HR 3005 RDS
and the effect on investor protection. The Commis-
sion shall submit to the Congress a report on the re-
sults of such study within one year after the date of
enactment of this Act.
(b) BROKER/DEALER REGULATION.—
(1) AMENDMENT.—Section 15 of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended
by adding at the end the following new subsection:
‘‘(h) LIMITATIONS ON STATE LAW.—
‘‘(1) CAPITAL, MARGIN, BOOKS AND RECORDS,
BONDING, AND REPORTS.—No law, rule, regulation,
or order, or other administrative action of any State
or political subdivision thereof shall establish capital,
custody, margin, financial responsibility, making and
keeping records, bonding, or financial or operational
reporting requirements for brokers, dealers, munici-
pal securities dealers, government securities brokers,
or government securities dealers that differ from, or
are in addition to, the requirements in those areas
established under this title. The Commission shall
consult periodically the securities commissions (or
any agency or office performing like functions) of
the States concerning the adequacy of such require-
ments as established under this title.
HR 3005 RDS
‘‘(2) EXEMPTION TO PERMIT SERVICE TO CUS-
TOMERS.—No law, rule, regulation, or order, or
other administrative action of any State or political
subdivision thereof shall require an associated per-
son to register with such State prior to effecting a
transaction described in paragraph (3) for a cus-
tomer in such State if—
‘‘(A) such transaction is effected on behalf
of a customer that, for 30 days prior to the day
of the transaction, maintains an account with
the broker or dealer;
‘‘(B) such associated person is not ineli-
gible to register with such State for any reason
other than such a transaction;
‘‘(C) such associated person is registered
with a registered securities association and at
least one State; and
‘‘(D) the broker or dealer with which such
person is associated is registered with such
State.
‘‘(3) DESCRIBED
TRANSACTIONS.—A trans-
action is described in this paragraph if—
‘‘(A) such transaction is effected by an as-
sociated person (i) to which the customer was
assigned for 14 days prior to the day of the
HR 3005 RDS
transaction, and (ii) who is registered with a
State in which the customer was a resident or
was present for at least 30 consecutive days
during the one-year period prior to the trans-
action; except that, if the customer is present in
another State for 30 or more consecutive days
or has permanently changed his or her resi-
dence to another State, such transaction is not
described in this subparagraph unless the asso-
ciated person files with such State an applica-
tion for registration within 10 calendar days of
the later of the date of the transaction or the
date of the discovery of the presence of the cus-
tomer in the State for 30 or more consecutive
days or the change in the customer’s residence;
‘‘(B) the transaction is effected within the
period beginning on the date on which such as-
sociated person files with the State in which the
transaction is effected an application for reg-
istration and ending on the earlier of (i) 60
days after the date the application is filed, or
(ii) the time at which such State notifies the as-
sociated person that it has denied the applica-
tion for registration or has stayed the pendency
of the application for cause; or
HR 3005 RDS
‘‘(C) the transaction is one of 10 or fewer
transactions in a calendar year (excluding any
transactions described in subparagraph (A) or
(B)) which the associated person effects in the
States in which the associated person is not
registered.
‘‘(4) ALTERNATE ASSOCIATED PERSONS.—For
purposes of paragraph (3)(A)(ii), each of up to 3 as-
sociated persons who are designated to effect trans-
actions during the absence or unavailability of the
principal associated person for a customer may be
treated as an associated person to which such cus-
tomer is assigned for purposes of such paragraph.’’.
(2) STUDY.—Within 6 months after the date of
enactment of this Act, the Commission, after con-
sultation with registered securities associations, na-
tional securities exchanges, and States, shall conduct
a study of—
(A) the impact of disparate State licensing
requirements on associated persons of reg-
istered brokers or dealers; and
(B) methods for States to attain uniform
licensing requirements for such persons.
(3) REPORT.—Within one year after the date of
enactment of this Act, the Commission shall submit
HR 3005 RDS
to the Congress a report on the study conducted
under paragraph (2). Such report shall include rec-
ommendations concerning appropriate methods de-
scribed in paragraph (2)(B), including any necessary
legislative changes to implement such recommenda-
tions.
(4) TECHNICAL AMENDMENT.—Section 28(a) of
the Securities Exchange Act of 1934 (15 U.S.C.
78bb(a)) is amended by striking ‘‘Nothing’’ and in-
serting ‘‘Except as otherwise specifically provided
elsewhere in this title, nothing’’.
SEC. 103. MARGIN REQUIREMENTS.
(a) MARGIN REQUIREMENTS.—
(1) EXTENSIONS OF CREDIT BY BROKER-DEAL-
ERS.—Section 7(c) of the Securities Exchange Act
of 1934 (15 U.S.C. 78g(c)) is amended to read as
follows:
‘‘(c) UNLAWFUL
CREDIT
EXTENSION
TO
CUS-
TOMERS.—
‘‘(1) PROHIBITION.—It shall be unlawful for
any member of a national securities exchange or any
broker or dealer, directly or indirectly, to extend or
maintain credit or arrange for the extension or
maintenance of credit to or for any customer—
HR 3005 RDS
‘‘(A) on any security (other than an ex-
empted security), in contravention of the rules
and regulations which the Board of Governors
of the Federal Reserve System shall prescribe
under subsections (a) and (b) of this section;
‘‘(B) without collateral or on any collateral
other than securities, except in accordance with
such rules and regulations as the Board of Gov-
ernors of the Federal Reserve System may pre-
scribe—
‘‘(i) to permit under specified condi-
tions and for a limited period any such
member, broker, or dealer to maintain a
credit initially extended in conformity with
the rules and regulations of the Board of
governors of the Federal Reserve System;
and
‘‘(ii) to permit the extension or main-
tenance of credit in cases where the exten-
sion or maintenance of credit is not for the
purpose of purchasing or carrying securi-
ties or of evading or circumventing the
provisions of subparagraph (A) of this
paragraph.
HR 3005 RDS
‘‘(2) EXCEPTION.—This subsection and the
rules and regulations thereunder shall not apply to
any credit extended, maintained, or arranged by a
member of a national securities exchange or a
broker or dealer to or for a member of a national
securities exchange or a registered broker or deal-
er—
‘‘(A) a substantial portion of whose busi-
ness consists of transactions with persons other
than brokers or dealers; or
‘‘(B) to finance its activities as a market
maker or an underwriter;
except that the Board of Governors of the Federal
Reserve System may impose such rules and regula-
tions, in whole or in part, on any credit otherwise
exempted by this paragraph if it determines that
such action is necessary or appropriate in the public
interest or for the protection of investors.’’.
(2) EXTENSIONS OF CREDIT BY OTHER LEND-
ERS.—Section 7(d) of the Securities Exchange Act
of 1934 (78 U.S.C. 78g(d)) is amended to read as
follows:
‘‘(d) UNLAWFUL CREDIT EXTENSION IN VIOLATION
OF RULES AND REGULATIONS; EXCEPTION TO APPLICA-
TION OF RULES, ETC.—
HR 3005 RDS
‘‘(1) PROHIBITION.—It shall be unlawful for
any person not subject to subsection (c) of this sec-
tion to extend or maintain credit or to arrange for
the extension or maintenance of credit for the pur-
pose of purchasing or carrying any security, in con-
travention of such rules and regulations as the
Board of Governors of the Federal Reserve System
shall prescribe to prevent the excessive use of credit
for the purchasing or carrying of or trading in secu-
rities in circumvention of the other provisions of this
section. Such rules and regulations may impose upon
all loans made for the purpose of purchasing or car-
rying securities limitations similar to those imposed
upon members, brokers, or dealers by subsection (c)
of this section and the rules and regulations there-
under.
‘‘(2) EXCEPTIONS.—This subsection and the
rules and regulations thereunder shall not apply to
any credit extended, maintained, or arranged—
‘‘(A) by a person not in the ordinary
course of business;
‘‘(B) on an exempted security;
‘‘(C) to or for a member of a national se-
curities exchange or a registered broker or deal-
er—
HR 3005 RDS
‘‘(i) a substantial portion of whose
business consists of transactions with per-
sons other than brokers or dealers; or
‘‘(ii) to finance its activities as a mar-
ket maker or an underwriter;
‘‘(D) by a bank on a security other than
an equity security; or
‘‘(E) as the Board of Governors of the
Federal Reserve System shall, by such rules,
regulations, or orders as it may deem necessary
or appropriate in the public interest or for the
protection of investors, exempt, either uncondi-
tionally or upon specified terms and conditions
or for stated periods, from the operation of this
subsection and the rules and regulations there-
under;
except that the Board of Governors of the Federal
Reserve System may impose such rules and regula-
tions, in whole or in part, on any credit otherwise
exempted by subparagraph (C) of this paragraph if
it determines that such action is necessary or appro-
priate in the public interest or for the protection of
investors.’’.
HR 3005 RDS
(b) BORROWING
BY
MEMBERS, BROKERS, AND
DEALERS.—Section 8 of the Securities Exchange Act of
1934 (15 U.S.C. 78h) is amended—
(1) by striking subsection (a), and
(2) by redesignating subsections (b) and (c) as
subsections (a) and (b), respectively.
SEC. 104. PROSPECTUS DELIVERY.
(a) REPORT ON ELECTRONIC DELIVERY.—Within six
months after the date of enactment of this Act, the Com-
mission shall report to Congress on the steps the Commis-
sion has taken, or anticipates taking, to facilitate the elec-
tronic delivery of prospectuses to institutional and other
investors.
(b) REPORT
ON
ADVISORY
COMMITTEE
REC-
OMMENDATIONS.—Within one year after the date of en-
actment of this Act, the Commission shall report to Con-
gress on the Commission’s views on the recommendations
of the Advisory Committee on Capital Formation, includ-
ing any actions taken to implement the recommendations
of the Advisory Committee.
SEC. 105. EXEMPTIVE AUTHORITY.
(a) GENERAL EXEMPTIVE AUTHORITY UNDER THE
SECURITIES ACT OF 1933.—Title I of the Securities Act
of 1933 (15 U.S.C. 77a et seq.) is amended by adding
at the end the following new section:
HR 3005 RDS
‘‘SEC. 28. GENERAL EXEMPTIVE AUTHORITY.
‘‘The Commission, by rules and regulations, may con-
ditionally or unconditionally exempt any person, security,
or transaction, or any class or classes of persons, securi-
ties, or transactions, from any provision or provisions of
this title or of any rule or regulation thereunder, to the
extent that such exemption is necessary or appropriate in
the public interest, and is consistent with the protection
of investors.’’.
(b) GENERAL EXEMPTIVE AUTHORITY UNDER THE
SECURITIES EXCHANGE ACT OF 1934.—Title I of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by adding at the end the following new section:
‘‘SEC. 36. GENERAL EXEMPTIVE AUTHORITY.
‘‘(a) AUTHORITY.—Except as provided in subsection
(b) but notwithstanding any other provision of this title,
the Commission, by rule, regulation, or order, may condi-
tionally or unconditionally exempt any person, security, or
transaction, or any class or classes of persons, securities,
or transactions, from any provision or provisions of this
title or of any rule or regulation thereunder, to the extent
that such exemption is necessary or appropriate in the
public interest, and is consistent with the protection of in-
vestors. The Commission shall by rules and regulations de-
termine the procedures under which an exemptive order
under this section shall be granted and may, in its sole
HR 3005 RDS
discretion, decline to entertain any application for an
order of exemption under this section.
‘‘(b) LIMITATION.—The Commission shall not exer-
cise authority under this section to exempt any person,
security, or transaction, or any class or classes of persons,
securities, or transactions, from section 15C of this title
or the rules or regulations thereunder, or (for purposes
of such section 15C or such rules or regulations) from the
definitions in paragraphs (42) through (45) of section 3(a)
of this title.’’.
SEC. 106. PROMOTION OF EFFICIENCY, COMPETITION, AND
CAPITAL FORMATION.
(a) SECURITIES ACT OF 1933.—Section 2 of the Se-
curities Act of 1933 (15 U.S.C. 77b) is amended—
(1) by inserting ‘‘(a) DEFINITIONS.—’’ after
‘‘SEC. 2.’’; and
(2) by adding at the end the following new sub-
section:
‘‘(b) CONSIDERATION
OF PROMOTION
OF EFFI-
CIENCY, COMPETITION, AND
CAPITAL
FORMATION.—
Whenever pursuant to this title the Commission is en-
gaged in rulemaking and is required to consider or deter-
mine whether an action is necessary or appropriate in the
public interest, the Commission shall also consider, in ad-
dition to the protection of investors, whether the action
HR 3005 RDS
‘‘(1) ELIMINATION
OF
DUPLICATION.—The
Commission and the examining authorities, through
cooperation and coordination of examination and
oversight as required by this subsection, shall elimi-
nate any unnecessary and burdensome duplication in
the examination process.
‘‘(2) PLANNING CONFERENCES.—
‘‘(A) The Commission and the examining
authorities shall meet at least annually for a
national general planning conference to discuss
coordination of examination schedules and pri-
orities and other areas of interest relevant to
examination coordination and cooperation.
‘‘(B) Within each geographic region des-
ignated by the Commission, the Commission
and the relevant examining authorities shall
meet at least annually for a regional planning
conference to discuss examination schedules and
priorities and other areas of related interest,
and to encourage information-sharing and to
avoid unnecessary duplication of examinations.
‘‘(3) COORDINATION
TRACKING
SYSTEM
FOR
BROKER-DEALER EXAMINATIONS.—
‘‘(A) The Commission and the examining
authorities shall prepare, on a periodic basis in
HR 3005 RDS
a uniform computerized format, information on
registered broker and dealer examinations and
shall submit such information to the Commis-
sion.
‘‘(B) The Commission shall maintain a
computerized database of consolidated examina-
tion information to be used for examination
planning and scheduling and for monitoring co-
ordination of registered broker and dealer ex-
aminations under this section.
‘‘(4) COORDINATION OF EXAMINATIONS.—
‘‘(A) The examining authorities shall share
among themselves such information, including
reports of examinations, customer complaint in-
formation, and other non-public regulatory in-
formation, as appropriate to foster a coordi-
nated approach to regulatory oversight of reg-
istered brokers and dealers subject to examina-
tion by more than one examining authority.
‘‘(B) To the extent practicable, the exam-
ining authorities shall assure that each reg-
istered broker and dealer subject to examina-
tion by more than one examining authority that
requests a coordinated examination shall have
all requested aspects of the examination con-
HR 3005 RDS
ducted simultaneously and without duplication
of the areas covered. The examining authorities
shall also prepare an advance schedule of all
such coordinated examinations.
‘‘(5) PROHIBITED
NON-COORDINATED
EXAMI-
NATIONS.—Any examining authority that does not
participate in a coordinated examination pursuant to
paragraph (4) of this subsection shall not conduct a
routine examination other than a coordinated exam-
ination of that broker or dealer within 9 months of
the conclusion of a scheduled coordinated examina-
tion.
‘‘(6) EXAMINATIONS FOR CAUSE.—At any time,
any examining authority may conduct an examina-
tion for cause of any broker or dealer subject to its
jurisdiction.
‘‘(7) BROKER-DEALER EXAMINATION EVALUA-
TION PANEL.—The Commission shall establish an
examination evaluation panel composed of represent-
atives of registered brokers and dealers that are
members of more than one self-regulatory organiza-
tion that conducts routine examinations. Prior to
each national general planning conference required
by paragraph (2)(A) of this subsection, the Commis-
sion shall convene the examination evaluation panel
HR 3005 RDS
to review consolidated and statistical information on
the coordination of examinations and information on
examinations that are not coordinated, including the
findings of Commission examiners on the effective-
ness of the examining authorities in achieving co-
ordinated examinations. The Commission shall
present any findings and recommendations of the ex-
amination evaluation panel to the next meeting of
the national general planning conference, and shall
report back to the examination evaluation panel on
the actions taken by the examining authorities re-
garding those findings and recommendations. The
examination evaluation panel shall not be subject to
the Federal Advisory Committee Act (5 U.S.C.
App.).
‘‘(8) REPORT TO CONGRESS.—Within one year
after the date of enactment of this Act, the Commis-
sion shall report to the Congress on the progress it
and the examining authorities have made in reduc-
ing duplication and improving coordination in reg-
istered broker and dealer examinations, and on the
activities of the examination evaluation panel. Such
report shall also indicate whether the Commission
has identified additional redundancies that have
failed to be addressed in the coordination of examin-
HR 3005 RDS
ing authorities, or any recommendations of the ex-
amination evaluation panel established under para-
graph (7) of this subsection that have not been ad-
dressed by the examining authorities or the Commis-
sion.’’.
(b) DEFINITION.—Section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78e) is amended by adding
at the end the following paragraph:
‘‘(54) The term ‘examining authority’ means
any self-regulatory organization registered with the
Commission under this title (other than registered
clearing agencies) with the authority to examine, in-
spect, and otherwise oversee the activities of a reg-
istered broker or dealer.’’.
SEC. 109. FOREIGN PRESS CONFERENCES.
No later than one year after the date of enactment
of this Act, the Commission shall adopt rules under the
Securities Act of 1933 concerning the status under the
registration provisions of the Securities Act of 1933 of for-
eign press conferences and foreign press releases by per-
sons engaged in the offer and sale of securities.
SEC. 110. REPORT ON TRUST INDENTURE ACT OF 1939.
Within 6 months after the date of enactment of this
Act, the Securities and Exchange Commission shall sub-
mit to the Congress a report on the benefits of, the con-
HR 3005 RDS
a registered open-end company (the ‘acquiring company’)
if—
‘‘(i) the acquired company and the acquiring
company are part of the same group of investment
companies;
‘‘(ii) the securities of the acquired company, se-
curities of other registered open-end companies that
are part of the same group of investment companies,
Government securities, and short-term paper are the
only investments held by the acquiring company;
‘‘(iii)(I) the acquiring company does not pay
and is not assessed any charges or fees for distribu-
tion-related activities with respect to securities of the
acquired company unless the acquiring company
does not charge a sales load or other fees or charges
for distribution-related activities; or
‘‘(II) any sales loads and other distribution-re-
lated fees charged with respect to securities of the
acquiring company, when aggregated with any sales
load and distribution-related fees paid by the acquir-
ing company with respect to securities of the ac-
quired company, are not excessive under rules adopt-
ed pursuant to either section 22(b) or section 22(c)
of this title by a securities association registered
HR 3005 RDS
under section 15A of the Securities Exchange Act of
1934 or the Commission;
‘‘(iv) the acquired company shall have a fun-
damental policy that prohibits it from acquiring any
securities of registered open-end companies in reli-
ance on this subparagraph or subparagraph (F) of
this subsection; and
‘‘(v) such acquisition is not in contravention of
such rules and regulations as the Commission may
from time to time prescribe with respect to acquisi-
tions in accordance with this subparagraph as nec-
essary and appropriate for the protection of inves-
tors.
For purposes of this subparagraph, a ‘group of investment
companies’ shall mean any two or more registered invest-
ment companies that hold themselves out to investors as
related companies for purposes of investment and investor
services.’’; and
(4) adding at the end the following new sub-
paragraph:
‘‘(J) The Commission, by rules and regulations upon
its own motion or by order upon application, may condi-
tionally or unconditionally exempt any person, security, or
transaction, or any class or classes of persons, securities,
or transactions from any provisions of this subsection, if
HR 3005 RDS
and to the extent such exemption is consistent with the
public interest and the protection of investors.’’.
SEC. 203. REGISTRATION OF SECURITIES.
(a) 
AMENDMENTS
TO
REGISTRATION
STATE-
MENTS.—Section 24(e) of the Investment Company Act
of 1940 (15 U.S.C. 80a–24(e)) is amended—
(1) by striking paragraphs (1) and (2);
(2) by redesignating paragraph (3) as sub-
section (e); and
(3) in subsection (e) (as so redesignated) by
striking ‘‘pursuant to this subsection or otherwise’’.
(b) REGISTRATION OF INDEFINITE AMOUNT OF SE-
CURITIES.—Section 24(f) of the Investment Company Act
of 1940 (15 U.S.C. 80a–24(f)) is amended to read as fol-
lows:
‘‘(f) REGISTRATION OF INDEFINITE AMOUNT OF SE-
CURITIES.—
‘‘(1) INDEFINITE
REGISTRATION
OF
SECURI-
TIES.—Upon the effectiveness of its registration
statement under the Securities Act of 1933, a face-
amount certificate company, open-end management
company, or unit investment trust shall be deemed
to have registered an indefinite amount of securities.
‘‘(2) PAYMENT OF REGISTRATION FEES.—With-
in 90 days after the end of the company’s fiscal
HR 3005 RDS
year, the company shall pay a registration fee to the
Commission, calculated in the manner specified in
section 6(b) of the Securities Act of 1933, based on
the aggregate sales price for which its securities (in-
cluding, for this purpose, all securities issued pursu-
ant to a dividend reinvestment plan) were sold pur-
suant to a registration of an indefinite amount of se-
curities under this subsection during the company’s
previous fiscal year reduced by—
‘‘(A) the aggregate redemption or repur-
chase price of the securities of the company
during that year, and
‘‘(B) the aggregate redemption or repur-
chase price of the securities of the company
during any prior fiscal year ending not more
than 1 year before the date of enactment of the
Investment Company Act Amendments of 1996
that were not used previously by the company
to reduce fees payable under this section.
‘‘(3) INTEREST
DUE
ON
LATE
PAYMENT.—A
company paying the fee or any portion thereof more
than 90 days after the end of the company’s fiscal
year shall pay to the Commission interest on unpaid
amounts, compounded daily, at the underpayment
rate established by the Secretary of the Treasury
HR 3005 RDS
pursuant to section 3717(a) of title 31, United
States Code. The payment of interest pursuant to
the requirement of this paragraph shall not preclude
the Commission from bringing an action to enforce
the requirements of paragraph (2) of this subsection.
‘‘(4) RULEMAKING AUTHORITY.—The Commis-
sion may adopt rules and regulations to implement
the provisions of this subsection.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall be effective 6 months after the date of
enactment of this Act or on such earlier date as the Com-
mission may specify by rule.
SEC. 204. INVESTMENT COMPANY ADVERTISING PROSPEC-
TUS.
Section 24 of the Investment Company Act of 1940
(15 U.S.C. 80a–24) is amended by adding at the end the
following new subsection:
‘‘(g) In addition to the prospectuses permitted or re-
quired in section 10 of the Securities Act of 1933, the
Commission shall permit, by rules or regulations deemed
necessary or appropriate in the public interest or for the
protection of investors, the use of a prospectus for the pur-
poses of section 5(b)(1) of such Act with respect to securi-
ties issued by a registered investment company. Such a
prospectus, which may include information the substance
HR 3005 RDS
of which is not included in the prospectus specified in sec-
tion 10(a) of the Securities Act of 1933, shall be deemed
to be permitted by section 10(b) of such Act.’’.
SEC. 205. VARIABLE INSURANCE CONTRACTS.
(a) UNIT INVESTMENT TRUST TREATMENT.—Sec-
tion 26 of the Investment Company Act of 1940 (15
U.S.C. 80a–26) is amended by adding at the end the fol-
lowing new subsection:
‘‘(e)(1) Subsection (a) shall not apply to any reg-
istered separate account funding variable insurance con-
tracts, or to the sponsoring insurance company and prin-
cipal underwriter of such account.
‘‘(2) It shall be unlawful for any registered separate
account funding variable insurance contracts, or for the
sponsoring insurance company of such account, to sell any
such contract, unless—
‘‘(A) the fees and charges deducted under the
contract in the aggregate are reasonable in relation
to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance
company, and the insurance company so represents
in the registration statement for the contract; and
‘‘(B) the insurance company (i) complies with
all other applicable provisions of this section as if it
were a trustee or custodian of the registered sepa-
HR 3005 RDS
rate account; (ii) files with the insurance regulatory
authority of a State an annual statement of its fi-
nancial condition, which most recent statement indi-
cates that it has a combined capital and surplus, if
a stock company, or an unassigned surplus, if a mu-
tual company, of not less than $1,000,000, or such
other amount as the Commission may from time to
time prescribe by rule as necessary or appropriate in
the public interest or for the protection of investors;
and (iii) together with its registered separate ac-
counts, is supervised and examined periodically by
the insurance authority of such State.
‘‘(3) The Commission may adopt such rules and regu-
lations under paragraph (2)(A) as it determines are nec-
essary or appropriate in the public interest or for the pro-
tection of investors. For the purposes of such paragraph,
the fees and charges deducted under the contract shall in-
clude all fees and charges imposed for any purpose and
in any manner.’’.
(b) PERIODIC PAYMENT PLAN TREATMENT.—Sec-
tion 27 of such Act (15 U.S.C. 80a–27) is amended by
adding at the end the following new subsection:
‘‘(i)(1) This section shall not apply to any registered
separate account funding variable insurance contracts, or
to the sponsoring insurance company and principal under-
HR 3005 RDS
writer of such account, except as provided in paragraph
(2).
‘‘(2) It shall be unlawful for any registered separate
account funding variable insurance contracts, or for the
sponsoring insurance company of such account, to sell any
such contract unless (A) such contract is a redeemable se-
curity, and (B) the insurance company complies with sec-
tion 26(e) and any rules or regulations adopted by the
Commission thereunder.’’.
SEC. 206. REPORTS TO THE COMMISSION AND SHAREHOLD-
ERS.
Section 30 of the Investment Company Act of 1940
(15 U.S.C. 80a–29) is amended—
(1) by striking paragraph (1) of subsection (b)
and inserting the following:
‘‘(1) such information, documents, and reports
(other than financial statements), as the Commis-
sion may require to keep reasonably current the in-
formation and documents contained in the registra-
tion statement of such company filed under this
title; and’’;
(2) by redesignating subsections (c), (d), (e),
and (f) as subsections (d), (e), (g), and (h), respec-
tively;
HR 3005 RDS
(3) by inserting after subsection (b) the follow-
ing new subsection:
‘‘(c) In exercising its authority under subsection
(b)(1) to require the filing of information, documents, and
reports on a basis more frequently than semi-annually, the
Commission shall take such steps as it deems necessary
or appropriate, consistent with the public interest and the
protection of investors, to avoid unnecessary reporting by,
and minimize the compliance burdens on, registered in-
vestment companies and their affiliated persons. Such
steps shall include considering and requesting public com-
ment on—
‘‘(1) feasible alternatives that minimize the re-
porting burdens on registered investment companies;
and
‘‘(2) the utility of such information, documents,
and reports to the Commission in relation to the
costs to registered investment companies and their
affiliated persons of providing such information, doc-
uments, and reports.’’;
(4) by inserting after subsection (e) (as redesig-
nated by paragraph (2) of this section) the following
new subsection:
‘‘(f) The Commission may by rule require that semi-
annual reports containing the information set forth in sub-
HR 3005 RDS
section (e) include such other information as the Commis-
sion deems necessary or appropriate in the public interest
or for the protection of investors. In exercising its author-
ity under this subsection, the Commission shall take such
steps as it deems necessary or appropriate, consistent with
the public interest and the protection of investors, to avoid
unnecessary reporting by, and minimize the compliance
burdens on, registered investment companies and their af-
filiated persons. Such steps shall include considering and
requesting public comment on—
‘‘(1) feasible alternatives that minimize the re-
porting burdens on registered investment companies;
and
‘‘(2) the utility of such information to share-
holders in relation to the costs to registered invest-
ment companies and their affiliated persons of pro-
viding such information to shareholders.’’; and
(5) in subsection (g) (as so redesignated) by
striking ‘‘subsections (a) and (d)’’ and inserting
‘‘subsections (a) and (e)’’.
SEC. 207. BOOKS, RECORDS AND INSPECTIONS.
Section 31 of the Investment Company Act of 1940
(15 U.S.C. 80a–30) is amended—
(1) by striking subsections (a) and (b) and in-
serting the following:
HR 3005 RDS
‘‘(a) Every registered investment company, and every
underwriter, broker, dealer, or investment adviser that is
a majority-owned subsidiary of such a company, shall
maintain and preserve such records (as defined in section
3(a)(37) of the Securities Exchange Act of 1934) for such
period or periods as the Commission, by rules and regula-
tions, may prescribe as necessary or appropriate in the
public interest or for the protection of investors. Every in-
vestment adviser not a majority-owned subsidiary of, and
every depositor of any registered investment company, and
every principal underwriter for any registered investment
company other than a closed-end company, shall maintain
and preserve for such period or periods as the Commission
shall prescribe by rules and regulations, such records as
are necessary or appropriate to record such person’s trans-
actions with such registered company. In exercising its au-
thority under this subsection, the Commission shall take
such steps as it deems necessary or appropriate, consistent
with the public interest and for the protection of investors,
to avoid unnecessary recordkeeping by, and minimize the
compliance burden on, persons required to maintain
records under this subsection (hereinafter in this section
referred to as ‘subject persons’). Such steps shall include
considering, and requesting public comment on—
HR 3005 RDS
‘‘(1) feasible alternatives that minimize the rec-
ordkeeping burdens on subject persons;
‘‘(2) the necessity of such records in view of the
public benefits derived from the independent scru-
tiny of such records through Commission examina-
tion;
‘‘(3) the costs associated with maintaining the
information that would be required to be reflected in
such records; and
‘‘(4) the effects that a proposed recordkeeping
requirement would have on internal compliance poli-
cies and procedures.
‘‘(b) All records required to be maintained and pre-
served in accordance with subsection (a) of this section
shall be subject at any time and from time to time to such
reasonable periodic, special, and other examinations by the
Commission, or any member or representative thereof, as
the Commission may prescribe. For purposes of such ex-
aminations, any subject person shall make available to the
Commission or its representatives any copies or extracts
from such records as may be prepared without undue ef-
fort, expense, or delay as the Commission or its represent-
atives may reasonably request. The Commission shall exer-
cise its authority under this subsection with due regard
for the benefits of internal compliance policies and proce-
HR 3005 RDS
dures and the effective implementation and operation
thereof.’’;
(2) by redesignating existing subsections (c)
and (d) as subsections (e) and (f), respectively; and
(3) by inserting after subsection (b) the follow-
ing new subsections:
‘‘(c) Notwithstanding any other provision of law, the
Commission shall not be compelled to disclose any internal
compliance or audit records, or information contained
therein, provided to the Commission under this section.
Nothing in this subsection shall authorize the Commission
to withhold information from Congress or prevent the
Commission from complying with a request for informa-
tion from any other Federal department or agency re-
questing the information for purposes within the scope of
its jurisdiction, or complying with an order of a court of
the United States in an action brought by the United
States or the Commission. For purposes of section 552
of title 5, United States Code, this section shall be consid-
ered a statute described in subsection (b)(3)(B) of such
section 552.
‘‘(d) For purposes of this section—
‘‘(1) ‘internal compliance policies and proce-
dures’ means policies and procedures designed by
HR 3005 RDS
subject persons to promote compliance with the Fed-
eral securities laws; and
‘‘(2) ‘internal compliance and audit record’
means any record prepared by a subject person in
accordance with internal compliance policies and
procedures.’’.
SEC. 208. INVESTMENT COMPANY NAMES.
Section 35(d) of the Investment Company Act of
1940 (15 U.S.C. 80a–34(d)) is amended to read as fol-
lows:
‘‘(d) It shall be unlawful for any registered invest-
ment company to adopt as a part of the name or title of
such company, or of any securities of which it is the issuer,
any word or words that the Commission finds are materi-
ally deceptive or misleading. The Commission is author-
ized, by rule, regulation, or order, to define such names
or titles as are materially deceptive or misleading.’’.
SEC. 209. EXCEPTIONS FROM DEFINITION OF INVESTMENT
COMPANY.
(a) AMENDMENTS.—Section 3(c) of the Investment
Company Act of 1940 (15 U.S.C. 80a–3(c)) is amended—
(1) in paragraph (1), by inserting after the first
sentence the following new sentence: ‘‘Such issuer
nonetheless is deemed to be an investment company
for purposes of the limitations set forth in section
HR 3005 RDS
12(d)(1)(A)(i) and (B)(i) governing the purchase or
other acquisition by such issuer of any security is-
sued by any registered investment company and the
sale of any security issued by any registered open-
end company to any such issuer.’’;
(2) in subparagraph (A) of paragraph (1)—
(A) by inserting after ‘‘issuer,’’ the first
place it appears the following: ‘‘and is or, but
for the exception in this paragraph or para-
graph (7), would be an investment company,’’;
and
(B) by striking all that follows ‘‘(other
than short-term paper)’’ and inserting a period;
(3) in paragraph (2)—
(A) by striking ‘‘and acting as broker,’’
and inserting ‘‘acting as broker, and acting as
market intermediary,’’; and
(B) by adding at the end of such para-
graph the following new sentences: ‘‘For the
purposes of this paragraph, the term ‘market
intermediary’ means any person that regularly
holds itself out as being willing contempora-
neously to engage in, and is regularly engaged
in the business of entering into, transactions on
both sides of the market for a financial contract
HR 3005 RDS
or one or more such financial contracts. For
purposes of the preceding sentence, the term ‘fi-
nancial contract’ means any arrangement that
(A) takes the form of an individually negotiated
contract, agreement, or option to buy, sell, lend,
swap, or repurchase, or other similar individ-
ually negotiated transaction commonly entered
into by participants in the financial markets;
(B) is in respect of securities, commodities, cur-
rencies, interest or other rates, other measures
of value, or any other financial or economic in-
terest similar in purpose or function to any of
the foregoing; and (C) is entered into in re-
sponse to a request from a counterparty for a
quotation or is otherwise entered into and
structured to accommodate the objectives of the
counterparty to such arrangement.’’; and
(4) by striking paragraph (7) and inserting the
following:
‘‘(7)(A) Any issuer (i) whose outstanding secu-
rities are owned exclusively by persons who, at the
time of acquisition of such securities, are qualified
purchasers, and (ii) who is not making and does not
presently propose to make a public offering of such
securities. Securities that are owned by persons who
HR 3005 RDS
received the securities from a qualified purchaser as
a gift or bequest, or where the transfer was caused
by legal separation, divorce, death, or other involun-
tary event, shall be deemed to be owned by a quali-
fied purchaser, subject to such rules, regulations,
and orders as the Commission may prescribe as nec-
essary or appropriate in the public interest or for
the protection of investors.
‘‘(B) Notwithstanding subparagraph (A), an is-
suer is within the exception provided by this para-
graph if—
‘‘(i) in addition to qualified purchasers, its
outstanding securities are beneficially owned by
not more than 100 persons who are not quali-
fied purchasers if (I) such persons acquired
such securities on or before December 31,
1995, and (II) at the time such securities were
acquired by such persons, the issuer was ex-
cepted by paragraph (1) of this subsection; and
‘‘(ii) prior to availing itself of the exception
provided by this paragraph—
‘‘(I) such issuer has disclosed to such
persons that future investors will be lim-
ited to qualified purchasers, and that own-
HR 3005 RDS
ership in such issuer is no longer limited to
not more than 100 persons, and
‘‘(II) concurrently with or after such
disclosure, such issuer has provided such
persons with a reasonable opportunity to
redeem any part or all of their interests in
the issuer for their proportionate share of
the issuer’s current net assets, or the cash
equivalent thereof.
‘‘(C) An issuer that is excepted under this para-
graph shall nonetheless be deemed to be an invest-
ment company for purposes of the limitations set
forth in section 12(d)(1)(A)(i) and (B)(i) governing
the purchase or other acquisition by such issuer of
any security issued by any registered investment
company and the sale of any security issued by any
registered open-end company to any such issuer.
‘‘(D) For purposes of determining compliance
with this paragraph and paragraph (1) of this sub-
section, an issuer that is otherwise excepted under
this paragraph and an issuer that is otherwise ex-
cepted under paragraph (1) shall not be treated by
the Commission as being a single issuer for purposes
of determining whether the outstanding securities of
the issuer excepted under paragraph (1) are bene-
HR 3005 RDS
ficially owned by not more than 100 persons or
whether the outstanding securities of the issuer ex-
cepted under this paragraph are owned by persons
that are not qualified purchasers. Nothing in this
provision shall be deemed to establish that a person
is a bona fide qualified purchaser for purposes of
this paragraph or a bona fide beneficial owner for
purposes of paragraph (1) of this subsection.’’.
(b) DEFINITION OF QUALIFIED PURCHASER.—Sec-
tion 2(a) of the Investment Company Act of 1940 (15
U.S.C. 80a–2(a)) is amended by inserting after paragraph
(50) the following new paragraph:
‘‘(51) ‘Qualified purchaser’ means—
‘‘(A) any natural person who owns at least
$10,000,000 in securities of issuers that are not
controlled by such person, except that securities
of such a controlled issuer may be counted to-
ward such amount if such issuer is, or but for
the exception in paragraph (1) or (7) of section
3(c) would be, an investment company;
‘‘(B) any trust not formed for the specific
purpose of acquiring the securities offered, as
to which the trustee or other person authorized
to make decisions with respect to the trust, and
each settlor or other person who has contrib-