To amend the Securities Exchange Act of 1934 to prohibit trading ahead by market makers, and for other purposes.
Bill: H.R.4619 | Sponsor: Rep. Green, Al (D-TX)
Policy area: Finance and Financial Sector

Summary:
This bill creates specified duties for market makers—individuals and firms that buy and sell securities, such as brokerage houses—and sets forth penalties for violations of those duties. Specifically, the bill establishes for market makers a duty of trust and loyalty to the customer upon receipt of an order and deems the information in the order as material, non-public information. Furthermore, the Chief Executive Officer of a market maker must annually certify compliance with such responsibilities. The bill establishes civil and criminal penalties for violations.

To amend the Securities Exchange Act of 1934 to prohibit trading ahead 
               by market makers, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. PROHIBITION ON TRADING AHEAD BY MARKET MAKERS.

    (a) In General.--Section 15 of the Securities Exchange Act of 1934 
(15 U.S.C. 78o) is amended by adding at the end the following:
    ``(p) Prohibition on Trading Ahead by Market Makers.--
            ``(1) In general.--With respect to a person acting in the 
        capacity of a market maker, if the person accepts an order with 
        respect to a security from a customer, including a broker or 
        dealer--
                    ``(A) the market maker has a duty of trust and 
                loyalty to the customer arising from the receipt of 
                such order; and
                    ``(B) the information in such order is material, 
                non-public information that may be used only in 
                furtherance of executing such customer's order.
            ``(2) Annual ceo certification.--The Chief Executive 
        Officer of each person that acts in the capacity of a market 
        maker shall issue an annual certification to the Commission, in 
        such form and manner as the Commission may prescribe by rule, 
        that certifies that--
                    ``(A) the person has performed reasonable due 
                diligence during the reporting period to ensure that 
                the person has not violated the duty of trust and 
                loyalty described under paragraph (1)(A) or used the 
                information described under paragraph (1)(B) in a 
                prohibited fashion; and
                    ``(B) the person has not violated the duty of trust 
                and loyalty described under paragraph (1)(A) or used 
                the information described under paragraph (1)(B) in a 
                prohibited fashion during the reporting period.
            ``(3) Personal liability.--
                    ``(A) Fine for individual violations.--Any 
                associated person of a market maker who knowingly and 
                willfully causes the market maker to violate paragraph 
                (1) (or who directs another agent or associated person 
                of the market maker to commit such a violation or 
                engage in such acts that result in the associated 
                person being personally unjustly enriched) shall be 
                fined in an amount equal to the greater of--
                            ``(i) two times the amount of profit 
                        realized by reason of such violation; or
                            ``(ii) $50,000.
                    ``(B) Course of conduct.--Any associated person of 
                a market maker who knowingly and willfully causes the 
                market maker to engage in a course of conduct of 
                knowingly and willfully violating paragraph (1) (or who 
                directs another agent or associated person of the 
                market maker to commit such a violation or engage in 
                such acts that result in the associated person being 
                personally unjustly enriched) shall be--
                            ``(i) fined in an amount not to exceed 200 
                        percent of the compensation (including stock 
                        options awarded as compensation) received by 
                        such associated person from the market maker--
                                    ``(I) during the time period in 
                                which the violations occurred; or
                                    ``(II) in the one- to three-year 
                                time period preceding the date on which 
                                the violations were discovered; and
                            ``(ii) imprisoned for not more than 5 
                        years.
                    ``(C) Associated person defined.--The term 
                `associated person' means an associated person of a 
                broker or dealer.
            ``(4) Rulemaking.--Not later than the end of the 90-day 
        period beginning on the date of enactment of this subsection, 
        the Commission--
                    ``(A) shall issue rules to carry out this 
                subsection; and
                    ``(B) may provide exemptions from the requirements 
                of this subsection, by rule, if the Commission 
                determines that such exemptions would promote market 
                integrity and are necessary or appropriate in the 
                public interest or for the protection of investors.''.
    (b) Sense of Congress.--It is the sense of the Congress that the 
prohibitions added by this section should complement, and not replace, 
existing rules of self-regulatory organizations applicable to their 
members, including brokers and dealers.
    (c) Effective Date.--Section 15(p) of the Securities Exchange Act 
of 1934, as added by subsection (a), shall take effect after the end of 
the 180-day period beginning on the date of enactment of this Act.
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