II

106TH CONGRESS

1ST SESSION S. 921

To facilitate and promote electronic commerce in securities transactions

involving broker-dealers, transfer agents, and investment advisers.

IN THE SENATE OF THE UNITED STATES

APRIL 29, 1999

Mr. ABRAHAM (for himself, Mr. MCCAIN, and Mr. LOTT) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To facilitate and promote electronic commerce in securities

transactions involving broker-dealers, transfer agents,

and investment advisers.

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 ‘‘Electronic Securities

5 Transactions Act’’.

6 SEC. 2. FINDINGS.

7 Congress finds that—

8 (1) the growth of electronic commerce and elec9 tronic transactions represent a powerful force for
2

S 921 IS

1 economic growth, consumer choice and creation of

2 wealth;

3 (2) inefficient transaction procedures impose

4 unnecessary costs on investors and persons who fa5 cilitate transactions on their behalf;

6 (3) new techniques in electronic commerce cre7 ate opportunities for more efficient and safe proce8 dures for effecting securities transactions; and

9 (4) because the securities markets are an im10 portant national asset which must be preserved and

11 strengthened, it is in the national interest to estab12 lish a framework to facilitate the economically effi13 cient execution of securities transactions.

14 SEC. 3. PURPOSES.

15 The purposes of this Act are—

16 (1) to permit and encourage the continued ex17 pansion of electronic commerce in securities trans18 actions; and

19 (2) to facilitate and promote electronic com20 merce in securities transactions by clarifying the

21 legal status of electronic signatures for signed docu22 ments and records used in relation to securities

23 transactions involving broker-dealers, transfer agents

24 and investment advisers.
3

S 921 IS

1 SEC. 4. DEFINITIONS.

2 For purposes of this subsection—

3 (1) ‘‘document’’ means any record, including

4 without limitation any notification, consent, acknowl5 edgment or written direction, intended, either by law

6 or by custom, to be signed by a person;

7 (2) ‘‘electronic’’ means of or relating to tech8 nology having electrical, digital, magnetic, wireless,

9 optical, electromagnetic, or similar capabilities;

10 (3) ‘‘electronic record’’ means a record created,

11 stored, generated, received, or communicated by

12 electronic means;

13 (4) ‘‘electronic signature’’ means an electronic

14 identifying sound, symbol or process attached to or

15 logically connected with an electronic record;

16 (5) ‘‘record’’ or ‘‘records’’ means the same in17 formation or documents defined or identified as

18 ‘‘records’’ under the Securities Exchange Act of

19 1934 and the Investment Advisers Act of 1940, re20 spectively;

21 (6) ‘‘transaction’’ means an action or set of ac22 tions relating to the conduct of business affairs that

23 involve or concern activities conducted pursuant to

24 or regulated under the Securities Exchange Act of

25 1934 or the Investment Advisers Act of 1940 and

26 occurring between two or more persons; and
4

S 921 IS

1 (7) ‘‘signature’’ means any symbol, sound, or

2 process executed or adopted by a person or entity,

3 with intent to authenticate or accept a record.

4 SEC. 5. SECURITIES MODERNIZATION PROVISIONS.

5 (a) Section 15 of the Securities Exchange Act of

6 1934 (15 U.S.C. 78o) is amended by adding the following

7 new subsection thereto:

8 ‘‘(i) RELIANCE ON ELECTRONIC SIGNATURES.—

9 ‘‘(1) A registered broker or registered dealer

10 may accept and rely upon an electronic signature on

11 any application to open an account or on any other

12 document submitted to it by a customer or

13 counterparty, and such electronic signature shall not

14 be denied legal effect, validity or enforceability solely

15 because it is an electronic signature, except as the

16 Commission shall otherwise determine pursuant to

17 section 23 of this Act (15 U.S.C. 78w) or section 36

18 of this Act (15 U.S.C. 78mm).

19 ‘‘(2) Where any provision of this Act or any

20 regulation, rule, or interpretation promulgated by

21 the Commission thereunder, including any rule of a

22 self-regulatory organization approved by the Com23 mission, requires a signature to be provided on any

24 record such requirement shall be satisfied by an elec25 tronic record containing an electronic signature, ex-
5

S 921 IS

1 cept as the Commission shall otherwise determine

2 pursuant to section 23 of this Act (15 U.S.C. 78w)

3 or section 36 of this Act (15 U.S.C. 78mm).

4 ‘‘(3) A registered broker or registered dealer

5 may use electronic signatures in the conduct of its

6 business with any customer or counterparty, and

7 such electronic signature shall not be denied legal ef8 fect, validity or enforceability solely because it is an

9 electronic signature.

10 ‘‘(4) With regard to the use of or reliance on

11 electronic signatures, no registered broker or reg12 istered dealer shall be regulated by, be required to

13 register with, or be certified, licensed, or approved

14 by, or be limited by or required to act or operate

15 under standards, rules, or regulations promulgated

16 by, a State government or agency or instrumentality

17 thereof.’’.

18 (b) Section 17A of the Securities Exchange Act of

19 1934 (15 U.S.C. 78q–1) is amended by adding the fol20 lowing new subsection thereto:

21 ‘‘(g) RELIANCE ON ELECTRONIC SIGNATURES.—

22 ‘‘(1) A registered transfer agent may accept

23 and rely upon an electronic signature on any appli24 cation to open an account or on any other document

25 submitted to it by a customer or counterparty, and
6

S 921 IS

1 such electronic signature shall not be denied legal

2 effect, validity or enforceability solely because it is

3 an electronic signature, except as the Commission

4 shall otherwise determine pursuant to section 23 of

5 this Act (15 U.S.C. 78w) or section 36 of this Act

6 (15 U.S.C. 78mm).

7 ‘‘(2) Where any provision of this Act or any

8 regulation or rule promulgated by the Commission

9 thereunder, including any rule of a self-regulatory

10 organization approved by the Commission, requires a

11 signature to be provided on any record such require12 ment shall be satisfied by an electronic record con13 taining an electronic signature, except as the Com14 mission shall otherwise determine pursuant to sec15 tion 23 of this Act (15 U.S.C. 78w) or section 36

16 of this Act (15 U.S.C. 78mm).

17 ‘‘(3) A registered transfer agent may use elec18 tronic signatures in the conduct of its business with

19 any customer or counterparty, and such electronic

20 signature shall not be denied legal effect, validity or

21 enforceability solely because it is an electronic signa22 ture.

23 ‘‘(4) With regard to the use of or reliance on

24 electronic signatures, no registered transfer agent

25 shall be regulated by, be required to register with,
7

S 921 IS

1 or be certified, licensed, or approved by, or be lim2 ited by or required to act or operate under stand3 ards, rules, or regulations promulgated by, a State

4 government or agency or instrumentality thereof.’’.

5 (c) Section 215 of the Investment Advisers Act of

6 1940 (15 U.S.C. 80b–15) is amended by adding the fol7 lowing new subsection thereto:

8 ‘‘(c) RELIANCE ON ELECTRONIC SIGNATURES.—

9 ‘‘(1) A registered investment adviser may ac10 cept and rely upon an electronic signature on any in11 vestment advisory contract or on any other docu12 ment submitted to it by a customer or counterparty,

13 and such signature shall not be denied legal effect,

14 validity or enforceability solely because it is an elec15 tronic signature, except as the Commission shall de16 termine pursuant to section 206A of this Act (15

17 U.S.C. 80b–6a) or section 211 of this Act (15

18 U.S.C. 80b–11).

19 ‘‘(2) Where any provision of this Act or any

20 regulation or rule promulgated by the Commission

21 thereunder, including any rule of a self-regulatory

22 organization approved by the Commission, requires a

23 signature to be provided on any record such require24 ment shall be satisfied by an electronic record con25 taining an electronic signature, except as the Com-
8

S 921 IS

1 mission shall otherwise determine pursuant to sec2 tion 206A of this Act (15 U.S.C. 80b–6a) or section

3 211 of this Act (15 U.S.C. 80b–11).

4 ‘‘(3) A registered investment adviser may use

5 electronic signatures in the conduct of its business

6 with any customer or counterparty, and such elec7 tronic signature shall not be denied legal effect, va8 lidity or enforceability solely because it is an elec9 tronic signature.

10 ‘‘(4) With regard to the use of or reliance on

11 electronic signatures no registered investment ad12 viser shall be regulated by, be required to register

13 with, or be certified, licensed, or approved by, or be

14 limited by or required to act or operate under stand15 ards, rules, or regulations promulgated by, a State

16 government or agency or instrumentality thereof.

17 SEC. 6. RULEMAKING AUTHORITY.

18 The Commission is authorized to provide guidance on

19 the acceptance of, reliance on and use of electronic signa20 tures by any registered broker, dealer, transfer agent or

21 investment adviser, as provided in section 5 above.

Æ