SEC. 2. SMALL BUSINESS RELATED SECURITY.
(a) DEFINITION.—Section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)) is amended by
adding at the end the following new paragraph:
‘‘(53)(A) The term ‘small business related secu-
rity’ means a security that is rated in 1 of the 4
highest rating categories by at least 1 nationally rec-
ognized statistical rating organization, and either—
‘‘(i) represents an interest in 1 or more
promissory notes evidencing the indebtedness of
a small business and originated by an insured
depository institution (as defined in section 3 of
the Federal Deposit Insurance Act), credit
union, insurance company, or similar institution
which is supervised and examined by a Federal
or State authority; or
‘‘(ii) is secured by an interest in 1 or more
promissory notes (with or without recourse to
the issuer) and provides for payments of prin-
cipal in relation to payments, or reasonable pro-
jections of payments, on notes meeting the re-
quirements of subparagraph (A).
‘‘(B) For purposes of this paragraph—
‘‘(i) an interest in a promissory note in-
cludes ownership rights, certificates of interest
or participation in such notes, and rights de-
signed to assure servicing of such notes, or the
receipt or timely receipt of amounts payable
under such notes; and
‘‘(ii) a small business is a business that
meets the criteria for a ‘small business concern’
established under section 3(a) of the Small
Business Act.’’.
(b) CONFORMING AMENDMENT.—Section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is
amended by redesignating paragraph (51) defining the
term ‘‘foreign financial regulatory authority’’ as para-
graph (52) and inserting such paragraph after paragraph
(51), defining the term ‘‘penny stocks’’.
SEC. 3. APPLICABILITY OF MARGIN REQUIREMENTS.
Section 7(g) of the Securities Exchange Act of 1934
(15 U.S.C. 78g(g)) is amended by inserting ‘‘or a small
business related security’’ after ‘‘mortgage related secu-
rity’’.
SEC. 4. BORROWING IN THE COURSE OF BUSINESS.
Section 8(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78h(a)) is amended in the last sentence by in-
serting ‘‘or a small business related security’’ after ‘‘mort-
gage related security’’.
SEC. 5. SMALL BUSINESS RELATED SECURITIES AS COL-
LATERAL.
Clause (ii) of section 11(d)(1) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78k(d)(1)) is amended by
inserting ‘‘or any small business related security’’ after
‘‘mortgage related security’’.
SEC. 6. INVESTMENT BY DEPOSITORY INSTITUTIONS.
(a) HOME OWNERS’ LOAN ACT AMENDMENT.—Sec-
tion 5(c)(1) of the Home Owners’ Loan Act (12 U.S.C.
1464(c)(1)) is amended by adding at the end the following
new subparagraph:
‘‘(S) SMALL BUSINESS RELATED SECURI-
TIES.—Investments in small business related
securities (as defined in section 3(a)(53) of the
Securities Exchange Act of 1934), subject to
such regulations as the Director may prescribe,
including regulations concerning the minimum
size of the issue (at the time of the initial dis-
tribution) or minimum aggregate sales price, or
both.’’.
(b) CREDIT UNIONS.—Section 107(15) of the Fed-
eral Credit Union Act (12 U.S.C. 1757(15)) is amended—
(1) in subparagraph (A), by striking ‘‘or’’ at
the end;
(2) in subparagraph (B), by inserting ‘‘or’’ at
the end; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(C) are small business related securities
(as defined in section 3(a)(53) of the Securities
Exchange Act of 1934), subject to such regula-
tions as the Board may prescribe, including
regulations prescribing the minimum size of the
issue (at the time of the initial distribution) or
minimum aggregate sales price, or both;’’.
(c) NATIONAL
BANKING
ASSOCIATIONS.—Section
5136 of the Revised Statutes (12 U.S.C. 24) is amended
in the last sentence in the first full paragraph of para-
graph Seventh by striking ‘‘or (B) are mortgage’’ and in-
serting the following: ‘‘(B) are small business related secu-
rities (as defined in section 3(a)(53) of the Securities Ex-
change Act of 1934); or (C) are mortgage’’.
SEC. 7. PREEMPTION OF STATE LAW.
(a) IN GENERAL.—Section 106(a)(1) of the Second-
ary Mortgage Market Enhancement Act of 1984 (15
U.S.C. 77r–1(a)(1)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B);
(2) by redesignating subparagraph (C) as sub-
paragraph (D); and
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraph:
‘‘(C) small business related securities (as
defined in section 3(a)(53) of the Securities Ex-
change Act of 1934), or’’.
(b) OBLIGATIONS OF THE UNITED STATES.—Section
106(a)(2) of the Secondary Mortgage Market Enhance-
ment Act of 1984 (15 U.S.C. 77r–1(a)(2)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B);
(2) by redesignating subparagraph (C) as sub-
paragraph (D); and
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraph:
‘‘(C) small business related securities (as
defined in section 3(a)(53) of the Securities Ex-
change Act of 1934), or’’.
(c) PREEMPTION OF STATE LAWS.—Section 106(c)
of the Secondary Mortgage Market Enhancement Act of
1984 (15 U.S.C. 77r–1(c)) is amended—
(1) in the first sentence, by striking ‘‘or that’’
and inserting ‘‘, that’’;
(2) by inserting ‘‘, or that are small business
related securities (as defined in section 3(a)(53) of
the Securities Exchange Act of 1934)’’ before ‘‘shall
be exempt’’; and
(3) by adding at the end the following new sub-
section:
‘‘(d) IMPLEMENTATION.—
‘‘(1) LIMITATION.—The provisions of sub-
sections (a) and (b) concerning small business relat-
ed securities shall not apply with respect to a par-
ticular person, trust, corporation, partnership, asso-
ciation, business trust, or business entity or class
thereof in any State that, prior to the expiration of
7 years after the date of enactment of this Act, en-
acts a statute that specifically refers to this section
and either prohibits or provides for a more limited
authority to purchase, hold, or invest in small busi-
ness related securities by any person, trust, corpora-
tion, partnership, association, business trust, or
business entity or class thereof than is provided in
such amendments. The enactment by any State of
any statute of the type described in the preceding
sentence shall not affect the validity of any contrac-
tual commitment to purchase, hold, or invest that
was made prior to such enactment, and shall not re-
quire the sale or other disposition of any small busi-