H. R. 4173—490 
(2) UNDER THE SECURITIES EXCHANGE ACT OF 1934.—Section 
27 of the Securities Exchange Act of 1934 (15 U.S.C. 78aa) 
is amended— 
(A) by striking ‘‘The district’’ and inserting the fol-
lowing: 
‘‘(a) IN GENERAL.—The district’’; and 
(B) by adding at the end the following new subsection: 
‘‘(b) EXTRATERRITORIAL JURISDICTION.—The district courts of 
the United States and the United States courts of any Territory 
shall have jurisdiction of an action or proceeding brought or 
instituted by the Commission or the United States alleging a viola-
tion of the antifraud provisions of this title involving— 
‘‘(1) conduct within the United States that constitutes 
significant steps in furtherance of the violation, even if the 
securities transaction occurs outside the United States and 
involves only foreign investors; or 
‘‘(2) conduct occurring outside the United States that has 
a foreseeable substantial effect within the United States.’’. 
(3) UNDER THE INVESTMENT ADVISERS ACT OF 1940.—Section 
214 of the Investment Advisers Act of 1940 (15 U.S.C. 80b– 
14) is amended— 
(A) by striking ‘‘The district’’ and inserting the fol-
lowing: 
‘‘(a) IN GENERAL.—The district’’; and 
(B) by adding at the end the following new subsection: 
‘‘(b) EXTRATERRITORIAL JURISDICTION.—The district courts of 
the United States and the United States courts of any Territory 
shall have jurisdiction of an action or proceeding brought or 
instituted by the Commission or the United States alleging a viola-
tion of section 206 involving— 
‘‘(1) conduct within the United States that constitutes 
significant steps in furtherance of the violation, even if the 
violation is committed by a foreign adviser and involves only 
foreign investors; or 
‘‘(2) conduct occurring outside the United States that has 
a foreseeable substantial effect within the United States.’’. 
(c) CONTROL
PERSON
LIABILITY
UNDER
THE
SECURITIES 
EXCHANGE ACT OF 1934.—Section 20(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78t(a)) is amended by inserting after ‘‘con-
trolled person is liable’’ the following: ‘‘(including to the Commission 
in any action brought under paragraph (1) or (3) of section 21(d))’’. 
SEC. 929Q. REVISION TO RECORDKEEPING RULE. 
(a) INVESTMENT COMPANY ACT OF 1940 AMENDMENTS.—Section 
31 of the Investment Company Act of 1940 (15 U.S.C. 80a–30) 
is amended— 
(1) in subsection (a)(1), by adding at the end the following: 
‘‘Each person having custody or use of the securities, deposits, 
or credits of a registered investment company shall maintain 
and preserve all records that relate to the custody or use 
by such person of the securities, deposits, or credits of the 
registered investment company for such period or periods as 
the Commission, by rule or regulation, may prescribe, as nec-
essary or appropriate in the public interest or for the protection 
of investors.’’; and 
(2) in subsection (b), by adding at the end the following: 
‘‘(4) RECORDS OF PERSONS WITH CUSTODY OR USE.—
H. R. 4173—491 
‘‘(A) IN GENERAL.—Records of persons having custody 
or use of the securities, deposits, or credits of a registered 
investment company that relate to such custody or use, 
are subject at any time, or from time to time, to such 
reasonable periodic, special, or other examinations and 
other information and document requests by representa-
tives of the Commission, as the Commission deems nec-
essary or appropriate in the public interest or for the 
protection of investors. 
‘‘(B) CERTAIN
PERSONS
SUBJECT
TO
OTHER
REGULA-
TION.—Any person that is subject to regulation and exam-
ination by a Federal financial institution regulatory agency 
(as such term is defined under section 212(c)(2) of title 
18, United States Code) may satisfy any examination 
request, 
information 
request, 
or 
document 
request 
described under subparagraph (A), by providing to the 
Commission a detailed listing, in writing, of the securities, 
deposits, or credits of the registered investment company 
within the custody or use of such person.’’. 
(b) INVESTMENT ADVISERS ACT OF 1940 AMENDMENT.—Section 
204 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–4) 
is amended by adding at the end the following new subsection: 
‘‘(d) RECORDS OF PERSONS WITH CUSTODY OR USE.— 
‘‘(1) IN GENERAL.—Records of persons having custody or 
use of the securities, deposits, or credits of a client, that relate 
to such custody or use, are subject at any time, or from time 
to time, to such reasonable periodic, special, or other examina-
tions and other information and document requests by rep-
resentatives of the Commission, as the Commission deems nec-
essary or appropriate in the public interest or for the protection 
of investors. 
‘‘(2) CERTAIN PERSONS SUBJECT TO OTHER REGULATION.— 
Any person that is subject to regulation and examination by 
a Federal financial institution regulatory agency (as such term 
is defined under section 212(c)(2) of title 18, United States 
Code) may satisfy any examination request, information 
request, or document request described under paragraph (1), 
by providing the Commission with a detailed listing, in writing, 
of the securities, deposits, or credits of the client within the 
custody or use of such person.’’. 
SEC. 929R. BENEFICIAL OWNERSHIP AND SHORT-SWING PROFIT 
REPORTING. 
(a) BENEFICIAL OWNERSHIP REPORTING.—Section 13 of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78m) is amended— 
(1) in subsection (d)(1)— 
(A) by inserting after ‘‘within ten days after such 
acquisition’’ the following: ‘‘or within such shorter time 
as the Commission may establish by rule’’; and 
(B) by striking ‘‘send to the issuer of the security 
at its principal executive office, by registered or certified 
mail, send to each exchange where the security is traded, 
and’’; 
(2) in subsection (d)(2)— 
(A) by striking ‘‘in the statements to the issuer and 
the exchange, and’’; and
H. R. 4173—492 
(B) by striking ‘‘shall be transmitted to the issuer 
and the exchange and’’; 
(3) in subsection (g)(1), by striking ‘‘shall send to the issuer 
of the security and’’; and 
(4) in subsection (g)(2)— 
(A) by striking ‘‘sent to the issuer and’’; and 
(B) by striking ‘‘shall be transmitted to the issuer 
and’’. 
(b) SHORT-SWING PROFIT REPORTING.—Section 16(a) of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78p(a)) is amended— 
(1) in paragraph (1), by striking ‘‘(and, if such security 
is registered on a national securities exchange, also with the 
exchange)’’; and 
(2) in paragraph (2)(B), by inserting after ‘‘officer’’ the 
following: ‘‘, or within such shorter time as the Commission 
may establish by rule’’. 
SEC. 929S. FINGERPRINTING. 
Section 17(f)(2) of the Securities Exchange Act of 1934 (15 
U.S.C. 78q(f)(2)) is amended— 
(1) in the first sentence, by striking ‘‘and registered clearing 
agency,’’ and inserting ‘‘registered clearing agency, registered 
securities information processor, national securities exchange, 
and national securities association’’; and 
(2) in the second sentence, by striking ‘‘or clearing agency,’’ 
and inserting ‘‘clearing agency, securities information processor, 
national securities exchange, or national securities associa-
tion,’’. 
SEC. 929T. EQUAL TREATMENT OF SELF-REGULATORY ORGANIZATION 
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 organization,’’. 
SEC. 929U. DEADLINE FOR COMPLETING EXAMINATIONS, INSPECTIONS 
AND ENFORCEMENT ACTIONS. 
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
is amended by inserting after section 4D the following new section: 
‘‘SEC. 4E. DEADLINE FOR COMPLETING ENFORCEMENT INVESTIGA-
TIONS AND COMPLIANCE EXAMINATIONS AND INSPEC-
TIONS. 
‘‘(a) ENFORCEMENT INVESTIGATIONS.— 
‘‘(1) IN GENERAL.—Not later than 180 days after the date 
on which Commission staff provide a written Wells notification 
to any person, the Commission staff shall either file an action 
against such person or provide notice to the Director of the 
Division of Enforcement of its intent to not file an action. 
‘‘(2) EXCEPTIONS FOR CERTAIN COMPLEX ACTIONS.—Notwith-
standing paragraph (1), if the Director of the Division of 
Enforcement of the Commission or the Director’s designee deter-
mines that a particular enforcement investigation is sufficiently 
complex such that a determination regarding the filing of an 
action against a person cannot be completed within the deadline 
specified in paragraph (1), the Director of the Division of 
Enforcement of the Commission or the Director’s designee may, 
after providing notice to the Chairman of the Commission,
H. R. 4173—493 
extend such deadline as needed for one additional 180-day 
period. If after the additional 180-day period the Director of 
the Division of Enforcement of the Commission or the Director’s 
designee determines that a particular enforcement investigation 
is sufficiently complex such that a determination regarding 
the filing of an action against a person cannot be completed 
within the additional 180-day period, the Director of the Divi-
sion of Enforcement of the Commission or the Director’s des-
ignee may, after providing notice to and receiving approval 
of the Commission, extend such deadline as needed for one 
or more additional successive 180-day periods. 
‘‘(b) COMPLIANCE EXAMINATIONS AND INSPECTIONS.— 
‘‘(1) IN GENERAL.—Not later than 180 days after the date 
on which Commission staff completes the on-site portion of 
its compliance examination or inspection or receives all records 
requested from the entity being examined or inspected, which-
ever is later, Commission staff shall provide the entity being 
examined or inspected with written notification indicating 
either that the examination or inspection has concluded, has 
concluded without findings, or that the staff requests the entity 
undertake corrective action. 
‘‘(2) EXCEPTION FOR CERTAIN COMPLEX ACTIONS.—Notwith-
standing paragraph (1), if the head of any division or office 
within the Commission responsible for compliance examinations 
and inspections or his designee determines that a particular 
compliance examination or inspection is sufficiently complex 
such that a determination regarding concluding the examina-
tion or inspection, or regarding the staff requests the entity 
undertake corrective action, cannot be completed within the 
deadline specified in paragraph (1), the head of any division 
or office within the Commission responsible for compliance 
examinations and inspections or his designee may, after pro-
viding notice to the Chairman of the Commission, extend such 
deadline as needed for one additional 180-day period.’’. 
SEC. 929V. SECURITY INVESTOR PROTECTION ACT AMENDMENTS. 
(a) INCREASING THE MINIMUM ASSESSMENT PAID BY SIPC MEM-
BERS.—Section 4(d)(1)(C) of the Securities Investor Protection Act 
of 1970 (15 U.S.C. 78ddd(d)(1)(C)) is amended by striking ‘‘$150 
per annum’’ and inserting the following: ‘‘0.02 percent of the gross 
revenues from the securities business of such member of SIPC’’. 
(b) INCREASING THE FINE FOR PROHIBITED ACTS UNDER SIPA.— 
Section 14(c) of the Securities Investor Protection Act of 1970 (15 
U.S.C. 78jjj(c)) is amended— 
(1) in paragraph (1), by striking ‘‘$50,000’’ and inserting 
‘‘$250,000’’; and 
(2) in paragraph (2), by striking ‘‘$50,000’’ and inserting 
‘‘$250,000’’. 
(c) PENALTY FOR MISREPRESENTATION OF SIPC MEMBERSHIP 
OR PROTECTION.—Section 14 of the Securities Investor Protection 
Act of 1970 (15 U.S.C. 78jjj) is amended by adding at the end 
the following new subsection: 
‘‘(d) MISREPRESENTATION
OF SIPC MEMBERSHIP
OR PROTEC-
TION.— 
‘‘(1) IN GENERAL.—Any person who falsely represents by 
any means (including, without limitation, through the Internet 
or any other medium of mass communication), with actual
H. R. 4173—494 
knowledge of the falsity of the representation and with an 
intent to deceive or cause injury to another, that such person, 
or another person, is a member of SIPC or that any person 
or account is protected or is eligible for protection under this 
Act or by SIPC, shall be liable for any damages caused thereby 
and shall be fined not more than $250,000 or imprisoned for 
not more than 5 years. 
‘‘(2) INJUNCTIONS.—Any court having jurisdiction of a civil 
action arising under this Act may grant temporary injunctions 
and final injunctions on such terms as the court deems reason-
able to prevent or restrain any violation of paragraph (1). 
Any such injunction may be served anywhere in the United 
States on the person enjoined, shall be operative throughout 
the United States, and shall be enforceable, by proceedings 
in contempt or otherwise, by any United States court having 
jurisdiction over that person. The clerk of the court granting 
the injunction shall, when requested by any other court in 
which enforcement of the injunction is sought, transmit 
promptly to the other court a certified copy of all papers in 
the case on file in such clerk’s office.’’. 
SEC. 929W. NOTICE TO MISSING SECURITY HOLDERS. 
Section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 
78q–1) is amended by adding at the end the following new sub-
section: 
‘‘(g) DUE
DILIGENCE
FOR
THE
DELIVERY
OF
DIVIDENDS, 
INTEREST, AND OTHER VALUABLE PROPERTY RIGHTS.— 
‘‘(1) REVISION OF RULES REQUIRED.—The Commission shall 
revise its regulations in section 240.17Ad–17 of title 17, Code 
of Federal Regulations, as in effect on December 8, 1997, to 
extend the application of such section to brokers and dealers 
and to provide for the following: 
‘‘(A) A requirement that the paying agent provide a 
single written notification to each missing security holder 
that the missing security holder has been sent a check 
that has not yet been negotiated. The written notification 
may be sent along with a check or other mailing subse-
quently sent to the missing security holder but must be 
provided no later than 7 months after the sending of the 
not yet negotiated check. 
‘‘(B) An exclusion for paying agents from the notifica-
tion requirements when the value of the not yet negotiated 
check is less than $25. 
‘‘(C) A provision clarifying that the requirements 
described in subparagraph (A) shall have no effect on State 
escheatment laws. 
‘‘(D) For purposes of such revised regulations— 
‘‘(i) a security holder shall be considered a ‘missing 
security holder’ if a check is sent to the security holder 
and the check is not negotiated before the earlier of 
the paying agent sending the next regularly scheduled 
check or the elapsing of 6 months after the sending 
of the not yet negotiated check; and 
‘‘(ii) the term ‘paying agent’ includes any issuer, 
transfer agent, broker, dealer, investment adviser, 
indenture trustee, custodian, or any other person that
H. R. 4173—495 
accepts payments from the issuer of a security and 
distributes the payments to the holders of the security. 
‘‘(2) RULEMAKING.—The Commission shall adopt such rules, 
regulations, and orders necessary to implement this subsection 
no later than 1 year after the date of enactment of this sub-
section. In proposing such rules, the Commission shall seek 
to minimize disruptions to current systems used by or on behalf 
of paying agents to process payment to account holders and 
avoid requiring multiple paying agents to send written notifica-
tion to a missing security holder regarding the same not yet 
negotiated check.’’. 
SEC. 929X. SHORT SALE REFORMS. 
(a) SHORT SALE DISCLOSURE.—Section 13(f) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(f)) is amended by redesig-
nating paragraphs (2), (3), (4), and (5) as paragraphs (3), (4), (5), 
and (6), respectively, and inserting after paragraph (1) the following: 
‘‘(2) The Commission shall prescribe rules providing for 
the public disclosure of the name of the issuer and the title, 
class, CUSIP number, aggregate amount of the number of 
short sales of each security, and any additional information 
determined by the Commission following the end of the 
reporting period. At a minimum, such public disclosure shall 
occur every month.’’. 
(b) SHORT SELLING ENFORCEMENT.—Section 9 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78i) is amended— 
(1) by redesignating subsections (d), (e), (f), (g), (h), and 
(i) as subsections (e), (f), (g), (h), (i), and (j), respectively; and 
(2) inserting after subsection (c), the following new sub-
section: 
‘‘(d) TRANSACTIONS RELATING TO SHORT SALES OF SECURITIES.— 
It shall be unlawful for any person, directly or indirectly, by the 
use of the mails or any means or instrumentality of interstate 
commerce, or of any facility of any national securities exchange, 
or for any member of a national securities exchange to effect, 
alone or with one or more other persons, a manipulative short 
sale of any security. The Commission shall issue such other rules 
as are necessary or appropriate to ensure that the appropriate 
enforcement options and remedies are available for violations of 
this subsection in the public interest or for the protection of inves-
tors.’’. 
(c) INVESTOR
NOTIFICATION.—Section 15 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o) is amended— 
(1) by redesignating subsections (e), (f), (g), (h), and (i) 
as subsections (f), (g), (h), (i), and (j), respectively; and 
(2) inserting after subsection (d) the following new sub-
section: 
‘‘(e) NOTICES TO CUSTOMERS REGARDING SECURITIES LENDING.— 
Every registered broker or dealer shall provide notice to its cus-
tomers that they may elect not to allow their fully paid securities 
to be used in connection with short sales. If a broker or dealer 
uses a customer’s securities in connection with short sales, the 
broker or dealer shall provide notice to its customer that the broker 
or dealer may receive compensation in connection with lending 
the customer’s securities. The Commission, by rule, as it deems 
necessary or appropriate in the public interest and for the protection
H. R. 4173—496 
of investors, may prescribe the form, content, time, and manner 
of delivery of any notice required under this paragraph.’’. 
SEC. 929Y. STUDY ON EXTRATERRITORIAL PRIVATE RIGHTS OF 
ACTION. 
(a) IN GENERAL.—The Securities and Exchange Commission 
of the United States shall solicit public comment and thereafter 
conduct a study to determine the extent to which private rights 
of action under the antifraud provisions of the Securities and 
Exchange Act of 1934 (15 U.S.C. 78u-4) should be extended to 
cover— 
(1) conduct within the United States that constitutes a 
significant step in the furtherance of the violation, even if 
the securities transaction occurs outside the United States and 
involves only foreign investors; and 
(2) conduct occurring outside the United States that has 
a foreseeable substantial effect within the United States. 
(b) CONTENTS.—The study shall consider and analyze, among 
other things— 
(1) the scope of such a private right of action, including 
whether it should extend to all private actors or whether it 
should be more limited to extend just to institutional investors 
or otherwise; 
(2) what implications such a private right of action would 
have on international comity; 
(3) the economic costs and benefits of extending a private 
right of action for transnational securities frauds; and 
(4) whether a narrower extraterritorial standard should 
be adopted. 
(c) REPORT.—A report of the study shall be submitted and 
recommendations made to the Committee on Banking, Housing, 
and Urban Affairs of the Senate and the Committee on Financial 
Services of the House not later than 18 months after the date 
of enactment of this Act. 
SEC. 929Z. GAO STUDY ON SECURITIES LITIGATION. 
(a) STUDY.—The Comptroller General of the United States shall 
conduct a study on the impact of authorizing a private right of 
action against any person who aids or abets another person in 
violation of the securities laws. To the extent feasible, this study 
shall include— 
(1) a review of the role of secondary actors in companies 
issuance of securities; 
(2) the courts interpretation of the scope of liability for 
secondary actors under Federal securities laws after January 
14, 2008; and 
(3) the types of lawsuits decided under the Private Securi-
ties Litigation Act of 1995. 
(b) REPORT.—Not later than 1 year after the date of enactment 
of this Act, the Comptroller General shall submit a report to Con-
gress on the findings of the study required under subsection (a).
H. R. 4173—497 
Subtitle C—Improvements to the 
Regulation of Credit Rating Agencies 
SEC. 931. FINDINGS. 
Congress finds the following: 
(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 statistical rating organizations, are matters of 
national public interest, as credit rating agencies are central 
to capital formation, investor confidence, and the efficient 
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 securi-
ties analysts, who evaluate the quality of securities in the 
equity market, and auditors, who review the financial state-
ments of firms. Such role justifies a similar level of public 
oversight and accountability. 
(3) Because credit rating agencies perform evaluative and 
analytical services on behalf of clients, much as other financial 
‘‘gatekeepers’’ do, the activities of credit rating agencies are 
fundamentally commercial in character and should be subject 
to the same standards of liability and oversight as apply to 
auditors, securities analysts, and investment bankers. 
(4) In certain activities, particularly in advising arrangers 
of structured financial products on potential ratings of such 
products, credit rating agencies face conflicts of interest that 
need to be carefully monitored and that therefore should be 
addressed explicitly 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 inaccurate. 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 increased 
accountability on the part of credit rating agencies. 
SEC. 932. ENHANCED REGULATION, ACCOUNTABILITY, AND TRANS-
PARENCY OF NATIONALLY RECOGNIZED STATISTICAL 
RATING ORGANIZATIONS. 
(a) IN GENERAL.—Section 15E of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o–7) is amended— 
(1) in subsection (b)— 
(A) in paragraph (1)(A), by striking ‘‘furnished’’ and 
inserting ‘‘filed’’ and by striking ‘‘furnishing’’ and inserting 
‘‘filing’’; 
(B) in paragraph (1)(B), by striking ‘‘furnishing’’ and 
inserting ‘‘filing’’; and 
(C) in the first sentence of paragraph (2), by striking 
‘‘furnish to’’ and inserting ‘‘file with’’; 
(2) in subsection (c)— 
(A) in paragraph (2)—
H. R. 4173—498 
(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 paragraph 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 recognized statis-
tical rating organization shall establish, maintain, enforce, 
and document an effective internal control structure gov-
erning the implementation of and adherence to policies, 
procedures, 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 organization to submit to the Commission 
an annual internal controls report, which shall contain— 
‘‘(i) a description of the responsibility of the 
management of the nationally recognized statistical 
rating organization in establishing and maintaining 
an effective internal control structure under subpara-
graph (A); 
‘‘(ii) an assessment of the effectiveness of the 
internal control structure of the nationally recognized 
statistical rating organization; and 
‘‘(iii) the attestation of the chief executive officer, 
or equivalent individual, of the nationally recognized 
statistical rating organization.’’; 
(3) in subsection (d)— 
(A) by inserting after ‘‘or revoke the registration of 
any nationally recognized statistical rating organization’’ 
the following: ‘‘, or with respect to any person who is 
associated with, who is seeking to become associated with, 
or, at the time of the alleged misconduct, who was associ-
ated or was seeking to become associated with a nationally 
recognized statistical rating organization, the Commission, 
by order, shall censure, place limitations on the activities 
or functions of such person, suspend for a period not 
exceeding 1 year, or bar such person from being associated 
with a nationally recognized statistical rating organiza-
tion,’’; 
(B) by inserting ‘‘bar’’ after ‘‘placing of limitations, 
suspension,’’; 
(C) in paragraph (2), by striking ‘‘furnished to’’ and 
inserting ‘‘filed with’’; 
(D) in paragraph (2), by redesignating subparagraphs 
(A) and (B) as clauses (i) and (ii), respectively, and 
adjusting the clause margins accordingly; 
(E) by redesignating paragraphs (1) through (5) as 
subparagraphs (A) through (E), respectively, and adjusting 
the subparagraph margins accordingly;
H. R. 4173—499 
(F) in the matter preceding subparagraph (A), as so 
redesignated, by striking ‘‘The Commission’’ and inserting 
the following: 
‘‘(1) IN GENERAL.—The Commission’’; 
(G) in subparagraph (D), as so redesignated— 
(i) by striking ‘‘furnish’’ and inserting ‘‘file’’; and 
(ii) by striking ‘‘or’’ at the end. 
(H) in subparagraph (E), as so redesignated, by striking 
the period at the end and inserting a semicolon; and 
(I) by adding at the end the following: 
‘‘(F) has failed reasonably to supervise, with a view 
to preventing a violation of the securities laws, an indi-
vidual who commits such a violation, if the individual 
is subject to the supervision of that person. 
‘‘(2) SUSPENSION
OR
REVOCATION
FOR
PARTICULAR
CLASS 
OF SECURITIES.— 
‘‘(A) IN GENERAL.—The Commission may temporarily 
suspend or permanently revoke the registration of a nation-
ally recognized statistical rating organization with respect 
to a particular class or subclass of securities, if the Commis-
sion finds, on the record after notice and opportunity for 
hearing, that the nationally recognized statistical rating 
organization does not have adequate financial and manage-
rial resources to consistently 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 determined by the Commission, to produce 
ratings that are accurate for that class or subclass 
of securities; and 
‘‘(ii) such other factors as the Commission may 
determine.’’; 
(4) 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 marketing considerations 
of a nationally recognized statistical rating organization 
from influencing the production of ratings by the nationally 
recognized statistical rating organization. 
‘‘(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 determines 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 statistical rating organiza-
tion, if the Commission finds, on the record, after notice 
and opportunity for a hearing, that— 
‘‘(I) the nationally recognized statistical rating 
organization has committed a violation of a rule 
issued under this subsection; and 
‘‘(II) the violation of a rule issued under this 
subsection affected a rating.
H. R. 4173—500 
‘‘(4) LOOK-BACK REQUIREMENT.— 
‘‘(A) REVIEW BY THE NATIONALLY RECOGNIZED STATIS-
TICAL RATING ORGANIZATION.—Each nationally recognized 
statistical rating organization shall establish, maintain, 
and enforce policies and procedures reasonably designed 
to ensure that, in any case in which an employee of a 
person subject to a credit rating of the nationally recognized 
statistical rating organization or the issuer, underwriter, 
or sponsor of a security or money market instrument sub-
ject to a credit rating of the nationally recognized statistical 
rating organization was employed by the nationally recog-
nized statistical rating organization and participated in 
any capacity in determining credit ratings for the person 
or the securities or money market instruments during the 
1-year period preceding the date an action was taken with 
respect to the credit rating, the nationally recognized statis-
tical rating organization shall— 
‘‘(i) conduct a review to determine whether any 
conflicts of interest of the employee influenced the 
credit rating; and 
‘‘(ii) take action to revise the rating if appropriate, 
in accordance with such rules as the Commission shall 
prescribe. 
‘‘(B) REVIEW BY COMMISSION.— 
‘‘(i) IN GENERAL.—The Commission shall conduct 
periodic reviews of the policies described in subpara-
graph (A) and the implementation of the policies at 
each nationally recognized statistical rating organiza-
tion to ensure they are reasonably designed and imple-
mented to most effectively eliminate conflicts of 
interest. 
‘‘(ii) TIMING OF REVIEWS.—The Commission shall 
review the code of ethics and conflict of interest policy 
of 
each 
nationally 
recognized 
statistical 
rating 
organization— 
‘‘(I) not less frequently than annually; and 
‘‘(II) whenever such policies are materially 
modified or amended. 
‘‘(5) REPORT
TO
COMMISSION
ON
CERTAIN
EMPLOYMENT 
TRANSITIONS.— 
‘‘(A) REPORT
REQUIRED.—Each nationally recognized 
statistical rating organization shall report to the Commis-
sion any case such organization knows or can reasonably 
be expected to know where a person associated with such 
organization within the previous 5 years obtains employ-
ment with any obligor, issuer, underwriter, or sponsor of 
a security or money market instrument for which the 
organization issued a credit rating during the 12-month 
period prior to such employment, if such employee— 
‘‘(i) was a senior officer of such organization; 
‘‘(ii) participated in any capacity in determining 
credit ratings for such obligor, issuer, underwriter, or 
sponsor; or 
‘‘(iii) supervised an employee described in clause 
(ii).
H. R. 4173—501 
‘‘(B) PUBLIC
DISCLOSURE.—Upon receiving such a 
report, the Commission shall make such information pub-
licly available.’’; 
(5) in subsection (j)— 
(A) by striking ‘‘Each’’ and inserting the following: 
‘‘(1) IN GENERAL.—Each’’; and 
(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 functions; or 
‘‘(iv) participate in establishing compensation 
levels, other than for employees working for that indi-
vidual. 
‘‘(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 recognized statis-
tical rating organization. 
‘‘(3) OTHER
DUTIES.—Each individual designated under 
paragraph (1) shall establish procedures for the receipt, reten-
tion, and treatment of— 
‘‘(A) complaints regarding credit ratings, models, meth-
odologies, 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) COMPENSATION.—The compensation of each compliance 
officer appointed under paragraph (1) shall not be linked to 
the financial performance of the nationally recognized statis-
tical rating organization and shall be arranged so as to ensure 
the independence of the officer’s judgment. 
‘‘(5) ANNUAL REPORTS REQUIRED.— 
‘‘(A) ANNUAL REPORTS REQUIRED.—Each individual des-
ignated under paragraph (1) shall submit to the nationally 
recognized statistical rating organization an annual report 
on the compliance of the nationally recognized statistical 
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 statistical rating organization 
shall file the reports required under subparagraph (A) 
together with the financial report that is required to be 
submitted to the Commission under this section.’’;
H. R. 4173—502 
(6) in subsection (k), by striking ‘‘furnish to’’ and inserting 
‘‘file with’’; 
(7) in subsection (l)(2)(A)(i), by striking ‘‘furnished’’ and 
inserting ‘‘filed’’; and 
(8) by striking subsection (p) and inserting the following: 
‘‘(p) REGULATION
OF NATIONALLY RECOGNIZED STATISTICAL 
RATING ORGANIZATIONS.— 
‘‘(1) ESTABLISHMENT OF OFFICE OF CREDIT RATINGS.— 
‘‘(A) OFFICE
ESTABLISHED.—The Commission shall 
establish within the Commission an Office of Credit Ratings 
(referred to in this subsection as the ‘Office’) to administer 
the rules of the Commission— 
‘‘(i) with respect to the practices of nationally recog-
nized statistical rating organizations in determining 
ratings, for the protection of users of credit ratings 
and in the public interest; 
‘‘(ii) to promote accuracy in credit ratings issued 
by nationally recognized statistical rating organiza-
tions; and 
‘‘(iii) to ensure that such ratings are not unduly 
influenced by conflicts of interest. 
‘‘(B) DIRECTOR OF THE OFFICE.—The head of the Office 
shall be the Director, who shall report to the Chairman. 
‘‘(2) STAFFING.—The Office established under this sub-
section shall be staffed sufficiently to carry out fully the require-
ments of this section. The staff shall include persons with 
knowledge of and expertise in corporate, municipal, and struc-
tured debt finance. 
‘‘(3) COMMISSION EXAMINATIONS.— 
‘‘(A) ANNUAL
EXAMINATIONS
REQUIRED.—The Office 
shall conduct an examination of each nationally recognized 
statistical rating organization at least annually. 
‘‘(B) CONDUCT OF EXAMINATIONS.—Each examination 
under subparagraph (A) shall include 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 organiza-
tion; 
‘‘(ii) the management of conflicts of interest by 
the nationally recognized statistical rating organiza-
tion; 
‘‘(iii) implementation of ethics policies by the 
nationally recognized statistical rating organization; 
‘‘(iv) the internal supervisory controls of the nation-
ally recognized statistical rating organization; 
‘‘(v) the governance of the nationally recognized 
statistical rating organization; 
‘‘(vi) the activities of the individual designated by 
the nationally recognized statistical rating organization 
under subsection (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 statistical rating organization.
H. R. 4173—503 
‘‘(C) INSPECTION
REPORTS.—The Commission shall 
make available to the public, in an easily understandable 
format, an annual report summarizing— 
‘‘(i) the essential findings of all examinations con-
ducted under subparagraph (A), as deemed appropriate 
by the Commission; 
‘‘(ii) the responses by the nationally recognized 
statistical rating organizations to any material regu-
latory deficiencies identified by the Commission under 
clause (i); and 
‘‘(iii) whether the nationally recognized statistical 
rating organizations have appropriately addressed the 
recommendations of the Commission contained in pre-
vious reports under this subparagraph. 
‘‘(4) RULEMAKING AUTHORITY.—The Commission shall— 
‘‘(A) establish, by rule, fines, and other penalties 
applicable to any nationally recognized statistical rating 
organization that violates the requirements of this section 
and the rules thereunder; and 
‘‘(B) issue such rules as may be necessary to carry 
out this section. 
‘‘(q) TRANSPARENCY OF RATINGS PERFORMANCE.— 
‘‘(1) RULEMAKING
REQUIRED.—The Commission shall, by 
rule, require that each nationally recognized statistical rating 
organization publicly disclose information 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 credit 
ratings, for the purpose of allowing users of credit ratings 
to evaluate the accuracy of ratings and compare the perform-
ance of ratings by different nationally 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 recognized 
statistical rating organizations, to allow users of credit 
ratings to compare the performance of credit ratings across 
nationally recognized statistical rating organizations; 
‘‘(B) are clear and informative for investors having 
a wide range of sophistication 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 withdrawn by the nationally recognized 
statistical rating organization; 
‘‘(D) are published and made freely available by the 
nationally recognized statistical rating organization, on an 
easily accessible portion of its website, and in writing, 
when requested; 
‘‘(E) are appropriate to the business model of a nation-
ally recognized statistical rating organization; and 
‘‘(F) each nationally recognized statistical rating 
organization include an attestation with any credit rating 
it issues affirming that no part of the rating was influenced 
by any other business activities, that the rating was based 
solely on the merits of the instruments being rated, and
H. R. 4173—504 
that such rating was an independent evaluation of the 
risks and merits of the instrument. 
‘‘(r) CREDIT RATINGS METHODOLOGIES.—The Commission 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 recognized statistical rating organization— 
‘‘(1) to ensure that credit ratings are determined using 
procedures and methodologies, including qualitative and quan-
titative data and models, that are— 
‘‘(A) approved by the board of the nationally recognized 
statistical rating organization, a body performing a function 
similar to that of a board; and 
‘‘(B) in accordance with the policies and procedures 
of the nationally recognized statistical rating organization 
for the development and modification of credit rating proce-
dures 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 procedures and methodologies 
apply; 
‘‘(B) to the extent that changes are made to credit 
rating surveillance procedures and methodologies, the 
changes are applied to then-current credit ratings by the 
nationally recognized statistical 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 methodology, 
including the qualitative methodology or quantitative 
inputs, used with respect to a particular credit rating; 
‘‘(B) when a material change is made to a procedure 
or methodology, including to a qualitative model or quan-
titative inputs; 
‘‘(C) when a significant error is identified in a proce-
dure or methodology, including a qualitative 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 METHODOLOGIES AND 
INFORMATION REVIEWED.— 
‘‘(1) FORM
FOR
DISCLOSURES.—The Commission shall 
require, by rule, each nationally recognized statistical rating 
organization to prescribe a form to accompany 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 determine the 
credit rating; and
H. R. 4173—505 
‘‘(iii) if applicable, how the nationally recognized 
statistical rating organization used servicer or remit-
tance reports, and with what frequency, to conduct 
surveillance of the credit rating; and 
‘‘(B) information that can be used by investors and 
other users of credit ratings to better understand credit 
ratings in each class of credit rating issued by the nation-
ally recognized statistical rating organization. 
‘‘(2) FORMAT.—The form developed under paragraph (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 statistical rating 
organization to provide the content described in paragraph 
(3)(B) in a manner that is directly comparable across types 
of securities; 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.— 
‘‘(A) QUALITATIVE
CONTENT.—Each nationally recog-
nized statistical rating organization shall disclose on the 
form developed under paragraph (1)— 
‘‘(i) the credit ratings produced by the nationally 
recognized statistical rating organization; 
‘‘(ii) the main assumptions and principles used 
in 
constructing 
procedures 
and 
methodologies, 
including qualitative methodologies and quantitative 
inputs and assumptions about the correlation of 
defaults across underlying assets used in rating struc-
tured products; 
‘‘(iii) the potential limitations of the credit ratings, 
and the types of risks excluded from the credit ratings 
that the nationally recognized statistical rating 
organization does not comment on, including liquidity, 
market, and other risks; 
‘‘(iv) information on the uncertainty of the credit 
rating, including— 
‘‘(I) information on the reliability, accuracy, 
and quality of the data relied on in determining 
the credit 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 accessibility 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 rating organization, a description 
of the information that such third party reviewed in 
conducting due diligence services, and a description 
of the findings or conclusions of such third party;
H. R. 4173—506 
‘‘(vi) a description of the data about any obligor, 
issuer, security, or money market instrument that were 
relied upon for the purpose of determining the credit 
rating; 
‘‘(vii) a statement containing an overall 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 quality of 
information available to the nationally recognized 
statistical 
rating 
organization 
in 
rating 
similar 
issuances; 
‘‘(viii) information relating to conflicts of interest 
of the nationally recognized statistical rating organiza-
tion; and 
‘‘(ix) such additional information as the Commis-
sion may require. 
‘‘(B) QUANTITATIVE CONTENT.—Each nationally recog-
nized statistical rating organization shall disclose on the 
form developed under this subsection— 
‘‘(i) an explanation or measure of the potential 
volatility of the credit rating, including— 
‘‘(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; 
‘‘(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 nationally recognized 
statistical rating organization, including— 
‘‘(I) 5 assumptions made in the ratings process 
that, without accounting for any other factor, 
would have the greatest impact on a rating if 
the assumptions were proven false or inaccurate; 
and 
‘‘(II) an analysis, using specific examples, of 
how each of the 5 assumptions identified under 
subclause (I) impacts a rating; 
‘‘(iv) such additional information as may be 
required by the Commission. 
‘‘(4) DUE DILIGENCE SERVICES FOR ASSET-BACKED SECURI-
TIES.— 
‘‘(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 nation-
ally recognized statistical rating organization, an issuer, 
or an underwriter, the person providing the due diligence 
services shall provide to any nationally recognized statis-
tical rating organization that produces a rating to which
H. R. 4173—507 
such services relate, written certification, as provided in 
subparagraph (C). 
‘‘(C) FORMAT
AND
CONTENT.—The Commission shall 
establish the appropriate format and content for the written 
certifications required under subparagraph (B), to ensure 
that providers of due diligence services have conducted 
a thorough review of data, documentation, and other rel-
evant information necessary for a nationally recognized 
statistical rating organization to provide an accurate rating. 
‘‘(D) DISCLOSURE OF CERTIFICATION.—The Commission 
shall adopt rules requiring a nationally recognized statis-
tical rating organization, at the time at which the nation-
ally recognized statistical rating organization produces a 
rating, to disclose the certification described in subpara-
graph (B) to the public in a manner that allows the public 
to determine the adequacy and level of due diligence serv-
ices provided by a third party. 
‘‘(t) CORPORATE GOVERNANCE, ORGANIZATION, AND MANAGE-
MENT 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 directors of a nationally recognized 
statistical rating organization— 
‘‘(i) may not, other than in his or her capacity 
as a member of the board of directors or any committee 
thereof— 
‘‘(I) accept any consulting, advisory, or other 
compensatory fee from the nationally recognized 
statistical rating organization; or 
‘‘(II) be a person associated with the nationally 
recognized statistical rating organization or with 
any affiliated company thereof; and 
‘‘(ii) shall be disqualified from any deliberation 
involving a specific rating in which the independent 
board member has a financial interest in the outcome 
of the rating. 
‘‘(C) COMPENSATION AND TERM.—The compensation of 
the independent members of the board of directors of a 
nationally recognized statistical rating organization shall 
not be linked to the business performance of the nationally 
recognized statistical rating organization, and shall be 
arranged so as to ensure the independence of their judg-
ment. The term of office of the independent directors shall 
be for a pre-agreed fixed period, not to exceed 5 years, 
and shall not be renewable. 
‘‘(3) DUTIES OF BOARD OF DIRECTORS.—In addition to the 
overall responsibilities of the board of directors, the board shall 
oversee—
H. R. 4173—508 
‘‘(A) the establishment, maintenance, and enforcement 
of policies and procedures for determining credit ratings; 
‘‘(B) the establishment, maintenance, and enforcement 
of policies and procedures to address, manage, and disclose 
any conflicts of interest; 
‘‘(C) the effectiveness of the internal control system 
with respect to policies and procedures for determining 
credit ratings; and 
‘‘(D) the compensation and promotion policies and prac-
tices of the nationally recognized statistical rating organiza-
tion. 
‘‘(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 requirements 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 committee 
(including the chairperson of the committee) are inde-
pendent, as defined in this section; and 
‘‘(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 Commission finds that 
compliance with the provisions of this subsection present an 
unreasonable burden on a small nationally recognized statis-
tical rating organization, the Commission may permit the 
nationally recognized statistical rating organization to delegate 
such responsibilities to a committee that includes at least one 
individual who is a user of ratings of a nationally recognized 
statistical rating organization.’’. 
(b) CONFORMING AMENDMENT.—Section 3(a)(62) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78c(a)(62)) is amended by 
striking subparagraph (A) and redesignating subparagraphs (B) 
and (C) as subparagraphs (A) and (B), respectively. 
SEC. 933. STATE OF MIND IN PRIVATE ACTIONS. 
(a) 
ACCOUNTABILITY.—Section 
15E(m) 
of 
the 
Securities 
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 statements 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. 
‘‘(2) RULEMAKING.—The Commission shall issue such rules 
as may be necessary to carry out this subsection.’’. 
(b) STATE
OF
MIND.—Section 21D(b)(2) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u–4(b)(2)) is amended— 
(1) by striking ‘‘In any’’ and inserting the following: 
‘‘(A) IN GENERAL.—Except as provided in subparagraph 
(B), in any’’; and 
(2) by adding at the end the following:
H. R. 4173—509 
‘‘(B) EXCEPTION.—In the case of an action for money 
damages brought against a credit rating agency or a 
controlling person under this title, it shall be sufficient, 
for purposes of pleading any required state of mind in 
relation to such action, that the complaint state with 
particularity facts giving rise to a strong inference that 
the credit rating agency knowingly or recklessly failed— 
‘‘(i) to conduct a reasonable investigation of the 
rated security with respect to the factual elements 
relied upon by its own methodology for evaluating 
credit risk; or 
‘‘(ii) to obtain reasonable verification of such fac-
tual 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 independent of 
the issuer and underwriter.’’. 
SEC. 934. REFERRING TIPS TO LAW ENFORCEMENT OR REGULATORY 
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 recognized statis-
tical rating organization shall refer to the appropriate law 
enforcement or regulatory authorities any information that the 
nationally recognized statistical rating organization receives 
from a third party and finds credible that alleges that an 
issuer of securities rated by the nationally recognized statistical 
rating organization has committed or is committing a material 
violation of law that has not been adjudicated by a Federal 
or State court. 
‘‘(2) RULE OF CONSTRUCTION.—Nothing in paragraph (1) 
may be construed to require a nationally 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 RATING 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 recognized statistical 
rating organization shall consider information about an issuer that 
the nationally recognized statistical rating organization has, or 
receives from a source other than the issuer or underwriter, that 
the nationally recognized statistical rating organization finds cred-
ible and potentially significant 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 reasonably designed 
to ensure that any person employed by a nationally recognized 
statistical rating organization to perform credit ratings—
H. R. 4173—510 
(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 organization to establish, 
maintain, and enforce written policies and procedures that— 
(1) assess the probability that an issuer of a security or 
money market instrument will default, fail to make timely 
payments, or otherwise not make payments to investors in 
accordance with the terms of the security or money market 
instrument; 
(2) clearly define and disclose the meaning of any symbol 
used by the nationally recognized statistical 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 securities and money 
market instruments for which the symbol is used. 
(b) RULE OF CONSTRUCTION.—Nothing in this section shall pro-
hibit a nationally recognized statistical rating organization from 
using distinct sets of symbols to denote credit ratings for different 
types of securities or money market instruments. 
SEC. 939. REMOVAL OF STATUTORY REFERENCES TO CREDIT RATINGS. 
(a) FEDERAL DEPOSIT INSURANCE ACT.—The Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.) is amended— 
(1) in section 7(b)(1)(E)(i), by striking ‘‘credit rating entities, 
and other private economic’’ and insert ‘‘private economic, 
credit,’’; 
(2) in section 28(d)— 
(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 meet standards of 
credit-worthiness as established 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 redesignated, by 
striking ‘‘not of investment grade’’ and inserting ‘‘that 
does not meet standards of credit-worthiness as estab-
lished by the Corporation’’; and 
(3) in section 28(e)—
H. R. 4173—511 
(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 meet standards of 
credit-worthiness as established by the Corporation’’; and 
(C) in paragraphs (2) and (3), by striking ‘‘not of invest-
ment grade’’ each place that it appears and inserting ‘‘that 
does not meet standards of credit-worthiness established 
by the Corporation’’. 
(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 recognized statis-
tical 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 recognized statistical rating organiza-
tion’’ and inserting ‘‘meets such standards of credit-worthiness as 
the Commission 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— 
(1) in subsection (a)(2)(E), by striking ‘‘any applicable 
rating’’ and inserting ‘‘standards of credit-worthiness estab-
lished by the Comptroller of the Currency’’; 
(2) in the heading for subsection (a)(3) by striking ‘‘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 require-
ments 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-worthi-
ness 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 applicable rating’’ 
and inserting ‘‘standards of credit-worthiness established by 
the Comptroller of the Currency’’. 
(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 recog-
nized statistical rating organization’’ and inserting ‘‘meets 
standards of credit-worthiness as established by the Commis-
sion’’; and 
(2) in paragraph (53)(A), by striking ‘‘is rated in 1 of the 
4 highest rating categories by at least 1 nationally recognized 
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 amend-
ment in the nature of a substitute to the text of H.R. 4645, as 
ordered reported from the Committee on Banking, Finance and
H. R. 4173—512 
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-worthi-
ness’’. 
(g) EFFECTIVE DATE.—The amendments made by this section 
shall take effect 2 years after the date of enactment of this Act. 
(h) STUDY AND REPORT.— 
(1) IN GENERAL.—Commission shall undertake a study on 
the feasability and desirability of— 
(A) standardizing credit ratings terminology, so that 
all credit rating agencies issue credit ratings using identical 
terms; 
(B) standardizing the market stress conditions under 
which ratings are evaluated; 
(C) requiring a quantitative correspondence between 
credit ratings and a range of default probabilities and 
loss expectations under standardized conditions of economic 
stress; and 
(D) standardizing credit rating terminology across 
asset classes, so that named ratings correspond to a 
standard range of default probabilities and expected losses 
independent of asset class and issuing entity. 
(2) REPORT.—Not later than 1 year after the date of enact-
ment of this Act, the Commission shall submit to Congress 
a report containing the findings of the study under paragraph 
(1) and the recommendations, if any, of the Commission with 
respect to the study. 
SEC. 939A. REVIEW OF RELIANCE ON RATINGS. 
(a) AGENCY REVIEW.—Not later than 1 year after the date 
of the enactment of this subtitle, each Federal agency shall, to 
the extent applicable, review— 
(1) any regulation issued by such agency that requires 
the use of an assessment of the credit-worthiness of a security 
or money market instrument; and 
(2) any references to or requirements in such regulations 
regarding credit ratings. 
(b) MODIFICATIONS REQUIRED.—Each such agency shall modify 
any such regulations identified by the review conducted under 
subsection (a) to remove any reference to or requirement of reliance 
on credit ratings and to substitute in such regulations such standard 
of credit-worthiness as each respective agency shall determine as 
appropriate for such regulations. In making such determination, 
such agencies shall seek to establish, to the extent feasible, uniform 
standards of credit-worthiness for use by each such agency, taking 
into account the entities regulated by each such agency and the 
purposes for which such entities would rely on such standards 
of credit-worthiness. 
(c) REPORT.—Upon conclusion of the review required under 
subsection (a), each Federal agency shall transmit a report to Con-
gress containing a description of any modification of any regulation 
such agency made pursuant to subsection (b). 
SEC. 939B. ELIMINATION OF EXEMPTION FROM FAIR DISCLOSURE 
RULE. 
Not later than 90 days after the date of enactment of this 
subtitle, the Securities Exchange Commission shall revise Regula-
tion FD (17 C.F.R. 243.100) to remove from such regulation the
H. R. 4173—513 
exemption for entities whose primary business is the issuance of 
credit ratings (17 C.F.R. 243.100(b)(2)(iii)). 
SEC. 939C. SECURITIES AND EXCHANGE COMMISSION STUDY ON 
STRENGTHENING CREDIT RATING AGENCY INDEPEND-
ENCE. 
(a) STUDY.—The Commission shall conduct a study of— 
(1) the independence of nationally recognized statistical 
rating organizations; and 
(2) how the independence of nationally recognized statis-
tical rating organizations affects the ratings issued by the 
nationally recognized statistical rating organizations. 
(b) SUBJECTS FOR EVALUATION.—In conducting the study under 
subsection (a), the Commission shall evaluate— 
(1) the management of conflicts of interest raised by a 
nationally recognized statistical rating organization providing 
other services, including risk management advisory services, 
ancillary assistance, or consulting 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 recognized statis-
tical rating organizations, as the Chairman 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 Financial Services of the House of Represent-
atives a report on the results of the study conducted under sub-
section (a), including recommendations, if any, for improving the 
integrity of ratings issued by nationally recognized statistical rating 
organizations. 
SEC. 939D. GOVERNMENT ACCOUNTABILITY OFFICE STUDY ON ALTER-
NATIVE BUSINESS MODELS. 
(a) STUDY.—The Comptroller General of the United States shall 
conduct a study on alternative means for compensating nationally 
recognized statistical rating organizations in order to create incen-
tives 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 18 months after the date of enact-
ment 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 Represent-
atives a report on the results of the study conducted under sub-
section (a), including recommendations, if any, for providing incen-
tives to credit rating agencies to improve the credit rating process. 
SEC. 939E. 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 inde-
pendent professional organization for rating analysts employed by 
nationally recognized statistical rating organizations that would 
be responsible for—
H. R. 4173—514 
(1) establishing independent standards for governing 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 publication 
of the rules issued by the Commission pursuant to section 936, 
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. 939F. STUDY AND RULEMAKING ON ASSIGNED CREDIT RATINGS. 
(a) DEFINITION.—In this section, the term ‘‘structured finance 
product’’ means an asset-backed security, as defined in section 
3(a)(77) of the Securities Exchange Act of 1934, as added by section 
941, and any structured product based on an asset-backed security, 
as determined by the Commission, by rule. 
(b) STUDY.—The Commission shall carry out a study of— 
(1) the credit rating process for structured finance products 
and the conflicts of interest associated with the issuer-pay 
and the subscriber-pay models; 
(2) the feasibility of establishing a system in which a public 
or private utility or a self-regulatory organization assigns 
nationally recognized statistical rating organizations to deter-
mine the credit ratings of structured finance products, 
including— 
(A) an assessment of potential mechanisms for deter-
mining fees for the nationally recognized statistical rating 
organizations; 
(B) appropriate methods for paying fees to the nation-
ally recognized statistical rating organizations; 
(C) the extent to which the creation of such a system 
would be viewed as the creation of moral hazard by the 
Federal Government; and 
(D) any constitutional or other issues concerning the 
establishment of such a system; 
(3) the range of metrics that could be used to determine 
the accuracy of credit ratings; and 
(4) alternative means for compensating nationally recog-
nized statistical rating organizations that would create incen-
tives for accurate credit ratings. 
(c) REPORT AND RECOMMENDATION.—Not later than 24 months 
after the date of enactment of this Act, 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 that contains— 
(1) the findings of the study required under subsection 
(b); and 
(2) any recommendations for regulatory or statutory 
changes that the Commission determines should be made to 
implement the findings of the study required under subsection 
(b). 
(d) RULEMAKING.— 
(1) RULEMAKING.—After submission of the report under 
subsection (c), the Commission shall, by rule, as the Commis-
sion determines is necessary or appropriate in the public 
interest or for the protection of investors, establish a system
H. R. 4173—515 
for the assignment of nationally recognized statistical rating 
organizations to determine the initial credit ratings of struc-
tured finance products, in a manner that prevents the issuer, 
sponsor, or underwriter of the structured finance product from 
selecting the nationally recognized statistical rating organiza-
tion that will determine the initial credit ratings and monitor 
such credit ratings. In issuing any rule under this paragraph, 
the Commission shall give thorough consideration to the provi-
sions of section 15E(w) of the Securities Exchange Act of 1934, 
as that provision would have been added by section 939D 
of H.R. 4173 (111th Congress), as passed by the Senate on 
May 20, 2010, and shall implement the system described in 
such section 939D unless the Commission determines that an 
alternative system would better serve the public interest and 
the protection of investors. 
(2) RULE OF CONSTRUCTION.—Nothing in this subsection 
may be construed to limit or suspend any other rulemaking 
authority of the Commission. 
SEC. 939G. EFFECT OF RULE 436(G). 
Rule 436(g), promulgated by the Securities and Exchange 
Commission under the Securities Act of 1933, shall have no force 
or effect. 
SEC. 939H. SENSE OF CONGRESS. 
It is the sense of Congress that the Securities and Exchange 
Commission should exercise the rulemaking authority of the 
Commission under section 15E(h)(2)(B) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o–7(h)(2)(B)) to prevent improper conflicts 
of interest arising from employees of nationally recognized statis-
tical rating organizations providing services to issuers of securities 
that are unrelated to the issuance of credit ratings, including con-
sulting, advisory, and other services. 
Subtitle D—Improvements to the Asset- 
Backed Securitization Process 
SEC. 941. REGULATION OF CREDIT RISK RETENTION. 
(a) DEFINITION OF ASSET-BACKED SECURITY.—Section 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 financial asset 
(including a loan, a lease, a mortgage, or a secured or 
unsecured receivable) that allows the holder of the security 
to receive payments that depend primarily on cash flow 
from the asset, including— 
‘‘(i) a collateralized mortgage obligation; 
‘‘(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
H. R. 4173—516 
‘‘(vi) a security that the Commission, by rule, deter-
mines to be an asset-backed security 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 con-
trolled by the parent company, if none of the securities 
issued by the finance subsidiary are held by an entity 
that is not controlled by the parent company.’’. 
(b) CREDIT RISK RETENTION.—The Securities Exchange Act of 
1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 
15F, as added by this Act, the following: 
‘‘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 Insur-
ance Corporation; 
‘‘(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 indirectly, including through an 
affiliate, to the issuer; and 
‘‘(4) the term ‘originator’ means a person who— 
‘‘(A) through the extension of credit or otherwise, cre-
ates a financial asset that collateralizes an asset-backed 
security; and 
‘‘(B) sells an asset directly or indirectly to a securitizer. 
‘‘(b) REGULATIONS REQUIRED.— 
‘‘(1) IN GENERAL.—Not later than 270 days after the date 
of enactment of this section, the Federal banking agencies 
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. 
‘‘(2) RESIDENTIAL MORTGAGES.—Not later than 270 days 
after the date of the enactment of this section, the Federal 
banking agencies, the Commission, the Secretary of Housing 
and Urban Development, and the Federal Housing Finance 
Agency, shall jointly prescribe regulations to require any 
securitizer to retain an economic interest in a portion of the 
credit risk for any residential mortgage asset that the 
securitizer, through the issuance of an asset-backed security, 
transfers, sells, or conveys to a third party. 
‘‘(c) STANDARDS FOR REGULATIONS.— 
‘‘(1) STANDARDS.—The regulations prescribed under sub-
section (b) shall— 
‘‘(A) prohibit a securitizer from directly or indirectly 
hedging or otherwise transferring the credit risk that the 
securitizer is required to retain with respect to an asset; 
‘‘(B) require a securitizer to retain—
H. R. 4173—517 
‘‘(i) not less than 5 percent of the credit risk for 
any asset— 
‘‘(I) that is not a qualified residential mortgage 
that is transferred, sold, or conveyed through the 
issuance of an asset-backed security by the 
securitizer; or 
‘‘(II) that is a qualified residential 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 residential mortgage that 
is transferred, sold, or conveyed through the issuance 
of an asset-backed security by the securitizer, if the 
originator of the asset meets the underwriting stand-
ards prescribed under paragraph (2)(B); 
‘‘(C) specify— 
‘‘(i) the permissible forms of risk retention for pur-
poses 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 trans-
ferred, sold or conveyed through the issuance of an 
asset-backed security 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; 
‘‘(E) with respect to a commercial mortgage, specify 
the permissible types, forms, and amounts of risk retention 
that would meet the requirements of subparagraph (B), 
which in the determination of the Federal banking agencies 
and the Commission may include— 
‘‘(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 pur-
chase of such first loss position, holds adequate finan-
cial resources to back losses, provides due diligence 
on all individual assets in the pool before the issuance 
of the asset-backed securities, and meets the same 
standards for risk retention as the Federal banking 
agencies and the Commission require of the securitizer; 
‘‘(iii) a determination by the Federal banking agen-
cies and the Commission that the underwriting stand-
ards and controls for the asset are adequate; and 
‘‘(iv) provision of adequate representations and 
warranties and related enforcement mechanisms; and 
‘‘(F) establish appropriate standards for retention of 
an economic interest with respect to collateralized debt 
obligations, securities collateralized by collateralized debt 
obligations, and similar instruments collateralized by other 
asset-backed securities; and 
‘‘(G) provide for—
H. R. 4173—518 
‘‘(i) 
a 
total 
or 
partial 
exemption 
of 
any 
securitization, as may be appropriate in the public 
interest and for the protection of investors; 
‘‘(ii) 
a 
total 
or 
partial 
exemption 
for 
the 
securitization of an asset issued or guaranteed by the 
United States, or an agency of the United States, as 
the Federal banking agencies and the Commission 
jointly determine appropriate in the public interest 
and for the protection of investors, except that, for 
purposes of this clause, the Federal National Mortgage 
Association and the Federal Home Loan Mortgage Cor-
poration are not agencies of the United States; 
‘‘(iii) a total or partial exemption for any asset- 
backed security that is a security issued or guaranteed 
by any State of the United States, or by any political 
subdivision of a State or territory, or by any public 
instrumentality of a State or territory that is exempt 
from the registration requirements of the Securities 
Act of 1933 by reason of section 3(a)(2) of that Act 
(15 U.S.C. 77c(a)(2)), or a security defined as a qualified 
scholarship funding bond in section 150(d)(2) of the 
Internal Revenue Code of 1986, as may be appropriate 
in the public interest and for the protection of inves-
tors; and 
‘‘(iv) the allocation of risk retention obligations 
between a securitizer and an originator in the case 
of a securitizer that purchases assets from an origi-
nator, as the Federal banking agencies and the 
Commission jointly determine appropriate. 
‘‘(2) ASSET CLASSES.— 
‘‘(A) ASSET CLASSES.—The regulations prescribed under 
subsection (b) shall establish asset classes with separate 
rules for securitizers of different 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 Commission deem appro-
priate. 
‘‘(B) CONTENTS.—For each asset class established 
under subparagraph (A), the regulations prescribed under 
subsection (b) shall include underwriting standards estab-
lished by the Federal banking agencies that specify the 
terms, conditions, and characteristics of a loan within the 
asset class that indicate a low credit risk with respect 
to the loan. 
‘‘(d) ORIGINATORS.—In determining how to allocate risk reten-
tion obligations between a securitizer and an originator under sub-
section (c)(1)(E)(iv), the Federal banking agencies and the Commis-
sion shall— 
‘‘(1) reduce the percentage of risk retention obligations 
required of the securitizer by the percentage of risk retention 
obligations required of the originator; and 
‘‘(2) consider— 
‘‘(A) whether the assets sold to the securitizer have 
terms, conditions, and characteristics that reflect low credit 
risk; 
‘‘(B) whether the form or volume of transactions in 
securitization markets creates incentives for imprudent
H. R. 4173—519 
origination of the type of loan or asset to be sold to the 
securitizer; and 
‘‘(C) the potential impact of the risk retention obliga-
tions 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 ADJUSTMENTS.— 
‘‘(1) IN GENERAL.—The Federal banking agencies and the 
Commission may jointly adopt or issue exemptions, exceptions, 
or adjustments to the rules issued under this section, including 
exemptions, exceptions, or adjustments for classes of institu-
tions or assets relating to the risk retention requirement and 
the prohibition on hedging under subsection (c)(1). 
‘‘(2) APPLICABLE
STANDARDS.—Any exemption, exception, 
or adjustment adopted or issued by the Federal banking agen-
cies 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 management practices 
by the securitizers and originators 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) CERTAIN INSTITUTIONS AND PROGRAMS EXEMPT.— 
‘‘(A) FARM
CREDIT
SYSTEM
INSTITUTIONS.—Notwith-
standing any other provision of this section, the require-
ments of this section shall not apply to any loan or other 
financial asset made, insured, guaranteed, or purchased 
by any institution that is subject to the supervision of 
the Farm Credit Administration, including the Federal 
Agricultural Mortgage Corporation. 
‘‘(B) OTHER
FEDERAL
PROGRAMS.—This section shall 
not apply to any residential, multifamily, or health care 
facility mortgage loan asset, or securitization based directly 
or indirectly on such an asset, which is insured or guaran-
teed by the United States or an agency of the United 
States. For purposes of this subsection, the Federal 
National Mortgage Association, the Federal Home Loan 
Mortgage Corporation, and the Federal home loan banks 
shall not be considered an agency of the United States. 
‘‘(4) EXEMPTION FOR QUALIFIED RESIDENTIAL MORTGAGES.— 
‘‘(A) IN GENERAL.—The Federal banking agencies, the 
Commission, the Secretary of Housing and Urban Develop-
ment, and the Director of the Federal Housing Finance 
Agency shall jointly issue regulations to exempt qualified 
residential mortgages from the risk retention requirements 
of this subsection. 
‘‘(B) QUALIFIED RESIDENTIAL MORTGAGE.—The Federal 
banking agencies, the Commission, 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 underwriting and 
product features that historical loan performance data 
indicate result in a lower risk of default, such as—
H. R. 4173—520 
‘‘(i) documentation and verification of the financial 
resources relied upon to qualify the mortgagor; 
‘‘(ii) standards with respect to— 
‘‘(I) the residual income of the mortgagor after 
all monthly obligations; 
‘‘(II) the ratio of the housing payments of the 
mortgagor to the monthly income of the mortgagor; 
‘‘(III) the ratio of total monthly installment 
payments of the mortgagor to the income of the 
mortgagor; 
‘‘(iii) mitigating the potential for payment shock 
on adjustable rate mortgages through product features 
and underwriting standards; 
‘‘(iv) mortgage guarantee insurance or other types 
of insurance or credit enhancement obtained at the 
time of origination, to the extent such insurance or 
credit enhancement reduces the risk of default; and 
‘‘(v) prohibiting or restricting the use of balloon 
payments, negative amortization, prepayment pen-
alties, interest-only payments, and other features that 
have been demonstrated to exhibit a higher risk of 
borrower default. 
‘‘(C) LIMITATION ON DEFINITION.—The Federal banking 
agencies, the Commission, the Secretary of Housing and 
Urban Development, and the Director of the Federal 
Housing Finance Agency in defining the term ‘qualified 
residential mortgage’, as required by subparagraph (B), 
shall define that term to be no broader than the definition 
‘qualified mortgage’ as the term is defined under section 
129C(c)(2) of the Truth in Lending Act, as amended by 
the Consumer Financial Protection Act of 2010, and regula-
tions adopted thereunder. 
‘‘(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 require an 
issuer to certify, for each issuance of an 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 depository institution; 
and 
‘‘(2) the Commission, with respect to any securitizer that 
is not an insured depository institution. 
‘‘(g) AUTHORITY OF COMMISSION.—The authority of the Commis-
sion under this section shall be in addition to the authority of 
the Commission to otherwise enforce the securities laws. 
‘‘(h) AUTHORITY TO COORDINATE ON RULEMAKING.—The Chair-
person of the Financial Stability Oversight Council shall coordinate 
all joint rulemaking required under this section.
H. R. 4173—521 
‘‘(i) EFFECTIVE DATE OF REGULATIONS.—The regulations issued 
under this section shall become effective— 
‘‘(1) with respect to securitizers and originators of asset- 
backed securities backed by residential mortgages, 1 year after 
the date on which final rules under this section are published 
in the Federal Register; and 
‘‘(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.’’. 
(c) STUDY ON RISK RETENTION.— 
(1) STUDY.—The Board of Governors of the Federal Reserve 
System, in coordination and consultation with the Comptroller 
of the Currency, the Director of the Office of Thrift Supervision, 
the Chairperson of the Federal Deposit Insurance Corporation, 
and the Securities and Exchange Commission shall conduct 
a study of the combined impact on each individual class of 
asset-backed security established under section 15G(c)(2) of 
the Securities Exchange Act of 1934, as added by subsection 
(b), of— 
(A) the new credit risk retention requirements con-
tained in the amendment made by subsection (b), including 
the effect credit risk retention requirements have on 
increasing the market for Federally subsidized loans; and 
(B) the Financial Accounting Statements 166 and 167 
issued by the Financial Accounting Standards Board. 
(2) REPORT.—Not later than 90 days after the date of 
enactment of this Act, the Board of Governors of the Federal 
Reserve System shall submit to Congress a report on the study 
conducted under paragraph (1). Such report shall include statu-
tory and regulatory recommendations for eliminating any nega-
tive impacts on the continued viability of the asset-backed 
securitization markets and on the availability of credit for 
new lending identified by the study conducted under paragraph 
(1). 
SEC. 942. DISCLOSURES AND REPORTING FOR ASSET-BACKED SECURI-
TIES. 
(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 following: 
‘‘(d) SUPPLEMENTARY AND PERIODIC INFORMATION.— 
‘‘(1) IN GENERAL.—Each’’; 
(2) in the third sentence, by inserting after ‘‘securities 
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 Commission 
deems necessary or appropriate in the public interest or 
for the protection of investors. 
‘‘(B) CLASSIFICATION
OF
ISSUERS.—The Commission 
may, for purposes of this subsection, classify issuers and
H. R. 4173—522 
prescribe requirements appropriate for each class of issuers 
of asset-backed securities.’’. 
(b) SECURITIES ACT OF 1933.—Section 7 of the Securities 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 security, which shall, to the 
extent feasible, facilitate comparison of such data across 
securities in similar types of asset classes; and 
‘‘(B) require issuers of asset-backed securities, at a 
minimum, to disclose asset-level or loan-level data, if such 
data are necessary for investors to independently perform 
due diligence, including— 
‘‘(i) data having unique identifiers relating to loan 
brokers or originators; 
‘‘(ii) the nature and extent of the compensation 
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 assets.’’. 
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 regu-
lations on the use of representations and warranties in the market 
for asset-backed securities (as that term is defined in section 3(a)(77) 
of the Securities Exchange Act of 1934, as added by this subtitle) 
that— 
(1) require each national recognized statistical rating 
organization to include in any report accompanying a credit 
rating a description of— 
(A) the representations, warranties, and enforcement 
mechanisms available to investors; and 
(B) how they differ from the representations, warran-
ties, and enforcement mechanisms in issuances of similar 
securities; and 
(2) require any securitizer (as that term is defined in section 
15G(a) of the Securities Exchange Act of 1934, as added by 
this subtitle) to disclose fulfilled 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 SECURITIES ACT 
OF 1933. 
(a) EXEMPTION ELIMINATED.—Section 4 of the Securities Act 
of 1933 (15 U.S.C. 77d) is amended— 
(1) by striking paragraph (5); and 
(2) by striking ‘‘(6) transactions’’ and inserting the fol-
lowing:
H. R. 4173—523 
‘‘(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)’’. 
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
SECURI-
TIES.—Not later than 180 days after the date of enactment 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 security— 
‘‘(1) to perform a review of the assets underlying the asset- 
backed security; and 
‘‘(2) to disclose the nature of the review under paragraph 
(1).’’. 
SEC. 946. STUDY ON THE MACROECONOMIC EFFECTS OF RISK RETEN-
TION REQUIREMENTS. 
(a) STUDY REQUIRED.—The Chairman of the Financial Services 
Oversight Council shall carry out a study on the macroeconomic 
effects of the risk retention requirements under this subtitle, and 
the amendments made by this subtitle, with emphasis placed on 
potential beneficial effects with respect to stabilizing the real estate 
market. Such study shall include— 
(1) an analysis of the effects of risk retention on real 
estate asset price bubbles, including a retrospective estimate 
of what fraction of real estate losses may have been averted 
had such requirements been in force in recent years; 
(2) an analysis of the feasibility of minimizing real estate 
price bubbles by proactively adjusting the percentage of risk 
retention that must be borne by creditors and securitizers of 
real estate debt, as a function of regional or national market 
conditions; 
(3) a comparable analysis for proactively adjusting mort-
gage origination requirements; 
(4) an assessment of whether such proactive adjustments 
should be made by an independent regulator, or in a formulaic 
and transparent manner; 
(5) an assessment of whether such adjustments should 
take place independently or in concert with monetary policy; 
and 
(6) recommendations for implementation and enabling 
legislation. 
(b) REPORT.—Not later than the end of the 180-day period 
beginning on the date of the enactment of this title, the Chairman 
of the Financial Services Oversight Council shall issue a report 
to the Congress containing any findings and determinations made 
in carrying out the study required under subsection (a).
H. R. 4173—524 
Subtitle E—Accountability and Executive 
Compensation 
SEC. 951. SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION 
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 fol-
lowing: 
‘‘SEC. 14A. SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION. 
‘‘(a) SEPARATE RESOLUTION REQUIRED.— 
‘‘(1) IN GENERAL.—Not less frequently than once every 3 
years, a proxy or consent or authorization for an annual or 
other meeting of the shareholders for which the proxy solicita-
tion rules of the Commission require compensation disclosure 
shall include a separate resolution subject to shareholder vote 
to approve the compensation of executives, as disclosed pursu-
ant to section 229.402 of title 17, Code of Federal Regulations, 
or any successor thereto. 
‘‘(2) FREQUENCY OF VOTE.—Not less frequently than once 
every 6 years, a proxy or consent or authorization for an annual 
or other meeting of the shareholders for which the proxy solici-
tation rules of the Commission require compensation disclosure 
shall include a separate resolution subject to shareholder vote 
to determine whether votes on the resolutions required under 
paragraph (1) will occur every 1, 2, or 3 years. 
‘‘(3) EFFECTIVE DATE.—The proxy or consent or authoriza-
tion for the first 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 shall include— 
‘‘(A) the resolution described in paragraph (1); and 
‘‘(B) a separate resolution subject to shareholder vote 
to determine whether votes on the resolutions required 
under paragraph (1) will occur every 1, 2, or 3 years. 
‘‘(b) SHAREHOLDER APPROVAL
OF GOLDEN PARACHUTE COM-
PENSATION.— 
‘‘(1) DISCLOSURE.—In any proxy or consent solicitation 
material (the solicitation of which is subject to the rules of 
the Commission pursuant to subsection (a)) for a meeting of 
the shareholders occurring after the end of the 6-month period 
beginning on the date of enactment of this section, at which 
shareholders are asked to approve an acquisition, merger, 
consolidation, or proposed sale or other disposition of all or 
substantially all the assets of an issuer, the person making 
such solicitation shall disclose in the proxy or consent solicita-
tion material, in a clear and simple form in accordance with 
regulations to be promulgated by the Commission, any agree-
ments or understandings that such person has with any named 
executive officers of such issuer (or of the acquiring issuer, 
if such issuer is not the acquiring issuer) concerning any type 
of compensation (whether present, deferred, or contingent) that 
is based on or otherwise relates to the acquisition, merger, 
consolidation, sale, or other disposition of all or substantially 
all of the assets of the issuer and the aggregate total of all 
such compensation that may (and the conditions upon which
H. R. 4173—525 
it may) be paid or become payable to or on behalf of such 
executive officer. 
‘‘(2) SHAREHOLDER
APPROVAL.—Any proxy or consent or 
authorization relating to the proxy or consent solicitation mate-
rial containing the disclosure required by paragraph (1) shall 
include a separate resolution subject to shareholder vote to 
approve such agreements or understandings and compensation 
as disclosed, unless such agreements or understandings have 
been subject to a shareholder vote under subsection (a). 
‘‘(c) RULE OF CONSTRUCTION.—The shareholder vote referred 
to in subsections (a) and (b) 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 fiduciary 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 shareholders to make 
proposals for inclusion in proxy materials related to executive 
compensation. 
‘‘(d) DISCLOSURE
OF VOTES.—Every institutional investment 
manager subject to section 13(f) shall report at least annually 
how it voted on any shareholder vote pursuant to subsections (a) 
and (b), unless such vote is otherwise required to be reported 
publicly by rule or regulation of the Commission. 
‘‘(e) EXEMPTION.—The Commission may, by rule or order, 
exempt an issuer or class of issuers from the requirement under 
subsection (a) or (b). In determining whether to make an exemption 
under this subsection, the Commission shall take into account, 
among other considerations, whether the requirements under sub-
sections (a) and (b) disproportionately burdens small issuers.’’. 
SEC. 952. COMPENSATION COMMITTEE INDEPENDENCE. 
(a) IN GENERAL.—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 COMMITTEES.— 
‘‘(1) LISTING STANDARDS.—The Commission shall, by rule, 
direct the national securities exchanges and national securities 
associations to prohibit the listing of any equity security of 
an issuer, other than an issuer that is a controlled company, 
limited partnership, company in bankruptcy proceedings, open- 
ended management investment company that is registered 
under the Investment Company Act of 1940, or a foreign private 
issuer that provides annual disclosures to shareholders of the 
reasons that the foreign private issuer does not have an inde-
pendent compensation committee, that does not comply with 
the requirements of this subsection. 
‘‘(2) INDEPENDENCE OF COMPENSATION COMMITTEES.—The 
rules of the Commission under paragraph (1) shall require 
that each member of the compensation committee of the board 
of directors of an issuer be— 
‘‘(A) a member of the board of directors of the issuer; 
and 
‘‘(B) independent.
H. R. 4173—526 
‘‘(3) INDEPENDENCE.—The rules of the Commission under 
paragraph (1) shall require that, in determining the definition 
of the term ‘independence’ for purposes of paragraph (2), the 
national securities exchanges and the national securities 
associations shall consider relevant factors, including— 
‘‘(A) the source of compensation of a member of the 
board of directors of an issuer, including any consulting, 
advisory, or other compensatory fee paid by the issuer 
to such member of the board of directors; and 
‘‘(B) whether a member of the board of directors 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 national securities exchange 
or a national securities association to exempt a particular rela-
tionship from the requirements of paragraph (2), with respect 
to the members of a compensation committee, as the national 
securities exchange or national securities association deter-
mines is appropriate, taking into consideration 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 consultant, legal counsel, or 
other adviser to the compensation committee after taking into 
consideration the factors 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 compensation committee of an 
issuer. Such factors shall be competitively neutral among cat-
egories of consultants, legal counsel, or other advisers and 
preserve the ability of compensation committees to retain the 
services of members of any such category, and shall include— 
‘‘(A) the provision of other services to the issuer by 
the person that employs the compensation consultant, legal 
counsel, or other adviser; 
‘‘(B) the amount of fees received from the issuer by 
the person that employs the compensation 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 person 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 com-
pensation consultant, legal counsel, or other adviser with 
a member of the compensation committee; and 
‘‘(E) any stock of the issuer owned by the compensation 
consultant, legal counsel, or other adviser. 
‘‘(c) COMPENSATION COMMITTEE AUTHORITY RELATING TO COM-
PENSATION CONSULTANTS.— 
‘‘(1) AUTHORITY TO RETAIN COMPENSATION CONSULTANT.—
H. R. 4173—527 
‘‘(A) IN GENERAL.—The compensation committee of an 
issuer, in its capacity as a committee of the board of direc-
tors, may, in its sole discretion, retain or obtain the advice 
of a compensation consultant. 
‘‘(B) DIRECT RESPONSIBILITY OF COMPENSATION COM-
MITTEE.—The compensation committee of an issuer shall 
be directly responsible for the appointment, compensation, 
and oversight of the work of a compensation consultant. 
‘‘(C) RULE OF CONSTRUCTION.—This paragraph may not 
be construed— 
‘‘(i) to require the compensation committee to 
implement or act consistently with the advice or rec-
ommendations of the compensation consultant; or 
‘‘(ii) to affect the ability or obligation of a com-
pensation committee to exercise its own judgment in 
fulfillment of the duties of the compensation com-
mittee. 
‘‘(2) DISCLOSURE.—In any proxy or consent solicitation 
material for an annual meeting of the shareholders (or a special 
meeting in lieu of the annual 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 mate-
rial, in accordance with regulations of the Commission, 
whether— 
‘‘(A) the compensation committee of the issuer retained 
or obtained the advice of a compensation consultant; and 
‘‘(B) the work of the compensation consultant 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 and obtain the advice of 
independent legal counsel and other advisers. 
‘‘(2) DIRECT
RESPONSIBILITY
OF
COMPENSATION
COM-
MITTEE.—The compensation committee of an issuer shall be 
directly responsible for the appointment, 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 judgment in fulfillment of 
the duties of the compensation committee. 
‘‘(e) COMPENSATION
OF COMPENSATION CONSULTANTS, INDE-
PENDENT LEGAL COUNSEL, AND OTHER ADVISERS.—Each issuer shall 
provide for appropriate funding, as determined by the compensation 
committee in its capacity as a committee of the board of directors, 
for payment of reasonable compensation— 
‘‘(1) to a compensation consultant; and 
‘‘(2) to independent legal counsel or any other adviser to 
the compensation committee.
H. R. 4173—528 
‘‘(f) COMMISSION RULES.— 
‘‘(1) IN GENERAL.—Not later than 360 days after the date 
of enactment of this section, 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 is not in compliance with the requirements of this section. 
‘‘(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 paragraph (1), before the imposition of such prohibition. 
‘‘(3) EXEMPTION AUTHORITY.— 
‘‘(A) IN GENERAL.—The rules of the Commission under 
paragraph (1) shall permit a national securities exchange 
or a national securities association to exempt a category 
of issuers from the requirements under this section, as 
the national securities exchange or the national securities 
association determines is appropriate. 
‘‘(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 section on smaller reporting issuers. 
‘‘(g) CONTROLLED COMPANY EXEMPTION.— 
‘‘(1) IN GENERAL.—This section shall not apply to any con-
trolled company. 
‘‘(2) DEFINITION.—For purposes of this section, the term 
‘controlled company’ means an issuer— 
‘‘(A) that is listed on a national securities exchange 
or by a national securities association; and 
‘‘(B) that holds an election for the board of directors 
of the issuer in which more than 50 percent of the voting 
power is held by an individual, a group, or another issuer.’’. 
(b) STUDY AND REPORT.— 
(1) STUDY.—The Securities and Exchange Commission shall 
conduct a study and review of the use of compensation consult-
ants and the effects of such use. 
(2) REPORT.—Not later than 2 years after the date of the 
enactment of this Act, the Commission shall submit a report 
to Congress on the results of the study and review required 
by this subsection. 
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 adding at the end the following: 
‘‘(i) DISCLOSURE OF PAY VERSUS PERFORMANCE.—The Commis-
sion shall, by rule, require each issuer to disclose in any proxy 
or consent solicitation material for an annual meeting of the share-
holders of the issuer a clear description 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 information that shows the relationship between executive 
compensation 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 distributions. The
H. R. 4173—529 
disclosure under this subsection may include a graphic representa-
tion of the information required to be disclosed.’’. 
(b) ADDITIONAL DISCLOSURE REQUIREMENTS.— 
(1) IN
GENERAL.—The Commission shall amend section 
229.402 of title 17, Code of Federal Regulations, 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 thereto)— 
(A) the median of the annual total compensation of 
all employees of the issuer, except the chief executive officer 
(or any equivalent position) of the issuer; 
(B) the annual total compensation of the chief executive 
officer (or any equivalent position) 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 section 229.402(c)(2)(x) of title 
17, Code of Federal Regulations, as in effect on the day before 
the date of enactment of this Act. 
SEC. 954. RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION. 
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 COMPENSATION 
POLICY. 
‘‘(a) LISTING STANDARDS.—The Commission shall, by rule, direct 
the national securities exchanges and national securities associa-
tions 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 Commission 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 financial information 
required to be reported under the securities laws; and 
‘‘(2) that, in the event that the issuer is required to prepare 
an accounting restatement due to the material noncompliance 
of the issuer with any financial reporting requirement under 
the securities laws, the issuer will recover from any current 
or former executive officer of the issuer who received incentive- 
based compensation (including stock options awarded as com-
pensation) during the 3-year period preceding the date on which 
the issuer is required to prepare an accounting restatement, 
based on the erroneous data, in excess of what would have 
been paid to the executive officer under the accounting restate-
ment.’’. 
SEC. 955. DISCLOSURE REGARDING EMPLOYEE AND DIRECTOR 
HEDGING. 
Section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 
78n), as amended by this title, is amended by adding 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 material for an annual meeting 
of the shareholders of the issuer whether any employee or member
H. R. 4173—530 
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 compensation of the 
employee or member of the board of directors; or 
‘‘(2) held, directly or indirectly, by the employee or member 
of the board of directors.’’. 
SEC. 956. ENHANCED COMPENSATION STRUCTURE REPORTING. 
(a) ENHANCED DISCLOSURE AND REPORTING OF COMPENSATION 
ARRANGEMENTS.— 
(1) IN GENERAL.—Not later than 9 months after the date 
of enactment of this title, the appropriate Federal regulators 
jointly shall prescribe regulations or guidelines to require each 
covered financial institution to disclose to the appropriate Fed-
eral regulator the structures of all incentive-based compensa-
tion arrangements offered by such covered financial institutions 
sufficient to determine whether the compensation structure— 
(A) provides an executive officer, employee, director, 
or principal shareholder of the covered financial institution 
with excessive compensation, fees, or benefits; or 
(B) could lead to material financial loss to the covered 
financial institution. 
(2) RULES OF CONSTRUCTION.—Nothing in this section shall 
be construed as requiring the reporting of the actual compensa-
tion of particular individuals. Nothing in this section shall 
be construed to require a covered financial institution that 
does not have an incentive-based payment arrangement to 
make the disclosures required under this subsection. 
(b) PROHIBITION ON CERTAIN COMPENSATION ARRANGEMENTS.— 
Not later than 9 months after the date of enactment of this title, 
the appropriate Federal regulators shall jointly prescribe regula-
tions or guidelines that prohibit any types of incentive-based pay-
ment arrangement, or any feature of any such arrangement, that 
the regulators determine encourages inappropriate risks by covered 
financial institutions— 
(1) by providing an executive officer, employee, director, 
or principal shareholder of the covered financial institution 
with excessive compensation, fees, or benefits; or 
(2) that could lead to material financial loss to the covered 
financial institution. 
(c) STANDARDS.—The appropriate Federal regulators shall— 
(1) ensure that any standards for compensation established 
under subsections (a) or (b) are comparable to the standards 
established under section of the Federal Deposit Insurance 
Act (12 U.S.C. 2 1831p–1) for insured depository institutions; 
and 
(2) in establishing such standards under such subsections, 
take into consideration the compensation standards described 
in section 39(c) of the Federal Deposit Insurance Act (12 U.S.C. 
1831p– 9 1(c)). 
(d) ENFORCEMENT.—The provisions of this section and the regu-
lations issued under this section shall be enforced under section
H. R. 4173—531 
505 of the Gramm-Leach-Bliley Act and, for purposes of such sec-
tion, a violation of this section or such regulations shall be treated 
as a violation of subtitle A of title V of such Act. 
(e) DEFINITIONS.—As used in this section— 
(1) the term ‘‘appropriate Federal regulator’’ means the 
Board of Governors of the Federal Reserve System, the Office 
of the Comptroller of the Currency, the Board of Directors 
of the Federal Deposit Insurance Corporation, the Director 
of the Office of Thrift Supervision, the National Credit Union 
Administration Board, the Securities and Exchange Commis-
sion, the Federal Housing Finance Agency; and 
(2) the term ‘‘covered financial institution’’ means— 
(A) a depository institution or depository institution 
holding company, as such terms are defined in section 
3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); 
(B) a broker-dealer registered under section 15 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o); 
(C) a credit union, as described in section 19(b)(1)(A)(iv) 
of the Federal Reserve Act; 
(D) an investment advisor, as such term is defined 
in section 202(a)(11) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-2(a)(11)); 
(E) the Federal National Mortgage Association; 
(F) the Federal Home Loan Mortgage Corporation; and 
(G) any other financial institution that the appropriate 
Federal regulators, jointly, by rule, determine should be 
treated as a covered financial institution for purposes of 
this section. 
(f) EXEMPTION
FOR CERTAIN FINANCIAL INSTITUTIONS.—The 
requirements of this section shall not apply to covered financial 
institutions with assets of less than $1,000,000,000. 
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 accordingly; 
(B) by redesignating subparagraphs (A) through (D) 
as clauses (i) through (iv), respectively, 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 registered under 
section 12 from granting a proxy to vote the security in connec-
tion 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 subparagraph 
is a shareholder vote with respect to the election of a member
H. R. 4173—532 
of the board of directors of an issuer, executive compensation, 
or any other significant matter, as determined by the Commis-
sion, by rule, and does not include a vote with respect to 
the uncontested election of a member of the board of directors 
of any investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80b–1 et seq.). 
‘‘(C) Nothing in this paragraph shall be construed to pro-
hibit a national securities exchange from prohibiting a member 
that is not the beneficial owner of a security registered under 
section 12 from granting a proxy to vote the security in connec-
tion with a shareholder vote not described in subparagraph 
(A).’’. 
Subtitle F—Improvements to the Manage-
ment of the Securities and Exchange 
Commission 
SEC. 961. REPORT AND CERTIFICATION OF INTERNAL SUPERVISORY 
CONTROLS. 
(a) ANNUAL REPORTS AND CERTIFICATION.—Not later than 90 
days after the end of each fiscal year, the Commission shall submit 
a report to the Committee on Banking, Housing, and Urban Affairs 
of the Senate and the Committee on Financial Services of the 
House of Representatives 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 subsection (a) 
shall contain— 
(1) an assessment, as of the end of the most recent fiscal 
year, of the effectiveness of— 
(A) the internal supervisory controls of the Commis-
sion; and 
(B) the procedures of the Commission applicable to 
the staff of the Commission who perform examinations 
of registered entities, enforcement investigations, and 
reviews of corporate financial securities filings; 
(2) a certification that the Commission has adequate 
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 subsection (d). 
(c) CERTIFICATION.— 
(1) SIGNATURE.—The certification under subsection (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 Examina-
tions (or the head of any successor division or office). 
(2) CONTENT OF CERTIFICATION.—Each individual described 
in paragraph (1) shall certify that the individual— 
(A) is directly responsible for establishing and 
maintaining the internal supervisory controls of the Divi-
sion or Office of which the individual is the head; 
(B) is knowledgeable about the internal supervisory 
controls of the Division or Office of which the individual 
is the head;
H. R. 4173—533 
(C) has evaluated the effectiveness of the internal 
supervisory controls during the 90-day period 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 super-
visory controls that could adversely affect the ability of 
the Division or Office to consistently conduct inspections, 
or investigations, or reviews of filings with professional 
competence and integrity. 
(d) NEW DIRECTOR
OR ACTING DIRECTOR.—Notwithstanding 
subsection (a), if the Director of the Division of Enforcement, the 
Director of the Division of Corporate Finance, or the Director of 
the Office of Compliance Inspections and Examinations has served 
as Director of the Division or Office for less than 90 days on 
the date on which a report is required to be submitted under 
subsection (a), the Commission may submit the report on the date 
on which the Director has served as Director for 90 days. If there 
is no Director of the Division of Enforcement, the Division of Cor-
porate Finance, or the Office of Compliance Inspections and 
Examinations, on the date on which a report is required to be 
submitted under subsection (a), the Acting Director of the Division 
or Office may make the certification required under subsection 
(c). 
(e) REVIEW BY THE COMPTROLLER GENERAL.— 
(1) REPORT.—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 Services 
of the House of Representatives a report that contains a review 
of the adequacy and effectiveness of the internal supervisory 
control structure and procedures described in subsection (b)(1), 
not less frequently than once every 3 years, at a time to 
coincide with the publication of the reports of the Commission 
under this section. 
(2) AUTHORITY TO HIRE EXPERTS.—The Comptroller General 
of the United States may hire independent consultants with 
specialized expertise in any area relevant to the duties of 
the Comptroller General described in this section, in order 
to assist the Comptroller General in carrying out such duties. 
SEC. 962. TRIENNIAL REPORT ON PERSONNEL MANAGEMENT. 
(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, and Urban Affairs of the 
Senate and the Committee on Financial Services of the House 
of Representatives on the quality of personnel management by 
the Commission. 
(b) CONTENTS OF REPORT.—Each report under subsection (a) 
shall include— 
(1) an evaluation of— 
(A) the effectiveness of supervisors in using the skills, 
talents, and motivation of the employees of the Commission 
to achieve the goals of the Commission; 
(B) the criteria for promoting employees of the Commis-
sion to supervisory positions; 
(C) the fairness of the application of the promotion 
criteria to the decisions of the Commission;
H. R. 4173—534 
(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 between divisions and between 
subunits of a division) and the efforts by the Commission 
to promote such communication; 
(F) the turnover within subunits of the Commission, 
including the consideration of supervisors whose subordi-
nates 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 Commission; 
(I) the actions taken by the Commission regarding 
employees of the Commission who have failed to perform 
their duties and circumstances under which the Commis-
sion has issued to employees a notice of termination; and 
(J) such other factors relating to the management 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 submis-
sion of the previous report; and 
(3) recommendations for how the Commission can use the 
human resources of the Commission more effectively and effi-
ciently 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 General of the Commission, per-
sons that have business before the Commission, any union rep-
resenting the employees of the Commission, private management 
consultants, academics, 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 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 describing the actions taken by the Commission in response 
to the recommendations contained in the report under subsection 
(a). 
(e) REIMBURSEMENTS FOR COST OF REPORTS.— 
(1) REIMBURSEMENTS
REQUIRED.—The Commission shall 
reimburse the Government Accountability Office for the full 
cost of making the reports under this section, as billed therefor 
by the Comptroller General. 
(2) CREDITING
AND
USE
OF
REIMBURSEMENTS.—Such 
reimbursements shall— 
(A) be credited to the appropriation account ‘‘Salaries 
and Expenses, Government Accountability Office’’ current 
when the payment is received; and 
(B) remain available until expended. 
(f) AUTHORITY
TO HIRE EXPERTS.—The Comptroller General 
of the United States may hire independent consultants with special-
ized expertise in any area relevant to the duties of the Comptroller
H. R. 4173—535 
General described in this section, in order to assist the Comptroller 
General in carrying out such duties. 
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 management of 
the Commission for establishing and maintaining an ade-
quate internal control structure and procedures for finan-
cial reporting; and 
(B) contains an assessment of the effectiveness of the 
internal control structure and procedures 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— 
(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 Commission shall 
reimburse the Government Accountability Office for the full 
cost of making the reports under subsection (b), as billed 
therefor by the Comptroller General. 
(2) CREDITING
AND
USE
OF
REIMBURSEMENTS.—Such 
reimbursements shall— 
(A) be credited to the appropriation account ‘‘Salaries 
and Expenses, Government Accountability Office’’ current 
when the payment is received; and 
(B) remain available until expended. 
SEC. 964. REPORT ON OVERSIGHT OF NATIONAL SECURITIES ASSOCIA-
TIONS. 
(a) REPORT REQUIRED.—Not later than 2 years after the date 
of enactment of this Act, and every 3 years thereafter, the Comp-
troller General of the United States 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 that includes an evaluation of the oversight by the Commis-
sion of national 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 associations, 
including the identification and management of conflicts of 
interest by such national securities associations, together with 
an analysis of the impact of any conflicts of interest on the
H. R. 4173—536 
regulatory enforcement or rulemaking by such national securi-
ties 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 national securi-
ties associations; 
(5) the review performed by national securities associations 
of advertising by the members of the national securities associa-
tions; 
(6) the cooperation with and assistance to State securities 
administrators by the national securities associations to pro-
mote investor protection; 
(7) how the funding of national securities associations is 
used to support the mission of the national securities associa-
tions, 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 invest-
ment of funds on regulatory enforcement by the national 
securities associations; 
(8) the policies regarding the employment of former 
employees of national securities associations by regulated enti-
ties; 
(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 activities of the 
national securities associations; and 
(11) any other issue that has an impact, as determined 
by the Comptroller General, on the effectiveness of such 
national securities associations in performing their mission and 
in dealing fairly with investors and members; 
(b) REIMBURSEMENTS FOR COST OF REPORTS.— 
(1) REIMBURSEMENTS
REQUIRED.—The Commission shall 
reimburse the Government Accountability Office for the full 
cost of making the reports under subsection (a), as billed 
therefor by the Comptroller General. 
(2) CREDITING
AND
USE
OF
REIMBURSEMENTS.—Such 
reimbursements shall— 
(A) be credited to the appropriation account ‘‘Salaries 
and Expenses, Government Accountability Office’’ current 
when the payment is received; 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— 
‘‘(A) perform compliance inspections and examinations 
of entities under the jurisdiction of that Division; and 
‘‘(B) report to the Director of that Division.
H. R. 4173—537 
‘‘(2) DIVISION OF INVESTMENT MANAGEMENT.—The Division 
of Investment Management of the Commission, 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 Division.’’. 
SEC. 966. SUGGESTION PROGRAM FOR EMPLOYEES OF THE COMMIS-
SION. 
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 EMPLOYEES.— 
‘‘(1) HOTLINE ESTABLISHED.—The Inspector General of the 
Commission shall establish and maintain a telephone hotline 
or other electronic means for the receipt of— 
‘‘(A) suggestions by employees of the Commission for 
improvements in the work efficiency, effectiveness, and 
productivity, and the use of the resources, of the Commis-
sion; and 
‘‘(B) allegations by employees of the Commission of 
waste, abuse, misconduct, or mismanagement within the 
Commission. 
‘‘(2) CONFIDENTIALITY.—The Inspector General shall main-
tain as confidential— 
‘‘(A) the identity of any individual who provides 
information by the means established under paragraph 
(1), unless the individual requests otherwise, in writing; 
and 
‘‘(B) at the request of any such individual, any specific 
information provided by the individual. 
‘‘(b) CONSIDERATION OF REPORTS.—The Inspector General shall 
consider any suggestions or allegations received by the means estab-
lished under subsection (a)(1), and shall recommend appropriate 
action in relation to such suggestions or allegations. 
‘‘(c) RECOGNITION.—The Inspector General may recognize any 
employee who makes a suggestion under subsection (a)(1) (or by 
other means) that would or does— 
‘‘(1) increase the work efficiency, effectiveness, or produc-
tivity of the Commission; or 
‘‘(2) reduce waste, abuse, misconduct, or mismanagement 
within the Commission. 
‘‘(d) REPORT.—The Inspector General of the Commission 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 substantiated allegations 
received under subsection (a); and 
‘‘(4) any action the Commission has taken in response 
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
H. R. 4173—538 
Commission Investor Protection Fund established under section 
21F.’’. 
SEC. 967. COMMISSION ORGANIZATIONAL STUDY AND REFORM. 
(a) STUDY REQUIRED.— 
(1) IN GENERAL.—Not later than the end of the 90-day 
period beginning on the date of the enactment of this subtitle, 
the Securities and Exchange Commission (hereinafter in this 
section referred to as the ‘‘SEC’’) shall hire an independent 
consultant of high caliber and with expertise in organizational 
restructuring and the operations of capital markets to examine 
the internal operations, structure, funding, and the need for 
comprehensive reform of the SEC, as well as the SEC’s relation-
ship with and the reliance on self-regulatory organizations and 
other entities relevant to the regulation of securities and the 
protection of securities investors that are under the SEC’s 
oversight. 
(2) SPECIFIC AREAS FOR STUDY.—The study required under 
paragraph (1) shall, at a minimum, include the study of— 
(A) the possible elimination of unnecessary or redun-
dant units at the SEC; 
(B) improving communications between SEC offices 
and divisions; 
(C) the need to put in place a clear chain-of-command 
structure, particularly for enforcement examinations and 
compliance inspections; 
(D) the effect of high-frequency trading and other 
technological advances on the market and what the SEC 
requires to monitor the effect of such trading and advances 
on the market; 
(E) the SEC’s hiring authorities, workplace policies, 
and personal practices, including— 
(i) whether there is a need to further streamline 
hiring authorities for those who are not lawyers, 
accountants, compliance examiners, or economists; 
(ii) whether there is a need for further pay reforms; 
(iii) the diversity of skill sets of SEC employees 
and whether the present skill set diversity efficiently 
and effectively fosters the SEC’s mission of investor 
protection; and 
(iv) the application of civil service laws by the 
SEC; 
(F) whether the SEC’s oversight and reliance on self- 
regulatory organizations promotes efficient and effective 
governance for the securities markets; and 
(G) whether adjusting the SEC’s reliance on self-regu-
latory organizations is necessary to promote more efficient 
and effective governance for the securities markets. 
(b) CONSULTANT REPORT.—Not later than the end of the 150- 
day period after being retained, the independent consultant hired 
pursuant to subsection (a)(1) shall issue a report to the SEC and 
the Congress containing— 
(1) a detailed description of any findings and conclusions 
made while carrying out the study required under subsection 
(a)(1); and 
(2) recommendations for legislative, regulatory, or adminis-
trative action that the consultant determines appropriate to
H. R. 4173—539 
enable the SEC and other entities on which the consultant 
reports to perform their statutorily or otherwise mandated mis-
sions. 
(c) SEC REPORT.—Not later than the end of the 6-month period 
beginning on the date the consultant issues the report under sub-
section (b), and every 6-months thereafter during the 2-year period 
following the date on which the consultant issues such report, 
the SEC shall issue a report to the Committee on Financial Services 
of the House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the Senate describing the SEC’s 
implementation of the regulatory and administrative recommenda-
tions contained in the consultant’s report. 
SEC. 968. STUDY ON SEC REVOLVING DOOR. 
(a) GOVERNMENT ACCOUNTABILITY OFFICE STUDY.—The Comp-
troller General of the United States shall conduct a study that 
will— 
(1) review the number of employees who leave the Securi-
ties and Exchange Commission to work for financial institutions 
regulated by such Commission; 
(2) determine how many employees who leave the Securities 
and Exchange Commission worked on cases that involved finan-
cial institutions regulated by such Commission; 
(3) review the length of time employees work for the Securi-
ties and Exchange Commission before leaving to be employed 
by financial institutions regulated by such Commission; 
(4) review existing internal controls and make rec-
ommendations on strengthening such controls to ensure that 
employees of the Securities and Exchange Commission who 
are later employed by financial institutions did not assist such 
institutions in violating any rules or regulations of the Commis-
sion during the course of their employment with such Commis-
sion; 
(5) determine if greater post-employment restrictions are 
necessary to prevent employees of the Securities and Exchange 
Commission from being employed by financial institutions after 
employment with such Commission; 
(6) determine if the volume of employees of the Securities 
and Exchange Commission who are later employed by financial 
institutions has led to inefficiencies in enforcement; 
(7) determine if employees of the Securities and Exchange 
Commission who are later employed by financial institutions 
assisted such institutions in circumventing Federal rules and 
regulations while employed by such Commission; 
(8) review any information that may address the volume 
of employees of the Securities and Exchange Commission who 
are later employed by financial institutions, and make rec-
ommendations to Congress; and 
(9) review other additional issues as may be raised during 
the course of the study conducted under this subsection. 
(b) REPORT.—Not later than 1 year after the date of the enact-
ment of this subtitle, the Comptroller General of the United States 
shall submit to the Committee on Financial Services of the House 
of Representatives and the Committee on Banking, Housing, and 
Urban Affairs of the Senate a report on the results of the study 
required by subsection (a).
H. R. 4173—540 
Subtitle G—Strengthening Corporate 
Governance 
SEC. 971. 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 Commission 
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 certain procedure 
in relation to a solicitation described in subparagraph (A).’’. 
(b) REGULATIONS.—The Commission may issue rules permitting 
the use by a shareholder of proxy solicitation materials 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 the Commission determines are in the 
interests of shareholders and for the protection of investors. 
(c) EXEMPTIONS.—The Commission may, by rule or order, 
exempt an issuer or class of issuers from the requirement made 
by this section or an amendment made by this section. In deter-
mining whether to make an exemption under this subsection, the 
Commission shall take into account, among other considerations, 
whether the requirement in the amendment made by subsection 
(a) disproportionately burdens small issuers. 
SEC. 972. DISCLOSURES REGARDING CHAIRMAN AND CEO STRUC-
TURES. 
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. 
‘‘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 posi-
tions); 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 DEALERS
AND 
MUNICIPAL ADVISORS.—Section 15B(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o–4(a)) is amended—
H. R. 4173—541 
(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 prod-
ucts or the issuance of municipal securities, or to undertake 
a solicitation of a municipal entity or obligated person, 
unless the municipal advisor is registered in accordance 
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 municipal secu-
rities 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 securi-
ties dealers, or municipal advisors’’; and 
(5) by adding at the end the following: 
‘‘(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 municipal entity or obligated 
person with respect to municipal financial products, the 
issuance of municipal securities, or to undertake a solicitation 
of a municipal entity or obligated person, in connection with 
which such municipal advisor engages in any fraudulent, decep-
tive, 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 ‘‘appointed 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 inserting the 
following: ‘‘The members of the Board shall serve as mem-
bers for a term of 3 years or for such other terms as 
specified by rules of the Board pursuant to paragraph 
(2)(B), and shall consist of (A) 8 individuals who are inde-
pendent of any municipal securities broker, municipal secu-
rities dealer, or municipal advisor, at least 1 of whom 
shall be representative of institutional or retail investors 
in municipal securities, at least 1 of whom shall be rep-
resentative of municipal entities, 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 representatives’); and (B) 
7 individuals who are associated with a broker, dealer, 
municipal securities dealer, or municipal advisor, including 
at least 1 individual who is associated with and representa-
tive of brokers, dealers, or municipal securities dealers 
that are not banks or subsidiaries or departments or divi-
sions of banks (which members are hereinafter referred
H. R. 4173—542 
to as ‘broker-dealer representatives’), at least 1 individual 
who is associated with and representative of municipal 
securities dealers which are banks or subsidiaries or 
departments or divisions of banks (which members are 
hereinafter referred to as ‘bank representatives’), and at 
least 1 individual who is associated with a municipal 
advisor (which members are hereinafter referred to as 
‘advisor representatives’ and, together with the broker- 
dealer representatives and the bank representatives, are 
referred to as ‘regulated representatives’). Each member 
of the board shall be knowledgeable of matters related 
to the municipal securities markets.’’; and 
(C) in the third sentence, by striking ‘‘initial’’; 
(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 per-
sons by brokers, dealers, municipal securities dealers, 
and municipal advisors with respect to municipal 
financial products, the issuance of municipal securities, 
and solicitations of municipal entities or obligated per-
sons undertaken by brokers, dealers, municipal securi-
ties dealers, and municipal advisors’’; and 
(ii) by striking the second sentence; 
(B) in subparagraph (A)— 
(i) in the matter preceding clause (i)— 
(I) by inserting ‘‘, and no broker, dealer, munic-
ipal securities dealer, or municipal advisor shall 
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,’’ 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 ‘‘municipal securities 
brokers and municipal securities 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; 
(iv) in clause (iii), by striking ‘‘; and’’ and inserting 
a period; and 
(v) by striking clause (iv); 
(C) by amending subparagraph (B) to read as follows: 
‘‘(B) establish fair procedures for the nomination and elec-
tion of members of the Board and assure fair representation 
in such nominations and elections of public representatives, 
broker dealer representatives, bank representatives, and 
advisor representatives. Such rules— 
‘‘(i) shall provide that the number of public representa-
tives of the Board shall at all times exceed the total number 
of regulated representatives and that the membership shall 
at all times be as evenly divided in number as possible 
between public representatives and regulated representa-
tives;
H. R. 4173—543 
‘‘(ii) shall specify the length or lengths of terms mem-
bers shall serve; 
‘‘(iii) may increase the number of members which shall 
constitute the whole Board, provided that such number 
is an odd number; and 
‘‘(iv) shall establish requirements regarding the 
independence of public representatives.’’. 
(D) in subparagraph (C)— 
(i) by inserting ‘‘and municipal financial products’’ 
after ‘‘municipal securities’’ the first two times that 
term appears; 
(ii) by inserting ‘‘, municipal entities, obligated 
persons,’’ before ‘‘and the public interest’’; 
(iii) by striking ‘‘between’’ and inserting ‘‘among’’; 
(iv) by striking ‘‘issuers, municipal securities bro-
kers, or municipal securities dealers, to fix’’ and 
inserting ‘‘municipal entities, obligated persons, munic-
ipal securities 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 concerning municipal 
financial products’’ after ‘‘transactions in municipal 
securities’’; 
(ii) by striking ‘‘That no’’ and inserting ‘‘that no’’; 
(iii) by inserting ‘‘municipal advisor,’’ before ‘‘or 
person associated’’; and 
(iv) by striking ‘‘a municipal securities broker or 
municipal securities dealer may be compelled’’ and 
inserting ‘‘a municipal securities broker, municipal 
securities 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, municipal securities dealer, or munic-
ipal advisor’’; 
(G) in subparagraph (G), by striking ‘‘municipal securi-
ties brokers and municipal securities dealers’’ and inserting 
‘‘municipal securities brokers, municipal securities dealers, 
and municipal advisors’’; 
(H) in subparagraph (J)— 
(i) by striking ‘‘municipal securities broker and 
each municipal securities dealer’’ and inserting ‘‘munic-
ipal securities broker, municipal securities dealer, and 
municipal advisor’’; and 
(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, or to any information 
system operated by the Board, within the prescribed 
timeframes, any items of information or documents
H. R. 4173—544 
required to be submitted under any rule issued by 
the Board.’’; 
(I) in subparagraph (K)— 
(i) by inserting ‘‘broker, dealer, or’’ before ‘‘munic-
ipal 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 securities dealer’’; and 
(J) by adding at the end the following: 
‘‘(L) with respect to municipal advisors— 
‘‘(i) prescribe means reasonably designed to pre-
vent acts, practices, and courses of business as are 
not consistent with a municipal advisor’s fiduciary duty 
to its clients; 
‘‘(ii) provide continuing education requirements for 
municipal advisors; 
‘‘(iii) provide professional standards; and 
‘‘(iv) not impose a regulatory burden on small 
municipal advisors that is not necessary or appropriate 
in the public interest and for the protection of inves-
tors, municipal entities, and obligated persons, pro-
vided that there is robust protection of investors 
against fraud.’’; 
(3) by redesignating paragraph (3) as paragraph (7); and 
(4) by inserting after paragraph (2) the following: 
‘‘(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 receipt of information 
from, such systems from any persons which systems may 
be developed for the purposes of serving as a repository 
of information from municipal market participants or other-
wise in furtherance of the purposes of the Board, a Federal 
financial regulator, or a self-regulatory organization, except 
that the Board— 
‘‘(i) may not charge a fee to municipal entities 
or obligated persons to submit documents or other 
information to the Board or charge a fee to any person 
to obtain, directly from the Internet site of the Board, 
documents or information submitted by municipal enti-
ties, obligated persons, brokers, dealers, municipal 
securities dealers, or municipal advisors, including 
documents submitted under the rules of the Board 
or the Commission; and 
‘‘(ii) shall not be prohibited from charging commer-
cially reasonable fees for automated subscription-based 
feeds or similar services, or for charging for other 
data or document-based services customized upon 
request of any person, made available to commercial 
enterprises, municipal securities market professionals, 
or the general public, whether delivered through the 
Internet or any other means, that contain all or part 
of the documents or information, subject to approval 
of the fees by the Commission under section 19(b).
H. R. 4173—545 
‘‘(4) The Board may provide guidance and assistance in 
the enforcement of, and examination for, compliance with the 
rules of the Board to the Commission, a registered securities 
association under section 15A, or any other appropriate regu-
latory agency, as applicable. 
‘‘(5) The Board, the Commission, and a registered securities 
association under section 15A, or the designees of the Board, 
the Commission, or such association, shall meet not less fre-
quently than 2 times a year— 
‘‘(A) to describe the work of the Board, the Commission, 
and the registered securities association involving the regu-
lation of municipal securities; and 
‘‘(B) to share information about— 
‘‘(i) the interpretation of the Board, the Commis-
sion, and the registered securities association of Board 
rules; and 
‘‘(ii) examination and enforcement of compliance 
with Board rules.’’. 
(c) DISCIPLINE OF BROKERS, DEALERS, MUNICIPAL SECURITIES 
DEALERS AND MUNICIPAL ADVISORS; FIDUCIARY DUTY OF MUNICIPAL 
ADVISORS.—Section 15B(c) of the Securities Exchange Act of 1934 
(15 U.S.C. 78o–4(c)) is amended— 
(1) in paragraph (1), by inserting ‘‘, and no broker, dealer, 
municipal securities dealer, or 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 municipal 
entity or obligated person with respect to municipal financial 
products, the issuance of municipal securities, or to undertake 
a solicitation of a municipal entity or obligated person,’’ after 
‘‘any municipal security’’; 
(2) by adding at the end of paragraph (1) the following: 
‘‘A municipal advisor and any person associated with such 
municipal advisor shall be deemed to have a fiduciary duty 
to any municipal entity for whom such municipal advisor acts 
as a municipal advisor, and no municipal advisor may engage 
in any act, practice, or course of business which is not consistent 
with a municipal advisor’s fiduciary duty or that is in con-
travention of any rule of the Board.’’. 
(3) in paragraph (2), by inserting ‘‘or municipal advisor’’ 
after ‘‘municipal securities dealer’’ each place that term appears; 
(4) 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; 
(5) in paragraph (4), by inserting ‘‘or municipal advisor’’ 
after ‘‘municipal securities dealer or obligated person’’ each 
place that term appears; 
(6) in paragraph (6)(B), by inserting ‘‘or municipal entities 
or obligated person’’ after ‘‘protection of investors’’; 
(7) 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 period and 
inserting ‘‘; and’’; and
H. R. 4173—546 
(iii) by adding at the end the following: 
‘‘(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 
(8) 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 association 
under section 15A(7) with respect to violations 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 
association and the Board, and such allocation shall require 
the registered securities association to pay to the Board 1⁄3 
of all fines collected by the registered securities association 
reasonably allocable to violations of the rules of the Board, 
or such other portion of such fines as may be directed by 
the Commission upon agreement between the registered securi-
ties association and the Board.’’. 
(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 Exchange 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 Securities Rule-
making Board established under subsection (b)(1); 
‘‘(2) the term ‘guaranteed investment contract’ includes 
any investment that has specified withdrawal 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; 
‘‘(3) the term ‘investment strategies’ includes plans or pro-
grams for the investment of the proceeds of municipal securities 
that are not municipal derivatives, guaranteed investment con-
tracts, and the recommendation of and brokerage of municipal 
escrow investments; 
‘‘(4) the term ‘municipal advisor’— 
‘‘(A) means a person (who is not a municipal entity 
or an employee of a municipal entity) 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 securi-
ties, including advice with respect to the structure, 
timing, terms, and other similar matters concerning 
such financial products or issues; or 
‘‘(ii) undertakes a solicitation of a municipal entity;
H. R. 4173—547 
‘‘(B) includes financial advisors, guaranteed investment 
contract brokers, third-party marketers, placement agents, 
solicitors, finders, and swap advisors, if such persons are 
described in any of clauses (i) through (iii) of subparagraph 
(A); and 
‘‘(C) does not include a broker, dealer, or municipal 
securities dealer serving as an underwriter (as defined 
in section 2(a)(11) of the Securities Act of 1933) (15 U.S.C. 
77b(a)(11)), any investment adviser registered under the 
Investment Advisers Act of 1940, or persons associated 
with such investment advisers who are providing invest-
ment advice, any commodity trading advisor registered 
under the Commodity Exchange Act or persons associated 
with a commodity trading advisor who are providing advice 
related to swaps, attorneys offering legal advice or pro-
viding services that are of a traditional legal nature, or 
engineers providing engineering advice; 
‘‘(5) the term ‘municipal financial product’ means municipal 
derivatives, guaranteed investment contracts, and investment 
strategies; 
‘‘(6) the term ‘rules of the Board’ means the rules proposed 
and adopted by the Board under subsection (b)(2); 
‘‘(7) the term ‘person associated with a municipal advisor’ 
or ‘associated person of an advisor’ means— 
‘‘(A) any partner, officer, director, or branch manager 
of such municipal advisor (or any person occupying a 
similar status or performing similar functions); 
‘‘(B) any other employee of such municipal advisor 
who is engaged in the management, direction, supervision, 
or performance of any activities relating to the provision 
of advice to or on behalf of a municipal entity or obligated 
person with respect to municipal financial products or the 
issuance of municipal securities; and 
‘‘(C) any person directly or indirectly controlling, con-
trolled by, or under common control with such municipal 
advisor; 
‘‘(8) the term ‘municipal entity’ means any State, political 
subdivision of a State, or municipal corporate instrumentality 
of a State, including— 
‘‘(A) any agency, authority, or instrumentality of the 
State, 
political 
subdivision, 
or 
municipal 
corporate 
instrumentality; 
‘‘(B) any plan, program, or pool of assets sponsored 
or established by the State, political subdivision, or munic-
ipal corporate instrumentality or any agency, authority, 
or instrumentality thereof; and 
‘‘(C) any other issuer of municipal securities; 
‘‘(9) the term ‘solicitation of a municipal entity or obligated 
person’ means a direct or indirect communication with a munic-
ipal entity or obligated person made by a person, for direct 
or indirect compensation, on behalf of a broker, dealer, munic-
ipal securities dealer, municipal advisor, or investment adviser 
(as defined in section 202 of the Investment Advisers Act of 
1940) that does not control, is not controlled by, or is not 
under common control with the person undertaking such solici-
tation for the purpose of obtaining or retaining an engagement 
by a municipal entity or obligated person of a broker, dealer,
H. R. 4173—548 
municipal securities dealer, or municipal advisor for or in 
connection with municipal financial products, the issuance of 
municipal securities, or of an investment adviser to provide 
investment advisory services to or on behalf of a municipal 
entity; and 
‘‘(10) the term ‘obligated person’ means any person, 
including an issuer of municipal securities, who is either gen-
erally 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 associa-
tion shall— 
‘‘(A) request guidance from the Municipal Securities 
Rulemaking Board in interpretation of the rules of the 
Municipal Securities Rulemaking Board; and 
‘‘(B) provide information to the Municipal Securities 
Rulemaking Board about the enforcement actions and 
examinations of the association under section 15B(b)(2)(E), 
so that the Municipal Securities Rulemaking Board may— 
‘‘(i) assist in such enforcement actions and 
examinations; and 
‘‘(ii) evaluate the ongoing effectiveness of the rules 
of the Board.’’. 
(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, dealer, or’’ before 
‘‘municipal securities dealer’’ each place that term appears. 
(h) ACCOUNTS
AND
RECORDS, REPORTS, EXAMINATIONS
OF 
EXCHANGES, MEMBERS, AND OTHERS.—Section 17(a)(1) of the Securi-
ties Exchange Act of 1934 is amended by inserting ‘‘municipal 
advisor,’’ after ‘‘municipal securities dealer’’. 
(i) EFFECTIVE DATE.—This section, and the amendments made 
by this section, shall take effect on October 1, 2010. 
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 markets and 
the issuers and investors; and 
(B) the disclosures provided by issuers to investors; 
(2) compare the amount, frequency, and quality of disclo-
sures that issuers of municipal securities are required by law 
to provide for the benefit of municipal securities holders, 
including the amount of and frequency of disclosures actually
H. R. 4173—549 
provided by issuers of municipal securities, with the amount 
of and frequency of disclosures that issuers of corporate securi-
ties provide for the benefit of corporate securities holders, 
taking into account the differences between issuers of municipal 
securities and issuers of corporate securities; 
(3) evaluate the costs and benefits to various types of 
issuers of municipal securities of requiring issuers of municipal 
bonds to provide additional financial disclosures for the benefit 
of investors; 
(4) evaluate the potential benefit to investors from addi-
tional financial disclosures by issuers of municipal bonds; and 
(5) make recommendations relating to disclosure require-
ments for municipal issuers, including the advisability 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 Amendment’’). 
(c) REPORT.—Not later than 24 months after the date of enact-
ment 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 recommendations 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 18 months after the date of enact-
ment of this Act, the Comptroller General of the United States 
shall submit a report to the Committee on Banking, Housing, and 
Urban Affairs of the Senate, and the Committee on Financial Serv-
ices of the House of Representatives, 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, including 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 Committee on Financial Services 
of the House of Representatives, with a copy to the Special Com-
mittee on Aging of the Senate, stating the actions the Commission 
has taken in response to the recommendations contained in such 
report. 
SEC. 978. FUNDING FOR GOVERNMENTAL ACCOUNTING STANDARDS 
BOARD. 
(a) AMENDMENT TO THE SECURITIES ACT OF 1933.—Section 19 
of the Securities Act of 1933 (15 U.S.C. 77s), as amended by section 
912, is further amended by adding at the end the following:
H. R. 4173—550 
‘‘(g) FUNDING FOR THE GASB.— 
‘‘(1) IN GENERAL.—The Commission may, subject to the 
limitations imposed by section 15B of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o–4), require a national securities 
association registered under the Securities Exchange Act of 
1934 to establish— 
‘‘(A) a reasonable annual accounting support fee to 
adequately fund the annual budget of the Governmental 
Accounting Standards Board (referred to in this subsection 
as the ‘GASB’); and 
‘‘(B) rules and procedures, in consultation with the 
principal organizations representing State governors, legis-
lators, local elected officials, and State and local finance 
officers, to provide for the equitable allocation, assessment, 
and collection of the accounting support fee established 
under subparagraph (A) from the members of the associa-
tion, and the remittance of all such accounting support 
fees to the Financial Accounting Foundation. 
‘‘(2) ANNUAL BUDGET.—For purposes of this subsection, the 
annual budget of the GASB is the annual budget reviewed 
and approved according to the internal procedures of the Finan-
cial Accounting Foundation. 
‘‘(3) USE OF FUNDS.—Any fees or funds collected under 
this subsection shall be used to support the efforts of the 
GASB to establish standards of financial accounting and 
reporting recognized as generally accepted accounting principles 
applicable to State and local governments of the United States. 
‘‘(4) LIMITATION ON FEE.—The annual accounting support 
fees collected under this subsection for a fiscal year shall not 
exceed the recoverable annual budgeted expenses of the GASB 
(which may include operating expenses, capital, and accrued 
items). 
‘‘(5) RULES OF CONSTRUCTION.— 
‘‘(A) FEES
NOT
PUBLIC
MONIES.—Accounting support 
fees collected under this subsection and other receipts of 
the GASB shall not be considered public monies of the 
United States. 
‘‘(B) LIMITATION ON AUTHORITY OF THE COMMISSION.— 
Nothing in this subsection shall be construed to— 
‘‘(i) provide the Commission or any national securi-
ties association direct or indirect oversight of the 
budget or technical agenda of the GASB; or 
‘‘(ii) affect the setting of generally accepted 
accounting principles by the GASB. 
‘‘(C) NONINTERFERENCE WITH STATES.—Nothing in this 
subsection shall be construed to impair or limit the 
authority of a State or local government to establish 
accounting and financial reporting standards.’’. 
(b) STUDY
OF
FUNDING
FOR
GOVERNMENTAL
ACCOUNTING 
STANDARDS BOARD.— 
(1) STUDY.—The Comptroller General of the United States 
shall conduct a study that evaluates— 
(A) the role and importance of the Governmental 
Accounting Standards Board in the municipal securities 
markets; and 
(B) the manner and the level at which the Govern-
mental Accounting Standards Board has been funded.
H. R. 4173—551 
(2) CONSULTATION.—In conducting the study required 
under paragraph (1), the Comptroller General shall consult 
with the principal organizations representing State governors, 
legislators, local elected officials, and State and local finance 
officers. 
(3) REPORT.—Not later than 180 days 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 study required 
under paragraph (1). 
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 Munic-
ipal Securities shall be the Director, who shall report to the Chair-
man. 
(c) STAFFING.— 
(1) IN GENERAL.—The Office of Municipal Securities shall 
be staffed sufficiently to carry out the requirements of this 
section. 
(2) REQUIREMENT.—The staff of the Office of Municipal 
Securities shall include individuals with knowledge of and 
expertise in municipal finance. 
Subtitle I—Public Company Accounting 
Oversight Board, Portfolio Margining, 
and Other Matters 
SEC. 981. AUTHORITY TO SHARE CERTAIN INFORMATION WITH FOR-
EIGN 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 AUTHORITY.—The term 
‘foreign auditor oversight authority’ means any governmental 
body or other entity empowered by a foreign government to 
conduct inspections of public accounting firms or otherwise 
to administer or enforce laws related to the regulation of public 
accounting 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
AUTHORI-
TIES.—Without the loss of its status as confidential and 
privileged in the hands of the Board, all information 
referred to in subparagraph (A) that relates to a public 
accounting firm that a foreign government has empowered
H. R. 4173—552 
a 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 over-
sight authority, if— 
‘‘(i) the Board finds that it is necessary to accom-
plish the purposes of this Act or to protect investors; 
‘‘(ii) the foreign auditor oversight authority pro-
vides— 
‘‘(I) such assurances of confidentiality as the 
Board may request; 
‘‘(II) a description of the applicable information 
systems and controls of the foreign auditor over-
sight authority; and 
‘‘(III) a description of the laws and regulations 
of the foreign government 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 Sar-
banes-Oxley Act of 2002 (15 U.S.C. 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 Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7201 et seq.) is amended by adding 
at the end the following new section: 
‘‘SEC. 110. DEFINITIONS. 
‘‘For the purposes of this title, the following definitions shall 
apply: 
‘‘(1) AUDIT.—The term ‘audit’ means an examination of 
the financial statements, reports, documents, procedures, con-
trols, or notices of any issuer, broker, or dealer by an inde-
pendent 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 
report. 
‘‘(2) AUDIT REPORT.—The term ‘audit report’ means a docu-
ment, report, notice, or other record— 
‘‘(A) prepared following an audit performed for pur-
poses of compliance by an issuer, broker, or dealer with 
the requirements of the securities laws; and 
‘‘(B) in which a public accounting firm either— 
‘‘(i) sets forth the opinion of that firm regarding 
a financial statement, report, notice, or other docu-
ment, procedures, or controls; 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, income 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 statement, or financial state-
ment is required to be certified by a registered public accounting 
firm.
H. R. 4173—553 
‘‘(4) DEALER.—The term ‘dealer’ means a dealer (as such 
term is defined in section 3(a)(5) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)(5))) that is required to file a 
balance sheet, income 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 statement, or financial state-
ment is required to be certified by a registered 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 Securities Act of 1933, 
as amended by this Act, or prescribed by the Commis-
sion under section 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 particular issuers, 
brokers, or dealers, or dealt with in the quality control 
system of a particular registered public accounting 
firm; and 
‘‘(B) auditing standards, standards for attestation 
engagements, quality control policies and procedures, eth-
ical and competency standards, and independence stand-
ards (including rules implementing title II) that the Board 
or the Commission determines— 
‘‘(i) relate to the preparation or issuance of audit 
reports for issuers, brokers, or dealers; and 
‘‘(ii) are established or adopted by the Board under 
section 103(a), or are promulgated as rules of the 
Commission. 
‘‘(6) SELF-REGULATORY ORGANIZATION.—The term ‘self-regu-
latory 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 Sar-
banes-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 COM-
PANY ACCOUNTING OVERSIGHT BOARD.—Section 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 inserting 
‘‘companies’’; and 
(B) by striking ‘‘for companies the securities of which 
are sold to, and held by and for, public investors’’. 
(c) REGISTRATION WITH THE BOARD.—Section 102 of the Sar-
banes-Oxley Act of 2002 (15 U.S.C. 7212) is amended— 
(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)—
H. R. 4173—554 
(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 Sar-
banes-Oxley Act of 2002 (15 U.S.C. 7213(a)) is amended— 
(1) in paragraph (1), by striking ‘‘and such ethics standards’’ 
and inserting ‘‘such ethics standards, and such independence 
standards’’; 
(2) in paragraph (2)(A)(iii), by striking ‘‘describe 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 ACCOUNTING FIRMS.— 
(1) AMENDMENTS.—Section 104(a) of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7214(a)) is amended— 
(A) by striking ‘‘The Board shall’’ and inserting the 
following: 
‘‘(1) INSPECTIONS GENERALLY.—The Board shall’’; and 
(B) by adding at the end the following: 
‘‘(2) INSPECTIONS
OF
AUDIT
REPORTS
FOR
BROKERS
AND 
DEALERS.— 
‘‘(A) The Board may, by rule, conduct and require 
a program of inspection in accordance with paragraph (1), 
on a basis to be determined by the Board, of registered 
public accounting firms that provide one or more audit 
reports for a broker or dealer. The Board, in establishing 
such a program, may allow for differentiation among classes 
of brokers and dealers, as appropriate. 
‘‘(B) If the Board determines to establish a program 
of inspection pursuant to subparagraph (A), the Board shall 
consider in establishing any inspection schedules whether 
differing schedules would be appropriate with respect to 
registered public accounting firms that issue audit reports 
only for one or more brokers or dealers that do not receive, 
handle, or hold customer securities or cash or are not 
a member of the Securities Investor Protection Corporation. 
‘‘(C) Any rules of the Board pursuant to this paragraph 
shall be subject to prior approval by the Commission pursu-
ant to section 107(b) before the rules become effective, 
including an opportunity for public notice and comment. 
‘‘(D) Notwithstanding anything to the contrary in sec-
tion 102 of this Act, a public accounting firm shall not 
be required to register with the Board if the public 
accounting firm is exempt from the inspection program 
which may be established by the Board under subpara-
graph (A).’’. 
(2) CONFORMING AMENDMENT.—Section 17(e)(1)(A) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78q(e)(1)(A)) is 
amended by striking ‘‘registered public accounting firm’’ and 
inserting ‘‘independent public accounting firm, or by a reg-
istered public accounting firm if the firm is required to be 
registered under the Sarbanes-Oxley Act of 2002,’’. 
(f) INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.—Section 
105(c)(7)(B) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7215(c)(7)(B)) is amended—
H. R. 4173—555 
(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 sub-
section’’. 
(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 differen-
tiation among classes of issuers, as 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 dealers with the payment of 
support fees to fund the first full fiscal year beginning after 
the date of enactment of the Investor Protection and Securities 
Reform Act of 2010.’’; 
(3) by redesignating subsections (h), (i), and (j) as sub-
sections (i), (j), and (k), respectively; and 
(4) by inserting after subsection (g) the following: 
‘‘(h) ALLOCATION OF ACCOUNTING SUPPORT FEES AMONG BRO-
KERS AND DEALERS.— 
‘‘(1) OBLIGATION TO PAY.—Each broker or dealer shall pay 
to the Board the annual accounting support 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 among brokers and dealers and pay-
able by the broker or dealer (or the brokers and dealers in 
the particular class, as applicable). 
‘‘(3) PROPORTIONALITY.—The amount due from a broker 
or dealer shall be in proportion to the net capital of the broker 
or dealer (before or after any adjustments), compared to the 
total net capital of all brokers and dealers (before or after 
any adjustments), in accordance with rules issued by the 
Board.’’. 
(i) REFERRAL
OF
INVESTIGATIONS
TO
A
SELF-REGULATORY 
ORGANIZATION.—Section 105(b)(4)(B) of the Sarbanes-Oxley Act of 
2002 (15 U.S.C. 7215(b)(4)(B)) is amended— 
(1) by redesignating clauses (ii) and (iii) as clauses (iii) 
and (iv), respectively; and 
(2) by inserting after clause (i) the following:
H. R. 4173—556 
‘‘(ii) to a self-regulatory organization, in the case 
of an investigation that concerns an audit report for 
a broker or dealer that is under the jurisdiction of 
such self-regulatory organization;’’. 
(j) USE OF DOCUMENTS RELATED TO AN INSPECTION OR INVES-
TIGATION.—Section 105(b)(5)(B)(ii) of the Sarbanes-Oxley Act of 
2002 (15 U.S.C. 7215(b)(5)(B)(ii)) is amended— 
(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 following: 
‘‘(V) 
a 
self-regulatory 
organization, 
with 
respect to an audit report for a broker or dealer 
that is under the jurisdiction of such self-regu-
latory organization,’’. 
SEC. 983. PORTFOLIO MARGINING. 
(a) ADVANCES.—Section 9(a)(1) of the Securities Investor Protec-
tion Act of 1970 (15 U.S.C. 78fff3(a)(1)) is amended by inserting 
‘‘or options on commodity futures contracts’’ after ‘‘claim for securi-
ties’’. 
(b) DEFINITIONS.—Section 16 of the Securities Investor Protec-
tion Act of 1970 (15 U.S.C. 78lll) is amended— 
(1) by striking paragraph (2) and inserting the following: 
‘‘(2) CUSTOMER.— 
‘‘(A) IN
GENERAL.—The term ‘customer’ of a debtor 
means any person (including any person 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 
‘customer’ 
includes— 
‘‘(i) any person who has deposited cash with the 
debtor for the purpose of purchasing securities; 
‘‘(ii) any person who has a claim against the debtor 
for cash, securities, futures contracts, or options on 
futures contracts received, acquired, or held in a port-
folio margining account carried as a securities account 
pursuant to a portfolio margining program approved 
by the Commission; and 
‘‘(iii) any person who has a claim against the debtor 
arising out of sales or conversions of such securities. 
‘‘(C) EXCLUDED
PERSONS.—The term ‘customer’ does 
not include any person, to the extent that— 
‘‘(i) the claim of such person arises out of trans-
actions 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 subordinated to the claims of any or all creditors 
of the debtor, notwithstanding that some ground exists
H. R. 4173—557 
for declaring such contract, agreement, or under-
standing void or voidable in a suit between the claim-
ant and the debtor.’’; 
(2) in paragraph (4)— 
(A) in subparagraph (C), by striking ‘‘and’’ at the end; 
(B) by redesignating subparagraph (D) as subpara-
graph (E); and 
(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 securities account pursuant 
to a portfolio margining program approved by the Commis-
sion, a futures contract or an option on a futures contract 
received, acquired, or held by or for the account of a debtor 
from or for such portfolio margining account, and the pro-
ceeds 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 portfolio margining account of a customer 
carried as securities 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 subparagraph and inserting 
the following: ‘‘filing date— 
‘‘(i) all securities positions of such customer (other 
than customer name securities reclaimed by such cus-
tomer); and 
‘‘(ii) all positions in futures contracts and options 
on futures contracts held in a portfolio margining 
account carried as a securities account pursuant to 
a portfolio margining program approved by the 
Commission, including all property collateralizing such 
positions, to the extent that such property is not other-
wise 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 margining program approved by the Commission 
or a claim for a security futures contract, shall be deemed 
to be a claim with respect to such contract as of the 
filing date, and such claim shall be treated as a claim 
for cash. In determining’’. 
SEC. 984. LOAN OR BORROWING OF SECURITIES. 
(a) RULEMAKING AUTHORITY.—Section 10 of the Securities 
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 transaction involving 
the loan or borrowing of securities in contravention of such 
rules and regulations as the Commission may prescribe as 
necessary or appropriate in the public interest or for the protec-
tion of investors. 
‘‘(2) Nothing in paragraph (1) may be construed to limit 
the authority of the appropriate Federal banking agency (as
H. R. 4173—558 
defined in section 3(q) of the Federal Deposit Insurance Act 
(12 U.S.C. 1813(q))), the National Credit Union Administration, 
or any other Federal department or agency having a responsi-
bility under Federal law to prescribe rules or regulations 
restricting transactions involving the loan or borrowing of secu-
rities in order to protect the safety and soundness of a financial 
institution or to protect the financial 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 transparency of information 
available to brokers, dealers, and investors, with respect to the 
loan or borrowing of securities. 
SEC. 985. TECHNICAL CORRECTIONS TO FEDERAL SECURITIES 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 ‘‘indi-
vidual;’’ 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 inserting ‘‘business entity,’’. 
(b) SECURITIES
EXCHANGE
ACT
OF
1934.—The Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended— 
(1) in section 2 (15 U.S.C. 78b), by striking ‘‘affected’’ 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 of 1934’’ and inserting ‘‘sec-
tion 3(a)(12) of this title’’; and 
(B) in subsection (g), by striking ‘‘company, 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 striking ‘‘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 mem-
bership.’’; and 
(ii) in the undesignated matter immediately fol-
lowing subparagraph (B), by inserting 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 association,