II 

115TH CONGRESS 

1ST SESSION S. 1744 

To require the Securities and Exchange Commission to amend certain 

regulations, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

AUGUST 3, 2017 

Ms. BALDWIN (for herself and Mr. PERDUE) introduced the following bill; 

which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To require the Securities and Exchange Commission to 

amend certain regulations, 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 ‘‘Brokaw Act’’. 

5 SEC. 2. BENEFICIAL OWNERSHIP AND SHORT INTERESTS. 

6 (a) AMENDMENTS TO RULE 13d–1.— 

7 (1) IN GENERAL.—Not later than 1 year after 

8 the date of enactment of this Act, the Securities and 

9 Exchange Commission shall amend section 240.13d– 

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1 1 of title 17, Code of Federal Regulations, by strik2 ing subsection (a) and inserting the following: 

3 ‘‘(a) Any person who— 

4 ‘‘(1) after directly or indirectly acquiring the 

5 beneficial ownership of any equity security of a class 

6 described in subsection (i), is directly or indirectly 

7 the beneficial owner of more than 5 percent of the 

8 class shall, not later than 4 business days after the 

9 acquisition, file with the Commission a statement 

10 containing the information required by Schedule 

11 13D, as described in section 240.13d–101; and 

12 ‘‘(2) after acquiring a direct or indirect short 

13 interest in an equity security of a class described in 

14 subsection (i), has a direct or indirect short interest 

15 representing more than 5 percent of the class shall, 

16 not later than 4 business days after the acquisition, 

17 file with the Commission a statement containing in18 formation that is substantially similar to the infor19 mation required by Schedule 13D, as described in 

20 section 240.13d–101.’’. 

21 (2) PROMULGATION OF REGULATION.—Not 

22 later than the date on which the Securities and Ex23 change Commission makes the amendments required 

24 by paragraph (1), the Commission shall promulgate 

25 a regulation detailing the information that shall be 

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1 submitted to the Commission under section 

2 240.13d–1(a)(2) of title 17, Code of Federal Regula3 tions, as added by paragraph (1). 

4 (b) AMENDMENTS TO RULE 13d–3.—Not later than 

5 1 year after the date of enactment of this Act, the Securi6 ties and Exchange Commission shall amend section 

7 240.13d–3 of title 17, Code of Federal Regulations— 

8 (1) in subsection (a)— 

9 (A) in the undesignated matter preceding 

10 paragraph (1), by striking ‘‘and 13(g)’’ and in11 serting ‘‘, 13(g), and 13(s)’’; 

12 (B) in paragraph (1), by striking ‘‘and/ 

13 or,’’; 

14 (C) in paragraph (2), by striking the pe15 riod at the end and inserting ‘‘; or’’; and 

16 (D) by adding at the end the following: 

17 ‘‘(3) A pecuniary or indirect pecuniary interest 

18 in such security.’’; and 

19 (2) by adding at the end the following: 

20 ‘‘(e) For the purposes of calculating, with respect to 

21 a derivative instrument, the 5 per centum figure described 

22 in sections 13(d)(1), 13(g)(1), and 13(s)(1) of the Act, 

23 a person— 

24 ‘‘(1) may use— 

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1 ‘‘(A) the number of shares that may be de2 livered to the person or by the person on the ex3 ercise of the rights under the derivative instru4 ment; 

5 ‘‘(B) the number of shares by reference to 

6 which the amount payable under the derivative 

7 instrument is derived or determined; 

8 ‘‘(C) in the case of stock futures contracts, 

9 the product obtained by multiplying the con10 tract multiplier by the number of contracts 

11 held; 

12 ‘‘(D) in the case of a cash settled deriva13 tive the number of shares in the contract if the 

14 contract allows for a cash equivalent of the clos15 ing price of the share; or 

16 ‘‘(E) when determining the number of out17 standing shares of a class of equity securities, 

18 the guidance provided under section 13d–1(j); 

19 ‘‘(2) shall, with respect to a derivative instru20 ment that does not have a delta that is equal to one 

21 (including cash-settled options), use the number of 

22 shares that the person could purchase with the cash 

23 that would result from the product that is obtained 

24 by multiplying the delta by the number of exposed 

25 shares; 

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1 ‘‘(3)(A) may not take the difference between 

2 the percentage of a class of equity security in which 

3 the person has a short interest (as described in sec4 tion 13(s)(3) of the Act) and the percentage of that 

5 class of equity security in which the person has a 

6 long interest; and 

7 ‘‘(B) shall use the greater percentage of which 

8 the person has— 

9 ‘‘(i) a short interest (as described in sec10 tion 13(s)(3) of the Act) in a class of equity se11 curity; or 

12 ‘‘(ii) a long interest in a class of equity se13 curity; and 

14 ‘‘(4) shall calculate beneficial ownership in accord15 ance with subsection (d)(1). 

16 ‘‘(f) For the purposes of this section— 

17 ‘‘(1) the term ‘delta’ means, with respect to a 

18 financial instrument, the proportion that reflects the 

19 change in the value of the instrument to the change 

20 in the value of the underlying asset; 

21 ‘‘(2) the term ‘derivative instrument’— 

22 ‘‘(A) means any— 

23 ‘‘(i) option, warrant, convertible secu24 rity, stock appreciation right, or similar 

25 right— 

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1 ‘‘(I) whether or not the right or 

2 instrument shall be subjected to set3 tlement in the underlying equity secu4 rity; and 

5 ‘‘(II) with an exercise, exchange, 

6 or conversion privilege, or right to a 

7 settlement payment at a price related 

8 to an equity security; or 

9 ‘‘(ii) similar instrument with a value 

10 derived in whole or in part from the value 

11 of an equity security; and 

12 ‘‘(B) does not include— 

13 ‘‘(i) rights of a bona fide pledgee of 

14 securities to sell the pledged securities; 

15 ‘‘(ii) rights of all holders of a class of 

16 securities of an issuer to receive securities 

17 pro rata, or obligations to dispose of secu18 rities, as a result of a merger, exchange 

19 offer, or consolidation involving the issuer 

20 of the securities; 

21 ‘‘(iii) rights or obligations to sur22 render a security, or to have a security 

23 withheld, upon the receipt or exercise of a 

24 derivative security or the receipt or vesting 

25 of equity securities, in order to satisfy the 

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1 exercise price or the tax withholding con2 sequences of receipt, exercise, or vesting; 

3 ‘‘(iv) interests in broad-based index 

4 options, broad-based index futures, and 

5 broad-based publicly traded market baskets 

6 of stocks approved for trading by the ap7 propriate authority of the Federal Govern8 ment; 

9 ‘‘(v) interests or rights to participate 

10 in employee benefit plans of the issuer held 

11 by employees or former employees of the 

12 issuer; or 

13 ‘‘(vi) options granted to an under14 writer in a registered public offering for 

15 the purpose of satisfying over-allotments in 

16 the offering; 

17 ‘‘(3) the term ‘immediate family’— 

18 ‘‘(A) means a person’s— 

19 ‘‘(i) brother-in-law; 

20 ‘‘(ii) child; 

21 ‘‘(iii) daughter-in-law; 

22 ‘‘(iv) father-in-law; 

23 ‘‘(v) grandchild; 

24 ‘‘(vi) grandparent; 

25 ‘‘(vii) mother-in-law; 

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1 ‘‘(viii) parent; 

2 ‘‘(ix) sibling; 

3 ‘‘(x) sister-in-law; 

4 ‘‘(xi) son-in-law; 

5 ‘‘(xii) spouse; 

6 ‘‘(xiii) stepchild; or 

7 ‘‘(xiv) stepparent; and 

8 ‘‘(B) includes adoptive relationships; 

9 ‘‘(4) the term ‘indirect pecuniary interest’— 

10 ‘‘(A) includes— 

11 ‘‘(i) ownership of any derivative in12 strument that contains the direct or indi13 rect opportunity to profit from, or share in 

14 any profit derived from, an increase in the 

15 value of the subject security, including the 

16 right to acquire the subject security 

17 through the exercise or conversion of a de18 rivative instrument, whether or not the 

19 right is exercisable on the date the right is 

20 obtained; 

21 ‘‘(ii) securities held by immediate 

22 family members of an individual who share 

23 the same household of the individual, ex24 cept that the presumption of beneficial 

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1 ownership in this circumstance shall be re2 buttable; 

3 ‘‘(iii) the proportionate interest of a 

4 general partner in the portfolio securities 

5 held by a general or limited partnership, 

6 where the proportionate interest, as evi7 denced by the partnership agreement in ef8 fect at the time of the transaction and the 

9 most recent financial statements of the 

10 partnership, shall be the greater of— 

11 ‘‘(I) the share of the profits of 

12 the general partner, including— 

13 ‘‘(aa)(AA) profits attributed 

14 to any limited partnership inter15 ests held by the general partner; 

16 and 

17 ‘‘(BB) any other interests in 

18 profits that arise from the pur19 chase and sale of the sale of the 

20 portfolio securities of the part21 nership; or 

22 ‘‘(II) the share of the partnership 

23 capital account belonging to the gen24 eral partner, including the share atmstockstill on DSK30JT082PROD with BILLS

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1 tributable to any limited partnership 

2 held by the general partner; 

3 ‘‘(iv) subject to subparagraph (B)(ii), 

4 a performance-based fee received by any— 

5 ‘‘(I) broker; 

6 ‘‘(II) dealer; 

7 ‘‘(III) bank; 

8 ‘‘(IV) insurance company; 

9 ‘‘(V) investment company; 

10 ‘‘(VI) investment adviser; 

11 ‘‘(VII) investment manager; or 

12 ‘‘(VIII) trustee or person per13 forming a similar function; 

14 ‘‘(v) a right to dividends only if the 

15 right is separated or separable from the 

16 underlying security or securities; and 

17 ‘‘(vi) interest in securities held by a 

18 trust, to the extent that— 

19 ‘‘(I) with respect to a trustee of 

20 the trust— 

21 ‘‘(aa) the trustee receives a 

22 performance-based fee that is not 

23 of the kind described in subpara24 graph (B)(ii); or 

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1 ‘‘(bb) an immediate family 

2 member of the trustee is a bene3 ficiary of the trust; 

4 ‘‘(II) with respect to a bene5 ficiary of the trust, the beneficiary— 

6 ‘‘(aa) has investment control 

7 over trust assets; or 

8 ‘‘(bb) shares investment con9 trol over trust assets with the 

10 trustee of the trust; and 

11 ‘‘(III) with respect to a settlor of 

12 the trust, the settlor— 

13 ‘‘(aa) reserves the right to 

14 revoke the trust without the con15 sent of another person; and 

16 ‘‘(bb) exercises or shares in17 vestment control over securities 

18 held by the trust; and 

19 ‘‘(B) does not include— 

20 ‘‘(i) an asset-based fee; 

21 ‘‘(ii) a performance-based fee, regard22 less of when payable, that is calculated 

23 based upon net capital gains or net capital 

24 appreciation generated from— 

25 ‘‘(I) a portfolio; or 

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1 ‘‘(II) from the overall perform2 ance of a fiduciary over a period of 

3 not less than 1 year; and 

4 ‘‘(iii) a situation in which equity secu5 rities of an issuer do not account for more 

6 than 10 percent of the market value of a 

7 portfolio; 

8 ‘‘(5) the term ‘pecuniary interest’ means the di9 rect or indirect opportunity to profit from, or share 

10 in any profit derived from, a transaction in the sub11 ject security; and 

12 ‘‘(6) the term ‘person’ includes— 

13 ‘‘(A) two or more persons acting as a part14 nership, limited partnership, syndicate, or other 

15 group, or otherwise coordinating the actions of 

16 the persons, for the purpose of— 

17 ‘‘(i) acquiring, holding, or disposing of 

18 securities of an issuer; 

19 ‘‘(ii) seeking to control or influence 

20 the board, management, or policies of an 

21 issuer; or 

22 ‘‘(iii) evading, or assisting others in 

23 evading, the designation as a ‘person’ 

24 under this paragraph; or 

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1 ‘‘(B) a hedge fund (as that term is defined 

2 in section 13(h) of the Bank Holding Company 

3 Act of 1956 (12 U.S.C. 1851(h)) or a group of 

4 hedge funds or persons that are, as determined 

5 by the Commission, working together to evade 

6 the requirements of section 13(d), 13(g), or 

7 13(s) of the Act.’’. 

8 (c) SHORT INTERESTS.—Section 13 of the Securities 

9 Exchange Act of 1934 (15 U.S.C. 78m) is amended by 

10 adding at the end the following: 

11 ‘‘(s) DISCLOSURE OF SHORT INTERESTS.— 

12 ‘‘(1) IN GENERAL.—A person who, after acquir13 ing a direct or indirect short interest in an equity 

14 security of a class described in paragraph (2), has 

15 a direct or indirect short interest representing more 

16 than 5 per centum of the class, shall, not later than 

17 4 business days after the acquisition, file with the 

18 Commission a statement containing information that 

19 is substantially similar to the statement required 

20 under subsection (d)(1). 

21 ‘‘(2) COVERED CLASSES.— 

22 ‘‘(A) IN GENERAL.—The requirements of 

23 paragraph (1) shall apply to the following class24 es of securities: 

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1 ‘‘(i) Any equity security of a class 

2 which is registered pursuant to section 12. 

3 ‘‘(ii) Any equity security of an insur4 ance company which would have been re5 quired to be registered in accordance with 

6 section 12 except for the exemption con7 tained in section 12(g)(2)(G). 

8 ‘‘(iii) Any equity security issued by a 

9 closed-end investment company registered 

10 under the Investment Company Act of 

11 1940 (15 U.S.C. 80a–1 et seq.). 

12 ‘‘(B) EXCEPTION.—The requirements of 

13 paragraph (1) shall not apply to an equity secu14 rity that belongs to a nonvoting class. 

15 ‘‘(3) SHORT INTEREST.—For purposes of this 

16 section, a person shall be deemed to have a short in17 terest in a security if the person, directly or indi18 rectly, through any contract, arrangement, under19 standing, relationship, or otherwise, has the oppor20 tunity to profit from, or share in any profit derived 

21 from, any decrease in the value of the security, in22 cluding— 

23 ‘‘(A) an interest resulting from trans24 actions in the security, including the sale of the 

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1 security by the person when the person does not 

2 own the security; 

3 ‘‘(B) a derivative instrument (as defined in 

4 section 240.13d–3(f)(2) of title 17, Code of 

5 Federal Regulations); 

6 ‘‘(C) an interest resulting from a securities 

7 transaction by members of the immediate fam8 ily (as defined in section 240.13d–3(f)(3) of 

9 title 17, Code of Federal Regulations) sharing 

10 the same household as the person, except that 

11 the presumption of the short interest in that 

12 circumstance is rebuttable; 

13 ‘‘(D) the proportionate interest of a gen14 eral partner in the securities transaction by a 

15 general or limited partnership, which, as evi16 denced by the partnership agreement in effect 

17 at the time of the transaction and the most re18 cent financial statements of the partnership, 

19 shall be the greater of— 

20 ‘‘(i) the share of the profits of the 

21 partnership of the general partner, includ22 ing— 

23 ‘‘(I)(aa) profits attributed to any 

24 limited partnership interests held by 

25 the general partner; and 

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1 ‘‘(bb) any other interests in prof2 its that arise from the purchase and 

3 sale of the portfolio securities of the 

4 partnership; or 

5 ‘‘(ii) the share of the partnership capital 

6 account of the general partner, including the 

7 share attributable to any limited partnership in8 terest held by the general partner; 

9 ‘‘(E) a performance-related fee, other than 

10 an asset-based fee, received by any— 

11 ‘‘(i) broker; 

12 ‘‘(ii) dealer; 

13 ‘‘(iii) bank; 

14 ‘‘(iv) insurance company; 

15 ‘‘(v) investment company; 

16 ‘‘(vi) investment adviser; 

17 ‘‘(vii) investment manager; or 

18 ‘‘(viii) trustee or person performing a 

19 similar function; and 

20 ‘‘(F) an interest of a person in securities 

21 transactions by a trust. 

22 ‘‘(4) EXCEPTION TO PERFORMANCE-RELATED

23 FEE.—A person shall not be deemed to have a short 

24 interest in a security because of a performance-re25 lated fee described in paragraph (3)(E) if— 

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1 ‘‘(A) the performance-related fee, regard2 less of when payable, is calculated based upon 

3 net capital gains or net capital appreciation 

4 generated from— 

5 ‘‘(i) a portfolio; or 

6 ‘‘(ii) the overall performance of the fi7 duciary over a period of not less than 1 

8 year; 

9 ‘‘(B) interests resulting from transactions 

10 in the securities of the issuer do not account for 

11 more than 10 percent of the market value of a 

12 portfolio; and 

13 ‘‘(C) the fee is only a right to a non per14 formance-related fee. 

15 ‘‘(5) USE OF CONTRACT OR OTHER DEVICE TO

16 EVADE REQUIREMENTS.—A person shall be deemed 

17 to have a short interest in the security if the person, 

18 directly or indirectly, creates or uses a trust, proxy, 

19 power of attorney, pooling arrangement, or any 

20 other contract, arrangement, or device to divest the 

21 person of a short interest in a security or to prevent 

22 the vesting of the short interest in a security as part 

23 of a plan to evade the reporting requirements of this 

24 section. 

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1 ‘‘(6) AGGREGATION.—All securities of the same 

2 class in which a person has a short interest, regard3 less of the form of the short interest, shall be aggre4 gated in calculating the number of shares in which 

5 the person has a short interest. 

6 ‘‘(7) EXCEPTIONS.—Notwithstanding para7 graphs (3) and (6)— 

8 ‘‘(A) a person shall be deemed to have a 

9 short interest in a security if the person has the 

10 right to acquire, not later than 60 days after 

11 the date on which the right is obtained, a short 

12 interest in the security— 

13 ‘‘(i) through the exercise of any— 

14 ‘‘(I) option; 

15 ‘‘(II) warrant; or 

16 ‘‘(III) right; 

17 ‘‘(ii) in accordance with the power to 

18 revoke a— 

19 ‘‘(I) trust; 

20 ‘‘(II) discretionary account; or 

21 ‘‘(III) similar arrangement; or 

22 ‘‘(iii) in accordance with the auto23 matic termination of a— 

24 ‘‘(I) trust; 

25 ‘‘(II) discretionary account; or 

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1 ‘‘(III) similar arrangement; 

2 ‘‘(B) a person shall be deemed to have a 

3 short interest in a security immediately upon 

4 acquisition of the security if the person acquires 

5 the security— 

6 ‘‘(i) by the means described in sub7 paragraph (A); and 

8 ‘‘(ii)(I) with the purpose of changing 

9 or influencing the control of the issuer; or 

10 ‘‘(II) in connection with, or as a par11 ticipant in, a transaction having the pur12 pose of changing or influencing the control 

13 of the issuer; 

14 ‘‘(C) any securities not outstanding which 

15 are subject to a provision described in subpara16 graph (A)(i)— 

17 ‘‘(i) shall be deemed to be outstanding 

18 for the purpose of computing the percent19 age of outstanding securities of the class 

20 shorted by a person; and 

21 ‘‘(ii) shall not be deemed to be out22 standing for the purpose of computing the 

23 percentage of outstanding securities of the 

24 class by any other person; and 

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1 ‘‘(D) subparagraphs (A) through (C) shall 

2 remain applicable for the purpose of deter3 mining the obligation to file with respect to the 

4 underlying security even though the option, 

5 warrant, or right is— 

6 ‘‘(i) of a class of equity security, as 

7 defined in section 240.13d–1(i) of title 17, 

8 Code of Federal Regulations, or any suc9 cessor thereto; and 

10 ‘‘(ii) may give rise to a separate obli11 gation to file.’’. 

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

13 subsections (b) and (c) shall take effect on the date on 

14 which the Securities and Exchange Commission makes the 

15 amendments required under subsection (a). 

Æ 

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