49–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 114–200 

HOLDING COMPANY REGISTRATION THRESHOLD 

EQUALIZATION ACT OF 2015 

JULY 14, 2015.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 1334] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 1334) to amend the Securities Exchange Act of 1934 to 

make the shareholder threshold for registration of savings and loan 

holding companies the same as for bank holding companies, having 

considered the same, report favorably thereon without amendment 

and recommend that the bill do pass. 

PURPOSE AND SUMMARY

H.R. 1334, the ‘‘Holding Company Registration Threshold Equalization Act of 2015,’’ amends Title VI of the Jumpstart Our Business Startups Act to raise the threshold for mandatory registration 

with the Securities and Exchange Commission of savings and loan 

companies from 500 shareholders of record to 2,000 shareholders of 

record (with no limitation on the number of non-accredited investors) and to raise the threshold for a savings and loan company to 

terminate its registration from 300 to 1,200 shareholders of record. 

BACKGROUND AND NEED FOR LEGISLATION

H.R. 1334 applies the shareholder registration and deregistration 

thresholds contained in Title VI of the JOBS Act to savings and 

loan holding companies (SLHCs). Title VI raised the shareholder 

registration threshold with the SEC from 500 shareholders to 2,000 

for companies with total assets over $10 million. Title VI also 

raised the deregistration threshold from 300 shareholders to 1,200 

for banks and bank holding companies. The JOBS Act did not exVerDate Sep 11 2014 01:45 Jul 16, 2015 Jkt 049006 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\HR200.XXX HR200

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plicitly extend these thresholds to SLHCs. However, Congress did 

not intend to treat SLHCs differently from banks and bank holding 

companies. By treating SLHCs like banks and bank holding companies, this legislation extends the same flexibility to SLHCs, allowing them to reduce their SEC-related compliance costs and better 

deploy capital throughout the communities they serve. Identical 

legislation, H.R. 801, passed the House in the 113th Congress on 

a vote of 417–4. 

On December 18, 2014, the SEC issued a proposed revision to its 

rules so that SLHCs are treated in a similar manner to banks and 

bank holding companies for the purposes of registration, termination of registration, or suspension of their reporting obligations 

under the Securities Exchange Act of 1934. The comment period on 

this rule proposal closed on March 2, 2015. The SEC has not yet 

adopted a final rule. 

An April 27, 2015, letter from the Independent Community 

Bankers Association in support on H.R. 1334 explained the rationale for extending this relief to SLHCs: 

Thrifts and thrift holding companies are subject to the 

same oversight, supervision, and financial reporting requirements as banks and bank holding companies. The enhanced oversight and regulation of banks is the rationale 

for affording them higher shareholder registration and 

deregistration thresholds under the JOBS Act. That being 

the case, there is no policy reason for denying thrift holding companies, subject to the same oversight and regulation, the benefits of the higher thresholds. 

HEARINGS

The Committee on Financial Services held a hearing on April 29, 

2015, titled ‘‘Legislative Proposals to Enhance Capital Formation 

and Reduce Regulatory Burdens,’’ at which this matter was examined. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

May 20, 2015, and ordered H.R. 1334 to be reported favorably to 

the House without amendment by a recorded vote of 60 yeas to 0 

nays (Record vote no. FC–27), a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole vote in committee was a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 60 yeas to 0 nays (Record vote no. FC–27), 

a quorum being present. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 1334 will ensure that savings and loan holding companies are subject to the 

same standards for purposes of registering and deregistering securities with the Securities and Exchange Commission. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, June 17, 2015. 

Hon. JEB HENSARLING, Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1334, the Holding Company Registration Threshold Equalization Act of 2015. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contacts are Susan Willie and Ben 

Christopher. 

Sincerely, 

KEITH HALL. 

Enclosure. 


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H.R. 1334—Holding Company Registration Threshold Equalization 

Act of 2015 

H.R. 1334 would change several thresholds for savings and loan 

holding companies that determine whether such entities must take 

action with the Securities and Exchange Commission (SEC). Specifically, the bill would change the number of shareholders of 

record (shareholders whose names are registered on the books of a 

savings and loan holding company at a particular time) that must 

be in place for the SEC to: 

• Require that a security of the holding company be registered; 

• Suspend the registration of a security issued by a holding 

company; and 

• Suspend certain reporting requirements for a holding company. 

Based on information from the SEC, CBO expects that implementing H.R. 1334 would not have a significant effect on the workload of the agency, and as a result, CBO estimates that implementing H.R. 1334 would not significantly affect discretionary 

spending. Further, under current law, the SEC is authorized to collect fees sufficient to offset its appropriation each year; therefore, 

we estimate that the net cost to the SEC would not be significant, 

assuming appropriation actions consistent with that authority. Enacting H.R. 1334 would not affect direct spending or revenues; 

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

H.R. 1334 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

not affect the budgets of state, local, or tribal governments. 

The CBO staff contacts for this estimate are Susan Willie and 

Ben Christopher. The estimate was approved by H. Samuel 

Papenfuss, Deputy Assistant Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 1334 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 


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DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the 

Committee states that no provision of H.R. 1334 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 

related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the 

Committee states that H.R. 1334 does not require any directed 

rulemakings. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section cites H.R. 1334 as the ‘‘Holding Company Registration Threshold Equalization Act of 2015.’’ 

Section 2. Registration Threshold for Savings and Loan Holding 

Companies 

This section amends section 12(g) of the Securities Exchange Act 

of 1934 (15 U.S.C. 78a et seq.) to make the registration and 

deregistration thresholds established in such section applicable to 

savings and loan holding companies as such term is defined in section 10 of the Home Owners’ Loan Act. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

SECURITIES EXCHANGE ACT OF 1934 

TITLE I—REGULATION OF SECURITIES EXCHANGES 

* * * * * * * 

REGISTRATION REQUIREMENTS FOR SECURITIES

SEC. 12. (a) It shall be unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration 

is effective as to such security for such exchange in accordance with 

the provisions of this title and the rules and regulations thereunder. The provisions of this subsection shall not apply in respect 

of a security futures product traded on a national securities exchange. 

(b) A security may be registered on a national securities exchange by the issuer filing an application with the exchange (and 


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filing with the Commission such duplicate originals thereof as the 

Commission may require), which application shall contain— 

(1) Such information, in such detail, as to the issuer and any 

person directly or indirectly controlling or controlled by, or 

under direct or indirect common control with, the issuer, and 

any guarantor of the security as to principal or interest or 

both, as the Commission may by rules and regulations require, 

as necessary or appropriate in the public interest or for the 

protection of investors, in respect of the following: 

(A) the organization, financial structures, and nature of 

the business; 

(B) the terms, position, rights, and privileges of the different classes of securities outstanding; 

(C) the terms on which their securities are to be, and 

during the preceding three years have been, offered to the 

public or otherwise; 

(D) the directors, officers, and underwriters, and each security holder of record holding more than 10 per centum 

of any class of any equity security of the issuer (other than 

an exempted security), their remuneration and their interests in the securities of, and their material contracts with, 

the issuer and any person directly or indirectly controlling 

or controlled by, or under direct or indirect common control 

with, the issuer; 

(E) remuneration to others than directors and officers 

exceeding $20,000 per annum; 

(F) bonus and profit-sharing arrangements; 

(G) management and service contracts; 

(H) options existing or to be created in respect of their 

securities; 

(I) material contracts, not made in the ordinary course 

of business, which are to be executed in whole or in part 

at or after the filing of the application or which were made 

not more than two years before such filing, and every material patent or contract for a material patent right shall 

be deemed a material contract; 

(J) balance sheets for not more than the three preceding 

fiscal years, certified if required by the rules and regulations of the Commission by a registered public accounting 

firm; 

(K) profit and loss statements for not more than the 

three preceding fiscal years, certified if required by the 

rules and regulations of the Commission by a registered 

public accounting firm; and 

(L) any further financial statements which the Commission may deem necessary or appropriate for the protection 

of investors. 

(2) Such copies of articles of incorporation, bylaws, trust indentures, or corresponding documents by whatever name 

known, underwriting arrangements, and other similar documents of, and voting trust agreements with respect to, the 

issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the 

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priate for the proper protection of investors and to insure fair 

dealing in the security. 

(3) Such copies of material contracts, referred to in paragraph (1)(I) above, as the Commission may require as necessary or appropriate for the proper protection of investors and 

to insure fair dealing in the security. 

(c) If in the judgment of the Commission any information required under subsection (b) of this section is inapplicable to any 

specified class or classes of issuers, the Commission shall require 

in lieu thereof the submission of such other information of comparable character as it may deem applicable to such class of 

issuers. 

(d) If the exchange authorities certify to the Commission that the 

security has been approved by the exchange for listing and registration, the registration shall become effective thirty days after 

the receipt of such certification by the Commission or within such 

shorter period of time as the Commission may determine. A security registered with a national securities exchange may be withdrawn or stricken from listing and registration in accordance with 

the rules of the exchange and, upon such terms as the Commission 

may deem necessary to impose for the protection of investors, upon 

application by the issuer or the exchange to the Commission; 

whereupon the issuer shall be relieved from further compliance 

with the provisions of this section and section 13 of this title and 

any rules or regulations under such sections as to the securities so 

withdrawn or stricken. An unissued security may be registered 

only in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 

(e) Notwithstanding the foregoing provisions of this section, the 

Commission may by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of 

investors permit securities listed on any exchange at the time the 

registration of such exchange as a national securities exchange becomes effective, to be registered for a period ending not later than 

July 1, 1935, without complying with the provisions of this section. 

(f)(1)(A) Notwithstanding the preceding subsections of this section, any national securities exchange, in accordance with the requirements of this subsection and the rules hereunder, may extend 

unlisted trading privileges to— 

(i) any security that is listed and registered on a national securities exchange, subject to subparagraph (B); and 

(ii) any security that is otherwise registered pursuant to this 

section, or that would be required to be so registered except for 

the exemption from registration provided in subparagraph (B) 

or (G) of subsection (g)(2), subject to subparagraph (E) of this 

paragraph. 

(B) A national securities exchange may not extend unlisted trading privileges to a security described in subparagraph (A)(i) during 

such interval, if any, after the commencement of an initial public 

offering of such security, as is or may be required pursuant to subparagraph (C). 

(C) Not later than 180 days after the date of enactment of the 

Unlisted Trading Privileges Act of 1994, the Commission shall prescribe, by rule or regulation, the duration of the interval referred 


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to in subparagraph (B), if any, as the Commission determines to be 

necessary or appropriate for the maintenance of fair and orderly 

markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this title. Until the earlier 

of the effective date of such rule or regulation or 240 days after 

such date of enactment, such interval shall begin at the opening of 

trading on the day on which such security commences trading on 

the national securities exchange with which such security is registered and end at the conclusion of the next day of trading. 

(D) The Commission may prescribe, by rule or regulation such 

additional procedures or requirements for extending unlisted trading privileges to any security as the Commission deems necessary 

or appropriate for the maintenance of fair and orderly markets, the 

protection of investors and the public interest, or otherwise in furtherance of the purposes of this title. 

(E) No extension of unlisted trading privileges to securities described in subparagraph (A)(ii) may occur except pursuant to a 

rule, regulation, or order of the Commission approving such extension or extensions. In promulgating such rule or regulation or in 

issuing such order, the Commission— 

(i) shall find that such extension or extensions of unlisted 

trading privileges is consistent with the maintenance of fair 

and orderly markets, the protection of investors and the public 

interest, and otherwise in furtherance of the purposes of this 

title; 

(ii) shall take account of the public trading activity in such 

securities, the character of such trading, the impact of such extension on the existing markets for such securities, and the desirability of removing impediments to and the progress that 

has been made toward the development of a national market 

system; and 

(iii) shall not permit a national securities exchange to extend 

unlisted trading privileges to such securities if any rule of such 

national securities exchange would unreasonably impair the 

ability of a dealer to solicit or effect transactions in such securities for its own account, or would unreasonably restrict competition among dealers in such securities or between such dealers acting in the capacity of market makers who are specialists 

and such dealers who are not specialists. 

(F) An exchange may continue to extend unlisted trading privileges in accordance with this paragraph only if the exchange and 

the subject security continue to satisfy the requirements for eligibility under this paragraph, including any rules and regulations 

issued by the Commission pursuant to this paragraph, except that 

unlisted trading privileges may continue with regard to securities 

which had been admitted on such exchange prior to July 1, 1964, 

notwithstanding the failure to satisfy such requirements. If unlisted trading privileges in a security are discontinued pursuant to 

this subparagraph, the exchange shall cease trading in that security, unless the exchange and the subject security thereafter satisfy 

the requirements of this paragraph and the rules issued hereunder. 

(G) For purposes of this paragraph— 

(i) a security is the subject of an initial public offering if— 

(I) the offering of the subject security is registered under 

the Securities Act of 1933; and 


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(II) the issuer of the security, immediately prior to filing 

the registration statement with respect to the offering, was 

not subject to the reporting requirements of section 13 or 

15(d) of this title; and 

(ii) an initial public offering of such security commences at 

the opening of trading on the day on which such security commences trading on the national securities exchange with which 

such security is registered. 

(2)(A) At any time within 60 days of commencement of trading 

on an exchange of a security pursuant to unlisted trading privileges, the Commission may summarily suspend such unlisted trading privileges on the exchange. Such suspension shall not be reviewable under section 25 of this title and shall not be deemed to 

be a final agency action for purposes of section 704 of title 5, 

United States Code. Upon such suspension— 

(i) the exchange shall cease trading in the security by the 

close of business on the date of such suspension, or at such 

time as the Commission may prescribe by rule or order for the 

maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of 

the purposes of this title; and 

(ii) if the exchange seeks to extend unlisted trading privileges to the security, the exchange shall file an application to 

reinstate its ability to do so with the Commission pursuant to 

such procedures as the Commission may prescribe by rule or 

order for the maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this title. 

(B) A suspension under subparagraph (A) shall remain in effect 

until the Commission, by order, grants approval of an application 

to reinstate, as described in subparagraph (A)(ii). 

(C) A suspension under subparagraph (A) shall not affect the validity or force of an extension of unlisted trading privileges in effect 

prior to such suspension. 

(D) The Commission shall not approve an application by a national securities exchange to reinstate its ability to extend unlisted 

trading privileges to a security unless the Commission finds, after 

notice and opportunity for hearing, that the extension of unlisted 

trading privileges pursuant to such application is consistent with 

the maintenance of fair and orderly markets, the protection of investors and the public interest, and otherwise in furtherance of the 

purposes of this title. If the application is made to reinstate unlisted trading privileges to a security described in paragraph 

(1)(A)(ii), the Commission— 

(i) shall take account of the public trading activity in such 

security, the character of such trading, the impact of such extension on the existing markets for such a security, and the desirability of removing impediments to and the progress that 

has been made toward the development of a national market 

system; and 

(ii) shall not grant any such application if any rule of the national securities exchange making application under this subsection would unreasonably impair the ability of a dealer to solicit or effect transactions in such security for its own account, 

or would unreasonably restrict competition among dealers in 


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such security or between such dealers acting in the capacity of 

marketmakers who are specialists and such dealers who are 

not specialists. 

(3) Notwithstanding paragraph (2), the Commission shall by 

rules and regulations suspend unlisted trading privileges in whole 

or in part for any or all classes of securities for a period not exceeding twelve months, if it deems such suspension necessary or appropriate in the public interest or for the protection of investors or to 

prevent evasion of the purposes of this title. 

(4) On the application of the issuer of any security for which unlisted trading privileges on any exchange have been continued or 

extended pursuant to this subsection, or of any broker or dealer 

who makes or creates a market for such security, or of any other 

person having a bona fide interest in the question of termination 

or suspension of such unlisted trading privileges, or on its own motion, the Commission shall by order terminate, or suspend for a period not exceeding twelve months, such unlisted trading privileges 

for such security if the Commission finds, after appropriate notice 

and opportunity for hearing, that such termination or suspension 

is necessary or appropriate in the public interest or for the protection of investors. 

(5) In any proceeding under this subsection in which appropriate 

notice and opportunity for hearing are required, notice of not less 

than ten days to the applicant in such proceeding, to the issuer of 

the security involved, to the exchange which is seeking to continue 

or extend or has continued or extended unlisted trading privileges 

for such security, and to the exchange, if any, on which such security is listed and registered, shall be deemed adequate notice, and 

any broker or dealer who makes or creates a market for such security, and any other person having a bona fide interest in such proceeding, shall upon application be entitled to be heard. 

(6) Any security for which unlisted trading privileges are continued or extended pursuant to this subsection shall be deemed to be 

registered on a national securities exchange within the meaning of 

this title. The powers and duties of the Commission under this title 

shall be applicable to the rules of an exchange in respect to any 

such security. The Commission may, by such rules and regulations 

as it deems necessary or appropriate in the public interest or for 

the protection of investors, either unconditionally or upon specified 

terms and conditions, or for stated periods, exempt such securities 

from the operation of any provision of section 13, 14, or 16 of this 

title. 

(g)(1) Every issuer which is engaged in interstate commerce, or 

in a business affecting interstate commerce, or whose securities are 

traded by use of the mails or any means or instrumentality of 

interstate commerce shall— 

(A) within 120 days after the last day of its first fiscal year 

ended on which the issuer has total assets exceeding 

$10,000,000 and a class of equity security (other than an exempted security) held of record by either— 

(i) 2,000 persons, or 

(ii) 500 persons who are not accredited investors (as such 

term is defined by the Commission), and 

(B) in the case of an issuer that is a bank, a savings and 

loan holding company (as defined in section 10 of the Home 


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Owners’ Loan Act), or a bank holding company, as such term 

is defined in section 2 of the Bank Holding Company Act of 

1956 (12 U.S.C. 1841), not later than 120 days after the last 

day of its first fiscal year ended after the effective date of this 

subsection, on which the issuer has total assets exceeding 

$10,000,000 and a class of equity security (other than an exempted security) held of record by 2,000 or more persons, 

register such security by filing with the Commission a registration 

statement (and such copies thereof as the Commission may require) 

with respect to such security containing such information and documents as the Commission may specify comparable to that which is 

required in an application to register a security pursuant to subsection (b) of this section. Each such registration statement shall 

become effective sixty days after filing with the Commission or 

within such shorter period as the Commission may direct. Until 

such registration statement becomes effective it shall not be 

deemed filed for the purposes of section 18 of this title. Any issuer 

may register any class of equity security not required to be registered by filing a registration statement pursuant to the provisions 

of this paragraph. The Commission is authorized to extend the date 

upon which any issuer or class of issuers is required to register a 

security pursuant to the provisions of this paragraph. 

(2) The provisions of this subsection shall not apply in respect 

of— 

(A) any security listed and registered on a national securities 

exchange. 

(B) any security issued by an investment company registered 

pursuant to section 8 of the Investment Company Act of 1940. 

(C) any security, other than permanent stock, guaranty 

stock, permanent reserve stock, or any similar certificate evidencing nonwithdrawable capital, issued by a savings and loan 

association, building and loan association, cooperative bank, 

homestead association, or similar institution, which is supervised and examined by State or Federal authority having supervision over any such institution. 

(D) any security of an issuer organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, 

and no part of the net earnings of which inures to the benefit 

of any private shareholder or individual; or any security of a 

fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the Investment Company Act 

of 1940. 

(E) any security of an issuer which is a ‘‘cooperative association’’ as defined in the Agricultural Marketing Act, approved 

June 15, 1929, as amended, or a federation of such cooperative 

associations, if such federation possesses no greater powers or 

purposes than cooperative associations so defined. 

(F) any security issued by a mutual or cooperative organization which supplies a commodity or service primarily for the 

benefit of its members and operates not for pecuniary profit, 

but only if the security is part of a class issuable only to persons who purchase commodities or services from the issuer, the 

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pancy of premises serviced or to be served by the issuer, and 

no dividends are payable to the holder of the security. 

(G) any security issued by an insurance company if all of the 

following conditions are met: 

(i) Such insurance company is required to and does file 

an annual statement with the Commissioner of Insurance 

(or other officer or agency performing a similar function) 

of its domiciliary State, and such annual statement conforms to that prescribed by the National Association of Insurance Commissioners or in the determination of such 

State commissioner, officer or agency substantially conforms to that so prescribed. 

(ii) Such insurance company is subject to regulation by 

its domiciliary State of proxies, consents, or authorizations 

in respect of securities issued by such company and such 

regulation conforms to that prescribed by the National Association of Insurance Commissioners. 

(iii) After July 1, 1966, the purchase and sales of securities issued by such insurance company by beneficial owners, directors, or officers of such company are subject to 

regulation (including reporting) by its domiciliary State 

substantially in the manner provided in section 16 of this 

title. 

(H) any interest or participation in any collective trust funds 

maintained by a bank or in a separate account maintained by 

an insurance company which interest or participation is issued 

in connection with (i) a stock-bonus, pension, or profit-sharing 

plan which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1954, (ii) an annuity 

plan which meets the requirements for deduction of the employer’s contribution under section 404(a)(2) of such Code, or 

(iii) a church plan, company, or account that is excluded from 

the definition of an investment company under section 3(c)(14) 

of the Investment Company Act of 1940. 

(3) The Commission may by rules or regulations or, on its own 

motion, after notice and opportunity for hearing, by order, exempt 

from this subsection any security of a foreign issuer, including any 

certificate of deposit for such a security, if the Commission finds 

that such exemption is in the public interest and is consistent with 

the protection of investors. 

(4) Registration of any class of security pursuant to this subsection shall be terminated ninety days, or such shorter period as 

the Commission may determine, after the issuer files a certification 

with the Commission that the number of holders of record of such 

class of security is reduced to less than 300 persons, or, in the case 

of a bank, a savings and loan holding company (as defined in section 10 of the Home Owners’ Loan Act), or a bank holding company, 

as such term is defined in section 2 of the Bank Holding Company 

Act of 1956 (12 U.S.C. 1841), 1,200 persons persons. The Commission shall after notice and opportunity for hearing deny termination of registration if it finds that the certification is untrue. Termination of registration shall be deferred pending final determination on the question of denial. 

(5) For the purposes of this subsection the term ‘‘class’’ shall include all securities of an issuer which are of substantially similar 


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character and the holders of which enjoy substantially similar 

rights and privileges. The Commission may for the purpose of this 

subsection define by rules and regulations the terms ‘‘total assets’’ 

and ‘‘held of record’’ as it deems necessary or appropriate in the 

public interest or for the protection of investors in order to prevent 

circumvention of the provisions of this subsection. For purposes of 

this subsection, a security futures product shall not be considered 

a class of equity security of the issuer of the securities underlying 

the security futures product. For purposes of determining whether 

an issuer is required to register a security with the Commission 

pursuant to paragraph (1), the definition of ‘‘held of record’’ shall 

not include securities held by persons who received the securities 

pursuant to an employee compensation plan in transactions exempted from the registration requirements of section 5 of the Securities Act of 1933. 

(6) EXCLUSION FOR PERSONS HOLDING CERTAIN SECURITIES.— 

The Commission shall, by rule, exempt, conditionally or unconditionally, securities acquired pursuant to an offering made 

under section 4(6) of the Securities Act of 1933 from the provisions of this subsection. 

(h) The Commission may by rules and regulations, or upon application of an interested person, by order, after notice and opportunity for hearing, exempt in whole or in part any issuer or class 

of issuers from the provisions of subsection (g) of this section or 

from section 13, 14, or 15(d) or may exempt from section 16 any 

officer, director, or beneficial owner of securities of any issuer, any 

security of which is required to be registered pursuant to subsection (g) hereof, upon such terms and conditions and for such period as it deems necessary or appropriate, if the Commission finds, 

by reason of the number of public investors, amount of trading interest in the securities, the nature and extent of the activities of 

the issuer, income or assets of the issuer, or otherwise, that such 

action is not inconsistent with the public interest or the protection 

of investors. The Commission may, for the purposes of any of the 

above-mentioned sections or subsections of this title, classify 

issuers and prescribe requirements appropriate for each such class. 

(i) In respect of any securities issued by banks and savings associations the deposits of which are insured in accordance with the 

Federal Deposit Insurance Act, the powers, functions, and duties 

vested in the Commission to administer and enforce sections 

10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of this Act, and sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the SarbanesOxley Act of 2002, (1) with respect to national banks and Federal 

savings associations, the accounts of which are insured by the Federal Deposit Insurance Corporation are vested in the Comptroller 

of the Currency, (2) with respect to all other member banks of the 

Federal Reserve System are vested in the Board of Governors of 

the Federal Reserve System, and (3) with respect to all other insured banks and State savings associations, the accounts of which 

are insured by the Federal Deposit Insurance Corporation, are 

vested in the Federal Deposit Insurance Corporation. The Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation shall 

have the power to make such rules and regulations as may be necessary for the execution of the functions vested in them as provided 


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in this subsection. In carrying out their responsibilities under this 

subsection, the agencies named in the first sentence of this subsection shall issue substantially similar regulations to regulations 

and rules issued by the Commission under sections 10A(m), 12, 13, 

14(a), 14(c), 14(d), 14(f) and 16 of this Act, and sections 302, 303, 

304, 306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act of 

2002, unless they find that implementation of substantially similar 

regulations with respect to insured banks and insured institutions 

are not necessary or appropriate in the public interest or for protection of investors, and publish such findings, and the detailed reasons therefor, in the Federal Register. Such regulations of the 

above-named agencies, or the reasons for failure to publish such 

substantially similar regulations to those of the Commission, shall 

be published in the Federal Register within 120 days of the date 

of enactment of this subsection, and, thereafter, within 60 days of 

any changes made by the Commission in its relevant regulations 

and rules. 

(j) The Commission is authorized, by order, as it deems necessary 

or appropriate for the protection of investors to deny, to suspend 

the effective date of, to suspend for a period not exceeding twelve 

months, or to revoke the registration of a security, if the Commission finds, on the record after notice and opportunity for hearing, 

that the issuer of such security has failed to comply with any provision of this title or the rules and regulations thereunder. No member of a national securities exchange, broker, or dealer shall make 

use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale 

of, any security the registration of which has been and is suspended or revoked pursuant to the preceding sentence. 

(k) TRADING SUSPENSIONS; EMERGENCY AUTHORITY.— 

(1) TRADING SUSPENSIONS.—If in its opinion the public interest and the protection of investors so require, the Commission 

is authorized by order— 

(A) summarily to suspend trading in any security (other 

than an exempted security) for a period not exceeding 10 

business days, and 

(B) summarily to suspend all trading on any national securities exchange or otherwise, in securities other than exempted securities, for a period not exceeding 90 calendar 

days. 

The action described in subparagraph (B) shall not take effect 

unless the Commission notifies the President of its decision 

and the President notifies the Commission that the President 

does not disapprove of such decision. If the actions described 

in subparagraph (A) or (B) involve a security futures product, 

the Commission shall consult with and consider the views of 

the Commodity Futures Trading Commission. 

(2) EMERGENCY ORDERS.— 

(A) IN GENERAL.—The Commission, in an emergency, 

may by order summarily take such action to alter, supplement, suspend, or impose requirements or restrictions with 

respect to any matter or action subject to regulation by the 

Commission or a self-regulatory organization under the securities laws, as the Commission determines is necessary 

in the public interest and for the protection of investors— 


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(i) to maintain or restore fair and orderly securities 

markets (other than markets in exempted securities); 

(ii) to ensure prompt, accurate, and safe clearance 

and settlement of transactions in securities (other 

than exempted securities); or 

(iii) to reduce, eliminate, or prevent the substantial 

disruption by the emergency of— 

(I) securities markets (other than markets in exempted securities), investment companies, or any 

other significant portion or segment of such markets; or 

(II) the transmission or processing of securities 

transactions (other than transactions in exempted 

securities). 

(B) EFFECTIVE PERIOD.—An order of the Commission 

under this paragraph shall continue in effect for the period 

specified by the Commission, and may be extended. Except 

as provided in subparagraph (C), an order of the Commission under this paragraph may not continue in effect for 

more than 10 business days, including extensions. 

(C) EXTENSION.—An order of the Commission under this 

paragraph may be extended to continue in effect for more 

than 10 business days if, at the time of the extension, the 

Commission finds that the emergency still exists and determines that the continuation of the order beyond 10 

business days is necessary in the public interest and for 

the protection of investors to attain an objective described 

in clause (i), (ii), or (iii) of subparagraph (A). In no event 

shall an order of the Commission under this paragraph 

continue in effect for more than 30 calendar days. 

(D) SECURITY FUTURES.—If the actions described in subparagraph (A) involve a security futures product, the Commission shall consult with and consider the views of the 

Commodity Futures Trading Commission. 

(E) EXEMPTION.—In exercising its authority under this 

paragraph, the Commission shall not be required to comply with the provisions of— 

(i) section 19(c); or 

(ii) section 553 of title 5, United States Code. 

(3) TERMINATION OF EMERGENCY ACTIONS BY PRESIDENT.— 

The President may direct that action taken by the Commission 

under paragraph (1)(B) or paragraph (2) of this subsection 

shall not continue in effect. 

(4) COMPLIANCE WITH ORDERS.—No member of a national securities exchange, broker, or dealer shall make use of the mails 

or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, 

any security in contravention of an order of the Commission 

under this subsection unless such order has been stayed, modified, or set aside as provided in paragraph (5) of this subsection or has ceased to be effective upon direction of the President as provided in paragraph (3). 

(5) LIMITATIONS ON REVIEW OF ORDERS.—An order of the 

Commission pursuant to this subsection shall be subject to review only as provided in section 25(a) of this title. Review shall 


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be based on an examination of all the information before the 

Commission at the time such order was issued. The reviewing 

court shall not enter a stay, writ of mandamus, or similar relief unless the court finds, after notice and hearing before a 

panel of the court, that the Commission’s action is arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law. 

(6) CONSULTATION.—Prior to taking any action described in 

paragraph (1)(B), the Commission shall consult with and consider the views of the Secretary of the Treasury, the Board of 

Governors of the Federal Reserve System, and the Commodity 

Futures Trading Commission, unless such consultation is impracticable in light of the emergency. 

(7) DEFINITION.—For purposes of this subsection, the term 

‘‘emergency’’ means— 

(A) a major market disturbance characterized by or constituting— 

(i) sudden and excessive fluctuations of securities 

prices generally, or a substantial threat thereof, that 

threaten fair and orderly markets; or 

(ii) a substantial disruption of the safe or efficient 

operation of the national system for clearance and settlement of transactions in securities, or a substantial 

threat thereof; or 

(B) a major disturbance that substantially disrupts, or 

threatens to substantially disrupt— 

(i) the functioning of securities markets, investment 

companies, or any other significant portion or segment 

of the securities markets; or 

(ii) the transmission or processing of securities 

transactions. 

(l) It shall be unlawful for an issuer, any class of whose securities 

is registered pursuant to this section or would be required to be so 

registered except for the exemption from registration provided by 

subsection (g)(2)(B) or (g)(2)(G) of this section, by the use of any 

means or instrumentality of interstate commerce, or of the mails, 

to issue, either originally or upon transfer, any of such securities 

in a form or with a format which contravenes such rules and regulations as the Commission may prescribe as necessary or appropriate for the prompt and accurate clearance and settlement of 

transactions in securities. The provisions of this subsection shall 

not apply to variable annuity contracts or variable life policies 

issued by an insurance company or its separate accounts. 

* * * * * * * 

REGISTRATION AND REGULATION OF BROKERS AND DEALERS

SEC. 15. (a)(1) It shall be unlawful for any broker or dealer which 

is either a person other than a natural person or a natural person 

not associated with a broker or dealer which is a person other than 

a natural person (other than such a broker or dealer whose business is exclusively intrastate and who does not make use of any facility of a national securities exchange) to make use of the mails 

or any means or instrumentality of interstate commerce to effect 

any transactions in, or to induce or attempt to induce the purchase 


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or sale of, any security (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills) unless 

such broker or dealer is registered in accordance with subsection 

(b) of this section. 

(2) The Commission, by rule or order, as it deems consistent with 

the public interest and the protection of investors, may conditionally or unconditionally exempt from paragraph (1) of this subsection any broker or dealer or class of brokers or dealers specified 

in such rule or order. 

(b)(1) A broker or dealer may be registered by filing with the 

Commission an application for registration in such form and containing such information and documents concerning such broker or 

dealer and any persons associated with such broker or dealer as 

the Commission, by rule, may prescribe as necessary or appropriate 

in the public interest or for the protection of investors. Within 

forty-five days of the date of the filing of such application (or within such longer period as to which the applicant consents), the Commission shall— 

(A) by order grant registration, or 

(B) institute proceedings to determine whether registration 

should be denied. Such proceedings shall include notice of the 

grounds for denial under consideration and opportunity for 

hearing and shall be concluded within one hundred twenty 

days of the date of the filing of the application for registration. 

At the conclusion of such proceedings, the Commission, by 

order, shall grant or deny such registration. The Commission 

may extend the time for conclusion of such proceedings for up 

to ninety days if it finds good cause for such extension and 

publishes its reasons for so finding or for such longer period as 

to which the applicant consents. 

The Commission shall grant such registration if the Commission 

finds that the requirements of this section are satisfied. The order 

granting registration shall not be effective until such broker or 

dealer has become a member of a registered securities association, 

or until such broker or dealer has become a member of a national 

securities exchange, if such broker or dealer effects transactions 

solely on that exchange, unless the Commission has exempted such 

broker or dealer, by rule or order, from such membership. The 

Commission shall deny such registration if it does not make such 

a finding or if it finds that if the applicant were so registered, its 

registration would be subject to suspension or revocation under 

paragraph (4) of this subsection. 

(2)(A) An application for registration of a broker or dealer to be 

formed or organized may be made by a broker or dealer to which 

the broker or dealer to be formed or organized is to be the successor. Such application, in such form as the Commission, by rule, 

may prescribe, shall contain such information and documents concerning the applicant, the successor, and any persons associated 

with the applicant or the successor, as the Commission, by rule, 

may prescribe as necessary or appropriate in the public interest or 

for the protection of investors. The grant or denial of registration 

to such an applicant shall be in accordance with the procedures set 

forth in paragraph (1) of this subsection. If the Commission grants 

such registration, the registration shall terminate on the forty-fifth 

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cessor shall, in accordance with such rules and regulations as the 

Commission may prescribe, adopt the application for registration 

as its own. 

(B) Any person who is a broker or dealer solely by reason of acting as a municipal securities dealer or municipal securities broker, 

who so acts through a separately identifiable department or division, and who so acted in such a manner on the date of enactment 

of the Securities Acts Amendments of 1975, may, in accordance 

with such terms and conditions as the Commission, by rule, prescribes as necessary and appropriate in the public interest and for 

the protection of investors, register such separately identifiable department or division in accordance with this subsection. If any such 

department or division is so registered, the department or division 

and not such person himself shall be the broker or dealer for purposes of this title. 

(C) Within six months of the date of the granting of registration 

to a broker or dealer, the Commission, or upon the authorization 

and direction of the Commission, a registered securities association 

or national securities exchange of which such broker or dealer is 

a member, shall conduct an inspection of the broker or dealer to 

determine whether it is operating in conformity with the provisions 

of this title and the rules and regulations thereunder: Provided, 

however, That the Commission may delay such inspection of any 

class of brokers or dealers for a period not to exceed six months. 

(3) Any provision of this title (other than section 5 and subsection (a) of this section) which prohibits any act, practice, or 

course of business if the mails or any means or instrumentality of 

interstate commerce is used in connection therewith shall also prohibit any such act, practice, or course of business by any registered 

broker or dealer or any person acting on behalf of such a broker 

or dealer, irrespective of any use of the mails or any means or instrumentality of interstate commerce in connection therewith. 

(4) The Commission, by order, shall censure, place limitations on 

the activities, functions, or operations of, suspend for a period not 

exceeding twelve months, or revoke the registration of any broker 

or dealer if it finds, on the record after notice and opportunity for 

hearing, that such censure, placing of limitations, suspension, or 

revocation is in the public interest and that such broker or dealer, 

whether prior or subsequent to becoming such, or any person associated with such broker or dealer, whether prior or subsequent to 

becoming so associated— 

(A) has willfully made or caused to be made in any application for registration or report required to be filed with the 

Commission or with any other appropriate regulatory agency 

under this title, or in any proceeding before the Commission 

with respect to registration, any statement which was at the 

time and in the light of the circumstances under which it was 

made false or misleading with respect to any material fact, or 

has omitted to state in any such application or report any material fact which is required to be stated therein. 

(B) has been convicted within ten years preceding the filing 

of any application for registration or at any time thereafter of 

any felony or misdemeanor or of a substantially equivalent 

crime by a foreign court of competent jurisdiction which the 

Commission finds— 


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(i) involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, 

perjury, burglary, any substantially equivalent activity 

however denominated by the laws of the relevant foreign 

government, or conspiracy to commit any such offense; 

(ii) arises out of the conduct of the business of a broker, 

dealer, municipal securities dealer municipal advisor,, government securities broker, government securities dealer, 

investment adviser, bank, insurance company, fiduciary, 

transfer agent, nationally recognized statistical rating organization, foreign person performing a function substantially equivalent to any of the above, or entity or person 

required to be registered under the Commodity Exchange 

Act (7 U.S.C. 1 et seq.) or any substantially equivalent foreign statute or regulation; 

(iii) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, 

or securities, or substantially equivalent activity however 

denominated by the laws of the relevant foreign government; or 

(iv) involves the violation of section 152, 1341, 1342, or 

1343 or chapter 25 or 47 of title 18, United States Code, 

or a violation of a substantially equivalent foreign statute. 

(C) is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, dealer, municipal securities dealer municipal advisor,, government securities broker, government securities dealer, security-based swap 

dealer, major security-based swap participant, transfer agent, 

nationally recognized statistical rating organization, foreign 

person performing a function substantially equivalent to any of 

the above, or entity or person required to be registered under 

the Commodity Exchange Act or any substantially equivalent 

foreign statute or regulation, or as an affiliated person or employee of any investment company, bank, insurance company, 

foreign entity substantially equivalent to any of the above, or 

entity or person required to be registered under the Commodity Exchange Act or any substantially equivalent foreign 

statute or regulation, or from engaging in or continuing any 

conduct or practice in connection with any such activity, or in 

connection with the purchase or sale of any security. 

(D) has willfully violated any provision of the Securities Act 

of 1933, the Investment Advisers Act of 1940, the Investment 

Company Act of 1940, the Commodity Exchange Act, this title, 

the rules or regulations under any of such statutes, or the 

rules of the Municipal Securities Rulemaking Board, or is unable to comply with any such provision. 

(E) has willfully aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any 

provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the 

Commodity Exchange Act, this title, the rules or regulations 

under any of such statutes, or the rules of the Municipal Securities Rulemaking Board, or has failed reasonably to supervise, 


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with a view to preventing violations of the provisions of such 

statutes, rules, and regulations, another person who commits 

such a violation, if such other person is subject to his supervision. For the purposes of this subparagraph (E) no person 

shall be deemed to have failed reasonably to supervise any 

other person, if— 

(i) there have been established procedures, and a system 

for applying such procedures, which would reasonably be 

expected to prevent and detect, insofar as practicable, any 

such violation by such other person, and 

(ii) such person has reasonably discharged the duties 

and obligations incumbent upon him by reason of such procedures and system without reasonable cause to believe 

that such procedures and system were not being complied 

with. 

(F) is subject to any order of the Commission barring or suspending the right of the person to be associated with a broker, 

dealer, security-based swap dealer, or a major security-based 

swap participant; 

(G) has been found by a foreign financial regulatory authority to have— 

(i) made or caused to be made in any application for registration or report required to be filed with a foreign financial regulatory authority, or in any proceeding before a foreign financial regulatory authority with respect to registration, any statement that was at the time and in the light 

of the circumstances under which it was made false or 

misleading with respect to any material fact, or has omitted to state in any application or report to the foreign financial regulatory authority any material fact that is required to be stated therein; 

(ii) violated any foreign statute or regulation regarding 

transactions in securities, or contracts of sale of a commodity for future delivery, traded on or subject to the rules 

of a contract market or any board of trade; 

(iii) aided, abetted, counseled, commanded, induced, or 

procured the violation by any person of any provision of 

any statutory provisions enacted by a foreign government, 

or rules or regulations thereunder, empowering a foreign 

financial regulatory authority regarding transactions in securities, or contracts of sale of a commodity for future delivery, traded on or subject to the rules of a contract market or any board of trade, or has been found, by a foreign 

financial regulatory authority, to have failed reasonably to 

supervise, with a view to preventing violations of such 

statutory provisions, rules, and regulations, another person who commits such a violation, if such other person is 

subject to his supervision; or 

(H) is subject to any final order of a State securities commission (or any agency or officer performing like functions), State 

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posit Insurance Act (12 U.S.C. 1813(q))), or the National Credit 

Union Administration, that— 

(i) bars such person from association with an entity regulated by such commission, authority, agency, or officer, or 

from engaging in the business of securities, insurance, 

banking, savings association activities, or credit union activities; or 

(ii) constitutes a final order based on violations of any 

laws or regulations that prohibit fraudulent, manipulative, 

or deceptive conduct. 

(5) Pending final determination whether any registration under 

this subsection shall be revoked, the Commission, by order, may 

suspend such registration, if such suspension appears to the Commission, after notice and opportunity for hearing, to be necessary 

or appropriate in the public interest or for the protection of investors. Any registered broker or dealer may, upon such terms and 

conditions as the Commission deems necessary or appropriate in 

the public interest or for the protection of investors, withdraw from 

registration by filing a written notice of withdrawal with the Commission. If the Commission finds that any registered broker or 

dealer is no longer in existence or has ceased to do business as a 

broker or dealer, the Commission, by order, shall cancel the registration of such broker or dealer. 

(6)(A) With respect to any person who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, 

who was associated or was seeking to become associated with a 

broker or dealer, or any person participating, or, at the time of the 

alleged misconduct, who was participating, in an offering of any 

penny stock, the Commission, by order, shall censure, place limitations on the activities or functions of such person, or suspend for 

a period not exceeding 12 months, or bar any such person from 

being associated with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating 

in an offering of penny stock, if the Commission finds, on the 

record after notice and opportunity for a hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such person— 

(i) has committed or omitted any act, or is subject to an 

order or finding, enumerated in subparagraph (A), (D), (E), (H), 

or (G) of paragraph (4) of this subsection; 

(ii) has been convicted of any offense specified in subparagraph (B) of such paragraph (4) within 10 years of the commencement of the proceedings under this paragraph; or 

(iii) is enjoined from any action, conduct, or practice specified 

in subparagraph (C) of such paragraph (4). 

(B) It shall be unlawful— 

(i) for any person as to whom an order under subparagraph 

(A) is in effect, without the consent of the Commission, willfully to become, or to be, associated with a broker or dealer in 

contravention of such order, or to participate in an offering of 

penny stock in contravention of such order; 

(ii) for any broker or dealer to permit such a person, without 

the consent of the Commission, to become or remain, a person 

associated with the broker or dealer in contravention of such 


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order, if such broker or dealer knew, or in the exercise of reasonable care should have known, of such order; or 

(iii) for any broker or dealer to permit such a person, without 

the consent of the Commission, to participate in an offering of 

penny stock in contravention of such order, if such broker or 

dealer knew, or in the exercise of reasonable care should have 

known, of such order and of such participation. 

(C) For purposes of this paragraph, the term ‘‘person participating in an offering of penny stock’’ includes any person acting as 

any promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer, or issuer for purposes of 

the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. The Commission may, by rule or regulation, define such term to include other 

activities, and may, by rule, regulation, or order, exempt any person or class of persons, in whole or in part, conditionally or unconditionally, from such term. 

(7) No registered broker or dealer or government securities 

broker or government securities dealer registered (or required to 

register) under section 15C(a)(1)(A) shall effect any transaction in, 

or induce the purchase or sale of, any security unless such broker 

or dealer meets such standards of operational capability and such 

broker or dealer and all natural persons associated with such 

broker or dealer meet such standards of training, experience, competence, and such other qualifications as the Commission finds necessary or appropriate in the public interest or for the protection of 

investors. The Commission shall establish such standards by rules 

and regulations, which may— 

(A) specify that all or any portion of such standards shall be 

applicable to any class of brokers and dealers and persons associated with brokers and dealers; 

(B) require persons in any such class to pass tests prescribed 

in accordance with such rules and regulations, which tests 

shall, with respect to any class of partners, officers, or supervisory employees (which latter term may be defined by the 

Commission’s rules and regulations and as so defined shall include branch managers of brokers or dealers) engaged in the 

management of the broker or dealer, include questions relating 

to bookkeeping, accounting, internal control over cash and securities, supervision of employees, maintenance of records, and 

other appropriate matters; and 

(C) provide that persons in any such class other than brokers 

and dealers and partners, officers, and supervisory employees 

of brokers or dealers, may be qualified solely on the basis of 

compliance with such standards of training and such other 

qualifications as the Commission finds appropriate. 

The Commission, by rule, may prescribe reasonable fees and 

charges to defray its costs in carrying out this paragraph, including, but not limited to, fees for any test administered by it or under 

its direction. The Commission may cooperate with registered securities associations and national securities exchanges in devising 

and administering tests and may require registered brokers and 

dealers and persons associated with such brokers and dealers to 

pass tests administered by or on behalf of any such association or 

exchange and to pay such association or exchange reasonable fees 


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or charges to defray the costs incurred by such association or exchange in administering such tests. 

(8) It shall be unlawful for any registered broker or dealer to effect any transaction in, or induce or attempt to induce the purchase 

or sale of, any security (other than or commercial paper, bankers’ 

acceptances, or commercial bills), unless such broker or dealer is a 

member of a securities association registered pursuant to section 

15A of this title or effects transactions in securities solely on a national securities exchange of which it is a member. 

(9) The Commission by rule or order, as it deems consistent with 

the public interest and the protection of investors, may conditionally or unconditionally exempt from paragraph (8) of this subsection any broker or dealer or class of brokers or dealers specified 

in such rule or order. 

(10) For the purposes of determining whether a person is subject 

to a statutory disqualification under section 6(c)(2), 15A(g)(2), or 

17A(b)(4)(A) of this title, the term ‘‘Commission’’ in paragraph 

(4)(B) of this subsection shall mean ‘‘exchange’’, ‘‘association’’, or 

‘‘clearing agency’’, respectively. 

(11) BROKER/DEALER REGISTRATION WITH RESPECT TO TRANS- ACTIONS IN SECURITY FUTURES PRODUCTS.— (A) NOTICE REGISTRATION.— (i) CONTENTS OF NOTICE.—Notwithstanding paragraphs (1) and (2), a broker or dealer required to register only because it effects transactions in security futures products on an exchange registered pursuant to 

section 6(g) may register for purposes of this section 

by filing with the Commission a written notice in such 

form and containing such information concerning such 

broker or dealer and any persons associated with such 

broker or dealer as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. A broker or dealer may not register under this paragraph unless that 

broker or dealer is a member of a national securities 

association registered under section 15A(k). 

(ii) IMMEDIATE EFFECTIVENESS.—Such registration 

shall be effective contemporaneously with the submission of notice, in written or electronic form, to the 

Commission, except that such registration shall not be 

effective if the registration would be subject to suspension or revocation under paragraph (4). 

(iii) SUSPENSION.—Such registration shall be suspended immediately if a national securities association 

registered pursuant to section 15A(k) of this title suspends the membership of that broker or dealer. 

(iv) TERMINATION.—Such registration shall be terminated immediately if any of the above stated conditions for registration set forth in this paragraph are no 

longer satisfied. 

(B) EXEMPTIONS FOR REGISTERED BROKERS AND DEAL- ERS.—A broker or dealer registered pursuant to the requirements of subparagraph (A) shall be exempt from the 

following provisions of this title and the rules thereunder 

with respect to transactions in security futures products: 


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(i) Section 8. 

(ii) Section 11. 

(iii) Subsections (c)(3) and (c)(5) of this section. 

(iv) Section 15B. 

(v) Section 15C. 

(vi) Subsections (d), (e), (f), (g), (h), and (i) of section 

17. 

(12) EXEMPTION FOR SECURITY FUTURES PRODUCT EXCHANGE

MEMBERS.— (A) REGISTRATION EXEMPTION.—A natural person shall 

be exempt from the registration requirements of this section if such person— 

(i) is a member of a designated contract market registered with the Commission as an exchange pursuant 

to section 6(g); 

(ii) effects transactions only in securities on the exchange of which such person is a member; and 

(iii) does not directly accept or solicit orders from 

public customers or provide advice to public customers 

in connection with the trading of security futures 

products. 

(B) OTHER EXEMPTIONS.—A natural person exempt from 

registration pursuant to subparagraph (A) shall also be exempt from the following provisions of this title and the 

rules thereunder: 

(i) Section 8. 

(ii) Section 11. 

(iii) Subsections (c)(3), (c)(5), and (e) of this section. 

(iv) Section 15B. 

(v) Section 15C. 

(vi) Subsections (d), (e), (f), (g), (h), and (i) of section 

17. 

(c)(1)(A) No broker or dealer shall make use of the mails or any 

means or instrumentality of interstate commerce to effect any 

transaction in, or to induce or attempt to induce the purchase or 

sale of, any security (other than commercial paper, bankers’ acceptances, or commercial bills), or any security-based swap agreement 

by means of any manipulative, deceptive, or other fraudulent device or contrivance. 

(B) No broker, dealer, or municipal securities dealer shall make 

use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce 

the purchase or sale of, any municipal security or any securitybased swap agreement involving a municipal security by means of 

any manipulative, deceptive, or other fraudulent device or contrivance. 

(C) No government securities broker or government securities 

dealer shall make use of the mails or any means or instrumentality 

of interstate commerce to effect any transaction in, or to induce or 

to attempt to induce the purchase or sale of, any government security or any security-based swap agreement involving a government 

security by means of any manipulative, deceptive, or other fraudulent device or contrivance. 

(2)(A) No broker or dealer shall make use of the mails or any 

means or instrumentality of interstate commerce to effect any 


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transaction in, or to induce or attempt to induce the purchase or 

sale of, any security (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills) otherwise 

than on a national securities exchange of which it is a member, in 

connection with which such broker or dealer engages in any fraudulent, deceptive, or manipulative act or practice, or makes any fictitious quotation. 

(B) No broker, dealer, or municipal securities dealer shall make 

use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce 

the purchase or sale of, any municipal security in connection with 

which such broker, dealer, or municipal securities dealer engages 

in any fraudulent, deceptive, or manipulative act or practice, or 

makes any fictitious quotation. 

(C) No government securities broker or government securities 

dealer shall make use of the mails or any means or instrumentality 

of interstate commerce to effect any transaction in, or induce or attempt to induce the purchase or sale of, any government security 

in connection with which such government securities broker or government securities dealer engages in any fraudulent, deceptive, or 

manipulative act or practice, or makes any fictitious quotation. 

(D) The Commission shall, for the purposes of this paragraph, by 

rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative and such quotations as are fictitious. 

(E) The Commission shall, prior to adopting any rule or regulation under subparagraph (C), consult with and consider the views 

of the Secretary of the Treasury and each appropriate regulatory 

agency. If the Secretary of the Treasury or any appropriate regulatory agency comments in writing on a proposed rule or regulation 

of the Commission under such subparagraph (C) that has been 

published for comment, the Commission shall respond in writing to 

such written comment before adopting the proposed rule. If the 

Secretary of the Treasury determines, and notifies the Commission, 

that such rule or regulation, if implemented, would, or as applied 

does (i) adversely affect the liquidity or efficiency of the market for 

government securities; or (ii) impose any burden on competition not 

necessary or appropriate in furtherance of the purposes of this section, the Commission shall, prior to adopting the proposed rule or 

regulation, find that such rule or regulation is necessary and appropriate in furtherance of the purposes of this section notwithstanding the Secretary’s determination. 

(3)(A) No broker or dealer (other than a government securities 

broker or government securities dealer, except a registered broker 

or dealer) shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security 

(other than an exempted security (except a government security) or 

commercial paper, bankers’ acceptances, or commercial bills) in 

contravention of such rules and regulations as the Commission 

shall prescribe as necessary or appropriate in the public interest or 

for the protection of investors to provide safeguards with respect to 

the financial responsibility and related practices of brokers and 

dealers including, but not limited to, the acceptance of custody and 

use of customers’ securities and the carrying and use of customers’ 


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deposits or credit balances. Such rules and regulations shall (A) require the maintenance of reserves with respect to customers’ deposits or credit balances, and (B) no later than September 1, 1975, establish minimum financial responsibility requirements for all brokers and dealers. 

(B) Consistent with this title, the Commission, in consultation 

with the Commodity Futures Trading Commission, shall issue such 

rules, regulations, or orders as are necessary to avoid duplicative 

or conflicting regulations applicable to any broker or dealer registered with the Commission pursuant to section 15(b) (except 

paragraph (11) thereof), that is also registered with the Commodity 

Futures Trading Commission pursuant to section 4f(a) of the Commodity Exchange Act (except paragraph (2) thereof), with respect 

to the application of: (i) the provisions of section 8, section 15(c)(3), 

and section 17 of this title and the rules and regulations thereunder related to the treatment of customer funds, securities, or 

property, maintenance of books and records, financial reporting, or 

other financial responsibility rules, involving security futures products; and (ii) similar provisions of the Commodity Exchange Act 

and rules and regulations thereunder involving security futures 

products. 

(C) Notwithstanding any provision of sections 2(a)(1)(C)(i) or 

4d(a)(2) of the Commodity Exchange Act and the rules and regulations thereunder, and pursuant to an exemption granted by 

the Commission under section 36 of this title or pursuant to a 

rule or regulation, cash and securities may be held by a broker 

or dealer registered pursuant to subsection (b)(1) and also registered as a futures commission merchant pursuant to section 

4f(a)(1) of the Commodity Exchange Act, in a portfolio margining account carried as a futures account subject to section 

4d of the Commodity Exchange Act and the rules and regulations thereunder, pursuant to a portfolio margining program 

approved by the Commodity Futures Trading Commission, and 

subject to subchapter IV of chapter 7 of title 11 of the United 

States Code and the rules and regulations thereunder. The 

Commission shall consult with the Commodity Futures Trading Commission to adopt rules to ensure that such transactions 

and accounts are subject to comparable requirements to the extent practicable for similar products. 

(4) If the Commission finds, after notice and opportunity for a 

hearing, that any person subject to the provisions of section 12, 13, 

14, or subsection (d) of section 15 of this title or any rule or regulation thereunder has failed to comply with any such provision, rule, 

or regulation in any material respect, the Commission may publish 

its findings and issue an order requiring such person, and any person who was a cause of the failure to comply due to an act or omission the person knew or should have known would contribute to 

the failure to comply, to comply, or to take steps to effect compliance, with such provision or such rule or regulation thereunder 

upon such terms and conditions and within such time as the Commission may specify in such order. 

(5) No dealer (other than a specialist registered on a national securities exchange) acting in the capacity of market maker or otherwise shall make use of the mails or any means or instrumentality 

of interstate commerce to effect any transaction in, or to induce or 


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attempt to induce the purchase or sale of, any security (other than 

an exempted security or a municipal security) in contravention of 

such specified and appropriate standards with respect to dealing as 

the Commission, by rule, shall prescribe as necessary or appropriate in the public interest and for the protection of investors, to 

maintain fair and orderly markets, or to remove impediments to 

and perfect the mechanism of a national market system. Under the 

rules of the Commission a dealer in a security may be prohibited 

from acting as broker in that security. 

(6) No broker or dealer shall make use of the mails or any means 

or instrumentality of interstate commerce to effect any transaction 

in, or to induce or attempt to induce the purchase or sale of, any 

security (other than an exempted security, municipal security, commercial paper, bankers’ acceptances, or commercial bills) in contravention of such rules and regulations as the Commission shall 

prescribe as necessary or appropriate in the public interest and for 

the protection of investors or to perfect or remove impediments to 

a national system for the prompt and accurate clearance and settlement of securities transactions, with respect to the time and method of, and the form and format of documents used in connection 

with, making settlements of and payments for transactions in securities, making transfers and deliveries of securities, and closing accounts. Nothing in this paragraph shall be construed (A) to affect 

the authority of the Board of Governors of the Federal Reserve System, pursuant to section 7 of this title, to prescribe rules and regulations for the purpose of preventing the excessive use of credit for 

the purchase or carrying of securities, or (B) to authorize the Commission to prescribe rules or regulations for such purpose. 

(7) In connection with any bid for or purchase of a government 

security related to an offering of government securities by or on behalf of an issuer, no government securities broker, government securities dealer, or bidder for or purchaser of securities in such offering shall knowingly or willfully make any false or misleading 

written statement or omit any fact necessary to make any written 

statement made not misleading. 

(8) PROHIBITION OF REFERRAL FEES.—No broker or dealer, or person associated with a broker or dealer, may solicit or accept, directly or indirectly, remuneration for assisting an attorney in obtaining the representation of any person in any private action arising under this title or under the Securities Act of 1933. 

(d) SUPPLEMENTARY AND PERIODIC INFORMATION.— 

(1) IN GENERAL.—Each issuer which has filed a registration 

statement containing an undertaking which is or becomes operative under this subsection as in effect prior to the date of 

enactment of the Securities Acts Amendments of 1964, and 

each issuer which shall after such date file a registration statement which has become effective pursuant to the Securities Act 

of 1933, as amended, shall file with the Commission, in accordance with such rules and regulations as the Commission may 

prescribe as necessary or appropriate in the public interest or 

for the protection of investors, such supplementary and periodic information, documents, and reports as may be required 

pursuant to section 13 of this title in respect of a security registered pursuant to section 12 of this title. The duty to file 

under this subsection shall be automatically suspended if and 


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so long as any issue of securities of such issuer is registered 

pursuant to section 12 of this title. The duty to file under this 

subsection shall also be automatically suspended as to any fiscal year, other than the fiscal year within which such registration statement became effective, if, at the beginning of such fiscal year, the securities of each class, other than any class of 

asset-backed securities, to which the registration statement relates are held of record by less than 300 persons, or, in the 

øcase of bank¿ case of a bank, a savings and loan holding company (as defined in section 10 of the Home Owners’ Loan Act), 

or a bank holding company, as such term is defined in section 

2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841), 

1,200 persons persons. For the purposes of this subsection, the 

term ‘‘class’’ shall be construed to include all securities of an 

issuer which are of substantially similar character and the 

holders of which enjoy substantially similar rights and privileges. The Commission may, for the purpose of this subsection, 

define by rules and regulations the term ‘‘held of record’’ as it 

deems necessary or appropriate in the public interest or for the 

protection of investors in order to prevent circumvention of the 

provisions of this subsection. Nothing in this subsection shall 

apply to securities issued by a foreign government or political 

subdivision thereof. 

(2) ASSET-BACKED SECURITIES.— 

(A) SUSPENSION OF DUTY TO FILE.—The Commission 

may, by rule or regulation, provide for the suspension or 

termination of the duty to file under this subsection for 

any class of asset-backed security, on such terms and conditions and for such period or periods as the Commission 

deems necessary or appropriate in the public interest or 

for the protection of investors. 

(B) CLASSIFICATION OF ISSUERS.—The Commission may, 

for purposes of this subsection, classify issuers and prescribe requirements appropriate for each class of issuers of 

asset-backed securities. 

(e) NOTICES TO CUSTOMERS REGARDING SECURITIES LENDING.— 

Every registered broker or dealer shall provide notice to its customers that they may elect not to allow their fully paid securities 

to be used in connection with short sales. If a broker or dealer uses 

a customer’s securities in connection with short sales, the broker 

or dealer shall provide notice to its customer that the broker or 

dealer may receive compensation in connection with lending the 

customer’s securities. The Commission, by rule, as it deems necessary or appropriate in the public interest and for the protection 

of investors, may prescribe the form, content, time, and manner of 

delivery of any notice required under this paragraph. 

(f) The Commission, by rule, as it deems necessary or appropriate 

in the public interest and for the protection of investors or to assure equal regulation, may require any member of a national securities exchange not required to register under section 15 of this 

title and any person associated with any such member to comply 

with any provision of this title (other than section 15(a)) or the 

rules or regulations thereunder which by its terms regulates or 

prohibits any act, practice, or course of business by a ‘‘broker or 


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dealer’’ or ‘‘registered broker or dealer’’ or a ‘‘person associated with 

a broker or dealer,’’ respectively. 

(g) Every registered broker or dealer shall establish, maintain, 

and enforce written policies and procedures reasonably designed, 

taking into consideration the nature of such broker’s or dealer’s 

business, to prevent the misuse in violation of this title, or the 

rules or regulations thereunder, of material, nonpublic information 

by such broker or dealer or any person associated with such broker 

or dealer. The Commission, as it deems necessary or appropriate 

in the public interest or for the protection of investors, shall adopt 

rules or regulations to require specific policies or procedures reasonably designed to prevent misuse in violation of this title (or the 

rules or regulations thereunder) of material, nonpublic information. 

(h) REQUIREMENTS FOR TRANSACTIONS IN PENNY STOCKS.— 

(1) IN GENERAL.—No broker or dealer shall make use of the 

mails or any means or instrumentality of interstate commerce 

to effect any transaction in, or to induce or attempt to induce 

the purchase or sale of, any penny stock by any customer except in accordance with the requirements of this subsection 

and the rules and regulations prescribed under this subsection. 

(2) RISK DISCLOSURE WITH RESPECT TO PENNY STOCKS.—Prior 

to effecting any transaction in any penny stock, a broker or 

dealer shall give the customer a risk disclosure document 

that— 

(A) contains a description of the nature and level of risk 

in the market for penny stocks in both public offerings and 

secondary trading; 

(B) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to violations of such duties or other requirements of Federal securities laws; 

(C) contains a brief, clear, narrative description of a 

dealer market, including ‘‘bid’’ and ‘‘ask’’ prices for penny 

stocks and the significance of the spread between the bid 

and ask prices; 

(D) contains the toll free telephone number for inquiries 

on disciplinary actions established pursuant to section 

15A(i) of this title; 

(E) defines significant terms used in the disclosure document or in the conduct of trading in penny stocks; and 

(F) contains such other information, and is in such form 

(including language, type size, and format), as the Commission shall require by rule or regulation. 

(3) COMMISSION RULES RELATING TO DISCLOSURE.—The Commission shall adopt rules setting forth additional standards for 

the disclosure by brokers and dealers to customers of information concerning transactions in penny stocks. Such rules— 

(A) shall require brokers and dealers to disclose to each 

customer, prior to effecting any transaction in, and at the 

time of confirming any transaction with respect to any 

penny stock, in accordance with such procedures and 

methods as the Commission may require consistent with 

the public interest and the protection of investors— 

(i) the bid and ask prices for penny stock, or such 

other information as the Commission may, by rule, reVerDate Sep 11 2014 01:45 Jul 16, 2015 Jkt 049006 PO 00000 Frm 00030 Fmt 6659 Sfmt 6601 E:\HR\OC\HR200.XXX HR200

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quire to provide customers with more useful and reliable information relating to the price of such stock; 

(ii) the number of shares to which such bid and ask 

prices apply, or other comparable information relating 

to the depth and liquidity of the market for such stock; 

and 

(iii) the amount and a description of any compensation that the broker or dealer and the associated person thereof will receive or has received in connection 

with such transaction; 

(B) shall require brokers and dealers to provide, to each 

customer whose account with the broker or dealer contains 

penny stocks, a monthly statement indicating the market 

value of the penny stocks in that account or indicating 

that the market value of such stock cannot be determined 

because of the unavailability of firm quotes; and 

(C) may, as the Commission finds necessary or appropriate in the public interest or for the protection of investors, require brokers and dealers to disclose to customers 

additional information concerning transactions in penny 

stocks. 

(4) EXEMPTIONS.—The Commission, as it determines consistent with the public interest and the protection of investors, 

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

conditionally or unconditionally, any person or class of persons, 

or any transaction or class of transactions, from the requirements of this subsection. Such exemptions shall include an exemption for brokers and dealers based on the minimal percentage of the broker’s or dealer’s commissions, commission-equivalents, and markups received from transactions in penny stocks. 

(5) REGULATIONS.—It shall be unlawful for any person to violate such rules and regulations as the Commission shall prescribe in the public interest or for the protection of investors 

or to maintain fair and orderly markets— 

(A) as necessary or appropriate to carry out this subsection; or 

(B) as reasonably designed to prevent fraudulent, deceptive, or manipulative acts and practices with respect to 

penny stocks. 

(i) LIMITATIONS ON STATE LAW.— 

(1) CAPITAL, MARGIN, BOOKS AND RECORDS, BONDING, AND REPORTS.—No law, rule, regulation, or order, or other administrative action of any State or political subdivision thereof shall establish capital, custody, margin, financial responsibility, making and keeping records, bonding, or financial or operational 

reporting requirements for brokers, dealers, municipal securities dealers, government securities brokers, or government securities dealers that differ from, or are in addition to, the requirements in those areas established under this title. The 

Commission shall consult periodically the securities commissions (or any agency or office performing like functions) of the 

States concerning the adequacy of such requirements as established under this title. 

(2) FUNDING PORTALS.— 


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(A) LIMITATION ON STATE LAWS.—Except as provided in 

subparagraph (B), no State or political subdivision thereof 

may enforce any law, rule, regulation, or other administrative action against a registered funding portal with respect 

to its business as such. 

(B) EXAMINATION AND ENFORCEMENT AUTHORITY.—Subparagraph (A) does not apply with respect to the examination and enforcement of any law, rule, regulation, or administrative action of a State or political subdivision thereof in which the principal place of business of a registered 

funding portal is located, provided that such law, rule, regulation, or administrative action is not in addition to or 

different from the requirements for registered funding portals established by the Commission. 

(C) DEFINITION.—For purposes of this paragraph, the 

term ‘‘State’’ includes the District of Columbia and the territories of the United States. 

(3) DE MINIMIS TRANSACTIONS BY ASSOCIATED PERSONS.—No 

law, rule, regulation, or order, or other administrative action 

of any State or political subdivision thereof may prohibit an associated person of a broker or dealer from effecting a transaction described in paragraph (3) for a customer in such State 

if— 

(A) such associated person is not ineligible to register 

with such State for any reason other than such a transaction; 

(B) such associated person is registered with a registered 

securities association and at least one State; and 

(C) the broker or dealer with which such person is associated is registered with such State. 

(4) DESCRIBED TRANSACTIONS.— (A) IN GENERAL.—A transaction is described in this paragraph if— 

(i) such transaction is effected— 

(I) on behalf of a customer that, for 30 days 

prior to the day of the transaction, maintained an 

account with the broker or dealer; and 

(II) by an associated person of the broker or 

dealer— 

(aa) to which the customer was assigned for 

14 days prior to the day of the transaction; 

and 

(bb) who is registered with a State in which 

the customer was a resident or was present 

for at least 30 consecutive days during the 1- 

year period prior to the day of the transaction; 

or 

(ii) the transaction is effected— 

(I) on behalf of a customer that, for 30 days 

prior to the day of the transaction, maintained an 

account with the broker or dealer; and 

(II) during the period beginning on the date on 

which such associated person files an application 

for registration with the State in which the transaction is effected and ending on the earlier of— 


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(aa) 60 days after the date on which the application is filed; or 

(bb) the date on which such State notifies 

the associated person that it has denied the 

application for registration or has stayed the 

pendency of the application for cause. 

(B) RULES OF CONSTRUCTION.—For purposes of subparagraph (A)(i)(II)— 

(i) each of up to 3 associated persons of a broker or 

dealer who are designated to effect transactions during the absence or unavailability of the principal associated person for a customer may be treated as an associated person to which such customer is assigned; 

and 

(ii) if the customer is present in another State for 30 

or more consecutive days or has permanently changed 

his or her residence to another State, a transaction is 

not described in this paragraph, unless the associated 

person of the broker or dealer files an application for 

registration with such State not later than 10 business 

days after the later of the date of the transaction, or 

the date of the discovery of the presence of the customer in the other State for 30 or more consecutive 

days or the change in the customer’s residence. 

(j) RULEMAKING TO EXTEND REQUIREMENTS TO NEW HYBRID

PRODUCTS.— (1) CONSULTATION.—Prior to commencing a rulemaking 

under this subsection, the Commission shall consult with and 

seek the concurrence of the Board concerning the imposition of 

broker or dealer registration requirements with respect to any 

new hybrid product. In developing and promulgating rules 

under this subsection, the Commission shall consider the views 

of the Board, including views with respect to the nature of the 

new hybrid product; the history, purpose, extent, and appropriateness of the regulation of the new product under the Federal banking laws; and the impact of the proposed rule on the 

banking industry. 

(2) LIMITATION.—The Commission shall not— 

(A) require a bank to register as a broker or dealer 

under this section because the bank engages in any transaction in, or buys or sells, a new hybrid product; or 

(B) bring an action against a bank for a failure to comply with a requirement described in subparagraph (A), 

unless the Commission has imposed such requirement by rule 

or regulation issued in accordance with this section. 

(3) CRITERIA FOR RULEMAKING.—The Commission shall not 

impose a requirement under paragraph (2) of this subsection 

with respect to any new hybrid product unless the Commission 

determines that— 

(A) the new hybrid product is a security; and 

(B) imposing such requirement is necessary and appropriate in the public interest and for the protection of investors. 

(4) CONSIDERATIONS.—In making a determination under 

paragraph (3), the Commission shall consider— 


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(A) the nature of the new hybrid product; and 

(B) the history, purpose, extent, and appropriateness of 

the regulation of the new hybrid product under the Federal securities laws and under the Federal banking laws. 

(5) OBJECTION TO COMMISSION REGULATION.— 

(A) FILING OF PETITION FOR REVIEW.—The Board may obtain review of any final regulation described in paragraph 

(2) in the United States Court of Appeals for the District 

of Columbia Circuit by filing in such court, not later than 

60 days after the date of publication of the final regulation, a written petition requesting that the regulation be 

set aside. Any proceeding to challenge any such rule shall 

be expedited by the Court of Appeals. 

(B) TRANSMITTAL OF PETITION AND RECORD.—A copy of a 

petition described in subparagraph (A) shall be transmitted as soon as possible by the Clerk of the Court to an 

officer or employee of the Commission designated for that 

purpose. Upon receipt of the petition, the Commission 

shall file with the court the regulation under review and 

any documents referred to therein, and any other relevant 

materials prescribed by the court. 

(C) EXCLUSIVE JURISDICTION.—On the date of the filing 

of the petition under subparagraph (A), the court has jurisdiction, which becomes exclusive on the filing of the materials set forth in subparagraph (B), to affirm and enforce 

or to set aside the regulation at issue. 

(D) STANDARD OF REVIEW.—The court shall determine to 

affirm and enforce or set aside a regulation of the Commission under this subsection, based on the determination of 

the court as to whether— 

(i) the subject product is a new hybrid product, as 

defined in this subsection; 

(ii) the subject product is a security; and 

(iii) imposing a requirement to register as a broker 

or dealer for banks engaging in transactions in such 

product is appropriate in light of the history, purpose, 

and extent of regulation under the Federal securities 

laws and under the Federal banking laws, giving deference neither to the views of the Commission nor the 

Board. 

(E) JUDICIAL STAY.—The filing of a petition by the Board 

pursuant to subparagraph (A) shall operate as a judicial 

stay, until the date on which the determination of the 

court is final (including any appeal of such determination). 

(F) OTHER AUTHORITY TO CHALLENGE.—Any aggrieved 

party may seek judicial review of the Commission’s rulemaking under this subsection pursuant to section 25 of 

this title. 

(6) DEFINITIONS.—For purposes of this subsection: 

(A) NEW HYBRID PRODUCT.—The term ‘‘new hybrid product’’ means a product that— 

(i) was not subjected to regulation by the Commission as a security prior to the date of the enactment 

of the Gramm-Leach-Bliley Act; 


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(ii) is not an identified banking product as such 

term is defined in section 206 of such Act; and 

(iii) is not an equity swap within the meaning of section 206(a)(6) of such Act. 

(B) BOARD.—The term ‘‘Board’’ means the Board of Governors of the Federal Reserve System. 

(j) The authority of the Commission under this section with respect to security-based swap agreements shall be subject to the restrictions and limitations of section 3A(b) of this title. 

(k) REGISTRATION OR SUCCESSION TO A UNITED STATES BROKER

OR DEALER.—In determining whether to permit a foreign person or 

an affiliate of a foreign person to register as a United States broker 

or dealer, or succeed to the registration of a United States broker 

or dealer, the Commission may consider whether, for a foreign person, or an affiliate of a foreign person that presents a risk to the 

stability of the United States financial system, the home country 

of the foreign person has adopted, or made demonstrable progress 

toward adopting, an appropriate system of financial regulation to 

mitigate such risk. 

(l) TERMINATION OF A UNITED STATES BROKER OR DEALER.—For 

a foreign person or an affiliate of a foreign person that presents 

such a risk to the stability of the United States financial system, 

the Commission may determine to terminate the registration of 

such foreign person or an affiliate of such foreign person as a 

broker or dealer in the United States, if the Commission determines that the home country of the foreign person has not adopted, 

or made demonstrable progress toward adopting, an appropriate 

system of financial regulation to mitigate such risk. 

(k) STANDARD OF CONDUCT.— 

(1) IN GENERAL.—Notwithstanding any other provision of 

this Act or the Investment Advisers Act of 1940, the Commission may promulgate rules to provide that, with respect to a 

broker or dealer, when providing personalized investment advice about securities to a retail customer (and such other customers as the Commission may by rule provide), the standard 

of conduct for such broker or dealer with respect to such customer shall be the same as the standard of conduct applicable 

to an investment adviser under section 211 of the Investment 

Advisers Act of 1940. The receipt of compensation based on 

commission or other standard compensation for the sale of securities shall not, in and of itself, be considered a violation of 

such standard applied to a broker or dealer. Nothing in this 

section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities. 

(2) DISCLOSURE OF RANGE OF PRODUCTS OFFERED.—Where a 

broker or dealer sells only proprietary or other limited range 

of products, as determined by the Commission, the Commission 

may by rule require that such broker or dealer provide notice 

to each retail customer and obtain the consent or acknowledgment of the customer. The sale of only proprietary or other limited range of products by a broker or dealer shall not, in and 

of itself, be considered a violation of the standard set forth in 

paragraph (1). 


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(l) OTHER MATTERS.—The Commission shall— 

(1) facilitate the provision of simple and clear disclosures to 

investors regarding the terms of their relationships with brokers, dealers, and investment advisers, including any material 

conflicts of interest; and 

(2) examine and, where appropriate, promulgate rules prohibiting or restricting certain sales practices, conflicts of interest, and compensation schemes for brokers, dealers, and investment advisers that the Commission deems contrary to the 

public interest and the protection of investors. 

(m) HARMONIZATION OF ENFORCEMENT.—The enforcement authority of the Commission with respect to violations of the standard 

of conduct applicable to a broker or dealer providing personalized 

investment advice about securities to a retail customer shall include— 

(1) the enforcement authority of the Commission with respect to such violations provided under this Act; and 

(2) the enforcement authority of the Commission with respect to violations of the standard of conduct applicable to an 

investment adviser under the Investment Advisers Act of 1940, 

including the authority to impose sanctions for such violations, 

and 

the Commission shall seek to prosecute and sanction violators of 

the standard of conduct applicable to a broker or dealer providing 

personalized investment advice about securities to a retail customer under this Act to same extent as the Commission prosecutes 

and sanctions violators of the standard of conduct applicable to an 

investment advisor under the Investment Advisers Act of 1940. 

(n) DISCLOSURES TO RETAIL INVESTORS.— 

(1) IN GENERAL.—Notwithstanding any other provision of the 

securities laws, the Commission may issue rules designating 

documents or information that shall be provided by a broker or 

dealer to a retail investor before the purchase of an investment 

product or service by the retail investor. 

(2) CONSIDERATIONS.—In developing any rules under paragraph (1), the Commission shall consider whether the rules 

will promote investor protection, efficiency, competition, and 

capital formation. 

(3) FORM AND CONTENTS OF DOCUMENTS AND INFORMATION.— Any documents or information designated under a rule promulgated under paragraph (1) shall— 

(A) be in a summary format; and 

(B) contain clear and concise information about— 

(i) investment objectives, strategies, costs, and risks; 

and 

(ii) any compensation or other financial incentive received by a broker, dealer, or other intermediary in 

connection with the purchase of retail investment 

products. 

(o) AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRA- TION.—The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any future dispute between them arising under the 

Federal securities laws, the rules and regulations thereunder, or 


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37 

the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public 

interest and for the protection of investors. 

* * * * * * * 

Æ 


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