19–006

108TH CONGRESS REPORT " HOUSE OF REPRESENTATIVES ! 1st Session 108–19

EMERGENCY SECURITIES RESPONSE ACT OF 2003

FEBRUARY 25, 2003.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. OXLEY, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 657] 

[Including cost estimate of the Congressional Budget Office]

The Committee on Financial Services, to whom was referred the 

bill (H.R. 657) to amend the Securities Exchange Act of 1934 to 

augment the emergency authority of the Securities and Exchange 

Commission, having considered the same, report favorably thereon 

without amendment and recommend that the bill do pass.

CONTENTS 

Page 

Purpose and Summary ............................................................................................ 1

Background and Need for Legislation .................................................................... 2

Hearings ................................................................................................................... 3

Committee Consideration ........................................................................................ 3

Committee Votes ...................................................................................................... 3

Committee Oversight Findings ............................................................................... 3

Performance Goals and Objectives ......................................................................... 3

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 3

Committee Cost Estimate ....................................................................................... 4

Congressional Budget Office Cost Estimate .......................................................... 4

Federal Mandates Statement ................................................................................. 4

Constitutional Authority Statement ...................................................................... 5

Applicability to Legislative Branch ........................................................................ 5

Section-by-Section Analysis .................................................................................... 5

PURPOSE AND SUMMARY

The purpose of H.R. 657, the Emergency Securities Response Act, 

is to provide the Securities and Exchange Commission (SEC or 

Commission) with enhanced authority to respond to extraordinary 

market disturbances. The legislation extends the duration of a 

Commission emergency order issued pursuant to section 12(k)(2) of 

the Securities Exchange Act of 1934 (15 U.S.C. 78l(k)(2)) from ten 

2

to 30 business days, and under certain circumstances, up to a total 

of 90 calendar days. 

BACKGROUND AND NEED FOR LEGISLATION

The terrorist attacks of September 11, 2001, inflicted great 

human and physical loss in New York City, the financial capital of 

the world. The damage to lower Manhattan, home of the world’s 

largest stock market—the New York Stock Exchange—suspended 

the operation of the U.S. equities markets for the longest period 

since World War I. The U.S. securities markets reopened for trading on September 17, 2001. The markets resumed business without 

incident, in part due to the emergency relief orders issued by the 

SEC. 

To facilitate the reopening of the equities markets, the Commission used—for the first time—its emergency powers under section 

12(k)(2) of the 1934 Act to ease certain regulatory restrictions temporarily. Most significantly, the SEC action permitted public companies to repurchase their own securities without meeting the volume and timing restrictions that ordinarily would apply. Most commentators believe this measure served its intended purpose of increasing liquidity in the markets. Additionally, in order to limit the 

impact of the market closure and settlement problems on securities 

firms, the SEC issued orders allowing brokerage firms to disregard 

the days the markets were closed in calculating their net capital. 

The SEC also took action under other authority, such as relaxing 

requirements applicable to mutual funds for in-person board meetings, which would have been impossible during the period in which 

the Federal Aviation Administration grounded all flights. 

Under current law, the duration of emergency orders granted by 

the Commission pursuant to section 12(k)(2) of the 1934 Act is limited to ten days. The Commission also has general exemptive authority applying to all of the Federal securities laws under various 

sections of each of those laws, including section 36 of the 1934 Act, 

which it used in the wake of the September 11 attacks to extend 

the duration of its emergency authority relief. The Committee commends the Commission for its responsive and appropriate use of its 

emergency and exemptive authority to help ensure the smooth reopening of the securities markets. 

The Committee wishes to underscore that the Commission was 

entirely within its statutory authority to extend the duration of the 

relief it granted pursuant to section 12(k)(2) of the 1934 Act beyond 

ten days through use of its broad exemptive authority under section 36 of that Act. It is the Committee’s view that the exemptive 

authority of section 36, as well as the corresponding provisions in 

other Federal securities laws granted pursuant to the National Securities Markets Improvement Act of 1996 (Public Law 104–290), 

were designed to provide the Commission with the maximum flexibility to reduce and otherwise alter regulatory requirements under 

those statutes for emergency, as well as more quotidian purposes. 

Nevertheless, granting the Commission greater flexibility to extend 

the duration of emergency authority pursuant to section 12(k)(2) 

will further ensure the Commission’s continued ability to respond 

as necessary to emergencies affecting our nation’s securities markets. 

3

Accordingly, H.R. 657 extends the time frame under section 

12(k)(2) to 30 business days. The legislation also allows the Commission, in certain circumstances, to extend emergency orders 

under section 12(k) for more than 30 business days, up to a total 

of 90 calendar days. In order to do so, however, the SEC must find, 

at the time of the extension, that the emergency still exists and determine that the continuation of the order beyond 30 business days 

is necessary in the public interest and for the protection of investors to (1) maintain or restore fair and orderly securities markets, 

(2) ensure prompt, accurate, and safe clearance and settlement of 

transactions in securities, or (3) reduce, eliminate, or prevent a 

substantial disruption of securities markets, investment companies, 

or securities transaction processing. 

HEARINGS

No hearings were held on this legislation in the 108th Congress. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

February 13, 2003 and ordered reported to the House H.R. 657, the 

Emergency Securities Response Act, by a voice vote, 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. No record votes were 

taken with in conjunction with the consideration of this legislation. 

A motion by Mr. Oxley to report the bill to the House with a favorable recommendation was agreed to by a voice vote. 

COMMITTEE OVERSIGHT FINDINGS

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

of Representatives, the Committee made findings that are reflected 

in 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 establishes the following performance related goals and objectives for this legislation: 

The Commission will continue to use its emergency powers to ensure the effective functioning of the securities markets. 

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 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. 

4

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 ESTIMATE

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, February 20, 2003. 

Hon. MICHAEL G. OXLEY, 

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. 657, the Emergency Securities Response Act of 2003. 

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

to provide them. The CBO staff contact is Ken Johnson. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, Director. 

Enclosure.

H.R. 657—Emergency Securities Response Act of 2003

H.R. 657 would lengthen the maximum amount of time from 10 

days to 90 days during which the Securities and Exchange Commission (SEC) can exercise special authority over securities markets in the event of an emergency. During this period, the SEC can 

impose any restrictions on market activity that are necessary to 

maintain or restore the normal functioning of the securities markets. The bill also would expand the definition of an emergency to 

include major nonmarket disturbances that disrupt the functioning 

of securities markets. 

Based on information from the SEC, CBO estimates that implementing H.R. 657 would have no significant budgetary effect. The 

bill would not affect receipts or direct spending. 

H.R. 657 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

impose no costs on state, local, or tribal governments. 

The CBO staff contact for this estimate is Ken Johnson. The estimate was approved by Peter H. Fontaine, 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. 

5

ADVISORY COMMITTEE STATEMENT

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

Federal Advisory Committee Act were created by this legislation. 

CONSTITUTIONAL AUTHORITY STATEMENT

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

of Representatives, the Committee finds that the Constitutional 

Authority of Congress to enact this legislation is provided by Article 1, section 8, clause 1 (relating to the general welfare of the 

United States) and clause 3 (relating to the power to regulate interstate and foreign commerce). 

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 section 102(b)(3) of the Congressional Accountability Act. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section establishes the short title of the bill, the ‘‘Emergency 

Securities Response Act.’’

Section 2. Extension of emergency order authority of the Securities 

Exchange Commission 

Section 2 modifies the authority of the Securities and Exchange 

Commission to issue emergency orders under section 12(k)(2) of the 

Securities Exchange Act of 1934 (15 U.S.C. 78l(k)(2)). The section 

modifies section 12(k)(2) to grant the Commission authority to take 

emergency action with respect to any matter or action subject to 

regulation by the Commission or a self-regulatory organization 

under the securities laws, not just under the Securities Exchange 

Act of 1934. The Committee recognizes that emergency conditions 

can necessitate emergency relief under securities laws other than 

the Securities Exchange Act of 1934 and is broadening the emergency measures the Commission can take under section 12(k)(2) accordingly. 

The section also modifies the findings required for the Commission to enter an emergency order by adding a third finding that 

may support emergency action. Under new section 12(k)(2)(A)(iii), 

the Commission may take emergency action if it determines that 

action is necessary in the public interest and for the protection of 

investors ‘‘to reduce, eliminate, or prevent the substantial disruption by the emergency of (I) securities markets, investment companies, or any other significant portion or segment of such markets, 

or (II) the transmission or processing of securities transactions.’’

The first of these two findings—in section 12(k)(2)(A)(iii)(I)—covers situations in which emergency relief is warranted to reduce, 

eliminate or prevent the substantial disruption by the emergency 

of securities markets broadly defined, including investment companies or any other significant portion or segment of the securities 

markets (such as broker-dealers or investment advisers, or a class 

thereof). As illustrated by the aftermath of the terrorist attacks of 

6

September 11, 2001, the effects of transportation and communication problems, no less than market disruptions, can require emergency relief. If transportation or communication problems or other 

circumstances substantially disrupt or threaten to substantially 

disrupt the operation of investment companies, broker-dealers, or 

any other significant portion or segment of the securities markets, 

and constitute an ‘‘emergency’’ under section 12(k)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(k)(6)), section 

12(k)(2)(A)(iii)(I) allows the Commission to take emergency action 

under section 12(k)(2) even if the securities secondary-trading markets and the national system for clearance and settlement of securities transactions are not threatened or disrupted. 

The second of these two findings—in section 12(k)(2)(A)(iii)(II)— covers situations in which emergency relief is warranted to reduce, 

eliminate or prevent the substantial disruption by the emergency 

of the transmission or processing of securities transactions. The 

Committee is aware that certain market participants experienced 

difficulties in transmitting and processing securities transactions, 

including government securities transactions, in the aftermath of 

the attacks of September 11, 2001. In the future, should these or 

other circumstances substantially disrupt or threaten to substantially disrupt the transmission or processing of securities transactions and constitute an ‘‘emergency’’ under section 12(k)(6), section 12(k)(2)(A)(iii)(II) allows the Commission to take emergency 

action under section 12(k)(2) even if the national system for clearance and settlement of securities transactions is not threatened or 

disrupted. 

The section also modifies the statute’s definition of ‘‘emergency’’ to reflect the broader scope of findings that may support an emergency order. Specifically, the definition of ‘‘emergency’’ in section 

12(k)(6) of the Securities Exchange Act (15 U.S.C. 78l(k)(6)) is 

modified to include a major disturbance that substantially disrupts, 

or threatens to substantially disrupt, the functioning of securities 

markets, investment companies, or any other significant portion or 

segment of such markets, or the transmission or processing of securities transactions. This modification of section 12(k)(6) mirrors the 

changes to the findings under section 12(k)(2)(A) and, as discussed 

above, is designed to account for emergencies that substantially 

disrupt, or threaten to substantially disrupt, the securities markets 

broadly defined, including the functioning of investment companies 

or any other significant portion or segment of the securities markets or the transmission or processing of securities transactions, 

even in the absence of a major market disturbance under section 

12(k)(6)(A). 

The section also extends the duration of a Commission emergency order to 30 business days, from the current ten business 

days. The section also allows the Commission to extend an emergency order for more than 30 business days, up to a total of 90 calendar days, based upon certain findings. Specifically, under new 

section 12(k)(2)(C) (15 U.S.C. 78l(k)(2)(C)), the Commission may extend the duration of an emergency order beyond 30 business days 

if the Commission finds, at the time of the extension, that the 

emergency still exists, and determines that the continuation is necessary in the public interest and for the protection of investors to 

attain one of the three objectives that may support the CommisVerDate Jan 31 2003 07:50 Feb 27, 2003 Jkt 019006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR019.XXX HR019
7

sion’s initial emergency action. The calendar day, as opposed to 

business day, limit on total extensions of an emergency order reflects the judgment that a total of approximately three months is 

a reasonable limit on Commission discretion, while providing sufficient latitude for the Commission to provide appropriate immediate 

relief. 

Finally, the section provides that, as used in the subsection 

added by the legislation, the definition of ‘‘securities laws’’ excludes 

the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et 

seq.).

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, 

existing law in which no change is proposed is shown in roman): 

SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 

1934

REGISTRATION REQUIREMENTS FOR SECURITIES

SEC. 12. (a) * * *

* * * * * * *

(k) TRADING SUSPENSIONS; EMERGENCY AUTHORITY.—

(1) * * *

ø(2) EMERGENCY ORDERS.—(A) 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 this title, 

as the Commission determines is necessary in the public interest and for the protection of investors—

ø(i) to maintain or restore fair and orderly securities 

markets (other than markets in exempted securities); or 

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

settlement of transactions in securities (other than exempted securities). 

ø(B) An order of the Commission under this paragraph (2) 

shall continue in effect for the period specified by the Commission, and may be extended, except that in no event shall the 

Commission’s action continue in effect for more than 10 business days, including extensions. 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. In exercising its authority under this paragraph, the Commission shall not be required 

to comply with the provisions of section 553 of title 5, United 

States Code, or with the provisions of section 19(c) of this 

title.¿

(2) EMERGENCY ORDERS.—(A) 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 ComVerDate Jan 31 2003 07:50 Feb 27, 2003 Jkt 019006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6603 E:\HR\OC\HR019.XXX HR019
8

mission 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—

(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, investment companies, or any other significant portion or segment of such markets, or (II) the transmission or processing 

of securities transactions. 

(B) An order of the Commission under this paragraph (2) 

shall continue in effect for the period specified by the Commission, and may be extended. Except as provided in subparagraph 

(C), the Commission’s action may not continue in effect for more 

than 30 business days, including extensions. 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. In exercising its 

authority under this paragraph, the Commission shall not be 

required to comply with the provisions of section 553 of title 5, 

United States Code, or with the provisions of section 19(c) of 

this title. 

(C) An order of the Commission under this paragraph (2) 

may be extended to continue in effect for more than 30 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 30 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 

(2) continue in effect for more than 90 calendar days.

* * * * * * *

ø(6) DEFINITION OF EMERGENCY.—For purposes of this subsection, the term ‘‘emergency’’ means a major market disturbance characterized by or constituting—

ø(A) sudden and excessive fluctuations of securities 

prices generally, or a substantial threat thereof, that 

threaten fair and orderly markets, or 

ø(B) a substantial disruption of the safe or efficient operation of the national system for clearance and settlement 

of securities, or a substantial threat thereof.¿

(6) DEFINITIONS.—

(A) EMERGENCY.—For purposes of this subsection, the 

term ‘‘emergency’’ means—

(i) 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 

9

and settlement of transactions in securities, or a 

substantial threat thereof; or 

(ii) 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. 

(B) SECURITIES LAWS.—Notwithstanding section 3(a)(47), 

for purposes of this subsection, the term ‘‘securities laws’’ does not include the Public Utility Holding Company Act of 

1935 (15 U.S.C. 79a et seq.).

* * * * * * *

Æ

2

to 30 business days, and under certain circumstances, up to a total 

of 90 calendar days. 

BACKGROUND AND NEED FOR LEGISLATION

The terrorist attacks of September 11, 2001, inflicted great 

human and physical loss in New York City, the financial capital of 

the world. The damage to lower Manhattan, home of the world’s 

largest stock market—the New York Stock Exchange—suspended 

the operation of the U.S. equities markets for the longest period 

since World War I. The U.S. securities markets reopened for trading on September 17, 2001. The markets resumed business without 

incident, in part due to the emergency relief orders issued by the 

SEC. 

To facilitate the reopening of the equities markets, the Commission used—for the first time—its emergency powers under section 

12(k)(2) of the 1934 Act to ease certain regulatory restrictions temporarily. Most significantly, the SEC action permitted public companies to repurchase their own securities without meeting the volume and timing restrictions that ordinarily would apply. Most commentators believe this measure served its intended purpose of increasing liquidity in the markets. Additionally, in order to limit the 

impact of the market closure and settlement problems on securities 

firms, the SEC issued orders allowing brokerage firms to disregard 

the days the markets were closed in calculating their net capital. 

The SEC also took action under other authority, such as relaxing 

requirements applicable to mutual funds for in-person board meetings, which would have been impossible during the period in which 

the Federal Aviation Administration grounded all flights. 

Under current law, the duration of emergency orders granted by 

the Commission pursuant to section 12(k)(2) of the 1934 Act is limited to ten days. The Commission also has general exemptive authority applying to all of the Federal securities laws under various 

sections of each of those laws, including section 36 of the 1934 Act, 

which it used in the wake of the September 11 attacks to extend 

the duration of its emergency authority relief. The Committee commends the Commission for its responsive and appropriate use of its 

emergency and exemptive authority to help ensure the smooth reopening of the securities markets. 

The Committee wishes to underscore that the Commission was 

entirely within its statutory authority to extend the duration of the 

relief it granted pursuant to section 12(k)(2) of the 1934 Act beyond 

ten days through use of its broad exemptive authority under section 36 of that Act. It is the Committee’s view that the exemptive 

authority of section 36, as well as the corresponding provisions in 

other Federal securities laws granted pursuant to the National Securities Markets Improvement Act of 1996 (Public Law 104–290), 

were designed to provide the Commission with the maximum flexibility to reduce and otherwise alter regulatory requirements under 

those statutes for emergency, as well as more quotidian purposes. 

Nevertheless, granting the Commission greater flexibility to extend 

the duration of emergency authority pursuant to section 12(k)(2) 

will further ensure the Commission’s continued ability to respond 

as necessary to emergencies affecting our nation’s securities markets. 

3

Accordingly, H.R. 657 extends the time frame under section 

12(k)(2) to 30 business days. The legislation also allows the Commission, in certain circumstances, to extend emergency orders 

under section 12(k) for more than 30 business days, up to a total 

of 90 calendar days. In order to do so, however, the SEC must find, 

at the time of the extension, that the emergency still exists and determine that the continuation of the order beyond 30 business days 

is necessary in the public interest and for the protection of investors to (1) maintain or restore fair and orderly securities markets, 

(2) ensure prompt, accurate, and safe clearance and settlement of 

transactions in securities, or (3) reduce, eliminate, or prevent a 

substantial disruption of securities markets, investment companies, 

or securities transaction processing. 

HEARINGS

No hearings were held on this legislation in the 108th Congress. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

February 13, 2003 and ordered reported to the House H.R. 657, the 

Emergency Securities Response Act, by a voice vote, 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. No record votes were 

taken with in conjunction with the consideration of this legislation. 

A motion by Mr. Oxley to report the bill to the House with a favorable recommendation was agreed to by a voice vote. 

COMMITTEE OVERSIGHT FINDINGS

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

of Representatives, the Committee made findings that are reflected 

in 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 establishes the following performance related goals and objectives for this legislation: 

The Commission will continue to use its emergency powers to ensure the effective functioning of the securities markets. 

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 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. 

4

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 ESTIMATE

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, February 20, 2003. 

Hon. MICHAEL G. OXLEY, 

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. 657, the Emergency Securities Response Act of 2003. 

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

to provide them. The CBO staff contact is Ken Johnson. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, Director. 

Enclosure.

H.R. 657—Emergency Securities Response Act of 2003

H.R. 657 would lengthen the maximum amount of time from 10 

days to 90 days during which the Securities and Exchange Commission (SEC) can exercise special authority over securities markets in the event of an emergency. During this period, the SEC can 

impose any restrictions on market activity that are necessary to 

maintain or restore the normal functioning of the securities markets. The bill also would expand the definition of an emergency to 

include major nonmarket disturbances that disrupt the functioning 

of securities markets. 

Based on information from the SEC, CBO estimates that implementing H.R. 657 would have no significant budgetary effect. The 

bill would not affect receipts or direct spending. 

H.R. 657 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

impose no costs on state, local, or tribal governments. 

The CBO staff contact for this estimate is Ken Johnson. The estimate was approved by Peter H. Fontaine, 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. 

5

ADVISORY COMMITTEE STATEMENT

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

Federal Advisory Committee Act were created by this legislation. 

CONSTITUTIONAL AUTHORITY STATEMENT

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

of Representatives, the Committee finds that the Constitutional 

Authority of Congress to enact this legislation is provided by Article 1, section 8, clause 1 (relating to the general welfare of the 

United States) and clause 3 (relating to the power to regulate interstate and foreign commerce). 

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 section 102(b)(3) of the Congressional Accountability Act. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section establishes the short title of the bill, the ‘‘Emergency 

Securities Response Act.’’

Section 2. Extension of emergency order authority of the Securities 

Exchange Commission 

Section 2 modifies the authority of the Securities and Exchange 

Commission to issue emergency orders under section 12(k)(2) of the 

Securities Exchange Act of 1934 (15 U.S.C. 78l(k)(2)). The section 

modifies section 12(k)(2) to grant the Commission authority to take 

emergency action with respect to any matter or action subject to 

regulation by the Commission or a self-regulatory organization 

under the securities laws, not just under the Securities Exchange 

Act of 1934. The Committee recognizes that emergency conditions 

can necessitate emergency relief under securities laws other than 

the Securities Exchange Act of 1934 and is broadening the emergency measures the Commission can take under section 12(k)(2) accordingly. 

The section also modifies the findings required for the Commission to enter an emergency order by adding a third finding that 

may support emergency action. Under new section 12(k)(2)(A)(iii), 

the Commission may take emergency action if it determines that 

action is necessary in the public interest and for the protection of 

investors ‘‘to reduce, eliminate, or prevent the substantial disruption by the emergency of (I) securities markets, investment companies, or any other significant portion or segment of such markets, 

or (II) the transmission or processing of securities transactions.’’

The first of these two findings—in section 12(k)(2)(A)(iii)(I)—covers situations in which emergency relief is warranted to reduce, 

eliminate or prevent the substantial disruption by the emergency 

of securities markets broadly defined, including investment companies or any other significant portion or segment of the securities 

markets (such as broker-dealers or investment advisers, or a class 

thereof). As illustrated by the aftermath of the terrorist attacks of 

6

September 11, 2001, the effects of transportation and communication problems, no less than market disruptions, can require emergency relief. If transportation or communication problems or other 

circumstances substantially disrupt or threaten to substantially 

disrupt the operation of investment companies, broker-dealers, or 

any other significant portion or segment of the securities markets, 

and constitute an ‘‘emergency’’ under section 12(k)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(k)(6)), section 

12(k)(2)(A)(iii)(I) allows the Commission to take emergency action 

under section 12(k)(2) even if the securities secondary-trading markets and the national system for clearance and settlement of securities transactions are not threatened or disrupted. 

The second of these two findings—in section 12(k)(2)(A)(iii)(II)— covers situations in which emergency relief is warranted to reduce, 

eliminate or prevent the substantial disruption by the emergency 

of the transmission or processing of securities transactions. The 

Committee is aware that certain market participants experienced 

difficulties in transmitting and processing securities transactions, 

including government securities transactions, in the aftermath of 

the attacks of September 11, 2001. In the future, should these or 

other circumstances substantially disrupt or threaten to substantially disrupt the transmission or processing of securities transactions and constitute an ‘‘emergency’’ under section 12(k)(6), section 12(k)(2)(A)(iii)(II) allows the Commission to take emergency 

action under section 12(k)(2) even if the national system for clearance and settlement of securities transactions is not threatened or 

disrupted. 

The section also modifies the statute’s definition of ‘‘emergency’’ to reflect the broader scope of findings that may support an emergency order. Specifically, the definition of ‘‘emergency’’ in section 

12(k)(6) of the Securities Exchange Act (15 U.S.C. 78l(k)(6)) is 

modified to include a major disturbance that substantially disrupts, 

or threatens to substantially disrupt, the functioning of securities 

markets, investment companies, or any other significant portion or 

segment of such markets, or the transmission or processing of securities transactions. This modification of section 12(k)(6) mirrors the 

changes to the findings under section 12(k)(2)(A) and, as discussed 

above, is designed to account for emergencies that substantially 

disrupt, or threaten to substantially disrupt, the securities markets 

broadly defined, including the functioning of investment companies 

or any other significant portion or segment of the securities markets or the transmission or processing of securities transactions, 

even in the absence of a major market disturbance under section 

12(k)(6)(A). 

The section also extends the duration of a Commission emergency order to 30 business days, from the current ten business 

days. The section also allows the Commission to extend an emergency order for more than 30 business days, up to a total of 90 calendar days, based upon certain findings. Specifically, under new 

section 12(k)(2)(C) (15 U.S.C. 78l(k)(2)(C)), the Commission may extend the duration of an emergency order beyond 30 business days 

if the Commission finds, at the time of the extension, that the 

emergency still exists, and determines that the continuation is necessary in the public interest and for the protection of investors to 

attain one of the three objectives that may support the CommisVerDate Jan 31 2003 22:16 Feb 26, 2003 Jkt 019006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR019.XXX HR019
7

sion’s initial emergency action. The calendar day, as opposed to 

business day, limit on total extensions of an emergency order reflects the judgment that a total of approximately three months is 

a reasonable limit on Commission discretion, while providing sufficient latitude for the Commission to provide appropriate immediate 

relief. 

Finally, the section provides that, as used in the subsection 

added by the legislation, the definition of ‘‘securities laws’’ excludes 

the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et 

seq.).

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, 

existing law in which no change is proposed is shown in roman): 

SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 

1934

REGISTRATION REQUIREMENTS FOR SECURITIES

SEC. 12. (a) * * *

* * * * * * *

(k) TRADING SUSPENSIONS; EMERGENCY AUTHORITY.—

(1) * * *

ø(2) EMERGENCY ORDERS.—(A) 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 this title, 

as the Commission determines is necessary in the public interest and for the protection of investors—

ø(i) to maintain or restore fair and orderly securities 

markets (other than markets in exempted securities); or 

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

settlement of transactions in securities (other than exempted securities). 

ø(B) An order of the Commission under this paragraph (2) 

shall continue in effect for the period specified by the Commission, and may be extended, except that in no event shall the 

Commission’s action continue in effect for more than 10 business days, including extensions. 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. In exercising its authority under this paragraph, the Commission shall not be required 

to comply with the provisions of section 553 of title 5, United 

States Code, or with the provisions of section 19(c) of this 

title.¿

(2) EMERGENCY ORDERS.—(A) 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 ComVerDate Jan 31 2003 22:16 Feb 26, 2003 Jkt 019006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6603 E:\HR\OC\HR019.XXX HR019
8

mission 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—

(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, investment companies, or any other significant portion or segment of such markets, or (II) the transmission or processing 

of securities transactions. 

(B) An order of the Commission under this paragraph (2) 

shall continue in effect for the period specified by the Commission, and may be extended. Except as provided in subparagraph 

(C), the Commission’s action may not continue in effect for more 

than 30 business days, including extensions. 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. In exercising its 

authority under this paragraph, the Commission shall not be 

required to comply with the provisions of section 553 of title 5, 

United States Code, or with the provisions of section 19(c) of 

this title. 

(C) An order of the Commission under this paragraph (2) 

may be extended to continue in effect for more than 30 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 30 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 

(2) continue in effect for more than 90 calendar days.

* * * * * * *

ø(6) DEFINITION OF EMERGENCY.—For purposes of this subsection, the term ‘‘emergency’’ means a major market disturbance characterized by or constituting—

ø(A) sudden and excessive fluctuations of securities 

prices generally, or a substantial threat thereof, that 

threaten fair and orderly markets, or 

ø(B) a substantial disruption of the safe or efficient operation of the national system for clearance and settlement 

of securities, or a substantial threat thereof.¿

(6) DEFINITIONS.—

(A) EMERGENCY.—For purposes of this subsection, the 

term ‘‘emergency’’ means—

(i) 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 

9

and settlement of transactions in securities, or a 

substantial threat thereof; or 

(i) 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. 

(B) SECURITIES LAWS.—Notwithstanding section 3(a)(47), 

for purposes of this subsection, the term ‘‘securities laws’’ does not include the Public Utility Holding Company Act of 

1935 (15 U.S.C. 79a et seq.).

* * * * * * *

Æ