962 
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inconsistent with the safeguarding of securi-
ties or funds in the custody or control of 
such clearing agency or for which it is re-
sponsible; and 
‘‘(II) the reasons for the determination 
described in subclause (I). 
‘‘(ii) If the Commission takes action under 
clause (i), the Commission shall institute pro-
ceedings under paragraph (2)(B) to determine if 
the proposed rule change should be approved or 
disapproved.’’. 
SEC. 916. STUDY REGARDING FINANCIAL LITERACY AMONG 
INVESTORS. 
(a) IN GENERAL.—The Commission shall conduct a 
study to identify— 
(1) the existing level of financial literacy among 
retail investors, including subgroups of investors iden-
tified by the Commission; 
(2) methods to improve the timing, content, and 
format of disclosures to investors with respect to fi-
nancial intermediaries, investment products, and in-
vestment services; 
(3) the most useful and understandable relevant 
information that retail investors need to make in-
formed financial decisions before engaging a financial
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† HR 4173 EAS 
intermediary or purchasing an investment product or 
service that is typically sold to retail investors, in-
cluding shares of open-end companies, as that term is 
defined in section 5 of the Investment Company Act 
of 1940 (15 U.S.C. 80a–5) that are registered under 
section 8 of that Act; 
(4) methods to increase the transparency of ex-
penses and conflicts of interests in transactions in-
volving investment services and products, including 
shares of open-end companies described in paragraph 
(3); 
(5) the most effective existing private and public 
efforts to educate investors; and 
(6) in consultation with the Financial Literacy 
and Education Commission, a strategy (including, to 
the extent practicable, measurable goals and objec-
tives) to increase the financial literacy of investors in 
order to bring about a positive change in investor be-
havior. 
(b) REPORT.—Not later than 2 years after the date 
of enactment of this Act, the Commission shall submit a 
report on the study required under subsection (a) to— 
(1) the Committee on Banking, Housing, and 
Urban Affairs of the Senate; and
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(2) the Committee on Financial Services of the 
House of Representatives. 
SEC. 917. STUDY REGARDING MUTUAL FUND ADVERTISING. 
(a) IN GENERAL.—The Comptroller General of the 
United States shall conduct a study on mutual fund adver-
tising to identify— 
(1) existing and proposed regulatory require-
ments for open-end investment company advertise-
ments; 
(2) current marketing practices for the sale of 
open-end investment company shares, including the 
use of past performance data, funds that have merged, 
and incubator funds; 
(3) the impact of such advertising on consumers; 
and 
(4) recommendations to improve investor protec-
tions in mutual fund advertising and additional in-
formation necessary to ensure that investors can make 
informed financial decisions when purchasing shares. 
(b) REPORT.—Not later than 1 year after the date of 
enactment of this Act, the Comptroller General of the United 
States shall submit a report on the results of the study con-
ducted under subsection (a) to— 
(1) the Committee on Banking, Housing, and 
Urban Affairs of the United States Senate; and
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(2) the Committee on Financial Services of the 
House of Representatives. 
SEC. 918. CLARIFICATION OF COMMISSION AUTHORITY TO 
REQUIRE INVESTOR DISCLOSURES BEFORE 
PURCHASE OF INVESTMENT PRODUCTS AND 
SERVICES. 
Section 15 of the Securities Exchange Act of 1934 (15 
U.S.C. 78o) is amended by adding at the end the following: 
‘‘(k) DISCLOSURES TO RETAIL INVESTORS.— 
‘‘(1) IN GENERAL.—Notwithstanding any other 
provision of the securities laws, the Commission may 
issue rules designating documents or information that 
shall be provided by a broker or dealer to a retail in-
vestor before the purchase of an investment product or 
service by the retail investor. 
‘‘(2) CONSIDERATIONS.—In developing any rules 
under paragraph (1), the Commission shall consider 
whether the rules will promote investor protection, ef-
ficiency, competition, and capital formation. 
‘‘(3) FORM AND CONTENTS OF DOCUMENTS AND 
INFORMATION.—Any documents or information des-
ignated under a rule promulgated under paragraph 
(1) shall— 
‘‘(A) be in a summary format; and
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† HR 4173 EAS 
‘‘(B) contain clear and concise information 
about— 
‘‘(i) investment objectives, strategies, 
costs, and risks; and 
‘‘(ii) any compensation or other finan-
cial incentive received by a broker, dealer, 
or other intermediary in connection with 
the purchase of retail investment products.’’. 
SEC. 919. STUDY ON CONFLICTS OF INTEREST. 
(a) IN GENERAL.—The Comptroller General of the 
United States shall conduct a study— 
(1) to identify and examine potential conflicts of 
interest that exist between the staffs of the investment 
banking and equity and fixed income securities ana-
lyst functions within the same firm; and 
(2) to make recommendations to Congress de-
signed to protect investors in light of such conflicts. 
(b) CONSIDERATIONS.—In conducting the study under 
subsection (a), the Comptroller General shall— 
(1) consider— 
(A) the potential for investor harm resulting 
from conflicts, including consideration of the 
forms of misconduct engaged in by the several se-
curities firms and individuals that entered into
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the Global Analyst Research Settlements in 2003 
(also known as the ‘‘Global Settlement’’); 
(B) the nature and benefits of the under-
takings to which those firms agreed in enforce-
ment proceedings, including firewalls between re-
search and investment banking, separate report-
ing lines, dedicated legal and compliance staffs, 
allocation of budget, physical separation, com-
pensation, employee performance evaluations, 
coverage decisions, limitations on soliciting in-
vestment banking business, disclosures, trans-
parency, and other measures; 
(C) whether any such undertakings should 
be codified and applied permanently to securities 
firms, or whether the Commission should adopt 
rules applying any such undertakings to securi-
ties firms; and 
(D) whether to recommend regulatory or 
legislative measures designed to mitigate possible 
adverse consequences to investors arising from 
the conflicts of interest or to enhance investor 
protection or confidence in the integrity of the 
securities markets; and 
(2) consult with State attorneys general, State 
securities officials, the Commission, the Financial In-
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dustry Regulatory Authority (‘‘FINRA’’), NYSE Reg-
ulation, investor advocates, brokers, dealers, retail in-
vestors, institutional investors, and academics. 
(c) REPORT.—The Comptroller General shall submit 
a report on the results of the study required by this section 
to the Committee on Banking, Housing, and Urban Affairs 
of the Senate and the Committee on Financial Services of 
the House of Representatives, not later than 18 months after 
the date of enactment of this Act. 
SEC. 919A. STUDY ON IMPROVED INVESTOR ACCESS TO IN-
FORMATION ON INVESTMENT ADVISERS AND 
BROKER-DEALERS. 
(a) STUDY.— 
(1) IN GENERAL.—Not later than 6 months after 
the date of enactment of this Act, the Commission 
shall complete a study, including recommendations, of 
ways to improve the access of investors to registration 
information (including disciplinary actions, regu-
latory, judicial, and arbitration proceedings, and 
other information) about registered and previously 
registered investment advisers, associated persons of 
investment advisers, brokers and dealers and their as-
sociated persons on the existing Central Registration 
Depository and Investment Adviser Registration De-
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† HR 4173 EAS 
pository systems, as well as identify additional infor-
mation that should be made publicly available. 
(2) CONTENTS.—The study required by sub-
section (a) shall include an analysis of the advantages 
and disadvantages of further centralizing access to the 
information contained in the 2 systems, including— 
(A) identification of those data pertinent to 
investors; and 
(B) the identification of the method and for-
mat for displaying and publishing such data to 
enhance accessibility by and utility to investors. 
(b) IMPLEMENTATION.—Not later than 18 months after 
the date of completion of the study required by subsection 
(a), the Commission shall implement any recommendations 
of the study. 
SEC. 919B. STUDY ON FINANCIAL PLANNERS AND THE USE 
OF FINANCIAL DESIGNATIONS. 
(a) IN GENERAL.—The Comptroller General of the 
United States shall conduct a study to evaluate— 
(1) the effectiveness of State and Federal regula-
tions to protect consumers from individuals who hold 
themselves out as financial planners through the use 
of misleading designations; 
(2) current State and Federal oversight structure 
and regulations for financial planners; and
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† HR 4173 EAS 
(3) legal or regulatory gaps in the regulation of 
financial planners and other individuals who provide 
or offer to provide financial planning services to con-
sumers. 
(b) CONSIDERATIONS.—In conducting the study re-
quired under subsection (a), the Comptroller General shall 
consider— 
(1) the role of financial planners in providing 
advice regarding the management of financial re-
sources, including investment planning, income tax 
planning, education planning, retirement planning, 
estate planning, and risk management; 
(2) whether current regulations at the State and 
Federal level provide adequate ethical and profes-
sional standards for financial planners; 
(3) the use of the title ‘‘financial planner’’ and 
misleading designations in connection with sale of fi-
nancial products, including insurance and securities; 
(4) the possible risk posed to consumers by indi-
viduals who hold themselves out as financial planners 
through the use of misleading designations, including 
‘‘financial advisor’’ and ‘‘financial consultant’’; 
(5) the ability of consumers to understand licens-
ing requirements and standards of care that apply to 
individuals who provide financial advice;
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(6) the possible benefits to consumers of regula-
tion and professional oversight of financial planners; 
and 
(7) any other consideration that the Comptroller 
General deems necessary or appropriate to effectively 
execute the study required under subsection (a). 
(c) RECOMMENDATIONS.—In providing recommenda-
tions for the appropriate regulation of financial planners 
and other individuals who provide or offer to provide finan-
cial planning services, in order to protect consumers of fi-
nancial planning services, the Comptroller General shall 
consider— 
(1) the appropriate structure for regulation of fi-
nancial planners and individuals providing financial 
planning services; and 
(2) the appropriate scope of the regulations need-
ed to protect consumers, including but not limited to 
the need to establish competency standards, practice 
standards, ethical guidelines, disciplinary authority, 
and transparency to consumers. 
(d) REPORT.— 
(1) IN GENERAL.—Not later than 180 days after 
the date of enactment of this Act, the Comptroller 
General shall submit a report on the study required 
under subsection (a) to—
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(A) the Committee on Banking, Housing, 
and Urban Affairs of the Senate; 
(B) the Special Committee on Aging of the 
Senate; and 
(C) the Committee on Financial Services of 
the House of Representatives. 
(2) CONTENT
REQUIREMENTS.—The report re-
quired under paragraph (1) shall describe the find-
ings and determinations made by the Comptroller 
General in carrying out the study required under sub-
section (a), including a description of the consider-
ations, analysis, and government, public, industry, 
nonprofit and consumer input that the Comptroller 
General considered to make such findings, conclu-
sions, and legislative, regulatory, or other rec-
ommendations. 
Subtitle B—Increasing Regulatory 
Enforcement and Remedies 
SEC. 921. AUTHORITY TO ISSUE RULES RELATED TO MAN-
DATORY PREDISPUTE ARBITRATION. 
(a) AMENDMENT TO SECURITIES EXCHANGE ACT OF 
1934.—Section 15 of the Securities Exchange Act of 1934 
(15 U.S.C. 78o), as amended by section 918, is amended 
by adding at the end the following:
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† HR 4173 EAS 
‘‘(l) 
AUTHORITY
TO
RESTRICT
MANDATORY 
PREDISPUTE ARBITRATION.—The Commission may con-
duct a rulemaking to reaffirm or prohibit, or impose or not 
impose conditions or limitations on the use of, agreements 
that require customers or clients of any broker, dealer, or 
municipal securities dealer to arbitrate any dispute between 
them and such broker, dealer, or municipal securities dealer 
that arises under the securities laws or the rules of a self- 
regulatory organization, if the Commission finds that such 
reaffirmation, prohibition, imposition of conditions or limi-
tations, or other action is in the public interest and for 
the protection of investors.’’. 
(b) AMENDMENT TO INVESTMENT ADVISERS ACT OF 
1940.—Section 205 of the Investment Advisers Act of 1940 
(15 U.S.C. 80b–5) is amended by adding at the end the 
following: 
‘‘(f) AUTHORITY TO ISSUE RULES RELATED TO MAN-
DATORY
PREDISPUTE
ARBITRATION.—The Commission 
may conduct rulemaking to reaffirm or prohibit, or impose 
or not impose conditions or limitations on the use of, agree-
ments that require customers or clients of any investment 
adviser to arbitrate any dispute between them and such in-
vestment adviser that arises under the securities laws, as 
defined in section 3 of the Securities Exchange Act of 1934 
(15 U.S.C. 78c), or the rules of a self-regulatory organiza-
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† HR 4173 EAS 
tion, if the Commission finds that such reaffirmation, pro-
hibition, imposition of conditions or limitations, or other 
action is in the public interest and for the protection of 
investors.’’. 
SEC. 922. WHISTLEBLOWER PROTECTION. 
(a) IN GENERAL.—The Securities Exchange Act of 
1934 (15 U.S.C. 78a et seq.) is amended by inserting after 
section 21E the following: 
‘‘SEC. 21F. SECURITIES WHISTLEBLOWER INCENTIVES AND 
PROTECTION. 
‘‘(a) DEFINITIONS.—In this section the following defi-
nitions shall apply: 
‘‘(1) COVERED JUDICIAL OR ADMINISTRATIVE AC-
TION.—The term ‘covered judicial or administrative 
action’ means any judicial or administrative action 
brought by the Commission under the securities laws 
that 
results 
in 
monetary 
sanctions 
exceeding 
$1,000,000. 
‘‘(2) FUND.—The term ‘Fund’ means the Securi-
ties and Exchange Commission Investor Protection 
Fund. 
‘‘(3) ORIGINAL INFORMATION.—The term ‘origi-
nal information’ means information that— 
‘‘(A) is derived from the independent knowl-
edge or analysis of a whistleblower;
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† HR 4173 EAS 
‘‘(B) is not known to the Commission from 
any other source, unless the whistleblower is the 
original source of the information; and 
‘‘(C) is not exclusively derived from an alle-
gation made in a judicial or administrative 
hearing, in a governmental report, hearing, 
audit, or investigation, or from the news media, 
unless the whistleblower is a source of the infor-
mation. 
‘‘(4) MONETARY SANCTIONS.—The term ‘mone-
tary sanctions’, when used with respect to any judi-
cial or administrative action, means— 
‘‘(A) any monies, including penalties, 
disgorgement, and interest, ordered to be paid; 
and 
‘‘(B) 
any 
monies 
deposited 
into 
a 
disgorgement fund or other fund pursuant to sec-
tion 308(b) of the Sarbanes-Oxley Act of 2002 
(15 U.S.C. 7246(b)), as a result of such action 
or any settlement of such action. 
‘‘(5) RELATED ACTION.—The term ‘related ac-
tion’, when used with respect to any judicial or ad-
ministrative action brought by the Commission under 
the securities laws, means any judicial or administra-
tive action brought by an entity described in sub-
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† HR 4173 EAS 
clauses (I) through (IV) of subsection (h)(2)(D)(i) that 
is based upon the original information provided by a 
whistleblower pursuant to subsection (a) that led to 
the successful enforcement of the Commission action. 
‘‘(6) 
WHISTLEBLOWER.—The 
term 
‘whistle-
blower’ means any individual, or 2 or more individ-
uals acting jointly, who provides information relating 
to a violation of the securities laws to the Commis-
sion, in a manner established, by rule or regulation, 
by the Commission. 
‘‘(b) AWARDS.— 
‘‘(1) IN GENERAL.—In any covered judicial or 
administrative action, or related action, the Commis-
sion, under regulations prescribed by the Commission 
and subject to subsection (c), shall pay an award or 
awards to 1 or more whistleblowers who voluntarily 
provided original information to the Commission that 
led to the successful enforcement of the covered judi-
cial or administrative action, or related action, in an 
aggregate amount equal to— 
‘‘(A) not less than 10 percent, in total, of 
what has been collected of the monetary sanctions 
imposed in the action or related actions; and
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‘‘(B) not more than 30 percent, in total, of 
what has been collected of the monetary sanctions 
imposed in the action or related actions. 
‘‘(2) PAYMENT OF AWARDS.—Any amount paid 
under paragraph (1) shall be paid from the Fund. 
‘‘(c) DETERMINATION OF AMOUNT OF AWARD; DENIAL 
OF AWARD.— 
‘‘(1) DETERMINATION OF AMOUNT OF AWARD.— 
‘‘(A) DISCRETION.—The determination of 
the amount of an award made under subsection 
(b) shall be in the discretion of the Commission. 
‘‘(B) 
CRITERIA.—In 
determining 
the 
amount of an award made under subsection (b), 
the Commission shall take into account— 
‘‘(i) the significance of the information 
provided by the whistleblower to the success 
of the covered judicial or administrative ac-
tion; 
‘‘(ii) the degree of assistance provided 
by the whistleblower and any legal rep-
resentative of the whistleblower in a covered 
judicial or administrative action; 
‘‘(iii) the programmatic interest of the 
Commission in deterring violations of the 
securities laws by making awards to whis-
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† HR 4173 EAS 
tleblowers who provide information that 
lead to the successful enforcement of such 
laws; and 
‘‘(iv) such additional relevant factors 
as the Commission may establish by rule or 
regulation. 
‘‘(2) DENIAL OF AWARD.—No award under sub-
section (b) shall be made— 
‘‘(A) to any whistleblower who is, or was at 
the time the whistleblower acquired the original 
information submitted to the Commission, a 
member, officer, or employee of— 
‘‘(i) an appropriate regulatory agency; 
‘‘(ii) the Department of Justice; 
‘‘(iii) a self-regulatory organization; 
‘‘(iv) the Public Company Accounting 
Oversight Board; or 
‘‘(v) a law enforcement organization; 
‘‘(B) to any whistleblower who is convicted 
of a criminal violation related to the judicial or 
administrative action for which the whistle-
blower otherwise could receive an award under 
this section; 
‘‘(C) to any whistleblower who gains the in-
formation through the performance of an audit
979 
† HR 4173 EAS 
of financial statements required under the securi-
ties laws and for whom such submission would 
be contrary to the requirements of section 101A 
of the Securities Exchange Act of 1934 (15 
U.S.C. 78j–1); or 
‘‘(D) to any whistleblower who fails to sub-
mit information to the Commission in such form 
as the Commission may, by rule, require. 
‘‘(d) REPRESENTATION.— 
‘‘(1) PERMITTED REPRESENTATION.—Any whis-
tleblower who makes a claim for an award under sub-
section (b) may be represented by counsel. 
‘‘(2) REQUIRED REPRESENTATION.— 
‘‘(A) IN GENERAL.—Any whistleblower who 
anonymously makes a claim for an award under 
subsection (b) shall be represented by counsel if 
the whistleblower anonymously submits the in-
formation upon which the claim is based. 
‘‘(B) DISCLOSURE OF IDENTITY.—Prior to 
the payment of an award, a whistleblower shall 
disclose the identity of the whistleblower and 
provide such other information as the Commis-
sion may require, directly or through counsel for 
the whistleblower.
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† HR 4173 EAS 
‘‘(e) NO CONTRACT NECESSARY.—No contract with the 
Commission is necessary for any whistleblower to receive 
an award under subsection (b), unless otherwise required 
by the Commission by rule or regulation. 
‘‘(f) APPEALS.—Any determination made under this 
section, including whether, to whom, or in what amount 
to make awards, shall be in the discretion of the Commis-
sion. Any such determination may be appealed to the ap-
propriate court of appeals of the United States not more 
than 30 days after the determination is issued by the Com-
mission. The court shall review the determination made by 
the Commission in accordance with section 706 of title 5, 
United States Code. 
‘‘(g) INVESTOR PROTECTION FUND.— 
‘‘(1) FUND ESTABLISHED.—There is established 
in the Treasury of the United States a fund to be 
known as the ‘Securities and Exchange Commission 
Investor Protection Fund’. 
‘‘(2) USE OF FUND.—The Fund shall be avail-
able to the Commission, without further appropria-
tion or fiscal year limitation, for— 
‘‘(A) paying awards to whistleblowers as 
provided in subsection (b); and 
‘‘(B) funding the activities of the Inspector 
General of the Commission under section 4(i).
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† HR 4173 EAS 
‘‘(3) DEPOSITS AND CREDITS.—There shall be 
deposited into or credited to the Fund an amount 
equal to— 
‘‘(A) the amount awarded under subsection 
(b) from any monetary sanction collected by the 
Commission in any judicial or administrative 
action brought by the Commission that is based 
on information provided by a whistleblower 
under the securities laws, unless, the balance of 
the Fund at the time the monetary sanction is 
collected exceeds $200,000,000; 
‘‘(B) any monetary sanction added to a 
disgorgement fund or other fund pursuant to sec-
tion 308 of the Sarbanes-Oxley Act of 2002 (15 
U.S.C. 7246) that is not distributed to the vic-
tims for whom the disgorgement fund was estab-
lished, unless the balance of the disgorgement 
fund at the time the determination is made not 
to distribute the monetary sanction to such vic-
tims exceeds $100,000,000; and 
‘‘(C) all income from investments made 
under paragraph (4). 
‘‘(4) INVESTMENTS.— 
‘‘(A) AMOUNTS
IN
FUND
MAY
BE
IN-
VESTED.—The Commission may request the Sec-
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† HR 4173 EAS 
retary of the Treasury to invest the portion of 
the Fund that is not, in the discretion of the 
Commission, required to meet the current needs 
of the Fund. 
‘‘(B) ELIGIBLE INVESTMENTS.—Investments 
shall be made by the Secretary of the Treasury 
in obligations of the United States or obligations 
that are guaranteed as to principal and interest 
by the United States, with maturities suitable to 
the needs of the Fund as determined by the Com-
mission on the record. 
‘‘(C) INTEREST
AND
PROCEEDS
CRED-
ITED.—The interest on, and the proceeds from 
the sale or redemption of, any obligations held in 
the Fund shall be credited to the Fund. 
‘‘(5) REPORTS TO CONGRESS.—Not later than 
October 30 of each fiscal year beginning after the date 
of enactment of this subsection, the Commission shall 
submit to the Committee on Banking, Housing, and 
Urban Affairs of the Senate, and the Committee on 
Financial Services of the House of Representatives a 
report on— 
‘‘(A) the whistleblower award program, es-
tablished under this section, including—
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† HR 4173 EAS 
‘‘(i) a description of the number of 
awards granted; and 
‘‘(ii) the types of cases in which 
awards were granted during the preceding 
fiscal year; 
‘‘(B) the balance of the Fund at the begin-
ning of the preceding fiscal year; 
‘‘(C) the amounts deposited into or credited 
to the Fund during the preceding fiscal year; 
‘‘(D) the amount of earnings on investments 
made under paragraph (4) during the preceding 
fiscal year; 
‘‘(E) the amount paid from the Fund dur-
ing the preceding fiscal year to whistleblowers 
pursuant to subsection (b); 
‘‘(F) the balance of the Fund at the end of 
the preceding fiscal year; and 
‘‘(G) a complete set of audited financial 
statements, including— 
‘‘(i) a balance sheet; 
‘‘(ii) income statement; and 
‘‘(iii) cash flow analysis. 
‘‘(h) PROTECTION OF WHISTLEBLOWERS.— 
‘‘(1) PROHIBITION AGAINST RETALIATION.—
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† HR 4173 EAS 
‘‘(A) IN GENERAL.—No employer may dis-
charge, demote, suspend, threaten, harass, di-
rectly or indirectly, or in any other manner dis-
criminate against, a whistleblower in the terms 
and conditions of employment because of any 
lawful act done by the whistleblower— 
‘‘(i) in providing information to the 
Commission in accordance with subsection 
(a); or 
‘‘(ii) in assisting in any investigation 
or judicial or administrative action of the 
Commission based upon or related to such 
information. 
‘‘(B) ENFORCEMENT.— 
‘‘(i) CAUSE
OF
ACTION.—An indi-
vidual who alleges discharge or other dis-
crimination in violation of subparagraph 
(A) may bring an action under this sub-
section in the appropriate district court of 
the United States for the relief provided in 
subparagraph (C). 
‘‘(ii) SUBPOENAS.—A subpoena requir-
ing the attendance of a witness at a trial or 
hearing conducted under this section may 
be served at any place in the United States.
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† HR 4173 EAS 
‘‘(iii) STATUTE OF LIMITATIONS.— 
‘‘(I) IN
GENERAL.—An action 
under this subsection may not be 
brought— 
‘‘(aa) more than 6 years 
after the date on which the viola-
tion of subparagraph (A) oc-
curred; or 
‘‘(bb) more than 3 years after 
the date when facts material to 
the right of action are known or 
reasonably 
should 
have 
been 
known by the employee alleging a 
violation of subparagraph (A). 
‘‘(II) REQUIRED
ACTION
WITHIN 
10 YEARS.—Notwithstanding subclause 
(I), an action under this subsection 
may not in any circumstance be 
brought more than 10 years after the 
date on which the violation occurs. 
‘‘(C) RELIEF.—Relief for an individual 
prevailing in an action brought under subpara-
graph (B) shall include—
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† HR 4173 EAS 
‘‘(i) reinstatement with the same se-
niority status that the individual would 
have had, but for the discrimination; 
‘‘(ii) 2 times the amount of back pay 
otherwise owed to the individual, with in-
terest; and 
‘‘(iii) compensation for litigation costs, 
expert witness fees, and reasonable attor-
neys’ fees. 
‘‘(2) CONFIDENTIALITY.— 
‘‘(A) IN GENERAL.—Unless and until re-
quired to be disclosed to a defendant or respond-
ent in connection with a proceeding instituted by 
the Commission or any entity described in sub-
paragraph (D), all information provided to the 
Commission by a whistleblower— 
‘‘(i) in any proceeding in any Federal 
or State court or administrative agency— 
‘‘(I) shall be confidential and 
privileged as an evidentiary matter; 
and 
‘‘(II) shall not be subject to civil 
discovery or other legal process; and 
‘‘(ii) shall not be subject to disclosure 
under section 552 of title 5, United States
987 
† HR 4173 EAS 
Code (commonly referred to as the Freedom 
of Information Act) or under any pro-
ceeding under that section. 
‘‘(B) EXEMPTED
STATUTE.—For purposes 
of section 552 of title 5, United States Code, this 
paragraph shall be considered a statute described 
in subsection (b)(3)(B) of such section 552. 
‘‘(C) RULE OF CONSTRUCTION.—Nothing in 
this section is intended to limit, or shall be con-
strued to limit, the ability of the Attorney Gen-
eral to present such evidence to a grand jury or 
to share such evidence with potential witnesses or 
defendants in the course of an ongoing criminal 
investigation. 
‘‘(D) AVAILABILITY TO GOVERNMENT AGEN-
CIES.— 
‘‘(i) IN GENERAL.—Without the loss of 
its status as confidential and privileged in 
the hands of the Commission, all informa-
tion referred to in subparagraph (A) may, 
in the discretion of the Commission, when 
determined by the Commission to be nec-
essary to accomplish the purposes of this 
Act and to protect investors, be made avail-
able to—
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† HR 4173 EAS 
‘‘(I) the Attorney General of the 
United States; 
‘‘(II) an appropriate regulatory 
authority; 
‘‘(III) a self-regulatory organiza-
tion; 
‘‘(IV) a State attorney general in 
connection with any criminal inves-
tigation; 
‘‘(V) any appropriate State regu-
latory authority; 
‘‘(VI) the Public Company Ac-
counting Oversight Board; 
‘‘(VII) a foreign securities author-
ity; and 
‘‘(VIII) a foreign law enforcement 
authority. 
‘‘(ii) CONFIDENTIALITY.— 
‘‘(I) IN
GENERAL.—Each of the 
entities described in subclauses (I) 
through (VI) of clause (i) shall main-
tain such information as confidential 
and privileged, in accordance with the 
requirements established under sub-
paragraph (A).
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‘‘(II) FOREIGN
AUTHORITIES.— 
Each of the entities described in sub-
clauses (VII) and (VIII) of clause (i) 
shall maintain such information in ac-
cordance with such assurances of con-
fidentiality as the Commission deter-
mines appropriate. 
‘‘(3) RIGHTS RETAINED.—Nothing in this section 
shall be deemed to diminish the rights, privileges, or 
remedies of any whistleblower under any Federal or 
State law, or under any collective bargaining agree-
ment. 
‘‘(i) PROVISION OF FALSE INFORMATION.—A whistle-
blower shall not be entitled to an award under this section 
if the whistleblower— 
‘‘(1) knowingly and willfully makes any false, 
fictitious, or fraudulent statement or representation; 
or 
‘‘(2) uses any false writing or document knowing 
the writing or document contains any false, fictitious, 
or fraudulent statement or entry. 
‘‘(j) RULEMAKING
AUTHORITY.—The Commission 
shall have the authority to issue such rules and regulations 
as may be necessary or appropriate to implement the provi-
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† HR 4173 EAS 
sions of this section consistent with the purposes of this sec-
tion.’’. 
(b) PROTECTION
FOR EMPLOYEES
OF NATIONALLY 
RECOGNIZED STATISTICAL RATING ORGANIZATIONS.—Sec-
tion 1514A(a) of title 18, United States Code, is amended— 
(1) by inserting ‘‘or nationally recognized statis-
tical rating organization (as defined in section 3(a) 
of the Securities Exchange Act of 1934 (15 U.S.C. 
78c),’’ after ‘‘78o(d)),’’; and 
(2) by inserting ‘‘or nationally recognized statis-
tical rating organization’’ after ‘‘such company’’. 
SEC. 
923. 
CONFORMING 
AMENDMENTS 
FOR 
WHISTLE-
BLOWER PROTECTION. 
(a) IN GENERAL.— 
(1) 
SECURITIES
ACT
OF
1933.—Section 
20(d)(3)(A) of the Securities Act of 1933 (15 U.S.C. 
77t(d)(3)(A)) is amended by inserting ‘‘and section 
21F of the Securities Exchange Act of 1934’’ after 
‘‘the Sarbanes-Oxley Act of 2002’’. 
(2) INVESTMENT COMPANY ACT OF 1940.—Section 
42(e)(3)(A) of the Investment Company Act of 1940 
(15 U.S.C. 80a–41(e)(3)(A)) is amended by inserting 
‘‘and section 21F of the Securities Exchange Act of 
1934’’ after ‘‘the Sarbanes-Oxley Act of 2002’’.
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† HR 4173 EAS 
(3) INVESTMENT ADVISERS ACT OF 1940.—Sec-
tion 209(e)(3)(A) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b–9(e)(3)(A)) is amended by in-
serting ‘‘and section 21F of the Securities Exchange 
Act of 1934’’ after ‘‘the Sarbanes-Oxley Act of 2002’’. 
(b) SECURITIES EXCHANGE ACT.— 
(1) SECTION 21.—Section 21(d)(3)(C)(i) of the 
Securities 
Exchange 
Act 
of 
1934 
(15 
U.S.C. 
78u(d)(3)(C)(i)) is amended by inserting ‘‘and section 
21F of this title’’ after ‘‘the Sarbanes-Oxley Act of 
2002’’. 
(2) SECTION 21A.—Section 21A of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u–1) is amend-
ed— 
(A) in subsection (d)(1) by— 
(i) striking ‘‘(subject to subsection 
(e))’’; and 
(ii) inserting ‘‘and section 21F of this 
title’’ after ‘‘the Sarbanes-Oxley Act of 
2002’’; 
(B) by striking subsection (e); and 
(C) by redesignating subsections (f) and (g) 
as subsections (e) and (f), respectively.
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† HR 4173 EAS 
SEC. 924. IMPLEMENTATION AND TRANSITION PROVISIONS 
FOR WHISTLEBLOWER PROTECTION. 
(a) IMPLEMENTING RULES.—The Commission shall 
issue final regulations implementing the provisions of sec-
tion 21F of the Securities Exchange Act of 1934, as added 
by this subtitle, not later than 270 days after the date of 
enactment of this Act. 
(b) ORIGINAL INFORMATION.—Information provided 
to the Commission by a whistleblower in accordance with 
the regulations referenced in subsection (a) shall not lose 
the status of original information (as defined in section 
21F(i)(1) of the Securities Exchange Act of 1934, as added 
by this subtitle) solely because the whistleblower provided 
the information prior to the effective date of the regulations, 
provided that the information is— 
(1) provided by the whistleblower after the date 
of enactment of this subtitle, or monetary sanctions 
are collected after the date of enactment of this sub-
title; or 
(2) related to a violation for which an award 
under section 21F of the Securities Exchange Act of 
1934, as added by this subtitle, could have been paid 
at the time the information was provided by the whis-
tleblower. 
(c) AWARDS.—A whistleblower may receive an award 
pursuant to section 21F of the Securities Exchange Act of
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† HR 4173 EAS 
1934, as added by this subtitle, regardless of whether any 
violation of a provision of the securities laws, or a rule or 
regulation thereunder, underlying the judicial or adminis-
trative action upon which the award is based, occurred 
prior to the date of enactment of this subtitle. 
SEC. 925. COLLATERAL BARS. 
(a) SECURITIES EXCHANGE ACT OF 1934.— 
(1) SECTION 15.—Section 15(b)(6)(A) of the Se-
curities 
Exchange 
Act 
of 
1934 
(15 
U.S.C. 
78o(b)(6)(A)) is amended by striking ‘‘12 months, or 
bar such person from being associated with a broker 
or dealer,’’ and inserting ‘‘12 months, or bar any 
such person from being associated with a broker, deal-
er, investment adviser, municipal securities dealer, 
municipal advisor, transfer agent, or nationally rec-
ognized statistical rating organization,’’. 
(2) SECTION 15B.—Section 15B(c)(4) of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78o– 
4(c)(4)) is amended by striking ‘‘twelve months or bar 
any such person from being associated with a munic-
ipal securities dealer,’’ and inserting ‘‘12 months or 
bar any such person from being associated with a 
broker, dealer, investment adviser, municipal securi-
ties dealer, municipal advisor, transfer agent, or na-
tionally recognized statistical rating organization,’’.
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† HR 4173 EAS 
(3) SECTION 17A.—Section 17A(c)(4)(C) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78q– 
1(c)(4)(C)) is amended by striking ‘‘twelve months or 
bar any such person from being associated with the 
transfer agent,’’ and inserting ‘‘12 months or bar any 
such person from being associated with any transfer 
agent, broker, dealer, investment adviser, municipal 
securities dealer, municipal advisor, or nationally 
recognized statistical rating organization,’’. 
(b) INVESTMENT ADVISERS ACT OF 1940.—Section 
203(f) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b–3(f)) is amended by striking ‘‘twelve months or bar any 
such person from being associated with an investment ad-
viser,’’ and inserting ‘‘12 months or bar any such person 
from being associated with an investment adviser, broker, 
dealer, municipal securities dealer, municipal advisor, 
transfer agent, or nationally recognized statistical rating 
organization,’’. 
SEC. 926. DISQUALIFYING FELONS AND OTHER ‘‘BAD AC-
TORS’’ FROM REGULATION D OFFERINGS. 
Not later than 1 year after the date of enactment of 
this Act, the Commission shall issue rules for the disquali-
fication of offerings and sales of securities made under sec-
tion 230.506 of title 17, Code of Federal Regulations, that—
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† HR 4173 EAS 
(1) are substantially similar to the provisions of 
section 230.262 of title 17, Code of Federal Regula-
tions, or any successor thereto; and 
(2) disqualify any offering or sale of securities 
by a person that— 
(A) is subject to a final order of a State se-
curities commission (or an agency or officer of a 
State performing like functions), a State author-
ity that supervises or examines banks, savings 
associations, or credit unions, a State insurance 
commission (or an agency or officer of a State 
performing like functions), an appropriate Fed-
eral banking agency, or the National Credit 
Union Administration, that— 
(i) bars the person from— 
(I) association with an entity reg-
ulated by such commission, authority, 
agency, or officer; 
(II) engaging in the business of 
securities, insurance, or banking; or 
(III) engaging in savings associa-
tion or credit union activities; or 
(ii) constitutes a final order based on 
a violation of any law or regulation that 
prohibits fraudulent, manipulative, or de-
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† HR 4173 EAS 
ceptive conduct within the 10-year period 
ending on the date of the filing of the offer 
or sale; or 
(B) has been convicted of any felony or mis-
demeanor in connection with the purchase or 
sale of any security or involving the making of 
any false filing with the Commission. 
SEC. 927. EQUAL TREATMENT OF SELF-REGULATORY ORGA-
NIZATION RULES. 
Section 29(a) of the Securities Exchange Act of 1934 
(15 U.S.C. 78cc(a)) is amended by striking ‘‘an exchange 
required thereby’’ and inserting ‘‘a self-regulatory organiza-
tion,’’. 
SEC. 928. CLARIFICATION THAT SECTION 205 OF THE IN-
VESTMENT ADVISERS ACT OF 1940 DOES NOT 
APPLY TO STATE-REGISTERED ADVISERS. 
Section 205(a) of the Investment Advisers Act of 1940 
(15 U.S.C. 80b–5(a)) is amended, in the matter preceding 
paragraph (1)— 
(1) by striking ‘‘, unless exempt from registra-
tion pursuant to section 203(b),’’ and inserting ‘‘reg-
istered or required to be registered with the Commis-
sion’’;
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† HR 4173 EAS 
(2) by striking ‘‘make use of the mails or any 
means or instrumentality of interstate commerce, di-
rectly or indirectly, to’’; and 
(3) by striking ‘‘to’’ after ‘‘in any way’’. 
SEC. 929. UNLAWFUL MARGIN LENDING. 
Section 7(c)(1)(A) of the Securities Exchange Act of 
1934 (15 U.S.C. 78g(c)(1)(A)) is amended by striking ‘‘; 
and’’ and inserting ‘‘; or’’. 
SEC. 929A. PROTECTION FOR EMPLOYEES OF SUBSIDIARIES 
AND AFFILIATES OF PUBLICLY TRADED COM-
PANIES. 
Section 1514A of title 18, United States Code, is 
amended by inserting ‘‘including any subsidiary or affiliate 
whose financial information is included in the consolidated 
financial statements of such company’’ after ‘‘the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(d))’’. 
SEC. 929B. FAIR FUND AMENDMENTS. 
Section 308 of the Sarbanes-Oxley Act of 2002 (15 
U.S.C. 7246(a)) is amended— 
(1) by striking subsection (a) and inserting the 
following: 
‘‘(a) CIVIL PENALTIES TO BE USED FOR THE RELIEF 
OF VICTIMS.—If, in any judicial or administrative action 
brought by the Commission under the securities laws, the 
Commission obtains a civil penalty against any person for
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† HR 4173 EAS 
a violation of such laws, or such person agrees, in settlement 
of any such action, to such civil penalty, the amount of 
such civil penalty shall, on the motion or at the direction 
of the Commission, be added to and become part of a 
disgorgement fund or other fund established for the benefit 
of the victims of such violation.’’; 
(2) in subsection (b)— 
(A) by striking ‘‘for a disgorgement fund 
described in subsection (a)’’ and inserting ‘‘for a 
disgorgement fund or other fund described in 
subsection (a)’’; and 
(B) by striking ‘‘in the disgorgement fund’’ 
and inserting ‘‘in such fund’’; and 
(3) by striking subsection (e). 
SEC. 929C. INCREASING THE BORROWING LIMIT ON TREAS-
URY LOANS. 
Section 4(h) of the Securities Investor Protection Act 
of 1970 (15 U.S.C. 78ddd(h)) is amended in the first sen-
tence, 
by 
striking 
‘‘$1,000,000,000’’ 
and 
inserting 
‘‘$2,500,000,000’’. 
Subtitle C—Improvements to the 
Regulation 
of 
Credit 
Rating 
Agencies 
SEC. 931. FINDINGS. 
Congress finds the following:
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† HR 4173 EAS 
(1) Because of the systemic importance of credit 
ratings and the reliance placed on credit ratings by 
individual and institutional investors and financial 
regulators, the activities and performances of credit 
rating agencies, including nationally recognized sta-
tistical rating organizations, are matters of national 
public interest, as credit rating agencies are central 
to capital formation, investor confidence, and the effi-
cient performance of the United States economy. 
(2) Credit rating agencies, including nationally 
recognized statistical rating organizations, play a 
critical ‘‘gatekeeper’’ role in the debt market that is 
functionally similar to that of securities analysts, who 
evaluate the quality of securities in the equity market, 
and auditors, who review the financial statements of 
firms. Such role justifies a similar level of public 
oversight and accountability. 
(3) Because credit rating agencies perform eval-
uative and analytical services on behalf of clients, 
much as other financial ‘‘gatekeepers’’ do, the activi-
ties of credit rating agencies are fundamentally com-
mercial in character and should be subject to the same 
standards of liability and oversight as apply to audi-
tors, securities analysts, and investment bankers.
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† HR 4173 EAS 
(4) In certain activities, particularly in advising 
arrangers of structured financial products on poten-
tial ratings of such products, credit rating agencies 
face conflicts of interest that need to be carefully mon-
itored and that therefore should be addressed explic-
itly in legislation in order to give clearer authority 
to the Securities and Exchange Commission. 
(5) In the recent financial crisis, the ratings on 
structured financial products have proven to be inac-
curate. This inaccuracy contributed significantly to 
the mismanagement of risks by financial institutions 
and investors, which in turn adversely impacted the 
health of the economy in the United States and 
around the world. Such inaccuracy necessitates in-
creased accountability on the part of credit rating 
agencies. 
SEC. 932. ENHANCED REGULATION, ACCOUNTABILITY, AND 
TRANSPARENCY 
OF 
NATIONALLY 
RECOG-
NIZED 
STATISTICAL 
RATING 
ORGANIZA-
TIONS. 
Section 15E of the Securities Exchange Act of 1934 
(15 U.S.C. 78o–7) is amended— 
(1) in subsection (c)— 
(A) in paragraph (2)—
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† HR 4173 EAS 
(i) in the second sentence, by inserting 
‘‘any other provision of this section, or’’ 
after ‘‘Notwithstanding’’; and 
(ii) by inserting after the period at the 
end the following: ‘‘Nothing in this para-
graph may be construed to afford a defense 
against any action or proceeding brought by 
the Commission to enforce the antifraud 
provisions of the securities laws.’’; and 
(B) by adding at the end the following: 
‘‘(3) INTERNAL CONTROLS OVER PROCESSES FOR 
DETERMINING CREDIT RATINGS.— 
‘‘(A) IN GENERAL.—Each nationally recog-
nized statistical rating organization shall estab-
lish, maintain, enforce, and document an effec-
tive internal control structure governing the im-
plementation of and adherence to policies, proce-
dures, and methodologies for determining credit 
ratings, taking into consideration such factors as 
the Commission may prescribe, by rule. 
‘‘(B) 
ATTESTATION
REQUIREMENT.—The 
Commission shall prescribe rules requiring each 
nationally recognized statistical rating organiza-
tion to submit to the Commission an annual in-
ternal controls report, which shall contain—
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† HR 4173 EAS 
‘‘(i) a description of the responsibility 
of the management of the nationally recog-
nized statistical rating organization in es-
tablishing and maintaining an effective in-
ternal control structure under subparagraph 
(A); 
‘‘(ii) an assessment of the effectiveness 
of the internal control structure of the na-
tionally recognized statistical rating organi-
zation; and 
‘‘(iii) the attestation of the chief execu-
tive officer, or equivalent individual, of the 
nationally recognized statistical rating or-
ganization.’’; 
(2) in subsection (d)— 
(A) in the subsection heading, by inserting 
‘‘FINE,’’ after ‘‘CENSURE,’’; 
(B) by inserting ‘‘fine,’’ after ‘‘censure,’’ 
each place that term appears; 
(C) in paragraph (2), by redesignating sub-
paragraphs (A) and (B) as clauses (i) and (ii), 
respectively, and adjusting the clause margins 
accordingly; 
(D) 
by 
redesignating 
paragraphs 
(1) 
through (5) as subparagraphs (A) through (E),
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† HR 4173 EAS 
respectively, and adjusting the subparagraph 
margins accordingly; 
(E) in the matter preceding subparagraph 
(A), as so redesignated, by striking ‘‘The Com-
mission’’ and inserting the following: 
‘‘(1) IN GENERAL.—The Commission’’; 
(F) in subparagraph (D), as so redesig-
nated, by striking ‘‘or’’ at the end; 
(G) in subparagraph (E), as so redesig-
nated, by striking the period at the end and in-
serting a semicolon; and 
(H) by adding at the end the following: 
‘‘(F) has failed reasonably to supervise, 
with a view to preventing a violation of the secu-
rities laws, an individual who commits such a 
violation, if the individual is subject to the su-
pervision of that person. 
‘‘(2) SUSPENSION
OR
REVOCATION
FOR
PAR-
TICULAR CLASS OF SECURITIES.— 
‘‘(A) IN GENERAL.—The Commission may 
temporarily suspend or permanently revoke the 
registration of a nationally recognized statistical 
rating organization with respect to a particular 
class or subclass of securities, if the Commission 
finds, on the record after notice and opportunity
1004 
† HR 4173 EAS 
for hearing, that the nationally recognized statis-
tical rating organization does not have adequate 
financial and managerial resources to consist-
ently produce credit ratings with integrity. 
‘‘(B) CONSIDERATIONS.—In making any 
determination under subparagraph (A), the 
Commission shall consider— 
‘‘(i) whether the nationally recognized 
statistical rating organization has failed 
over a sustained period of time, as deter-
mined by the Commission, to produce rat-
ings that are accurate for that class or sub-
class of securities; and 
‘‘(ii) such other factors as the Commis-
sion may determine.’’; 
(3) in subsection (h), by adding at the end the 
following: 
‘‘(3) SEPARATION OF RATINGS FROM SALES AND 
MARKETING.— 
‘‘(A) RULES REQUIRED.—The Commission 
shall issue rules to prevent the sales and mar-
keting considerations of a nationally recognized 
statistical rating organization from influencing 
the production of ratings by the nationally recog-
nized statistical rating organization.
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† HR 4173 EAS 
‘‘(B) CONTENTS
OF
RULES.—The rules 
issued under subparagraph (A) shall provide 
for— 
‘‘(i) exceptions for small nationally 
recognized statistical rating organizations 
with respect to which the Commission deter-
mines that the separation of the production 
of ratings and sales and marketing activi-
ties is not appropriate; and 
‘‘(ii) suspension or revocation of the 
registration of a nationally recognized sta-
tistical rating organization, if the Commis-
sion finds, on the record, after notice and 
opportunity for a hearing, that— 
‘‘(I) the nationally recognized sta-
tistical rating organization has com-
mitted a violation of a rule issued 
under this subsection; and 
‘‘(II) the violation of a rule issued 
under this subsection affected a rat-
ing.’’; 
(4) in subsection (j)— 
(A) by striking ‘‘Each’’ and inserting the 
following: 
‘‘(1) IN GENERAL.—Each’’; and
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† HR 4173 EAS 
(B) by adding at the end the following: 
‘‘(2) LIMITATIONS.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), an individual designated 
under paragraph (1) may not, while serving in 
the designated capacity— 
‘‘(i) perform credit ratings; 
‘‘(ii) participate in the development of 
ratings methodologies or models; 
‘‘(iii) perform marketing or sales func-
tions; or 
‘‘(iv) participate in establishing com-
pensation levels, other than for employees 
working for that individual. 
‘‘(B) EXCEPTION.—The Commission may 
exempt a small nationally recognized statistical 
rating organization from the limitations under 
this paragraph, if the Commission finds that 
compliance with such limitations would impose 
an unreasonable burden on the nationally recog-
nized statistical rating organization. 
‘‘(3) OTHER
DUTIES.—Each individual des-
ignated under paragraph (1) shall establish proce-
dures for the receipt, retention, and treatment of—
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† HR 4173 EAS 
‘‘(A) complaints regarding credit ratings, 
models, methodologies, and compliance with the 
securities laws and the policies and procedures 
developed under this section; and 
‘‘(B) confidential, anonymous complaints 
by employees or users of credit ratings. 
‘‘(4) ANNUAL REPORTS REQUIRED.— 
‘‘(A) ANNUAL REPORTS REQUIRED.—Each 
individual designated under paragraph (1) shall 
submit to the nationally recognized statistical 
rating organization an annual report on the 
compliance of the nationally recognized statis-
tical rating organization with the securities laws 
and the policies and procedures of the nationally 
recognized statistical rating organization that 
includes— 
‘‘(i) a description of any material 
changes to the code of ethics and conflict of 
interest policies of the nationally recognized 
statistical rating organization; and 
‘‘(ii) a certification that the report is 
accurate and complete. 
‘‘(B) SUBMISSION
OF
REPORTS
TO
THE 
COMMISSION.—Each nationally recognized statis-
tical rating organization shall file the reports re-
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† HR 4173 EAS 
quired under subparagraph (A) together with the 
financial report that is required to be submitted 
to the Commission under this section.’’; and 
(5) by striking subsection (p) and inserting the 
following: 
‘‘(p) REGULATION OF NATIONALLY RECOGNIZED STA-
TISTICAL RATING ORGANIZATIONS.— 
‘‘(1) ESTABLISHMENT
OF
OFFICE
OF
CREDIT 
RATINGS.— 
‘‘(A) OFFICE ESTABLISHED.—The Commis-
sion shall establish within the Commission an 
Office of Credit Ratings (referred to in this sub-
section as the ‘Office’) to administer the rules of 
the Commission— 
‘‘(i) with respect to the practices of na-
tionally recognized statistical rating organi-
zations in determining ratings, for the pro-
tection of users of credit ratings and in the 
public interest; 
‘‘(ii) to promote accuracy in credit rat-
ings issued by nationally recognized statis-
tical rating organizations; and 
‘‘(iii) to ensure that such ratings are 
not unduly influenced by conflicts of inter-
est.
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† HR 4173 EAS 
‘‘(B) DIRECTOR OF THE OFFICE.—The head 
of the Office shall be the Director, who shall re-
port to the Chairman. 
‘‘(2) STAFFING.—The Office established under 
this subsection shall be staffed sufficiently to carry 
out fully the requirements of this section. The staff 
shall include persons with knowledge of and expertise 
in corporate, municipal, and structured debt finance. 
‘‘(3) COMMISSION EXAMINATIONS.— 
‘‘(A) ANNUAL EXAMINATIONS REQUIRED.— 
The Office shall conduct an examination of each 
nationally recognized statistical rating organiza-
tion at least annually. 
‘‘(B) CONDUCT
OF
EXAMINATIONS.—Each 
examination under subparagraph (A) shall in-
clude a review of— 
‘‘(i) whether the nationally recognized 
statistical rating organization conducts 
business in accordance with the policies, 
procedures, and rating methodologies of the 
nationally recognized statistical rating or-
ganization; 
‘‘(ii) the management of conflicts of in-
terest by the nationally recognized statis-
tical rating organization;
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† HR 4173 EAS 
‘‘(iii) implementation of ethics policies 
by the nationally recognized statistical rat-
ing organization; 
‘‘(iv) the internal supervisory controls 
of the nationally recognized statistical rat-
ing organization; 
‘‘(v) the governance of the nationally 
recognized statistical rating organization; 
‘‘(vi) the activities of the individual 
designated by the nationally recognized sta-
tistical rating organization under sub-
section (j)(1); 
‘‘(vii) the processing of complaints by 
the nationally recognized statistical rating 
organization; and 
‘‘(viii) the policies of the nationally 
recognized statistical rating organization 
governing the post-employment activities of 
former staff of the nationally recognized sta-
tistical rating organization. 
‘‘(C) INSPECTION REPORTS.—The Commis-
sion shall make available to the public, in an 
easily understandable format, an annual report 
summarizing—
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† HR 4173 EAS 
‘‘(i) the essential findings of all exami-
nations conducted under subparagraph (A), 
as deemed appropriate by the Commission; 
‘‘(ii) the responses by the nationally 
recognized statistical rating organizations 
to any material regulatory deficiencies 
identified by the Commission under clause 
(i); and 
‘‘(iii) whether the nationally recognized 
statistical rating organizations have appro-
priately addressed the recommendations of 
the Commission contained in previous re-
ports under this subparagraph. 
‘‘(4) RULEMAKING
AUTHORITY.—The Commis-
sion shall— 
‘‘(A) establish, by rule, fines, and other pen-
alties applicable to any nationally recognized 
statistical rating organization that violates the 
requirements of this subsection and the rules 
thereunder; and 
‘‘(B) issue such rules as may be necessary 
to carry out this subsection. 
‘‘(q) TRANSPARENCY OF RATINGS PERFORMANCE.— 
‘‘(1) RULEMAKING REQUIRED.—The Commission 
shall, by rule, require that each nationally recognized
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† HR 4173 EAS 
statistical rating organization publicly disclose infor-
mation on the initial credit ratings determined by the 
nationally recognized statistical rating organization 
for each type of obligor, security, and money market 
instrument, and any subsequent changes to such cred-
it ratings, for the purpose of allowing users of credit 
ratings to evaluate the accuracy of ratings and com-
pare the performance of ratings by different nation-
ally recognized statistical rating organizations. 
‘‘(2) CONTENT.—The rules of the Commission 
under this subsection shall require, at a minimum, 
disclosures that— 
‘‘(A) are comparable among nationally rec-
ognized statistical rating organizations, to allow 
users of credit ratings to compare the perform-
ance of credit ratings across nationally recog-
nized statistical rating organizations; 
‘‘(B) are clear and informative for investors 
who use or might use credit ratings; 
‘‘(C) include performance information over 
a range of years and for a variety of types of 
credit ratings, including for credit ratings with-
drawn by the nationally recognized statistical 
rating organization;
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† HR 4173 EAS 
‘‘(D) are published and made freely avail-
able by the nationally recognized statistical rat-
ing organization, on an easily accessible portion 
of its website, and in writing, when requested; 
and 
‘‘(E) are appropriate to the business model 
of a nationally recognized statistical rating orga-
nization. 
‘‘(r) CREDIT RATINGS METHODOLOGIES.—The Com-
mission shall prescribe rules, for the protection of investors 
and in the public interest, with respect to the procedures 
and methodologies, including qualitative and quantitative 
data and models, used by nationally recognized statistical 
rating organizations that require each nationally recog-
nized statistical rating organization— 
‘‘(1) to ensure that credit ratings are determined 
using procedures and methodologies, including quali-
tative and quantitative data and models, that are— 
‘‘(A) approved by the board of the nation-
ally recognized statistical rating organization, a 
body performing a function similar to that of a 
board, or the senior credit officer of the nation-
ally recognized statistical rating organization; 
and
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† HR 4173 EAS 
‘‘(B) in accordance with the policies and 
procedures of the nationally recognized statistical 
rating organization for the development and 
modification of credit rating procedures and 
methodologies; 
‘‘(2) to ensure that when material changes to 
credit rating procedures and methodologies (including 
changes to qualitative and quantitative data and 
models) are made, that— 
‘‘(A) the changes are applied consistently to 
all credit ratings to which the changed proce-
dures and methodologies apply; 
‘‘(B) to the extent that changes are made to 
credit rating surveillance procedures and meth-
odologies, the changes are applied to then-current 
credit ratings by the nationally recognized statis-
tical rating organization within a reasonable 
time period determined by the Commission, by 
rule; and 
‘‘(C) the nationally recognized statistical 
rating organization publicly discloses the reason 
for the change; and 
‘‘(3) to notify users of credit ratings— 
‘‘(A) of the version of a procedure or meth-
odology, including the qualitative methodology or
1015 
† HR 4173 EAS 
quantitative inputs, used with respect to a par-
ticular credit rating; 
‘‘(B) when a material change is made to a 
procedure or methodology, including to a quali-
tative model or quantitative inputs; 
‘‘(C) when a significant error is identified 
in a procedure or methodology, including a qual-
itative or quantitative model, that may result in 
credit rating actions; and 
‘‘(D) of the likelihood of a material change 
described in subparagraph (B) resulting in a 
change in current credit ratings. 
‘‘(s) TRANSPARENCY OF CREDIT RATING METHODOLO-
GIES AND INFORMATION REVIEWED.— 
‘‘(1) FORM FOR DISCLOSURES.—The Commission 
shall require, by rule, each nationally recognized sta-
tistical rating organization to prescribe a form to ac-
company the publication of each credit rating that 
discloses— 
‘‘(A) information relating to— 
‘‘(i) the assumptions underlying the 
credit rating procedures and methodologies; 
‘‘(ii) the data that was relied on to de-
termine the credit rating; and
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† HR 4173 EAS 
‘‘(iii) if applicable, how the nationally 
recognized statistical rating organization 
used servicer or remittance reports, and 
with what frequency, to conduct surveillance 
of the credit rating; and 
‘‘(B) information that can be used by inves-
tors and other users of credit ratings to better 
understand credit ratings in each class of credit 
rating issued by the nationally recognized statis-
tical rating organization. 
‘‘(2) FORMAT.—The form developed under para-
graph (1) shall— 
‘‘(A) be easy to use and helpful for users of 
credit ratings to understand the information 
contained in the report; 
‘‘(B) require the nationally recognized sta-
tistical rating organization to provide the con-
tent described in paragraph (3)(B) in a manner 
that is directly comparable across types of secu-
rities; and 
‘‘(C) be made readily available to users of 
credit ratings, in electronic or paper form, as the 
Commission may, by rule, determine. 
‘‘(3) CONTENT OF FORM.—
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† HR 4173 EAS 
‘‘(A) QUALITATIVE
CONTENT.—Each na-
tionally recognized statistical rating organiza-
tion shall disclose on the form developed under 
paragraph (1)— 
‘‘(i) the credit ratings produced by the 
nationally recognized statistical rating or-
ganization; 
‘‘(ii) the main assumptions and prin-
ciples used in constructing procedures and 
methodologies, including qualitative meth-
odologies and quantitative inputs and as-
sumptions about the correlation of defaults 
across obligors used in rating structured 
products; 
‘‘(iii) the potential limitations of the 
credit ratings, and the types of risks ex-
cluded from the credit ratings that the na-
tionally recognized statistical rating organi-
zation does not comment on, including li-
quidity, market, and other risks; 
‘‘(iv) information on the uncertainty of 
the credit rating, including— 
‘‘(I) information on the reli-
ability, accuracy, and quality of the
1018 
† HR 4173 EAS 
data relied on in determining the cred-
it rating; and 
‘‘(II) a statement relating to the 
extent to which data essential to the 
determination of the credit rating were 
reliable or limited, including— 
‘‘(aa) any limits on the scope 
of historical data; and 
‘‘(bb) any limits in accessi-
bility to certain documents or 
other types of information that 
would have better informed the 
credit rating; 
‘‘(v) whether and to what extent third 
party due diligence services have been used 
by the nationally recognized statistical rat-
ing organization, a description of the infor-
mation that such third party reviewed in 
conducting due diligence services, and a de-
scription of the findings or conclusions of 
such third party; 
‘‘(vi) a description of the data about 
any obligor, issuer, security, or money mar-
ket instrument that were relied upon for the 
purpose of determining the credit rating;
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† HR 4173 EAS 
‘‘(vii) a statement containing an over-
all assessment of the quality of information 
available and considered in producing a 
rating for an obligor, security, or money 
market instrument, in relation to the qual-
ity of information available to the nation-
ally recognized statistical rating organiza-
tion in rating similar issuances; 
‘‘(viii) information relating to conflicts 
of interest of the nationally recognized sta-
tistical rating organization; and 
‘‘(ix) such additional information as 
the Commission may require. 
‘‘(B) QUANTITATIVE
CONTENT.—Each na-
tionally recognized statistical rating organiza-
tion shall disclose on the form developed under 
this subsection— 
‘‘(i) an explanation or measure of the 
potential volatility of the credit rating, in-
cluding— 
‘‘(I) any factors that might lead 
to a change in the credit ratings; and 
‘‘(II) the magnitude of the change 
that a user can expect under different 
market conditions;
1020 
† HR 4173 EAS 
‘‘(ii) information on the content of the 
rating, including— 
‘‘(I) the historical performance of 
the rating; and 
‘‘(II) the expected probability of 
default and the expected loss in the 
event of default; 
‘‘(iii) information on the sensitivity of 
the rating to assumptions made by the na-
tionally recognized statistical rating organi-
zation; and 
‘‘(iv) such additional information as 
may be required by the Commission. 
‘‘(4) DUE
DILIGENCE
SERVICES
FOR
ASSET- 
BACKED SECURITIES.— 
‘‘(A) FINDINGS.—The issuer or underwriter 
of any asset-backed security shall make publicly 
available the findings and conclusions of any 
third-party due diligence report obtained by the 
issuer or underwriter. 
‘‘(B) CERTIFICATION
REQUIRED.—In any 
case in which third-party due diligence services 
are employed by a nationally recognized statis-
tical rating organization, an issuer, or an un-
derwriter, the person providing the due diligence
1021 
† HR 4173 EAS 
services shall provide to any nationally recog-
nized statistical rating organization that pro-
duces a rating to which such services relate, 
written certification, as provided in subpara-
graph (C). 
‘‘(C) FORMAT AND CONTENT.—The Commis-
sion shall establish the appropriate format and 
content for the written certifications required 
under subparagraph (B), to ensure that pro-
viders of due diligence services have conducted a 
thorough review of data, documentation, and 
other relevant information necessary for a na-
tionally recognized statistical rating organiza-
tion to provide an accurate rating. 
‘‘(D) DISCLOSURE OF CERTIFICATION.—The 
Commission shall adopt rules requiring a na-
tionally recognized statistical rating organiza-
tion, at the time at which the nationally recog-
nized statistical rating organization produces a 
rating, to disclose the certification described in 
subparagraph (B) to the public in a manner 
that allows the public to determine the adequacy 
and level of due diligence services provided by a 
third party.
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† HR 4173 EAS 
‘‘(t) CORPORATE GOVERNANCE, ORGANIZATION, AND 
MANAGEMENT OF CONFLICTS OF INTEREST.— 
‘‘(1) BOARD
OF
DIRECTORS.—Each nationally 
recognized statistical rating organization shall have a 
board of directors. 
‘‘(2) INDEPENDENT DIRECTORS.— 
‘‘(A) IN GENERAL.—At least 1⁄2 of the board 
of directors, but not fewer than 2 of the members 
thereof, shall be independent of the nationally 
recognized statistical rating agency. A portion of 
the independent directors shall include users of 
ratings from a nationally recognized statistical 
rating organization. 
‘‘(B) INDEPENDENCE DETERMINATION.—In 
order to be considered independent for purposes 
of this subsection, a member of the board of di-
rectors of a nationally recognized statistical rat-
ing organization— 
‘‘(i) may not, other than in his or her 
capacity as a member of the board of direc-
tors or any committee thereof— 
‘‘(I) accept any consulting, advi-
sory, or other compensatory fee from 
the nationally recognized statistical 
rating organization; or
1023 
† HR 4173 EAS 
‘‘(II) be a person associated with 
the nationally recognized statistical 
rating organization or with any affili-
ated company thereof; and 
‘‘(ii) shall be disqualified from any de-
liberation involving a specific rating in 
which the independent board member has a 
financial interest in the outcome of the rat-
ing. 
‘‘(C) COMPENSATION AND TERM.—The com-
pensation of the independent members of the 
board of directors of a nationally recognized sta-
tistical rating organization shall not be linked to 
the business performance of the nationally recog-
nized statistical rating organization, and shall 
be arranged so as to ensure the independence of 
their judgment. The term of office of the inde-
pendent directors shall be for a pre-agreed fixed 
period, not to exceed 5 years, and shall not be re-
newable. 
‘‘(3) DUTIES OF BOARD OF DIRECTORS.—In ad-
dition to the overall responsibilities of the board of di-
rectors, the board shall oversee—
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† HR 4173 EAS 
‘‘(A) the establishment, maintenance, and 
enforcement of policies and procedures for deter-
mining credit ratings; 
‘‘(B) the establishment, maintenance, and 
enforcement of policies and procedures to ad-
dress, manage, and disclose any conflicts of in-
terest; 
‘‘(C) the effectiveness of the internal control 
system with respect to policies and procedures 
for determining credit ratings; and 
‘‘(D) the compensation and promotion poli-
cies and practices of the nationally recognized 
statistical rating organization. 
‘‘(4) TREATMENT OF NRSRO SUBSIDIARIES.—If a 
nationally recognized statistical rating organization 
is a subsidiary of a parent entity, the board of the 
directors of the parent entity may satisfy the require-
ments of this subsection by assigning to a committee 
of such board of directors the duties under paragraph 
(3), if— 
‘‘(A) at least 1⁄2 of the members of the com-
mittee (including the chairperson of the com-
mittee) are independent, as defined in this sec-
tion; and
1025 
† HR 4173 EAS 
‘‘(B) at least 1 member of the committee is 
a user of ratings from a nationally recognized 
statistical rating organization. 
‘‘(5) EXCEPTION
AUTHORITY.—If the Commis-
sion finds that compliance with the provisions of this 
subsection present an unreasonable burden on a small 
nationally recognized statistical rating organization, 
the Commission may permit the nationally recognized 
statistical rating organization to delegate such re-
sponsibilities to a committee that includes at least one 
individual who is a user of ratings of a nationally 
recognized statistical rating organization.’’. 
SEC. 933. STATE OF MIND IN PRIVATE ACTIONS. 
(a) ACCOUNTABILITY.—Section 15E(m) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78o–7(m)) is amended 
to read as follows: 
‘‘(m) ACCOUNTABILITY.— 
‘‘(1) IN GENERAL.—The enforcement and penalty 
provisions of this title shall apply to statements made 
by a credit rating agency in the same manner and 
to the same extent as such provisions apply to state-
ments made by a registered public accounting firm or 
a securities analyst under the securities laws, and 
such statements shall not be deemed forward-looking 
statements for the purposes of section 21E.
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† HR 4173 EAS 
‘‘(2) RULEMAKING.—The Commission shall issue 
such rules as may be necessary to carry out this sub-
section.’’. 
(b) STATE OF MIND.—Section 21D(b)(2) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78u–4(b)(2)) is 
amended— 
(1) by striking ‘‘In any’’ and inserting the fol-
lowing: 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), in any’’; and 
(2) by adding at the end the following: 
‘‘(B) EXCEPTION.—In the case of an action 
for money damages brought against a credit rat-
ing agency or a controlling person under this 
title, it shall be sufficient, for purposes of plead-
ing any required state of mind in relation to 
such action, that the complaint state with par-
ticularity facts giving rise to a strong inference 
that the credit rating agency knowingly or reck-
lessly failed— 
‘‘(i) to conduct a reasonable investiga-
tion of the rated security with respect to the 
factual elements relied upon by its own 
methodology for evaluating credit risk; or
1027 
† HR 4173 EAS 
‘‘(ii) to obtain reasonable verification 
of such factual elements (which verification 
may be based on a sampling technique that 
does not amount to an audit) from other 
sources that the credit rating agency consid-
ered to be competent and that were inde-
pendent of the issuer and underwriter.’’. 
SEC. 934. REFERRING TIPS TO LAW ENFORCEMENT OR REG-
ULATORY AUTHORITIES. 
Section 15E of the Securities Exchange Act of 1934 
(15 U.S.C. 78o–7), as amended by this subtitle, is amended 
by adding at the end the following: 
‘‘(u) DUTY TO REPORT TIPS ALLEGING MATERIAL 
VIOLATIONS OF LAW.— 
‘‘(1) DUTY TO REPORT.—Each nationally recog-
nized statistical rating organization shall refer to the 
appropriate law enforcement or regulatory authorities 
any information that the nationally recognized statis-
tical rating organization receives from a third party 
and finds credible that alleges that an issuer of secu-
rities rated by the nationally recognized statistical 
rating organization has committed or is committing 
a material violation of law that has not been adju-
dicated by a Federal or State court.
1028 
† HR 4173 EAS 
‘‘(2) RULE
OF
CONSTRUCTION.—Nothing in 
paragraph (1) may be construed to require a nation-
ally recognized statistical rating organization to 
verify the accuracy of the information described in 
paragraph (1).’’. 
SEC. 
935. 
CONSIDERATION 
OF 
INFORMATION 
FROM 
SOURCES OTHER THAN THE ISSUER IN RAT-
ING DECISIONS. 
Section 15E of the Securities Exchange Act of 1934 
(15 U.S.C. 78o–7), as amended by this subtitle, is amended 
by adding at the end the following: 
‘‘(v) INFORMATION FROM SOURCES OTHER THAN THE 
ISSUER.—In producing a credit rating, a nationally recog-
nized statistical rating organization shall consider informa-
tion about an issuer that the nationally recognized statis-
tical rating organization has, or receives from a source 
other than the issuer, that the nationally recognized statis-
tical rating organization finds credible and potentially sig-
nificant to a rating decision.’’. 
SEC. 936. QUALIFICATION STANDARDS FOR CREDIT RATING 
ANALYSTS. 
Not later than 1 year after the date of enactment of 
this Act, the Commission shall issue rules that are reason-
ably designed to ensure that any person employed by a na-
1029 
† HR 4173 EAS 
tionally recognized statistical rating organization to per-
form credit ratings— 
(1) meets standards of training, experience, and 
competence necessary to produce accurate ratings for 
the categories of issuers whose securities the person 
rates; and 
(2) is tested for knowledge of the credit rating 
process. 
SEC. 937. TIMING OF REGULATIONS. 
Unless otherwise specifically provided in this subtitle, 
the Commission shall issue final regulations, as required 
by this subtitle and the amendments made by this subtitle, 
not later than 1 year after the date of enactment of this 
Act. 
SEC. 938. UNIVERSAL RATINGS SYMBOLS. 
(a) RULEMAKING.—The Commission shall require, by 
rule, each nationally recognized statistical rating organiza-
tion to establish, maintain, and enforce written policies and 
procedures that— 
(1) assess the probability that an issuer of a se-
curity or money market instrument will default, fail 
to make timely payments, or otherwise not make pay-
ments to investors in accordance with the terms of the 
security or money market instrument;
1030 
† HR 4173 EAS 
(2) clearly define and disclose the meaning of 
any symbol used by the nationally recognized statis-
tical rating organization to denote a credit rating; 
and 
(3) apply any symbol described in paragraph (2) 
in a manner that is consistent for all types of securi-
ties and money market instruments for which the 
symbol is used. 
(b) RULE OF CONSTRUCTION.—Nothing in this section 
shall prohibit a nationally recognized statistical rating or-
ganization from using distinct sets of symbols to denote 
credit ratings for different types of securities or money mar-
ket instruments. 
SEC. 939. REMOVAL OF STATUTORY REFERENCES TO CRED-
IT RATINGS. 
(a) FEDERAL DEPOSIT INSURANCE ACT.—The Federal 
Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amend-
ed— 
(1) in section 7(b)(1)(E)(i), by striking ‘‘credit 
rating entities, and other private economic’’ and in-
sert ‘‘private economic, credit,’’; 
(2) in section 28(d)— 
(A) in the subsection heading, by striking 
‘‘NOT OF INVESTMENT GRADE’’;
1031 
† HR 4173 EAS 
(B) in paragraph (1), by striking ‘‘not of 
investment grade’’ and inserting ‘‘that does not 
meet standards of credit-worthiness as estab-
lished by the Corporation’’; 
(C) in paragraph (2), by striking ‘‘not of 
investment grade’’; 
(D) by striking paragraph (3); 
(E) by redesignating paragraph (4) as 
paragraph (3); and 
(F) in paragraph (3), as so redesignated— 
(i) by striking subparagraph (A); 
(ii) by redesignating subparagraphs 
(B) and (C) as subparagraphs (A) and (B), 
respectively; and 
(iii) in subparagraph (B), as so redes-
ignated, by striking ‘‘not of investment 
grade’’ and inserting ‘‘that does not meet 
standards of credit-worthiness as established 
by the Corporation’’; and 
(3) in section 28(e)— 
(A) in the subsection heading, by striking 
‘‘NOT OF INVESTMENT GRADE’’; 
(B) in paragraph (1), by striking ‘‘not of 
investment grade’’ and inserting ‘‘that does not
1032 
† HR 4173 EAS 
meet standards of credit-worthiness as estab-
lished by the Corporation’’; and 
(C) in paragraphs (2) and (3), by striking 
‘‘not of investment grade’’ each place that it ap-
pears and inserting ‘‘that does not meet stand-
ards of credit-worthiness established by the Cor-
poration’’. 
(b) FEDERAL
HOUSING
ENTERPRISES
FINANCIAL 
SAFETY AND SOUNDNESS ACT OF 1992.—Section 1319 of 
the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (12 U.S.C. 4519) is amended by 
striking ‘‘that is a nationally registered statistical rating 
organization, as such term is defined in section 3(a) of the 
Securities Exchange Act of 1934,’’. 
(c) INVESTMENT COMPANY ACT
OF 1940.—Section 
6(a)(5)(A)(iv)(I) Investment Company Act of 1940 (15 
U.S.C. 80a–6(a)(5)(A)(iv)(I)) is amended by striking ‘‘is 
rated investment grade by not less than 1 nationally reg-
istered statistical rating organization’’ and inserting 
‘‘meets such standards of credit-worthiness as the Commis-
sion shall adopt’’. 
(d) REVISED STATUTES.—Section 5136A of title LXII 
of the Revised Statutes of the United States (12 U.S.C. 24a) 
is amended—
1033 
† HR 4173 EAS 
(1) in subsection (a)(2)(E), by striking ‘‘any ap-
plicable rating’’ and inserting ‘‘standards of credit- 
worthiness established by the Comptroller of the Cur-
rency’’; 
(2) in the heading for subsection (a)(3) by strik-
ing ‘‘RATING OR COMPARABLE REQUIREMENT’’ and 
inserting ‘‘REQUIREMENT’’; 
(3) subsection (a)(3), by amending subparagraph 
(A) to read as follows: 
‘‘(A) IN GENERAL.—A national bank meets 
the requirements of this paragraph if the bank is 
one of the 100 largest insured banks and has not 
fewer than 1 issue of outstanding debt that meets 
standards of credit-worthiness or other criteria 
as the Secretary of the Treasury and the Board 
of Governors of the Federal Reserve System may 
jointly establish.’’. 
(4) in the heading for subsection (f), by striking 
‘‘MAINTAIN
PUBLIC
RATING
OR’’ and inserting 
‘‘MEET STANDARDS OF CREDIT-WORTHINESS’’; and 
(5) in subsection (f)(1), by striking ‘‘any appli-
cable rating’’ and inserting ‘‘standards of credit-wor-
thiness established by the Comptroller of the Cur-
rency’’.
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† HR 4173 EAS 
(e) SECURITIES EXCHANGE ACT OF 1934.—Section 
3(a) Securities Exchange Act of 1934 (15 U.S.C. 78a(3)(a)) 
is amended— 
(1) in paragraph (41), by striking ‘‘is rated in 
one of the two highest rating categories by at least one 
nationally registered statistical rating organization’’ 
and inserting ‘‘meets standards of credit-worthiness 
as established by the Commission’’; and 
(2) in paragraph (53)(A), by striking ‘‘is rated 
in 1 of the 4 highest rating categories by at least 1 
nationally registered statistical rating organization’’ 
and inserting ‘‘meets standards of credit-worthiness 
as established by the Commission’’. 
(f) WORLD BANK DISCUSSIONS.—Section 3(a)(6) of 
the amendment in the nature of a substitute to the text of 
H.R. 4645, as ordered reported from the Committee on 
Banking, Finance and Urban Affairs on September 22, 
1988, as enacted into law by section 555 of Public Law 
100–461, (22 U.S.C. 286hh(a)(6)), is amended by striking 
‘‘credit rating’’ and inserting ‘‘credit-worthiness’’. 
(g) EFFECTIVE DATE.—The amendments made by this 
section shall take effect 2 years after the date of enactment 
of this Act. 
(1) IN GENERAL.—Commission shall undertake a 
study on the feasability and desirability of—
1035 
† HR 4173 EAS 
(A) standardizing credit ratings termi-
nology, so that all credit rating agencies issue 
credit ratings using identical terms; 
(B) standardizing the market stress condi-
tions under which ratings are evaluated; 
(C) requiring a quantitative correspondence 
between credit ratings and a range of default 
probabilities and loss expectations under stand-
ardized conditions of economic stress; and 
(D) standardizing credit rating terminology 
across asset classes, so that named ratings cor-
respond to a standard range of default prob-
abilities and expected losses independent of asset 
class and issuing entity. 
(2) REPORT.—Not later than 1 year after the 
date of enactment of this Act, the Commission shall 
submit to Congress a report containing the findings 
of the study under paragraph (1) and the rec-
ommendations, if any, of the Commission with respect 
to the study. 
SEC. 939A. SECURITIES AND EXCHANGE COMMISSION 
STUDY ON STRENGTHENING CREDIT RATING 
AGENCY INDEPENDENCE. 
(a) STUDY.—The Commission shall conduct a study 
of—
1036 
† HR 4173 EAS 
(1) the independence of nationally recognized 
statistical rating organizations; and 
(2) how the independence of nationally recog-
nized statistical rating organizations affects the rat-
ings issued by the nationally recognized statistical 
rating organizations. 
(b) SUBJECTS FOR EVALUATION.—In conducting the 
study under subsection (a), the Commission shall evalu-
ate— 
(1) the management of conflicts of interest raised 
by a nationally recognized statistical rating organiza-
tion providing other services, including risk manage-
ment advisory services, ancillary assistance, or con-
sulting services; 
(2) the potential impact of rules prohibiting a 
nationally recognized statistical rating organization 
that provides a rating to an issuer from providing 
other services to the issuer; and 
(3) any other issue relating to nationally recog-
nized statistical rating organizations, as the Chair-
man of the Commission determines is appropriate. 
(c) REPORT.—Not later than 3 years after the date of 
enactment of this Act, the Chairman of the Commission 
shall submit to the Committee on Banking, Housing, and 
Urban Affairs of the Senate and the Committee on Finan-
1037 
† HR 4173 EAS 
cial Services of the House of Representatives a report on 
the results of the study conducted under subsection (a), in-
cluding recommendations, if any, for improving the integ-
rity of ratings issued by nationally recognized statistical 
rating organizations. 
SEC. 939B. GOVERNMENT ACCOUNTABILITY OFFICE STUDY 
ON ALTERNATIVE BUSINESS MODELS. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study on alternative means for com-
pensating nationally recognized statistical rating organiza-
tions in order to create incentives for nationally recognized 
statistical rating organizations to provide more accurate 
credit ratings, including any statutory changes that would 
be required to facilitate the use of an alternative means of 
compensation. 
(b) REPORT.—Not later than 1 year after the date of 
enactment of this Act, the Comptroller General shall submit 
to the Committee on Banking, Housing, and Urban Affairs 
of the Senate and the Committee on Financial Services of 
the House of Representatives a report on the results of the 
study conducted under subsection (a), including rec-
ommendations, if any, for providing incentives to credit 
rating agencies to improve the credit rating process.
1038 
† HR 4173 EAS 
SEC. 939C. GOVERNMENT ACCOUNTABILITY OFFICE STUDY 
ON THE CREATION OF AN INDEPENDENT 
PROFESSIONAL ANALYST ORGANIZATION. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study on the feasibility and merits 
of creating an independent professional organization for 
rating analysts employed by nationally recognized statis-
tical rating organizations that would be responsible for— 
(1) establishing independent standards for gov-
erning the profession of rating analysts; 
(2) establishing a code of ethical conduct; and 
(3) overseeing the profession of rating analysts. 
(b) REPORT.—Not later than 1 year after the date of 
enactment of this Act, the Comptroller General shall submit 
to the Committee on Banking, Housing, and Urban Affairs 
of the Senate and the Committee on Financial Services of 
the House of Representatives a report on the results of the 
study conducted under subsection (a). 
SEC. 939D. INITIAL CREDIT RATING ASSIGNMENTS. 
Section 15E of the Securities Exchange Act of 1934 
(15 U.S.C. 78o–7), as amended by this Act, is amended by 
adding at the end the following: 
‘‘(w) INITIAL CREDIT RATING ASSIGNMENTS.— 
‘‘(1) DEFINITIONS.—In this subsection the fol-
lowing definitions shall apply:
1039 
† HR 4173 EAS 
‘‘(A) BOARD.—The term ‘Board’ means the 
Credit Rating Agency Board established under 
paragraph (2). 
‘‘(B) QUALIFIED NATIONALLY RECOGNIZED 
STATISTICAL RATING ORGANIZATION.—The term 
‘qualified nationally recognized statistical rating 
organization’, with respect to a category of struc-
tured finance products, means a nationally rec-
ognized statistical rating organization that the 
Board determines, under paragraph (3)(B), to be 
qualified to issue initial credit ratings with re-
spect to such category. 
‘‘(C) REGULATIONS.— 
‘‘(i) CATEGORY
OF
STRUCTURED
FI-
NANCE PRODUCTS.— 
‘‘(I) IN GENERAL.—The term ‘cat-
egory of structured finance products’— 
‘‘(aa) shall include any asset 
backed security and any struc-
tured product based on an asset- 
backed security; and 
‘‘(bb) shall be further defined 
and expanded by the Commission, 
by rule, as necessary.
1040 
† HR 4173 EAS 
‘‘(II) 
CONSIDERATIONS.—In 
issuing the regulations required under 
subclause (I), the Commission shall 
consider— 
‘‘(aa) the types of issuers 
that issue structured finance prod-
ucts; 
‘‘(bb) the types of investors 
who purchase structured finance 
products; 
‘‘(cc) the different categories 
of structured finance products ac-
cording to— 
‘‘(AA) the types of cap-
ital flow and legal structure 
used; 
‘‘(BB) the types of un-
derlying products used; and 
‘‘(CC) the types of terms 
used in debt securities; 
‘‘(dd) the different values of 
debt securities; and 
‘‘(ee) the different numbers of 
units of debt securities that are 
issued together.
1041 
† HR 4173 EAS 
‘‘(ii) REASONABLE
FEE.—The Board 
shall issue regulations to define the term 
‘reasonable fee’. 
‘‘(2) CREDIT RATING AGENCY BOARD.— 
‘‘(A) IN
GENERAL.—Not later than 180 
days after the date of enactment of the Restoring 
American Financial Stability Act of 2010, the 
Commission shall— 
‘‘(i) establish the Credit Rating Agency 
Board, which shall be a self-regulatory orga-
nization; 
‘‘(ii) subject to subparagraph (C), se-
lect the initial members of the Board; and 
‘‘(iii) establish a schedule to ensure 
that the Board begins assigning qualified 
nationally recognized statistical rating or-
ganizations to provide initial ratings not 
later than 1 year after the selection of the 
members of the Board. 
‘‘(B) SCHEDULE.—The schedule established 
under subparagraph (A)(iii) shall prescribe 
when— 
‘‘(i) the Board will conduct a study of 
the securitization and ratings process and
1042 
† HR 4173 EAS 
provide recommendations to the Commis-
sion; 
‘‘(ii) the Commission will issue rules 
and regulations under this section; 
‘‘(iii) the Board may issue rules under 
this subsection; and 
‘‘(iv) the Board will— 
‘‘(I) begin accepting applications 
to select qualified national recognized 
statistical rating organizations; and 
‘‘(II) begin assigning qualified 
national recognized statistical rating 
organizations to provide initial rat-
ings. 
‘‘(C) MEMBERSHIP.— 
‘‘(i) IN
GENERAL.—The Board shall 
initially be composed of an odd number of 
members selected from the industry, with 
the total numerical membership of the 
Board to be determined by the Commission. 
‘‘(ii) SPECIFICATIONS.—Of the mem-
bers initially selected to serve on the 
Board— 
‘‘(I) not less than a majority of 
the members shall be representatives of
1043 
† HR 4173 EAS 
the investor industry who do not rep-
resent issuers; 
‘‘(II) not less than 1 member 
should be a representative of the issuer 
industry; 
‘‘(III) not less than 1 member 
should be a representative of the credit 
rating agency industry; and 
‘‘(IV) not less than 1 member 
should be an independent member. 
‘‘(iii) TERMS.—Initial members shall 
be appointed by the Commission for a term 
of 4 years. 
‘‘(iv) NOMINATION AND ELECTION OF 
MEMBERS.— 
‘‘(I) IN GENERAL.—Prior to the 
expiration of the terms of office of the 
initial members, the Commission shall 
establish fair procedures for the nomi-
nation and election of future members 
of the Board. 
‘‘(II) MODIFICATIONS
OF
THE 
BOARD.—Prior to the expiration of the 
terms of office of the initial members, 
the Commission—
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† HR 4173 EAS 
‘‘(aa) may increase the size 
of the board to a larger odd num-
ber and adjust the length of future 
terms; and 
‘‘(bb) shall retain the com-
position of members described in 
clause (ii). 
‘‘(v) 
RESPONSIBILITIES
OF
MEM-
BERS.—Members shall perform, at a min-
imum, the duties described in this sub-
section. 
‘‘(vi) RULEMAKING
AUTHORITY.—The 
Commission shall, if it determines necessary 
and appropriate, issue further rules and 
regulations on the composition of the mem-
bership of the Board and the responsibilities 
of the members. 
‘‘(D) 
OTHER
AUTHORITIES
OF
THE 
BOARD.—The Board shall have the authority to 
levy fees from qualified nationally recognized 
statistical rating organization applicants, and 
periodically from qualified nationally recognized 
statistical rating organizations as necessary to 
fund expenses of the Board.
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† HR 4173 EAS 
‘‘(E) REGULATION.—The Commission has 
the authority to regulate the activities of the 
Board, and issue any further regulations of the 
Board it deems necessary, not in contravention 
with the intent of this section. 
‘‘(3) BOARD SELECTION OF QUALIFIED NATION-
ALLY
RECOGNIZED
STATISTICAL
RATING
ORGANIZA-
TION.— 
‘‘(A) APPLICATION.— 
‘‘(i) IN GENERAL.—A nationally recog-
nized statistical rating organization may 
submit an application to the Board, in such 
form and manner as the Board may re-
quire, to become a qualified nationally rec-
ognized statistical rating organization with 
respect to a category of structured finance 
products. 
‘‘(ii) CONTENTS.—An application sub-
mitted under clause (i) shall contain— 
‘‘(I) information regarding the in-
stitutional and technical capacity of 
the nationally recognized statistical 
rating organization to issue credit rat-
ings;
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† HR 4173 EAS 
‘‘(II) information on whether the 
nationally recognized statistical rating 
organization has been exempted by the 
Commission from any requirements 
under any other provision of this sec-
tion; and 
‘‘(III) any additional information 
the Board may require. 
‘‘(iii) REJECTION OF APPLICATIONS.— 
The Board may reject an application sub-
mitted under this paragraph if the nation-
ally recognized statistical rating organiza-
tion has been exempted by the Commission 
from any requirements under any other 
provision of this section. 
‘‘(B) SELECTION.—The Board shall select 
qualified national recognized statistical rating 
organizations with respect to each category of 
structured finance products from among nation-
ally recognized statistical rating organizations 
that submit applications under subparagraph 
(A). 
‘‘(C) RETENTION OF STATUS AND OBLIGA-
TIONS AFTER SELECTION.—An entity selected as 
a qualified nationally recognized statistical rat-
1047 
† HR 4173 EAS 
ing organization shall retain its status and obli-
gations under the law as a nationally recognized 
statistical rating organization, and nothing in 
this subsection grants authority to the Commis-
sion or the Board to exempt qualified nationally 
recognized statistical rating organizations from 
obligations or requirements otherwise imposed by 
Federal law on nationally recognized statistical 
rating organizations. 
‘‘(4) REQUESTING AN INITIAL CREDIT RATING.— 
An issuer that seeks an initial credit rating for a 
structured finance product— 
‘‘(A) may not request an initial credit rat-
ing from a nationally recognized statistical rat-
ing organization; and 
‘‘(B) shall submit a request for an initial 
credit rating to the Board, in such form and 
manner as the Board may prescribe. 
‘‘(5) ASSIGNMENT OF RATING DUTIES.— 
‘‘(A) IN
GENERAL.—For each request re-
ceived by the Board under paragraph (4)(B), the 
Board shall select a qualified nationally recog-
nized statistical rating organization to provide 
the initial credit rating to the issuer. 
‘‘(B) METHOD OF SELECTION.—
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† HR 4173 EAS 
‘‘(i) IN GENERAL.—The Board shall— 
‘‘(I) evaluate a number of selec-
tion methods, including a lottery or ro-
tating 
assignment 
system, 
incor-
porating the factors described in clause 
(ii), to reduce the conflicts of interest 
that exist under the issuer-pays model; 
and 
‘‘(II) prescribe and publish the se-
lection method to be used under sub-
paragraph (A). 
‘‘(ii) CONSIDERATION.—In evaluating 
a selection method described in clause (i)(I), 
the Board shall consider— 
‘‘(I) the information submitted by 
the qualified nationally recognized sta-
tistical 
rating 
organization 
under 
paragraph (3)(A)(ii) regarding the in-
stitutional and technical capacity of 
the qualified nationally recognized sta-
tistical rating organization to issue 
credit ratings; 
‘‘(II) evaluations conducted under 
paragraph (7);
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† HR 4173 EAS 
‘‘(III) formal feedback from insti-
tutional investors; and 
‘‘(IV) information from subclauses 
(I) and (II) to implement a mecha-
nism which increases or decreases as-
signments based on past performance. 
‘‘(iii) PROHIBITION.—The Board, in 
choosing a selection method, may not use a 
method that would allow for the solicitation 
or consideration of the preferred national 
recognized statistical rating organizations 
of the issuer. 
‘‘(iv) ADJUSTMENT OF PROCESS.—The 
Board shall issue rules describing the proc-
ess by which it can modify the assignment 
process described in clause (i). 
‘‘(C) RIGHT OF REFUSAL.— 
‘‘(i) REFUSAL.—A qualified nationally 
recognized statistical rating organization 
selected under subparagraph (A) may refuse 
to accept a selection for a particular request 
by— 
‘‘(I) notifying the Board of such 
refusal; and
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† HR 4173 EAS 
‘‘(II) submitting to the Board a 
written explanation of the refusal. 
‘‘(ii) SELECTION.—Upon receipt of a 
notification under clause (i), the Board 
shall make an additional selection under 
subparagraph (A). 
‘‘(iii) 
INSPECTION
REPORTS.—The 
Board shall annually submit any expla-
nations of refusals received under clause 
(i)(II) to the Commission, and such explan-
atory submissions shall be published in the 
annual inspection reports required under 
subsection (p)(3)(C). 
‘‘(6) 
DISCLAIMER
REQUIRED.—Each 
initial 
credit rating issued under this subsection shall in-
clude, in writing, the following disclaimer: ‘This ini-
tial rating has not been evaluated, approved, or cer-
tified by the Government of the United States or by 
a Federal agency.’. 
‘‘(7) EVALUATION OF PERFORMANCE.— 
‘‘(A) IN GENERAL.—The Board shall pre-
scribe rules by which the Board will evaluate the 
performance of each qualified nationally recog-
nized statistical rating organization, including 
rules that require, at a minimum, an annual
1051 
† HR 4173 EAS 
evaluation of each qualified nationally recog-
nized statistical rating organization. 
‘‘(B) CONSIDERATIONS.—The Board, in 
conducting an evaluation under subparagraph 
(A), shall consider— 
‘‘(i) the results of the annual examina-
tion conducted under subsection (p)(3); 
‘‘(ii) surveillance of credit ratings con-
ducted by the qualified nationally recog-
nized statistical rating organization after 
the credit ratings are issued, including— 
‘‘(I) how the rated instruments 
perform; 
‘‘(II) the accuracy of the ratings 
provided by the qualified nationally 
recognized statistical rating organiza-
tion as compared to the other nation-
ally recognized statistical rating orga-
nizations; and 
‘‘(III) the effectiveness of the 
methodologies used by the qualified na-
tionally recognized statistical rating 
organization; and 
‘‘(iii) any additional factors the Board 
determines to be relevant.
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† HR 4173 EAS 
‘‘(C) REQUEST FOR REEVALUATION.—Sub-
ject to rules prescribed by the Board, and not less 
frequently than once a year, a qualified nation-
ally recognized statistical rating organization 
may request that the Board conduct an evalua-
tion under this paragraph. 
‘‘(D) DISCLOSURE.—The Board shall make 
the evaluations conducted under this paragraph 
available to Congress. 
‘‘(8) RATING FEES CHARGED TO ISSUERS.— 
‘‘(A) LIMITED
TO
REASONABLE
FEES.—A 
qualified nationally recognized statistical rating 
organization shall charge an issuer a reasonable 
fee, as determined by the Commission, for an 
initial credit rating provided under this section. 
‘‘(B) FEES.—Fees may be determined by 
the qualified national recognized statistical rat-
ing organizations unless the Board determines it 
is necessary to issue rules on fees. 
‘‘(9) NO
PROHIBITION
ON
ADDITIONAL
RAT-
INGS.—Nothing in this section shall prohibit an 
issuer from requesting or receiving additional credit 
ratings with respect to a debt security, if the initial 
credit rating is provided in accordance with this sec-
tion.
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† HR 4173 EAS 
‘‘(10) NO PROHIBITION ON INDEPENDENT RAT-
INGS OFFERED BY NATIONALLY RECOGNIZED STATIS-
TICAL RATING ORGANIZATIONS.— 
‘‘(A) IN GENERAL.—Nothing in this section 
shall prohibit a nationally recognized statistical 
rating organization from independently pro-
viding a credit rating with respect to a debt se-
curity, if— 
‘‘(i) the nationally recognized statis-
tical rating organization does not enter into 
a contract with the issuer of the debt secu-
rity to provide the initial credit rating; and 
‘‘(ii) the nationally recognized statis-
tical rating organization is not paid by the 
issuer of the debt security to provide the ini-
tial credit rating. 
‘‘(B) RULE OF CONSTRUCTION.—For pur-
poses of this section, a credit rating described in 
subparagraph (A) may not be construed to be an 
initial credit rating. 
‘‘(11) PUBLIC COMMUNICATIONS.—Any commu-
nications made with the public by an issuer with re-
spect to the credit rating of a debt security shall 
clearly specify whether the credit rating was made 
by—
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† HR 4173 EAS 
‘‘(A) a qualified nationally recognized sta-
tistical rating organization selected under para-
graph (5)(A) to provide the initial credit rating 
for such debt security; or 
‘‘(B) a nationally recognized statistical rat-
ing organization not selected under paragraph 
(5)(A). 
‘‘(12) PROHIBITION ON MISREPRESENTATION.— 
With respect to a debt security, it shall be unlawful 
for any person to misrepresent any subsequent credit 
rating provided for such debt security as an initial 
credit rating provided for such debt security by a 
qualified nationally recognized statistical rating orga-
nization selected under paragraph (5)(A). 
‘‘(13) INITIAL CREDIT RATING REVISION AFTER 
MATERIAL CHANGE IN CIRCUMSTANCE.—If the Board 
determines that it is necessary or appropriate in the 
public interest or for the protection of investors, the 
Board may issue regulations requiring that an issuer 
that has received an initial credit rating under this 
subsection request a revised initial credit rating, 
using the same method as provided under paragraph 
(4), each time the issuer experiences a material 
change in circumstances, as defined by the Board. 
‘‘(14) CONFLICTS.—
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† HR 4173 EAS 
‘‘(A) MEMBERS
OR
EMPLOYEES
OF
THE 
BOARD.— 
‘‘(i) LOAN OF MONEY OR SECURITIES 
PROHIBITED.— 
‘‘(I) IN GENERAL.—A member or 
employee of the Board shall not accept 
any loan of money or securities, or 
anything above nominal value, from 
any nationally recognized statistical 
rating organization, issuer, or investor. 
‘‘(II) EXCEPTION.—The prohibi-
tion in subclause (I) does not apply to 
a loan made in the context of disclosed, 
routine banking and brokerage agree-
ments, or a loan that is clearly moti-
vated by a personal or family relation-
ship. 
‘‘(ii) 
EMPLOYMENT
NEGOTIATIONS 
PROHIBITION.—A member or employee of 
the Board shall not engage in employment 
negotiations with any nationally recognized 
statistical rating organization, issuer, or in-
vestor, unless the member or employee—
1056 
† HR 4173 EAS 
‘‘(I) discloses the negotiations im-
mediately upon initiation of the nego-
tiations; and 
‘‘(II) recuses himself from all pro-
ceedings concerning the entity involved 
in the negotiations until termination 
of negotiations or until termination of 
his employment by the Board, if an 
offer of employment is accepted. 
‘‘(B) CREDIT ANALYSTS.— 
‘‘(i) IN GENERAL.—A credit analyst of 
a qualified nationally recognized statistical 
rating organization shall not accept any 
loan of money or securities, or anything 
above nominal value, from any issuer or in-
vestor. 
‘‘(ii) EXCEPTION.—The prohibition de-
scribed in clause (i) does not apply to a 
loan made in the context of disclosed, rou-
tine banking and brokerage agreements, or 
a loan that is clearly motivated by a per-
sonal or family relationship. 
‘‘(15) EVALUATION OF CREDIT RATING AGENCY 
BOARD.—Not later than 5 years after the date that 
the Board begins assigning qualified nationally recog-
1057 
† HR 4173 EAS 
nized statistical rating organizations to provide ini-
tial ratings, the Commission shall submit to Congress 
a report that provides recommendations of— 
‘‘(A) the continuation of the Board; 
‘‘(B) any modification to the procedures of 
the Board; and 
‘‘(C) modifications to the provisions in this 
subsection.’’. 
Subtitle D—Improvements to the 
Asset-Backed Securitization Process 
SEC. 941. REGULATION OF CREDIT RISK RETENTION. 
(a) DEFINITION OF ASSET-BACKED SECURITY.—Sec-
tion 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)) is amended by adding at the end the following: 
‘‘(77) 
ASSET-BACKED
SECURITY.—The 
term 
‘asset-backed security’— 
‘‘(A) means a fixed-income or other security 
collateralized by any type of self-liquidating fi-
nancial asset (including a loan, a lease, a mort-
gage, or a secured or unsecured receivable) that 
allows the holder of the security to receive pay-
ments that depend primarily on cash flow from 
the asset, including— 
‘‘(i) a collateralized mortgage obliga-
tion;
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† HR 4173 EAS 
‘‘(ii) a collateralized debt obligation; 
‘‘(iii) a collateralized bond obligation; 
‘‘(iv) a collateralized debt obligation of 
asset-backed securities; 
‘‘(v) a collateralized debt obligation of 
collateralized debt obligations; and 
‘‘(vi) a security that the Commission, 
by rule, determines to be an asset-backed se-
curity for purposes of this section; and 
‘‘(B) does not include a security issued by 
a finance subsidiary held by the parent company 
or a company controlled by the parent company, 
if none of the securities issued by the finance 
subsidiary are held by an entity that is not con-
trolled by the parent company.’’. 
(b) CREDIT RISK RETENTION.—The Securities Ex-
change Act of 1934 (15 U.S.C. 78a et seq.) is amended by 
inserting after section 15F, as added by this Act, the fol-
lowing: 
‘‘SEC. 15G. CREDIT RISK RETENTION. 
‘‘(a) DEFINITIONS.—In this section— 
‘‘(1) the term ‘Federal banking agencies’ means 
the Office of the Comptroller of the Currency, the 
Board of Governors of the Federal Reserve System, 
and the Federal Deposit Insurance Corporation;
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† HR 4173 EAS 
‘‘(2) the term ‘insured depository institution’ has 
the same meaning as in section 3(c) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(c)); 
‘‘(3) the term ‘securitizer’ means— 
‘‘(A) an issuer of an asset-backed security; 
or 
‘‘(B) a person who organizes and initiates 
an asset-backed securities transaction by selling 
or transferring assets, either directly or indi-
rectly, including through an affiliate, to the 
issuer; and 
‘‘(4) the term ‘originator’ means a person who— 
‘‘(A) through the extension of credit or oth-
erwise, 
creates 
a 
financial 
asset 
that 
collateralizes an asset-backed security; and 
‘‘(B) sells an asset to a securitizer. 
‘‘(b) IN GENERAL.—Not later than 270 days after the 
date of enactment of this section, the Federal banking agen-
cies and the Commission shall jointly prescribe regulations 
to require any securitizer to retain an economic interest in 
a portion of the credit risk for any asset that the securitizer, 
through the issuance of an asset-backed security, transfers, 
sells, or conveys to a third party. 
‘‘(c) STANDARDS FOR REGULATIONS.—
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† HR 4173 EAS 
‘‘(1) STANDARDS.—The regulations prescribed 
under subsection (b) shall— 
‘‘(A) prohibit a securitizer from directly or 
indirectly hedging or otherwise transferring the 
credit risk that the securitizer is required to re-
tain with respect to an asset; 
‘‘(B) require a securitizer to retain— 
‘‘(i) not less than 5 percent of the cred-
it risk for any asset— 
‘‘(I) that is not a qualified resi-
dential mortgage that is transferred, 
sold, or conveyed through the issuance 
of an asset-backed security by the 
securitizer; or 
‘‘(II) that is a qualified residen-
tial mortgage that is transferred, sold, 
or conveyed through the issuance of an 
asset-backed security by the securitizer, 
if 1 or more of the assets that 
collateralize the asset-backed security 
are not qualified residential mortgages; 
or 
‘‘(ii) less than 5 percent of the credit 
risk for an asset that is not a qualified resi-
dential mortgage that is transferred, sold, or
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† HR 4173 EAS 
conveyed through the issuance of an asset- 
backed security by the securitizer, if the 
originator of the asset meets the under-
writing standards prescribed under para-
graph (2)(B); 
‘‘(C) specify— 
‘‘(i) the permissible forms of risk reten-
tion for purposes of this section; 
‘‘(ii) the minimum duration of the risk 
retention required under this section; and 
‘‘(iii) that a securitizer is not required 
to retain any part of the credit risk for an 
asset that is transferred, sold or conveyed 
through the issuance of an asset-backed se-
curity by the securitizer, if all of the assets 
that collateralize the asset-backed security 
are qualified residential mortgages; 
‘‘(D) apply, regardless of whether the 
securitizer is an insured depository institution; 
and 
‘‘(E) with respect to a commercial mort-
gage, specify the permissible types, forms, and 
amounts of risk retention that would meet the re-
quirements of subparagraph (B), such as—
1062 
† HR 4173 EAS 
‘‘(i) retention of a specified amount or 
percentage of the total credit risk of the 
asset; 
‘‘(ii) retention of the first-loss position 
by a third-party purchaser that specifically 
negotiates for the purchase of such first-loss 
position and provides due diligence on all 
individual assets in the pool before the 
issuance of the asset-backed securities; 
‘‘(iii) a determination by a Federal 
banking agency or the Commission that the 
underwriting standards and controls for the 
asset are adequate; and 
‘‘(iv) provision of adequate representa-
tions and warranties and related enforce-
ment mechanisms; and 
‘‘(F) provide for— 
‘‘(i) a total or partial exemption of 
any securitization, as may be appropriate 
in the public interest and for the protection 
of investors; and 
‘‘(ii) the allocation of risk retention ob-
ligations between a securitizer and an origi-
nator in the case of a securitizer that pur-
chases assets from an originator, as the Fed-
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† HR 4173 EAS 
eral banking agencies and the Commission 
jointly determine appropriate. 
‘‘(2) ASSET CLASSES.— 
‘‘(A) ASSET CLASSES.—The regulations pre-
scribed under subsection (b) shall establish asset 
classes with separate rules for securitizers of dif-
ferent classes of assets, including residential 
mortgages, commercial mortgages, commercial 
loans, auto loans, and any other class of assets 
that the Federal banking agencies and the Com-
mission deem appropriate. 
‘‘(B) CONTENTS.—For each asset class es-
tablished under subparagraph (A), the regula-
tions prescribed under subsection (b) shall estab-
lish underwriting standards that specify the 
terms, conditions, and characteristics of a loan 
within the asset class that indicate a reduced 
credit risk with respect to the loan. 
‘‘(d) ORIGINATORS.—In determining how to allocate 
risk retention obligations between a securitizer and an 
originator under subsection (c)(1)(E)(ii), the Federal bank-
ing agencies and the Commission shall— 
‘‘(1) reduce the percentage of risk retention obli-
gations required of the securitizer by the percentage of
1064 
† HR 4173 EAS 
risk retention obligations required of the originator; 
and 
‘‘(2) consider— 
‘‘(A) 
whether 
the 
assets 
sold 
to 
the 
securitizer have terms, conditions, and character-
istics that reflect reduced credit risk; 
‘‘(B) whether the form or volume of trans-
actions in securitization markets creates incen-
tives for imprudent origination of the type of 
loan or asset to be sold to the securitizer; and 
‘‘(C) the potential impact of the risk reten-
tion obligations on the access of consumers and 
businesses to credit on reasonable terms, which 
may not include the transfer of credit risk to a 
third party. 
‘‘(e) 
EXEMPTIONS, 
EXCEPTIONS, 
AND
ADJUST-
MENTS.— 
‘‘(1) IN GENERAL.—The Federal banking agen-
cies and the Commission may jointly adopt or issue 
exemptions, exceptions, or adjustments to the rules 
issued under this section, including exemptions, ex-
ceptions, or adjustments for classes of institutions or 
assets relating to the risk retention requirement and 
the prohibition on hedging under subsection (c)(1).
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† HR 4173 EAS 
‘‘(2) APPLICABLE STANDARDS.—Any exemption, 
exception, or adjustment adopted or issued by the 
Federal banking agencies and the Commission under 
this paragraph shall— 
‘‘(A) help ensure high quality underwriting 
standards for the securitizers and originators of 
assets that are securitized or available for 
securitization; and 
‘‘(B) encourage appropriate risk manage-
ment practices by the securitizers and origina-
tors of assets, improve the access of consumers 
and businesses to credit on reasonable terms, or 
otherwise be in the public interest and for the 
protection of investors. 
‘‘(3) FARM
CREDIT
SYSTEM
INSTITUTIONS.—A 
Farm Credit System institution, including the Fed-
eral Agricultural Mortgage Corporation, that is char-
tered and subject to the provisions of the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2001 et seq.), 
shall be exempt from the risk retention provisions of 
this subsection. 
‘‘(4) EXEMPTION FOR QUALIFIED RESIDENTIAL 
MORTGAGES.— 
‘‘(A) IN
GENERAL.—The Federal banking 
agencies, the Commission, the Secretary of Hous-
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† HR 4173 EAS 
ing and Urban Development, and the Director of 
the Federal Housing Finance Agency shall joint-
ly issue regulations to exempt qualified residen-
tial mortgages from the risk retention require-
ments of this subsection. 
‘‘(B) 
QUALIFIED
RESIDENTIAL
MORT-
GAGE.—The Federal banking agencies, the Com-
mission, the Secretary of Housing and Urban 
Development, and the Director of the Federal 
Housing Finance Agency shall jointly define the 
term ‘qualified residential mortgage’ for purposes 
of this subsection, taking into consideration un-
derwriting and product features that historical 
loan performance data indicate result in a lower 
risk of default, such as— 
‘‘(i) documentation and verification of 
the financial resources relied upon to qual-
ify the mortgagor; 
‘‘(ii) standards with respect to— 
‘‘(I) the residual income of the 
mortgagor after all monthly obliga-
tions; 
‘‘(II) the ratio of the housing pay-
ments of the mortgagor to the monthly 
income of the mortgagor;
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† HR 4173 EAS 
‘‘(III) the ratio of total monthly 
installment payments of the mortgagor 
to the income of the mortgagor; 
‘‘(iii) mitigating the potential for pay-
ment shock on adjustable rate mortgages 
through product features and underwriting 
standards; 
‘‘(iv) mortgage guarantee insurance ob-
tained at the time of origination for loans 
with combined loan-to-value ratios of great-
er than 80 percent; and 
‘‘(v) prohibiting or restricting the use 
of balloon payments, negative amortization, 
prepayment penalties, interest-only pay-
ments, and other features that have been 
demonstrated to exhibit a higher risk of bor-
rower default. 
‘‘(5) CONDITION
FOR
QUALIFIED
RESIDENTIAL 
MORTGAGE
EXEMPTION.—The 
regulations 
issued 
under paragraph (4) shall provide that an asset- 
backed security that is collateralized by tranches of 
other asset-backed securities shall not be exempt from 
the risk retention requirements of this subsection. 
‘‘(6) CERTIFICATION.—The Commission shall re-
quire an issuer to certify, for each issuance of an
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† HR 4173 EAS 
asset-backed security collateralized exclusively by 
qualified residential mortgages, that the issuer has 
evaluated the effectiveness of the internal supervisory 
controls of the issuer with respect to the process for 
ensuring that all assets that collateralize the asset- 
backed security are qualified residential mortgages. 
‘‘(f) ENFORCEMENT.—The regulations issued under 
this section shall be enforced by— 
‘‘(1) the appropriate Federal banking agency, 
with respect to any securitizer that is an insured de-
pository institution; and 
‘‘(2) the Commission, with respect to any 
securitizer that is not an insured depository institu-
tion. 
‘‘(g) AUTHORITY OF COMMISSION.—The authority of 
the Commission under this section shall be in addition to 
the authority of the Commission to otherwise enforce the 
securities laws. 
‘‘(h) EFFECTIVE DATE OF REGULATIONS.—The regu-
lations issued under this section shall become effective— 
‘‘(1) with respect to securitizers and originators 
of asset-backed securities backed by residential mort-
gages, 1 year after the date on which final rules under 
this section are published in the Federal Register; and
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† HR 4173 EAS 
‘‘(2) with respect to securitizers and originators 
of all other classes of asset-backed securities, 2 years 
after the date on which final rules under this section 
are published in the Federal Register.’’. 
SEC. 942. DISCLOSURES AND REPORTING FOR ASSET- 
BACKED SECURITIES. 
(a) SECURITIES EXCHANGE ACT OF 1934.—Section 
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(d)) is amended— 
(1) by striking ‘‘(d) Each’’ and inserting the fol-
lowing: 
‘‘(d) SUPPLEMENTARY
AND
PERIODIC
INFORMA-
TION.— 
‘‘(1) IN GENERAL.—Each’’; 
(2) in the third sentence, by inserting after ‘‘se-
curities of each class’’ the following: ‘‘, other than any 
class of asset-backed securities,’’; and 
(3) by adding at the end the following: 
‘‘(2) ASSET-BACKED SECURITIES.— 
‘‘(A) SUSPENSION OF DUTY TO FILE.—The 
Commission may, by rule or regulation, provide 
for the suspension or termination of the duty to 
file under this subsection for any class of asset- 
backed security, on such terms and conditions 
and for such period or periods as the Commis-
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sion deems necessary or appropriate in the pub-
lic interest or for the protection of investors. 
‘‘(B) CLASSIFICATION
OF
ISSUERS.—The 
Commission may, for purposes of this subsection, 
classify issuers and prescribe requirements ap-
propriate for each class of issuers of asset-backed 
securities.’’. 
(b) SECURITIES ACT OF 1933.—Section 7 of the Secu-
rities Act of 1933 (15 U.S.C. 77g) is amended by adding 
at the end the following: 
‘‘(c) DISCLOSURE REQUIREMENTS.— 
‘‘(1) IN GENERAL.—The Commission shall adopt 
regulations under this subsection requiring each 
issuer of an asset-backed security to disclose, for each 
tranche or class of security, information regarding the 
assets backing that security. 
‘‘(2) CONTENT OF REGULATIONS.—In adopting 
regulations under this subsection, the Commission 
shall— 
‘‘(A) set standards for the format of the 
data provided by issuers of an asset-backed secu-
rity, which shall, to the extent feasible, facilitate 
comparison of such data across securities in 
similar types of asset classes; and
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‘‘(B) require issuers of asset-backed securi-
ties, at a minimum, to disclose asset-level or 
loan-level data necessary for investors to inde-
pendently perform due diligence, including— 
‘‘(i) data having unique identifiers re-
lating to loan brokers or originators; 
‘‘(ii) the nature and extent of the com-
pensation of the broker or originator of the 
assets backing the security; and 
‘‘(iii) the amount of risk retention by 
the originator and the securitizer of such as-
sets.’’. 
SEC. 943. REPRESENTATIONS AND WARRANTIES IN ASSET- 
BACKED OFFERINGS. 
Not later than 180 days after the date of enactment 
of this Act, the Securities and Exchange Commission shall 
prescribe regulations on the use of representations and war-
ranties in the market for asset-backed securities (as that 
term is defined in section 3(a)(77) of the Securities Ex-
change Act of 1934, as added by this subtitle) that— 
(1) require each national recognized statistical 
rating organization to include in any report accom-
panying a credit rating a description of— 
(A) the representations, warranties, and en-
forcement mechanisms available to investors; and
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(B) how they differ from the representa-
tions, warranties, and enforcement mechanisms 
in issuances of similar securities; and 
(2) require any securitizer (as that term is de-
fined in section 15G(a) of the Securities Exchange 
Act of 1934, as added by this subtitle) to disclose ful-
filled and unfulfilled repurchase requests across all 
trusts aggregated by the securitizer, so that investors 
may identify asset originators with clear under-
writing deficiencies. 
SEC. 944. EXEMPTED TRANSACTIONS UNDER THE SECURI-
TIES ACT OF 1933. 
(a) EXEMPTION ELIMINATED.—Section 4 of the Secu-
rities Act of 1933 (15 U.S.C. 77d) is amended— 
(1) by striking paragraph (5); and 
(2) by striking ‘‘(6) transactions’’ and inserting 
the following: 
‘‘(5) transactions’’. 
(b) 
CONFORMING
AMENDMENT.—Section 
3(a)(4)(B)(vii)(I) of the Securities Exchange Act of 1934 
(15 U.S.C. 78c(a)(4)(B)(vii)(I)) is amended by striking 
‘‘4(6)’’ and inserting ‘‘4(5)’’.
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SEC. 945. DUE DILIGENCE ANALYSIS AND DISCLOSURE IN 
ASSET-BACKED SECURITIES ISSUES. 
Section 7 of the Securities Act of 1933 (15 U.S.C. 77g), 
as amended by this subtitle, is amended by adding at the 
end the following: 
‘‘(d) REGISTRATION STATEMENT FOR ASSET-BACKED 
SECURITIES.—Not later than 180 days after the date of en-
actment of this subsection, the Commission shall issue rules 
relating to the registration statement required to be filed 
by any issuer of an asset-backed security (as that term is 
defined in section 3(a)(77) of the Securities Exchange Act 
of 1934) that require any issuer of an asset-backed secu-
rity— 
‘‘(1) to perform a due diligence analysis of the 
assets underlying the asset-backed security; and 
‘‘(2) to disclose the nature of the analysis under 
paragraph (1).’’. 
Subtitle E—Accountability and 
Executive Compensation 
SEC. 951. SHAREHOLDER VOTE ON EXECUTIVE COMPENSA-
TION DISCLOSURES. 
The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by inserting after section 14 (15 U.S.C. 
78n) the following:
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‘‘SEC. 14A. ANNUAL SHAREHOLDER APPROVAL OF EXECU-
TIVE COMPENSATION. 
‘‘(a) SEPARATE RESOLUTION REQUIRED.—Any proxy 
or consent or authorization for an annual or other meeting 
of the shareholders occurring after the end of the 6-month 
period beginning on the date of enactment of this section, 
for which the proxy solicitation rules of the Commission 
require compensation disclosure, shall include a separate 
resolution subject to shareholder vote to approve the com-
pensation of executives, as disclosed pursuant to section 
229.402 of title 17, Code of Federal Regulations, or any 
successor thereto. 
‘‘(b) RULE OF CONSTRUCTION.—The shareholder vote 
referred to in subsection (a) shall not be binding on the 
issuer or the board of directors of an issuer, and may not 
be construed— 
‘‘(1) as overruling a decision by such issuer or 
board of directors; 
‘‘(2) to create or imply any change to the fidu-
ciary duties of such issuer or board of directors; 
‘‘(3) to create or imply any additional fiduciary 
duties for such issuer or board of directors; or 
‘‘(4) to restrict or limit the ability of share-
holders to make proposals for inclusion in proxy ma-
terials related to executive compensation.’’.
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SEC. 952. COMPENSATION COMMITTEE INDEPENDENCE. 
The Securities Exchange Act of 1934 (15 U.S.C. 78 
et seq.) is amended by inserting after section 10B, as added 
by section 753, the following: 
‘‘SEC. 10C. COMPENSATION COMMITTEES. 
‘‘(a) INDEPENDENCE
OF
COMPENSATION
COMMIT-
TEES.— 
‘‘(1) LISTING
STANDARDS.—The Commission 
shall, by rule, direct the national securities exchanges 
and national securities associations to prohibit the 
listing of any security of an issuer that does not com-
ply with the requirements of this subsection. 
‘‘(2) INDEPENDENCE OF COMPENSATION COMMIT-
TEES.—The rules of the Commission under paragraph 
(1) shall require that each member of the compensa-
tion committee of the board of directors of an issuer 
be— 
‘‘(A) a member of the board of directors of 
the issuer; and 
‘‘(B) independent. 
‘‘(3) INDEPENDENCE.—The rules of the Commis-
sion under paragraph (1) shall require that, in deter-
mining the definition of the term ‘independence’ for 
purposes of paragraph (2), the national securities ex-
changes and the national securities associations shall 
consider relevant factors, including—
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‘‘(A) the source of compensation of a mem-
ber of the board of directors of an issuer, includ-
ing any consulting, advisory, or other compen-
satory fee paid by the issuer to such member of 
the board of directors; and 
‘‘(B) whether a member of the board of di-
rectors of an issuer is affiliated with the issuer, 
a subsidiary of the issuer, or an affiliate of a 
subsidiary of the issuer. 
‘‘(4) EXEMPTION AUTHORITY.—The rules of the 
Commission under paragraph (1) shall permit a na-
tional securities exchange or a national securities as-
sociation to exempt a particular relationship from the 
requirements of paragraph (2), with respect to the 
members of a compensation committee, as the na-
tional securities exchange or national securities asso-
ciation determines is appropriate, taking into consid-
eration the size of an issuer and any other relevant 
factors. 
‘‘(b) INDEPENDENCE OF COMPENSATION CONSULTANTS 
AND OTHER COMPENSATION COMMITTEE ADVISERS.— 
‘‘(1) IN GENERAL.—The compensation committee 
of an issuer may only select a compensation consult-
ant, legal counsel, or other adviser to the compensa-
tion committee after taking into consideration the fac-
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tors identified by the Commission under paragraph 
(2). 
‘‘(2) RULES.—The Commission shall identify 
factors that affect the independence of a compensation 
consultant, legal counsel, or other adviser to a com-
pensation committee of an issuer, including— 
‘‘(A) the provision of other services to the 
issuer by the person that employs the compensa-
tion consultant, legal counsel, or other adviser; 
‘‘(B) the amount of fees received from the 
issuer by the person that employs the compensa-
tion consultant, legal counsel, or other adviser, 
as a percentage of the total revenue of the person 
that employs the compensation consultant, legal 
counsel, or other adviser; 
‘‘(C) the policies and procedures of the per-
son that employs the compensation consultant, 
legal counsel, or other adviser that are designed 
to prevent conflicts of interest; 
‘‘(D) any business or personal relationship 
of the compensation consultant, legal counsel, or 
other adviser with a member of the compensation 
committee; and
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‘‘(E) any stock of the issuer owned by the 
compensation consultant, legal counsel, or other 
adviser. 
‘‘(c) COMPENSATION COMMITTEE AUTHORITY RELAT-
ING TO COMPENSATION CONSULTANTS.— 
‘‘(1) AUTHORITY TO RETAIN COMPENSATION CON-
SULTANT.— 
‘‘(A) IN GENERAL.—The compensation com-
mittee of an issuer, in its capacity as a com-
mittee of the board of directors, may, in its sole 
discretion, retain or obtain the advice of a com-
pensation consultant. 
‘‘(B) DIRECT
RESPONSIBILITY
OF
COM-
PENSATION
COMMITTEE.—The 
compensation 
committee of an issuer shall be directly respon-
sible for the appointment, compensation, and 
oversight of the work of a compensation consult-
ant. 
‘‘(C) RULE OF CONSTRUCTION.—This para-
graph may not be construed— 
‘‘(i) to require the compensation com-
mittee to implement or act consistently with 
the advice or recommendations of the com-
pensation consultant; or
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‘‘(ii) to affect the ability or obligation 
of a compensation committee to exercise its 
own judgment in fulfillment of the duties of 
the compensation committee. 
‘‘(2) DISCLOSURE.—In any proxy or consent so-
licitation material for an annual meeting of the 
shareholders (or a special meeting in lieu of the an-
nual meeting) occurring on or after the date that is 
1 year after the date of enactment of this section, each 
issuer shall disclose in the proxy or consent material, 
in accordance with regulations of the Commission, 
whether— 
‘‘(A) the compensation committee of the 
issuer retained or obtained the advice of a com-
pensation consultant; and 
‘‘(B) the work of the compensation consult-
ant has raised any conflict of interest and, if so, 
the nature of the conflict and how the conflict is 
being addressed. 
‘‘(d) AUTHORITY TO ENGAGE INDEPENDENT LEGAL 
COUNSEL AND OTHER ADVISERS.— 
‘‘(1) IN GENERAL.—The compensation committee 
of an issuer, in its capacity as a committee of the 
board of directors, may, in its sole discretion, retain
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and obtain the advice of independent legal counsel 
and other advisers. 
‘‘(2) DIRECT RESPONSIBILITY OF COMPENSATION 
COMMITTEE.—The compensation committee of an 
issuer shall be directly responsible for the appoint-
ment, compensation, and oversight of the work of 
independent legal counsel and other advisers. 
‘‘(3) RULE OF CONSTRUCTION.—This subsection 
may not be construed— 
‘‘(A) to require a compensation committee 
to implement or act consistently with the advice 
or recommendations of independent legal counsel 
or other advisers under this subsection; or 
‘‘(B) to affect the ability or obligation of a 
compensation committee to exercise its own judg-
ment in fulfillment of the duties of the compensa-
tion committee. 
‘‘(e) COMPENSATION
OF COMPENSATION CONSULT-
ANTS, INDEPENDENT LEGAL COUNSEL, AND OTHER ADVIS-
ERS.—Each issuer shall provide for appropriate funding, 
as determined by the compensation committee in its capac-
ity as a committee of the board of directors, for payment 
of reasonable compensation— 
‘‘(1) to a compensation consultant; and
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‘‘(2) to independent legal counsel or any other 
adviser to the compensation committee. 
‘‘(f) COMMISSION RULES.— 
‘‘(1) IN
GENERAL.—Not later than 360 days 
after the date of enactment of this section, the Com-
mission shall, by rule, direct the national securities 
exchanges and national securities associations to pro-
hibit the listing of any security of an issuer that is 
not in compliance with the requirements of this sec-
tion. 
‘‘(2) OPPORTUNITY
TO
CURE
DEFECTS.—The 
rules of the Commission under paragraph (1) shall 
provide for appropriate procedures for an issuer to 
have a reasonable opportunity to cure any defects that 
would be the basis for the prohibition under para-
graph (1), before the imposition of such prohibition. 
‘‘(3) EXEMPTION AUTHORITY.— 
‘‘(A) IN GENERAL.—The rules of the Com-
mission under paragraph (1) shall permit a na-
tional securities exchange or a national securi-
ties association to exempt a category of issuers 
from the requirements under this section, as the 
national securities exchange or the national secu-
rities association determines is appropriate.
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‘‘(B) 
CONSIDERATIONS.—In 
determining 
appropriate exemptions under subparagraph (A), 
the national securities exchange or the national 
securities association shall take into account the 
potential impact of the requirements of this sec-
tion on smaller reporting issuers.’’. 
SEC. 953. EXECUTIVE COMPENSATION DISCLOSURES. 
(a) DISCLOSURE OF PAY VERSUS PERFORMANCE.— 
Section 14 of the Securities Exchange Act of 1934 (15 
U.S.C. 78n), as amended by this title, is amended by add-
ing at the end the following: 
‘‘(i) DISCLOSURE OF PAY VERSUS PERFORMANCE.— 
The Commission shall, by rule, require each issuer to dis-
close in any proxy or consent solicitation material for an 
annual meeting of the shareholders of the issuer a clear de-
scription of any compensation required to be disclosed by 
the issuer under section 229.402 of title 17, Code of Federal 
Regulations (or any successor thereto), including informa-
tion that shows the relationship between executive com-
pensation actually paid and the financial performance of 
the issuer, taking into account any change in the value of 
the shares of stock and dividends of the issuer and any dis-
tributions. The disclosure under this subsection may include 
a graphic representation of the information required to be 
disclosed.’’.
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(b) ADDITIONAL DISCLOSURE REQUIREMENTS.— 
(1) IN GENERAL.—The Commission shall amend 
section 229.402 of title 17, Code of Federal Regula-
tions, to require each issuer to disclose in any filing 
of the issuer described in section 229.10(a) of title 17, 
Code of Federal Regulations (or any successor there-
to)— 
(A) the median of the annual total com-
pensation of all employees of the issuer, except 
the chief executive officer (or any equivalent po-
sition) of the issuer; 
(B) the annual total compensation of the 
chief executive officer (or any equivalent posi-
tion) of the issuer; and 
(C) the ratio of the amount described in 
subparagraph (A) to the amount described in 
subparagraph (B). 
(2) TOTAL COMPENSATION.—For purposes of this 
subsection, the total compensation of an employee of 
an issuer shall be determined in accordance with sec-
tion 229.402(c)(2)(x) of title 17, Code of Federal Reg-
ulations, as in effect on the day before the date of en-
actment of this Act.
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SEC. 954. RECOVERY OF ERRONEOUSLY AWARDED COM-
PENSATION. 
The Securities Exchange Act of 1934 is amended by 
inserting after section 10C, as added by section 952, the 
following: 
‘‘SEC. 10D. RECOVERY OF ERRONEOUSLY AWARDED COM-
PENSATION POLICY. 
‘‘(a) LISTING STANDARDS.—The Commission shall, by 
rule, direct the national securities exchanges and national 
securities associations to prohibit the listing of any security 
of an issuer that does not comply with the requirements 
of this section. 
‘‘(b) RECOVERY OF FUNDS.—The rules of the Commis-
sion under subsection (a) shall require each issuer to develop 
and implement a policy providing— 
‘‘(1) for disclosure of the policy of the issuer on 
incentive-based compensation that is based on finan-
cial information required to be reported under the se-
curities laws; and 
‘‘(2) that, in the event that the issuer is required 
to prepare an accounting restatement due to the ma-
terial noncompliance of the issuer with any financial 
reporting requirement under the securities laws, the 
issuer will recover from any current or former execu-
tive officer of the issuer who received incentive-based 
compensation (including stock options awarded as
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compensation) during the 3-year period preceding the 
date on which the issuer is required to prepare an ac-
counting restatement, based on the erroneous data, in 
excess of what would have been paid to the executive 
officer under the accounting restatement.’’. 
SEC. 955. DISCLOSURE REGARDING EMPLOYEE AND DIREC-
TOR HEDGING. 
Section 14 of the Securities Exchange Act of 1934 (15 
U.S.C. 78n), as amended by this title, is amended by add-
ing at the end the following: 
‘‘(j) DISCLOSURE OF HEDGING BY EMPLOYEES AND 
DIRECTORS.—The Commission shall, by rule, require each 
issuer to disclose in any proxy or consent solicitation mate-
rial for an annual meeting of the shareholders of the issuer 
whether any employee or member of the board of directors 
of the issuer, or any designee of such employee or member, 
is permitted to purchase financial instruments (including 
prepaid variable forward contracts, equity swaps, collars, 
and exchange funds) that are designed to hedge or offset 
any decrease in the market value of equity securities— 
‘‘(1) granted to the employee or member of the 
board of directors by the issuer as part of the com-
pensation of the employee or member of the board of 
directors; or
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† HR 4173 EAS 
‘‘(2) held, directly or indirectly, by the employee 
or member of the board of directors.’’. 
SEC. 956. EXCESSIVE COMPENSATION BY HOLDING COMPA-
NIES OF DEPOSITORY INSTITUTIONS. 
Section 5 of the Bank Holding Company Act of 1956 
(12 U.S.C. 1844) is amended by adding at the end the fol-
lowing: 
‘‘(i) EXCESSIVE COMPENSATION.— 
‘‘(1) IN
GENERAL.—Not later than 180 days 
after the transfer date established under section 311 
of the Restoring American Financial Stability Act of 
2010, the Board of Governors, in consultation with 
the Comptroller of the Currency and the Federal De-
posit Insurance Corporation, shall, by rule, establish 
standards prohibiting as an unsafe and unsound 
practice any compensation plan of a bank holding 
company that— 
‘‘(A) provides an executive officer, employee, 
director, or principal shareholder of the bank 
holding company with excessive compensation, 
fees, or benefits; or 
‘‘(B) could lead to material financial loss to 
the bank holding company. 
‘‘(2) 
CONSIDERATIONS.—In 
establishing 
the 
standards under paragraph (1), the Board of Gov-
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ernors shall take into consideration the compensation 
standards described in section 39(c) of the Federal 
Deposit Insurance Act (12 U.S.C. 1831p–1(c)) and 
the views and recommendations of the Comptroller of 
the Currency and the Federal Deposit Insurance Cor-
poration.’’. 
SEC. 957. VOTING BY BROKERS. 
Section 6(b) of the Securities Exchange Act of 1934 
(15 U.S.C. 78f(b)) is amended— 
(1) in paragraph (9)— 
(A) in subparagraph (A), by redesignating 
clauses (i) through (v) as subclauses (I) through 
(V), respectively, and adjusting the margins ac-
cordingly; 
(B) by redesignating subparagraphs (A) 
through (D) as clauses (i) through (iv), respec-
tively, and adjusting the margins accordingly; 
(C) by inserting ‘‘(A)’’ after ‘‘(9)’’; and 
(D) in the matter immediately following 
clause (iv), as so redesignated, by striking ‘‘As 
used’’ and inserting the following: 
‘‘(B) As used’’. 
(2) by adding at the end the following: 
‘‘(10)(A) The rules of the exchange prohibit any 
member that is not the beneficial owner of a security
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registered under section 12 from granting a proxy to 
vote the security in connection with a shareholder vote 
described in subparagraph (B), unless the beneficial 
owner of the security has instructed the member to 
vote the proxy in accordance with the voting instruc-
tions of the beneficial owner. 
‘‘(B) A shareholder vote described in this sub-
paragraph is a shareholder vote with respect to the 
election of a member of the board of directors of an 
issuer, executive compensation, or any other signifi-
cant matter, as determined by the Commission, by 
rule. 
‘‘(C) Nothing in this paragraph shall be con-
strued to prohibit a national securities exchange from 
prohibiting a member that is not the beneficial owner 
of a security registered under section 12 from grant-
ing a proxy to vote the security in connection with 
a shareholder vote not described in subparagraph 
(A).’’.
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Subtitle F—Improvements to the 
Management of the Securities 
and Exchange Commission 
SEC. 961. REPORT AND CERTIFICATION OF INTERNAL SU-
PERVISORY CONTROLS. 
(a) ANNUAL REPORTS AND CERTIFICATION.—Not later 
than 90 days after the end of each fiscal year, the Commis-
sion shall submit a report to the Committee on Banking, 
Housing, and Urban Affairs of the Senate and the Com-
mittee on Financial Services of the House of Representa-
tives on the conduct by the Commission of examinations 
of registered entities, enforcement investigations, and review 
of corporate financial securities filings. 
(b) CONTENTS OF REPORTS.—Each report under sub-
section (a) shall contain— 
(1) an assessment, as of the end of the most re-
cent fiscal year, of the effectiveness of— 
(A) the internal supervisory controls of the 
Commission; and 
(B) the procedures of the Commission appli-
cable to the staff of the Commission who perform 
examinations of registered entities, enforcement 
investigations, and reviews of corporate financial 
securities filings;
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(2) a certification that the Commission has ade-
quate internal supervisory controls to carry out the 
duties of the Commission described in paragraph 
(1)(B); and 
(3) a summary by the Comptroller General of the 
United States of the review carried out under sub-
section (d). 
(c) CERTIFICATION.— 
(1) SIGNATURE.—The certification under sub-
section (b)(2) shall be signed by the Director of the 
Division of Enforcement, the Director of the Division 
of Corporation Finance, and the Director of the Office 
of Compliance Inspections and Examinations (or the 
head of any successor division or office). 
(2) CONTENT
OF
CERTIFICATION.—Each indi-
vidual described in paragraph (1) shall certify that 
the individual— 
(A) is directly responsible for establishing 
and maintaining the internal supervisory con-
trols of the Division or Office of which the indi-
vidual is the head; 
(B) is knowledgeable about the internal su-
pervisory controls of the Division or Office of 
which the individual is the head;
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(C) has evaluated the effectiveness of the in-
ternal supervisory controls during the 90-day pe-
riod ending on the final day of the fiscal year 
to which the report relates; and 
(D) has disclosed to the Commission any 
significant deficiencies in the design or operation 
of internal supervisory controls that could ad-
versely affect the ability of the Division or Office 
to consistently conduct inspections, or investiga-
tions, or reviews of filings with professional com-
petence and integrity. 
(d) REVIEW BY THE COMPTROLLER GENERAL.—Not 
later than the date on which the first report is submitted 
under subsection (a), the Comptroller General of the United 
States shall submit to the Committee on Banking, Housing, 
and Urban Affairs of the Senate and the Committee on Fi-
nancial Services of the House of Representatives an initial 
report that contains a review of the adequacy and effective-
ness of the internal supervisory control structure and proce-
dures described in subsection (b)(1). 
SEC. 962. TRIENNIAL REPORT ON PERSONNEL MANAGE-
MENT. 
(a) TRIENNIAL REPORT REQUIRED.—Once every 3 
years, the Comptroller General of the United States shall 
submit a report to the Committee on Banking, Housing,
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and Urban Affairs of the Senate and the Committee on Fi-
nancial Services of the House of Representatives on the 
quality of personnel management by the Commission. 
(b) CONTENTS OF REPORT.—Each report under sub-
section (a) shall include— 
(1) an evaluation of— 
(A) the effectiveness of supervisors in using 
the skills, talents, and motivation of the employ-
ees of the Commission to achieve the goals of the 
Commission; 
(B) the criteria for promoting employees of 
the Commission to supervisory positions; 
(C) the fairness of the application of the 
promotion criteria to the decisions of the Com-
mission; 
(D) the competence of the professional staff 
of the Commission; 
(E) the efficiency of communication between 
the units of the Commission regarding the work 
of the Commission (including communication be-
tween divisions and between subunits of a divi-
sion) and the efforts by the Commission to pro-
mote such communication; 
(F) the turnover within subunits of the 
Commission, including the identification of su-
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pervisors whose subordinates have an unusually 
high rate of turnover; 
(G) whether there are excessive numbers of 
low-level, mid-level, or senior-level managers; 
(H) any initiatives of the Commission that 
increase the competence of the staff of the Com-
mission; 
(I) the actions taken by the Commission re-
garding employees of the Commission who have 
failed to perform their duties; and 
(J) such other factors relating to the man-
agement of the Commission as the Comptroller 
General determines are appropriate; 
(2) an evaluation of any improvements made 
with respect to the areas described in paragraph (1) 
since the date of submission of the previous report; 
and 
(3) recommendations for how the Commission 
can use the human resources of the Commission more 
effectively and efficiently to carry out the mission of 
the Commission. 
(c) CONSULTATION.—In preparing the report under 
subsection (a), the Comptroller General shall consult with 
current employees of the Commission, retired employees and 
other former employees of the Commission, the Inspector
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General of the Commission, persons that have business be-
fore the Commission, any union representing the employees 
of the Commission, private management consultants, aca-
demics, and any other source that the Comptroller General 
deems appropriate. 
(d) REPORT BY COMMISSION.—Not later than 90 days 
after the date on which the Comptroller General submits 
each report under subsection (a), the Commission shall sub-
mit to the Committee on Banking, Housing, and Urban Af-
fairs of the Senate and the Committee on Financial Services 
of the House of Representatives a report describing the ac-
tions taken by the Commission in response to the rec-
ommendations contained in the report under subsection (a). 
(e) REIMBURSEMENTS FOR COST OF REPORTS.— 
(1) REIMBURSEMENTS
REQUIRED.—The Com-
mission shall reimburse the Government Account-
ability Office for the full cost of making the reports 
under this section, as billed therefor by the Comp-
troller General. 
(2) CREDITING
AND
USE
OF
REIMBURSE-
MENTS.—Such reimbursements shall— 
(A) be credited to the appropriation account 
‘‘Salaries and Expenses, Government Account-
ability Office’’ current when the payment is re-
ceived; and
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(B) remain available until expended. 
SEC. 963. ANNUAL FINANCIAL CONTROLS AUDIT. 
(a) REPORTS OF COMMISSION.— 
(1) ANNUAL
REPORTS
REQUIRED.—Not later 
than 6 months after the end of each fiscal year, the 
Commission shall publish and submit to Congress a 
report that— 
(A) describes the responsibility of the man-
agement of the Commission for establishing and 
maintaining an adequate internal control struc-
ture and procedures for financial reporting; and 
(B) contains an assessment of the effective-
ness of the internal control structure and proce-
dures for financial reporting of the Commission 
during that fiscal year. 
(2) ATTESTATION.—The reports required under 
paragraph (1) shall be attested to by the Chairman 
and chief financial officer of the Commission. 
(b) REPORT BY COMPTROLLER GENERAL.— 
(1) REPORT
REQUIRED.—Not later than 6 
months after the end of the first fiscal year after the 
date of enactment of this Act, the Comptroller General 
of the United States shall submit a report to Congress 
that assesses—
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(A) the effectiveness of the internal control 
structure and procedures of the Commission for 
financial reporting; and 
(B) the assessment of the Commission under 
subsection (a)(1)(B). 
(2) ATTESTATION.—The Comptroller General 
shall attest to, and report on, the assessment made by 
the Commission under subsection (a). 
(c) REIMBURSEMENTS FOR COST OF REPORTS.— 
(1) REIMBURSEMENTS
REQUIRED.—The Com-
mission shall reimburse the Government Account-
ability Office for the full cost of making the reports 
under subsection (b), as billed therefor by the Comp-
troller General. 
(2) CREDITING
AND
USE
OF
REIMBURSE-
MENTS.—Such reimbursements shall— 
(A) be credited to the appropriation account 
‘‘Salaries and Expenses, Government Account-
ability Office’’ current when the payment is re-
ceived; and 
(B) remain available until expended. 
SEC. 964. REPORT ON OVERSIGHT OF NATIONAL SECURI-
TIES ASSOCIATIONS. 
(a) REPORT REQUIRED.—Not later than 2 years after 
the date of enactment of this Act, and every 3 years there-
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after, the Comptroller General of the United States shall 
submit to the Committee on Banking, Housing, and Urban 
Affairs of the Senate and the Committee on Financial Serv-
ices of the House of Representatives a report that includes 
an evaluation of the oversight by the Commission of na-
tional securities associations registered under section 15A 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o–3) 
with respect to— 
(1) the governance of such national securities as-
sociations, including the identification and manage-
ment of conflicts of interest by such national securi-
ties associations, together with an analysis of the im-
pact of any conflicts of interest on the regulatory en-
forcement or rulemaking by such national securities 
associations; 
(2) the examinations carried out by the national 
securities associations, including the expertise of the 
examiners; 
(3) the executive compensation practices of such 
national securities associations; 
(4) the arbitration services provided by the na-
tional securities associations; 
(5) the review performed by national securities 
associations of advertising by the members of the na-
tional securities associations;
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(6) the cooperation with and assistance to State 
securities administrators by the national securities 
associations to promote investor protection; 
(7) how the funding of national securities asso-
ciations is used to support the mission of the national 
securities associations, including— 
(A) the methods of funding; 
(B) the sufficiency of funds; 
(C) how funds are invested by the national 
securities association pending use; and 
(D) the impact of the methods, sufficiency, 
and investment of funds on regulatory enforce-
ment by the national securities associations; 
(8) the policies regarding the employment of 
former employees of national securities associations 
by regulated entities; 
(9) the ongoing effectiveness of the rules of the 
national securities associations in achieving the goals 
of the rules; 
(10) the transparency of governance and activi-
ties of the national securities associations; and 
(11) any other issue that has an impact, as de-
termined by the Comptroller General, on the effective-
ness of such national securities associations in per-
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forming their mission and in dealing fairly with in-
vestors and members; 
(b) REIMBURSEMENTS FOR COST OF REPORTS.— 
(1) REIMBURSEMENTS
REQUIRED.—The Com-
mission shall reimburse the Government Account-
ability Office for the full cost of making the reports 
under subsection (a), as billed therefor by the Comp-
troller General. 
(2) CREDITING
AND
USE
OF
REIMBURSE-
MENTS.—Such reimbursements shall— 
(A) be credited to the appropriation account 
‘‘Salaries and Expenses, Government Account-
ability Office’’ current when the payment is re-
ceived; and 
(B) remain available until expended. 
SEC. 965. COMPLIANCE EXAMINERS. 
Section 4 of the Securities Exchange Act of 1934 (15 
U.S.C. 78d) is amended by adding at the end the following: 
‘‘(h) EXAMINERS.— 
‘‘(1) DIVISION OF TRADING AND MARKETS.—The 
Division of Trading and Markets of the Commission, 
or any successor organizational unit, shall have a 
staff of examiners who shall—
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‘‘(A) perform compliance inspections and 
examinations of entities under the jurisdiction of 
that Division; and 
‘‘(B) report to the Director of that Division. 
‘‘(2) DIVISION OF INVESTMENT MANAGEMENT.— 
The Division of Investment Management of the Com-
mission, or any successor organizational unit, shall 
have a staff of examiners who shall— 
‘‘(A) perform compliance inspections and 
examinations of entities under the jurisdiction of 
that Division; and 
‘‘(B) report to the Director of that Divi-
sion.’’. 
SEC. 966. SUGGESTION PROGRAM FOR EMPLOYEES OF THE 
COMMISSION. 
The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by inserting after section 4C (15 U.S.C. 
78d–3) the following: 
‘‘SEC. 4D. ADDITIONAL DUTIES OF INSPECTOR GENERAL. 
‘‘(a) SUGGESTION SUBMISSIONS BY COMMISSION EM-
PLOYEES.— 
‘‘(1) HOTLINE
ESTABLISHED.—The Inspector 
General of the Commission shall establish and main-
tain a telephone hotline or other electronic means for 
the receipt of—
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‘‘(1) increase the work efficiency, effectiveness, or 
productivity of the Commission; or 
‘‘(2) reduce waste, abuse, misconduct, or mis-
management within the Commission. 
‘‘(d) REPORT.—The Inspector General of the Commis-
sion shall submit to Congress an annual report containing 
a description of— 
‘‘(1) the nature, number, and potential benefits 
of any suggestions received under subsection (a); 
‘‘(2) the nature, number, and seriousness of any 
allegations received under subsection (a); 
‘‘(3) any recommendations made or actions 
taken by the Inspector General in response to substan-
tiated allegations received under subsection (a); and 
‘‘(4) any action the Commission has taken in re-
sponse to suggestions or allegations received under 
subsection (a). 
‘‘(e) FUNDING.—The activities of the Inspector General 
under this subsection shall be funded by the Securities and 
Exchange Commission Investor Protection Fund established 
under section 21F.’’.
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Subtitle G—Strengthening 
Corporate Governance 
SEC. 971. ELECTION OF DIRECTORS BY MAJORITY VOTE IN 
UNCONTESTED ELECTIONS. 
The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by inserting after section 14A, as added 
by this title, the following: 
‘‘SEC. 14B. CORPORATE GOVERNANCE. 
‘‘(a) CORPORATE GOVERNANCE STANDARDS.— 
‘‘(1) LISTING STANDARDS.— 
‘‘(A) IN GENERAL.—Not later than 1 year 
after the date of enactment of this subsection, the 
Commission shall, by rule, direct the national se-
curities exchanges and national securities asso-
ciations to prohibit the listing of any security of 
an issuer that is not in compliance with any of 
the requirements of this subsection. 
‘‘(B) 
OPPORTUNITY
TO
COMPLY
AND 
CURE.—The rules established under this para-
graph shall allow an issuer to have an oppor-
tunity to come into compliance with the require-
ments of this subsection, and to cure any defect 
that would be the basis for a prohibition under 
subparagraph (A), before the imposition of such 
prohibition.
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‘‘(C) AUTHORITY TO EXEMPT.—The Com-
mission may, by rule or order, exempt an issuer 
from any or all of the requirements of this sub-
section and the rules issued under this sub-
section, based on the size of the issuer, the market 
capitalization of the issuer, the number of share-
holders of record of the issuer, or any other cri-
teria, as the Commission deems necessary and 
appropriate in the public interest or for the pro-
tection of investors. 
‘‘(2) COMMISSION RULES ON ELECTIONS.—In an 
election for membership on the board of directors of 
an issuer— 
‘‘(A) that is uncontested, each director who 
receives a majority of the votes cast shall be 
deemed to be elected; 
‘‘(B) that is contested, if the number of 
nominees exceeds the number of directors to be 
elected, each director shall be elected by the vote 
of a plurality of the shares represented at a 
meeting and entitled to vote; and 
‘‘(C) if a director of an issuer receives less 
than a majority of the votes cast in an 
uncontested election—
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† HR 4173 EAS 
‘‘(i) the director shall tender the res-
ignation of the director to the board of di-
rectors; and 
‘‘(ii) the board of directors— 
‘‘(I) shall— 
‘‘(aa) accept the resignation 
of the director; 
‘‘(bb) determine a date on 
which the resignation will take ef-
fect, within a reasonable period of 
time, as established by the Com-
mission; and 
‘‘(cc) make the date under 
item (bb) public within a reason-
able period of time, as established 
by the Commission; or 
‘‘(II) shall, upon a unanimous 
vote of the board, decline to accept the 
resignation and, not later than 30 
days after the date of the vote (or with-
in such shorter period as the Commis-
sion may establish), make public, to-
gether with a discussion of the analysis 
used in reaching the conclusion, the 
specific reasons that—
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† HR 4173 EAS 
‘‘(aa) the board chose not to 
accept the resignation; and 
‘‘(bb) the decision was in the 
best interests of the issuer and the 
shareholders of the issuer.’’. 
SEC. 972. PROXY ACCESS. 
(a) PROXY ACCESS.—Section 14(a) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78n(a)) is amended— 
(1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and 
(2) by adding at the end the following: 
‘‘(2) The rules and regulations prescribed by the Com-
mission under paragraph (1) may include— 
‘‘(A) a requirement that a solicitation of proxy, 
consent, or authorization by (or on behalf of) an 
issuer include a nominee submitted by a shareholder 
to serve on the board of directors of the issuer; and 
‘‘(B) a requirement that an issuer follow a cer-
tain procedure in relation to a solicitation described 
in subparagraph (A).’’. 
(b) REGULATIONS.—The Commission may issue rules 
permitting the use by shareholders of proxy solicitation ma-
terials supplied by an issuer of securities for the purpose 
of nominating individuals to membership on the board of 
directors of the issuer, under such terms and conditions as
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† HR 4173 EAS 
the Commission determines are in the interests of share-
holders and for the protection of investors. 
SEC. 973. DISCLOSURES REGARDING CHAIRMAN AND CEO 
STRUCTURES. 
Section 14B of the Securities Exchange Act of 1934, 
as added by section 971, is amended by adding at the end 
the following: 
‘‘(b) DISCLOSURES REGARDING CHAIRMAN AND CEO 
STRUCTURES.—Not later than 180 days after the date of 
enactment of this subsection, the Commission shall issue 
rules that require an issuer to disclose in the annual proxy 
sent to investors the reasons why the issuer has chosen— 
‘‘(1) the same person to serve as chairman of the 
board of directors and chief executive officer (or in 
equivalent positions); or 
‘‘(2) different individuals to serve as chairman of 
the board of directors and chief executive officer (or 
in equivalent positions of the issuer).’’. 
Subtitle H—Municipal Securities 
SEC. 975. REGULATION OF MUNICIPAL SECURITIES AND 
CHANGES TO THE BOARD OF THE MSRB. 
(a) REGISTRATION OF MUNICIPAL SECURITIES DEAL-
ERS AND MUNICIPAL ADVISORS.—Section 15B(a) of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78o–4(a)) is 
amended—
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† HR 4173 EAS 
(1) in paragraph (1)— 
(A) by inserting ‘‘(A)’’ after ‘‘(1)’’; and 
(B) by adding at the end the following: 
‘‘(B) It shall be unlawful for a municipal 
advisor to provide advice to or on behalf of a 
municipal entity or obligated person with respect 
to municipal financial products or the issuance 
of municipal securities, or to undertake a solici-
tation of a municipal entity or obligated person, 
unless the municipal advisor is registered in ac-
cordance with this subsection.’’; 
(2) in paragraph (2), by inserting ‘‘or municipal 
advisor’’ after ‘‘municipal securities dealer’’ each 
place that term appears; 
(3) in paragraph (3), by inserting ‘‘or municipal 
advisor’’ after ‘‘municipal securities dealer’’ each 
place that term appears; 
(4) in paragraph (4), by striking ‘‘dealer, or mu-
nicipal securities dealer or class of brokers, dealers, or 
municipal securities dealers’’ and inserting ‘‘dealer, 
municipal securities dealer, or municipal advisor, or 
class of brokers, dealers, municipal securities dealers, 
or municipal advisors’’; and 
(5) by adding at the end the following:
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† HR 4173 EAS 
‘‘(5) No municipal advisor shall make use of the 
mails or any means or instrumentality of interstate 
commerce to provide advice to or on behalf of a mu-
nicipal entity or obligated person with respect to mu-
nicipal financial products, the issuance of municipal 
securities, or participation in the issuance of munic-
ipal securities, or to undertake a solicitation of a mu-
nicipal entity or obligated person, in connection with 
which such municipal advisor engages in any fraudu-
lent, deceptive, or manipulative act or practice.’’. 
(b) MUNICIPAL SECURITIES RULEMAKING BOARD.— 
Section 15B(b) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o–4(b)) is amended— 
(1) in paragraph (1)— 
(A) in the first sentence, by striking ‘‘Not 
later than’’ and all that follows through ‘‘ap-
pointed by the Commission’’ and inserting ‘‘The 
Municipal Securities Rulemaking Board shall be 
composed of 15 members, or such other number 
of members as specified by rules of the Board 
pursuant to paragraph (2)(B),’’; 
(B) by striking the second sentence and in-
serting the following: ‘‘The members of the Board 
shall serve as members for a term of 3 years or 
for such other terms as specified by rules of the
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† HR 4173 EAS 
Board pursuant to paragraph (2)(B), and shall 
consist of (A) 8 individuals who are not associ-
ated with any broker, dealer, municipal securi-
ties dealer, or municipal advisor (other than by 
reason of being under common control with, or 
indirectly controlling, any broker or dealer 
which is not a municipal securities broker or 
municipal securities dealer), at least 1 of whom 
shall be representative of institutional or retail 
investors in municipal securities, at least 1 of 
whom shall be representative of municipal enti-
ties, and at least 1 of whom shall be a member 
of the public with knowledge of or experience in 
the municipal industry (which members are 
hereinafter referred to as ‘public representa-
tives’); and (B) 7 individuals who are associated 
with a broker, dealer, municipal securities deal-
er, or municipal advisor, including at least 1 in-
dividual who is associated with and representa-
tive of brokers, dealers, or municipal securities 
dealers that are not banks or subsidiaries or de-
partments or divisions of banks (which members 
are hereinafter referred to as ‘broker-dealer rep-
resentatives’), at least 1 individual who is associ-
ated with and representative of municipal secu-
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† HR 4173 EAS 
rities dealers which are banks or subsidiaries or 
departments or divisions of banks (which mem-
bers are hereinafter referred to as ‘bank rep-
resentatives’), and at least 1 individual who is 
associated with a municipal advisor (which 
member is hereinafter referred to as the ‘advisor 
representative’).’’; and 
(C) in the third sentence, by striking ‘‘ini-
tial’’; 
(2) in paragraph (2)— 
(A) in the matter preceding subparagraph 
(A)— 
(i) by inserting before the period at the 
end of the first sentence the following: ‘‘and 
advice provided to or on behalf of municipal 
entities or obligated persons by brokers, 
dealers, municipal securities dealers, and 
municipal advisors with respect to munic-
ipal financial products, the issuance of mu-
nicipal securities, or participation in the 
issuance of municipal securities, and solici-
tations of municipal entities or obligated 
persons undertaken by brokers, dealers, mu-
nicipal securities dealers, and municipal 
advisors’’; and
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† HR 4173 EAS 
(ii) by striking the second sentence; 
(B) in subparagraph (A)— 
(i) in the matter preceding clause (i)— 
(I) by inserting ‘‘, and no broker, 
dealer, municipal securities dealer, or 
municipal advisor shall provide advice 
to or on behalf of a municipal entity 
or obligated person with respect to mu-
nicipal financial products, the issuance 
of municipal securities, or participa-
tion in the issuance of municipal secu-
rities’’ after ‘‘sale of, any municipal 
security’’; and 
(II) by inserting ‘‘and municipal 
entities or obligated persons’’ after 
‘‘protection of investors’’; 
(ii) in clause (i), by striking ‘‘munic-
ipal securities brokers and municipal secu-
rities dealers’’ each place that term appears 
and inserting ‘‘municipal securities brokers, 
municipal securities dealers, and municipal 
advisors’’; 
(iii) in clause (ii), by adding ‘‘and’’ at 
the end;
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† HR 4173 EAS 
(iv) in clause (iii), by striking ‘‘; and’’ 
and inserting a period; and 
(v) by striking clause (iv); 
(C) in subparagraph (B), by striking 
‘‘nominations and elections’’ and all that follows 
through ‘‘specify’’ and inserting ‘‘nominations 
and elections of public representatives, broker- 
dealer representatives, bank representatives, and 
advisor representatives. Such rules shall provide 
that the membership of the Board shall at all 
times be as evenly divided in number as possible 
between entities or individuals who are subject to 
regulation by the Board and entities or individ-
uals not subject to regulation by the Board, pro-
vided, however, that a majority of the members 
of the Board shall at all times be public rep-
resentatives. Such rules shall also specify’’; 
(D) in subparagraph (C)— 
(i) by inserting ‘‘and municipal finan-
cial products’’ after ‘‘municipal securities’’ 
the first two times that term appears; 
(ii) by inserting ‘‘, municipal entities, 
obligated persons,’’ before ‘‘and the public 
interest’’;
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† HR 4173 EAS 
(iii) by striking ‘‘between’’ and insert-
ing ‘‘among’’; 
(iv) by striking ‘‘issuers, municipal se-
curities brokers, or municipal securities 
dealers, to fix’’ and inserting ‘‘municipal 
entities, obligated persons, municipal secu-
rities brokers, municipal securities dealers, 
or municipal advisors, to fix’’; and 
(v) by striking ‘‘brokers or municipal 
securities dealers, to regulate’’ and inserting 
‘‘brokers, municipal securities dealers, or 
municipal advisors, to regulate’’; 
(E) in subparagraph (D)— 
(i) by inserting ‘‘and advice con-
cerning municipal financial products’’ after 
‘‘transactions in municipal securities’’; 
(ii) by striking ‘‘That no’’ and insert-
ing ‘‘that no’’; 
(iii) by inserting ‘‘municipal advisor,’’ 
before ‘‘or person associated’’; and 
(iv) by striking ‘‘a municipal securi-
ties broker or municipal securities dealer 
may be compelled’’ and inserting ‘‘a munic-
ipal securities broker, municipal securities
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† HR 4173 EAS 
dealer, or municipal advisor may be com-
pelled’’; 
(F) in subparagraph (E)— 
(i) by striking ‘‘municipal securities 
brokers and municipal securities dealers’’ 
and inserting ‘‘municipal securities brokers, 
municipal securities dealers, and municipal 
advisors’’; and 
(ii) by striking ‘‘municipal securities 
broker or municipal securities dealer’’ and 
inserting ‘‘municipal securities broker, mu-
nicipal securities dealer, or municipal advi-
sor’’; 
(G) in subparagraph (G), by striking ‘‘mu-
nicipal securities brokers and municipal securi-
ties dealers’’ and inserting ‘‘municipal securities 
brokers, municipal securities dealers, and munic-
ipal advisors’’; 
(H) in subparagraph (J)— 
(i) by striking ‘‘municipal securities 
broker and each municipal securities deal-
er’’ and inserting ‘‘municipal securities 
broker, municipal securities dealer, and mu-
nicipal advisor’’; and
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† HR 4173 EAS 
(ii) by striking the period at the end of 
the second sentence and inserting ‘‘, which 
may include charges for failure to submit to 
the Board required information or docu-
ments to any information system operated 
by the Board in a full, accurate, or timely 
manner, or any other failure to comply 
with the rules of the Board.’’; 
(I) in subparagraph (K)— 
(i) by inserting ‘‘broker, dealer, or’’ be-
fore ‘‘municipal securities dealer’’ each 
place that term appears; and 
(ii) by striking ‘‘municipal securities 
investment portfolio’’ and inserting ‘‘related 
account of a broker, dealer, or municipal se-
curities dealer’’; and 
(J) by adding at the end the following: 
‘‘(L) provide continuing education require-
ments for municipal advisors. 
‘‘(M) provide professional standards. 
‘‘(N) not impose a regulatory burden on 
small municipal advisors that is not necessary 
or appropriate in the public interest and for the 
protection of investors, municipal entities, and 
obligated persons.’’;
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† HR 4173 EAS 
(3) by redesignating paragraph (3) as para-
graph (7); and 
(4) by inserting after paragraph (2) the fol-
lowing: 
‘‘(3) The Board, in conjunction with or on behalf 
of any Federal financial regulator or self-regulatory 
organization, may— 
‘‘(A) establish information systems; and 
‘‘(B) assess such reasonable fees and charges 
for the submission of information to, or the re-
ceipt of information from, such systems from any 
persons which systems may be developed for the 
purposes of serving as a repository of informa-
tion from municipal market participants or oth-
erwise in furtherance of the purposes of the 
Board, a Federal financial regulator, or a self- 
regulatory organization. 
‘‘(4) The Board shall provide guidance and as-
sistance in the enforcement of, and examination for, 
compliance with the rules of the Board to the Com-
mission, a registered securities association under sec-
tion 15A, or any other appropriate regulatory agency, 
as applicable.’’. 
(c) DISCIPLINE OF DEALERS AND MUNICIPAL ADVI-
SORS AND OTHER MATTERS.—Section 15B(c) of the Securi-
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† HR 4173 EAS 
ties Exchange Act of 1934 (15 U.S.C. 78o–4(c)) is amend-
ed— 
(1) in paragraph (1), by inserting ‘‘, and no 
broker, dealer, municipal securities dealer, or munic-
ipal advisor shall make use of the mails or any means 
or instrumentality of interstate commerce to provide 
advice to or on behalf of a municipal entity or obli-
gated person with respect to municipal financial 
products, the issuance of municipal securities, or par-
ticipation in the issuance of municipal securities, or 
to undertake a solicitation of a municipal entity or 
obligated person,’’ after ‘‘any municipal security’’; 
(2) in paragraph (2), by inserting ‘‘or municipal 
advisor’’ after ‘‘municipal securities dealer’’ each 
place that term appears; 
(3) in paragraph (3)— 
(A) by inserting ‘‘or municipal entities or 
obligated person’’ after ‘‘protection of investors’’ 
each place that term appears; and 
(B) by inserting ‘‘or municipal advisor’’ 
after ‘‘municipal securities dealer’’ each place 
that term appears; 
(4) in paragraph (4), by inserting ‘‘or municipal 
advisor’’ after ‘‘municipal securities dealer or obli-
gated person’’ each place that term appears;
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† HR 4173 EAS 
(5) in paragraph (6)(B), by inserting ‘‘or mu-
nicipal entities’’ after ‘‘protection of investors’’; 
(6) in paragraph (7)— 
(A) in subparagraph (A)— 
(i) in clause (i), by striking ‘‘; and’’ 
and inserting a semicolon; 
(ii) in clause (ii), by striking the pe-
riod and inserting ‘‘; and’’; and 
(iii) by adding at the end the fol-
lowing: 
‘‘(iii) the Commission, or its designee, 
in the case of municipal advisors.’’. 
(B) in subparagraph (B), by inserting ‘‘or 
municipal entities or obligated person’’ after 
‘‘protection of investors’’; and 
(7) by adding at the end the following: 
‘‘(9)(A) Fines collected by the Commission for 
violations of the rules of the Board shall be equally 
divided between the Commission and the Board. 
‘‘(B) Fines collected by a registered securities as-
sociation under section 15A(7) with respect to viola-
tions of the rules of the Board shall be accounted for 
by such registered securities association separately 
from other fines collected under section 15A(7) and 
shall be allocated between such registered securities as-
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† HR 4173 EAS 
sociation and the Board at the direction of the Com-
mission.’’. 
(d) ISSUANCE OF MUNICIPAL SECURITIES.—Section 
15B(d)(2) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o–4(d)) is amended— 
(1) by striking ‘‘through a municipal securities 
broker or municipal securities dealer or otherwise’’ 
and inserting ‘‘through a municipal securities broker, 
municipal securities dealer, municipal advisor, or 
otherwise’’; and 
(2) by inserting ‘‘or municipal advisors’’ before 
‘‘to furnish’’. 
(e) DEFINITIONS.—Section 15B of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o–4) is amended by adding 
at the end the following: 
‘‘(e) DEFINITIONS.—For purposes of this section— 
‘‘(1) the term ‘Board’ means the Municipal Secu-
rities Rulemaking Board established under subsection 
(b)(1); 
‘‘(2) the term ‘guaranteed investment contract’ 
includes any investment that has specified with-
drawal or reinvestment provisions and a specifically 
negotiated or bid interest rate, and also includes any 
agreement to supply investments on 2 or more future 
dates, such as a forward supply contract;
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† HR 4173 EAS 
‘‘(3) the term ‘investment strategies’ includes 
plans or programs for the investment of the proceeds 
of municipal securities that are not municipal de-
rivatives, guaranteed investment contracts, and the 
recommendation of and brokerage of municipal es-
crow investments; 
‘‘(4) the term ‘municipal advisor’— 
‘‘(A) means a person (who is not a munic-
ipal entity or an employee of a municipal enti-
ty) that— 
‘‘(i) provides advice to or on behalf of 
a municipal entity or obligated person with 
respect to municipal financial products or 
the issuance of municipal securities, includ-
ing advice with respect to the structure, 
timing, terms, and other similar matters 
concerning such financial products or 
issues; 
‘‘(ii) participates in the issuance of 
municipal securities; or 
‘‘(iii) undertakes a solicitation of a 
municipal entity; 
‘‘(B) includes financial advisors, guaran-
teed investment contract brokers, third-party 
marketers, placement agents, solicitors, finders,
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† HR 4173 EAS 
and swap advisors, if such persons are described 
in any of clauses (i) through (iii) of subpara-
graph (A); and 
‘‘(C) does not include a broker, dealer, or 
municipal securities dealer serving as an under-
writer (as defined in section 2(a)(11) of the Se-
curities Act of 1933) (15 U.S.C. 77b(a)(11)), any 
investment adviser registered under the Invest-
ment Advisers Act of 1940, or persons associated 
with such investment advisers who are providing 
investment advice, attorneys offering legal advice 
or providing services that are of a traditional 
legal nature, or engineers providing engineering 
advice; 
‘‘(5) the term ‘municipal derivative’ means any 
financial instrument or contract designed to hedge a 
risk (including interest rate swaps, basis swaps, cred-
it default swaps, caps, floors, and collars); 
‘‘(6) the term ‘municipal financial product’ 
means municipal derivatives, guaranteed investment 
contracts, and investment strategies; 
‘‘(7) the term ‘rules of the Board’ means the rules 
proposed and adopted by the Board under subsection 
(b)(2);
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‘‘(B) any plan, program, or pool of assets 
sponsored or established by the State, political 
subdivision, or municipal corporate instrumen-
tality or any agency, authority, or instrumen-
tality thereof; and 
‘‘(C) any other issuer of municipal securi-
ties; 
‘‘(10) the term ‘solicitation of a municipal entity 
or obligated person’ means a direct or indirect com-
munication with a municipal entity or obligated per-
son made by a person, for direct or indirect com-
pensation, on behalf of a broker, dealer, municipal se-
curities dealer, municipal advisor, or investment ad-
viser (as defined in section 202 of the Investment Ad-
visers Act of 1940) that does not control, is not con-
trolled by, or is not under common control with the 
person undertaking such solicitation for the purpose 
of obtaining or retaining an engagement by a munic-
ipal entity or obligated person of a broker, dealer, 
municipal securities dealer, or municipal advisor for 
or in connection with municipal financial products, 
the issuance of municipal securities, or participation 
in the issuance of municipal securities, or of an in-
vestment adviser to provide investment advisory serv-
ices to or on behalf of a municipal entity; and
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‘‘(11) the term ‘obligated person’ means any per-
son, including an issuer of municipal securities, who 
is either generally or through an enterprise, fund, or 
account of such person, committed by contract or 
other arrangement to support the payment of all or 
part of the obligations on the municipal securities to 
be sold in an offering of municipal securities.’’. 
(f) REGISTERED SECURITIES ASSOCIATION.—Section 
15A(b) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o–3(b)) is amended by adding at the end the following: 
‘‘(15) The rules of the association provide that 
the association shall— 
‘‘(A) request guidance from the Municipal 
Securities Rulemaking Board in interpretation 
of the rules of the Municipal Securities Rule-
making Board; and 
‘‘(B) provide information to the Municipal 
Securities Rulemaking Board about the enforce-
ment actions and examinations of the associa-
tion under section 15B(b)(2)(E), so that the Mu-
nicipal Securities Rulemaking Board may— 
‘‘(i) assist in such enforcement actions 
and examinations; and 
‘‘(ii) evaluate the ongoing effectiveness 
of the rules of the Board.’’.
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(g) REGISTRATION
AND REGULATION
OF BROKERS 
AND DEALERS.—Section 15 of the Securities Exchange Act 
of 1934 is amended— 
(1) in subsection (b)(4), by inserting ‘‘municipal 
advisor,’’ after ‘‘municipal securities dealer’’ each 
place that term appears; and 
(2) in subsection (c), by inserting ‘‘broker, deal-
er, or’’ before ‘‘municipal securities dealer’’ each place 
that term appears. 
(h) ACCOUNTS AND RECORDS, REPORTS, EXAMINA-
TIONS OF EXCHANGES, MEMBERS, AND OTHERS.—Section 
17(a)(1) of the Securities Exchange Act of 1934 is amended 
by inserting ‘‘municipal advisor,’’ after ‘‘municipal securi-
ties dealer’’. 
(i) SAVINGS CLAUSE.—Notwithstanding any provision 
of the Over-the-Counter Derivatives Markets Act of 2010, 
or any amendment made pursuant to such Act, the provi-
sions of this section, and the amendments made pursuant 
to this section, shall apply to any municipal derivative. 
(j) EFFECTIVE DATE.—This section, and the amend-
ments made by this section, shall take effect on October 1, 
2010.
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† HR 4173 EAS 
SEC. 976. GOVERNMENT ACCOUNTABILITY OFFICE STUDY 
OF INCREASED DISCLOSURE TO INVESTORS. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study and review of the disclosure 
required to be made by issuers of municipal securities. 
(b) SUBJECTS FOR EVALUATION.—In conducting the 
study under subsection (a), the Comptroller General of the 
United States shall— 
(1) broadly describe— 
(A) the size of the municipal securities mar-
kets and the issuers and investors; and 
(B) the disclosures provided by issuers to 
investors; 
(2) compare the amount, frequency, and quality 
of disclosures that issuers of municipal securities are 
required by law to provide for the benefit of munic-
ipal securities holders, including the amount of and 
frequency of disclosures actually provided by issuers 
of municipal securities, with the amount of and fre-
quency of disclosures that issuers of corporate securi-
ties provide for the benefit of corporate securities hold-
ers, taking into account the differences between issuers 
of municipal securities and issuers of corporate secu-
rities; 
(3) evaluate the costs and benefits to various 
types of issuers of municipal securities of requiring
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issuers of municipal bonds to provide additional fi-
nancial disclosures for the benefit of investors; 
(4) evaluate the potential benefit to investors 
from additional financial disclosures by issuers of 
municipal bonds; and 
(5) make recommendations relating to disclosure 
requirements for municipal issuers, including the ad-
visability of the repeal or retention of section 15B(d) 
of the Securities Exchange Act of 1934 (15 U.S.C. 
78o–4(d)) (commonly known as the ‘‘Tower Amend-
ment’’). 
(c) REPORT.—Not later than 1 year after the date of 
enactment of this Act, the Comptroller General of the United 
States shall submit a report to Congress on the results of 
the study conducted under subsection (a), including rec-
ommendations for how to improve disclosure by issuers of 
municipal securities. 
SEC. 977. GOVERNMENT ACCOUNTABILITY OFFICE STUDY 
ON THE MUNICIPAL SECURITIES MARKETS. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study of the municipal securities 
markets. 
(b) REPORT.—Not later than 180 days after the date 
of enactment of this Act, the Comptroller General of the 
United States shall submit a report to the Committee on
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† HR 4173 EAS 
Banking, Housing, and Urban Affairs of the Senate, and 
the Committee on Financial Services of the House of Rep-
resentatives, with copies to the Special Committee on Aging 
of the Senate and the Commission, on the results of the 
study conducted under subsection (a), including— 
(1) an analysis of the mechanisms for trading, 
quality of trade executions, market transparency, 
trade reporting, price discovery, settlement clearing, 
and credit enhancements; 
(2) the needs of the markets and investors and 
the impact of recent innovations; 
(3) recommendations for how to improve the 
transparency, efficiency, fairness, and liquidity of 
trading in the municipal securities markets, includ-
ing with reference to items listed in paragraph (1); 
and 
(4) potential uses of derivatives in the municipal 
securities markets. 
(c) RESPONSES.—Not later than 180 days after receipt 
of the report required under subsection (b), the Commission 
shall submit a response to the Committee on Banking, 
Housing, and Urban Affairs of the Senate, and the Com-
mittee on Financial Services of the House of Representa-
tives, with a copy to the Special Committee on Aging of 
the Senate, stating the actions the Commission has taken
1130 
† HR 4173 EAS 
in response to the recommendations contained in such re-
port. 
SEC. 978. STUDY OF FUNDING FOR GOVERNMENT AC-
COUNTING STANDARDS BOARD. 
(a) STUDY.—The Commission shall conduct a study 
that evaluates— 
(1) the role and importance of the Government 
Accounting Standards Board in the municipal securi-
ties markets; 
(2) the manner in which the Government Ac-
counting Standards Board is funded, and how such 
manner of funding affects the financial information 
available to securities investors; 
(3) the advisability of changes to the manner in 
which the Government Accounting Standards Board 
is funded; and 
(4) whether legislative changes to the manner in 
which the Government Accounting Standards Board 
is funded are necessary for the benefit of investors and 
in the public interest. 
(b) CONSULTATION.—In conducting the study required 
under subsection (a), the Commission shall consult with 
State and local government financial officers. 
(c) REPORT.—Not later than 270 days after the date 
of enactment of this Act, the Commission shall submit to
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† HR 4173 EAS 
the Committee on Banking, Housing, and Urban Affairs 
of the Senate and the Committee on Financial Services of 
the House of Representatives a report on the study required 
under subsection (a). 
SEC. 979. COMMISSION OFFICE OF MUNICIPAL SECURITIES. 
(a) IN GENERAL.—There shall be in the Commission 
an Office of Municipal Securities, which shall— 
(1) administer the rules of the Commission with 
respect to the practices of municipal securities brokers 
and dealers, municipal securities advisors, municipal 
securities investors, and municipal securities issuers; 
and 
(2) coordinate with the Municipal Securities 
Rulemaking Board for rulemaking and enforcement 
actions as required by law. 
(b) DIRECTOR OF THE OFFICE.—The head of the Office 
of Municipal Securities shall be the Director, who shall re-
port to the Chairman. 
(c) STAFFING.— 
(1) IN GENERAL.—The Office of Municipal Secu-
rities shall be staffed sufficiently to carry out the re-
quirements of this section. 
(2) REQUIREMENT.—The staff of the Office of 
Municipal Securities shall include individuals with 
knowledge of and expertise in municipal finance.
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Subtitle 
I—Public 
Company 
Ac-
counting Oversight Board, Port-
folio Margining, and Other Mat-
ters 
SEC. 981. AUTHORITY TO SHARE CERTAIN INFORMATION 
WITH FOREIGN AUTHORITIES. 
(a) DEFINITION.—Section 2(a) of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7201(a)) is amended by adding at 
the end the following: 
‘‘(17) FOREIGN
AUDITOR
OVERSIGHT
AUTHOR-
ITY.—The term ‘foreign auditor oversight authority’ 
means any governmental body or other entity empow-
ered by a foreign government to conduct inspections 
of public accounting firms or otherwise to administer 
or enforce laws related to the regulation of public ac-
counting firms.’’. 
(b) AVAILABILITY TO SHARE INFORMATION.—Section 
105(b)(5) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7215(b)(5)) is amended by adding at the end the following: 
‘‘(C) AVAILABILITY TO FOREIGN OVERSIGHT 
AUTHORITIES.—Without the loss of its status as 
confidential and privileged in the hands of the 
Board, all information referred to in subpara-
graph (A) that relates to a public accounting 
firm that a foreign government has empowered a
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† HR 4173 EAS 
foreign auditor oversight authority to inspect or 
otherwise enforce laws with respect to, may, at 
the discretion of the Board, be made available to 
the foreign auditor oversight authority, if— 
‘‘(i) the Board finds that it is nec-
essary to accomplish the purposes of this 
Act or to protect investors; 
‘‘(ii) the foreign auditor oversight au-
thority provides— 
‘‘(I) such assurances of confiden-
tiality as the Board may request; 
‘‘(II) a description of the applica-
ble information systems and controls of 
the foreign auditor oversight authority; 
and 
‘‘(III) a description of the laws 
and regulations of the foreign govern-
ment of the foreign auditor oversight 
authority that are relevant to informa-
tion access; and 
‘‘(iii) the Board determines that it is 
appropriate to share such information.’’. 
(c) CONFORMING AMENDMENT.—Section 105(b)(5)(A) 
of 
the 
Sarbanes-Oxley 
Act 
of 
2002 
(15 
U.S.C.
1134 
† HR 4173 EAS 
7215(b)(5)(A)) is amended by striking ‘‘subparagraph (B)’’ 
and inserting ‘‘subparagraphs (B) and (C)’’. 
SEC. 982. OVERSIGHT OF BROKERS AND DEALERS. 
(a) DEFINITIONS.— 
(1) DEFINITIONS AMENDED.—Title I of the Sar-
banes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.) is 
amended by adding at the end the following new sec-
tion: 
‘‘SEC. 110. DEFINITIONS. 
‘‘For the purposes of this title, the following definitions 
shall apply: 
‘‘(1) AUDIT.—The term ‘audit’ means an exam-
ination of the financial statements, reports, docu-
ments, procedures, controls, or notices of any issuer, 
broker, or dealer by an independent public accounting 
firm in accordance with the rules of the Board or the 
Commission, for the purpose of expressing an opinion 
on the financial statements or providing an audit re-
port. 
‘‘(2) AUDIT REPORT.—The term ‘audit report’ 
means a document, report, notice, or other record— 
‘‘(A) prepared following an audit performed 
for purposes of compliance by an issuer, broker, 
or dealer with the requirements of the securities 
laws; and
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† HR 4173 EAS 
‘‘(B) in which a public accounting firm ei-
ther— 
‘‘(i) sets forth the opinion of that firm 
regarding a financial statement, report, no-
tice, or other document, procedures, or con-
trols; or 
‘‘(ii) asserts that no such opinion can 
be expressed. 
‘‘(3) BROKER.—The term ‘broker’ means a 
broker (as such term is defined in section 3(a)(4) of 
the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(4))) that is required to file a balance sheet, in-
come statement, or other financial statement under 
section 
17(e)(1)(A) 
of 
such 
Act 
(15 
U.S.C. 
78q(e)(1)(A)), where such balance sheet, income state-
ment, or financial statement is required to be certified 
by a registered public accounting firm. 
‘‘(4) DEALER.—The term ‘dealer’ means a dealer 
(as such term is defined in section 3(a)(5) of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78c(a)(5))) 
that is required to file a balance sheet, income state-
ment, or other financial statement under section 
17(e)(1)(A) of such Act (15 U.S.C. 78q(e)(1)(A)), 
where such balance sheet, income statement, or finan-
1136 
† HR 4173 EAS 
cial statement is required to be certified by a reg-
istered public accounting firm. 
‘‘(5) PROFESSIONAL
STANDARDS.—The term 
‘professional standards’ means— 
‘‘(A) accounting principles that are— 
‘‘(i) established by the standard setting 
body described in section 19(b) of the Secu-
rities Act of 1933, as amended by this Act, 
or prescribed by the Commission under sec-
tion 19(a) of that Act (15 U.S.C. 17a(s)) or 
section 13(b) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78a(m)); and 
‘‘(ii) relevant to audit reports for par-
ticular issuers, brokers, or dealers, or dealt 
with in the quality control system of a par-
ticular registered public accounting firm; 
and 
‘‘(B) auditing standards, standards for at-
testation engagements, quality control policies 
and procedures, ethical and competency stand-
ards, and independence standards (including 
rules implementing title II) that the Board or 
the Commission determines—
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† HR 4173 EAS 
‘‘(i) relate to the preparation or 
issuance of audit reports for issuers, bro-
kers, or dealers; and 
‘‘(ii) are established or adopted by the 
Board under section 103(a), or are promul-
gated as rules of the Commission. 
‘‘(6) SELF-REGULATORY
ORGANIZATION.—The 
term ‘self-regulatory organization’ has the same 
meaning as in section 3(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)).’’. 
(2) CONFORMING AMENDMENT.—Section 2(a) of 
the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(a)) 
is amended in the matter preceding paragraph (1), by 
striking ‘‘In this’’ and inserting ‘‘Except as otherwise 
specifically provided in this Act, in this’’. 
(b) ESTABLISHMENT AND ADMINISTRATION OF THE 
PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD.—Sec-
tion 101 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7211) is amended— 
(1) by striking ‘‘issuers’’ each place that term 
appears and inserting ‘‘issuers, brokers, and dealers’’; 
and 
(2) in subsection (a)— 
(A) by striking ‘‘public companies’’ and in-
serting ‘‘companies’’; and
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† HR 4173 EAS 
(B) by striking ‘‘for companies the securi-
ties of which are sold to, and held by and for, 
public investors’’. 
(c) REGISTRATION WITH THE BOARD.—Section 102 of 
the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212) is amend-
ed— 
(1) in subsection (a)— 
(A) by striking ‘‘Beginning 180’’ and all 
that follows through ‘‘101(d), it’’ and inserting 
‘‘It’’; and 
(B) by striking ‘‘issuer’’ and inserting 
‘‘issuer, broker, or dealer’’; 
(2) in subsection (b)— 
(A) in paragraph (2)(A), by striking 
‘‘issuers’’ and inserting ‘‘issuers, brokers, and 
dealers’’; and 
(B) by striking ‘‘issuer’’ each place that 
term appears and inserting ‘‘issuer, broker, or 
dealer’’. 
(d) AUDITING AND INDEPENDENCE.—Section 103(a) of 
the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7213(a)) is 
amended— 
(1) in paragraph (1), by striking ‘‘and such eth-
ics standards’’ and inserting ‘‘such ethics standards, 
and such independence standards’’;
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† HR 4173 EAS 
(2) in paragraph (2)(A)(iii), by striking ‘‘de-
scribe in each audit report’’ and inserting ‘‘in each 
audit report for an issuer, describe’’; and 
(3) in paragraph (2)(B)(i), by striking ‘‘issuers’’ 
and inserting ‘‘issuers, brokers, and dealers’’. 
(e) INSPECTIONS OF REGISTERED PUBLIC ACCOUNT-
ING FIRMS.—Section 104 of the Sarbanes-Oxley Act of 2002 
(15 U.S.C. 7214) is amended— 
(1) in subsection (a), by striking ‘‘issuers’’ and 
inserting ‘‘issuers, brokers, and dealers’’; and 
(2) in subsection (b)(1)— 
(A) by striking ‘‘audit reports for’’ each 
place that term appears and inserting ‘‘audit re-
ports on annual financial statements for’’; 
(B) in subparagraph (A), by striking ‘‘and’’ 
at the end; 
(C) in subparagraph (B), by striking the 
period at the end and inserting ‘‘; and’’; and 
(D) by adding at the end the following: 
‘‘(C) with respect to each registered public 
accounting firm that regularly provides audit re-
ports and that is not described in subparagraph 
(A) or (B), on a basis determined by the Board, 
by rule, that is consistent with the public interest 
and protection of investors.’’.
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† HR 4173 EAS 
(f) 
INVESTIGATIONS
AND
DISCIPLINARY
PRO-
CEEDINGS.—Section 105(c)(7)(B) of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7215(c)(7)(B)) is amended— 
(1) in the subparagraph heading, by inserting ‘‘, 
BROKER, OR DEALER’’ after ‘‘ISSUER’’; 
(2) by striking ‘‘any issuer’’ each place that term 
appears and inserting ‘‘any issuer, broker, or dealer’’; 
and 
(3) by striking ‘‘an issuer under this subsection’’ 
and inserting ‘‘a registered public accounting firm 
under this subsection’’. 
(g) FOREIGN PUBLIC ACCOUNTING FIRMS.—Section 
106(a) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7216(a)) is amended— 
(1) in paragraph (1), by striking ‘‘issuer’’ and 
inserting ‘‘issuer, broker, or dealer’’; and 
(2) in paragraph (2), by striking ‘‘issuers’’ and 
inserting ‘‘issuers, brokers, or dealers’’. 
(h) FUNDING.—Section 109 of the Sarbanes-Oxley Act 
of 2002 (15 U.S.C. 7219) is amended— 
(1) in subsection (c)(2), by striking ‘‘subsection 
(i)’’ and inserting ‘‘subsection (j)’’; 
(2) in subsection (d)— 
(A) in paragraph (2), by striking ‘‘allowing 
for differentiation among classes of issuers, as
1141 
† HR 4173 EAS 
appropriate’’ and inserting ‘‘and among brokers 
and dealers, in accordance with subsection (h), 
and allowing for differentiation among classes of 
issuers, brokers and dealers, as appropriate’’; 
and 
(B) by adding at the end the following: 
‘‘(3) BROKERS AND DEALERS.—The Board shall 
begin the allocation, assessment, and collection of fees 
under paragraph (2) with respect to brokers and deal-
ers with the payment of support fees to fund the first 
full fiscal year beginning after the effective date of 
this paragraph.’’; 
(3) by redesignating subsections (h), (i), and (j) 
as subsections (i), (j), and (k), respectively; and 
(4) by inserting after subsection (g) the fol-
lowing: 
‘‘(h) ALLOCATION
OF ACCOUNTING SUPPORT FEES 
AMONG BROKERS AND DEALERS.— 
‘‘(1) OBLIGATION TO PAY.—Each broker or deal-
er shall pay to the Board the annual accounting sup-
port fee allocated to such broker or dealer under this 
section. 
‘‘(2) ALLOCATION.—Any amount due from a 
broker or dealer (or from a particular class of brokers 
and dealers) under this section shall be allocated
1143 
† HR 4173 EAS 
(1) in subclause (III), by striking ‘‘and’’ at the 
end; 
(2) in subclause (IV), by striking the comma and 
inserting ‘‘; and’’; and 
(3) by inserting after subclause (IV) the fol-
lowing: 
‘‘(V) a self-regulatory organiza-
tion, with respect to an audit report 
for a broker or dealer that is under the 
jurisdiction of such self-regulatory or-
ganization,’’. 
(k) EFFECTIVE DATE.—The amendments made by this 
section shall take effect 180 days after the date of enactment 
of this Act. 
SEC. 983. PORTFOLIO MARGINING. 
(a) ADVANCES.—Section 9(a)(1) of the Securities In-
vestor Protection Act of 1970 (15 U.S.C. 78fff–3(a)(1)) is 
amended by inserting ‘‘or options on commodity futures 
contracts’’ after ‘‘claim for securities’’. 
(b) DEFINITIONS.—Section 16 of the Securities Inves-
tor Protection Act of 1970 (15 U.S.C. 78lll) is amended— 
(1) by striking paragraph (2) and inserting the 
following: 
‘‘(2) CUSTOMER.—
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† HR 4173 EAS 
‘‘(A) IN GENERAL.—The term ‘customer’ of 
a debtor means any person (including any per-
son with whom the debtor deals as principal or 
agent) who has a claim on account of securities 
received, acquired, or held by the debtor in the 
ordinary course of its business as a broker or 
dealer from or for the securities accounts of such 
person for safekeeping, with a view to sale, to 
cover consummated sales, pursuant to purchases, 
as collateral, security, or for purposes of effecting 
transfer. 
‘‘(B) INCLUDED PERSONS.—The term ‘cus-
tomer’ includes— 
‘‘(i) any person who has deposited cash 
with the debtor for the purpose of pur-
chasing securities; 
‘‘(ii) any person who has a claim 
against the debtor for cash, securities, fu-
tures contracts, or options on futures con-
tracts received, acquired, or held in a port-
folio margining account carried as a securi-
ties account pursuant to a portfolio mar-
gining program approved by the Commis-
sion; and
1145 
† HR 4173 EAS 
‘‘(iii) any person who has a claim 
against the debtor arising out of sales or 
conversions of such securities. 
‘‘(C) EXCLUDED PERSONS.—The term ‘cus-
tomer’ does not include any person, to the extent 
that— 
‘‘(i) the claim of such person arises out 
of transactions with a foreign subsidiary of 
a member of SIPC; or 
‘‘(ii) such person has a claim for cash 
or securities which by contract, agreement, 
or understanding, or by operation of law, is 
part of the capital of the debtor, or is subor-
dinated to the claims of any or all creditors 
of the debtor, notwithstanding that some 
ground exists for declaring such contract, 
agreement, or understanding void or void-
able in a suit between the claimant and the 
debtor.’’; 
(2) in paragraph (4)— 
(A) in subparagraph (C), by striking ‘‘and’’ 
at the end; 
(B) by redesignating subparagraph (D) as 
subparagraph (E); and
1146 
† HR 4173 EAS 
(C) by inserting after subparagraph (C) the 
following: 
‘‘(D) in the case of a portfolio margining 
account of a customer that is carried as a securi-
ties account pursuant to a portfolio margining 
program approved by the Commission, a futures 
contract or an option on a futures contract re-
ceived, acquired, or held by or for the account of 
a debtor from or for such portfolio margining ac-
count, and the proceeds thereof; and’’; 
(3) in paragraph (9), in the matter following 
subparagraph (L), by inserting after ‘‘Such term’’ the 
following: ‘‘includes revenues earned by a broker or 
dealer in connection with a transaction in the port-
folio margining account of a customer carried as se-
curities accounts pursuant to a portfolio margining 
program approved by the Commission. Such term’’; 
and 
(4) in paragraph (11)— 
(A) in subparagraph (A)— 
(i) by striking ‘‘filing date, all’’ and 
all that follows through the end of the sub-
paragraph and inserting the following: ‘‘fil-
ing date—
1147 
† HR 4173 EAS 
‘‘(i) all securities positions of such cus-
tomer (other than customer name securities 
reclaimed by such customer); and 
‘‘(ii) all positions in futures contracts 
and options on futures contracts held in a 
portfolio margining account carried as a se-
curities account pursuant to a portfolio 
margining program approved by the Com-
mission, 
including 
all 
property 
collateralizing such positions, to the extent 
that such property is not otherwise included 
herein; minus’’; and 
(B) in the matter following subparagraph 
(C), by striking ‘‘In determining’’ and inserting 
the following: ‘‘A claim for a commodity futures 
contract received, acquired, or held in a portfolio 
margining account pursuant to a portfolio mar-
gining program approved by the Commission or 
a claim for a security futures contract, shall be 
deemed to be a claim with respect to such con-
tract as of the filing date, and such claim shall 
be treated as a claim for cash. In determining’’.
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† HR 4173 EAS 
SEC. 984. LOAN OR BORROWING OF SECURITIES. 
(a) RULEMAKING AUTHORITY.—Section 10 of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78j) is amended 
by adding at the end the following: 
‘‘(c)(1) To effect, accept, or facilitate a trans-
action involving the loan or borrowing of securities in 
contravention of such rules and regulations as the 
Commission may prescribe as necessary or appro-
priate in the public interest or for the protection of 
investors. 
‘‘(2) Nothing in paragraph (1) may be construed 
to limit the authority of the appropriate Federal 
banking agency (as defined in section 3(q) of the Fed-
eral Deposit Insurance Act (12 U.S.C. 1813(q))), the 
National Credit Union Administration, or any other 
Federal department or agency having a responsibility 
under Federal law to prescribe rules or regulations re-
stricting transactions involving the loan or borrowing 
of securities in order to protect the safety and sound-
ness of a financial institution or to protect the finan-
cial system from systemic risk.’’. 
(b) RULEMAKING REQUIRED.—Not later than 2 years 
after the date of enactment of this Act, the Commission shall 
promulgate rules that are designed to increase the trans-
parency of information available to brokers, dealers, and 
investors, with respect to the loan or borrowing of securities.
1149 
† HR 4173 EAS 
SEC. 985. TECHNICAL CORRECTIONS TO FEDERAL SECURI-
TIES LAWS. 
(a) SECURITIES ACT OF 1933.—The Securities Act of 
1933 (15 U.S.C. 77a et seq.) is amended— 
(1) in section 3(a)(4) (15 U.S.C. 77c(a)(4)), by 
striking ‘‘individual;’’ and inserting ‘‘individual,’’; 
(2) in section 18 (15 U.S.C. 77r)— 
(A) in subsection (b)(1)(C), by striking ‘‘is 
a security’’ and inserting ‘‘a security’’; and 
(B) in subsection (c)(2)(B)(i), by striking 
‘‘State, or’’ and inserting ‘‘State or’’; 
(3) 
in 
section 
19(d)(6)(A) 
(15 
U.S.C. 
77s(d)(6)(A)), by striking ‘‘in paragraph (1) of (3)’’ 
and inserting ‘‘in paragraph (1) or (3)’’; and 
(4) in section 27A(c)(1)(B)(ii) (15 U.S.C. 77z– 
2(c)(1)(B)(ii)), by striking ‘‘business entity;’’ and in-
serting ‘‘business entity,’’. 
(b) SECURITIES EXCHANGE ACT OF 1934.—The Secu-
rities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended— 
(1) in section 2 (15 U.S.C. 78b), by striking ‘‘af-
fected’’ and inserting ‘‘effected’’; 
(2) in section 3 (15 U.S.C. 78c)— 
(A) in subsection (a)(55)(A), by striking 
‘‘section 3(a)(12) of the Securities Exchange Act
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† HR 4173 EAS 
of 1934’’ and inserting ‘‘section 3(a)(12) of this 
title’’; and 
(B) in subsection (g), by striking ‘‘com-
pany, account person, or entity’’ and inserting 
‘‘company, account, person, or entity’’; 
(3) in section 10A(i)(1)(B) (15 U.S.C. 78j– 
1(i)(1)(B))— 
(A) in the subparagraph heading, by strik-
ing ‘‘MINIMUS’’ and inserting ‘‘MINIMIS’’; and 
(B) in clause (i), by striking ‘‘nonaudit’’ 
and inserting ‘‘non-audit’’; 
(4) in section 13(b)(1) (15 U.S.C. 78m(b)(1)), by 
striking ‘‘earning statement’’ and inserting ‘‘earnings 
statement’’; 
(5) in section 15 (15 U.S.C. 78o)— 
(A) in subsection (b)(1)— 
(i) in subparagraph (B), by striking 
‘‘The order granting’’ and all that follows 
through ‘‘from such membership.’’; and 
(ii) in the undesignated matter imme-
diately following subparagraph (B), by in-
serting after the first sentence the following: 
‘‘The order granting registration shall not 
be effective until such broker or dealer has 
become a member of a registered securities
1151 
† HR 4173 EAS 
association, or until such broker or dealer 
has become a member of a national securi-
ties exchange, if such broker or dealer effects 
transactions solely on that exchange, unless 
the Commission has exempted such broker 
or dealer, by rule or order, from such mem-
bership.’’; 
(6) in section 15C(a)(2) (15 U.S.C. 78o– 
5(a)(2))— 
(A) by redesignating clauses (i) and (ii) as 
subparagraphs (A) and (B), respectively, and 
adjusting the subparagraph margins accordingly; 
(B) in subparagraph (B), as so redesig-
nated, by striking ‘‘The order granting’’ and all 
that follows through ‘‘from such membership.’’; 
and 
(C) in the matter following subparagraph 
(B), as so redesignated, by inserting after the 
first sentence the following: ‘‘The order granting 
registration shall not be effective until such gov-
ernment securities broker or government securi-
ties dealer has become a member of a national 
securities exchange registered under section 6 of 
this title, or a securities association registered 
under section 15A of this title, unless the Com-
1152 
† HR 4173 EAS 
mission has exempted such government securities 
broker or government securities dealer, by rule or 
order, from such membership.’’; 
(7) 
in 
section 
17(b)(1)(B) 
(15 
U.S.C. 
78q(b)(1)(B)), by striking ‘‘15A(k) gives’’ and insert-
ing ‘‘15A(k), give’’; and 
(8) in section 21C(c)(2) (15 U.S.C. 78u–3(c)(2)), 
by striking ‘‘paragraph (1) subsection’’ and inserting 
‘‘Paragraph (1)’’. 
(c) TRUST INDENTURE ACT OF 1939.—The Trust In-
denture Act of 1939 (15 U.S.C. 77aaa et seq.) is amended— 
(1) in section 304(b) (15 U.S.C. 77ddd(b)), by 
striking ‘‘section 2 of such Act’’ and inserting ‘‘section 
2(a) of such Act’’; and 
(2) in section 317(a)(1) (15 U.S.C. 77qqq(a)(1)), 
by striking ‘‘, in the’’ and inserting ‘‘in the’’. 
(d) INVESTMENT COMPANY ACT OF 1940.—The Invest-
ment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) is 
amended— 
(1) in section 2(a)(19) (15 U.S.C. 80a–2(a)(19)), 
in the matter following subparagraph (B)(vii)— 
(A) by striking ‘‘clause (vi)’’ each place that 
term appears and inserting ‘‘clause (vii)’’; and