I

103D CONGRESS

1ST SESSION H. R. 3447

To amend the Federal securities laws to equalize the regulatory treatment

of participants in the securities industry, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 4, 1993

Mr. DINGELL (for himself, Mr. MOORHEAD, Mr. MARKEY, and Mr. FIELDS

of Texas) introduced the following bill; which was referred to the Committee on Energy and Commerce

A BILL

To amend the Federal securities laws to equalize the regulatory treatment of participants in the securities industry, and for other purposes.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Securities Regulatory

5 Equality Act of 1993’’.
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1 TITLE I—REGULATION OF SECU2 RITIES ACTIVITIES OF DEPOS3 ITORY INSTITUTIONS

4 PART A—BROKER-DEALER PROVISIONS

5 SEC. 101. DEFINITION OF BROKER.

6 Section 3(a)(4) of the Securities Exchange Act of

7 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:

8 ‘‘(4)(A) The term ‘broker’ means any person

9 engaged in the business of effecting transactions in

10 securities for the account of others.

11 ‘‘(B) A bank shall not be deemed to be a

12 ‘broker’ because it engages in one or more of the fol13 lowing activities:

14 ‘‘(i) Engages in fiduciary activities (includ15 ing effecting transactions in the course of such

16 fiduciary activities) permissible for national

17 banks under the first section of the Act of Sep18 tember 28, 1962 (12 U.S.C. 92a), or for State

19 banks under relevant State trust law, except

20 that a bank shall be deemed a broker if, in the

21 conduct of such fiduciary activities, it—

22 ‘‘(I) publicly solicits brokerage busi23 ness; or

24 ‘‘(II) is compensated for such business

25 by the payment of commissions or similar
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1 remuneration based on effecting trans2 actions in securities (excluding fees cal3 culated as percentage of assets under man4 agement).

5 ‘‘(ii) Effects transactions in exempted se6 curities, other than municipal securities, or in

7 commercial paper, bankers’ acceptances, or

8 commercial bills.’’.

9 SEC. 102. DEFINITION OF DEALER.

10 Section 3(a)(5) of the Securities Exchange Act of

11 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

12 ‘‘(5)(A) The term ‘dealer’ means any person en13 gaged in the business of buying and selling securities

14 for his own account through a broker or otherwise.

15 ‘‘(B) Such term does not include—

16 ‘‘(i) any person insofar as he buys or sells

17 securities for his own account, either individ18 ually or in some fiduciary capacity, but not as

19 part of a regular business; or

20 ‘‘(ii) any bank insofar as the bank (I) buys

21 and sells commercial paper, bankers’ accept22 ances, or commercial bills, or exempted securi23 ties other than municipal securities; or (II)

24 buys and sells securities for investment pur25 poses for the bank or for accounts in which the
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1 bank, acting as trustee, is authorized to deter2 mine the securities to be purchased or sold.’’.

3 SEC. 103. POWER TO EXEMPT FROM THE DEFINITIONS OF

4 BROKER AND DEALER.

5 Section 3 of the Securities Exchange Act of 1934 (15

6 U.S.C. 78c) is amended by adding at the end the follow7 ing:

8 ‘‘(e) The Commission, by rule, regulation, or order,

9 upon its own motion or upon application, may condi10 tionally or unconditionally exempt any person or class of

11 persons from the definitions of ‘broker’ or ‘dealer,’ if the

12 Commission finds that such exemption is consistent with

13 the public interest, the protection of investors, and the

14 purposes of this title.’’.

15 SEC. 104. REQUIREMENT THAT BANKS FALLING WITHIN

16 THE DEFINITIONS OF BROKER OR DEALER

17 PLACE THEIR SECURITIES ACTIVITIES IN A

18 SEPARATE CORPORATE ENTITY.

19 Section 15(a) of the Securities Exchange Act of 1934

20 (15 U.S.C. 78o(a)) is amended to read as follows:

21 ‘‘SEC. 15. (a)(1) It shall be unlawful for any broker

22 or dealer that is either a person other than a natural per23 son or a natural person not associated with a broker or

24 dealer that is a person other than a natural person (other

25 than such a broker or dealer whose business is exclusively
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1 intrastate and who does not make use of any facility of

2 a national securities exchange) to make use of the mails

3 or any means or instrumentality of interstate commerce

4 to effect any transactions in, or to induce or attempt to

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

6 an exempted security or commercial paper, bankers’ ac7 ceptances, or commercial bills) unless such broker or deal8 er is registered in accordance with subsection (b) of this

9 section.

10 ‘‘(2) It shall be unlawful for any bank to act as a

11 broker or dealer, except in the course of an exclusively

12 intrastate business.

13 ‘‘(3) The Commission, by rule or order, as it deems

14 consistent with the public interest and the protection of

15 investors, may conditionally or unconditionally exempt

16 from paragraphs (1) and (2) of this subsection any broker

17 or dealer or class of brokers or dealers specified in such

18 rule or order.’’.

19 PART B—BANK-INVESTMENT COMPANY

20 ACTIVITIES

21 SEC. 111. CUSTODY OF INVESTMENT COMPANY ASSETS BY

22 AFFILIATED BANKS.

23 (a) MANAGEMENT COMPANIES.—Section 17(f) of the

24 Investment Company Act of 1940 (15 U.S.C. 80a–17(f))

25 is amended—
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1 (1) by redesignating clauses (1), (2), and (3) of

2 the first sentence as clauses (A), (B), and (C), re3 spectively;

4 (2) by designating the five sentences of such

5 section as paragraphs (1) through (5), respectively;

6 and

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

8 new paragraph:

9 ‘‘(6) Notwithstanding paragraph (1)(A) of this sub10 section, if a bank described in such paragraph, or affili11 ated person thereof, is an affiliated person of the reg12 istered management company, such bank may not serve

13 as custodian under this subsection unless permitted by

14 such rules, regulations, or orders as the Commission pre15 scribes consistent with the protection of investors.’’.

16 (b) UNIT INVESTMENT TRUSTS.—Section 26(a)(1) of

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

18 26(a)(1)) is amended by inserting after ‘‘bank’’ the follow19 ing: ‘‘that is not an affiliated person of such principal un20 derwriter or depositor and is not an affiliated person of

21 an affiliated person of such principal underwriter or de22 positor, unless permitted by such rules, regulations, or or23 ders as the Commission prescribes consistent with the pro24 tection of investors’’.
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1 SEC. 112. AFFILIATED PERSONS AND TRANSACTIONS.

2 (a) AFFILIATED PERSONS.—Section 2(a)(3) of the

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

4 2(a)(3)) is amended by—

5 (1) striking ‘‘thereof; and’’ and inserting in lieu

6 thereof ‘‘thereof;’’; and

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

8 clause (F) the following: ‘‘; and (G) if such other

9 person is an investment company, any person or

10 class of persons which the Commission by rule, regu11 lation, or order shall have determined to be affiliated

12 persons by reason of having had, at any time since

13 the beginning of the last two completed fiscal years

14 of such company, a material business or professional

15 relationship with such company or with any person

16 that is a principal underwriter for, or promoter or

17 sponsor of, such company or any affiliated person

18 (as described in clauses (A) through (F) of this

19 paragraph) of such company’’.

20 (b) PURCHASES OR ACQUISITIONS DURING UNDER21 WRITING.—Section 10(f) of the Investment Company Act

22 of 1940 (15 U.S.C. 80a–10(f)) is amended by—

23 (1) inserting ‘‘(1)’’ immediately before ‘‘a prin24 cipal underwriter’’ the first place it appears; and

25 (2) inserting after ‘‘for the issuer’’ the follow26 ing: ‘‘; or (2) the proceeds of which will be used to
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1 retire any part of an indebtedness owed to a bank

2 where the bank or an affiliated person thereof is an

3 affiliated person of such registered company’’.

4 SEC. 113. PROHIBITION OF CONTROLLING INTEREST IN IN5 VESTMENT COMPANY.

6 Section 15 of the Investment Company Act of 1940

7 (15 U.S.C. 80a–15) is amended by adding at the end the

8 following new subsection:

9 ‘‘(g) PROHIBITION OF CONTROLLING INTEREST IN

10 INVESTMENT COMPANY.—If any investment adviser to a

11 registered investment company, or an affiliated person of

12 such investment adviser, also holds shares of the invest13 ment company in a fiduciary capacity, that investment ad14 viser or affiliated person may own, directly or indirectly,

15 a controlling interest in such registered investment com16 pany only—

17 ‘‘(1) if it passes through to the beneficial own18 ers of the shares, including any person acting in a

19 fiduciary capacity who is not an affiliated person of

20 that investment adviser or any affiliated person

21 thereof, the power to vote the shares of the invest22 ment company;

23 ‘‘(2) if it votes the shares of the investment

24 company held by it in the same proportion as shares
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1 held by all other shareholders of the investment com2 pany; or

3 ‘‘(3) as otherwise permitted under such rules,

4 regulations, or orders as the Commission may pre5 scribe for the protection of investors.’’.

6 SEC. 114. BORROWING FROM AN AFFILIATED BANK.

7 Section 18(f) of the Investment Company Act of

8 1940 (15 U.S.C. 80a–18(f)) is amended by adding at the

9 end thereof the following new paragraph:

10 ‘‘(3) Notwithstanding the provisions of paragraph (1)

11 of this subsection, it shall be unlawful for any registered

12 investment company to borrow from any bank if such bank

13 or any affiliated person thereof is an affiliated person of

14 such company, except that the Commission may, by rule,

15 regulation, or order, permit such borrowing which the

16 Commission finds to be in the public interest and consist17 ent with the protection of investors.’’.

18 SEC. 115. INDEPENDENT DIRECTORS.

19 (a) DEFINITION OF INTERESTED PERSON.—Section

20 2(a)(19)(A) of the Investment Company Act of 1940 (15

21 U.S.C. 80a–2(a)(19)(A)) is amended—

22 (1) in clause (v), by striking out ‘‘1934 or any

23 affiliated person of such a broker or dealer, and’’

24 and inserting in lieu thereof: ‘‘1934 or any person

25 that, at any time during the last 6 months, has exe-
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1 cuted any portfolio transactions for, engaged in any

2 principal transactions with, or loaned money to, the

3 investment company or any other investment com4 pany having the same investment adviser, principal

5 underwriter, sponsor, or promoter, or any affiliated

6 person of such a broker, dealer, or person,’’;

7 (2) by redesignating clause (vi) as clause (vii);

8 and

9 (3) by inserting after clause (v) the following

10 new clause:

11 ‘‘(vi) any employee of a bank that acts

12 as custodian or transfer agent for such

13 company, and’’.

14 (b) BANK HOLDING COMPANIES.—Section 10(c) of

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

16 10(c)) is amended by striking ‘‘bank, except’’ and insert17 ing in lieu thereof: ‘‘bank (together with its subsidiaries)

18 or any one bank holding company (together with its affili19 ates and subsidiaries), as those terms are defined in the

20 Bank Holding Company Act of 1956, except’’.

21 (c) EFFECTIVE DATE.—The provisions of subsection

22 (a) of this section shall become effective one year after

23 the date of enactment of this Act.
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1 SEC. 116. PROHIBITION AGAINST USE OF A BANK’S NAME

2 BY AN AFFILIATED INVESTMENT COMPANY.

3 Section 35(d) of the Investment Company Act of

4 1940 (15 U.S.C. 80a–35(d)) is amended by inserting after

5 the first sentence thereof the following: ‘‘It shall be decep6 tive and misleading for any registered investment company

7 which has as an investment adviser or distributor a bank

8 or affiliated person thereof, to adopt, as part of the name,

9 title, or logo of such company, or of any security of which

10 it is the issuer, any word or design which is the same as

11 or similar to, or a variation of, the name, title, or logo

12 of such bank.’’.

13 SEC. 117. DEFINITION OF BROKER.

14 Section 2(a)(6) of the Investment Company Act of

15 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as fol16 lows:

17 ‘‘(6) ‘Broker’ has the same meaning as in the

18 Securities Exchange Act of 1934, but does not in19 clude any person solely by reason of the fact that

20 such person is an underwriter for one or more in21 vestment companies.’’.

22 SEC. 118. DEFINITION OF DEALER.

23 Section 2(a)(11) of the Investment Company Act of

24 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol25 lows:
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1 ‘‘(11) ‘Dealer’ has the same meaning as in the

2 Securities Exchange Act of 1934, but does not in3 clude an insurance company or investment com4 pany.’’.

5 SEC. 119. TREATMENT OF PUBLICLY ADVERTISED COMMON

6 TRUST FUNDS.

7 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of

8 the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is

9 amended—

10 (1) by inserting ‘‘that is’’ after ‘‘common trust

11 fund or similar fund’’; and

12 (2) by inserting after ‘‘administrator, or guard13 ian’’ the following: ‘‘, and that is not offered to the

14 general public’’.

15 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

16 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934

17 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended—

18 (1) by inserting ‘‘that is’’ after ‘‘common trust

19 fund or similar fund’’; and

20 (2) by inserting after ‘‘administrator, or guard21 ian’’ the following: ‘‘, and that is not offered to the

22 general public’’.

23 (c) INVESTMENT COMPANY ACT OF 1940.—Section

24 3(c)(3) of the Investment Company Act of 1940 (15

25 U.S.C. 80a–3(c)(3)) is amended—
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1 (1) by inserting ‘‘that is’’ after ‘‘common trust

2 fund or similar fund’’; and

3 (2) by inserting after ‘‘administrator, or guard4 ian’’ the following: ‘‘, and that is not offered to the

5 general public’’.

6 SEC. 120. REMOVAL OF THE EXCLUSION FROM THE DEFINI7 TION OF INVESTMENT ADVISER FOR BANKS

8 THAT ADVISE INVESTMENT COMPANIES.

9 Section 202(a)(11)(A) of the Investment Advisers

10 Act of 1940 (15 U.S.C. 80b–2(a)(11)(A)) is amended by

11 striking out ‘‘investment company’’ and inserting in lieu

12 thereof ‘‘investment company, except that the term ‘in13 vestment adviser’ includes any bank or bank holding com14 pany to the extent that such bank or bank holding com15 pany acts as an investment adviser to a registered invest16 ment company’’.

17 SEC. 121. DEFINITION OF BROKER.

18 Section 202(a)(3) of the Investment Advisers Act of

19 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as fol20 lows:

21 ‘‘(3) ‘Broker’ has the same meaning as in the

22 Securities Exchange Act of 1934.’’.
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1 SEC. 122. DEFINITION OF DEALER.

2 Section 202(a)(7) of the Investment Advisers Act of

3 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as fol4 lows:

5 ‘‘(7) ‘Dealer’ has the same meaning as in the

6 Securities Exchange Act of 1934, but does not in7 clude an insurance company or investment com8 pany.’’.

9 TITLE II—ADMINISTRATION OF

10 SECURITIES LAWS WITH RE11 SPECT TO SECURITIES OF DE12 POSITORY INSTITUTIONS

13 PART A—AMENDMENTS TO THE SECURITIES ACT

14 OF 1933

15 SEC. 201. BANK-ISSUED SECURITIES.

16 Section 3(a)(2) of the Securities Act of 1933 (15

17 U.S.C. 77c(a)(2)) is amended—

18 (1) by striking ‘‘or any security issued or guar19 anteed by any bank’’, and

20 (2) by striking ‘‘For purposes of this para21 graph, a security issued or guaranteed by a bank

22 shall not include any interest or participation in any

23 collective trust fund maintained by a bank; and’’,

24 and inserting in lieu thereof ‘‘For purposes of this

25 title,’’.
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1 SEC. 202. SAVINGS ASSOCIATION-ISSUED SECURITIES.

2 Section 3(a)(5) of the Securities Act of 1933 (15

3 U.S.C. 77c(a)(5)) is amended to read as follows:

4 ‘‘(5) Any security issued by—

5 ‘‘(A) a farmer’s cooperative organization

6 exempt from tax under section 521 of the Inter7 nal Revenue Code of 1986,

8 ‘‘(B) a corporation described in section

9 501(c)(16) of such Code and exempt from tax

10 under section 501(a) of such Code, or

11 ‘‘(C) a corporation described in section

12 501(c)(2) of such Code which is exempt for tax

13 under section 501(a) of such Code and is orga14 nized for the exclusive purpose of holding title

15 to property, collecting income therefrom, and

16 turning over the entire amount thereof, less ex17 penses, to an organization or corporation de18 scribed in subparagraph (A) or (C).’’.

19 SEC. 203. EXEMPTION TO PERMIT TRANSITION TO HOLD20 ING COMPANY STRUCTURES.

21 Section 3(a)(9) of the Securities Act of 1933 (15

22 U.S.C. 77c(a)(9)) is amended to read as follows:

23 ‘‘(9) Except with respect to a security ex24 changed in a case under title 11 of the United

25 States Code—
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1 ‘‘(A) any security exchanged by the issuer

2 with its existing security holders exclusively

3 where no commission or other remuneration is

4 paid or given directly or indirectly for soliciting

5 such exchange; or

6 ‘‘(B) any security issued or exchanged in

7 connection with a transaction solely involving

8 exchanges or substitutions of securities as part

9 of a reorganization of a corporation into a hold10 ing company, if—

11 ‘‘(i) as part of the reorganization, the

12 security holders exchange their securities

13 of the corporation for securities of a newly

14 formed holding company with no signifi15 cant assets other than securities of the cor16 poration and its existing subsidiaries, and

17 receive securities of the same class evidenc18 ing the same proportional share or debt in19 terests in the holding company as they

20 held in the corporation prior to the trans21 action, except for changes resulting from

22 lawful elimination of fractional interests

23 and the exercise of dissenting shareholder

24 rights under applicable law;
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1 ‘‘(ii) the rights and interests of secu2 rity holders in the holding company are

3 substantially the same as those in the cor4 poration prior to the transaction other

5 than as may be required by law; and

6 ‘‘(iii) the holding company has sub7 stantially the same assets and liabilities as

8 the corporation had prior to the trans9 action.’’.

10 SEC. 204. TREATMENT OF CERTAIN BANK AND SAVINGS AS11 SOCIATION INSTRUMENTS.

12 Section 3 of the Securities Act of 1933 (15 U.S.C.

13 77c) is amended by adding at the end thereof the following

14 new subsection:

15 ‘‘(d)(1) Except as hereinafter expressly provided, in

16 those circumstances in which an interest in any of the fol17 lowing is otherwise deemed to be a ‘security’ within the

18 meaning of section 2, the provisions of this Act shall not

19 apply to—

20 ‘‘(A) a deposit account, savings account, certifi21 cate of deposit, or other deposit instrument issued

22 by a bank or savings association;

23 ‘‘(B) a share account issued by a savings asso24 ciation if such account is insured by the Federal De25 posit Insurance Corporation;
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1 ‘‘(C) a banker’s acceptance;

2 ‘‘(D) a letter of credit issued by a bank or sav3 ings association; or

4 ‘‘(E) a debit account at a bank or savings asso5 ciation arising from a credit card or other similar

6 arrangement.

7 This paragraph shall not exempt from the provisions of

8 this Act any participation in such an interest, account,

9 certificate, instrument, acceptance, or letter other than a

10 participation that is a direct obligation of a bank or sav11 ings association.

12 ‘‘(2) For purposes of this subsection, the term ‘de13 posit’ means the unpaid balance of money or its equivalent

14 received or held by a bank or savings association in the

15 usual course of business—

16 ‘‘(A) for which it has given or is obligated to

17 give credit, either conditionally or unconditionally, to

18 a commercial, checking, savings, time, or thrift ac19 count;

20 ‘‘(B) which is evidenced by its certificate of de21 posit, a check or draft drawn against a deposit ac22 count and certified by a bank or savings association,

23 a letter of credit or a traveler’s check, or by any

24 other similar instrument on which a bank or savings

25 association is liable;
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1 ‘‘(C) which consists of nonpooled assets of indi2 vidual trust funds received or held by bank or sav3 ings association whether held in the trust depart4 ment or deposited in any other department of such

5 bank or savings association; or

6 ‘‘(D) which is received or held by a bank or sav7 ings association for a special or specific

8 noninvestment purpose, including, without being lim9 ited to, escrow funds, funds held as security for any

10 obligation due to the bank or savings association or

11 others (including funds held as dealers’ reserves) or

12 for securities loaned by the bank or savings associa13 tion, funds deposited by a debtor to meet maturing

14 subscriptions to United States Government securi15 ties, funds held to meet its acceptances or letters of

16 credit, and withheld taxes.

17 ‘‘(3) For purposes of this subsection, the term ‘sav18 ings association’ shall have the meaning given in section

19 3 of the Federal Deposit Insurance Act, as amended (12

20 U.S.C. 1813).’’.

21 SEC. 205. TECHNICAL AMENDMENT.

22 Section 12(2) of the Securities Act of 1933 (15

23 U.S.C. 771(2)) is amended by inserting ‘‘or subsection

24 (d)’’ after ‘‘subsection (a)’’.
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1 PART B—SECURITIES EXCHANGE ACT

2 ADMINISTRATION TRANSFER

3 SEC. 211. AMENDMENT TO THE SECURITIES EXCHANGE

4 ACT OF 1934.

5 Subsection (i) of section 12 of the Securities Ex6 change Act of 1934 (15 U.S.C. 781(i)) is repealed.

7 PART C—MISCELLANEOUS PROVISION

8 SEC. 221. TECHNICAL AMENDMENT.

9 Section 304(a)(4) of the Trust Indenture Act of 1939

10 (15 U.S.C. 77ddd(a)(4)) is amended by inserting ‘‘or by

11 section 3(d)’’ after ‘‘section 3(a)’’.

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