Title: Brokaw Act
Policy area: Finance and Financial Sector

Summary:
Brokaw Act
This bill directs the Securities and Exchange Commission to heighten disclosure requirements with respect to certain acquisitions of short interest in equity securities.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 1744 Introduced in Senate (IS)]

<DOC>






115th CONGRESS
  1st Session
                                S. 1744

  To require the Securities and Exchange Commission to amend certain 
                  regulations, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             August 3, 2017

Ms. Baldwin (for herself and Mr. Perdue) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To require the Securities and Exchange Commission to amend certain 
                  regulations, 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. SHORT TITLE.

    This Act may be cited as the ``Brokaw Act''.

SEC. 2. BENEFICIAL OWNERSHIP AND SHORT INTERESTS.

    (a) Amendments to Rule 13d-1.--
            (1) In general.--Not later than 1 year after the date of 
        enactment of this Act, the Securities and Exchange Commission 
        shall amend section 240.13d-1 of title 17, Code of Federal 
        Regulations, by striking subsection (a) and inserting the 
        following:
    ``(a) Any person who--
            ``(1) after directly or indirectly acquiring the beneficial 
        ownership of any equity security of a class described in 
        subsection (i), is directly or indirectly the beneficial owner 
        of more than 5 percent of the class shall, not later than 4 
        business days after the acquisition, file with the Commission a 
        statement containing the information required by Schedule 13D, 
        as described in section 240.13d-101; and
            ``(2) after acquiring a direct or indirect short interest 
        in an equity security of a class described in subsection (i), 
        has a direct or indirect short interest representing more than 
        5 percent of the class shall, not later than 4 business days 
        after the acquisition, file with the Commission a statement 
        containing information that is substantially similar to the 
        information required by Schedule 13D, as described in section 
        240.13d-101.''.
            (2) Promulgation of regulation.--Not later than the date on 
        which the Securities and Exchange Commission makes the 
        amendments required by paragraph (1), the Commission shall 
        promulgate a regulation detailing the information that shall be 
        submitted to the Commission under section 240.13d-1(a)(2) of 
        title 17, Code of Federal Regulations, as added by paragraph 
        (1).
    (b) Amendments to Rule 13d-3.--Not later than 1 year after the date 
of enactment of this Act, the Securities and Exchange Commission shall 
amend section 240.13d-3 of title 17, Code of Federal Regulations--
            (1) in subsection (a)--
                    (A) in the undesignated matter preceding paragraph 
                (1), by striking ``and 13(g)'' and inserting ``, 13(g), 
                and 13(s)'';
                    (B) in paragraph (1), by striking ``and/or,'';
                    (C) in paragraph (2), by striking the period at the 
                end and inserting ``; or''; and
                    (D) by adding at the end the following:
            ``(3) A pecuniary or indirect pecuniary interest in such 
        security.''; and
            (2) by adding at the end the following:
    ``(e) For the purposes of calculating, with respect to a derivative 
instrument, the 5 per centum figure described in sections 13(d)(1), 
13(g)(1), and 13(s)(1) of the Act, a person--
            ``(1) may use--
                    ``(A) the number of shares that may be delivered to 
                the person or by the person on the exercise of the 
                rights under the derivative instrument;
                    ``(B) the number of shares by reference to which 
                the amount payable under the derivative instrument is 
                derived or determined;
                    ``(C) in the case of stock futures contracts, the 
                product obtained by multiplying the contract multiplier 
                by the number of contracts held;
                    ``(D) in the case of a cash settled derivative the 
                number of shares in the contract if the contract allows 
                for a cash equivalent of the closing price of the 
                share; or
                    ``(E) when determining the number of outstanding 
                shares of a class of equity securities, the guidance 
                provided under section 13d-1(j);
            ``(2) shall, with respect to a derivative instrument that 
        does not have a delta that is equal to one (including cash-
        settled options), use the number of shares that the person 
        could purchase with the cash that would result from the product 
        that is obtained by multiplying the delta by the number of 
        exposed shares;
            ``(3)(A) may not take the difference between the percentage 
        of a class of equity security in which the person has a short 
        interest (as described in section 13(s)(3) of the Act) and the 
        percentage of that class of equity security in which the person 
        has a long interest; and
            ``(B) shall use the greater percentage of which the person 
        has--
                    ``(i) a short interest (as described in section 
                13(s)(3) of the Act) in a class of equity security; or
                    ``(ii) a long interest in a class of equity 
                security; and
    ``(4) shall calculate beneficial ownership in accordance with 
subsection (d)(1).
    ``(f) For the purposes of this section--
            ``(1) the term `delta' means, with respect to a financial 
        instrument, the proportion that reflects the change in the 
        value of the instrument to the change in the value of the 
        underlying asset;
            ``(2) the term `derivative instrument'--
                    ``(A) means any--
                            ``(i) option, warrant, convertible 
                        security, stock appreciation right, or similar 
                        right--
                                    ``(I) whether or not the right or 
                                instrument shall be subjected to 
                                settlement in the underlying equity 
                                security; and
                                    ``(II) with an exercise, exchange, 
                                or conversion privilege, or right to a 
                                settlement payment at a price related 
                                to an equity security; or
                            ``(ii) similar instrument with a value 
                        derived in whole or in part from the value of 
                        an equity security; and
                    ``(B) does not include--
                            ``(i) rights of a bona fide pledgee of 
                        securities to sell the pledged securities;
                            ``(ii) rights of all holders of a class of 
                        securities of an issuer to receive securities 
                        pro rata, or obligations to dispose of 
                        securities, as a result of a merger, exchange 
                        offer, or consolidation involving the issuer of 
                        the securities;
                            ``(iii) rights or obligations to surrender 
                        a security, or to have a security withheld, 
                        upon the receipt or exercise of a derivative 
                        security or the receipt or vesting of equity 
                        securities, in order to satisfy the exercise 
                        price or the tax withholding consequences of 
                        receipt, exercise, or vesting;
                            ``(iv) interests in broad-based index 
                        options, broad-based index futures, and broad-
                        based publicly traded market baskets of stocks 
                        approved for trading by the appropriate 
                        authority of the Federal Government;
                            ``(v) interests or rights to participate in 
                        employee benefit plans of the issuer held by 
                        employees or former employees of the issuer; or
                            ``(vi) options granted to an underwriter in 
                        a registered public offering for the purpose of 
                        satisfying over-allotments in the offering;
            ``(3) the term `immediate family'--
                    ``(A) means a person's--
                            ``(i) brother-in-law;
                            ``(ii) child;
                            ``(iii) daughter-in-law;
                            ``(iv) father-in-law;
                            ``(v) grandchild;
                            ``(vi) grandparent;
                            ``(vii) mother-in-law;
                            ``(viii) parent;
                            ``(ix) sibling;
                            ``(x) sister-in-law;
                            ``(xi) son-in-law;
                            ``(xii) spouse;
                            ``(xiii) stepchild; or
                            ``(xiv) stepparent; and
                    ``(B) includes adoptive relationships;
            ``(4) the term `indirect pecuniary interest'--
                    ``(A) includes--
                            ``(i) ownership of any derivative 
                        instrument that contains the direct or indirect 
                        opportunity to profit from, or share in any 
                        profit derived from, an increase in the value 
                        of the subject security, including the right to 
                        acquire the subject security through the 
                        exercise or conversion of a derivative 
                        instrument, whether or not the right is 
                        exercisable on the date the right is obtained;
                            ``(ii) securities held by immediate family 
                        members of an individual who share the same 
                        household of the individual, except that the 
                        presumption of beneficial ownership in this 
                        circumstance shall be rebuttable;
                            ``(iii) the proportionate interest of a 
                        general partner in the portfolio securities 
                        held by a general or limited partnership, where 
                        the proportionate interest, as evidenced by the 
                        partnership agreement in effect at the time of 
                        the transaction and the most recent financial 
                        statements of the partnership, shall be the 
                        greater of--
                                    ``(I) the share of the profits of 
                                the general partner, including--
                                            ``(aa)(AA) profits 
                                        attributed to any limited 
                                        partnership interests held by 
                                        the general partner; and
                                            ``(BB) any other interests 
                                        in profits that arise from the 
                                        purchase and sale of the sale 
                                        of the portfolio securities of 
                                        the partnership; or
                                    ``(II) the share of the partnership 
                                capital account belonging to the 
                                general partner, including the share 
                                attributable to any limited partnership 
                                held by the general partner;
                            ``(iv) subject to subparagraph (B)(ii), a 
                        performance-based fee received by any--
                                    ``(I) broker;
                                    ``(II) dealer;
                                    ``(III) bank;
                                    ``(IV) insurance company;
                                    ``(V) investment company;
                                    ``(VI) investment adviser;
                                    ``(VII) investment manager; or
                                    ``(VIII) trustee or person 
                                performing a similar function;
                            ``(v) a right to dividends only if the 
                        right is separated or separable from the 
                        underlying security or securities; and
                            ``(vi) interest in securities held by a 
                        trust, to the extent that--
                                    ``(I) with respect to a trustee of 
                                the trust--
                                            ``(aa) the trustee receives 
                                        a performance-based fee that is 
                                        not of the kind described in 
                                        subparagraph (B)(ii); or
                                            ``(bb) an immediate family 
                                        member of the trustee is a 
                                        beneficiary of the trust;
                                    ``(II) with respect to a 
                                beneficiary of the trust, the 
                                beneficiary--
                                            ``(aa) has investment 
                                        control over trust assets; or
                                            ``(bb) shares investment 
                                        control over trust assets with 
                                        the trustee of the trust; and
                                    ``(III) with respect to a settlor 
                                of the trust, the settlor--
                                            ``(aa) reserves the right 
                                        to revoke the trust without the 
                                        consent of another person; and
                                            ``(bb) exercises or shares 
                                        investment control over 
                                        securities held by the trust; 
                                        and
                    ``(B) does not include--
                            ``(i) an asset-based fee;
                            ``(ii) a performance-based fee, regardless 
                        of when payable, that is calculated based upon 
                        net capital gains or net capital appreciation 
                        generated from--
                                    ``(I) a portfolio; or
                                    ``(II) from the overall performance 
                                of a fiduciary over a period of not 
                                less than 1 year; and
                            ``(iii) a situation in which equity 
                        securities of an issuer do not account for more 
                        than 10 percent of the market value of a 
                        portfolio;
            ``(5) the term `pecuniary interest' means the direct or 
        indirect opportunity to profit from, or share in any profit 
        derived from, a transaction in the subject security; and
            ``(6) the term `person' includes--
                    ``(A) two or more persons acting as a partnership, 
                limited partnership, syndicate, or other group, or 
                otherwise coordinating the actions of the persons, for 
                the purpose of--
                            ``(i) acquiring, holding, or disposing of 
                        securities of an issuer;
                            ``(ii) seeking to control or influence the 
                        board, management, or policies of an issuer; or
                            ``(iii) evading, or assisting others in 
                        evading, the designation as a `person' under 
                        this paragraph; or
                    ``(B) a hedge fund (as that term is defined in 
                section 13(h) of the Bank Holding Company Act of 1956 
                (12 U.S.C. 1851(h)) or a group of hedge funds or 
                persons that are, as determined by the Commission, 
                working together to evade the requirements of section 
                13(d), 13(g), or 13(s) of the Act.''.
    (c) Short Interests.--Section 13 of the Securities Exchange Act of 
1934 (15 U.S.C. 78m) is amended by adding at the end the following:
    ``(s) Disclosure of Short Interests.--
            ``(1) In general.--A person who, after acquiring a direct 
        or indirect short interest in an equity security of a class 
        described in paragraph (2), has a direct or indirect short 
        interest representing more than 5 per centum of the class, 
        shall, not later than 4 business days after the acquisition, 
        file with the Commission a statement containing information 
        that is substantially similar to the statement required under 
        subsection (d)(1).
            ``(2) Covered classes.--
                    ``(A) In general.--The requirements of paragraph 
                (1) shall apply to the following classes of securities:
                            ``(i) Any equity security of a class which 
                        is registered pursuant to section 12.
                            ``(ii) Any equity security of an insurance 
                        company which would have been required to be 
                        registered in accordance with section 12 except 
                        for the exemption contained in section 
                        12(g)(2)(G).
                            ``(iii) Any equity security issued by a 
                        closed-end investment company registered under 
                        the Investment Company Act of 1940 (15 U.S.C. 
                        80a-1 et seq.).
                    ``(B) Exception.--The requirements of paragraph (1) 
                shall not apply to an equity security that belongs to a 
                nonvoting class.
            ``(3) Short interest.--For purposes of this section, a 
        person shall be deemed to have a short interest in a security 
        if the person, directly or indirectly, through any contract, 
        arrangement, understanding, relationship, or otherwise, has the 
        opportunity to profit from, or share in any profit derived 
        from, any decrease in the value of the security, including--
                    ``(A) an interest resulting from transactions in 
                the security, including the sale of the security by the 
                person when the person does not own the security;
                    ``(B) a derivative instrument (as defined in 
                section 240.13d-3(f)(2) of title 17, Code of Federal 
                Regulations);
                    ``(C) an interest resulting from a securities 
                transaction by members of the immediate family (as 
                defined in section 240.13d-3(f)(3) of title 17, Code of 
                Federal Regulations) sharing the same household as the 
                person, except that the presumption of the short 
                interest in that circumstance is rebuttable;
                    ``(D) the proportionate interest of a general 
                partner in the securities transaction by a general or 
                limited partnership, which, as evidenced by the 
                partnership agreement in effect at the time of the 
                transaction and the most recent financial statements of 
                the partnership, shall be the greater of--
                            ``(i) the share of the profits of the 
                        partnership of the general partner, including--
                                    ``(I)(aa) profits attributed to any 
                                limited partnership interests held by 
                                the general partner; and
                                    ``(bb) any other interests in 
                                profits that arise from the purchase 
                                and sale of the portfolio securities of 
                                the partnership; or
                    ``(ii) the share of the partnership capital account 
                of the general partner, including the share 
                attributable to any limited partnership interest held 
                by the general partner;
                    ``(E) a performance-related fee, other than an 
                asset-based fee, received by any--
                            ``(i) broker;
                            ``(ii) dealer;
                            ``(iii) bank;
                            ``(iv) insurance company;
                            ``(v) investment company;
                            ``(vi) investment adviser;
                            ``(vii) investment manager; or
                            ``(viii) trustee or person performing a 
                        similar function; and
                    ``(F) an interest of a person in securities 
                transactions by a trust.
            ``(4) Exception to performance-related fee.--A person shall 
        not be deemed to have a short interest in a security because of 
        a performance-related fee described in paragraph (3)(E) if--
                    ``(A) the performance-related fee, regardless of 
                when payable, is calculated based upon net capital 
                gains or net capital appreciation generated from--
                            ``(i) a portfolio; or
                            ``(ii) the overall performance of the 
                        fiduciary over a period of not less than 1 
                        year;
                    ``(B) interests resulting from transactions in the 
                securities of the issuer do not account for more than 
                10 percent of the market value of a portfolio; and
                    ``(C) the fee is only a right to a non performance-
                related fee.
            ``(5) Use of contract or other device to evade 
        requirements.--A person shall be deemed to have a short 
        interest in the security if the person, directly or indirectly, 
        creates or uses a trust, proxy, power of attorney, pooling 
        arrangement, or any other contract, arrangement, or device to 
        divest the person of a short interest in a security or to 
        prevent the vesting of the short interest in a security as part 
        of a plan to evade the reporting requirements of this section.
            ``(6) Aggregation.--All securities of the same class in 
        which a person has a short interest, regardless of the form of 
        the short interest, shall be aggregated in calculating the 
        number of shares in which the person has a short interest.
            ``(7) Exceptions.--Notwithstanding paragraphs (3) and (6)--
                    ``(A) a person shall be deemed to have a short 
                interest in a security if the person has the right to 
                acquire, not later than 60 days after the date on which 
                the right is obtained, a short interest in the 
                security--
                            ``(i) through the exercise of any--
                                    ``(I) option;
                                    ``(II) warrant; or
                                    ``(III) right;
                            ``(ii) in accordance with the power to 
                        revoke a--
                                    ``(I) trust;
                                    ``(II) discretionary account; or
                                    ``(III) similar arrangement; or
                            ``(iii) in accordance with the automatic 
                        termination of a--
                                    ``(I) trust;
                                    ``(II) discretionary account; or
                                    ``(III) similar arrangement;
                    ``(B) a person shall be deemed to have a short 
                interest in a security immediately upon acquisition of 
                the security if the person acquires the security--
                            ``(i) by the means described in 
                        subparagraph (A); and
                            ``(ii)(I) with the purpose of changing or 
                        influencing the control of the issuer; or
                            ``(II) in connection with, or as a 
                        participant in, a transaction having the 
                        purpose of changing or influencing the control 
                        of the issuer;
                    ``(C) any securities not outstanding which are 
                subject to a provision described in subparagraph 
                (A)(i)--
                            ``(i) shall be deemed to be outstanding for 
                        the purpose of computing the percentage of 
                        outstanding securities of the class shorted by 
                        a person; and
                            ``(ii) shall not be deemed to be 
                        outstanding for the purpose of computing the 
                        percentage of outstanding securities of the 
                        class by any other person; and
                    ``(D) subparagraphs (A) through (C) shall remain 
                applicable for the purpose of determining the 
                obligation to file with respect to the underlying 
                security even though the option, warrant, or right is--
                            ``(i) of a class of equity security, as 
                        defined in section 240.13d-1(i) of title 17, 
                        Code of Federal Regulations, or any successor 
                        thereto; and
                            ``(ii) may give rise to a separate 
                        obligation to file.''.
    (d) Effective Date.--The amendments made by subsections (b) and (c) 
shall take effect on the date on which the Securities and Exchange 
Commission makes the amendments required under subsection (a).
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