursuant to—

12 ‘‘(1) a registration statement filed pursuant to

13 this title, with the exception of a registration state14 ment filed by an issuer which is a blank check com15 pany as defined in section 7(b) of this title;

16 ‘‘(2) an exemption from registration set forth in

17 section 3(a) of this title, with the exception of sec18 tion 3(a)(11) or any rule or regulation promulgated

19 thereunder; or

20 ‘‘(3) any other exemption from section 5 of this

21 title, except where the Commission may, by rule or

22 regulation, exclude such securities from the provi23 sions of this section 18(a) upon a finding that the

24 public interest and the protection of investors would

25 be served by State regulation.
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1 ‘‘(b) PRESERVATION OF FILING REQUIREMENTS.—

2 Nothing contained in this title shall prohibit the securities

3 commission (or any agency or office performing like func4 tions) of any State or Territory of the United States, or

5 the District of Columbia, from requiring the filing of any

6 documents filed with the Commission pursuant to this title

7 solely for notice purposes, along with a consent to service

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

9 consent, or fee may be required with respect to securities,

10 or transactions relating to securities, that are of the same

11 class as securities, or are senior to such a class, listed on

12 the New York Stock Exchange or the American Stock Ex13 change or designated for trading in the National Market

14 System of the National Association of Securities Dealers

15 Automated Quotation System, or securities that will be so

16 listed or designated for trading upon completion of the

17 transaction.

18 ‘‘(c) EXCEPTIONS.—Nothing in this title shall affect

19 the jurisdiction of the securities commission (or any agen20 cy or office performing like functions) of any State or Ter21 ritory of the United States, or the District of Columbia,

22 over—

23 ‘‘(1) any securities or transactions in securities

24 excluded, by statute, rule, or regulation, from the

25 operation of section 18(a), or
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1 ‘‘(2) any person who, in the offer or sale of any

2 securities subject to section 18(a), directly or indi3 rectly, engages in conduct that violates section 17(a)

4 of this title, regardless of whether the jurisdictional

5 means specified therein are satisfied.’’.

6 (2) FEDERAL-STATE COOPERATION.—Section

7 19(c)(1) of such Act (15 U.S.C. 77s(c)(1)) is

8 amended to read as follows:

9 ‘‘(c)(1) In connection with any regulation of securi10 ties, securities transactions or other securities matters by

11 any State or Territory of the United States, or the District

12 of Columbia, which has not been preempted by section 18

13 of this title, other Federal laws, or rules or regulations

14 promulgated thereunder, the Commission is authorized to

15 cooperate with any association composed of duly con16 stituted representatives of State governments whose pri17 mary assignment is the regulation of the securities busi18 ness within those States, and which, in the judgment of

19 the Commission, could assist in effectuating greater uni20 formity in such Federal-State securities matters. The

21 Commission may, at its discretion, cooperate, coordinate,

22 and share information with such an association for the

23 purposes of carrying out the policies and projects set forth

24 in paragraphs (2) and (3).’’.
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1 (3) TECHNICAL AMENDMENT.—Section

2 19(c)(3)(C) is amended by striking the last sentence.

3 (4) EFFECTIVE DATE.—The amendments made

4 by this subsection shall be effective 180 days after

5 the date of the enactment of this Act.

6 (b) SECURITIES EXCHANGE ACT OF 1934.—

7 (1) AMENDMENT.—Section 15 of the Securities

8 Exchange Act of 1934 (15 U.S.C. 78o) is amended

9 by adding at the end the following new subsection:

10 ‘‘(h) EXEMPTION FROM STATE LAW FOR REG11 ISTERED PERSONS.—

12 ‘‘(1) EXEMPTION.—No law of any State or po13 litical subdivision thereof requiring the registration,

14 licensing, or qualification of a broker, dealer, or per15 son acting in a similar capacity in connection with

16 the purchase or sale of any security, shall apply to—

17 ‘‘(A) any person who is registered with the

18 Commission as a broker or dealer, municipal se19 curities dealer, or government securities broker

20 or dealer under this title, or who the Commis21 sion by rule or order has exempted from reg22 istration, or any issuer;

23 ‘‘(B) any member of a national securities

24 exchange; or
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1 ‘‘(C) any person associated with a broker

2 or dealer, member of a national securities ex3 change, municipal securities dealer, government

4 securities broker or dealer, or any issuer, in5 cluded within the coverage of subparagraph (A)

6 or (B).

7 ‘‘(2) PERMITTED STATE ACTIVITIES.—Nothing

8 contained in this subsection shall prohibit a State

9 from requiring registration, licensing, or qualifica10 tion of any person, other than an issuer, who is

11 within the coverage of paragraph (1) of this sub12 section—

13 ‘‘(A) in the case of paragraphs (1) (A) and

14 (B), the State performs its registration, licens15 ing, or qualification procedures through a

16 central registration depository system operated

17 by a national securities association registered

18 under section 15A of this title, and the State’s

19 requirements are substantially similar to the

20 Commission’s registration requirements and do

21 not include any provisions that are inconsistent

22 with, or in addition to, the Commission’s reg23 istration requirements; or

24 ‘‘(B) in the case of paragraph (1)(C), the

25 State performs its registration, licensing, or
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1 qualification procedures through a central reg2 istration depository system operated by a na3 tional securities association registered under

4 section 15A of this title and the State’s require5 ments are substantially similar to, and not in6 consistent with, the registration requirements of

7 such association or the Commission.

8 ‘‘(3) PROHIBITED REQUIREMENTS.—No law of

9 any State or political subdivision thereof shall estab10 lish broker or dealer capital, books, and records, or

11 financial reporting requirements regarding persons

12 registered, licensed, or qualified pursuant to sub13 section (h)(1) that differ from requirements estab14 lished in these areas by the Commission.

15 ‘‘(4) EXEMPTIONS.—The Commission may by

16 rule, regulation, or order exempt State requirements

17 from the provisions of paragraphs (1), (2), and (3)

18 of this subsection, in whole or in part, conditionally

19 or unconditionally, upon a finding that the public in20 terest, the protection of investors, and the mainte21 nance of fair and orderly markets would be served

22 by such State regulation.

23 ‘‘(5) FEES PERMITTED.—Nothing in this sub24 section shall prohibit any State or political subdivi25 sion thereof from charging requisite fees in connec-
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1 tion with the registration, licensing, or qualification

2 of persons within the coverage of this subsection.

3 ‘‘(6) PRESERVATION OF AUTHORITY.—Nothing

4 contained in this subsection shall affect the jurisdic5 tion of any State or political subdivision thereof to

6 administer or enforce any provision of State law not

7 preempted by this subsection.’’.

8 (2) EFFECTIVE DATE.—The amendments made

9 by this subsection shall be effective upon enactment.

10 (c) FEDERAL PREEMPTION OF STATE REGULATION

11 OF MATTERS REGULATED UNDER THE INVESTMENT

12 COMPANY ACT OF 1940.—Section 50 of the Investment

13 Company Act of 1940 is amended by striking ‘‘under such

14 Act; nor’’ and all that follows and inserting the following:

15 ‘‘under such Acts. The Commission shall have exclusive

16 jurisdiction with respect to all securities and transactions

17 to which this title applies, and to all persons to whom this

18 title applies.’’.

19 (d) FEDERAL PREEMPTION OF STATE REGULATION

20 OF PERSONS REGULATED UNDER THE INVESTMENT AD21 VISERS ACT OF 1940.—Section 222 of the Investment Ad22 visers Act of 1940 is amended to read as follows:

23 ‘‘SEC. 222. EXCLUSIVE JURISDICTION.

24 ‘‘The Commission shall have exclusive jurisdiction

25 with respect to all securities and transactions to which this
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1 title applies, and to all persons to whom this title ap2 plies.’’.

3 SEC. 4. SECURITIES MARGIN REQUIREMENTS.

4 (a) MARGIN REQUIREMENTS.—Section 7 of the Secu5 rities Exchange Act of 1934 (15 U.S.C. 78g) is amended

6 to read as follows:

7 ‘‘SEC. 7. MARGIN REQUIREMENTS.

8 ‘‘(a) UNLAWFUL CREDIT EXTENSION IN VIOLATION

9 OF RULES AND REGULATIONS; EXCEPTION TO APPLICA10 TION OF RULES, ETC.—

11 ‘‘(1) GENERAL LIMITATIONS.—It shall be un12 lawful for any person to extend or maintain credit

13 on any equity security of a class designated by the

14 Board of Governors of the Federal Reserve System

15 for the purpose of purchasing or carrying any equity

16 security of a class so designated, in contravention of

17 such rules and regulations as the Board of Gov18 ernors of the Federal Reserve System shall prescribe

19 to prevent the excessive use of credit for the pur20 chasing or carrying of equity securities of a class so

21 designated.

22 ‘‘(2) APPLICABILITY.—Such rules and regula23 tions shall designate the classes of equity securities

24 subject to credit restrictions under this subsection

25 and shall apply equally to banks, brokers, dealers,
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1 and other lenders. This subsection and the rules and

2 regulations thereunder shall not apply to any credit

3 extended or maintained—

4 ‘‘(A) by a person not in the ordinary

5 course of business;

6 ‘‘(B) on an exempted security;

7 ‘‘(C) to or for an excluded account; or

8 ‘‘(D) as the Board of Governors of the

9 Federal Reserve System shall, by such rules,

10 regulations, or orders as it may deem necessary

11 or appropriate in the public interest or for the

12 protection of investors, exempt, either uncondi13 tionally or upon specified terms and conditions,

14 or for stated periods, from the operation of this

15 subsection and the rules and regulations there16 under.

17 ‘‘(3) EXEMPTION.—Notwithstanding subpara18 graphs (A), (B), and (C) of paragraph (2), the

19 Board of Governors of the Federal Reserve System

20 may impose such rules and regulations, in whole or

21 in part, on any extension of credit otherwise exempt22 ed by such subparagraphs if the Board of Governors

23 determines that such action is necessary to deal with

24 substantial instability or the imminent threat of sub25 stantial instability in the financial markets.
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1 ‘‘(b) UNLAWFUL USE OF FOREIGN CREDIT FACILI2 TIES.—

3 ‘‘(1) LIMITATIONS.—It shall be unlawful for

4 any United States person, or any foreign person con5 trolled by a United States person or acting on behalf

6 of or in conjunction with such person, to obtain, re7 ceive, or enjoy the beneficial use of any extension of

8 credit from any lender (without regard to whether

9 the lender’s office or place of business is in a State

10 or the transaction occurred in whole or in part with11 in a State) for the purpose of—

12 ‘‘(A) purchasing or carrying United States

13 equity securities of a class designated by the

14 Board of Governors of the Federal Reserve Sys15 tem pursuant to subsection (a); or

16 ‘‘(B) purchasing or carrying within the

17 United States of any other equity securities of

18 a class so designated, if, under this section or

19 rules and regulations prescribed thereunder, the

20 extension of credit is prohibited or would be

21 prohibited if it had been made or the trans22 action had otherwise occurred in a lender’s of23 fice or other place of business in a State.

24 ‘‘(2) DEFINITIONS.—For the purposes of this

25 subsection:
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1 ‘‘(A) The term ‘United States person’ in2 cludes a person which is organized or exists

3 under the laws of any State or, in the case of

4 a natural person, a citizen or resident of the

5 United States; a domestic estate; or a trust in

6 which one or more of the foregoing persons has

7 a cumulative direct or indirect beneficial inter8 est in excess of 50 percent of the value of the

9 trust.

10 ‘‘(B) The term ‘United States equity secu11 rity’ means an equity security (other than an

12 exempted security) issued by a person incor13 porated under the laws of any State, or whose

14 principal place of business is within a State.

15 ‘‘(C) The term ‘foreign person controlled

16 by a United States person’ includes any

17 noncorporate entity in which United States per18 sons directly or indirectly have more than a 50

19 percent beneficial interest, and any corporation

20 in which one or more United States persons, di21 rectly or indirectly, own stock possessing more

22 than 50 percent of the total combined voting

23 power of all classes of stock entitled to vote, or

24 more than 50 percent of the total value of

25 shares of all classes of stock.
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1 ‘‘(3) EXEMPTIONS.—The Board of Governors of

2 the Federal Reserve System may, in its discretion

3 and with due regard for the purposes of this section,

4 by rule, regulation, or order exempt any class of

5 United States persons or foreign persons controlled

6 by a United States person from the application of

7 this subsection.

8 ‘‘(c) INCONSISTENT RULES.—No margin, financial

9 responsibility, or other rule of any national securities ex10 change or of any national securities association shall im11 pose any limitation on the extension or maintenance of

12 credit more restrictive than, or otherwise inconsistent

13 with, those provided for in this section and the rules and

14 regulations of the Board of Governors of the Federal Re15 serve System adopted hereunder.’’.

16 (b) REMOVAL OF RESTRICTIONS ON BORROWING BY

17 BROKER-DEALERS.—Section 8 of the Securities Exchange

18 Act of 1934 (15 U.S.C. 78h) is amended—

19 (1) by striking out ‘‘member of a national secu20 rities exchange, or broker or dealer who transacts

21 business in securities through the medium of any

22 member of a national securities exchange,’’; and

23 (2) by striking out subsection (a) and by redes24 ignating subsections (b) and (c) as subsections (a)

25 and (b), respectively.
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1 (c) TRADING BY MEMBERS OF EXCHANGES, BRO2 KERS AND DEALERS.—Section 11(d) of the Securities Ex3 change Act of 1934 (15 U.S.C. 78k(d)) is amended—

4 (1) by striking out ‘‘a member of a national se5 curities exchange’’ and inserting in lieu thereof ‘‘any

6 person’’;

7 (2) by striking out ‘‘, or for any person who

8 both as a broker and a dealer transacts a business

9 in securities through the medium of a member or

10 otherwise,’’;

11 (3) by striking out ‘‘in the case of a member’’;

12 (4) by inserting ‘‘(other than an excluded ac13 count)’’ after ‘‘customer’’ the first place it appears;

14 (5) by inserting ‘‘equity’’ before ‘‘security’’ the

15 first place it appears;

16 (6) by striking out ‘‘(i)’’ and by striking out ‘‘or

17 (ii) any mortgage related security or any small busi18 ness related security against full payment of the en19 tire purchase price thereof upon such delivery within

20 180 days after such purchase or within such shorter

21 period as the Commission may prescribe by rule or

22 regulation’’; and

23 (7) by adding at the end thereof the following

24 new sentence: ‘‘The Commission may, by such rules,

25 regulations, or orders as it may deem necessary or
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1 appropriate in the public interest or for the protec2 tion of investors, exempt either unconditionally or

3 upon specified terms and conditions, or for stated

4 periods, any security or transaction, or class of secu5 rities or transactions from the operation of this sub6 section and the rules and regulations thereunder.’’.

7 (d) DEFINITION.—Section 3(a) of the Securities Ex8 change Act of 1934 (15 U.S.C. 78c(a)) is amended by

9 adding at the end thereof the following new paragraph:

10 ‘‘(54) The term ‘excluded account’ means any

11 person who comes within any of the following cat12 egories:

13 ‘‘(A) A financial institution, trust com14 pany, savings association, or savings and loan

15 association (acting in an individual, fiduciary,

16 or agency capacity).

17 ‘‘(B) A broker or dealer or an investment

18 adviser (acting on its own behalf or on behalf

19 of another).

20 ‘‘(C) A futures commission merchant, floor

21 broker, or floor trader (acting on its own behalf

22 or on behalf of another).

23 ‘‘(D) An insurance company.

24 ‘‘(E) An investment company, small busi25 ness investment company, business development
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1 company, or private business development com2 pany.

3 ‘‘(F) Any governmental entity (including

4 the United States, any State or any foreign

5 government), any political subdivision thereof,

6 any multinational or supranational entity, or

7 any department, agency, or instrumentality of

8 any of the foregoing.

9 ‘‘(G) A corporation, partnership, propri10 etorship, organization, trust, or other entity,

11 not formed for the specific purpose of evading

12 the requirements of any rule or regulation

13 adopted under section 7, with total assets ex14 ceeding $5,000,000 or the obligations of which

15 with respect to any extension of credit are guar16 anteed or otherwise supported by a letter of

17 credit or keepwell, support, or other agreement

18 by any such entity or by an entity referred to

19 in subparagraph (A), (B), (C), (D), (E), or (F)

20 of this paragraph.

21 ‘‘(H) An employee benefit plan with assets

22 exceeding $5,000,000 or whose investment deci23 sions are made by a bank, trust company,

24 broker, dealer, or registered investment adviser.
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1 ‘‘(I) Any entity in which all the equity

2 owners are ‘excluded accounts’.

3 ‘‘(J) Any person, other than a natural per4 son, who is an affiliate of the person extending

5 or maintaining credit.

6 ‘‘(K) Such other persons as the Board of

7 Governors of the Federal Reserve System shall,

8 by rule, regulation, or order, designate as an

9 ‘excluded account’, either unconditionally or

10 upon specified terms and conditions, or for

11 specified periods.’’.

12 (e) EFFECTIVE DATE.—The amendments made by

13 this section shall be effective 270 days after the date of

14 enactment of this Act.

15 SEC. 5. MINIMIZING TRANSACTION COSTS OF CORPORATE

16 ORGANIZATION.

17 (a) AMENDMENTS TO SECTION 13 OF THE 1934

18 ACT.—Section 13 of the Securities Exchange Act of 1934

19 (15 U.S.C. 78m) is amended—

20 (1) by striking subsections (d) and (e); and

21 (2) by redesignating subsections (f), (g), and

22 (h) as subsections (d), (e), and (f), respectively.

23 (b) AMENDMENTS TO SECTION 14 OF THE 1934

24 ACT.—Section 14 of such Act (15 U.S.C. 78n) is amend25 ed—
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1 (1) by striking subsections (d), (f), and (g); and

2 (2) by redesignating subsections (e) and (h) as

3 subsections (d) and (e), respectively.

4 (c) CONFORMING AMENDMENTS.—

5 (1) Section 6(b)(9) of such Act (15 U.S.C.

6 78f(b)(9)) is amended by striking ‘‘section 14(h)’’

7 and inserting ‘‘section 14(e)’’.

8 (2) Section 12(i) of such Act (15 U.S.C. 78l(i))

9 is amended by striking ‘‘14(f),’’.

10 (3) Section 13(d)(1) of such Act (as redesig11 nated by subsection (a)(1) of this section) is amend12 ed—

13 (A) by striking ‘‘equity securities of a class

14 described in section 13(d)(1) of this title’’ and

15 inserting ‘‘equity security of a class which is

16 registered pursuant to section 12 of this title,

17 or any equity security of an insurance company

18 which would have been required to be so reg19 istered except for the exemption contained in

20 section 12(g)(2)(G) of this title, or any equity

21 security issued by a closed-end investment com22 pany registered under the Investment Company

23 Act of 1940 or any equity security issued by a

24 Native Corporation pursuant to section
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1 37(d)(6) of the Alaska Native Claims Settle2 ment Act,’’;

3 (B) in subparagraph (C), by striking ‘‘each

4 equity security of a class described in section

5 13(d)(1) of this title’’ and inserting ‘‘each such

6 equity security’’;

7 (C) in subparagraph (E), by striking ‘‘any

8 equity security of a class described in section

9 13(d)(1) of this title’’ and inserting ‘‘any such

10 equity security’’.

11 (4) Section 13(d)(3) of such Act (as so redesig12 nated) is amended by striking ‘‘all equity securities

13 of a class described in section 13(d)(1) of this title,’’

14 and inserting ‘‘all equity securities of a class de15 scribed in paragraph (1) of this subsection’’.

16 (5) Section 14(e) of such Act (as so redesig17 nated) is amended—

18 (A) in paragraph (1), by striking ‘‘sub19 sections (a) and (d)’’ and inserting ‘‘subsection

20 (a)’’; and

21 (B) in paragraph (3), by striking ‘‘sub22 section (a) or (d)’’ each place it appears and in23 serting ‘‘subsection (a)’’.

24 (6) Paragraphs (12) and (13) of section 15A(b)

25 of such Act (15 U.S.C. 78o–3(b)(12), (13)) are each
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1 amended by striking ‘‘section 14(h)’’ and inserting

2 ‘‘section 14(e)’’.

3 (7) Section 23(b)(4)(F) of such Act (15 U.S.C.

4 78w(b)(4)(F)) is amended by striking ‘‘section

5 13(f)’’ and inserting ‘‘section 13(d)’’.

6 SEC. 6. PROSPECTUS DELIVERY.

7 (a) DEFINITION OF PROSPECTUS.—Section 2(10) of

8 the Securities Act of 1933 (15 U.S.C. 77b(10)) is amend9 ed by striking ‘‘or confirms the sale of any security’’.

10 (b) DELIVERY ON REQUEST.—Section 5(b)(2) of the

11 Securities Act of 1933 (15 U.S.C. 77e(b)(2)) is amended

12 by inserting before the period at the end the following:

13 ‘‘, if the purchaser or prospective purchaser of such secu14 rity has requested a prospectus’’.

15 (c) AUTHORITY TO EXEMPT.—Section 5 of the Secu16 rities Act of 1933 (15 U.S.C. 77(e)) is amended by adding

17 a new subsection (d) after subsection (c) as follows:

18 ‘‘(d) AUTHORITY TO EXEMPT.—The Commission

19 may from time to time by its rules and regulations and

20 subject to such terms and conditions as may be prescribed

21 therein, upon its own motion or by order on application

22 by an interested person, exempt from subsection (b) of

23 section 5 any person or prospectus, or any class or classes

24 of persons or prospectuses, if and to the extent that such

25 exemption is necessary or appropriate in the public inter-
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1 est and consistent with the protection of investors. The

2 Commission shall by rules and regulations determine the

3 procedures under which an exemption under this sub4 section shall be granted, and may, in its sole discretion,

5 decline to entertain any application for an order of exemp6 tion under this subsection.’’.

7 SEC. 7. EXEMPTIVE AUTHORITY.

8 (a) SMALL OFFERING EXEMPTION.—Section 3(b) of

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

10 by striking ‘‘$5,000,000’’ and inserting ‘‘$15,000,000’’.

11 (b) GENERAL EXEMPTIVE AUTHORITY.—Section 3 of

12 the Securities Act of 1933 (15 U.S.C. 77c) is amended

13 by adding at the end the following new subsection:

14 ‘‘(d) EXEMPTIVE AUTHORITY.—The Commission

15 may by rule, regulation, or order, exempt, in whole or in

16 part, conditionally or unconditionally, any security or class

17 of securities from the registration requirements of this

18 title if it finds that such exemption is consistent with the

19 public interest and the protection of investors.’’.

20 SEC. 8. PROMOTION OF EFFICIENCY, COMPETITION, AND

21 CAPITAL FORMATION.

22 (a) SECURITIES ACT OF 1933.—Section 2 of the Se23 curities Act of 1933 (15 U.S.C. 77b) is amended—

24 (1) by inserting ‘‘(a) DEFINITIONS.—’’ after

25 ‘‘SEC. 2.’’; and
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1 (2) by adding at the end the following new sub2 section:

3 ‘‘(b) CONSIDERATION OF PROMOTION OF EFFI4 CIENCY, COMPETITION, AND CAPITAL FORMATION.—

5 Whenever in this title the Commission is required to con6 sider or determine whether an action is consistent with

7 the public interest or the protection of investors (or both),

8 the Commission shall also consider or determine whether

9 the action will promote efficiency, competition, and capital

10 formation.’’.

11 (b) SECURITIES EXCHANGE ACT of 1934.—Section

12 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)

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

15 ‘‘(e) CONSIDERATION OF PROMOTION OF EFFI16 CIENCY, COMPETITION, AND CAPITAL FORMATION.—

17 Whenever in this title the Commission is required to con18 sider or determine whether an action is consistent with

19 the public interest or the protection of investors (or both),

20 the Commission shall also consider or determine whether

21 the action will promote efficiency, competition, and capital

22 formation.’’.

23 (c) INVESTMENT COMPANY ACT of 1940.—Section 2

24 of the Investment Company Act of 1940 (15 U.S.C. 80a–
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1 2) is amended by adding at the end the following new sub2 section:

3 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFI4 CIENCY, COMPETITION, AND CAPITAL FORMATION.—

5 Whenever in this title the Commission is required to con6 sider or determine whether an action is consistent with

7 the public interest or the protection of investors (or both),

8 the Commission shall also consider or determine whether

9 the action will promote efficiency, competition, and capital

10 formation.’’.

11 (d) INVESTMENT ADVISERS ACT of 1940.—Section

12 202 of the Investment Advisers Act of 1940 (15 U.S.C.

13 80b–2) is amended by adding at the end the following new

14 subsection:

15 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFI16 CIENCY, COMPETITION, AND CAPITAL FORMATION.—

17 Whenever in this title the Commission is required to con18 sider or determine whether an action is consistent with

19 the public interest or the protection of investors (or both),

20 the Commission shall also consider or determine whether

21 the action will promote efficiency, competition, and capital

22 formation.’’.
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1 SEC. 9. REDUCTION IN NUMBER OF MEMBERS OF COMMIS2 SION.

3 (a) AMENDMENTS.—Section 4(a) of the Securities

4 Exchange Act of 1934 (15 U.S.C. 78d(a)) is amended—

5 (1) by striking ‘‘five commissioners’’ and insert6 ing ‘‘3 commissioners’’; and

7 (2) by striking ‘‘three of such commissioners’’

8 and inserting ‘‘2 of such commissioners’’.

9 (b) EFFECTIVE DATE; IMPLEMENTATION.—The

10 amendments made by subsection (a) shall take effect on

11 the date of enactment of this Act, except that—

12 (1) the offices the terms of which expired on

13 June 5, 1994, and June 5, 1995, shall be abolished;

14 and

15 (2) notwithstanding section 4(a) of the Securi16 ties Exchange Act of 1934—

17 (A) upon the expiration of the term of of18 fice prescribed by law to occur on June 5,

19 1996, any person appointed to serve as a com20 missioner of the Securities and Exchange Com21 mission to fill such office for the following term

22 shall be eligible to serve until June 5, 1999;

23 (B) upon the expiration of the term of of24 fice prescribed by law to occur on June 5,

25 1997, any person appointed to serve as a com26 missioner of the Securities and Exchange Com-
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1 mission to fill such office for the following term

2 shall be eligible to serve until June 5, 2001;

3 and

4 (C) upon the expiration of the term of of5 fice prescribed by law to occur on June 5,

6 1998, any person appointed to serve as a com7 missioner of the Securities and Exchange Com8 mission to fill such office for the following term

9 shall be eligible to serve until June 5, 2003.

10 SEC. 10. PRIVATIZATION OF EDGAR.

11 (a) REQUEST FOR PROPOSALS.—The Securities and

12 Exchange Commission shall, by public notice, request pro13 posals for the privatization of the EDGAR system. Such

14 notice shall specify the methods by which the Commission

15 will evaluate such proposal, which shall include the follow16 ing objectives:

17 (1) return to the Government on its investment

18 in the establishment of such system; and

19 (2) promote the automation and rapid dissemi20 nation of information required to be disclosed.

21 (b) REVIEW AND REPORT.—Within 180 days after

22 the date of enactment of this Act, the Commission shall

23 review the proposal received pursuant to subsection (a)

24 and submit to the Congress a report thereon. Such report

25 shall include such recommendations for such legislative ac-
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1 tion as may be necessary to implement the proposal that

2 the Commission determines most effectively achieves the

3 objections described in subsection (a).

4 SEC. 11. RULES OF SELF-REGULATORY ORGANIZATIONS.

5 Section 19(b)(1) of the Securities Exchange Act of

6 1934 (15 U.S.C. 78s(b)(1)) is amended by striking ‘‘upon

7 the filing’’ and inserting ‘‘within 30 days of the filing (un8 less the self-regulatory organization consents to a longer

9 period)’’.

10 SEC. 12. DESIGNATION OF PRIMARY SRO AND EXAMINING

11 AUTHORITY.

12 (a) AMENDMENTS.—Section 15 of the Securities Ex13 change Act of 1934 (15 U.S.C. 78o) is amended by adding

14 at the end the following new subsection:

15 ‘‘(g) DESIGNATION OF EXAMINING AUTHORITIES.—

16 ‘‘(1) DESIGNATION.—After notice and com17 ment, the Commission shall designate for each reg18 istered broker or dealer, a self-regulatory organiza19 tion (other than a registered clearing agency) as its

20 examining authority. In no event shall the Commis21 sion designate more than one examining authority

22 for any broker or dealer.

23 ‘‘(2) ENFORCEMENT OF RULES BY EXAMINING

24 AUTHORITY.—A designated examining authority

25 shall enforce its own rules with respect to such
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1 broker or dealer, as well as the rules of any other

2 self-regulatory organization (other than a registered

3 clearing agency) of which such broker or dealer is a

4 member.

5 ‘‘(3) CHANGES IN DESIGNATION.—A broker or

6 dealer for which the Commission previously has des7 ignated an examining authority, may request that

8 the Commission designate a different examining au9 thority. The Commission shall grant such request by

10 order if its is consistent with the public interest and

11 the protection of investors. The issuance of such an

12 order shall not alter or extinguish any pending dis13 ciplinary proceeding that the originally designated

14 examining authority has brought against the broker

15 or dealer or any person associated with a broker or

16 dealer.

17 ‘‘(4) COMMISSION RULES.—The Commission

18 may adopt rules for the designation of an examining

19 authority for a broker or dealer, and for changing

20 such designation. Such rules shall be designed to

21 minimize the costs and burdens on the registered

22 broker or dealer, consistent with the protection of in23 vestors and the public.

24 ‘‘(5) PRESERVATION OF EXISTING AUTHOR25 ITY.—Nothing in this section shall alter the Com-
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1 mission’s authority to bring any action under this

2 title against any broker or dealer, or against any

3 person associated with a broker or dealer.’’.

4 (b) DEFINITION.—Section 3(a) of the Securities Ex5 change Act of 1934 (15 U.S.C. 78e) is amended by adding

6 the following paragraph:

7 ‘‘(53) The term ‘examining authority’ means a

8 self-regulatory organization (other than a registered

9 clearing agency), as designated by the Commission,

10 with exclusive authority to examine, inspect, and

11 otherwise oversee the activities of a registered broker

12 or dealer.’’.

13 (c) INITIAL DESIGNATION.—The Commission shall

14 complete the initial designations of examining authorities

15 for brokers and dealers required by section 15(g) of the

16 Security Exchange Act of 1934 no later than one year

17 after the date of enactment of this Act.

18 SEC. 13. TREATMENT OF PRESS CONFERENCES.

19 (a) DEFINITION OF OFFER.—Section 2(3) of the Se20 curities Act of 1933 (15 U.S.C. 77b(3)) is amended by

21 inserting after the third sentence the following new sen22 tence: ‘‘The terms defined in this paragraph and the term

23 ‘offer to buy’ as used in subsection (c) of section 5 also

24 shall not include press conferences, press releases and

25 meetings with issuer press spokespersons to which journal-
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1 ists for publications (including on-line services) with a

2 general circulation in the United States are generally pro3 vided access, in which an offering of or exchange offer for

4 securities is discussed.’’

5 (b) DEFINITION OF PROSPECTUS.—Section 2(10) of

6 the Securities Act of 1933 is amended—

7 (1) by striking ‘‘and’’ at the end of clause (a);

8 and

9 (2) by inserting before the period at the end of

10 clause (b) the following: ‘‘, and (c) any press release

11 made generally available to journalists for publica12 tions (including on-line services) with a general cir13 culation in the United States, in which an offer of

14 or exchange offer for securities is discussed, shall

15 not be deemed a prospectus if such press releases

16 states that it is not an offer of securities for sale,

17 that any public offering will be made by means of

18 a prospectus, and the person from whom a prospec19 tus may be obtained’’.

20 SEC. 14. REPEAL OF TRUST INDENTURE ACT OF 1939.

21 The Trust Indenture Act of 1939 (15 U.S.C. 77aaa

22 et seq.) is repealed.

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