--- kind: "range" citation: "15 U.S.C. §§ 77a–80b–20" title: "15" from: "77a" to: "80b–20" count: 280 release: "119-102" url: "https://uscodex.org/usc/15/77a..80b-20" --- # §77a. Short title This subchapter may be cited as the “Securities Act of 1933”. # §77b. Definitions; promotion of efficiency, competition, and capital formation - (a) **Definitions—** When used in this subchapter, unless the context otherwise requires— - (1) The term “security” means any note, stock, treasury stock, [security future](#a-16), [security-based swap](#a-17), bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing [agreement](/usc/15/7a.md?p=2), collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a [national securities exchange](/usc/15/9009a.md?p=a-5) relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or [purchase](#a-18), any of the foregoing. - (2) The term “person” means an individual, a corporation, a partnership, an [association](/usc/15/657h.md?p=a-2), a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof. As used in this paragraph the term “trust” shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a [security](#a-1). - (3) The term “sale” or “sell” shall include every contract of sale or disposition of a [security](#a-1) or interest in a [security](#a-1), for value. The term “offer to sell”, “offer for sale”, or “offer” shall include every attempt or offer to dispose of, or solicitation of an offer to buy, a [security](#a-1) or interest in a [security](#a-1), for value. The terms defined in this paragraph and the term “offer to buy” as used in subsection (c) of [section 77e of this title](/usc/15/77e.md) shall not include preliminary negotiations or [agreements](/usc/15/7a.md?p=2) between an [issuer](#a-4) (or any [person](/usc/15/78m.md?p=h-8-E) directly or indirectly controlling or controlled by an [issuer](#a-4), or under direct or indirect common control with an [issuer](#a-4)) and any underwriter or among underwriters who are or are to be in privity of contract with an [issuer](#a-4) (or any [person](/usc/15/78m.md?p=h-8-E) directly or indirectly controlling or controlled by an [issuer](#a-4), or under direct or indirect common control with an [issuer](#a-4)). Any [security](#a-1) given or delivered with, or as a bonus on [account](/usc/15/1681a.md?p=r-4) of, any [purchase](#a-18) of [securities](#a-1) or any other thing, shall be conclusively presumed to constitute a part of the subject of such [purchase](#a-18) and to have been offered and sold for value. The issue or transfer of a right or privilege, when originally issued or transferred with a [security](#a-1), giving the holder of such [security](#a-1) the right to convert such [security](#a-1) into another [security](#a-1) of the same [issuer](#a-4) or of another [person](/usc/15/78m.md?p=h-8-E), or giving a right to subscribe to another [security](#a-1) of the same [issuer](#a-4) or of another [person](/usc/15/78m.md?p=h-8-E), which right cannot be exercised until some future date, shall not be deemed to be an offer or sale of such other [security](#a-1); but the issue or transfer of such other [security](#a-1) upon the exercise of such right of conversion or subscription shall be deemed a sale of such other [security](#a-1). Any offer or sale of a [security futures product](#a-16) by or on behalf of the [issuer](#a-4) of the [securities](#a-1) underlying the [security futures product](#a-16), an affiliate of the [issuer](#a-4), or an underwriter, shall constitute a contract for sale of, sale of, offer for sale, or offer to sell the underlying [securities](#a-1). Any offer or sale of a [security-based swap](#a-17) by or on behalf of the [issuer](#a-4) of the [securities](#a-1) upon which such [security-based swap](#a-17) is based or is referenced, an affiliate of the [issuer](#a-4), or an underwriter, shall constitute a contract for sale of, sale of, offer for sale, or offer to sell such [securities](#a-1). The publication or distribution by a [broker or dealer](/usc/15/78c.md?p=h-2) of a research report about an [emerging growth company](#a-19) that is the subject of a proposed public offering of the common [equity securities](/usc/15/9041.md?p=6) of such [emerging growth company](#a-19) pursuant to a [registration statement](#a-8) that the [issuer](#a-4) proposes to file, or has filed, or that is effective shall be deemed for purposes of paragraph (10) of this subsection and [section 77e(c) of this title](/usc/15/77e.md?p=c) not to constitute an offer for sale or offer to sell a [security](#a-1), even if the [broker or dealer](/usc/15/78c.md?p=h-2) is participating or will participate in the registered offering of the [securities](#a-1) of the [issuer](#a-4). As used in this paragraph, the term “research report” means a [written](#a-9), electronic, or oral communication that includes information, opinions, or recommendations with respect to [securities](#a-1) of an [issuer](#a-4) or an analysis of a [security](#a-1) or an [issuer](#a-4), whether or not it provides information reasonably sufficient upon which to base an investment decision. - (4) The term “issuer” means every [person](/usc/15/78m.md?p=h-8-E) who issues or proposes to issue any [security](#a-1); except that with respect to certificates of deposit, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a [board](/usc/15/205c.md?p=1) of directors (or [persons](/usc/15/78m.md?p=h-8-E) performing similar functions) or of the fixed, restricted management, or unit type, the term “issuer” means the [person](/usc/15/78m.md?p=h-8-E) or [persons](/usc/15/78m.md?p=h-8-E) performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other [agreement](/usc/15/7a.md?p=2) or instrument under which such [securities](#a-1) are issued; except that in the case of an unincorporated [association](/usc/15/657h.md?p=a-2) which provides by its articles for limited liability of any or all of its members, or in the case of a trust, [committee](/usc/15/2921.md?p=1), or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any [security](#a-1) issued by the [association](/usc/15/657h.md?p=a-2), trust, [committee](/usc/15/2921.md?p=1), or other legal entity; except that with respect to equipment-trust certificates or like [securities](#a-1), the term “issuer” means the [person](/usc/15/78m.md?p=h-8-E) by whom the equipment or property is or is to be used; and except that with respect to fractional undivided interests in oil, gas, or other mineral rights, the term “issuer” means the owner of any such right or of any interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of public offering. - (5) The term “Commission” means the [Securities](#a-1) and [Exchange](/usc/15/636.md?p=a-36-A-xvi) Commission. - (6) The term “Territory” means Puerto Rico, the Virgin Islands, and the insular possessions of the United States. - (7) The term “interstate commerce” means trade or commerce in [securities](#a-1) or any transportation or communication relating thereto among the several [States](/usc/15/15g.md?p=2) or between the District of Columbia or any [Territory](#a-6) of the United States and any [State](/usc/15/15g.md?p=2) or other [Territory](#a-6), or between any foreign country and any [State](/usc/15/15g.md?p=2), [Territory](#a-6), or the District of Columbia, or within the District of Columbia. - (8) The term “registration statement” means the statement provided for in [section 77f of this title](/usc/15/77f.md), and includes any amendment thereto and any report, document, or memorandum filed as part of such statement or incorporated therein by reference. - (9) The term “write” or “written” shall include printed, lithographed, or any means of graphic communication. - (10) The term “prospectus” means any prospectus, notice, circular, advertisement, letter, or communication, [written](#a-9) or by radio or television, which offers any [security](#a-1) for sale or confirms the sale of any [security](#a-1); except that (a) a communication sent or given after the effective date of the [registration statement](#a-8) (other than a prospectus permitted under subsection (b) of [section 77j of this title](/usc/15/77j.md)) shall not be deemed a prospectus if it is proved that prior to or at the same time with such communication a [written](#a-9) prospectus meeting the requirements of subsection (a) of [section 77j of this title](/usc/15/77j.md) at the time of[^1] such communication was sent or given to the [person](/usc/15/78m.md?p=h-8-E) to whom the communication was made, and (b) a notice, circular, advertisement, letter, or communication in respect of a [security](#a-1) shall not be deemed to be a prospectus if it [states](/usc/15/15g.md?p=2) from whom a [written](#a-9) prospectus meeting the requirements of [section 77j of this title](/usc/15/77j.md) may be obtained and, in addition, does no more than identify the [security](#a-1), [state](/usc/15/15g.md?p=2) the price thereof, [state](/usc/15/15g.md?p=2) by whom [orders](/usc/15/8702.md?p=14) will be executed, and contain such other information as the [Commission](#a-5), by rules or regulations deemed necessary or appropriate in the public interest and for the protection of investors, and subject to such terms and conditions as may be prescribed therein, may permit. - (11) The term “underwriter” means any [person](/usc/15/78m.md?p=h-8-E) who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any [security](#a-1), or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a [person](/usc/15/78m.md?p=h-8-E) whose interest is limited to a [commission](#a-5) from an underwriter or [dealer](#a-12) not in excess of the usual and customary [distributors](/usc/15/1278.md?p=c-1-D-i)’ or sellers’ [commission](#a-5). As used in this paragraph the term “issuer” shall include, in addition to an issuer, any [person](/usc/15/78m.md?p=h-8-E) directly or indirectly controlling or controlled by the issuer, or any [person](/usc/15/78m.md?p=h-8-E) under direct or indirect common control with the issuer. - (12) The term “dealer” means any [person](/usc/15/78m.md?p=h-8-E) who engages either for all or part of his time, directly or indirectly, as agent, [broker](/usc/15/6102.md?p=d-2-B-i), or principal, in the business of offering, buying, selling, or otherwise dealing or trading in [securities](#a-1) issued by another [person](/usc/15/78m.md?p=h-8-E). - (13) The term “insurance company” means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner, or a similar official or agency, of a [State](/usc/15/15g.md?p=2) or [territory](#a-6) or the District of Columbia; or any receiver or similar official or any liquidating agent for such company, in his capacity as such. - (14) The term “separate account” means an [account](/usc/15/1681a.md?p=r-4) established and maintained by an [insurance company](#a-13) pursuant to the laws of any [State](/usc/15/15g.md?p=2) or [territory](#a-6) of the United States, the District of Columbia, or of Canada or any province thereof, under which income, gains and losses, whether or not realized, from assets allocated to such [account](/usc/15/1681a.md?p=r-4), are, in accordance with the applicable contract, credited to or charged against such [account](/usc/15/1681a.md?p=r-4) without regard to other income, gains, or losses of the [insurance company](#a-13). - (15) The term “accredited investor” shall mean— - (i) a bank as defined in [section 77c(a)(2) of this title](/usc/15/77c.md?p=a-2) whether acting in its individual or fiduciary capacity; an [insurance company](#a-13) as defined in paragraph (13) of this subsection; an [investment company](/usc/15/77z–2.md?p=i-2) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.] or a [business development company](/usc/15/80b–2.md?p=a-22) as defined in [section 2(a)(48)](/usc/15/2.md) of that Act [[15 U.S.C. 80a–2(a)(48)](/usc/15/80a–2.md?p=a-48)]; a [Small Business](/usc/15/1691c–2.md?p=h-2) [Investment Company](/usc/15/77z–2.md?p=i-2) licensed by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2); or an employee benefit plan, including an individual retirement [account](/usc/15/1681a.md?p=r-4), which is subject to the provisions of the Employee Retirement Income Security Act of 1974 [[29 U.S.C. 1001](/usc/29/1001.md) et seq.], if the investment decision is made by a plan fiduciary, as defined in [section 3(21)](/usc/15/3.md) of such Act [[29 U.S.C. 1002(21)](/usc/29/1002.md?p=21)], which is either a bank, [insurance company](#a-13), or registered [investment adviser](/usc/15/6102.md?p=d-2-B-ii); or - (ii) any [person](/usc/15/78m.md?p=h-8-E) who, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial matters, or amount of assets under management qualifies as an [accredited investor](#a-15) under rules and regulations which the [Commission](#a-5) shall prescribe. - (16) The terms “security future”, “narrow-based security index”, and “security futures product” have the same meanings as provided in [section 78c(a)(55) of this title](/usc/15/78c.md?p=a-55). - (17) The terms “swap” and “security-based swap” have the same meanings as in [section 1a of title 7](/usc/7/1a.md). - (18) The terms “purchase” or “sale” of a [security-based swap](#a-17) shall be deemed to mean the execution, termination (prior to its scheduled maturity date), assignment, [exchange](/usc/15/636.md?p=a-36-A-xvi), or similar transfer or conveyance of, or extinguishing of rights or obligations under, a [security-based swap](#a-17), as the context may require. - (19) The term “emerging growth company” means an [issuer](#a-4) that had total annual gross revenues of less than $1,000,000,000 (as such amount is indexed for inflation every 5 years by the [Commission](#a-5) to reflect the change in the [Consumer](/usc/15/1615.md?p=d-2) Price Index for All Urban [Consumers](/usc/15/1615.md?p=d-2) published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) during its most recently completed fiscal year. An [issuer](#a-4) that is an emerging growth company as of the first day of that fiscal year shall continue to be deemed an emerging growth company until the earliest of— - (A) the last day of the fiscal year of the [issuer](#a-4) during which it had total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every 5 years by the [Commission](#a-5) to reflect the change in the [Consumer](/usc/15/1615.md?p=d-2) Price Index for All Urban [Consumers](/usc/15/1615.md?p=d-2) published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more; - (B) the last day of the fiscal year of the [issuer](#a-4) following the fifth anniversary of the date of the first sale of common [equity securities](/usc/15/9041.md?p=6) of the [issuer](#a-4) pursuant to an effective [registration statement](#a-8) under this subchapter; - (C) the date on which such [issuer](#a-4) has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or - (D) the date on which such [issuer](#a-4) is deemed to be a “large accelerated filer”, as defined in [section 240.12b–2 of title 17, Code of Federal Regulations](/cfr/17/240.12b–2.md), or any successor thereto. - (b) **Consideration of promotion of efficiency, competition, and capital formation—** Whenever pursuant to this subchapter the [Commission](#a-5) is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the [Commission](#a-5) shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. # §77b–1. Swap agreements - (a) **Reserved—** - (b) **Security-based swap agreements—** - (1) The definition of “[security](/usc/15/77b.md?p=a-1)” in [section 77b(a)(1) of this title](/usc/15/77b.md?p=a-1) does not include any [security-based swap agreement](/usc/15/78c.md?p=a-78-A) (as defined in [section 78c(a)(78) of this title](/usc/15/78c.md?p=a-78)). - (2) The [Commission](/usc/15/77b.md?p=a-5) is prohibited from registering, or requiring, recommending, or suggesting, the registration under this subchapter of any [security-based swap agreement](/usc/15/78c.md?p=a-78-A) (as defined in [section 78c(a)(78) of this title](/usc/15/78c.md?p=a-78)). If the [Commission](/usc/15/77b.md?p=a-5) becomes aware that a registrant has filed a [registration statement](/usc/15/77b.md?p=a-8) with respect to such a [swap](/usc/15/77b.md?p=a-17) [agreement](/usc/15/7a.md?p=2), the [Commission](/usc/15/77b.md?p=a-5) shall promptly so notify the registrant. Any such [registration statement](/usc/15/77b.md?p=a-8) with respect to such a [swap](/usc/15/77b.md?p=a-17) [agreement](/usc/15/7a.md?p=2) shall be void and of no force or effect. - (3) The [Commission](/usc/15/77b.md?p=a-5) is prohibited from— - (A) promulgating, interpreting, or enforcing rules; or - (B) issuing [orders](/usc/15/8702.md?p=14) of general applicability; under this subchapter in a manner that imposes or specifies reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading with respect to any [security-based swap agreement](/usc/15/78c.md?p=a-78-A) (as defined in [section 78c(a)(78) of this title](/usc/15/78c.md?p=a-78)). - (4) References in this subchapter to the “[purchase](/usc/15/77b.md?p=a-18)” or “sale” of a [security-based swap agreement](/usc/15/78c.md?p=a-78-A) shall be deemed to mean the execution, termination (prior to its scheduled maturity date), assignment, [exchange](/usc/15/636.md?p=a-36-A-xvi), or similar transfer or conveyance of, or extinguishing of rights or obligations under, a [security-based swap agreement](/usc/15/78c.md?p=a-78-A) (as defined in [section 78c(a)(78) of this title](/usc/15/78c.md?p=a-78)), as the context may require. # §77c. Classes of securities under this subchapter - (a) **Exempted securities—** Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of [securities](/usc/15/77b.md?p=a-1): - (1) Reserved. - (2) Any [security](/usc/15/77b.md?p=a-1) issued or guaranteed by the United States or any [territory](/usc/15/77b.md?p=a-6) thereof, or by the District of Columbia, or by any [State](/usc/15/15g.md?p=2) of the United States, or by any political subdivision of a [State](/usc/15/15g.md?p=2) or [territory](/usc/15/77b.md?p=a-6), or by any public instrumentality of one or more [States](/usc/15/15g.md?p=2) or [territories](/usc/15/77b.md?p=a-6), or by any [person](/usc/15/78m.md?p=h-8-E) controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to [authority](/usc/15/3051.md?p=1) granted by the Congress of the United States; or any certificate of deposit for any of the foregoing; or any [security](/usc/15/77b.md?p=a-1) issued or guaranteed by any bank; or any [security](/usc/15/77b.md?p=a-1) issued by or representing an interest in or a direct obligation of a Federal Reserve bank; or any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term “investment company” under section 3(c)(3) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(3)](/usc/15/80a–3.md?p=c-3)]; or any [security](/usc/15/77b.md?p=a-1) which is an industrial development bond (as defined in section 103(c)(2)[^1] of [title 26](/usc/26.md)) the interest on which is excludable from gross income under section 103(a)(1)[^1] of [title 26](/usc/26.md) if, by reason of the [application](/usc/15/77ccc.md?p=8) of paragraph (4) or (6) of section 103(c)[^1] of [title 26](/usc/26.md) (determined as if paragraphs (4)(A), [(5)](#a-5), and [(7)](#a-7) were not included in such section 103(c)),[^1] [paragraph (1)](/usc/15/80a–3.md) of such section 103(c)[^1] does not apply to such [security](/usc/15/77b.md?p=a-1); or any interest or participation in a single trust fund, or in a collective trust fund maintained by a bank, or any [security](/usc/15/77b.md?p=a-1) arising out of a contract issued by an [insurance company](/usc/15/77b.md?p=a-13), which interest, participation, or [security](/usc/15/77b.md?p=a-1) is issued in connection with (A) a stock bonus, pension, or profit-sharing plan which meets the requirements for qualification under [section 401 of title 26](/usc/26/401.md), (B) an annuity plan which meets the requirements for the deduction of the employer’s contributions under [section 404(a)(2) of title 26](/usc/26/404.md?p=a-2), (C) a governmental plan as defined in [section 414(d) of title 26](/usc/26/414.md?p=d) which has been established by an employer for the exclusive benefit of its employees or their beneficiaries for the purpose of distributing to such employees or their beneficiaries the corpus and income of the funds accumulated under such plan, if under such plan it is impossible, prior to the satisfaction of all liabilities with respect to such employees and their beneficiaries, for any part of the corpus or income to be used for, or diverted to, purposes other than the exclusive benefit of such employees or their beneficiaries, or (D) a church plan, company, or [account](/usc/15/1681a.md?p=r-4) that is excluded from the definition of an investment company under section 3(c)(14) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(14)](/usc/15/80a–3.md?p=c-14)], other than any plan described in subparagraph (A), (B), (C), or (D) of this paragraph (i) the contributions under which are held in a single trust fund or in a [separate account](/usc/15/77b.md?p=a-14) maintained by an [insurance company](/usc/15/77b.md?p=a-13) for a single employer and under which an amount in excess of the employer’s contribution is allocated to the [purchase](/usc/15/77b.md?p=a-18) of [securities](/usc/15/77b.md?p=a-1) (other than interests or participations in the trust or [separate account](/usc/15/77b.md?p=a-14) itself) issued by the employer or any company directly or indirectly controlling, controlled by, or under common control with the employer, (ii) which covers employees some or all of whom are employees within the meaning of [section 401(c)(1) of title 26](/usc/26/401.md?p=c-1) (other than a [person](/usc/15/78m.md?p=h-8-E) participating in a church plan who is described in [section 414(e)(3)(B) of title 26](/usc/26/414.md?p=e-3-B)), or (iii) which is a plan funded by an annuity contract described in [section 403(b) of title 26](/usc/26/403.md?p=b) (other than a retirement income [account](/usc/15/1681a.md?p=r-4) described in [section 403(b)(9) of title 26](/usc/26/403.md?p=b-9), to the extent that the interest or participation in such single trust fund or collective trust fund is issued to a church, a convention or [association](/usc/15/657h.md?p=a-2) of churches, or an organization described in [section 414(e)(3)(A) of title 26](/usc/26/414.md?p=e-3-A) establishing or maintaining the retirement income [account](/usc/15/1681a.md?p=r-4) or to a trust established by any such entity in connection with the retirement income [account](/usc/15/1681a.md?p=r-4)). The [Commission](/usc/15/77b.md?p=a-5), by rules and regulations or [order](/usc/15/8702.md?p=14), shall exempt from the provisions of [section 77e of this title](/usc/15/77e.md) any interest or participation issued in connection with a stock bonus, pension, profit-sharing, or annuity plan which covers employees some or all of whom are employees within the meaning of [section 401(c)(1) of title 26](/usc/26/401.md?p=c-1), if and to the extent that the [Commission](/usc/15/77b.md?p=a-5) determines this to be necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter. For purposes of this paragraph, a [security](/usc/15/77b.md?p=a-1) issued or guaranteed by a bank shall not include any interest or participation in any collective trust fund maintained by a bank; and the term “bank” means any national bank, or banking institution organized under the laws of any [State](/usc/15/15g.md?p=2), [territory](/usc/15/77b.md?p=a-6), or the District of Columbia, the business of which is substantially confined to banking and is supervised by the [State](/usc/15/15g.md?p=2) or territorial banking [commission](/usc/15/77b.md?p=a-5) or similar official; except that in the case of a common trust fund or similar fund, or a collective trust fund, the term “bank” has the same meaning as in the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.]; - (3) Any note, draft, bill of [exchange](/usc/15/636.md?p=a-36-A-xvi), or banker’s acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited; - (4) Any [security](/usc/15/77b.md?p=a-1) issued by a [person](/usc/15/78m.md?p=h-8-E) organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any [person](/usc/15/78m.md?p=h-8-E), private stockholder, or individual, or any [security](/usc/15/77b.md?p=a-1) of a fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under section 3(c)(10)(B) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(10)(B)](/usc/15/80a–3.md?p=c-10-B)]; - (5) Any [security](/usc/15/77b.md?p=a-1) issued (A) by a savings and loan [association](/usc/15/657h.md?p=a-2), building and loan [association](/usc/15/657h.md?p=a-2), cooperative bank, homestead [association](/usc/15/657h.md?p=a-2), or similar institution, which is supervised and examined by [State](/usc/15/15g.md?p=2) or Federal [authority](/usc/15/3051.md?p=1) having supervision over any such institution; or (B) by (i) a farmer’s cooperative organization exempt from tax under [section 521 of title 26](/usc/26/521.md), (ii) a corporation described in [section 501(c)(16) of title 26](/usc/26/501.md?p=c-16) and exempt from tax under [section 501(a) of title 26](/usc/26/501.md?p=a), or (iii) a corporation described in [section 501(c)(2) of title 26](/usc/26/501.md?p=c-2) which is exempt from tax under [section 501(a) of title 26](/usc/26/501.md?p=a) and is organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization or corporation described in clause (i) or (ii); - (6) Any interest in a railroad equipment trust. For purposes of this paragraph “interest in a railroad equipment trust” means any interest in an equipment trust, lease, conditional sales contract, or other similar arrangement entered into, issued, assumed, guaranteed by, or for the benefit of, a common carrier to finance the acquisition of rolling stock, including motive power; - (7) Certificates issued by a receiver or by a trustee or [debtor](/usc/15/78lll.md?p=5) in possession in a case under [title 11](/usc/11.md), with the approval of the court; - (8) Any insurance or endowment policy or annuity contract or optional annuity contract, issued by a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any [State](/usc/15/15g.md?p=2) or [Territory](/usc/15/77b.md?p=a-6) of the United States or the District of Columbia; - (9) Except with respect to a [security](/usc/15/77b.md?p=a-1) exchanged in a case under [title 11](/usc/11.md), any [security](/usc/15/77b.md?p=a-1) exchanged by the [issuer](/usc/15/77b.md?p=a-4) with its existing [security](/usc/15/77b.md?p=a-1) holders exclusively where no [commission](/usc/15/77b.md?p=a-5) or other remuneration is paid or given directly or indirectly for soliciting such [exchange](/usc/15/636.md?p=a-36-A-xvi); - (10) Except with respect to a [security](/usc/15/77b.md?p=a-1) exchanged in a case under [title 11](/usc/11.md), any [security](/usc/15/77b.md?p=a-1) which is issued in [exchange](/usc/15/636.md?p=a-36-A-xvi) for one or more bona fide outstanding [securities](/usc/15/77b.md?p=a-1), claims or property interests, or partly in such [exchange](/usc/15/636.md?p=a-36-A-xvi) and partly for cash, where the terms and conditions of such issuance and [exchange](/usc/15/636.md?p=a-36-A-xvi) are approved, after a hearing upon the fairness of such terms and conditions at which all [persons](/usc/15/78m.md?p=h-8-E) to whom it is proposed to issue [securities](/usc/15/77b.md?p=a-1) in such [exchange](/usc/15/636.md?p=a-36-A-xvi) shall have the right to appear, by any court, or by any official or agency of the United States, or by any [State](/usc/15/15g.md?p=2) or Territorial banking or insurance [commission](/usc/15/77b.md?p=a-5) or other governmental [authority](/usc/15/3051.md?p=1) expressly authorized by law to grant such approval; - (11) Any [security](/usc/15/77b.md?p=a-1) which is a part of an issue offered and sold only to [persons](/usc/15/78m.md?p=h-8-E) resident within a single [State](/usc/15/15g.md?p=2) or [Territory](/usc/15/77b.md?p=a-6), where the [issuer](/usc/15/77b.md?p=a-4) of such [security](/usc/15/77b.md?p=a-1) is a [person](/usc/15/78m.md?p=h-8-E) resident and doing business within or, if a corporation, incorporated by and doing business within, such [State](/usc/15/15g.md?p=2) or [Territory](/usc/15/77b.md?p=a-6). - (12) Any [equity security](/usc/15/9041.md?p=6) issued in connection with the acquisition by a holding company of a bank under [section 1842(a) of title 12](/usc/12/1842.md?p=a) or a savings association under [section 1467a(e) of title 12](/usc/12/1467a.md?p=e), if— - (A) the acquisition occurs solely as part of a reorganization in which [security](/usc/15/77b.md?p=a-1) holders [exchange](/usc/15/636.md?p=a-36-A-xvi) their shares of a bank or [savings association](#a-12) for shares of a newly formed holding company with no significant assets other than [securities](/usc/15/77b.md?p=a-1) of the bank or [savings association](#a-12) and the existing subsidiaries of the bank or [savings association](#a-12); - (B) the [security](/usc/15/77b.md?p=a-1) holders receive, after that reorganization, substantially the same proportional share interests in the holding company as they held in the bank or [savings association](#a-12), except for nominal changes in shareholders’ interests resulting from lawful elimination of fractional interests and the exercise of dissenting shareholders’ rights under [State](/usc/15/15g.md?p=2) or Federal law; - (C) the rights and interests of [security](/usc/15/77b.md?p=a-1) holders in the holding company are substantially the same as those in the bank or [savings association](#a-12) prior to the transaction, other than as may be required by law; and - (D) the holding company has substantially the same assets and liabilities, on a consolidated basis, as the bank or [savings association](#a-12) had prior to the transaction. For purposes of this paragraph, the term “savings association” means a savings association (as defined in [section 1813(b) of title 12](/usc/12/1813.md?p=b)) the deposits of which are insured by the Federal Deposit Insurance Corporation. - (13) Any [security](/usc/15/77b.md?p=a-1) issued by or any interest or participation in any church plan, company or [account](/usc/15/1681a.md?p=r-4) that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under section 3(c)(14) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(14)](/usc/15/80a–3.md?p=c-14)]. - (14) Any [security futures product](/usc/15/77b.md?p=a-16) that is— - (A) cleared by a clearing agency registered under [section 78q–1 of this title](/usc/15/78q–1.md) or exempt from registration under [subsection (b)(7)](/usc/15/78q–1.md?p=b-7) of such section 78q–1; and - (B) traded on a [national securities exchange](/usc/15/9009a.md?p=a-5) or a national [securities](/usc/15/77b.md?p=a-1) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title. - (b) **Additional exemptions—** - (1) **Small issues exemptive authority—** The [Commission](/usc/15/77b.md?p=a-5) may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add any class of [securities](/usc/15/77b.md?p=a-1) to the [securities](/usc/15/77b.md?p=a-1) exempted as provided in this section, if it finds that the enforcement of this subchapter with respect to such [securities](/usc/15/77b.md?p=a-1) is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering; but no issue of [securities](/usc/15/77b.md?p=a-1) shall be exempted under this subsection where the aggregate amount at which such issue is offered to the public exceeds $5,000,000. - (2) **Additional issues—** The [Commission](/usc/15/77b.md?p=a-5) shall by rule or regulation add a class of [securities](/usc/15/77b.md?p=a-1) to the [securities](/usc/15/77b.md?p=a-1) exempted pursuant to this section in accordance with the following terms and conditions: - (A) The aggregate offering amount of all [securities](/usc/15/77b.md?p=a-1) offered and sold within the prior 12-month period in reliance on the exemption added in accordance with this paragraph shall not exceed $50,000,000. - (B) The [securities](/usc/15/77b.md?p=a-1) may be offered and sold publicly. - (C) The [securities](/usc/15/77b.md?p=a-1) shall not be restricted [securities](/usc/15/77b.md?p=a-1) within the meaning of the Federal [securities laws](/usc/15/77z–2.md?p=i-5) and the regulations promulgated thereunder. - (D) The civil liability provision in [section 77l(a)(2)](/usc/15/77l.md?p=a-2) of this title shall apply to any [person](/usc/15/78m.md?p=h-8-E) offering or selling such [securities](/usc/15/77b.md?p=a-1). - (E) The [issuer](/usc/15/77b.md?p=a-4) may solicit interest in the offering prior to filing any offering statement, on such terms and conditions as the [Commission](/usc/15/77b.md?p=a-5) may prescribe in the public interest or for the protection of investors. - (F) The [Commission](/usc/15/77b.md?p=a-5) shall require the [issuer](/usc/15/77b.md?p=a-4) to file audited financial statements with the [Commission](/usc/15/77b.md?p=a-5) annually. - (G) Such other terms, conditions, or requirements as the [Commission](/usc/15/77b.md?p=a-5) may determine necessary in the public interest and for the protection of investors, which may include— - (i) a requirement that the [issuer](/usc/15/77b.md?p=a-4) prepare and electronically file with the [Commission](/usc/15/77b.md?p=a-5) and distribute to prospective investors an offering statement, and any related documents, in such form and with such content as prescribed by the [Commission](/usc/15/77b.md?p=a-5), including audited financial statements, a description of the [issuer](/usc/15/77b.md?p=a-4)’s business operations, its financial condition, its corporate governance principles, its use of investor funds, and other appropriate matters; and - (ii) disqualification provisions under which the exemption shall not be available to the [issuer](/usc/15/77b.md?p=a-4) or its predecessors, affiliates, officers, directors, underwriters, or other related [persons](/usc/15/78m.md?p=h-8-E), which shall be substantially similar to the disqualification provisions contained in the regulations adopted in accordance with section 926 of the Dodd-Frank Wall Street Reform and [Consumer](/usc/15/1615.md?p=d-2) Protection Act ([15 U.S.C. 77d](/usc/15/77d.md) note). - (3) **Limitation—** Only the following types of [securities](/usc/15/77b.md?p=a-1) may be exempted under a rule or regulation adopted pursuant to [paragraph (2)](#b-2): [equity securities](/usc/15/9041.md?p=6), debt [securities](/usc/15/77b.md?p=a-1), and debt [securities](/usc/15/77b.md?p=a-1) convertible or exchangeable to equity interests, including any guarantees of such [securities](/usc/15/77b.md?p=a-1). - (4) **Periodic disclosures—** Upon such terms and conditions as the [Commission](/usc/15/77b.md?p=a-5) determines necessary in the public interest and for the protection of investors, the [Commission](/usc/15/77b.md?p=a-5) by rule or regulation may require an [issuer](/usc/15/77b.md?p=a-4) of a class of [securities](/usc/15/77b.md?p=a-1) exempted under [paragraph (2)](#b-2) to make available to investors and file with the [Commission](/usc/15/77b.md?p=a-5) periodic disclosures regarding the [issuer](/usc/15/77b.md?p=a-4), its business operations, its financial condition, its corporate governance principles, its use of investor funds, and other appropriate matters, and also may provide for the suspension and termination of such a requirement with respect to that [issuer](/usc/15/77b.md?p=a-4). - (5) **Adjustment—** Not later than 2 years after April 5, 2012,[^1] and every 2 years thereafter, the [Commission](/usc/15/77b.md?p=a-5) shall review the offering amount limitation described in [paragraph (2)(A)](#b-2-A) and shall increase such amount as the [Commission](/usc/15/77b.md?p=a-5) determines appropriate. If the [Commission](/usc/15/77b.md?p=a-5) determines not to increase such amount, it shall report to the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives and the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate on its reasons for not increasing the amount. - (c) **Securities issued by small investment company—** The [Commission](/usc/15/77b.md?p=a-5) may from time to time by its rules and regulations and subject to such terms and conditions as may be prescribed therein, add to the [securities](/usc/15/77b.md?p=a-1) exempted as provided in this section any class of [securities](/usc/15/77b.md?p=a-1) issued by a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.] if it finds, having regard to the purposes of that Act, that the enforcement of this subchapter with respect to such [securities](/usc/15/77b.md?p=a-1) is not necessary in the public interest and for the protection of investors. # §77d. Exempted transactions - (a) **In general—** The provisions of [section 77e of this title](/usc/15/77e.md) shall not apply to— - (1) transactions by any [person](/usc/15/78m.md?p=h-8-E) other than an [issuer](/usc/15/77b.md?p=a-4), underwriter, or [dealer](/usc/15/77b.md?p=a-12). - (2) transactions by an [issuer](/usc/15/77b.md?p=a-4) not involving any public offering. - (3) transactions by a [dealer](/usc/15/77b.md?p=a-12) (including an underwriter no longer acting as an underwriter in respect of the [security](/usc/15/77b.md?p=a-1) involved in such transaction), except— - (A) transactions taking place prior to the expiration of forty days after the first date upon which the [security](/usc/15/77b.md?p=a-1) was bona fide offered to the public by the [issuer](/usc/15/77b.md?p=a-4) or by or through an underwriter, - (B) transactions in a [security](/usc/15/77b.md?p=a-1) as to which a [registration statement](/usc/15/77b.md?p=a-8) has been filed taking place prior to the expiration of forty days after the effective date of such [registration statement](/usc/15/77b.md?p=a-8) or prior to the expiration of forty days after the first date upon which the [security](/usc/15/77b.md?p=a-1) was bona fide offered to the public by the [issuer](/usc/15/77b.md?p=a-4) or by or through an underwriter after such effective date, whichever is later (excluding in the computation of such forty days any time during which a stop [order](/usc/15/8702.md?p=14) issued under [section 77h of this title](/usc/15/77h.md) is in effect as to the [security](/usc/15/77b.md?p=a-1)), or such shorter period as the [Commission](/usc/15/77b.md?p=a-5) may specify by rules and regulations or [order](/usc/15/8702.md?p=14), and - (C) transactions as to [securities](/usc/15/77b.md?p=a-1) constituting the whole or a part of an unsold allotment to or subscription by such [dealer](/usc/15/77b.md?p=a-12) as a participant in the distribution of such [securities](/usc/15/77b.md?p=a-1) by the [issuer](/usc/15/77b.md?p=a-4) or by or through an underwriter. With respect to transactions referred to in [clause (B)](#a-3-B), if [securities](/usc/15/77b.md?p=a-1) of the [issuer](/usc/15/77b.md?p=a-4) have not previously been sold pursuant to an earlier effective [registration statement](/usc/15/77b.md?p=a-8) the applicable period, instead of forty days, shall be ninety days, or such shorter period as the [Commission](/usc/15/77b.md?p=a-5) may specify by rules and regulations or [order](/usc/15/8702.md?p=14). - (4) [brokers](/usc/15/6102.md?p=d-2-B-i)’ transactions executed upon [customers](/usc/15/78c–5.md?p=g)’ [orders](/usc/15/8702.md?p=14) on any [exchange](/usc/15/636.md?p=a-36-A-xvi) or in the over-the-counter market but not the solicitation of such [orders](/usc/15/8702.md?p=14). - (5) transactions involving offers or sales by an [issuer](/usc/15/77b.md?p=a-4) solely to one or more [accredited investors](/usc/15/77b.md?p=a-15), if the aggregate offering price of an issue of [securities](/usc/15/77b.md?p=a-1) offered in reliance on this paragraph does not exceed the amount allowed under [section 77c(b)(1) of this title](/usc/15/77c.md?p=b-1), if there is no advertising or public solicitation in connection with the transaction by the [issuer](/usc/15/77b.md?p=a-4) or anyone acting on the [issuer](/usc/15/77b.md?p=a-4)’s behalf, and if the [issuer](/usc/15/77b.md?p=a-4) files such notice with the [Commission](/usc/15/77b.md?p=a-5) as the [Commission](/usc/15/77b.md?p=a-5) shall prescribe. - (6) transactions involving the offer or sale of [securities](/usc/15/77b.md?p=a-1) by an [issuer](/usc/15/77b.md?p=a-4) (including all entities controlled by or under common control with the [issuer](/usc/15/77b.md?p=a-4)), provided that— - (A) the aggregate amount sold to all investors by the [issuer](/usc/15/77b.md?p=a-4), including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, is not more than $1,000,000; - (B) the aggregate amount sold to any investor by an [issuer](/usc/15/77b.md?p=a-4), including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, does not exceed— - (i) the greater of $2,000 or 5 percent of the annual income or net worth of such investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; and - (ii) 10 percent of the annual income or net worth of such investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000; - (C) the transaction is conducted through a [broker](/usc/15/6102.md?p=d-2-B-i) or funding portal that complies with the requirements of [section 77d–1(a) of this title](/usc/15/77d–1.md?p=a); and - (D) the [issuer](/usc/15/77b.md?p=a-4) complies with the requirements of [section 77d–1(b) of this title](/usc/15/77d–1.md?p=b). - (7) transactions meeting the requirements of [subsection (d)](#d). - (b) **Offers and sales exempt under 17 CFR 230.506—** Offers and sales exempt under [section 230.506 of title 17, Code of Federal Regulations](/cfr/17/230.506.md) (as revised pursuant to section 201 of the Jumpstart Our Business Startups Act) shall not be deemed public offerings under the Federal [securities laws](/usc/15/77z–2.md?p=i-5) as a result of general advertising or general solicitation. - (c) **Securities offered and sold in compliance with Rule 506 of Regulation D—** - (1) With respect to [securities](/usc/15/77b.md?p=a-1) offered and sold in compliance with [Rule 506](/usc/15/506.md) of Regulation D under this subchapter, no [person](/usc/15/78m.md?p=h-8-E) who meets the conditions set forth in [paragraph (2)](#c-2) shall be subject to registration as a [broker or dealer](/usc/15/78c.md?p=h-2) pursuant to [section 78o(a)(1)](/usc/15/78o.md?p=a-1) of this title,[^1] solely because— - (A) that [person](/usc/15/78m.md?p=h-8-E) maintains a platform or mechanism that permits the offer, sale, [purchase](/usc/15/77b.md?p=a-18), or negotiation of or with respect to [securities](/usc/15/77b.md?p=a-1), or permits general solicitations, general advertisements, or similar or related activities by [issuers](/usc/15/77b.md?p=a-4) of such [securities](/usc/15/77b.md?p=a-1), whether online, in [person](/usc/15/78m.md?p=h-8-E), or through any other means; - (B) that [person](/usc/15/78m.md?p=h-8-E) or any [person](/usc/15/78m.md?p=h-8-E) associated with that [person](/usc/15/78m.md?p=h-8-E) co-invests in such [securities](/usc/15/77b.md?p=a-1); or - (C) that [person](/usc/15/78m.md?p=h-8-E) or any [person](/usc/15/78m.md?p=h-8-E) associated with that [person](/usc/15/78m.md?p=h-8-E) provides [ancillary services](#c-3) with respect to such [securities](/usc/15/77b.md?p=a-1). - (2) The exemption provided in [paragraph (1)](#c-1) shall apply to any [person](/usc/15/78m.md?p=h-8-E) described in such paragraph if— - (A) such [person](/usc/15/78m.md?p=h-8-E) and each [person](/usc/15/78m.md?p=h-8-E) associated with that [person](/usc/15/78m.md?p=h-8-E) receives no compensation in connection with the [purchase](/usc/15/77b.md?p=a-18) or sale of such [security](/usc/15/77b.md?p=a-1); - (B) such [person](/usc/15/78m.md?p=h-8-E) and each [person](/usc/15/78m.md?p=h-8-E) associated with that [person](/usc/15/78m.md?p=h-8-E) does not have possession of [customer](/usc/15/78c–5.md?p=g) funds or [securities](/usc/15/77b.md?p=a-1) in connection with the [purchase](/usc/15/77b.md?p=a-18) or sale of such [security](/usc/15/77b.md?p=a-1); and - (C) such [person](/usc/15/78m.md?p=h-8-E) is not subject to a statutory disqualification as defined in [section 78c(a)(39) of this title](/usc/15/78c.md?p=a-39)[^1] and does not have any [person](/usc/15/78m.md?p=h-8-E) associated with that [person](/usc/15/78m.md?p=h-8-E) subject to such a statutory disqualification. - (3) For the purposes of this subsection, the term “ancillary services” means— - (A) the provision of due diligence services, in connection with the offer, sale, [purchase](/usc/15/77b.md?p=a-18), or negotiation of such [security](/usc/15/77b.md?p=a-1), so long as such services do not include, for separate compensation, investment advice or recommendations to [issuers](/usc/15/77b.md?p=a-4) or investors; and - (B) the provision of standardized documents to the [issuers](/usc/15/77b.md?p=a-4) and investors, so long as such [person](/usc/15/78m.md?p=h-8-E) or entity does not negotiate the terms of the issuance for and on behalf of third parties and [issuers](/usc/15/77b.md?p=a-4) are not required to use the standardized documents as a condition of using the service. - (d) **Certain accredited investor transactions—** The transactions referred to in [subsection (a)(7)](#a-7) are transactions meeting the following requirements: - (1) **Accredited investor requirement.—** Each purchaser is an [accredited investor](/usc/15/77b.md?p=a-15), as that term is defined in [section 230.501(a) of title 17, Code of Federal Regulations](/cfr/17/230.501.md?p=a) (or any successor regulation). - (2) **Prohibition on general solicitation or advertising.—** Neither the seller, nor any [person](/usc/15/78m.md?p=h-8-E) acting on the seller’s behalf, offers or sells [securities](/usc/15/77b.md?p=a-1) by any form of general solicitation or general advertising. - (3) **Information requirement.—** In the case of a transaction involving the [securities](/usc/15/77b.md?p=a-1) of an [issuer](/usc/15/77b.md?p=a-4) that is neither subject to section [78m](/usc/15/78m.md) or [78o(d)](/usc/15/78o.md?p=d) of this title, nor exempt from reporting pursuant to [section 240.12g3–2(b) of title 17, Code of Federal Regulations](/cfr/17/240.12g3–2.md?p=b), nor a foreign government (as defined in [section 230.405 of title 17, Code of Federal Regulations](/cfr/17/230.405.md)) eligible to register [securities](/usc/15/77b.md?p=a-1) under Schedule B, the seller and a prospective purchaser designated by the seller obtain from the [issuer](/usc/15/77b.md?p=a-4), upon request of the seller, and the seller in all cases makes available to a prospective purchaser, the following information (which shall be reasonably current in relation to the date of resale under this section): - (A) The exact name of the [issuer](/usc/15/77b.md?p=a-4) and the [issuer](/usc/15/77b.md?p=a-4)’s predecessor (if any). - (B) The address of the [issuer](/usc/15/77b.md?p=a-4)’s principal executive offices. - (C) The exact title and class of the [security](/usc/15/77b.md?p=a-1). - (D) The par or stated value of the [security](/usc/15/77b.md?p=a-1). - (E) The number of shares or total amount of the [securities](/usc/15/77b.md?p=a-1) outstanding as of the end of the [issuer](/usc/15/77b.md?p=a-4)’s most recent fiscal year. - (F) The name and address of the [transfer agent](/usc/15/6102.md?p=d-2-B-i), corporate secretary, or other [person](/usc/15/78m.md?p=h-8-E) responsible for transferring shares and stock certificates. - (G) A statement of the nature of the business of the [issuer](/usc/15/77b.md?p=a-4) and the products and services it offers, which shall be presumed reasonably current if the statement is as of 12 months before the transaction date. - (H) The names of the officers and directors of the [issuer](/usc/15/77b.md?p=a-4). - (I) The names of any [persons](/usc/15/78m.md?p=h-8-E) registered as a [broker](/usc/15/6102.md?p=d-2-B-i), [dealer](/usc/15/77b.md?p=a-12), or agent that shall be paid or given, directly or indirectly, any [commission](/usc/15/77b.md?p=a-5) or remuneration for such [person](/usc/15/78m.md?p=h-8-E)’s participation in the offer or sale of the [securities](/usc/15/77b.md?p=a-1). - (J) The [issuer](/usc/15/77b.md?p=a-4)’s most recent balance sheet and profit and loss statement and similar financial statements, which shall— - (i) be for such part of the 2 preceding fiscal years as the [issuer](/usc/15/77b.md?p=a-4) has been in operation; - (ii) be prepared in accordance with generally accepted accounting principles or, in the case of a foreign private [issuer](/usc/15/77b.md?p=a-4), be prepared in accordance with generally accepted accounting principles or the International Financial Reporting Standards issued by the International Accounting Standards [Board](/usc/15/205c.md?p=1); - (iii) be presumed reasonably current if— - (I) with respect to the balance sheet, the balance sheet is as of a date less than 16 months before the transaction date; and - (II) with respect to the profit and loss statement, such statement is for the 12 months preceding the date of the [issuer](/usc/15/77b.md?p=a-4)’s balance sheet; and - (iv) if the balance sheet is not as of a date less than 6 months before the transaction date, be accompanied by additional statements of profit and loss for the period from the date of such balance sheet to a date less than 6 months before the transaction date. - (K) To the extent that the seller is a control [person](/usc/15/78m.md?p=h-8-E) with respect to the [issuer](/usc/15/77b.md?p=a-4), a brief statement regarding the nature of the affiliation, and a statement certified by such seller that they have no reasonable grounds to believe that the [issuer](/usc/15/77b.md?p=a-4) is in [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/77z–2.md?p=i-5) or regulations. - (4) **Issuers disqualified.—** The transaction is not for the sale of a [security](/usc/15/77b.md?p=a-1) where the seller is an [issuer](/usc/15/77b.md?p=a-4) or a subsidiary, either directly or indirectly, of the [issuer](/usc/15/77b.md?p=a-4). - (5) **Bad actor prohibition.—** Neither the seller, nor any [person](/usc/15/78m.md?p=h-8-E) that has been or will be paid (directly or indirectly) remuneration or a [commission](/usc/15/77b.md?p=a-5) for their participation in the offer or sale of the [securities](/usc/15/77b.md?p=a-1), including solicitation of purchasers for the seller is subject to an event that would disqualify an [issuer](/usc/15/77b.md?p=a-4) or other covered [person](/usc/15/78m.md?p=h-8-E) under [Rule 506(d)(1)](/usc/15/506.md) of Regulation D ([17 CFR 230.506(d)(1)](/cfr/17/230.506.md?p=d-1)) or is subject to a statutory disqualification described under [section 78c(a)(39) of this title](/usc/15/78c.md?p=a-39). - (6) **Business requirement.—** The [issuer](/usc/15/77b.md?p=a-4) is engaged in business, is not in the organizational stage or in bankruptcy or receivership, and is not a blank check, blind pool, or shell company that has no specific business plan or purpose or has indicated that the [issuer](/usc/15/77b.md?p=a-4)’s primary business plan is to engage in a merger or combination of the business with, or an acquisition of, an unidentified [person](/usc/15/78m.md?p=h-8-E). - (7) **Underwriter prohibition.—** The transaction is not with respect to a [security](/usc/15/77b.md?p=a-1) that constitutes the whole or part of an unsold allotment to, or a subscription or participation by, a [broker or dealer](/usc/15/78c.md?p=h-2) as an underwriter of the [security](/usc/15/77b.md?p=a-1) or a redistribution. - (8) **Outstanding class requirement.—** The transaction is with respect to a [security](/usc/15/77b.md?p=a-1) of a class that has been authorized and outstanding for at least 90 days prior to the date of the transaction. - (e) **Additional requirements—** - (1) **In general.—** With respect to an exempted transaction described under [subsection (a)(7)](#a-7): - (A) [Securities](/usc/15/77b.md?p=a-1) acquired in such transaction shall be deemed to have been acquired in a transaction not involving any public offering. - (B) Such transaction shall be deemed not to be a distribution for purposes of [section 77b(a)(11) of this title](/usc/15/77b.md?p=a-11). - (C) [Securities](/usc/15/77b.md?p=a-1) involved in such transaction shall be deemed to be restricted [securities](/usc/15/77b.md?p=a-1) within the meaning of [Rule 144](/usc/15/144.md) ([17 CFR 230.144](/cfr/17/230.144.md)). - (2) **Rule of construction.—** The exemption provided by [subsection (a)(7)](#a-7) shall not be the exclusive means for establishing an exemption from the registration requirements of [section 77e of this title](/usc/15/77e.md). # §77d–1. Requirements with respect to certain small transactions - (a) **Requirements on intermediaries—** A [person](/usc/15/78m.md?p=h-8-E) acting as an [intermediary](/usc/15/6901.md?p=7) in a transaction involving the offer or sale of [securities](/usc/15/77b.md?p=a-1) for the [account](/usc/15/1681a.md?p=r-4) of others pursuant to [section 77d(6)](/usc/15/77d.md)[^1] of this title shall— - (1) register with the [Commission](/usc/15/77b.md?p=a-5) as— - (A) a [broker](/usc/15/6102.md?p=d-2-B-i); or - (B) a funding portal (as defined in [section 78c(a)(80)](/usc/15/78c.md?p=a-80)[^2] of this title); - (2) register with any applicable [self-regulatory organization](/usc/15/78c.md?p=a-26) (as defined in [section 78c(a)(26) of this title](/usc/15/78c.md?p=a-26)); - (3) provide such disclosures, including disclosures related to risks and other investor education materials, as the [Commission](/usc/15/77b.md?p=a-5) shall, by rule, determine appropriate; - (4) ensure that each investor— - (A) reviews investor-education information, in accordance with standards established by the [Commission](/usc/15/77b.md?p=a-5), by rule; - (B) positively affirms that the investor understands that the investor is risking the loss of the entire investment, and that the investor could bear such a loss; and - (C) answers questions demonstrating— - (i) an understanding of the level of risk generally applicable to investments in startups, emerging businesses, and small [issuers](/usc/15/77b.md?p=a-4); - (ii) an understanding of the risk of illiquidity; and - (iii) an understanding of such other matters as the [Commission](/usc/15/77b.md?p=a-5) determines appropriate, by rule; - (5) take such measures to reduce the risk of fraud with respect to such transactions, as established by the [Commission](/usc/15/77b.md?p=a-5), by rule, including obtaining a background and [securities](/usc/15/77b.md?p=a-1) enforcement regulatory history check on each officer, director, and [person](/usc/15/78m.md?p=h-8-E) holding more than 20 percent of the outstanding equity of every [issuer](/usc/15/77b.md?p=a-4) whose [securities](/usc/15/77b.md?p=a-1) are offered by such [person](/usc/15/78m.md?p=h-8-E); - (6) not later than 21 days prior to the first day on which [securities](/usc/15/77b.md?p=a-1) are sold to any investor (or such other period as the [Commission](/usc/15/77b.md?p=a-5) may establish), make available to the [Commission](/usc/15/77b.md?p=a-5) and to potential investors any information provided by the [issuer](/usc/15/77b.md?p=a-4) pursuant to [subsection (b)](#b); - (7) ensure that all offering proceeds are only provided to the [issuer](/usc/15/77b.md?p=a-4) when the aggregate capital raised from all investors is equal to or greater than a target offering amount, and allow all investors to cancel their commitments to invest, as the [Commission](/usc/15/77b.md?p=a-5) shall, by rule, determine appropriate; - (8) make such efforts as the [Commission](/usc/15/77b.md?p=a-5) determines appropriate, by rule, to ensure that no investor in a 12-month period has purchased [securities](/usc/15/77b.md?p=a-1) offered pursuant to [section 77d(6)](/usc/15/77d.md)[^1] of this title that, in the aggregate, from all [issuers](/usc/15/77b.md?p=a-4), exceed the investment limits set forth in [section 77d(6)(B)](/usc/15/77d.md)[^1] of this title; - (9) take such steps to protect the privacy of information collected from investors as the [Commission](/usc/15/77b.md?p=a-5) shall, by rule, determine appropriate; - (10) not compensate promoters, finders, or lead generators for providing the [broker](/usc/15/6102.md?p=d-2-B-i) or funding portal with the personal identifying information of any potential investor; - (11) prohibit its directors, officers, or partners (or any [person](/usc/15/78m.md?p=h-8-E) occupying a similar status or performing a similar function) from having any financial interest in an [issuer](/usc/15/77b.md?p=a-4) using its services; and - (12) meet such other requirements as the [Commission](/usc/15/77b.md?p=a-5) may, by rule, prescribe, for the protection of investors and in the public interest. - (b) **Requirements for issuers—** For purposes of [section 77d(6)](/usc/15/77d.md)[^1] of this title, an [issuer](/usc/15/77b.md?p=a-4) who offers or sells [securities](/usc/15/77b.md?p=a-1) shall— - (1) file with the [Commission](/usc/15/77b.md?p=a-5) and provide to investors and the relevant [broker](/usc/15/6102.md?p=d-2-B-i) or funding portal, and make available to potential investors— - (A) the name, legal status, physical address, and website address of the [issuer](/usc/15/77b.md?p=a-4); - (B) the names of the directors and officers (and any [persons](/usc/15/78m.md?p=h-8-E) occupying a similar status or performing a similar function), and each [person](/usc/15/78m.md?p=h-8-E) holding more than 20 percent of the shares of the [issuer](/usc/15/77b.md?p=a-4); - (C) a description of the business of the [issuer](/usc/15/77b.md?p=a-4) and the anticipated business plan of the [issuer](/usc/15/77b.md?p=a-4); - (D) a description of the financial condition of the [issuer](/usc/15/77b.md?p=a-4), including, for offerings that, together with all other offerings of the [issuer](/usc/15/77b.md?p=a-4) under [section 77d(6)](/usc/15/77d.md)[^1] of this title within the preceding 12-month period, have, in the aggregate, target offering amounts of— - (i) $100,000 or less— - (I) the income tax returns filed by the [issuer](/usc/15/77b.md?p=a-4) for the most recently completed year (if any); and - (II) financial statements of the [issuer](/usc/15/77b.md?p=a-4), which shall be certified by the principal executive officer of the [issuer](/usc/15/77b.md?p=a-4) to be true and complete in all material respects; - (ii) more than $100,000, but not more than $500,000, financial statements reviewed by a public accountant who is independent of the [issuer](/usc/15/77b.md?p=a-4), using professional standards and procedures for such review or standards and procedures established by the [Commission](/usc/15/77b.md?p=a-5), by rule, for such purpose; and - (iii) more than $500,000 (or such other amount as the [Commission](/usc/15/77b.md?p=a-5) may establish, by rule), audited financial statements; - (E) a description of the stated purpose and intended use of the proceeds of the offering sought by the [issuer](/usc/15/77b.md?p=a-4) with respect to the target offering amount; - (F) the target offering amount, the deadline to reach the target offering amount, and regular updates regarding the progress of the [issuer](/usc/15/77b.md?p=a-4) in meeting the target offering amount; - (G) the price to the public of the [securities](/usc/15/77b.md?p=a-1) or the method for determining the price, provided that, prior to sale, each investor shall be provided in writing the final price and all required disclosures, with a reasonable opportunity to rescind the commitment to [purchase](/usc/15/77b.md?p=a-18) the [securities](/usc/15/77b.md?p=a-1); - (H) a description of the ownership and capital structure of the [issuer](/usc/15/77b.md?p=a-4), including— - (i) terms of the [securities](/usc/15/77b.md?p=a-1) of the [issuer](/usc/15/77b.md?p=a-4) being offered and each other class of [security](/usc/15/77b.md?p=a-1) of the [issuer](/usc/15/77b.md?p=a-4), including how such terms may be modified, and a summary of the differences between such [securities](/usc/15/77b.md?p=a-1), including how the rights of the [securities](/usc/15/77b.md?p=a-1) being offered may be materially limited, diluted, or qualified by the rights of any other class of [security](/usc/15/77b.md?p=a-1) of the [issuer](/usc/15/77b.md?p=a-4); - (ii) a description of how the exercise of the rights held by the principal shareholders of the [issuer](/usc/15/77b.md?p=a-4) could negatively impact the purchasers of the [securities](/usc/15/77b.md?p=a-1) being offered; - (iii) the name and ownership level of each existing shareholder who owns more than 20 percent of any class of the [securities](/usc/15/77b.md?p=a-1) of the [issuer](/usc/15/77b.md?p=a-4); - (iv) how the [securities](/usc/15/77b.md?p=a-1) being offered are being valued, and examples of methods for how such [securities](/usc/15/77b.md?p=a-1) may be valued by the [issuer](/usc/15/77b.md?p=a-4) in the future, including during subsequent corporate actions; and - (v) the risks to purchasers of the [securities](/usc/15/77b.md?p=a-1) relating to minority ownership in the [issuer](/usc/15/77b.md?p=a-4), the risks associated with corporate actions, including additional issuances of shares, a sale of the [issuer](/usc/15/77b.md?p=a-4) or of assets of the [issuer](/usc/15/77b.md?p=a-4), or transactions with related parties; and - (I) such other information as the [Commission](/usc/15/77b.md?p=a-5) may, by rule, prescribe, for the protection of investors and in the public interest; - (2) not advertise the terms of the offering, except for notices which direct investors to the funding portal or [broker](/usc/15/6102.md?p=d-2-B-i); - (3) not compensate or commit to compensate, directly or indirectly, any [person](/usc/15/78m.md?p=h-8-E) to promote its offerings through communication channels provided by a [broker](/usc/15/6102.md?p=d-2-B-i) or funding portal, without taking such steps as the [Commission](/usc/15/77b.md?p=a-5) shall, by rule, require to ensure that such [person](/usc/15/78m.md?p=h-8-E) clearly discloses the receipt, past or prospective, of such compensation, upon each instance of such promotional communication; - (4) not less than annually, file with the [Commission](/usc/15/77b.md?p=a-5) and provide to investors reports of the results of operations and financial statements of the [issuer](/usc/15/77b.md?p=a-4), as the [Commission](/usc/15/77b.md?p=a-5) shall, by rule, determine appropriate, subject to such exceptions and termination dates as the [Commission](/usc/15/77b.md?p=a-5) may establish, by rule; and - (5) comply with such other requirements as the [Commission](/usc/15/77b.md?p=a-5) may, by rule, prescribe, for the protection of investors and in the public interest. - (c) **Liability for material misstatements and omissions—** - (1) **Actions authorized—** - (A) **In general—** Subject to [paragraph (2)](#c-2), a [person](/usc/15/78m.md?p=h-8-E) who [purchases](/usc/15/77b.md?p=a-18) a [security](/usc/15/77b.md?p=a-1) in a transaction exempted by the provisions of [section 77d(6)](/usc/15/77d.md)[^1] of this title may bring an action against an [issuer](#c-3) described in [paragraph (2)](#c-2), either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such [security](/usc/15/77b.md?p=a-1) with interest thereon, less the amount of any income received thereon, upon the tender of such [security](/usc/15/77b.md?p=a-1), or for damages if such [person](/usc/15/78m.md?p=h-8-E) no longer owns the [security](/usc/15/77b.md?p=a-1). - (B) **Liability—** An action brought under this paragraph shall be subject to the provisions of [section 77l(b)](/usc/15/77l.md?p=b) of this title and [section 77m of this title](/usc/15/77m.md), as if the liability were created under [section 77l(a)(2)](/usc/15/77l.md?p=a-2) of this title. - (2) **Applicability—** An [issuer](#c-3) shall be liable in an action under [paragraph (1)](#c-1), if the [issuer](#c-3)— - (A) by the use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or of the mails, by any means of any [written](/usc/15/77b.md?p=a-9) or oral communication, in the offering or sale of a [security](/usc/15/77b.md?p=a-1) in a transaction exempted by the provisions of [section 77d(6)](/usc/15/77d.md)[^1] of this title, makes an untrue statement of a material fact or omits to [state](/usc/15/15g.md?p=2) a material fact required to be stated or necessary in [order](/usc/15/8702.md?p=14) to make the statements, in the light of the circumstances under which they were made, not misleading, provided that the purchaser did not know of such untruth or omission; and - (B) does not sustain the burden of proof that such [issuer](#c-3) did not know, and in the exercise of reasonable care could not have known, of such untruth or omission. - (3) **Definition—** As used in this subsection, the term “issuer” includes any [person](/usc/15/78m.md?p=h-8-E) who is a director or partner of the issuer, and the principal executive officer or officers, principal financial officer, and controller or principal accounting officer of the issuer (and any [person](/usc/15/78m.md?p=h-8-E) occupying a similar status or performing a similar function) that offers or sells a [security](/usc/15/77b.md?p=a-1) in a transaction exempted by the provisions of [section 77d(6)](/usc/15/77d.md)[^1] of this title, and any [person](/usc/15/78m.md?p=h-8-E) who offers or sells the [security](/usc/15/77b.md?p=a-1) in such offering. - (d) **Information available to States—** The [Commission](/usc/15/77b.md?p=a-5) shall make, or shall cause to be made by the relevant [broker](/usc/15/6102.md?p=d-2-B-i) or funding portal, the information described in [subsection (b)](#b) and such other information as the [Commission](/usc/15/77b.md?p=a-5), by rule, determines appropriate, available to the [securities](/usc/15/77b.md?p=a-1) [commission](/usc/15/77b.md?p=a-5) (or any agency or office performing like functions) of each [State](/usc/15/15g.md?p=2) and [territory](/usc/15/77b.md?p=a-6) of the United States and the District of Columbia. - (e) **Restrictions on sales—** [Securities](/usc/15/77b.md?p=a-1) issued pursuant to a transaction described in [section 77d(6)](/usc/15/77d.md)[^1] of this title— - (1) may not be transferred by the purchaser of such [securities](/usc/15/77b.md?p=a-1) during the 1-year period beginning on the date of [purchase](/usc/15/77b.md?p=a-18), unless such [securities](/usc/15/77b.md?p=a-1) are transferred— - (A) to the [issuer](/usc/15/77b.md?p=a-4) of the [securities](/usc/15/77b.md?p=a-1); - (B) to an [accredited investor](/usc/15/77b.md?p=a-15); - (C) as part of an offering registered with the [Commission](/usc/15/77b.md?p=a-5); or - (D) to a member of the family of the purchaser or the equivalent, or in connection with the death or divorce of the purchaser or other similar circumstance, in the discretion of the [Commission](/usc/15/77b.md?p=a-5); and - (2) shall be subject to such other limitations as the [Commission](/usc/15/77b.md?p=a-5) shall, by rule, establish. - (f) **Applicability—** [Section 77d(6)](/usc/15/77d.md)[^1] of this title shall not apply to transactions involving the offer or sale of [securities](/usc/15/77b.md?p=a-1) by any [issuer](/usc/15/77b.md?p=a-4) that— - (1) is not organized under and subject to the laws of a [State](/usc/15/15g.md?p=2) or [territory](/usc/15/77b.md?p=a-6) of the United States or the District of Columbia; - (2) is subject to the requirement to file reports pursuant to [section 78m of this title](/usc/15/78m.md) or [section 78o(d)](/usc/15/78o.md?p=d) of this title; - (3) is an [investment company](/usc/15/77z–2.md?p=i-2), as defined in [section 80a–3 of this title](/usc/15/80a–3.md), or is excluded from the definition of [investment company](/usc/15/77z–2.md?p=i-2) by [section 80a–3(b) of this title](/usc/15/80a–3.md?p=b) or [section 80a–3(c) of this title](/usc/15/80a–3.md?p=c); or - (4) the [Commission](/usc/15/77b.md?p=a-5), by rule or regulation, determines appropriate. - (g) **Rule of construction—** Nothing in this section or [section 77d(6)](/usc/15/77d.md)[^1] of this title shall be construed as preventing an [issuer](/usc/15/77b.md?p=a-4) from raising capital through methods not described under [section 77d(6)](/usc/15/77d.md)[^1] of this title. - (h) **Certain calculations—** - (1) **Dollar amounts—** Dollar amounts in [section 77d(6)](/usc/15/77d.md)[^1] of this title and [subsection (b)](#b) of this section shall be adjusted by the [Commission](/usc/15/77b.md?p=a-5) not less frequently than once every 5 years, by notice published in the Federal Register to reflect any change in the [Consumer](/usc/15/1615.md?p=d-2) Price Index for All Urban [Consumers](/usc/15/1615.md?p=d-2) published by the Bureau of Labor Statistics. - (2) **Income and net worth—** The income and net worth of a natural [person](/usc/15/78m.md?p=h-8-E) under [section 77d(6)(B)](/usc/15/77d.md)[^1] of this title shall be calculated in accordance with any rules of the [Commission](/usc/15/77b.md?p=a-5) under this subchapter regarding the calculation of the income and net worth, respectively, of an [accredited investor](/usc/15/77b.md?p=a-15). # §77e. Prohibitions relating to interstate commerce and the mails - (a) **Sale or delivery after sale of unregistered securities—** Unless a [registration statement](/usc/15/77b.md?p=a-8) is in effect as to a [security](/usc/15/77b.md?p=a-1), it shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), directly or indirectly— - (1) to make use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or of the mails to sell such [security](/usc/15/77b.md?p=a-1) through the use or medium of any [prospectus](/usc/15/77b.md?p=a-10) or otherwise; or - (2) to carry or cause to be carried through the mails or in [interstate commerce](/usc/15/77b.md?p=a-7), by any means or instruments of transportation, any such [security](/usc/15/77b.md?p=a-1) for the purpose of sale or for delivery after sale. - (b) **Necessity of prospectus meeting requirements of section 77j of this title—** It shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), directly or indirectly— - (1) to make use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or of the mails to carry or transmit any [prospectus](/usc/15/77b.md?p=a-10) relating to any [security](/usc/15/77b.md?p=a-1) with respect to which a [registration statement](/usc/15/77b.md?p=a-8) has been filed under this subchapter, unless such [prospectus](/usc/15/77b.md?p=a-10) meets the requirements of [section 77j of this title](/usc/15/77j.md); or - (2) to carry or cause to be carried through the mails or in [interstate commerce](/usc/15/77b.md?p=a-7) any such [security](/usc/15/77b.md?p=a-1) for the purpose of sale or for delivery after sale, unless accompanied or preceded by a [prospectus](/usc/15/77b.md?p=a-10) that meets the requirements of subsection (a) of [section 77j of this title](/usc/15/77j.md). - (c) **Necessity of filing registration statement—** It shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), directly or indirectly, to make use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or of the mails to offer to sell or offer to buy through the use or medium of any [prospectus](/usc/15/77b.md?p=a-10) or otherwise any [security](/usc/15/77b.md?p=a-1), unless a [registration statement](/usc/15/77b.md?p=a-8) has been filed as to such [security](/usc/15/77b.md?p=a-1), or while the [registration statement](/usc/15/77b.md?p=a-8) is the subject of a refusal [order](/usc/15/8702.md?p=14) or stop [order](/usc/15/8702.md?p=14) or (prior to the effective date of the [registration statement](/usc/15/77b.md?p=a-8)) any public proceeding or examination under [section 77h of this title](/usc/15/77h.md). - (d) **Limitation—** Notwithstanding any other provision of this section, an [emerging growth company](/usc/15/77b.md?p=a-19) or any [person](/usc/15/78m.md?p=h-8-E) authorized to act on behalf of an [emerging growth company](/usc/15/77b.md?p=a-19) may engage in oral or [written](/usc/15/77b.md?p=a-9) communications with potential investors that are qualified institutional buyers or institutions that are [accredited investors](/usc/15/77b.md?p=a-15), as such terms are respectively defined in section 230.144A and [section 230.501(a) of title 17, Code of Federal Regulations](/cfr/17/230.501.md?p=a), or any successor thereto, to determine whether such investors might have an interest in a contemplated [securities](/usc/15/77b.md?p=a-1) offering, either prior to or following the date of filing of a [registration statement](/usc/15/77b.md?p=a-8) with respect to such [securities](/usc/15/77b.md?p=a-1) with the [Commission](/usc/15/77b.md?p=a-5), subject to the requirement of [subsection (b)(2)](#b-2). - (e) **Security-based swaps—** Notwithstanding the provisions of section [77c](/usc/15/77c.md) or [77d](/usc/15/77d.md) of this title, unless a [registration statement](/usc/15/77b.md?p=a-8) meeting the requirements of [section 77j(a) of this title](/usc/15/77j.md?p=a) is in effect as to a [security-based swap](/usc/15/77b.md?p=a-17), it shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), directly or indirectly, to make use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or of the mails to offer to sell, offer to buy or [purchase](/usc/15/77b.md?p=a-18) or sell a [security-based swap](/usc/15/77b.md?p=a-17) to any [person](/usc/15/78m.md?p=h-8-E) who is not an [eligible contract participant](/usc/15/8302.md?p=d-1) as defined in [section 1a(18) of title 7](/usc/7/1a.md?p=18). # §77f. Registration of securities - (a) **Method of registration—** Any [security](/usc/15/77b.md?p=a-1) may be registered with the [Commission](/usc/15/77b.md?p=a-5) under the terms and conditions hereinafter provided, by filing a [registration statement](/usc/15/77b.md?p=a-8) in triplicate, at least one of which shall be signed by each [issuer](/usc/15/77b.md?p=a-4), its principal executive officer or officers, its principal financial officer, its comptroller or principal accounting officer, and the majority of its [board](/usc/15/205c.md?p=1) of directors or [persons](/usc/15/78m.md?p=h-8-E) performing similar functions (or, if there is no [board](/usc/15/205c.md?p=1) of directors or [persons](/usc/15/78m.md?p=h-8-E) performing similar functions, by the majority of the [persons](/usc/15/78m.md?p=h-8-E) or [board](/usc/15/205c.md?p=1) having the power of management of the [issuer](/usc/15/77b.md?p=a-4)), and in case the [issuer](/usc/15/77b.md?p=a-4) is a foreign or Territorial [person](/usc/15/78m.md?p=h-8-E) by its duly authorized representative in the United States; except that when such [registration statement](/usc/15/77b.md?p=a-8) relates to a [security](/usc/15/77b.md?p=a-1) issued by a foreign government, or political subdivision thereof, it need be signed only by the underwriter of such [security](/usc/15/77b.md?p=a-1). Signatures of all such [persons](/usc/15/78m.md?p=h-8-E) when [written](/usc/15/77b.md?p=a-9) on the said [registration statements](/usc/15/77b.md?p=a-8) shall be presumed to have been so [written](/usc/15/77b.md?p=a-9) by [authority](/usc/15/3051.md?p=1) of the [person](/usc/15/78m.md?p=h-8-E) whose signature is so affixed and the burden of proof, in the event such [authority](/usc/15/3051.md?p=1) shall be denied, shall be upon the party denying the same. The affixing of any signature without the [authority](/usc/15/3051.md?p=1) of the purported signer shall constitute a [violation](/usc/15/57b–1.md?p=a-7) of this subchapter. A [registration statement](/usc/15/77b.md?p=a-8) shall be deemed effective only as to the [securities](/usc/15/77b.md?p=a-1) specified therein as proposed to be offered. - (b) **Registration fee—** - (1) **Fee payment required—** At the time of filing a [registration statement](/usc/15/77b.md?p=a-8), the [applicant](/usc/15/7a.md?p=3) shall pay to the [Commission](/usc/15/77b.md?p=a-5) a fee at a rate that shall be equal to $92[^1] per $1,000,000 of the maximum aggregate price at which such [securities](/usc/15/77b.md?p=a-1) are proposed to be offered, except that during fiscal year 2003 and any succeeding fiscal year such fee shall be adjusted pursuant to [paragraph (2)](#b-2). - (2) **Annual adjustment—** For each fiscal year, the [Commission](/usc/15/77b.md?p=a-5) shall by [order](/usc/15/8702.md?p=14) adjust the rate required by [paragraph (1)](#b-1) for such fiscal year to a rate that, when applied to the baseline estimate of the aggregate maximum offering prices for such fiscal year, is reasonably likely to produce aggregate fee collections under this subsection that are equal to the target fee collection amount for such fiscal year. - (3) **Pro rata application—** The rates per $1,000,000 required by this subsection shall be applied pro rata to amounts and balances of less than $1,000,000. - (4) **Review and effective date—** In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/77b.md?p=a-5) shall not be required to comply with the provisions of [section 553 of title 5](/usc/5/553.md). An adjusted rate prescribed under [paragraph (2)](#b-2) and published under [paragraph (5)](#b-5) shall not be subject to judicial review. An adjusted rate prescribed under [paragraph (2)](#b-2) shall take effect on the first day of the fiscal year to which such rate applies. - (5) **Publication—** The [Commission](/usc/15/77b.md?p=a-5) shall publish in the Federal Register notices of the rate applicable under this subsection and under sections [78m(e)](/usc/15/78m.md?p=e) and [78n(g)](/usc/15/78n.md?p=g)[^2] of this title for each fiscal year not later than August 31 of the fiscal year preceding the fiscal year to which such rate applies, together with any estimates or projections on which such rate is based. - (6) **Definitions—** For purposes of this subsection: - (A) **Target fee collection amount—** The target fee collection amount for each fiscal year is determined according to the following table: | Fiscal year: | Target fee collection amount | | --- | --- | | 2002 | $377,000,000 | | 2003 | $435,000,000 | | 2004 | $467,000,000 | | 2005 | $570,000,000 | | 2006 | $689,000,000 | | 2007 | $214,000,000 | | 2008 | $234,000,000 | | 2009 | $284,000,000 | | 2010 | $334,000,000 | | 2011 | $394,000,000 | | 2012 | $425,000,000 | | 2013 | $455,000,000 | | 2014 | $485,000,000 | | 2015 | $515,000,000 | | 2016 | $550,000,000 | | 2017 | $585,000,000 | | 2018 | $620,000,000 | | 2019 | $660,000,000 | | 2020 | $705,000,000 | | 2021 and each fiscal year thereafter | An amount that is equal to the target fee collection amount for the prior fiscal year, adjusted by the rate of inflation. | - (B) **Baseline estimate of the aggregate maximum offering prices—** The baseline estimate of the aggregate maximum offering prices for any fiscal year is the baseline estimate of the aggregate maximum offering price at which [securities](/usc/15/77b.md?p=a-1) are proposed to be offered pursuant to [registration statements](/usc/15/77b.md?p=a-8) filed with the [Commission](/usc/15/77b.md?p=a-5) during such fiscal year as determined by the [Commission](/usc/15/77b.md?p=a-5), after consultation with the Congressional Budget Office and the Office of Management and Budget, using the methodology required for projections pursuant to [section 907 of title 2](/usc/2/907.md). - (c) **Time registration effective—** The filing with the [Commission](/usc/15/77b.md?p=a-5) of a [registration statement](/usc/15/77b.md?p=a-8), or of an amendment to a [registration statement](/usc/15/77b.md?p=a-8), shall be deemed to have taken place upon the receipt thereof, but the filing of a [registration statement](/usc/15/77b.md?p=a-8) shall not be deemed to have taken place unless it is accompanied by a United States postal money [order](/usc/15/8702.md?p=14) or a certified bank check or cash for the amount of the fee required under [subsection (b)](#b). - (d) **Information available to public—** The information contained in or filed with any [registration statement](/usc/15/77b.md?p=a-8) shall be made available to the public under such regulations as the [Commission](/usc/15/77b.md?p=a-5) may prescribe, and copies thereof, photostatic or otherwise, shall be furnished to every [applicant](/usc/15/7a.md?p=3) at such reasonable charge as the [Commission](/usc/15/77b.md?p=a-5) may prescribe. - (e) **Emerging growth companies—** - (1) **In general—** Any [emerging growth company](/usc/15/77b.md?p=a-19), prior to its initial public offering date, may confidentially submit to the [Commission](/usc/15/77b.md?p=a-5) a draft [registration statement](/usc/15/77b.md?p=a-8), for confidential nonpublic review by the staff of the [Commission](/usc/15/77b.md?p=a-5) prior to public filing, provided that the initial confidential submission and all amendments thereto shall be publicly filed with the [Commission](/usc/15/77b.md?p=a-5) not later than 15 days before the date on which the [issuer](/usc/15/77b.md?p=a-4) conducts a road show, as such term is defined in [section 230.433(h)(4) of title 17, Code of Federal Regulations](/cfr/17/230.433.md?p=h-4), or any successor thereto. An [issuer](/usc/15/77b.md?p=a-4) that was an [emerging growth company](/usc/15/77b.md?p=a-19) at the time it submitted a confidential [registration statement](/usc/15/77b.md?p=a-8) or, in lieu thereof, a publicly filed [registration statement](/usc/15/77b.md?p=a-8) for review under this subsection but ceases to be an [emerging growth company](/usc/15/77b.md?p=a-19) thereafter shall continue to be treated as an emerging market growth company for the purposes of this subsection through the earlier of the date on which the [issuer](/usc/15/77b.md?p=a-4) consummates its initial public offering pursuant to such registrations statement or the end of the 1-year period beginning on the date the company ceases to be an [emerging growth company](/usc/15/77b.md?p=a-19). - (2) **Confidentiality—** Notwithstanding any other provision of this subchapter, the [Commission](/usc/15/77b.md?p=a-5) shall not be compelled to disclose any information provided to or obtained by the [Commission](/usc/15/77b.md?p=a-5) pursuant to this subsection. For purposes of [section 552 of title 5](/usc/5/552.md), this subsection shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. Information described in or obtained pursuant to this subsection shall be deemed to constitute confidential information for purposes of [section 78x(b)(2) of this title](/usc/15/78x.md). # §77g. Information required in registration statement - (a) **Information required in registration statement—** - (1) **In general—** The [registration statement](/usc/15/77b.md?p=a-8), when relating to a [security](/usc/15/77b.md?p=a-1) other than a [security](/usc/15/77b.md?p=a-1) issued by a foreign government, or political subdivision thereof, shall contain the information, and be accompanied by the documents, specified in Schedule A of [section 77aa of this title](/usc/15/77aa.md), and when relating to a [security](/usc/15/77b.md?p=a-1) issued by a foreign government, or political subdivision thereof, shall contain the information, and be accompanied by the documents, specified in Schedule B of [section 77aa of this title](/usc/15/77aa.md); except that the [Commission](/usc/15/77b.md?p=a-5) may by rules or regulations provide that any such information or document need not be included in respect of any class of [issuers](/usc/15/77b.md?p=a-4) or [securities](/usc/15/77b.md?p=a-1) if it finds that the requirement of such information or document is inapplicable to such class and that disclosure fully adequate for the protection of investors is otherwise required to be included within the [registration statement](/usc/15/77b.md?p=a-8). If any accountant, engineer, or appraiser, or any [person](/usc/15/78m.md?p=h-8-E) whose profession gives [authority](/usc/15/3051.md?p=1) to a statement made by him, is named as having prepared or certified any part of the [registration statement](/usc/15/77b.md?p=a-8), or is named as having prepared or certified a report or valuation for use in connection with the [registration statement](/usc/15/77b.md?p=a-8), the [written](/usc/15/77b.md?p=a-9) consent of such [person](/usc/15/78m.md?p=h-8-E) shall be filed with the [registration statement](/usc/15/77b.md?p=a-8). If any such [person](/usc/15/78m.md?p=h-8-E) is named as having prepared or certified a report or valuation (other than a public official document or statement) which is used in connection with the [registration statement](/usc/15/77b.md?p=a-8), but is not named as having prepared or certified such report or valuation for use in connection with the [registration statement](/usc/15/77b.md?p=a-8), the [written](/usc/15/77b.md?p=a-9) consent of such [person](/usc/15/78m.md?p=h-8-E) shall be filed with the [registration statement](/usc/15/77b.md?p=a-8) unless the [Commission](/usc/15/77b.md?p=a-5) dispenses with such filing as impracticable or as involving undue hardship on the [person](/usc/15/78m.md?p=h-8-E) filing the [registration statement](/usc/15/77b.md?p=a-8). Any such [registration statement](/usc/15/77b.md?p=a-8) shall contain such other information, and be accompanied by such other documents, as the [Commission](/usc/15/77b.md?p=a-5) may by rules or regulations require as being necessary or appropriate in the public interest or for the protection of investors. - (2) **Treatment of emerging growth companies—** An [emerging growth company](/usc/15/77b.md?p=a-19)— - (A) need not present more than 2 years of audited financial statements in [order](/usc/15/8702.md?p=14) for the [registration statement](/usc/15/77b.md?p=a-8) of such [emerging growth company](/usc/15/77b.md?p=a-19) with respect to an initial public offering of its common [equity securities](/usc/15/9041.md?p=6) to be effective, and in any other [registration statement](/usc/15/77b.md?p=a-8) to be filed with the [Commission](/usc/15/77b.md?p=a-5), an [emerging growth company](/usc/15/77b.md?p=a-19) need not present selected financial data in accordance with [section 229.301 of title 17, Code of Federal Regulations](/cfr/17/229.301.md), for any period prior to the earliest audited period presented in connection with its initial public offering; and - (B) may not be required to comply with any new or revised financial accounting standard until such date that a company that is not an [issuer](/usc/15/77b.md?p=a-4) (as defined under [section 7201 of this title](/usc/15/7201.md)) is required to comply with such new or revised accounting standard, if such standard applies to companies that are not [issuers](/usc/15/77b.md?p=a-4). - (b) **Registration statement for blank check companies—** - (1) The [Commission](/usc/15/77b.md?p=a-5) shall prescribe special rules with respect to [registration statements](/usc/15/77b.md?p=a-8) filed by any [issuer](/usc/15/77b.md?p=a-4) that is a [blank check company](#b-3). Such rules may, as the [Commission](/usc/15/77b.md?p=a-5) determines necessary or appropriate in the public interest or for the protection of investors— - (A) require such [issuers](/usc/15/77b.md?p=a-4) to provide timely disclosure, prior to or after such statement becomes effective under [section 77h of this title](/usc/15/77h.md), of (i) information regarding the company to be acquired and the specific [application](/usc/15/77ccc.md?p=8) of the proceeds of the offering, or (ii) additional information necessary to prevent such statement from being misleading; - (B) place limitations on the use of such proceeds and the distribution of [securities](/usc/15/77b.md?p=a-1) by such [issuer](/usc/15/77b.md?p=a-4) until the disclosures required under [subparagraph (A)](#b-1-A) have been made; and - (C) provide a right of rescission to shareholders of such [securities](/usc/15/77b.md?p=a-1). - (2) The [Commission](/usc/15/77b.md?p=a-5) may, as it determines consistent with the public interest and the protection of investors, by rule or [order](/usc/15/8702.md?p=14) exempt any [issuer](/usc/15/77b.md?p=a-4) or class of [issuers](/usc/15/77b.md?p=a-4) from the rules prescribed under [paragraph (1)](#b-1). - (3) For purposes of paragraph (1) of this subsection, the term “blank check company” means any development stage company that is issuing a [penny stock](/usc/15/77z–2.md?p=i-3) (within the meaning of [section 78c(a)(51) of this title](/usc/15/78c.md?p=a-51)) and that— - (A) has no specific business plan or purpose; or - (B) has indicated that its business plan is to merge with an unidentified company or companies. - (c) **Disclosure requirements—** - (1) **In general—** The [Commission](/usc/15/77b.md?p=a-5) shall adopt regulations under this subsection requiring each [issuer](/usc/15/77b.md?p=a-4) of an asset-backed [security](/usc/15/77b.md?p=a-1) to disclose, for each tranche or class of [security](/usc/15/77b.md?p=a-1), information regarding the assets backing that [security](/usc/15/77b.md?p=a-1). - (2) **Content of regulations—** In adopting regulations under this subsection, the [Commission](/usc/15/77b.md?p=a-5) shall— - (A) set standards for the format of the data provided by [issuers](/usc/15/77b.md?p=a-4) of an asset-backed [security](/usc/15/77b.md?p=a-1), which shall, to the extent feasible, facilitate comparison of such data across [securities](/usc/15/77b.md?p=a-1) in similar types of asset classes; and - (B) require [issuers](/usc/15/77b.md?p=a-4) of asset-backed [securities](/usc/15/77b.md?p=a-1), 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](/usc/15/6102.md?p=d-2-B-i) or originators; - (ii) the nature and extent of the compensation of the [broker](/usc/15/6102.md?p=d-2-B-i) or originator of the assets backing the [security](/usc/15/77b.md?p=a-1); and - (iii) the amount of risk retention by the originator and the securitizer of such assets. - (3) **Data standards for asset-backed securities disclosures—** - (A) **Requirement—** The [Commission](/usc/15/77b.md?p=a-5) shall, by rule, adopt data standards for all disclosures required under this subsection. - (B) **Consistency—** The data standards required under [subparagraph (A)](#c-3-A) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). - (d) **Registration statement for asset-backed securities—** Not later than 180 days after July 21, 2010, the [Commission](/usc/15/77b.md?p=a-5) shall issue rules relating to the [registration statement](/usc/15/77b.md?p=a-8) required to be filed by any [issuer](/usc/15/77b.md?p=a-4) of an asset-backed [security](/usc/15/77b.md?p=a-1) (as that term is defined in [section 78c(a)(77)](/usc/15/78c.md?p=a-77)[^1] of this title) that require any [issuer](/usc/15/77b.md?p=a-4) of an asset-backed [security](/usc/15/77b.md?p=a-1)— - (1) to perform a review of the assets underlying the asset-backed [security](/usc/15/77b.md?p=a-1); and - (2) to disclose the nature of the review under [paragraph (1)](#d-1). # §77h. Taking effect of registration statements and amendments thereto - (a) **Effective date of registration statement—** Except as hereinafter provided, the effective date of a [registration statement](/usc/15/77b.md?p=a-8) shall be the twentieth day after the filing thereof or such earlier date as the [Commission](/usc/15/77b.md?p=a-5) may determine, having due regard to the adequacy of the information respecting the [issuer](/usc/15/77b.md?p=a-4) theretofore available to the public, to the facility with which the nature of the [securities](/usc/15/77b.md?p=a-1) to be registered, their relationship to the capital structure of the [issuer](/usc/15/77b.md?p=a-4) and the rights of holders thereof can be understood, and to the public interest and the protection of investors. If any amendment to any such statement is filed prior to the effective date of such statement, the [registration statement](/usc/15/77b.md?p=a-8) shall be deemed to have been filed when such amendment was filed; except that an amendment filed with the consent of the [Commission](/usc/15/77b.md?p=a-5), prior to the effective date of the [registration statement](/usc/15/77b.md?p=a-8), or filed pursuant to an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77b.md?p=a-5), shall be treated as a part of the [registration statement](/usc/15/77b.md?p=a-8). - (b) **Incomplete or inaccurate registration statement—** If it appears to the [Commission](/usc/15/77b.md?p=a-5) that a [registration statement](/usc/15/77b.md?p=a-8) is on its face incomplete or inaccurate in any material respect, the [Commission](/usc/15/77b.md?p=a-5) may, after notice by personal service or the sending of confirmed telegraphic notice not later than ten days after the filing of the [registration statement](/usc/15/77b.md?p=a-8), and opportunity for hearing (at a time fixed by the [Commission](/usc/15/77b.md?p=a-5)) within ten days after such notice by personal service or the sending of such telegraphic notice, issue an [order](/usc/15/8702.md?p=14) prior to the effective date of registration refusing to permit such statement to become effective until it has been amended in accordance with such [order](/usc/15/8702.md?p=14). When such statement has been amended in accordance with such [order](/usc/15/8702.md?p=14) the [Commission](/usc/15/77b.md?p=a-5) shall so declare and the registration shall become effective at the time provided in [subsection (a)](#a) or upon the date of such declaration, whichever date is the later. - (c) **Effective date of amendment to registration statement—** An amendment filed after the effective date of the [registration statement](/usc/15/77b.md?p=a-8), if such amendment, upon its face, appears to the [Commission](/usc/15/77b.md?p=a-5) not to be incomplete or inaccurate in any material respect, shall become effective on such date as the [Commission](/usc/15/77b.md?p=a-5) may determine, having due regard to the public interest and the protection of investors. - (d) **Untrue statements or omissions in registration statement—** If it appears to the [Commission](/usc/15/77b.md?p=a-5) at any time that the [registration statement](/usc/15/77b.md?p=a-8) includes any untrue statement of a material fact or omits to [state](/usc/15/15g.md?p=2) any material fact required to be stated therein or necessary to make the statements therein not misleading, the [Commission](/usc/15/77b.md?p=a-5) may, after notice by personal service or the sending of confirmed telegraphic notice, and after opportunity for hearing (at a time fixed by the [Commission](/usc/15/77b.md?p=a-5)) within fifteen days after such notice by personal service or the sending of such telegraphic notice, issue a stop [order](/usc/15/8702.md?p=14) suspending the effectiveness of the [registration statement](/usc/15/77b.md?p=a-8). When such statement has been amended in accordance with such stop [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/77b.md?p=a-5) shall so declare and thereupon the stop [order](/usc/15/8702.md?p=14) shall cease to be effective. - (e) **Examination for issuance of stop order—** The [Commission](/usc/15/77b.md?p=a-5) is empowered to make an examination in any case in [order](/usc/15/8702.md?p=14) to determine whether a stop [order](/usc/15/8702.md?p=14) should issue under [subsection (d)](#d). In making such examination the [Commission](/usc/15/77b.md?p=a-5) or any officer or officers designated by it shall have access to and may demand the production of any books and papers of, and may administer oaths and affirmations to and examine, the [issuer](/usc/15/77b.md?p=a-4), underwriter, or any other [person](/usc/15/78m.md?p=h-8-E), in respect of any matter relevant to the examination, and may, in its discretion, require the production of a balance sheet exhibiting the assets and liabilities of the [issuer](/usc/15/77b.md?p=a-4), or its income statement, or both, to be certified to by a public or certified accountant approved by the [Commission](/usc/15/77b.md?p=a-5). If the [issuer](/usc/15/77b.md?p=a-4) or underwriter shall fail to cooperate, or shall obstruct or refuse to permit the making of an examination, such conduct shall be proper ground for the issuance of a stop [order](/usc/15/8702.md?p=14). - (f) **Notice requirements—** Any notice required under this section shall be sent to or served on the [issuer](/usc/15/77b.md?p=a-4), or, in case of a foreign government or political subdivision thereof, to or on the underwriter, or, in the case of a foreign or Territorial [person](/usc/15/78m.md?p=h-8-E), to or on its duly authorized representative in the United States named in the [registration statement](/usc/15/77b.md?p=a-8), properly directed in each case of telegraphic notice to the address given in such statement. # §77h–1. Cease-and-desist proceedings - (a) **Authority of Commission—** If the [Commission](/usc/15/77b.md?p=a-5) finds, after notice and opportunity for hearing, that any [person](/usc/15/78m.md?p=h-8-E) is violating, has violated, or is about to violate any provision of this subchapter, or any rule or regulation thereunder, the [Commission](/usc/15/77b.md?p=a-5) may publish its findings and enter an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/78m.md?p=h-8-E), and any other [person](/usc/15/78m.md?p=h-8-E) that is, was, or would be a cause of the [violation](/usc/15/57b–1.md?p=a-7), due to an act or omission the [person](/usc/15/78m.md?p=h-8-E) knew or should have known would contribute to such [violation](/usc/15/57b–1.md?p=a-7), to cease and desist from committing or causing such [violation](/usc/15/57b–1.md?p=a-7) and any future [violation](/usc/15/57b–1.md?p=a-7) of the same provision, rule, or regulation. Such [order](/usc/15/8702.md?p=14) may, in addition to requiring a [person](/usc/15/78m.md?p=h-8-E) to cease and desist from committing or causing a [violation](/usc/15/57b–1.md?p=a-7), require such [person](/usc/15/78m.md?p=h-8-E) to comply, or to take steps to effect compliance, with such provision, rule, or regulation, upon such terms and conditions and within such time as the [Commission](/usc/15/77b.md?p=a-5) may specify in such [order](/usc/15/8702.md?p=14). Any such [order](/usc/15/8702.md?p=14) may, as the [Commission](/usc/15/77b.md?p=a-5) deems appropriate, require future compliance or steps to effect future compliance, either permanently or for such period of time as the [Commission](/usc/15/77b.md?p=a-5) may specify, with such provision, rule, or regulation with respect to any [security](/usc/15/77b.md?p=a-1), any [issuer](/usc/15/77b.md?p=a-4), or any other [person](/usc/15/78m.md?p=h-8-E). - (b) **Hearing—** The notice instituting proceedings pursuant to [subsection (a)](#a) shall fix a hearing date not earlier than 30 days nor later than 60 days after service of the notice unless an earlier or a later date is set by the [Commission](/usc/15/77b.md?p=a-5) with the consent of any respondent so served. - (c) **Temporary order—** - (1) **In general—** Whenever the [Commission](/usc/15/77b.md?p=a-5) determines that the alleged [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) specified in the notice instituting proceedings pursuant to [subsection (a)](#a), or the continuation thereof, is likely to result in significant dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the [Securities](/usc/15/77b.md?p=a-1) Investor Protection Corporation, prior to the completion of the proceedings, the [Commission](/usc/15/77b.md?p=a-5) may enter a temporary [order](/usc/15/8702.md?p=14) requiring the respondent to cease and desist from the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to take such action to prevent the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to prevent dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest as the [Commission](/usc/15/77b.md?p=a-5) deems appropriate pending completion of such proceeding. Such an [order](/usc/15/8702.md?p=14) shall be entered only after notice and opportunity for a hearing, unless the [Commission](/usc/15/77b.md?p=a-5) determines that notice and hearing prior to entry would be impracticable or contrary to the public interest. A temporary [order](/usc/15/8702.md?p=14) shall become effective upon service upon the respondent and, unless set aside, limited, or suspended by the [Commission](/usc/15/77b.md?p=a-5) or a court of competent jurisdiction, shall remain effective and enforceable pending the completion of the proceedings. - (2) **Applicability—** This subsection shall apply only to a respondent that acts, or, at the time of the alleged misconduct acted, as a [broker](/usc/15/6102.md?p=d-2-B-i), [dealer](/usc/15/77b.md?p=a-12), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), [investment company](/usc/15/77z–2.md?p=i-2), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), or [transfer agent](/usc/15/6102.md?p=d-2-B-i), or is, or was at the time of the alleged misconduct, an associated [person](/usc/15/78m.md?p=h-8-E) of, or a [person](/usc/15/78m.md?p=h-8-E) seeking to become associated with, any of the foregoing. - (d) **Review of temporary orders—** - (1) **Commission review—** At any time after the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) pursuant to [subsection (c)](#c), the respondent may apply to the [Commission](/usc/15/77b.md?p=a-5) to have the [order](/usc/15/8702.md?p=14) set aside, limited, or suspended. If the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/77b.md?p=a-5) hearing, the respondent may, within 10 days after the date on which the [order](/usc/15/8702.md?p=14) was served, request a hearing on such [application](/usc/15/77ccc.md?p=8) and the [Commission](/usc/15/77b.md?p=a-5) shall hold a hearing and render a decision on such [application](/usc/15/77ccc.md?p=8) at the earliest possible time. - (2) **Judicial review—** Within— - (A) 10 days after the date the respondent was served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered with a prior [Commission](/usc/15/77b.md?p=a-5) hearing, or - (B) 10 days after the [Commission](/usc/15/77b.md?p=a-5) renders a decision on an [application](/usc/15/77ccc.md?p=8) and hearing under [paragraph (1)](#d-1), with respect to any temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/77b.md?p=a-5) hearing, the respondent may apply to the United States district court for the district in which the respondent resides or has its principal place of business, or for the District of Columbia, for an [order](/usc/15/8702.md?p=14) setting aside, limiting, or suspending the effectiveness or enforcement of the [order](/usc/15/8702.md?p=14), and the court shall have jurisdiction to enter such an [order](/usc/15/8702.md?p=14). A respondent served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/77b.md?p=a-5) hearing may not apply to the court except after hearing and decision by the [Commission](/usc/15/77b.md?p=a-5) on the respondent’s [application](/usc/15/77ccc.md?p=8) under paragraph (1) of this subsection. - (3) **No automatic stay of temporary order—** The commencement of proceedings under paragraph (2) of this subsection shall not, unless specifically ordered by the court, operate as a stay of the [Commission](/usc/15/77b.md?p=a-5)’s [order](/usc/15/8702.md?p=14). - (4) **Exclusive review—** [Section 77i(a) of this title](/usc/15/77i.md?p=a) shall not apply to a temporary [order](/usc/15/8702.md?p=14) entered pursuant to this section. - (e) **Authority to enter order requiring accounting and disgorgement—** In any cease-and-desist proceeding under [subsection (a)](#a), the [Commission](/usc/15/77b.md?p=a-5) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/77b.md?p=a-5) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (f) **Authority of the Commission to prohibit persons from serving as officers or directors—** In any cease-and-desist proceeding under [subsection (a)](#a), the [Commission](/usc/15/77b.md?p=a-5) may issue an [order](/usc/15/8702.md?p=14) to prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any [person](/usc/15/78m.md?p=h-8-E) who has violated [section 77q(a)(1) of this title](/usc/15/77q.md?p=a-1) or the rules or regulations thereunder, from acting as an officer or director of any [issuer](/usc/15/77b.md?p=a-4) that has a class of [securities](/usc/15/77b.md?p=a-1) registered pursuant to [section 78l](/usc/15/78l.md) of this title, or that is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title, if the conduct of that [person](/usc/15/78m.md?p=h-8-E) demonstrates unfitness to serve as an officer or director of any such [issuer](/usc/15/77b.md?p=a-4). - (g) **Authority to impose money penalties—** - (1) **Grounds—** In any cease-and-desist proceeding under [subsection (a)](#a), the [Commission](/usc/15/77b.md?p=a-5) may impose a civil penalty on a [person](/usc/15/78m.md?p=h-8-E) if the [Commission](/usc/15/77b.md?p=a-5) finds, on the record, after notice and opportunity for hearing, that— - (A) such [person](/usc/15/78m.md?p=h-8-E)— - (i) is violating or has violated any provision of this subchapter, or any rule or regulation issued under this subchapter; or - (ii) is or was a cause of the [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or any rule or regulation thereunder; and - (B) such penalty is in the public interest. - (2) **Maximum amount of penalty—** - (A) **First tier—** The maximum amount of a penalty for each act or omission described in [paragraph (1)](#g-1) shall be $7,500 for a natural [person](/usc/15/78m.md?p=h-8-E) or $75,000 for any other [person](/usc/15/78m.md?p=h-8-E). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#g-2-A), the maximum amount of penalty for each such act or omission shall be $75,000 for a natural [person](/usc/15/78m.md?p=h-8-E) or $375,000 for any other [person](/usc/15/78m.md?p=h-8-E), if the act or omission described in [paragraph (1)](#g-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#g-2-A) and [(B)](#g-2-B), the maximum amount of penalty for each such act or omission shall be $150,000 for a natural [person](/usc/15/78m.md?p=h-8-E) or $725,000 for any other [person](/usc/15/78m.md?p=h-8-E), if— - (i) the act or omission described in [paragraph (1)](#g-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (ii) such act or omission directly or indirectly resulted in— - (I) substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/78m.md?p=h-8-E); or - (II) substantial pecuniary gain to the [person](/usc/15/78m.md?p=h-8-E) who committed the act or omission. - (3) **Evidence concerning ability to pay—** In any proceeding in which the [Commission](/usc/15/77b.md?p=a-5) may impose a penalty under this section, a respondent may present evidence of the ability of the respondent to pay such penalty. The [Commission](/usc/15/77b.md?p=a-5) may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of the ability of the respondent to continue in business and the collectability of a penalty, taking into [account](/usc/15/1681a.md?p=r-4) any other claims of the United States or third parties upon the assets of the respondent and the amount of the assets of the respondent. # §77i. Court review of orders - (a) Any [person](/usc/15/78m.md?p=h-8-E) aggrieved by an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77b.md?p=a-5) may obtain a review of such [order](/usc/15/8702.md?p=14) in the court of appeals of the United States, within any circuit wherein such [person](/usc/15/78m.md?p=h-8-E) resides or has his principal place of business, or in the United States Court of Appeals for the District of Columbia, by filing in such Court, within sixty days after the entry of such [order](/usc/15/8702.md?p=14), a [written](/usc/15/77b.md?p=a-9) petition praying that the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77b.md?p=a-5) be modified or be set aside in whole or in part. A copy of such petition shall be forthwith transmitted by the clerk of the court to the [Commission](/usc/15/77b.md?p=a-5), and thereupon the [Commission](/usc/15/77b.md?p=a-5) shall file in the court the record upon which the [order](/usc/15/8702.md?p=14) complained of was entered, as provided in [section 2112 of title 28](/usc/28/2112.md). No objection to the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77b.md?p=a-5) shall be considered by the court unless such objection shall have been urged before the [Commission](/usc/15/77b.md?p=a-5). The finding of the [Commission](/usc/15/77b.md?p=a-5) as to the facts, if supported by evidence, shall be conclusive. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the hearing before the [Commission](/usc/15/77b.md?p=a-5), the court may [order](/usc/15/8702.md?p=14) such additional evidence to be taken before the [Commission](/usc/15/77b.md?p=a-5) and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The [Commission](/usc/15/77b.md?p=a-5) may modify its findings as to the facts, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original [order](/usc/15/8702.md?p=14). The jurisdiction of the court shall be exclusive and its judgment and decree, affirming, modifying, or setting aside, in whole or in part, any [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77b.md?p=a-5), shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in [section 1254 of title 28](/usc/28/1254.md). - (b) The commencement of proceedings under [subsection (a)](#a) shall not, unless specifically ordered by the court, operate as a stay of the [Commission](/usc/15/77b.md?p=a-5)’s [order](/usc/15/8702.md?p=14). # §77j. Information required in prospectus - (a) **Information in registration statement; documents not required—** Except to the extent otherwise permitted or required pursuant to this subsection or subsections [(c)](#c), [(d)](#d), or [(e)](#e)— - (1) a [prospectus](/usc/15/77b.md?p=a-10) relating to a [security](/usc/15/77b.md?p=a-1) other than a [security](/usc/15/77b.md?p=a-1) issued by a foreign government or political subdivision thereof, shall contain the information contained in the [registration statement](/usc/15/77b.md?p=a-8), but it need not include the documents referred to in [paragraphs (28) to (32)](#a-28..a-32), inclusive, of schedule A of [section 77aa of this title](/usc/15/77aa.md); - (2) a [prospectus](/usc/15/77b.md?p=a-10) relating to a [security](/usc/15/77b.md?p=a-1) issued by a foreign government or political subdivision thereof shall contain the information contained in the [registration statement](/usc/15/77b.md?p=a-8), but it need not include the documents referred to in paragraphs (13) and (14) of schedule B of [section 77aa of this title](/usc/15/77aa.md); - (3) notwithstanding the provisions of paragraphs (1) and (2) of this subsection when a [prospectus](/usc/15/77b.md?p=a-10) is used more than nine months after the effective date of the [registration statement](/usc/15/77b.md?p=a-8), the information contained therein shall be as of a date not more than sixteen months prior to such use, so far as such information is known to the user of such [prospectus](/usc/15/77b.md?p=a-10) or can be furnished by such user without unreasonable effort or expense; - (4) there may be omitted from any [prospectus](/usc/15/77b.md?p=a-10) any of the information required under this subsection which the [Commission](/usc/15/77b.md?p=a-5) may by rules or regulations designate as not being necessary or appropriate in the public interest or for the protection of investors. - (b) **Summarizations and omissions allowed by rules and regulations—** In addition to the [prospectus](/usc/15/77b.md?p=a-10) permitted or required in [subsection (a)](#a), the [Commission](/usc/15/77b.md?p=a-5) shall by rules or regulations deemed necessary or appropriate in the public interest or for the protection of investors permit the use of a [prospectus](/usc/15/77b.md?p=a-10) for the purposes of subsection (b)(1) of [section 77e of this title](/usc/15/77e.md) which omits in part or summarizes information in the [prospectus](/usc/15/77b.md?p=a-10) specified in [subsection (a)](#a). A [prospectus](/usc/15/77b.md?p=a-10) permitted under this subsection shall, except to the extent the [Commission](/usc/15/77b.md?p=a-5) by rules or regulations deemed necessary or appropriate in the public interest or for the protection of investors otherwise provides, be filed as part of the [registration statement](/usc/15/77b.md?p=a-8) but shall not be deemed a part of such [registration statement](/usc/15/77b.md?p=a-8) for the purposes of [section 77k of this title](/usc/15/77k.md). The [Commission](/usc/15/77b.md?p=a-5) may at any time issue an [order](/usc/15/8702.md?p=14) preventing or suspending the use of a [prospectus](/usc/15/77b.md?p=a-10) permitted under this subsection, if it has reason to believe that such [prospectus](/usc/15/77b.md?p=a-10) has not been filed (if required to be filed as part of the [registration statement](/usc/15/77b.md?p=a-8)) or includes any untrue statement of a material fact or omits to [state](/usc/15/15g.md?p=2) any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which such [prospectus](/usc/15/77b.md?p=a-10) is or is to be used, not misleading. Upon issuance of an [order](/usc/15/8702.md?p=14) under this subsection, the [Commission](/usc/15/77b.md?p=a-5) shall give notice of the issuance of such [order](/usc/15/8702.md?p=14) and opportunity for hearing by personal service or the sending of confirmed telegraphic notice. The [Commission](/usc/15/77b.md?p=a-5) shall vacate or modify the [order](/usc/15/8702.md?p=14) at any time for good cause or if such [prospectus](/usc/15/77b.md?p=a-10) has been filed or amended in accordance with such [order](/usc/15/8702.md?p=14). - (c) **Additional information required by rules and regulations—** Any [prospectus](/usc/15/77b.md?p=a-10) shall contain such other information as the [Commission](/usc/15/77b.md?p=a-5) may by rules or regulations require as being necessary or appropriate in the public interest or for the protection of investors. - (d) **Classification of prospectuses—** In the exercise of its powers under subsections [(a)](#a), [(b)](#b), or [(c)](#c), the [Commission](/usc/15/77b.md?p=a-5) shall have [authority](/usc/15/3051.md?p=1) to classify [prospectuses](/usc/15/77b.md?p=a-10) according to the nature and circumstances of their use or the nature of the [security](/usc/15/77b.md?p=a-1), issue, [issuer](/usc/15/77b.md?p=a-4), or otherwise, and, by rules and regulations and subject to such terms and conditions as it shall specify therein, to prescribe as to each class the form and contents which it may find appropriate and consistent with the public interest and the protection of investors. - (e) **Information in conspicuous part of prospectus—** The statements or information required to be included in a [prospectus](/usc/15/77b.md?p=a-10) by or under [authority](/usc/15/3051.md?p=1) of subsections [(a)](#a), [(b)](#b), [(c)](#c), or [(d)](#d), when [written](/usc/15/77b.md?p=a-9), shall be placed in a conspicuous part of the [prospectus](/usc/15/77b.md?p=a-10) and, except as otherwise permitted by rules or regulations, in type as large as that used generally in the body of the [prospectus](/usc/15/77b.md?p=a-10). - (f) **Prospectus consisting of radio or television broadcast—** In any case where a [prospectus](/usc/15/77b.md?p=a-10) consists of a radio or television broadcast, copies thereof shall be filed with the [Commission](/usc/15/77b.md?p=a-5) under such rules and regulations as it shall prescribe. The [Commission](/usc/15/77b.md?p=a-5) may by rules and regulations require the filing with it of forms and [prospectuses](/usc/15/77b.md?p=a-10) used in connection with the offer or sale of [securities](/usc/15/77b.md?p=a-1) registered under this subchapter. # §77k. Civil liabilities on account of false registration statement - (a) **Persons possessing cause of action; persons liable—** In case any part of the [registration statement](/usc/15/77b.md?p=a-8), when such part became effective, contained an untrue statement of a material fact or omitted to [state](/usc/15/15g.md?p=2) a material fact required to be stated therein or necessary to make the statements therein not misleading, any [person](/usc/15/78m.md?p=h-8-E) acquiring such [security](/usc/15/77b.md?p=a-1) (unless it is proved that at the time of such acquisition he knew of such untruth or omission) may, either at law or in equity, in any court of competent jurisdiction, sue— - (1) every [person](/usc/15/78m.md?p=h-8-E) who signed the [registration statement](/usc/15/77b.md?p=a-8); - (2) every [person](/usc/15/78m.md?p=h-8-E) who was a director of (or [person](/usc/15/78m.md?p=h-8-E) performing similar functions) or partner in the [issuer](/usc/15/77b.md?p=a-4) at the time of the filing of the part of the [registration statement](/usc/15/77b.md?p=a-8) with respect to which his liability is asserted; - (3) every [person](/usc/15/78m.md?p=h-8-E) who, with his consent, is named in the [registration statement](/usc/15/77b.md?p=a-8) as being or about to become a director, [person](/usc/15/78m.md?p=h-8-E) performing similar functions, or partner; - (4) every accountant, engineer, or appraiser, or any [person](/usc/15/78m.md?p=h-8-E) whose profession gives [authority](/usc/15/3051.md?p=1) to a statement made by him, who has with his consent been named as having prepared or certified any part of the [registration statement](/usc/15/77b.md?p=a-8), or as having prepared or certified any report or valuation which is used in connection with the [registration statement](/usc/15/77b.md?p=a-8), with respect to the statement in such [registration statement](/usc/15/77b.md?p=a-8), report, or valuation, which purports to have been prepared or certified by him; - (5) every underwriter with respect to such [security](/usc/15/77b.md?p=a-1). If such [person](/usc/15/78m.md?p=h-8-E) acquired the [security](/usc/15/77b.md?p=a-1) after the [issuer](/usc/15/77b.md?p=a-4) has made generally available to its [security](/usc/15/77b.md?p=a-1) holders an earning statement covering a period of at least twelve months beginning after the effective date of the [registration statement](/usc/15/77b.md?p=a-8), then the right of recovery under this subsection shall be conditioned on proof that such [person](/usc/15/78m.md?p=h-8-E) acquired the [security](/usc/15/77b.md?p=a-1) relying upon such untrue statement in the [registration statement](/usc/15/77b.md?p=a-8) or relying upon the [registration statement](/usc/15/77b.md?p=a-8) and not knowing of such omission, but such reliance may be established without proof of the reading of the [registration statement](/usc/15/77b.md?p=a-8) by such [person](/usc/15/78m.md?p=h-8-E). - (b) **Persons exempt from liability upon proof of issues—** Notwithstanding the provisions of [subsection (a)](#a) no [person](/usc/15/78m.md?p=h-8-E), other than the [issuer](/usc/15/77b.md?p=a-4), shall be liable as provided therein who shall sustain the burden of proof— - (1) that before the effective date of the part of the [registration statement](/usc/15/77b.md?p=a-8) with respect to which his liability is asserted (A) he had resigned from or had taken such steps as are permitted by law to resign from, or ceased or refused to act in, every office, capacity, or relationship in which he was described in the [registration statement](/usc/15/77b.md?p=a-8) as acting or agreeing to act, and (B) he had advised the [Commission](/usc/15/77b.md?p=a-5) and the [issuer](/usc/15/77b.md?p=a-4) in writing that he had taken such action and that he would not be responsible for such part of the [registration statement](/usc/15/77b.md?p=a-8); or - (2) that if such part of the [registration statement](/usc/15/77b.md?p=a-8) became effective without his knowledge, upon becoming aware of such fact he forthwith acted and advised the [Commission](/usc/15/77b.md?p=a-5), in accordance with paragraph (1) of this subsection, and, in addition, gave reasonable public notice that such part of the [registration statement](/usc/15/77b.md?p=a-8) had become effective without his knowledge; or - (3) that (A) as regards any part of the [registration statement](/usc/15/77b.md?p=a-8) not purporting to be made on the [authority](/usc/15/3051.md?p=1) of an expert, and not purporting to be a copy of or extract from a report or valuation of an expert, and not purporting to be made on the [authority](/usc/15/3051.md?p=1) of a public official document or statement, he had, after reasonable investigation, reasonable ground to believe and did believe, at the time such part of the [registration statement](/usc/15/77b.md?p=a-8) became effective, that the statements therein were true and that there was no omission to [state](/usc/15/15g.md?p=2) a material fact required to be stated therein or necessary to make the statements therein not misleading; and (B) as regards any part of the [registration statement](/usc/15/77b.md?p=a-8) purporting to be made upon his [authority](/usc/15/3051.md?p=1) as an expert or purporting to be a copy of or extract from a report or valuation of himself as an expert, (i) he had, after reasonable investigation, reasonable ground to believe and did believe, at the time such part of the [registration statement](/usc/15/77b.md?p=a-8) became effective, that the statements therein were true and that there was no omission to [state](/usc/15/15g.md?p=2) a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) such part of the [registration statement](/usc/15/77b.md?p=a-8) did not fairly represent his statement as an expert or was not a fair copy of or extract from his report or valuation as an expert; and (C) as regards any part of the [registration statement](/usc/15/77b.md?p=a-8) purporting to be made on the [authority](/usc/15/3051.md?p=1) of an expert (other than himself) or purporting to be a copy of or extract from a report or valuation of an expert (other than himself), he had no reasonable ground to believe and did not believe, at the time such part of the [registration statement](/usc/15/77b.md?p=a-8) became effective, that the statements therein were untrue or that there was an omission to [state](/usc/15/15g.md?p=2) a material fact required to be stated therein or necessary to make the statements therein not misleading, or that such part of the [registration statement](/usc/15/77b.md?p=a-8) did not fairly represent the statement of the expert or was not a fair copy of or extract from the report or valuation of the expert; and (D) as regards any part of the [registration statement](/usc/15/77b.md?p=a-8) purporting to be a statement made by an official [person](/usc/15/78m.md?p=h-8-E) or purporting to be a copy of or extract from a public official document, he had no reasonable ground to believe and did not believe, at the time such part of the [registration statement](/usc/15/77b.md?p=a-8) became effective, that the statements therein were untrue, or that there was an omission to [state](/usc/15/15g.md?p=2) a material fact required to be stated therein or necessary to make the statements therein not misleading, or that such part of the [registration statement](/usc/15/77b.md?p=a-8) did not fairly represent the statement made by the official [person](/usc/15/78m.md?p=h-8-E) or was not a fair copy of or extract from the public official document. - (c) **Standard of reasonableness—** In determining, for the purpose of [paragraph (3)](#b-3) of subsection (b) of this section, what constitutes reasonable investigation and reasonable ground for belief, the standard of reasonableness shall be that required of a prudent man in the management of his own property. - (d) **Effective date of registration statement with regard to underwriters—** If any [person](/usc/15/78m.md?p=h-8-E) becomes an underwriter with respect to the [security](/usc/15/77b.md?p=a-1) after the part of the [registration statement](/usc/15/77b.md?p=a-8) with respect to which his liability is asserted has become effective, then for the purposes of [paragraph (3)](#b-3) of subsection (b) of this section such part of the [registration statement](/usc/15/77b.md?p=a-8) shall be considered as having become effective with respect to such [person](/usc/15/78m.md?p=h-8-E) as of the time when he became an underwriter. - (e) **Measure of damages; undertaking for payment of costs—** The suit authorized under [subsection (a)](#a) may be to recover such damages as shall represent the difference between the amount paid for the [security](/usc/15/77b.md?p=a-1) (not exceeding the price at which the [security](/usc/15/77b.md?p=a-1) was offered to the public) and (1) the value thereof as of the time such suit was brought, or (2) the price at which such [security](/usc/15/77b.md?p=a-1) shall have been disposed of in the market before suit, or (3) the price at which such [security](/usc/15/77b.md?p=a-1) shall have been disposed of after suit but before judgment if such damages shall be less than the damages representing the difference between the amount paid for the [security](/usc/15/77b.md?p=a-1) (not exceeding the price at which the [security](/usc/15/77b.md?p=a-1) was offered to the public) and the value thereof as of the time such suit was brought: Provided, That if the defendant proves that any portion or all of such damages represents other than the depreciation in value of such [security](/usc/15/77b.md?p=a-1) resulting from such part of the [registration statement](/usc/15/77b.md?p=a-8), with respect to which his liability is asserted, not being true or omitting to [state](/usc/15/15g.md?p=2) a material fact required to be stated therein or necessary to make the statements therein not misleading, such portion of or all such damages shall not be recoverable. In no event shall any underwriter (unless such underwriter shall have knowingly received from the [issuer](/usc/15/77b.md?p=a-4) for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters similarly situated did not share in proportion to their respective interests in the underwriting) be liable in any suit or as a consequence of suits authorized under [subsection (a)](#a) for damages in excess of the total price at which the [securities](/usc/15/77b.md?p=a-1) underwritten by him and distributed to the public were offered to the public. In any suit under this or any other section of this subchapter the court may, in its discretion, require an undertaking for the payment of the costs of such suit, including reasonable attorney’s fees, and if judgment shall be rendered against a party litigant, upon the motion of the other party litigant, such costs may be assessed in favor of such party litigant (whether or not such undertaking has been required) if the court believes the suit or the defense to have been without merit, in an amount sufficient to reimburse him for the reasonable expenses incurred by him, in connection with such suit, such costs to be taxed in the manner usually provided for taxing of costs in the court in which the suit was heard. - (f) **Joint and several liability; liability of outside director—** - (1) Except as provided in [paragraph (2)](#f-2), all or any one or more of the [persons](/usc/15/78m.md?p=h-8-E) specified in [subsection (a)](#a) shall be jointly and severally liable, and every [person](/usc/15/78m.md?p=h-8-E) who becomes liable to make any payment under this section may recover contribution as in cases of contract from any [person](/usc/15/78m.md?p=h-8-E) who, if sued separately, would have been liable to make the same payment, unless the [person](/usc/15/78m.md?p=h-8-E) who has become liable was, and the other was not, guilty of fraudulent misrepresentation. - (2) - (A) The liability of an [outside director](#f-2-B) under [subsection (e)](#e) shall be determined in accordance with [section 78u–4(f) of this title](/usc/15/78u–4.md?p=f). - (B) For purposes of this paragraph, the term “outside director” shall have the meaning given such term by rule or regulation of the [Commission](/usc/15/77b.md?p=a-5). - (g) **Offering price to public as maximum amount recoverable—** In no case shall the amount recoverable under this section exceed the price at which the [security](/usc/15/77b.md?p=a-1) was offered to the public. # §77l. Civil liabilities arising in connection with prospectuses and communications - (a) **In general—** Any [person](/usc/15/78m.md?p=h-8-E) who— - (1) offers or sells a [security](/usc/15/77b.md?p=a-1) in [violation](/usc/15/57b–1.md?p=a-7) of [section 77e of this title](/usc/15/77e.md), or - (2) offers or sells a [security](/usc/15/77b.md?p=a-1) (whether or not exempted by the provisions of [section 77c of this title](/usc/15/77c.md), other than paragraphs [(2)](#a-2) and (14) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or of the mails, by means of a [prospectus](/usc/15/77b.md?p=a-10) or oral communication, which includes an untrue statement of a material fact or omits to [state](/usc/15/15g.md?p=2) a material fact necessary in [order](/usc/15/8702.md?p=14) to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable, subject to [subsection (b)](#b), to the [person](/usc/15/78m.md?p=h-8-E) purchasing such [security](/usc/15/77b.md?p=a-1) from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such [security](/usc/15/77b.md?p=a-1) with interest thereon, less the amount of any income received thereon, upon the tender of such [security](/usc/15/77b.md?p=a-1), or for damages if he no longer owns the [security](/usc/15/77b.md?p=a-1). - (b) **Loss causation—** In an action described in [subsection (a)(2)](#a-2), if the [person](/usc/15/78m.md?p=h-8-E) who offered or sold such [security](/usc/15/77b.md?p=a-1) proves that any portion or all of the amount recoverable under [subsection (a)(2)](#a-2) represents other than the depreciation in value of the subject [security](/usc/15/77b.md?p=a-1) resulting from such part of the [prospectus](/usc/15/77b.md?p=a-10) or oral communication, with respect to which the liability of that [person](/usc/15/78m.md?p=h-8-E) is asserted, not being true or omitting to [state](/usc/15/15g.md?p=2) a material fact required to be stated therein or necessary to make the statement not misleading, then such portion or amount, as the case may be, shall not be recoverable. # §77m. Limitation of actions No action shall be maintained to enforce any liability created under section [77k](/usc/15/77k.md) or [77l(a)(2)](/usc/15/77l.md?p=a-2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under [section 77l(a)(1)](/usc/15/77l.md?p=a-1) of this title, unless brought within one year after the [violation](/usc/15/57b–1.md?p=a-7) upon which it is based. In no event shall any such action be brought to enforce a liability created under section [77k](/usc/15/77k.md) or [77l(a)(1)](/usc/15/77l.md?p=a-1) of this title more than three years after the [security](/usc/15/77b.md?p=a-1) was bona fide offered to the public, or under [section 77l(a)(2)](/usc/15/77l.md?p=a-2) of this title more than three years after the sale. # §77n. Contrary stipulations void Any condition, stipulation, or provision binding any [person](/usc/15/78m.md?p=h-8-E) acquiring any [security](/usc/15/77b.md?p=a-1) to waive compliance with any provision of this subchapter or of the rules and regulations of the [Commission](/usc/15/77b.md?p=a-5) shall be void. # §77o. Liability of controlling persons - (a) **Controlling persons—** Every [person](/usc/15/78m.md?p=h-8-E) who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an [agreement](/usc/15/7a.md?p=2) or understanding with one or more other [persons](/usc/15/78m.md?p=h-8-E) by or through stock ownership, agency, or otherwise, controls any [person](/usc/15/78m.md?p=h-8-E) liable under sections [77k](/usc/15/77k.md) or [77l](/usc/15/77l.md) of this title, shall also be liable jointly and severally with and to the same extent as such controlled [person](/usc/15/78m.md?p=h-8-E) to any [person](/usc/15/78m.md?p=h-8-E) to whom such controlled [person](/usc/15/78m.md?p=h-8-E) is liable, unless the controlling [person](/usc/15/78m.md?p=h-8-E) had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled [person](/usc/15/78m.md?p=h-8-E) is alleged to exist. - (b) **Prosecution of persons who aid and abet violations—** For purposes of any action brought by the [Commission](/usc/15/77b.md?p=a-5) under subparagraph (b) or (d) of [section 77t of this title](/usc/15/77t.md), any [person](/usc/15/78m.md?p=h-8-E) that knowingly or recklessly provides substantial assistance to another [person](/usc/15/78m.md?p=h-8-E) in [violation](/usc/15/57b–1.md?p=a-7) of a provision of this subchapter, or of any rule or regulation issued under this subchapter, shall be deemed to be in [violation](/usc/15/57b–1.md?p=a-7) of such provision to the same extent as the [person](/usc/15/78m.md?p=h-8-E) to whom such assistance is provided. # §77p. Additional remedies; limitation on remedies - (a) **Remedies additional—** Except as provided in [subsection (b)](#b), the rights and remedies provided by this subchapter shall be in addition to any and all other rights and remedies that may exist at law or in equity. - (b) **Class action limitations—** No [covered class action](#f-2-A) based upon the statutory or common law of any [State](/usc/15/15g.md?p=2) or subdivision thereof may be maintained in any [State](/usc/15/15g.md?p=2) or Federal court by any private party alleging— - (1) an untrue statement or omission of a material fact in connection with the [purchase](/usc/15/77b.md?p=a-18) or sale of a [covered security](#f-3); or - (2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the [purchase](/usc/15/77b.md?p=a-18) or sale of a [covered security](#f-3). - (c) **Removal of covered class actions—** Any [covered class action](#f-2-A) brought in any [State](/usc/15/15g.md?p=2) court involving a [covered security](#f-3), as set forth in [subsection (b)](#b), shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to [subsection (b)](#b). - (d) **Preservation of certain actions—** - (1) **Actions under State law of State of incorporation—** - (A) **Actions preserved—** Notwithstanding subsection [(b)](#b) or [(c)](#c), a [covered class action](#f-2-A) described in subparagraph (B) of this paragraph that is based upon the statutory or common law of the [State](/usc/15/15g.md?p=2) in which the [issuer](/usc/15/77b.md?p=a-4) is incorporated (in the case of a corporation) or organized (in the case of any other entity) may be maintained in a [State](/usc/15/15g.md?p=2) or Federal court by a private party. - (B) **Permissible actions—** A [covered class action](#f-2-A) is described in this subparagraph if it involves— - (i) the [purchase](/usc/15/77b.md?p=a-18) or sale of [securities](/usc/15/77b.md?p=a-1) by the [issuer](/usc/15/77b.md?p=a-4) or an [affiliate of the issuer](#f-1) exclusively from or to holders of [equity securities](/usc/15/9041.md?p=6) of the [issuer](/usc/15/77b.md?p=a-4); or - (ii) any recommendation, position, or other communication with respect to the sale of [securities](/usc/15/77b.md?p=a-1) of the [issuer](/usc/15/77b.md?p=a-4) that— - (I) is made by or on behalf of the [issuer](/usc/15/77b.md?p=a-4) or an [affiliate of the issuer](#f-1) to holders of [equity securities](/usc/15/9041.md?p=6) of the [issuer](/usc/15/77b.md?p=a-4); and - (II) concerns decisions of those equity holders with respect to voting their [securities](/usc/15/77b.md?p=a-1), acting in response to a tender or [exchange](/usc/15/636.md?p=a-36-A-xvi) offer, or exercising dissenters’ or appraisal rights. - (2) **State actions—** - (A) **In general—** Notwithstanding any other provision of this section, nothing in this section may be construed to preclude a [State](/usc/15/15g.md?p=2) or political subdivision thereof or a [State pension plan](#d-2-B) from bringing an action involving a [covered security](#f-3) on its own behalf, or as a member of a class comprised solely of other [States](/usc/15/15g.md?p=2), political subdivisions, or [State pension plans](#d-2-B) that are named plaintiffs, and that have authorized participation, in such action. - (B) **“State pension plan” defined—** For purposes of this paragraph, the term “State pension plan” means a pension plan established and maintained for its employees by the government of the [State](/usc/15/15g.md?p=2) or political subdivision thereof, or by any agency or instrumentality thereof. - (3) **Actions under contractual agreements between issuers and indenture trustees—** Notwithstanding subsection [(b)](#b) or [(c)](#c), a [covered class action](#f-2-A) that seeks to enforce a contractual [agreement](/usc/15/7a.md?p=2) between an [issuer](/usc/15/77b.md?p=a-4) and an indenture trustee may be maintained in a [State](/usc/15/15g.md?p=2) or Federal court by a party to the [agreement](/usc/15/7a.md?p=2) or a successor to such party. - (4) **Remand of removed actions—** In an action that has been removed from a [State](/usc/15/15g.md?p=2) court pursuant to [subsection (c)](#c), if the Federal court determines that the action may be maintained in [State](/usc/15/15g.md?p=2) court pursuant to this subsection, the Federal court shall remand such action to such [State](/usc/15/15g.md?p=2) court. - (e) **Preservation of State jurisdiction—** The [securities](/usc/15/77b.md?p=a-1) [commission](/usc/15/77b.md?p=a-5) (or any agency or office performing like functions) of any [State](/usc/15/15g.md?p=2) shall retain jurisdiction under the laws of such [State](/usc/15/15g.md?p=2) to investigate and bring enforcement actions. - (f) **Definitions—** For purposes of this section, the following definitions shall apply: - (1) **Affiliate of the issuer—** The term “affiliate of the issuer” means a [person](/usc/15/78m.md?p=h-8-E) that directly or indirectly, through one or more [intermediaries](/usc/15/6901.md?p=7), controls or is controlled by or is under common control with, the [issuer](/usc/15/77b.md?p=a-4). - (2) **Covered class action—** - (A) **In general—** The term “covered class action” means— - (i) any single lawsuit in which— - (I) damages are sought on behalf of more than 50 [persons](/usc/15/78m.md?p=h-8-E) or prospective class members, and questions of law or fact common to those [persons](/usc/15/78m.md?p=h-8-E) or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any questions affecting only individual [persons](/usc/15/78m.md?p=h-8-E) or members; or - (II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those [persons](/usc/15/78m.md?p=h-8-E) or members of the prospective class predominate over any questions affecting only individual [persons](/usc/15/78m.md?p=h-8-E) or members; or - (ii) any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which— - (I) damages are sought on behalf of more than 50 [persons](/usc/15/78m.md?p=h-8-E); and - (II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose. - (B) **Exception for derivative actions—** Notwithstanding [subparagraph (A)](#f-2-A), the term “[covered class action](#f-2-A)” does not include an exclusively derivative action brought by one or more shareholders on behalf of a corporation. - (C) **Counting of certain class members—** For purposes of this paragraph, a corporation, [investment company](/usc/15/77z–2.md?p=i-2), pension plan, partnership, or other entity, shall be treated as one [person](/usc/15/78m.md?p=h-8-E) or prospective class member, but only if the entity is not established for the purpose of participating in the action. - (D) **Rule of construction—** Nothing in this paragraph shall be construed to affect the discretion of a [State](/usc/15/15g.md?p=2) court in determining whether actions filed in such court should be joined, consolidated, or otherwise allowed to proceed as a single action. - (3) **Covered security—** The term “covered security” means a [security](/usc/15/77b.md?p=a-1) that satisfies the standards for a covered security specified in paragraph (1) or (2) of [section 77r(b) of this title](/usc/15/77r.md?p=b) at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred, except that such term shall not include any debt [security](/usc/15/77b.md?p=a-1) that is exempt from registration under this subchapter pursuant to rules issued by the [Commission](/usc/15/77b.md?p=a-5) under [section 77d(2)](/usc/15/77d.md)[^1] of this title. # §77q. Fraudulent interstate transactions - (a) **Use of interstate commerce for purpose of fraud or deceit—** It shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E) in the offer or sale of any [securities](/usc/15/77b.md?p=a-1) (including [security-based swaps](/usc/15/77b.md?p=a-17)) or any [security-based swap agreement](/usc/15/78c.md?p=a-78-A) (as defined in [section 78c(a)(78)](/usc/15/78c.md?p=a-78)[^1] of this title) by the use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or by use of the mails, directly or indirectly— - (1) to employ any device, scheme, or artifice to defraud, or - (2) to obtain money or property by means of any untrue statement of a material fact or any omission to [state](/usc/15/15g.md?p=2) a material fact necessary in [order](/usc/15/8702.md?p=14) to make the statements made, in light of the circumstances under which they were made, not misleading; or - (3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. - (b) **Use of interstate commerce for purpose of offering for sale—** It shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), by the use of any means or instruments of transportation or communication in [interstate commerce](/usc/15/77b.md?p=a-7) or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a [security](/usc/15/77b.md?p=a-1) for sale, describes such [security](/usc/15/77b.md?p=a-1) for a consideration received or to be received, directly or indirectly, from an [issuer](/usc/15/77b.md?p=a-4), underwriter, or [dealer](/usc/15/77b.md?p=a-12), without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. - (c) **Exemptions of section 77c not applicable to this section—** The exemptions provided in [section 77c of this title](/usc/15/77c.md) shall not apply to the provisions of this section. - (d) **Authority with respect to security-based swap agreements—** The [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/77b.md?p=a-5) under this section with respect to [security-based swap agreements](/usc/15/78c.md?p=a-78-A) (as defined in [section 78c(a)(78) of this title](/usc/15/78c.md?p=a-78)) shall be subject to the restrictions and limitations of [section 77b–1(b) of this title](/usc/15/77b–1.md?p=b). # §77r. Exemption from State regulation of securities offerings - (a) **Scope of exemption—** Except as otherwise provided in this section, no law, rule, regulation, or [order](/usc/15/8702.md?p=14), or other administrative action of any [State](/usc/15/15g.md?p=2) or any political subdivision thereof— - (1) requiring, or with respect to, registration or qualification of [securities](/usc/15/77b.md?p=a-1), or registration or qualification of [securities](/usc/15/77b.md?p=a-1) transactions, shall directly or indirectly apply to a [security](/usc/15/77b.md?p=a-1) that— - (A) is a [covered security](/usc/15/77p.md?p=f-3); or - (B) will be a [covered security](/usc/15/77p.md?p=f-3) upon completion of the transaction; - (2) shall directly or indirectly prohibit, limit, or impose any conditions upon the use of— - (A) with respect to a [covered security](/usc/15/77p.md?p=f-3) described in [subsection (b)](#b), any [offering document](#d-1) that is [prepared by or on behalf of the issuer](#d-2); or - (B) any proxy statement, report to shareholders, or other disclosure document relating to a [covered security](/usc/15/77p.md?p=f-3) or the [issuer](/usc/15/77b.md?p=a-4) thereof that is required to be and is filed with the [Commission](/usc/15/77b.md?p=a-5) or any national [securities](/usc/15/77b.md?p=a-1) organization registered under [section 78o–3](/usc/15/78o–3.md) of this title, except that this subparagraph does not apply to the laws, rules, regulations, or [orders](/usc/15/8702.md?p=14), or other administrative actions of the [State](/usc/15/15g.md?p=2) of incorporation of the [issuer](/usc/15/77b.md?p=a-4); or - (3) shall directly or indirectly prohibit, limit, or impose conditions, based on the merits of such offering or [issuer](/usc/15/77b.md?p=a-4), upon the offer or sale of any [security](/usc/15/77b.md?p=a-1) described in [paragraph (1)](#a-1). - (b) **Covered securities—** For purposes of this section, the following are [covered securities](/usc/15/77p.md?p=f-3): - (1) **Exclusive Federal registration of nationally traded securities—** A [security](/usc/15/77b.md?p=a-1) is a [covered security](/usc/15/77p.md?p=f-3) if such [security](/usc/15/77b.md?p=a-1) is— - (A) a [security](/usc/15/77b.md?p=a-1) designated as qualified for trading in the national market system pursuant to [section 78k–1(a)(2) of this title](/usc/15/78k–1.md?p=a-2) that is listed, or authorized for listing, on a [national securities exchange](/usc/15/9009a.md?p=a-5) (or tier or segment thereof); or - (B) a [security](/usc/15/77b.md?p=a-1) of the same [issuer](/usc/15/77b.md?p=a-4) that is equal in seniority or that is a [senior security](#d-4) to a [security](/usc/15/77b.md?p=a-1) described in [subparagraph (A)](#b-1-A). - (2) **Exclusive Federal registration of investment companies—** A [security](/usc/15/77b.md?p=a-1) is a [covered security](/usc/15/77p.md?p=f-3) if such [security](/usc/15/77b.md?p=a-1) is a [security](/usc/15/77b.md?p=a-1) issued by an [investment company](/usc/15/77z–2.md?p=i-2) that is registered, or that has filed a [registration statement](/usc/15/77b.md?p=a-8), under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.]. - (3) **Sales to qualified purchasers—** A [security](/usc/15/77b.md?p=a-1) is a [covered security](/usc/15/77p.md?p=f-3) with respect to the offer or sale of the [security](/usc/15/77b.md?p=a-1) to qualified purchasers, as defined by the [Commission](/usc/15/77b.md?p=a-5) by rule. In prescribing such rule, the [Commission](/usc/15/77b.md?p=a-5) may define the term “qualified purchaser” differently with respect to different categories of [securities](/usc/15/77b.md?p=a-1), consistent with the public interest and the protection of investors. - (4) **Exemption in connection with certain exempt offerings—** A [security](/usc/15/77b.md?p=a-1) is a [covered security](/usc/15/77p.md?p=f-3) with respect to a transaction that is exempt from registration under this subchapter pursuant to— - (A) paragraph [(1)](/usc/15/77d.md) or [(3)](/usc/15/77d.md) of section 77d[^1] of this title, and the [issuer](/usc/15/77b.md?p=a-4) of such [security](/usc/15/77b.md?p=a-1) files reports with the [Commission](/usc/15/77b.md?p=a-5) pursuant to section [78m](/usc/15/78m.md) or [78o(d)](/usc/15/78o.md?p=d) of this title; - (B) [section 77d(4)](/usc/15/77d.md)[^1] of this title; - (C) [section 77d(6)](/usc/15/77d.md)[^1] of this title; - (D) a rule or regulation adopted pursuant to [section 77c(b)(2) of this title](/usc/15/77c.md?p=b-2) and such [security](/usc/15/77b.md?p=a-1) is— - (i) offered or sold on a [national securities exchange](/usc/15/9009a.md?p=a-5); or - (ii) offered or sold to a [qualified purchaser](#b-3), as defined by the [Commission](/usc/15/77b.md?p=a-5) pursuant to [paragraph (3)](#b-3) with respect to that [purchase](/usc/15/77b.md?p=a-18) or sale; - (E) [section 77c(a) of this title](/usc/15/77c.md?p=a), other than the offer or sale of a [security](/usc/15/77b.md?p=a-1) that is exempt from such registration pursuant to paragraph [(4)](/usc/15/77c.md?p=a-4), [(10)](/usc/15/77c.md?p=a-10), or [(11)](/usc/15/77c.md?p=a-11) of such section, except that a municipal [security](/usc/15/77b.md?p=a-1) that is exempt from such registration pursuant to [paragraph (2)](/usc/15/77c.md?p=a-2) of such section is not a [covered security](/usc/15/77p.md?p=f-3) with respect to the offer or sale of such [security](/usc/15/77b.md?p=a-1) in the [State](/usc/15/15g.md?p=2) in which the [issuer](/usc/15/77b.md?p=a-4) of such [security](/usc/15/77b.md?p=a-1) is located; - (F) [Commission](/usc/15/77b.md?p=a-5) rules or regulations issued under [section 77d(2)](/usc/15/77d.md)[^1] of this title, except that this subparagraph does not prohibit a [State](/usc/15/15g.md?p=2) from imposing notice filing requirements that are substantially similar to those required by rule or regulation under [section 77d(2)](/usc/15/77d.md)[^1] of this title that are in effect on September 1, 1996; or - (G) [section 77d(a)(7) of this title](/usc/15/77d.md?p=a-7). - (c) **Preservation of authority—** - (1) **Fraud authority—** Consistent with this section, the [securities](/usc/15/77b.md?p=a-1) [commission](/usc/15/77b.md?p=a-5) (or any agency or office performing like functions) of any [State](/usc/15/15g.md?p=2) shall retain jurisdiction under the laws of such [State](/usc/15/15g.md?p=2) to investigate and bring enforcement actions, in connection with [securities](/usc/15/77b.md?p=a-1) or [securities](/usc/15/77b.md?p=a-1) transactions[^2] - (A) with respect to— - (i) fraud or deceit; or - (ii) unlawful conduct by a [broker](/usc/15/6102.md?p=d-2-B-i), [dealer](/usc/15/77b.md?p=a-12), or funding portal; and - (B) in connection to[^3] a transaction described under [section 77d(6)](/usc/15/77d.md)[^1] of this title, with respect to— - (i) fraud or deceit; or - (ii) unlawful conduct by a [broker](/usc/15/6102.md?p=d-2-B-i), [dealer](/usc/15/77b.md?p=a-12), funding portal, or [issuer](/usc/15/77b.md?p=a-4). - (2) **Preservation of filing requirements—** - (A) **Notice filings permitted—** Nothing in this section prohibits the [securities](/usc/15/77b.md?p=a-1) [commission](/usc/15/77b.md?p=a-5) (or any agency or office performing like functions) of any [State](/usc/15/15g.md?p=2) from requiring the filing of any document filed with the [Commission](/usc/15/77b.md?p=a-5) pursuant to this subchapter, together with annual or periodic reports of the value of [securities](/usc/15/77b.md?p=a-1) sold or offered to be sold to [persons](/usc/15/78m.md?p=h-8-E) located in the [State](/usc/15/15g.md?p=2) (if such sales data is not included in documents filed with the [Commission](/usc/15/77b.md?p=a-5)), solely for notice purposes and the assessment of any fee, together with a consent to service of process and any required fee. - (B) **Preservation of fees—** - (i) **In general—** Until otherwise provided by law, rule, regulation, or [order](/usc/15/8702.md?p=14), or other administrative action of any [State](/usc/15/15g.md?p=2) or any political subdivision thereof, adopted after October 11, 1996, filing or registration fees with respect to [securities](/usc/15/77b.md?p=a-1) or [securities](/usc/15/77b.md?p=a-1) transactions shall continue to be collected in amounts determined pursuant to [State](/usc/15/15g.md?p=2) law as in effect on the day before October 11, 1996. - (ii) **Schedule—** The fees required by this subparagraph shall be paid, and all necessary supporting data on sales or offers for sales required under [subparagraph (A)](#c-2-A), shall be reported on the same schedule as would have been applicable had the [issuer](/usc/15/77b.md?p=a-4) not relied on the exemption provided in [subsection (a)](#a). - (C) **Availability of preemption contingent on payment of fees—** - (i) **In general—** During the period beginning on October 11, 1996, and ending 3 years after October 11, 1996, the [securities](/usc/15/77b.md?p=a-1) [commission](/usc/15/77b.md?p=a-5) (or any agency or office performing like functions) of any [State](/usc/15/15g.md?p=2) may require the registration of [securities](/usc/15/77b.md?p=a-1) issued by any [issuer](/usc/15/77b.md?p=a-4) who refuses to pay the fees required by [subparagraph (B)](#c-2-B). - (ii) **Delays—** For purposes of this subparagraph, delays in payment of fees or underpayments of fees that are promptly remedied shall not constitute a refusal to pay fees. - (D) **Fees not permitted on listed securities—** Notwithstanding subparagraphs [(A)](#c-2-A), [(B)](#c-2-B), and [(C)](#c-2-C), no filing or fee may be required with respect to any [security](/usc/15/77b.md?p=a-1) that is a [covered security](/usc/15/77p.md?p=f-3) pursuant to [subsection (b)(1)](#b-1), or will be such a [covered security](/usc/15/77p.md?p=f-3) upon completion of the transaction, or is a [security](/usc/15/77b.md?p=a-1) of the same [issuer](/usc/15/77b.md?p=a-4) that is equal in seniority or that is a [senior security](#d-4) to a [security](/usc/15/77b.md?p=a-1) that is a [covered security](/usc/15/77p.md?p=f-3) pursuant to [subsection (b)(1)](#b-1). - (F) **[^4] Fees not permitted on crowdfunded securities—** Notwithstanding subparagraphs [(A)](#c-2-A), [(B)](#c-2-B), and [(C)](#c-2-C), no filing or fee may be required with respect to any [security](/usc/15/77b.md?p=a-1) that is a [covered security](/usc/15/77p.md?p=f-3) pursuant to [subsection (b)(4)(B)](#b-4-B), or will be such a [covered security](/usc/15/77p.md?p=f-3) upon completion of the transaction, except for the [securities](/usc/15/77b.md?p=a-1) [commission](/usc/15/77b.md?p=a-5) (or any agency or office performing like functions) of the State of the principal place of business of the [issuer](/usc/15/77b.md?p=a-4), or any State in which purchasers of 50 percent or greater of the aggregate amount of the issue are residents, provided that for purposes of this subparagraph, the term “State” includes the District of Columbia and the [territories](/usc/15/77b.md?p=a-6) of the United States. - (3) **Enforcement of requirements—** Nothing in this section shall prohibit the [securities](/usc/15/77b.md?p=a-1) [commission](/usc/15/77b.md?p=a-5) (or any agency or office performing like functions) of any [State](/usc/15/15g.md?p=2) from suspending the offer or sale of [securities](/usc/15/77b.md?p=a-1) within such [State](/usc/15/15g.md?p=2) as a result of the failure to submit any filing or fee required under law and permitted under this section. - (d) **Definitions—** For purposes of this section, the following definitions shall apply: - (1) **Offering document—** The term “offering document”— - (A) has the meaning given the term “[prospectus](/usc/15/77b.md?p=a-10)” in [section 77b(a)(10) of this title](/usc/15/77b.md?p=a-10), but without regard to the provisions of subparagraphs [(a)](/usc/15/77b.md) and [(b)](/usc/15/77b.md) of that section; and - (B) includes a communication that is not deemed to offer a [security](/usc/15/77b.md?p=a-1) pursuant to a rule of the [Commission](/usc/15/77b.md?p=a-5). - (2) **Prepared by or on behalf of the issuer—** Not later than 6 months after October 11, 1996, the [Commission](/usc/15/77b.md?p=a-5) shall, by rule, define the term “prepared by or on behalf of the issuer” for purposes of this section. - (3) **State—** The term “[State](/usc/15/15g.md?p=2)” has the same meaning as in [section 78c of this title](/usc/15/78c.md). - (4) **Senior security—** The term “senior security” means any bond, debenture, note, or similar obligation or instrument constituting a [security](/usc/15/77b.md?p=a-1) and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends. # §77r–1. Preemption of State law - (a) **Authority to purchase, hold, and invest in securities; securities considered as obligations of United States—** - (1) Any [person](/usc/15/78m.md?p=h-8-E), trust, corporation, partnership, [association](/usc/15/657h.md?p=a-2), business trust, or business entity created pursuant to or existing under the laws of the United States or any [State](/usc/15/15g.md?p=2) shall be authorized to [purchase](/usc/15/77b.md?p=a-18), hold, and invest in [securities](/usc/15/77b.md?p=a-1) that are— - (A) offered and sold pursuant to [section 77d(5)](/usc/15/77d.md)[^1] of this title, - (B) mortgage related [securities](/usc/15/77b.md?p=a-1) (as that term is defined in [section 78c(a)(41) of this title](/usc/15/78c.md?p=a-41)), - (C) [small business](/usc/15/1691c–2.md?p=h-2) related [securities](/usc/15/77b.md?p=a-1) (as defined in [section 78c(a)(53) of this title](/usc/15/78c.md?p=a-53)), or - (D) [securities](/usc/15/77b.md?p=a-1) issued or guaranteed by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage [Association](/usc/15/657h.md?p=a-2), to the same extent that such [person](/usc/15/78m.md?p=h-8-E), trust, corporation, partnership, [association](/usc/15/657h.md?p=a-2), business trust, or business entity is authorized under any applicable law to [purchase](/usc/15/77b.md?p=a-18), hold or invest in obligations issued by or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof. - (2) Where [State](/usc/15/15g.md?p=2) law limits the [purchase](/usc/15/77b.md?p=a-18), holding, or investment in obligations issued by the United States by such a [person](/usc/15/78m.md?p=h-8-E), trust, corporation, partnership, [association](/usc/15/657h.md?p=a-2), business trust, or business entity, such [securities](/usc/15/77b.md?p=a-1) that are— - (A) offered and sold pursuant to [section 77d(5)](/usc/15/77d.md)[^1] of this title, - (B) mortgage related [securities](/usc/15/77b.md?p=a-1) (as that term is defined in [section 78c(a)(41) of this title](/usc/15/78c.md?p=a-41)), - (C) [small business](/usc/15/1691c–2.md?p=h-2) related [securities](/usc/15/77b.md?p=a-1) (as defined in [section 78c(a)(53) of this title](/usc/15/78c.md?p=a-53)), or - (D) [securities](/usc/15/77b.md?p=a-1) issued or guaranteed by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage [Association](/usc/15/657h.md?p=a-2), shall be considered to be obligations issued by the United States for purposes of the limitation. - (b) **Exception; validity of contracts under prior law—** The provisions of [subsection (a)](#a) shall not apply with respect to a particular [person](/usc/15/78m.md?p=h-8-E), trust, corporation, partnership, [association](/usc/15/657h.md?p=a-2), business trust, or business entity or class thereof in any [State](/usc/15/15g.md?p=2) that, prior to the expiration of seven years after October 3, 1984, enacts a statute that specifically refers to this section and either prohibits or provides for a more limited [authority](/usc/15/3051.md?p=1) to [purchase](/usc/15/77b.md?p=a-18), hold, or invest in such [securities](/usc/15/77b.md?p=a-1) by any [person](/usc/15/78m.md?p=h-8-E), trust, corporation, partnership, [association](/usc/15/657h.md?p=a-2), business trust, or business entity or class thereof than is provided in [subsection (a)](#a). The enactment by any [State](/usc/15/15g.md?p=2) of any statute of the type described in the preceding sentence shall not affect the validity of any contractual commitment to [purchase](/usc/15/77b.md?p=a-18), hold, or invest that was made prior thereto and shall not require the sale or other disposition of any [securities](/usc/15/77b.md?p=a-1) acquired prior thereto. - (c) **Registration and qualification requirements; exemption; subsequent enactment by State—** Any [securities](/usc/15/77b.md?p=a-1) that are offered and sold pursuant to [section 77d(5)](/usc/15/77d.md)[^1] of this title, that are mortgage related [securities](/usc/15/77b.md?p=a-1) (as that term is defined in [section 78c(a)(41) of this title](/usc/15/78c.md?p=a-41)), or that are [small business](/usc/15/1691c–2.md?p=h-2) related [securities](/usc/15/77b.md?p=a-1) (as defined in [section 78c(a)(53) of this title](/usc/15/78c.md?p=a-53)) shall be exempt from any law of any [State](/usc/15/15g.md?p=2) with respect to or requiring registration or qualification of [securities](/usc/15/77b.md?p=a-1) or real estate to the same extent as any obligation issued by or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof. Any [State](/usc/15/15g.md?p=2) may, prior to the expiration of seven years after October 3, 1984, enact a statute that specifically refers to this section and requires registration or qualification of any such [security](/usc/15/77b.md?p=a-1) on terms that differ from those applicable to any obligation issued by the United States. - (d) **Implementation—** - (1) **Limitation—** The provisions of subsections [(a)](#a) and [(b)](#b) concerning [small business](/usc/15/1691c–2.md?p=h-2) related [securities](/usc/15/77b.md?p=a-1) shall not apply with respect to a particular [person](/usc/15/78m.md?p=h-8-E), trust, corporation, partnership, [association](/usc/15/657h.md?p=a-2), business trust, or business entity or class thereof in any [State](/usc/15/15g.md?p=2) that, prior to the expiration of 7 years after September 23, 1994, enacts a statute that specifically refers to this section and either prohibits or provides for a more limited [authority](/usc/15/3051.md?p=1) to [purchase](/usc/15/77b.md?p=a-18), hold, or invest in such [small business](/usc/15/1691c–2.md?p=h-2) related [securities](/usc/15/77b.md?p=a-1) by any [person](/usc/15/78m.md?p=h-8-E), trust, corporation, partnership, [association](/usc/15/657h.md?p=a-2), business trust, or business entity or class thereof than is provided in this section. The enactment by any [State](/usc/15/15g.md?p=2) of any statute of the type described in the preceding sentence shall not affect the validity of any contractual commitment to [purchase](/usc/15/77b.md?p=a-18), hold, or invest that was made prior to such enactment, and shall not require the sale or other disposition of any [small business](/usc/15/1691c–2.md?p=h-2) related [securities](/usc/15/77b.md?p=a-1) acquired prior to the date of such enactment. - (2) **State registration or qualification requirements—** Any [State](/usc/15/15g.md?p=2) may, not later than 7 years after September 23, 1994, enact a statute that specifically refers to this section and requires registration or qualification of any [small business](/usc/15/1691c–2.md?p=h-2) related [securities](/usc/15/77b.md?p=a-1) on terms that differ from those applicable to any obligation issued by the United States. # §77s. Special powers of Commission - (a) **Rules and regulations—** The [Commission](/usc/15/77b.md?p=a-5) shall have [authority](/usc/15/3051.md?p=1) from time to time to make, amend, and rescind such rules and regulations as may be necessary to carry out the provisions of this subchapter, including rules and regulations governing [registration statements](/usc/15/77b.md?p=a-8) and [prospectuses](/usc/15/77b.md?p=a-10) for various classes of [securities](/usc/15/77b.md?p=a-1) and [issuers](/usc/15/77b.md?p=a-4), and defining accounting, technical, and trade terms used in this subchapter. Among other things, the [Commission](/usc/15/77b.md?p=a-5) shall have [authority](/usc/15/3051.md?p=1), for the purposes of this subchapter, to prescribe the form or forms in which required information shall be set forth, the items or details to be shown in the balance sheet and earning statement, and the methods to be followed in the preparation of [accounts](/usc/15/1681a.md?p=r-4), in the appraisal or valuation of assets and liabilities, in the determination of depreciation and depletion, in the differentiation of recurring and nonrecurring income, in the differentiation of investment and operating income, and in the preparation, where the [Commission](/usc/15/77b.md?p=a-5) deems it necessary or desirable, of consolidated balance sheets or income [accounts](/usc/15/1681a.md?p=r-4) of any [person](/usc/15/78m.md?p=h-8-E) directly or indirectly controlling or controlled by the [issuer](/usc/15/77b.md?p=a-4), or any [person](/usc/15/78m.md?p=h-8-E) under direct or indirect common control with the [issuer](/usc/15/77b.md?p=a-4). The rules and regulations of the [Commission](/usc/15/77b.md?p=a-5) shall be effective upon publication in the manner which the [Commission](/usc/15/77b.md?p=a-5) shall prescribe. No provision of this subchapter imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule or regulation of the [Commission](/usc/15/77b.md?p=a-5), notwithstanding that such rule or regulation may, after such act or omission, be amended or rescinded or be determined by judicial or other [authority](/usc/15/3051.md?p=1) to be invalid for any reason. - (b) **Recognition of accounting standards—** - (1) **In general—** In carrying out its [authority](/usc/15/3051.md?p=1) under [subsection (a)](#a) and under section 13(b) of the [Securities](/usc/15/77b.md?p=a-1) Exchange Act of 1934 [[15 U.S.C. 78m(b)](/usc/15/78m.md?p=b)], the [Commission](/usc/15/77b.md?p=a-5) may recognize, as “generally accepted” for purposes of the [securities laws](/usc/15/77z–2.md?p=i-5), any accounting principles established by a standard setting body— - (A) that— - (i) is organized as a private entity; - (ii) has, for administrative and operational purposes, a [board](/usc/15/205c.md?p=1) of trustees (or equivalent body) serving in the public interest, the majority of whom are not, concurrent with their service on such [board](/usc/15/205c.md?p=1), and have not been during the 2-year period preceding such service, associated [persons](/usc/15/78m.md?p=h-8-E) of any registered public accounting firm; - (iii) is funded as provided in [section 7219 of this title](/usc/15/7219.md); - (iv) has adopted procedures to ensure prompt consideration, by majority vote of its members, of changes to accounting principles necessary to reflect emerging accounting issues and changing business practices; and - (v) considers, in adopting accounting principles, the need to keep standards current in [order](/usc/15/8702.md?p=14) to reflect changes in the business environment, the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors; and - (B) that the [Commission](/usc/15/77b.md?p=a-5) determines has the capacity to assist the [Commission](/usc/15/77b.md?p=a-5) in fulfilling the requirements of [subsection (a)](#a) and section 13(b) of the [Securities](/usc/15/77b.md?p=a-1) Exchange Act of 1934 [[15 U.S.C. 78m(b)](/usc/15/78m.md?p=b)], because, at a minimum, the standard setting body is capable of improving the accuracy and effectiveness of financial reporting and the protection of investors under the [securities laws](/usc/15/77z–2.md?p=i-5). - (2) **Annual report—** A standard setting body described in [paragraph (1)](#b-1) shall submit an annual report to the [Commission](/usc/15/77b.md?p=a-5) and the public, containing audited financial statements of that standard setting body. - (c) **Production of evidence—** For the purpose of all investigations which, in the opinion of the [Commission](/usc/15/77b.md?p=a-5), are necessary and proper for the enforcement of this subchapter, any member of the [Commission](/usc/15/77b.md?p=a-5) or any officer or officers designated by it are empowered to administer oaths and affirmations, subpena witnesses, take evidence, and require the production of any books, papers, or other documents which the [Commission](/usc/15/77b.md?p=a-5) deems relevant or material to the inquiry. Such attendance of witnesses and the production of such documentary evidence may be required from any place in the United States or any [Territory](/usc/15/77b.md?p=a-6) at any designated place of hearing. - (d) **Federal and State cooperation—** - (1) The [Commission](/usc/15/77b.md?p=a-5) is authorized to cooperate with any [association](#d-6) composed of duly constituted representatives of [State](/usc/15/15g.md?p=2) governments whose primary assignment is the regulation of the [securities](/usc/15/77b.md?p=a-1) business within those [States](/usc/15/15g.md?p=2), and which, in the judgment of the [Commission](/usc/15/77b.md?p=a-5), could assist in effectuating greater uniformity in Federal-[State](/usc/15/15g.md?p=2) [securities](/usc/15/77b.md?p=a-1) matters. The [Commission](/usc/15/77b.md?p=a-5) shall, at its discretion, cooperate, coordinate, and share information with such an [association](#d-6) for the purposes of carrying out the policies and [projects](/usc/15/2502.md?p=6) set forth in paragraphs [(2)](#d-2) and [(3)](#d-3). - (2) It is the declared policy of this subsection that there should be greater Federal and [State](/usc/15/15g.md?p=2) cooperation in [securities](/usc/15/77b.md?p=a-1) matters, including— - (A) maximum effectiveness of regulation, - (B) maximum uniformity in Federal and [State](/usc/15/15g.md?p=2) regulatory standards, - (C) minimum interference with the business of capital formation, and - (D) a substantial reduction in costs and paperwork to diminish the burdens of raising investment capital (particularly by [small business](/usc/15/1691c–2.md?p=h-2)) and to diminish the costs of the [administration](/usc/15/2203.md?p=2) of the Government [programs](/usc/15/2921.md?p=6) involved. - (3) The purpose of this subsection is to engender cooperation between the [Commission](/usc/15/77b.md?p=a-5), any such [association](#d-6) of [State](/usc/15/15g.md?p=2) [securities](/usc/15/77b.md?p=a-1) officials, and other duly constituted [securities](/usc/15/77b.md?p=a-1) [associations](#d-6) in the following areas: - (A) the sharing of information regarding the registration or exemption of [securities](/usc/15/77b.md?p=a-1) issues applied for in the various [States](/usc/15/15g.md?p=2); - (B) the development and maintenance of uniform [securities](/usc/15/77b.md?p=a-1) forms and procedures; and - (C) the development of a uniform exemption from registration for small [issuers](/usc/15/77b.md?p=a-4) which can be agreed upon among several [States](/usc/15/15g.md?p=2) or between the [States](/usc/15/15g.md?p=2) and the Federal Government. The [Commission](/usc/15/77b.md?p=a-5) shall have the [authority](/usc/15/3051.md?p=1) to adopt such an exemption as agreed upon for Federal purposes. Nothing in this chapter shall be construed as authorizing preemption of [State](/usc/15/15g.md?p=2) law. - (4) In [order](/usc/15/8702.md?p=14) to carry out these policies and purposes, the [Commission](/usc/15/77b.md?p=a-5) shall conduct an annual [conference](#d-6) as well as such other [meetings](#d-6) as are deemed necessary, to which representatives from such [securities](/usc/15/77b.md?p=a-1) [associations](#d-6), [securities](/usc/15/77b.md?p=a-1) [self-regulatory organizations](/usc/15/78c.md?p=a-26), [agencies](#d-6), and private [organizations](#d-6) involved in capital formation shall be invited to participate. - (5) For fiscal year 1982, and for each of the three succeeding fiscal years, there are authorized to be appropriated such amounts as may be necessary and appropriate to carry out the policies, provisions, and purposes of this subsection. Any sums so appropriated shall remain available until expended. - (6) Notwithstanding any other provision of law, neither the [Commission](/usc/15/77b.md?p=a-5) nor any other [person](/usc/15/78m.md?p=h-8-E) shall be required to establish any procedures not specifically required by the [securities laws](/usc/15/77z–2.md?p=i-5), as that term is defined in section 3(a)(47) of the [Securities](/usc/15/77b.md?p=a-1) Exchange Act of 1934 [[15 U.S.C. 78c(a)(47)](/usc/15/78c.md?p=a-47)], or by [chapter 5](/usc/5/chptI-ch5.md) of title 5, in connection with cooperation, coordination, or consultation with— - (A) any [association](#d-6) referred to in paragraph [(1)](#d-1) or [(3)](#d-3) or any [conference](#d-6) or [meeting](#d-6) referred to in [paragraph (4)](#d-4), while such [association](#d-6), [conference](#d-6), or [meeting](#d-6) is carrying out activities in furtherance of the provisions of this subsection; or - (B) any [forum](#d-6), [agency](#d-6), or [organization](#d-6), or [group](#d-6) referred to in [section 80c–1 of this title](/usc/15/80c–1.md), while such [forum](#d-6), [agency](#d-6), [organization](#d-6), or [group](#d-6) is carrying out activities in furtherance of the provisions of such [section 80c–1](/usc/15/80c–1.md). As used in this paragraph, the terms “association”, “conference”, “meeting”, “forum”, “agency”, “organization”, and “group” include any [committee](/usc/15/2921.md?p=1), subgroup, or representative of such entities. - (e) **Evaluation of rules or programs—** For the purpose of evaluating any rule or [program](/usc/15/2921.md?p=6) of the [Commission](/usc/15/77b.md?p=a-5) issued or carried out under any provision of the [securities laws](/usc/15/77z–2.md?p=i-5), as defined in section 3 of the [Securities](/usc/15/77b.md?p=a-1) Exchange Act of 1934 ([15 U.S.C. 78c](/usc/15/78c.md)), and the purposes of considering, proposing, adopting, or engaging in any such rule or [program](/usc/15/2921.md?p=6) or developing new rules or [programs](/usc/15/2921.md?p=6), the [Commission](/usc/15/77b.md?p=a-5) may— - (1) gather information from and communicate with investors or other members of the public; - (2) engage in such temporary investor testing [programs](/usc/15/2921.md?p=6) as the [Commission](/usc/15/77b.md?p=a-5) determines are in the public interest or would protect investors; and - (3) consult with academics and consultants, as necessary to carry out this subsection. - (f) **Rule of construction—** For purposes of the Paperwork Reduction Act ([44 U.S.C. 3501](/usc/44/3501.md) et seq.), any action taken under [subsection (e)](#e) shall not be construed to be a collection of information. - (g) **Funding for the GASB—** - (1) **In general—** The [Commission](/usc/15/77b.md?p=a-5) may, subject to the limitations imposed by section 15B of the [Securities](/usc/15/77b.md?p=a-1) Exchange Act of 1934 ([15 U.S.C. 78o](/usc/15/78o.md)–4), require a national [securities](/usc/15/77b.md?p=a-1) [association](#d-6) registered under the [Securities](/usc/15/77b.md?p=a-1) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.] to establish— - (A) a reasonable annual accounting support fee to adequately fund the annual budget of the Governmental Accounting Standards [Board](/usc/15/205c.md?p=1) (referred to in this subsection as the “GASB”); and - (B) rules and procedures, in consultation with the principal [organizations](#d-6) representing [State](/usc/15/15g.md?p=2) governors, legislators, local elected officials, and [State](/usc/15/15g.md?p=2) and local finance officers, to provide for the equitable allocation, assessment, and collection of the accounting support fee established under [subparagraph (A)](#g-1-A) from the members of the [association](#d-6), 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 Financial 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](/usc/15/15g.md?p=2) and [local governments](/usc/15/34.md?p=1) 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](/usc/15/77b.md?p=a-5) or any national [securities](/usc/15/77b.md?p=a-1) [association](#d-6) 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](/usc/15/3051.md?p=1) of a [State](/usc/15/15g.md?p=2) or [local government](/usc/15/34.md?p=1) to establish accounting and financial reporting standards. # §77t. Injunctions and prosecution of offenses - (a) **Investigation of violations—** Whenever it shall appear to the [Commission](/usc/15/77b.md?p=a-5), either upon complaint or otherwise, that the provisions of this subchapter, or of any rule or regulation prescribed under [authority](/usc/15/3051.md?p=1) thereof, have been or are about to be violated, it may, in its discretion, either require or permit such [person](/usc/15/78m.md?p=h-8-E) to file with it a statement in writing, under oath, or otherwise, as to all the facts and circumstances concerning the subject matter which it believes to be in the public interest to investigate, and may investigate such facts. - (b) **Action for injunction or criminal prosecution in district court—** Whenever it shall appear to the [Commission](/usc/15/77b.md?p=a-5) that any [person](/usc/15/78m.md?p=h-8-E) is engaged or about to engage in any acts or practices which constitute or will constitute a [violation](/usc/15/57b–1.md?p=a-7) of the provisions of this subchapter, or of any rule or regulation prescribed under [authority](/usc/15/3051.md?p=1) thereof, the [Commission](/usc/15/77b.md?p=a-5) may, in its discretion, bring an action in any district court of the United States, or United States court of any [Territory](/usc/15/77b.md?p=a-6), to enjoin such acts or practices, and upon a proper showing, a permanent or temporary injunction or restraining [order](/usc/15/8702.md?p=14) shall be granted without bond. The [Commission](/usc/15/77b.md?p=a-5) may transmit such evidence as may be available concerning such acts or practices to the Attorney General who may, in his discretion, [institute](/usc/15/9401.md?p=7) the necessary criminal proceedings under this subchapter. Any such criminal proceeding may be brought either in the district wherein the transmittal of the [prospectus](/usc/15/77b.md?p=a-10) or [security](/usc/15/77b.md?p=a-1) complained of begins, or in the district wherein such [prospectus](/usc/15/77b.md?p=a-10) or [security](/usc/15/77b.md?p=a-1) is received. - (c) **Writ of mandamus—** Upon [application](/usc/15/77ccc.md?p=8) of the [Commission](/usc/15/77b.md?p=a-5), the district courts of the United States and the United States courts of any [Territory](/usc/15/77b.md?p=a-6) shall have jurisdiction to issue writs of mandamus commanding any [person](/usc/15/78m.md?p=h-8-E) to comply with the provisions of this subchapter or any [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77b.md?p=a-5) made in pursuance thereof. - (d) **Money penalties in civil actions—** - (1) **Authority of Commission—** Whenever it shall appear to the [Commission](/usc/15/77b.md?p=a-5) that any [person](/usc/15/78m.md?p=h-8-E) has violated any provision of this subchapter, the rules or regulations thereunder, or a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/77b.md?p=a-5) pursuant to [section 77h–1 of this title](/usc/15/77h–1.md), other than by committing a [violation](/usc/15/57b–1.md?p=a-7) subject to a penalty pursuant to [section 78u–1 of this title](/usc/15/78u–1.md), the [Commission](/usc/15/77b.md?p=a-5) may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, upon a proper showing, a civil penalty to be paid by the [person](/usc/15/78m.md?p=h-8-E) who committed such [violation](/usc/15/57b–1.md?p=a-7). - (2) **Amount of penalty—** - (A) **First tier—** The amount of the penalty shall be determined by the court in light of the facts and circumstances. For each [violation](/usc/15/57b–1.md?p=a-7), the amount of the penalty shall not exceed the greater of (i) $5,000 for a natural [person](/usc/15/78m.md?p=h-8-E) or $50,000 for any other [person](/usc/15/78m.md?p=h-8-E), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#d-2-A), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $50,000 for a natural [person](/usc/15/78m.md?p=h-8-E) or $250,000 for any other [person](/usc/15/78m.md?p=h-8-E), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#d-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#d-2-A) and [(B)](#d-2-B), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $100,000 for a natural [person](/usc/15/78m.md?p=h-8-E) or $500,000 for any other [person](/usc/15/78m.md?p=h-8-E), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if— - (I) the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#d-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (II) such [violation](/usc/15/57b–1.md?p=a-7) directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/78m.md?p=h-8-E). - (3) **Procedures for collection—** - (A) **Payment of penalty to Treasury—** A penalty imposed under this section shall be payable into the Treasury of the United States, except as otherwise provided in [section 7246 of this title](/usc/15/7246.md) and [section 78u–6 of this title](/usc/15/78u–6.md). - (B) **Collection of penalties—** If a [person](/usc/15/78m.md?p=h-8-E) upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/77b.md?p=a-5) may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court. - (C) **Remedy not exclusive—** The actions authorized by this subsection may be brought in addition to any other action that the [Commission](/usc/15/77b.md?p=a-5) or the Attorney General is entitled to bring. - (D) **Jurisdiction and venue—** For purposes of [section 77v of this title](/usc/15/77v.md), actions under this section shall be actions to enforce a liability or a duty created by this subchapter. - (4) **Special provisions relating to a violation of a cease-and-desist order—** In an action to enforce a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/77b.md?p=a-5) pursuant to [section 77h–1 of this title](/usc/15/77h–1.md), each separate [violation](/usc/15/57b–1.md?p=a-7) of such [order](/usc/15/8702.md?p=14) shall be a separate offense, except that in the case of a [violation](/usc/15/57b–1.md?p=a-7) through a continuing failure to comply with such an [order](/usc/15/8702.md?p=14), each day of the failure to comply with the [order](/usc/15/8702.md?p=14) shall be deemed a separate offense. - (e) **Authority of court to prohibit persons from serving as officers and directors—** In any proceeding under [subsection (b)](#b), the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any [person](/usc/15/78m.md?p=h-8-E) who violated [section 77q(a)(1) of this title](/usc/15/77q.md?p=a-1) from acting as an officer or director of any [issuer](/usc/15/77b.md?p=a-4) that has a class of [securities](/usc/15/77b.md?p=a-1) registered pursuant to [section 78l](/usc/15/78l.md) of this title or that is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title if the [person](/usc/15/78m.md?p=h-8-E)’s conduct demonstrates unfitness to serve as an officer or director of any such [issuer](/usc/15/77b.md?p=a-4). - (f) **Prohibition of attorneys’ fees paid from Commission disgorgement funds—** Except as otherwise ordered by the court upon motion by the [Commission](/usc/15/77b.md?p=a-5), or, in the case of an administrative action, as otherwise ordered by the [Commission](/usc/15/77b.md?p=a-5), funds disgorged as the result of an action brought by the [Commission](/usc/15/77b.md?p=a-5) in Federal court, or as a result of any [Commission](/usc/15/77b.md?p=a-5) administrative action, shall not be distributed as payment for attorneys’ fees or expenses incurred by private parties seeking distribution of the disgorged funds. - (g) **Authority of a court to prohibit persons from participating in an offering of penny stock—** - (1) **In general—** In any proceeding under [subsection (a)](#a) against any [person](/usc/15/78m.md?p=h-8-E) participating in, or, at the time of the alleged misconduct, who was participating in, an offering of [penny stock](/usc/15/77z–2.md?p=i-3), the court may prohibit that [person](/usc/15/78m.md?p=h-8-E) from participating in an offering of [penny stock](/usc/15/77z–2.md?p=i-3), conditionally or unconditionally, and permanently or for such period of time as the court shall determine. - (2) **Definition—** For purposes of this subsection, the term “person participating in an offering of penny stock” includes any [person](/usc/15/78m.md?p=h-8-E) engaging in activities with a [broker](/usc/15/6102.md?p=d-2-B-i), [dealer](/usc/15/77b.md?p=a-12), or [issuer](/usc/15/77b.md?p=a-4) for purposes of issuing, trading, or inducing or attempting to induce the [purchase](/usc/15/77b.md?p=a-18) or sale of, any [penny stock](/usc/15/77z–2.md?p=i-3). The [Commission](/usc/15/77b.md?p=a-5) may, by rule or regulation, define such term to include other activities, and may, by rule, regulation, or [order](/usc/15/8702.md?p=14), exempt any [person](/usc/15/78m.md?p=h-8-E) or class of [persons](/usc/15/78m.md?p=h-8-E), in whole or in part, conditionally or unconditionally, from inclusion in such term. # §77u. Hearings by Commission All hearings shall be public and may be held before the [Commission](/usc/15/77b.md?p=a-5) or an officer or officers of the [Commission](/usc/15/77b.md?p=a-5) designated by it, and appropriate records thereof shall be kept. # §77v. Jurisdiction of offenses and suits - (a) **Federal and State courts; venue; service of process; review; removal; costs—** The district courts of the United States and the United States courts of any [Territory](/usc/15/77b.md?p=a-6) shall have jurisdiction of offenses and [violations](/usc/15/57b–1.md?p=a-7) under this subchapter and under the rules and regulations promulgated by the [Commission](/usc/15/77b.md?p=a-5) in respect thereto, and, concurrent with [State](/usc/15/15g.md?p=2) and Territorial courts, except as provided in [section 77p of this title](/usc/15/77p.md) with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. In any action or proceeding instituted by the [Commission](/usc/15/77b.md?p=a-5) under this subchapter in a United States district court for any judicial district, a subpoena issued to compel the attendance of a witness or the production of documents or tangible things (or both) at a hearing or trial may be served at any place within the United States. [Rule 45(c)(3)(A)(ii)](/usc/28a/civil-45.md) of the Federal Rules of Civil Procedure shall not apply to a subpoena issued under the preceding sentence. Judgments and decrees so rendered shall be subject to review as provided in sections [1254](/usc/28/1254.md), [1291](/usc/28/1291.md), [1292](/usc/28/1292.md), and [1294](/usc/28/1294.md) of title 28. Except as provided in [section 77p(c) of this title](/usc/15/77p.md?p=c), no case arising under this subchapter and brought in any [State](/usc/15/15g.md?p=2) court of competent jurisdiction shall be removed to any court of the United States. No costs shall be assessed for or against the [Commission](/usc/15/77b.md?p=a-5) in any proceeding under this subchapter brought by or against it in the Supreme Court or such other courts. - (b) **Contumacy or refusal to obey subpena; contempt—** In case of contumacy or refusal to obey a subpena issued to any [person](/usc/15/78m.md?p=h-8-E), any of the said United States courts, within the jurisdiction of which said [person](/usc/15/78m.md?p=h-8-E) guilty of contumacy or refusal to obey is found or resides, upon [application](/usc/15/77ccc.md?p=8) by the [Commission](/usc/15/77b.md?p=a-5) may issue to such [person](/usc/15/78m.md?p=h-8-E) an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/78m.md?p=h-8-E) to appear before the [Commission](/usc/15/77b.md?p=a-5), or one of its examiners designated by it, there to produce documentary evidence if so ordered, or there to give evidence touching the matter in question; and any failure to obey such [order](/usc/15/8702.md?p=14) of the court may be punished by said court as a contempt thereof. - (c) **Extraterritorial jurisdiction—** The district courts of the United States and the United States courts of any [Territory](/usc/15/77b.md?p=a-6) shall have jurisdiction of an action or proceeding brought or instituted by the [Commission](/usc/15/77b.md?p=a-5) or the United States alleging a [violation](/usc/15/57b–1.md?p=a-7) of [section 77q(a) of this title](/usc/15/77q.md?p=a) involving— - (1) conduct within the United States that constitutes significant steps in furtherance of the [violation](/usc/15/57b–1.md?p=a-7), even if the [securities](/usc/15/77b.md?p=a-1) 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. # §77w. Unlawful representations Neither the fact that the [registration statement](/usc/15/77b.md?p=a-8) for a [security](/usc/15/77b.md?p=a-1) has been filed or is in effect nor the fact that a stop [order](/usc/15/8702.md?p=14) is not in effect with respect thereto shall be deemed a finding by the [Commission](/usc/15/77b.md?p=a-5) that the [registration statement](/usc/15/77b.md?p=a-8) is true and accurate on its face or that it does not contain an untrue statement of fact or omit to [state](/usc/15/15g.md?p=2) a material fact, or be held to mean that the [Commission](/usc/15/77b.md?p=a-5) has in any way passed upon the merits of, or given approval to, such [security](/usc/15/77b.md?p=a-1). It shall be unlawful to make, or cause to be made to any prospective purchaser any representation contrary to the foregoing provisions of this section. # §77x. Penalties Any [person](/usc/15/78m.md?p=h-8-E) who willfully violates any of the provisions of this subchapter, or the rules and regulations promulgated by the [Commission](/usc/15/77b.md?p=a-5) under [authority](/usc/15/3051.md?p=1) thereof, or any [person](/usc/15/78m.md?p=h-8-E) who willfully, in a [registration statement](/usc/15/77b.md?p=a-8) filed under this subchapter, makes any untrue statement of a material fact or omits to [state](/usc/15/15g.md?p=2) any material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined not more than $10,000 or imprisoned not more than five years, or both. # §77y. Jurisdiction of other Government agencies over securities Nothing in this subchapter shall relieve any [person](/usc/15/78m.md?p=h-8-E) from submitting to the respective supervisory units of the Government of the United States information, reports, or other documents that may be required by any provision of law. # §77z. Separability If any provision of this chapter, or the [application](/usc/15/77ccc.md?p=8) of such provision to any [person](/usc/15/78m.md?p=h-8-E) or circumstance, shall be held invalid, the remainder of this chapter, or the [application](/usc/15/77ccc.md?p=8) of such provision to [persons](/usc/15/78m.md?p=h-8-E) or circumstances other than those as to which it is held invalid, shall not be affected thereby. # §77z–1. Private securities litigation - (a) **Private class actions—** - (1) **In general—** The provisions of this subsection shall apply to each private action arising under this subchapter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure. - (2) **Certification filed with complaint—** - (A) **In general—** Each plaintiff seeking to serve as a representative party on behalf of a class shall provide a sworn certification, which shall be personally signed by such plaintiff and filed with the complaint, that— - (i) [states](/usc/15/15g.md?p=2) that the plaintiff has reviewed the complaint and authorized its filing; - (ii) [states](/usc/15/15g.md?p=2) that the plaintiff did not [purchase](/usc/15/77b.md?p=a-18) the [security](/usc/15/77b.md?p=a-1) that is the subject of the complaint at the direction of plaintiff’s counsel or in [order](/usc/15/8702.md?p=14) to participate in any private action arising under this subchapter; - (iii) [states](/usc/15/15g.md?p=2) that the plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary; - (iv) sets forth all of the transactions of the plaintiff in the [security](/usc/15/77b.md?p=a-1) that is the subject of the complaint during the class period specified in the complaint; - (v) identifies any other action under this subchapter, filed during the 3-year period preceding the date on which the certification is signed by the plaintiff, in which the plaintiff has sought to serve, or served, as a representative party on behalf of a class; and - (vi) [states](/usc/15/15g.md?p=2) that the plaintiff will not accept any payment for serving as a representative party on behalf of a class beyond the plaintiff’s pro rata share of any recovery, except as ordered or approved by the court in accordance with [paragraph (4)](#a-4). - (B) **Nonwaiver of attorney-client privilege—** The certification filed pursuant to [subparagraph (A)](#a-2-A) shall not be construed to be a waiver of the attorney-client privilege. - (3) **Appointment of lead plaintiff—** - (A) **Early notice to class members—** - (i) **In general—** Not later than 20 days after the date on which the complaint is filed, the plaintiff or plaintiffs shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class— - (I) of the pendency of the action, the claims asserted therein, and the purported class period; and - (II) that, not later than 60 days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class. - (ii) **Multiple actions—** If more than one action on behalf of a class asserting substantially the same claim or claims arising under this subchapter is filed, only the plaintiff or plaintiffs in the first filed action shall be required to cause notice to be published in accordance with [clause (i)](#a-3-A-i). - (iii) **Additional notices may be required under Federal rules—** Notice required under [clause (i)](#a-3-A-i) shall be in addition to any notice required pursuant to the Federal Rules of Civil Procedure. - (B) **Appointment of lead plaintiff—** - (i) **In general—** Not later than 90 days after the date on which a notice is published under [subparagraph (A)(i)](#a-3-A-i), the court shall consider any motion made by a purported class member in response to the notice, including any motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members (hereafter in this paragraph referred to as the “most adequate plaintiff”) in accordance with this subparagraph. - (ii) **Consolidated actions—** If more than one action on behalf of a class asserting substantially the same claim or claims arising under this subchapter has been filed, and any party has sought to consolidate those actions for pretrial purposes or for trial, the court shall not make the determination required by [clause (i)](#a-3-B-i) until after the decision on the motion to consolidate is rendered. As soon as practicable after such decision is rendered, the court shall appoint the most adequate plaintiff as lead plaintiff for the consolidated actions in accordance with this subparagraph. - (iii) **Rebuttable presumption—** - (I) **In general—** Subject to [subclause (II)](#a-3-B-iii-II), for purposes of [clause (i)](#a-3-B-i), the court shall adopt a presumption that the most adequate plaintiff in any private action arising under this subchapter is the [person](/usc/15/78m.md?p=h-8-E) or group of [persons](/usc/15/78m.md?p=h-8-E) that— - (aa) has either filed the complaint or made a motion in response to a notice under [subparagraph (A)(i)](#a-3-A-i); - (bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and - (cc) otherwise satisfies the requirements of [Rule 23](/usc/28a/civil-23.md) of the Federal Rules of Civil Procedure. - (II) **Rebuttal evidence—** The presumption described in [subclause (I)](#a-3-B-iii-I) may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff— - (aa) will not fairly and adequately protect the interests of the class; or - (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class. - (iv) **Discovery—** For purposes of this subparagraph, discovery relating to whether a member or members of the purported plaintiff class is the most adequate plaintiff may be conducted by a plaintiff only if the plaintiff first demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class. - (v) **Selection of lead counsel—** The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class. - (vi) **Restrictions on professional plaintiffs—** Except as the court may otherwise permit, consistent with the purposes of this section, a [person](/usc/15/78m.md?p=h-8-E) may be a lead plaintiff, or an officer, director, or fiduciary of a lead plaintiff, in no more than 5 [securities](/usc/15/77b.md?p=a-1) class actions brought as plaintiff class actions pursuant to the Federal Rules of Civil Procedure during any 3-year period. - (4) **Recovery by plaintiffs—** The share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class. Nothing in this paragraph shall be construed to limit the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of the class. - (5) **Restrictions on settlements under seal—** The terms and provisions of any settlement [agreement](/usc/15/7a.md?p=2) of a class action shall not be filed under seal, except that on motion of any party to the settlement, the court may [order](/usc/15/8702.md?p=14) filing under seal for those portions of a settlement [agreement](/usc/15/7a.md?p=2) as to which good cause is shown for such filing under seal. For purposes of this paragraph, good cause shall exist only if publication of a term or provision of a settlement [agreement](/usc/15/7a.md?p=2) would cause direct and substantial harm to any party. - (6) **Restrictions on payment of attorneys’ fees and expenses—** Total attorneys’ fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class. - (7) **Disclosure of settlement terms to class members—** Any proposed or final settlement [agreement](/usc/15/7a.md?p=2) that is published or otherwise disseminated to the class shall include each of the following statements, along with a cover page summarizing the information contained in such statements: - (A) **Statement of plaintiff recovery—** The amount of the settlement proposed to be distributed to the parties to the action, determined in the aggregate and on an average per share basis. - (B) **Statement of potential outcome of case—** - (i) **Agreement on amount of damages—** If the settling parties agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this subchapter, a statement concerning the average amount of such potential damages per share. - (ii) **Disagreement on amount of damages—** If the parties do not agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this subchapter, a statement from each settling party concerning the issue or issues on which the parties disagree. - (iii) **Inadmissibility for certain purposes—** A statement made in accordance with clause [(i)](#a-7-B-i) or [(ii)](#a-7-B-ii) concerning the amount of damages shall not be admissible in any Federal or [State](/usc/15/15g.md?p=2) judicial action or administrative proceeding, other than an action or proceeding arising out of such statement. - (C) **Statement of attorneys’ fees or costs sought—** If any of the settling parties or their counsel intend to apply to the court for an award of attorneys’ fees or costs from any fund established as part of the settlement, a statement indicating which parties or counsel intend to make such an [application](/usc/15/77ccc.md?p=8), the amount of fees and costs that will be sought (including the amount of such fees and costs determined on an average per share basis), and a brief explanation supporting the fees and costs sought. - (D) **Identification of lawyers’ representatives—** The name, telephone number, and address of one or more representatives of counsel for the plaintiff class who will be reasonably available to answer questions from class members concerning any matter contained in any notice of settlement published or otherwise disseminated to the class. - (E) **Reasons for settlement—** A brief statement explaining the reasons why the parties are proposing the settlement. - (F) **Other information—** Such other information as may be required by the court. - (8) **Attorney conflict of interest—** If a plaintiff class is represented by an attorney who directly owns or otherwise has a beneficial interest in the [securities](/usc/15/77b.md?p=a-1) that are the subject of the litigation, the court shall make a determination of whether such ownership or other interest constitutes a conflict of interest sufficient to disqualify the attorney from representing the plaintiff class. - (b) **Stay of discovery; preservation of evidence—** - (1) **In general—** In any private action arising under this subchapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds, upon the motion of any party, that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party. - (2) **Preservation of evidence—** During the pendency of any stay of discovery pursuant to this subsection, unless otherwise ordered by the court, any party to the action with actual notice of the allegations contained in the complaint shall treat all documents, data compilations (including electronically recorded or stored data), and tangible objects that are in the custody or control of such [person](/usc/15/78m.md?p=h-8-E) and that are relevant to the allegations, as if they were the subject of a continuing request for production of documents from an opposing party under the Federal Rules of Civil Procedure. - (3) **Sanction for willful violation—** A party aggrieved by the willful failure of an opposing party to comply with [paragraph (2)](#b-2) may apply to the court for an [order](/usc/15/8702.md?p=14) awarding appropriate sanctions. - (4) **Circumvention of stay of discovery—** Upon a proper showing, a court may stay discovery proceedings in any private action in a [State](/usc/15/15g.md?p=2) court as necessary in aid of its jurisdiction, or to protect or effectuate its judgments, in an action subject to a stay of discovery pursuant to this subsection. - (c) **Sanctions for abusive litigation—** - (1) **Mandatory review by court—** In any private action arising under this subchapter, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion. - (2) **Mandatory sanctions—** If the court makes a finding under [paragraph (1)](#c-1) that a party or attorney violated any requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on such party or attorney in accordance with [Rule 11](/usc/28a/civil-11.md) of the Federal Rules of Civil Procedure. Prior to making a finding that any party or attorney has violated [Rule 11](/usc/28a/civil-11.md) of the Federal Rules of Civil Procedure, the court shall give such party or attorney notice and an opportunity to respond. - (3) **Presumption in favor of attorneys’ fees and costs—** - (A) **In general—** Subject to subparagraphs [(B)](#c-3-B) and [(C)](#c-3-C), for purposes of [paragraph (2)](#c-2), the court shall adopt a presumption that the appropriate sanction— - (i) for failure of any responsive pleading or dispositive motion to comply with any requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys’ fees and other expenses incurred as a direct result of the [violation](/usc/15/57b–1.md?p=a-7); and - (ii) for substantial failure of any complaint to comply with any requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys’ fees and other expenses incurred in the action. - (B) **Rebuttal evidence—** The presumption described in [subparagraph (A)](#c-3-A) may be rebutted only upon proof by the party or attorney against whom sanctions are to be imposed that— - (i) the award of attorneys’ fees and other expenses will impose an unreasonable burden on that party or attorney and would be unjust, and the failure to make such an award would not impose a greater burden on the party in whose favor sanctions are to be imposed; or - (ii) the [violation](/usc/15/57b–1.md?p=a-7) of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure was de minimis. - (C) **Sanctions—** If the party or attorney against whom sanctions are to be imposed meets its burden under [subparagraph (B)](#c-3-B), the court shall award the sanctions that the court deems appropriate pursuant to [Rule 11](/usc/28a/civil-11.md) of the Federal Rules of Civil Procedure. - (d) **Defendant’s right to written interrogatories—** In any private action arising under this subchapter in which the plaintiff may recover money damages only on proof that a defendant acted with a particular [state](/usc/15/15g.md?p=2) of mind, the court shall, when requested by a defendant, submit to the jury a [written](/usc/15/77b.md?p=a-9) interrogatory on the issue of each such defendant’s [state](/usc/15/15g.md?p=2) of mind at the time the alleged [violation](/usc/15/57b–1.md?p=a-7) occurred. # §77z–2. Application of safe harbor for forward-looking statements - (a) **Applicability—** This section shall apply only to a [forward-looking statement](#i-1) made by— - (1) an [issuer](/usc/15/77b.md?p=a-4) that, at the time that the statement is made, is subject to the reporting requirements of [section 78m(a)](/usc/15/78m.md?p=a) or [section 78o(d)](/usc/15/78o.md?p=d) of this title; - (2) a [person](/usc/15/78m.md?p=h-8-E) acting on behalf of such [issuer](/usc/15/77b.md?p=a-4); - (3) an outside reviewer retained by such [issuer](/usc/15/77b.md?p=a-4) making a statement on behalf of such [issuer](/usc/15/77b.md?p=a-4); or - (4) an underwriter, with respect to information provided by such [issuer](/usc/15/77b.md?p=a-4) or information derived from information provided by the [issuer](/usc/15/77b.md?p=a-4). - (b) **Exclusions—** Except to the extent otherwise specifically provided by rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77b.md?p=a-5), this section shall not apply to a [forward-looking statement](#i-1)— - (1) that is made with respect to the business or operations of the [issuer](/usc/15/77b.md?p=a-4), if the [issuer](/usc/15/77b.md?p=a-4)— - (A) during the 3-year period preceding the date on which the statement was first made— - (i) was convicted of any felony or misdemeanor described in [clauses (i) through (iv)](/usc/15/78o.md?p=b-4-B-i..b-4-B-iv) of section 78o(b)(4)(B) of this title; or - (ii) has been made the subject of a judicial or administrative decree or [order](/usc/15/8702.md?p=14) arising out of a governmental action that— - (I) prohibits future [violations](/usc/15/57b–1.md?p=a-7) of the antifraud provisions of the [securities laws](#i-5); - (II) requires that the [issuer](/usc/15/77b.md?p=a-4) cease and desist from violating the antifraud provisions of the [securities laws](#i-5); or - (III) determines that the [issuer](/usc/15/77b.md?p=a-4) violated the antifraud provisions of the [securities laws](#i-5); - (B) makes the [forward-looking statement](#i-1) in connection with an offering of [securities](/usc/15/77b.md?p=a-1) by a [blank check company](#i-7); - (C) issues [penny stock](#i-3); - (D) makes the [forward-looking statement](#i-1) in connection with a [rollup transaction](#i-7); or - (E) makes the [forward-looking statement](#i-1) in connection with a [going private transaction](#i-4); or - (2) that is— - (A) included in a financial statement prepared in accordance with generally accepted accounting principles; - (B) contained in a [registration statement](/usc/15/77b.md?p=a-8) of, or otherwise issued by, an [investment company](#i-2); - (C) made in connection with a tender offer; - (D) made in connection with an initial public offering; - (E) made in connection with an offering by, or relating to the operations of, a [partnership](#i-7), [limited liability company](#i-7), or a [direct participation investment program](#i-7); or - (F) made in a disclosure of beneficial ownership in a report required to be filed with the [Commission](/usc/15/77b.md?p=a-5) pursuant to [section 78m(d) of this title](/usc/15/78m.md?p=d). - (c) **Safe harbor—** - (1) **In general—** Except as provided in [subsection (b)](#b), in any private action arising under this subchapter that is based on an untrue statement of a material fact or omission of a material fact necessary to make the statement not misleading, a [person](/usc/15/78m.md?p=h-8-E) referred to in [subsection (a)](#a) shall not be liable with respect to any [forward-looking statement](#i-1), whether [written](/usc/15/77b.md?p=a-9) or oral, if and to the extent that— - (A) the [forward-looking statement](#i-1) is— - (i) identified as a [forward-looking statement](#i-1), and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the [forward-looking statement](#i-1); or - (ii) immaterial; or - (B) the plaintiff fails to prove that the [forward-looking statement](#i-1)— - (i) if made by a natural [person](/usc/15/78m.md?p=h-8-E), was made with actual knowledge by that [person](/usc/15/78m.md?p=h-8-E) that the statement was false or misleading; or - (ii) if made by a business entity, was— - (I) made by or with the approval of an executive officer of that entity, and - (II) made or approved by such officer with actual knowledge by that officer that the statement was false or misleading. - (2) **Oral forward-looking statements—** In the case of an oral [forward-looking statement](#i-1) made by an [issuer](/usc/15/77b.md?p=a-4) that is subject to the reporting requirements of [section 78m(a)](/usc/15/78m.md?p=a) or [section 78o(d)](/usc/15/78o.md?p=d) of this title, or by a [person](/usc/15/78m.md?p=h-8-E) acting on behalf of such [issuer](/usc/15/77b.md?p=a-4), the requirement set forth in [paragraph (1)(A)](#c-1-A) shall be deemed to be satisfied— - (A) if the oral [forward-looking statement](#i-1) is accompanied by a cautionary statement— - (i) that the particular oral statement is a [forward-looking statement](#i-1); and - (ii) that the actual results could differ materially from those projected in the [forward-looking statement](#i-1); and - (B) if— - (i) the oral [forward-looking statement](#i-1) is accompanied by an oral statement that additional information concerning factors that could cause actual results to differ materially from those in the [forward-looking statement](#i-1) is contained in a readily available [written](/usc/15/77b.md?p=a-9) document, or portion thereof; - (ii) the accompanying oral statement referred to in [clause (i)](#c-2-B-i) identifies the document, or portion thereof, that contains the additional information about those factors relating to the [forward-looking statement](#i-1); and - (iii) the information contained in that [written](/usc/15/77b.md?p=a-9) document is a cautionary statement that satisfies the standard established in [paragraph (1)(A)](#c-1-A). - (3) **Availability—** Any document filed with the [Commission](/usc/15/77b.md?p=a-5) or generally disseminated shall be deemed to be readily available for purposes of [paragraph (2)](#c-2). - (4) **Effect on other safe harbors—** The exemption provided for in [paragraph (1)](#c-1) shall be in addition to any exemption that the [Commission](/usc/15/77b.md?p=a-5) may establish by rule or regulation under [subsection (g)](#g). - (d) **Duty to update—** Nothing in this section shall impose upon any [person](/usc/15/78m.md?p=h-8-E) a duty to update a [forward-looking statement](#i-1). - (e) **Dispositive motion—** On any motion to dismiss based upon [subsection (c)(1)](#c-1), the court shall consider any statement cited in the complaint and cautionary statement accompanying the [forward-looking statement](#i-1), which are not subject to material dispute, cited by the defendant. - (f) **Stay pending decision on motion—** In any private action arising under this subchapter, the court shall stay discovery (other than discovery that is specifically directed to the applicability of the exemption provided for in this section) during the pendency of any motion by a defendant for summary judgment that is based on the grounds that— - (1) the statement or omission upon which the complaint is based is a [forward-looking statement](#i-1) within the meaning of this section; and - (2) the exemption provided for in this section precludes a claim for relief. - (g) **Exemption authority—** In addition to the exemptions provided for in this section, the [Commission](/usc/15/77b.md?p=a-5) may, by rule or regulation, provide exemptions from or under any provision of this subchapter, including with respect to liability that is based on a statement or that is based on projections or other forward-looking information, if and to the extent that any such exemption is consistent with the public interest and the protection of investors, as determined by the [Commission](/usc/15/77b.md?p=a-5). - (h) **Effect on other authority of Commission—** Nothing in this section limits, either expressly or by implication, the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/77b.md?p=a-5) to exercise similar [authority](/usc/15/3051.md?p=1) or to adopt similar rules and regulations with respect to [forward-looking statements](#i-1) under any other statute under which the [Commission](/usc/15/77b.md?p=a-5) exercises rulemaking [authority](/usc/15/3051.md?p=1). - (i) **Definitions—** For purposes of this section, the following definitions shall apply: - (1) **Forward-looking statement—** The term “forward-looking statement” means— - (A) a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, capital expenditures, dividends, capital structure, or other financial items; - (B) a statement of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the [issuer](/usc/15/77b.md?p=a-4); - (C) a statement of future economic performance, including any such statement contained in a discussion and analysis of financial condition by the management or in the results of operations included pursuant to the rules and regulations of the [Commission](/usc/15/77b.md?p=a-5); - (D) any statement of the assumptions underlying or relating to any statement described in subparagraph [(A)](#i-1-A), [(B)](#i-1-B), or [(C)](#i-1-C); - (E) any report issued by an outside reviewer retained by an [issuer](/usc/15/77b.md?p=a-4), to the extent that the report assesses a [forward-looking statement](#i-1) made by the [issuer](/usc/15/77b.md?p=a-4); or - (F) a statement containing a projection or estimate of such other items as may be specified by rule or regulation of the [Commission](/usc/15/77b.md?p=a-5). - (2) **Investment company—** The term “investment company” has the same meaning as in [section 80a–3(a) of this title](/usc/15/80a–3.md?p=a). - (3) **Penny stock—** The term “penny stock” has the same meaning as in [section 78c(a)(51) of this title](/usc/15/78c.md?p=a-51), and the rules and regulations, or [orders](/usc/15/8702.md?p=14) issued pursuant to that section. - (4) **Going private transaction—** The term “going private transaction” has the meaning given that term under the rules or regulations of the [Commission](/usc/15/77b.md?p=a-5) issued pursuant to [section 78m(e) of this title](/usc/15/78m.md?p=e). - (5) **Securities laws—** The term “securities laws” has the same meaning as in [section 78c of this title](/usc/15/78c.md). - (6) **Person acting on behalf of an issuer—** The term “person acting on behalf of an issuer” means an officer, director, or employee of the [issuer](/usc/15/77b.md?p=a-4). - (7) **Other terms—** The terms “blank check company”, “rollup transaction”, “partnership”, “limited liability company”, “executive officer of an entity” and “direct participation investment program”, have the meanings given those terms by rule or regulation of the [Commission](/usc/15/77b.md?p=a-5). # §77z–2a. Conflicts of interest relating to certain securitizations - (a) **In general—** An underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity, of an asset-backed [security](/usc/15/77b.md?p=a-1) (as such term is defined in [section 78c of this title](/usc/15/78c.md), which for the purposes of this section shall include a synthetic asset-backed [security](/usc/15/77b.md?p=a-1)), shall not, at any time for a period ending on the date that is one year after the date of the first closing of the sale of the asset-backed [security](/usc/15/77b.md?p=a-1), engage in any transaction that would involve or result in any material conflict of interest with respect to any investor in a transaction arising out of such activity. - (b) **Rulemaking—** Not later than 270 days after July 21, 2010, the [Commission](/usc/15/77b.md?p=a-5) shall issue rules for the purpose of implementing [subsection (a)](#a). - (c) **Exception—** The prohibitions of [subsection (a)](#a) shall not apply to— - (1) risk-mitigating hedging activities in connection with positions or holdings arising out of the underwriting, placement, initial [purchase](/usc/15/77b.md?p=a-18), or sponsorship of an asset-backed [security](/usc/15/77b.md?p=a-1), provided that such activities are designed to reduce the specific risks to the underwriter, placement agent, initial purchaser, or sponsor associated with positions or holdings arising out of such underwriting, placement, initial [purchase](/usc/15/77b.md?p=a-18), or sponsorship; or - (2) [purchases](/usc/15/77b.md?p=a-18) or sales of asset-backed [securities](/usc/15/77b.md?p=a-1) made pursuant to and consistent with— - (A) commitments of the underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity, to provide liquidity for the asset-backed [security](/usc/15/77b.md?p=a-1), or - (B) bona fide market-making in the asset backed [security](/usc/15/77b.md?p=a-1). - (d) **Rule of construction—** This subsection[^1] shall not otherwise limit the [application](/usc/15/77ccc.md?p=8) of [section 78o–11](/usc/15/78o–11.md) of this title. # §77z–3. General exemptive authority The [Commission](/usc/15/77b.md?p=a-5), by rule or regulation, may conditionally or unconditionally exempt any [person](/usc/15/78m.md?p=h-8-E), [security](/usc/15/77b.md?p=a-1), or transaction, or any class or classes of [persons](/usc/15/78m.md?p=h-8-E), [securities](/usc/15/77b.md?p=a-1), or transactions, from any provision or provisions of this subchapter or of any rule or regulation issued under this subchapter, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors. # §77z–4. Data standards - (a) **Requirement—** The [Commission](/usc/15/77b.md?p=a-5) shall, by rule, adopt data standards for all [registration statements](/usc/15/77b.md?p=a-8), and for all [prospectuses](/usc/15/77b.md?p=a-10) included in [registration statements](/usc/15/77b.md?p=a-8), required to be filed with the [Commission](/usc/15/77b.md?p=a-5) under this subchapter, except that the [Commission](/usc/15/77b.md?p=a-5) may exempt exhibits, signatures, and certifications from those data standards. - (b) **Consistency—** The data standards required under [subsection (a)](#a) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §77aa. Schedule of information required in registration statement schedule a - (1) The name under which the [issuer](/usc/15/77b.md?p=a-4) is doing or intends to do business; - (2) the name of the [State](/usc/15/15g.md?p=2) or other sovereign power under which the [issuer](/usc/15/77b.md?p=a-4) is organized; - (3) the location of the [issuer](/usc/15/77b.md?p=a-4)’s principal business office, and if the [issuer](/usc/15/77b.md?p=a-4) is a foreign or territorial [person](/usc/15/78m.md?p=h-8-E), the name and address of its agent in the United States authorized to receive notice; - (4) the names and addresses of the directors or [persons](/usc/15/78m.md?p=h-8-E) performing similar functions, and the chief executive, financial and accounting officers, chosen or to be chosen if the [issuer](/usc/15/77b.md?p=a-4) be a corporation, [association](/usc/15/657h.md?p=a-2), trust, or other entity; of all partners, if the [issuer](/usc/15/77b.md?p=a-4) be a partnership; and of the [issuer](/usc/15/77b.md?p=a-4), if the [issuer](/usc/15/77b.md?p=a-4) be an individual; and of the promoters in the case of a business to be formed, or formed within two years prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8); - (5) the names and addresses of the underwriters; - (6) the names and addresses of all [persons](/usc/15/78m.md?p=h-8-E), if any, owning of record or beneficially, if known, more than 10 per centum of any class of stock of the [issuer](/usc/15/77b.md?p=a-4), or more than 10 per centum in the aggregate of the outstanding stock of the [issuer](/usc/15/77b.md?p=a-4) as of a date within twenty days prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8); - (7) the amount of [securities](/usc/15/77b.md?p=a-1) of the [issuer](/usc/15/77b.md?p=a-4) held by any [person](/usc/15/78m.md?p=h-8-E) specified in paragraphs [(4)](#4), [(5)](#5), and [(6)](#6) of this schedule, as of a date within twenty days prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8), and, if possible, as of one year prior thereto, and the amount of the [securities](/usc/15/77b.md?p=a-1), for which the [registration statement](/usc/15/77b.md?p=a-8) is filed, to which such [persons](/usc/15/78m.md?p=h-8-E) have indicated their intention to subscribe; - (8) the general character of the business actually transacted or to be transacted by the [issuer](/usc/15/77b.md?p=a-4); - (9) a statement of the capitalization of the [issuer](/usc/15/77b.md?p=a-4), including the authorized and outstanding amounts of its capital stock and the proportion thereof paid up, the number and classes of shares in which such capital stock is divided, par value thereof, or if it has no par value, the stated or assigned value thereof, a description of the respective voting rights, preferences, conversion and [exchange](/usc/15/636.md?p=a-36-A-xvi) rights, rights to dividends, profits, or capital of each class, with respect to each other class, including the retirement and liquidation rights or values thereof; - (10) a statement of the [securities](/usc/15/77b.md?p=a-1), if any, covered by options outstanding or to be created in connection with the [security](/usc/15/77b.md?p=a-1) to be offered, together with the names and addresses of all [persons](/usc/15/78m.md?p=h-8-E), if any, to be allotted more than 10 per centum in the aggregate of such options; - (11) the amount of capital stock of each class issued or included in the shares of stock to be offered; - (12) the amount of the funded debt outstanding and to be created by the [security](/usc/15/77b.md?p=a-1) to be offered, with a brief description of the date, maturity, and character of such debt, rate of interest, character of amortization provisions, and the [security](/usc/15/77b.md?p=a-1), if any, therefor. If substitution of any [security](/usc/15/77b.md?p=a-1) is permissible, a summarized statement of the conditions under which such substitution is permitted. If substitution is permissible without notice, a specific statement to that effect; - (13) the specific purposes in detail and the approximate amounts to be devoted to such purposes, so far as determinable, for which the [security](/usc/15/77b.md?p=a-1) to be offered is to supply funds, and if the funds are to be raised in part from other sources, the amounts thereof and the sources thereof, shall be stated; - (14) the remuneration, paid or estimated to be paid, by the [issuer](/usc/15/77b.md?p=a-4) or its predecessor, directly or indirectly, during the past year and ensuing year to (a) the directors or [persons](/usc/15/78m.md?p=h-8-E) performing similar functions, and (b) its officers and other [persons](/usc/15/78m.md?p=h-8-E), naming them wherever such remuneration exceeded $25,000 during any such year; - (15) the estimated net proceeds to be derived from the [security](/usc/15/77b.md?p=a-1) to be offered; - (16) the price at which it is proposed that the [security](/usc/15/77b.md?p=a-1) shall be offered to the public or the method by which such price is computed and any variation therefrom at which any portion of such [security](/usc/15/77b.md?p=a-1) is proposed to be offered to any [persons](/usc/15/78m.md?p=h-8-E) or classes of [persons](/usc/15/78m.md?p=h-8-E), other than the underwriters, naming them or specifying the class. A variation in price may be proposed prior to the date of the public offering of the [security](/usc/15/77b.md?p=a-1), but the [Commission](/usc/15/77b.md?p=a-5) shall immediately be notified of such variation; - (17) all [commissions](/usc/15/77b.md?p=a-5) or [discounts](/usc/15/1602.md?p=q) paid or to be paid, directly or indirectly, by the [issuer](/usc/15/77b.md?p=a-4) to the underwriters in respect of the sale of the [security](/usc/15/77b.md?p=a-1) to be offered. [Commissions](/usc/15/77b.md?p=a-5) shall include all cash, [securities](/usc/15/77b.md?p=a-1), contracts, or anything else of value, paid, to be set aside, disposed of, or understandings with or for the benefit of any other [persons](/usc/15/78m.md?p=h-8-E) in which any underwriter is interested, made, in connection with the sale of such [security](/usc/15/77b.md?p=a-1). A [commission](/usc/15/77b.md?p=a-5) paid or to be paid in connection with the sale of such [security](/usc/15/77b.md?p=a-1) by a [person](/usc/15/78m.md?p=h-8-E) in which the [issuer](/usc/15/77b.md?p=a-4) has an interest or which is controlled or directed by, or under common control with, the [issuer](/usc/15/77b.md?p=a-4) shall be deemed to have been paid by the [issuer](/usc/15/77b.md?p=a-4). Where any such [commission](/usc/15/77b.md?p=a-5) is paid the amount of such [commission](/usc/15/77b.md?p=a-5) paid to each underwriter shall be stated; - (18) the amount or estimated amounts, itemized in reasonable detail, of expenses, other than [commissions](/usc/15/77b.md?p=a-5) specified in [paragraph (17)](#17) of this schedule, incurred or borne by or for the [account](/usc/15/1681a.md?p=r-4) of the [issuer](/usc/15/77b.md?p=a-4) in connection with the sale of the [security](/usc/15/77b.md?p=a-1) to be offered or properly chargeable thereto, including legal, engineering, certification, authentication, and other charges; - (19) the net proceeds derived from any [security](/usc/15/77b.md?p=a-1) sold by the [issuer](/usc/15/77b.md?p=a-4) during the two years preceding the filing of the [registration statement](/usc/15/77b.md?p=a-8), the price at which such [security](/usc/15/77b.md?p=a-1) was offered to the public, and the names of the principal underwriters of such [security](/usc/15/77b.md?p=a-1); - (20) any amount paid within two years preceding the filing of the [registration statement](/usc/15/77b.md?p=a-8) or intended to be paid to any promoter and the consideration for any such payment; - (21) the names and addresses of the vendors and the [purchase](/usc/15/77b.md?p=a-18) price of any property, or good will, acquired or to be acquired, not in the ordinary course of business, which is to be defrayed in whole or in part from the proceeds of the [security](/usc/15/77b.md?p=a-1) to be offered, the amount of any [commission](/usc/15/77b.md?p=a-5) payable to any [person](/usc/15/78m.md?p=h-8-E) in connection with such acquisition, and the name or names of such [person](/usc/15/78m.md?p=h-8-E) or [persons](/usc/15/78m.md?p=h-8-E), together with any expense incurred or to be incurred in connection with such acquisition, including the cost of borrowing money to finance such acquisition; - (22) full particulars of the nature and extent of the interest, if any, of every director, principal executive officer, and of every stockholder holding more than 10 per centum of any class of stock or more than 10 per centum in the aggregate of the stock of the [issuer](/usc/15/77b.md?p=a-4), in any property acquired, not in the ordinary course of business of the [issuer](/usc/15/77b.md?p=a-4), within two years preceding the filing of the [registration statement](/usc/15/77b.md?p=a-8) or proposed to be acquired at such date; - (23) the names and addresses of counsel who have passed on the legality of the issue; - (24) dates of and parties to, and the general effect concisely stated of every material contract made, not in the ordinary course of business, which contract is to be executed in whole or in part at or after the filing of the [registration statement](/usc/15/77b.md?p=a-8) or which contract has been made not more than two years before such filing. Any management contract or contract providing for special bonuses or profit-sharing arrangements, and every material patent or contract for a material patent right, and every contract by or with a public utility company or an affiliate thereof, providing for the giving or receiving of technical or financial advice or service (if such contract may involve a charge to any party thereto at a rate in excess of $2,500 per year in cash or [securities](/usc/15/77b.md?p=a-1) or anything else of value), shall be deemed a material contract; - (25) a balance sheet as of a date not more than ninety days prior to the date of the filing of the [registration statement](/usc/15/77b.md?p=a-8) showing all of the assets of the [issuer](/usc/15/77b.md?p=a-4), the nature and cost thereof, whenever determinable, in such detail and in such form as the [Commission](/usc/15/77b.md?p=a-5) shall prescribe (with intangible items segregated), including any loan in excess of $20,000 to any officer, director, stockholder or [person](/usc/15/78m.md?p=h-8-E) directly or indirectly controlling or controlled by the [issuer](/usc/15/77b.md?p=a-4), or [person](/usc/15/78m.md?p=h-8-E) under direct or indirect common control with the [issuer](/usc/15/77b.md?p=a-4). All the liabilities of the [issuer](/usc/15/77b.md?p=a-4) in such detail and such form as the [Commission](/usc/15/77b.md?p=a-5) shall prescribe, including surplus of the [issuer](/usc/15/77b.md?p=a-4) showing how and from what sources such surplus was created, all as of a date not more than ninety days prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8). If such statement be not certified by an independent public or certified accountant, in addition to the balance sheet required to be submitted under this schedule, a similar detailed balance sheet of the assets and liabilities of the [issuer](/usc/15/77b.md?p=a-4), certified by an independent public or certified accountant, of a date not more than one year prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8), shall be submitted; - (26) a profit and loss statement of the [issuer](/usc/15/77b.md?p=a-4) showing earnings and income, the nature and source thereof, and the expenses and fixed charges in such detail and such form as the [Commission](/usc/15/77b.md?p=a-5) shall prescribe for the latest fiscal year for which such statement is available and for the two preceding fiscal years, year by year, or, if such [issuer](/usc/15/77b.md?p=a-4) has been in actual business for less than three years, then for such time as the [issuer](/usc/15/77b.md?p=a-4) has been in actual business, year by year. If the date of the filing of the [registration statement](/usc/15/77b.md?p=a-8) is more than six months after the close of the last fiscal year, a statement from such closing date to the latest practicable date. Such statement shall show what the practice of the [issuer](/usc/15/77b.md?p=a-4) has been during the three years or lesser period as to the character of the charges, dividends or other distributions made against its various surplus [accounts](/usc/15/1681a.md?p=r-4), and as to depreciation, depletion, and maintenance charges, in such detail and form as the [Commission](/usc/15/77b.md?p=a-5) shall prescribe, and if stock dividends or avails from the sale of rights have been credited to income, they shall be shown separately with a statement of the basis upon which the [credit](/usc/15/1679a.md?p=4) is computed. Such statement shall also differentiate between any recurring and nonrecurring income and between any investment and operating income. Such statement shall be certified by an independent public or certified accountant; - (27) if the proceeds, or any part of the proceeds, of the [security](/usc/15/77b.md?p=a-1) to be issued is to be applied directly or indirectly to the [purchase](/usc/15/77b.md?p=a-18) of any business, a profit and loss statement of such business certified by an independent public or certified accountant, meeting the requirements of [paragraph (26)](#26) of this schedule, for the three preceding fiscal years, together with a balance sheet, similarly certified, of such business, meeting the requirements of [paragraph (25)](#25) of this schedule of a date not more than ninety days prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8) or at the date such business was acquired by the [issuer](/usc/15/77b.md?p=a-4) if the business was acquired by the [issuer](/usc/15/77b.md?p=a-4) more than ninety days prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8); - (28) a copy of any [agreement](/usc/15/7a.md?p=2) or [agreements](/usc/15/7a.md?p=2) (or, if identical [agreements](/usc/15/7a.md?p=2) are used, the forms thereof) made with any underwriter, including all contracts and [agreements](/usc/15/7a.md?p=2) referred to in [paragraph (17)](#17) of this schedule; - (29) a copy of the opinion or opinions of counsel in respect to the legality of the issue, with a translation of such opinion, when necessary, into the English language; - (30) a copy of all material contracts referred to in [paragraph (24)](#24) of this schedule, but no disclosure shall be required of any portion of any such contract if the [Commission](/usc/15/77b.md?p=a-5) determines that disclosure of such portion would impair the value of the contract and would not be necessary for the protection of the investors; - (31) unless previously filed and registered under the provisions of this subchapter, and brought up to date, (a) a copy of its articles of incorporation, with all amendments thereof and of its existing bylaws or instruments corresponding thereto, whatever the name, if the [issuer](/usc/15/77b.md?p=a-4) be a corporation; (b) copy of all instruments by which the trust is created or declared, if the [issuer](/usc/15/77b.md?p=a-4) is a trust; (c) a copy of its articles of partnership or [association](/usc/15/657h.md?p=a-2) and all other papers pertaining to its organization, if the [issuer](/usc/15/77b.md?p=a-4) is a partnership, unincorporated [association](/usc/15/657h.md?p=a-2), joint-stock company, or any other form of organization; and - (32) a copy of the underlying [agreements](/usc/15/7a.md?p=2) or indentures affecting any stock, bonds, or debentures offered or to be offered. In case of certificates of deposit, voting trust certificates, collateral trust certificates, certificates of interest or shares in unincorporated investment trusts, equipment trust certificates, interim or other receipts for certificates, and like [securities](/usc/15/77b.md?p=a-1), the [Commission](/usc/15/77b.md?p=a-5) shall establish rules and regulations requiring the submission of information of a like character applicable to such cases, together with such other information as it may deem appropriate and necessary regarding the character, financial or otherwise, of the actual [issuer](/usc/15/77b.md?p=a-4) of the [securities](/usc/15/77b.md?p=a-1) and/or the [person](/usc/15/78m.md?p=h-8-E) performing the acts and assuming the duties of depositor or manager. schedule b - (1) Name of borrowing government or subdivision thereof; - (2) specific purposes in detail and the approximate amounts to be devoted to such purposes, so far as determinable, for which the [security](/usc/15/77b.md?p=a-1) to be offered is to supply funds, and if the funds are to be raised in part from other sources, the amounts thereof and the sources thereof, shall be stated; - (3) the amount of the funded debt and the estimated amount of the floating debt outstanding and to be created by the [security](/usc/15/77b.md?p=a-1) to be offered, excluding intergovernmental debt, and a brief description of the date, maturity, character of such debt, rate of interest, character of amortization provisions, and the [security](/usc/15/77b.md?p=a-1), if any, therefor. If substitution of any [security](/usc/15/77b.md?p=a-1) is permissible, a statement of the conditions under which such substitution is permitted. If substitution is permissible without notice, a specific statement to that effect; - (4) whether or not the [issuer](/usc/15/77b.md?p=a-4) or its predecessor has, within a period of twenty years prior to the filing of the [registration statement](/usc/15/77b.md?p=a-8), defaulted on the principal or interest of any external [security](/usc/15/77b.md?p=a-1), excluding intergovernmental debt, and, if so, the date, amount, and circumstances of such default, and the terms of the succeeding arrangement, if any; - (5) the receipts, classified by source, and the expenditures, classified by purpose, in such detail and form as the [Commission](/usc/15/77b.md?p=a-5) shall prescribe for the latest fiscal year for which such information is available and the two preceding fiscal years, year by year; - (6) the names and addresses of the underwriters; - (7) the name and address of its authorized agent, if any, in the United States; - (8) the estimated net proceeds to be derived from the sale in the United States of the [security](/usc/15/77b.md?p=a-1) to be offered; - (9) the price at which it is proposed that the [security](/usc/15/77b.md?p=a-1) shall be offered in the United States to the public or the method by which such price is computed. A variation in price may be proposed prior to the date of the public offering of the [security](/usc/15/77b.md?p=a-1), but the [Commission](/usc/15/77b.md?p=a-5) shall immediately be notified of such variation; - (10) all [commissions](/usc/15/77b.md?p=a-5) paid or to be paid, directly or indirectly, by the [issuer](/usc/15/77b.md?p=a-4) to the underwriters in respect of the sale of the [security](/usc/15/77b.md?p=a-1) to be offered. [Commissions](/usc/15/77b.md?p=a-5) shall include all cash, [securities](/usc/15/77b.md?p=a-1), contracts, or anything else of value, paid, to be set aside, disposed of, or understandings with or for the benefit of any other [persons](/usc/15/78m.md?p=h-8-E) in which the underwriter is interested, made, in connection with the sale of such [security](/usc/15/77b.md?p=a-1). Where any such [commission](/usc/15/77b.md?p=a-5) is paid, the amount of such [commission](/usc/15/77b.md?p=a-5) paid to each underwriter shall be stated; - (11) the amount or estimated amounts, itemized in reasonable detail, of expenses, other than the [commissions](/usc/15/77b.md?p=a-5) specified in [paragraph (10)](#10) of this schedule, incurred or borne by or for the [account](/usc/15/1681a.md?p=r-4) of the [issuer](/usc/15/77b.md?p=a-4) in connection with the sale of the [security](/usc/15/77b.md?p=a-1) to be offered or properly chargeable thereto, including legal, engineering, certification, and other charges; - (12) the names and addresses of counsel who have passed upon the legality of the issue; - (13) a copy of any [agreement](/usc/15/7a.md?p=2) or [agreements](/usc/15/7a.md?p=2) made with any underwriter governing the sale of the [security](/usc/15/77b.md?p=a-1) within the United States; and - (14) an [agreement](/usc/15/7a.md?p=2) of the [issuer](/usc/15/77b.md?p=a-4) to furnish a copy of the opinion or opinions of counsel in respect to the legality of the issue, with a translation, where necessary, into the English language. Such opinion shall set out in full all laws, decrees, ordinances, or other acts of Government under which the issue of such [security](/usc/15/77b.md?p=a-1) has been authorized. # §77bb. “Corporation of Foreign Security Holders”; creation; principal office; branch offices For the purpose of protecting, conserving, and advancing the interests of the holders of foreign [securities](/usc/15/78lll.md?p=14) in default, there is hereby created a body corporate with the name “Corporation of Foreign [Security](/usc/15/78lll.md?p=14) Holders” (herein called the “Corporation”). The principal office of the Corporation shall be located in the District of Columbia, but there may be established agencies or branch offices in any city or cities of the United States under rules and regulations prescribed by the [board](/usc/15/205c.md?p=1) of directors. # §77cc. Directors of Corporation; appointment, term of office, and removal The control and management of the Corporation shall be vested in a [board](/usc/15/205c.md?p=1) of six directors, who shall be appointed and hold office in the following manner: As soon as practicable after the date this chapter takes effect the Federal Trade [Commission](/usc/15/78c.md?p=a-15) (hereinafter in this subchapter called “[Commission](/usc/15/78c.md?p=a-15)”) shall appoint six directors, and shall designate a chairman and a vice chairman from among their number. After the directors designated as chairman and vice chairman cease to be directors, their successors as chairman and vice chairman shall be elected by the [board](/usc/15/205c.md?p=1) of directors itself. Of the directors first appointed, two shall continue in office for a term of two years, two for a term of four years, and two for a term of six years, from the date this chapter takes effect, the term of each to be designated by the [Commission](/usc/15/78c.md?p=a-15) at the time of appointment. Their successors shall be appointed by the [Commission](/usc/15/78c.md?p=a-15), each for a term of six years from the date of the expiration of the term for which his predecessor was appointed, except that any [person](/usc/15/78m.md?p=h-8-E) appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed shall be appointed only for the unexpired term of such predecessor. No [person](/usc/15/78m.md?p=h-8-E) shall be eligible to serve as a director who within the five years preceding has had any interest, direct or indirect, in any corporation, company, partnership, bank, or [association](/usc/15/657h.md?p=a-2) which has sold or offered for sale any foreign [securities](/usc/15/78lll.md?p=14). The office of a director shall be vacated if the [board](/usc/15/205c.md?p=1) of directors shall, at a meeting specially convened for that purpose, by resolution passed by a majority of at least two-thirds of the [board](/usc/15/205c.md?p=1) of directors, remove such member from office, provided that the member whom it is proposed to remove shall have seven days’ notice sent to him of such meeting, and that he may be heard. # §77dd. Powers and duties of Corporation, generally The Corporation shall have power to adopt, alter, and use a corporate seal; to make contracts; to lease such real estate as may be necessary for the transaction of its business; to sue and be sued, to complain and to defend, in any court of competent jurisdiction, [State](/usc/15/15g.md?p=2) or Federal; to require from trustees, financial agents, or [dealers](/usc/15/6102.md?p=d-2-B-i) in foreign [securities](/usc/15/78lll.md?p=14) information relative to the original or present holders of foreign [securities](/usc/15/78lll.md?p=14) and such other information as may be required, and to issue subpenas therefor; to take over the functions of any fiscal and paying agents of any foreign [securities](/usc/15/78lll.md?p=14) in default; to borrow money for the purposes of this subchapter, and to pledge as collateral for such loans any [securities](/usc/15/78lll.md?p=14) deposited with the Corporation pursuant to this subchapter; by and with the consent and approval of the [Commission](/usc/15/78c.md?p=a-15) to select, employ, and fix the compensation of officers, directors, members of [committees](/usc/15/2921.md?p=1), employees, attorneys, and agents of the Corporation, without regard to the provisions of other laws applicable to the employment and compensation of officers or employees of the United States; to define their [authority](/usc/15/3051.md?p=1) and duties, require bonds of them and fix the penalties thereof, and to dismiss at pleasure such officers, employees, attorneys, and agents; and to prescribe, amend, and repeal, by its [board](/usc/15/205c.md?p=1) of directors, bylaws, rules, and regulations governing the manner in which its general business may be conducted and the powers granted to it by law may be exercised and enjoyed, together with provisions for such [committees](/usc/15/2921.md?p=1) and the functions thereof as the [board](/usc/15/205c.md?p=1) of directors may deem necessary for facilitating its business under this subchapter. The [board](/usc/15/205c.md?p=1) of directors of the Corporation shall determine and prescribe the manner in which its obligations shall be incurred and its expenses allowed and paid. # §77ee. Directors of Corporation, powers and duties generally The [board](/usc/15/205c.md?p=1) of directors may— - (1) Convene meetings of holders of foreign [securities](/usc/15/78lll.md?p=14). - (2) Invite the deposit and undertake the custody of foreign [securities](/usc/15/78lll.md?p=14) which have defaulted in the payment either of principal or interest, and issue receipts or certificates in the place of [securities](/usc/15/78lll.md?p=14) so deposited. - (3) Appoint [committees](/usc/15/2921.md?p=1) from the directors of the Corporation and/or all other [persons](/usc/15/78m.md?p=h-8-E) to represent holders of any class or classes of foreign [securities](/usc/15/78lll.md?p=14) which have defaulted in the payment either of principal or interest and determine and regulate the functions of such [committees](/usc/15/2921.md?p=1). The chairman and vice chairman of the [board](/usc/15/205c.md?p=1) of directors shall be ex officio chairman and vice chairman of each [committee](/usc/15/2921.md?p=1). - (4) Negotiate and carry out, or assist in negotiating and carrying out, arrangements for the resumption of payments due or in arrears in respect of any foreign [securities](/usc/15/78lll.md?p=14) in default or for rearranging the terms on which such [securities](/usc/15/78lll.md?p=14) may in future be held or for converting and exchanging the same for new [securities](/usc/15/78lll.md?p=14) or for any other object in relation thereto; and under this paragraph any plan or [agreement](/usc/15/7a.md?p=2) made with respect to such [securities](/usc/15/78lll.md?p=14) shall be binding upon depositors, providing that the consent of holders resident in the United States of 60 per centum of the [securities](/usc/15/78lll.md?p=14) deposited with the Corporation shall be obtained. - (5) Undertake, superintend, or take part in the collection and [application](/usc/15/77ccc.md?p=8) of funds derived from foreign [securities](/usc/15/78lll.md?p=14) which come into the possession of or under the control or management of the Corporation. - (6) Collect, preserve, publish, circulate, and render available in readily accessible form, when deemed essential or necessary, documents, statistics, reports, and information of all kinds in respect of foreign [securities](/usc/15/78lll.md?p=14), including particularly records of foreign external [securities](/usc/15/78lll.md?p=14) in default and records of the progress made toward the payment of past-due obligations. - (7) Take such steps as it may deem expedient with the view of securing the adoption of clear and simple forms of foreign [securities](/usc/15/78lll.md?p=14) and just and sound principles in the conditions and terms thereof. - (8) Generally, act in the name and on behalf of the holders of foreign [securities](/usc/15/78lll.md?p=14) the care or representation of whose interests may be entrusted to the Corporation; conserve and protect the rights and interests of holders of foreign [securities](/usc/15/78lll.md?p=14) issued, sold, or owned in the United States; adopt measures for the protection, vindication, and preservation or reservation of the rights and interests of holders of foreign [securities](/usc/15/78lll.md?p=14) either on any default in or on breach or contemplated breach of the conditions on which such foreign [securities](/usc/15/78lll.md?p=14) may have been issued, or otherwise; obtain for such holders such legal and other assistance and advice as the [board](/usc/15/205c.md?p=1) of directors may deem expedient; and do all such other things as are incident or conducive to the attainment of the above objects. # §77ff. Accounts and annual balance sheet of Corporation; audits The [board](/usc/15/205c.md?p=1) of directors shall cause [accounts](/usc/15/1681a.md?p=r-4) to be kept of all matters relating to or connected with the transactions and business of the Corporation, and cause a general [account](/usc/15/1681a.md?p=r-4) and balance sheet of the Corporation to be made out in each year, and cause all [accounts](/usc/15/1681a.md?p=r-4) to be audited by one or more auditors who shall examine the same and report thereon to the [board](/usc/15/205c.md?p=1) of directors. # §77gg. Annual report by Corporation; printing and distribution The Corporation shall make, print, and make public an annual report of its operations during each year, send a copy thereof, together with a copy of the [account](/usc/15/1681a.md?p=r-4) and balance sheet and auditor’s report, to the [Commission](/usc/15/78c.md?p=a-15) and to both Houses of Congress, and provide one copy of such report but not more than one on the [application](/usc/15/77ccc.md?p=8) of any [person](/usc/15/78m.md?p=h-8-E) and on receipt of a sum not exceeding $1: Provided, That the [board](/usc/15/205c.md?p=1) of directors in its discretion may distribute copies gratuitously. # §77hh. Assessments by Corporation on holders of foreign securities The Corporation may in its discretion levy charges, assessed on a pro rata basis, on the holders of foreign [securities](/usc/15/78lll.md?p=14) deposited with it: Provided, That any charge levied at the time of depositing [securities](/usc/15/78lll.md?p=14) with the Corporation shall not exceed one fifth of 1 per centum of the face value of such [securities](/usc/15/78lll.md?p=14): Provided further, That any additional charges shall bear a close relationship to the cost of operations and negotiations including those enumerated in sections [77dd](/usc/15/77dd.md) and [77ee](/usc/15/77ee.md) of this title and shall not exceed 1 per centum of the face value of such [securities](/usc/15/78lll.md?p=14). # §77ii. Subscriptions accepted by Corporation as loans; repayment The Corporation may receive subscriptions from any [person](/usc/15/78m.md?p=h-8-E), foundation with a public purpose, or agency of the United States Government, and such subscriptions may, in the discretion of the [board](/usc/15/205c.md?p=1) of directors, be treated as loans repayable when and as the [board](/usc/15/205c.md?p=1) of directors shall determine. # §77jj. Loans to Corporation from Reconstruction Finance Corporation authorized The Reconstruction Finance Corporation is authorized to loan out of its funds not to exceed $75,000 for the use of the Corporation. # §77kk. Representations by Corporation as acting for Department of State or United States forbidden; interference with foreign negotiations forbidden Notwithstanding the foregoing provisions of this subchapter, it shall be unlawful for, and nothing in this subchapter shall be taken or construed as permitting or authorizing, the Corporation in this subchapter created, or any [committee](/usc/15/2921.md?p=1) of said Corporation, or any [person](/usc/15/78m.md?p=h-8-E) or [persons](/usc/15/78m.md?p=h-8-E) acting for or representing or purporting to represent it— - (a) to claim or assert or pretend to be acting for or to represent the Department of State or the United States Government; - (b) to make any statements or representations of any kind to any foreign government or its officials or the officials of any political subdivision of any foreign government that said Corporation or any [committee](/usc/15/2921.md?p=1) thereof or any individual or individuals connected therewith were speaking or acting for the said Department of State or the United States Government; or - (c) to do any act directly or indirectly which would interfere with or obstruct or hinder or which might be calculated to obstruct, hinder, or interfere with the policy or policies of the said Department of State or the Government of the United States or any pending or contemplated diplomatic negotiations, arrangements, business or [exchanges](/usc/15/636.md?p=a-36-A-xvi) between the Government of the United States or said Department of State and any foreign government or any political subdivision thereof. # §77ll. Effective date of subchapter This subchapter shall not take effect until the President finds that its taking effect is in the public interest and by proclamation so declares. # §77mm. Short title This subchapter may be cited as the “Corporation of Foreign Bondholders Act, 1933.” # §77aaa. Short title This subchapter may be cited as the “Trust Indenture Act of 1939.” # §77bbb. Necessity for regulation - (a) **Practices adversely affecting public—** Upon the basis of facts disclosed by the reports of the [Securities](/usc/15/78lll.md?p=14) and [Exchange](/usc/15/636.md?p=a-36-A-xvi) [Commission](/usc/15/77ccc.md?p=15) made to the Congress pursuant to [section 78jj of this title](/usc/15/78jj.md) and otherwise disclosed and ascertained, it is hereby declared that the national public interest and the interest of investors in notes, bonds, debentures, evidences of indebtedness, and certificates of interest or participation therein, which are offered to the public, are adversely affected— - (1) when the [obligor](/usc/15/77ccc.md?p=12) fails to provide a trustee to protect and enforce the rights and to represent the interests of such investors, notwithstanding the fact that (A) individual action by such investors for the purpose of protecting and enforcing their rights is rendered impracticable by reason of the disproportionate expense of taking such action, and (B) concerted action by such investors in their common interest through representatives of their own selection is impeded by reason of the wide dispersion of such investors through many [States](/usc/15/77ccc.md?p=14), and by reason of the fact that information as to the names and addresses of such investors generally is not available to such investors; - (2) when the trustee does not have adequate rights and powers, or adequate duties and responsibilities, in connection with matters relating to the protection and enforcement of the rights of such investors; when, notwithstanding the obstacles to concerted action by such investors, and the general and reasonable assumption by such investors that the trustee is under an affirmative duty to take action for the protection and enforcement of their rights, trust [indentures](/usc/15/77ccc.md?p=7) (A) generally provide that the trustee shall be under no duty to take any such action, even in the event of default, unless it receives notice of default, demand for action, and indemnity, from the holders of substantial percentages of the [securities](/usc/15/78lll.md?p=14) outstanding thereunder, and (B) generally relieve the trustee from liability even for its own negligent action or failure to act; - (3) when the trustee does not have resources commensurate with its responsibilities, or has any relationship to or connection with the [obligor](/usc/15/77ccc.md?p=12) or any [underwriter](/usc/15/77ccc.md?p=4) of any [securities](/usc/15/78lll.md?p=14) of the [obligor](/usc/15/77ccc.md?p=12), or holds, beneficially or otherwise, any interest in the [obligor](/usc/15/77ccc.md?p=12) or any such [underwriter](/usc/15/77ccc.md?p=4), which relationship, connection, or interest involves a material conflict with the interests of such investors; - (4) when the [obligor](/usc/15/77ccc.md?p=12) is not obligated to furnish to the trustee under the [indenture](/usc/15/77ccc.md?p=7) and to such investors adequate current information as to its financial condition, and as to the performance of its obligations with respect to the [securities](/usc/15/78lll.md?p=14) outstanding under such [indenture](/usc/15/77ccc.md?p=7); or when the communication of such information to such investors is impeded by the fact that information as to the names and addresses of such investors generally is not available to the trustee and to such investors; - (5) when the [indenture](/usc/15/77ccc.md?p=7) contains provisions which are misleading or deceptive, or when full and fair disclosure is not made to prospective investors of the effect of important [indenture](/usc/15/77ccc.md?p=7) provisions; or - (6) when, by reason of the fact that trust [indentures](/usc/15/77ccc.md?p=7) are commonly prepared by the [obligor](/usc/15/77ccc.md?p=12) or [underwriter](/usc/15/77ccc.md?p=4) in advance of the public offering of the [securities](/usc/15/78lll.md?p=14) to be issued thereunder, such investors are unable to participate in the preparation thereof, and, by reason of their lack of understanding of the situation, such investors would in any event be unable to procure the correction of the defects enumerated in this subsection. - (b) **Declaration of policy—** Practices of the character above enumerated have existed to such an extent that, unless regulated, the public offering of notes, bonds, debentures, evidences of indebtedness, and certificates of interest or participation therein, by the use of means and instruments of transportation and communication in interstate commerce and of the mails, is injurious to the capital markets, to investors, and to the general public; and it is hereby declared to be the policy of this subchapter, in accordance with which policy all the provisions of this subchapter shall be interpreted, to meet the problems and eliminate the practices, enumerated in this section, connected with such public offerings. # §77ccc. Definitions When used in this subchapter, unless the context otherwise requires— - (1) Any term defined in section 2 of the [Securities Act of 1933](#17) [[15 U.S.C. 77b](/usc/15/77b.md)], and not otherwise defined in this section shall have the meaning assigned to such term in such [section 2](/usc/15/2.md) [[15 U.S.C. 77b](/usc/15/77b.md)]. - (2) The terms “sale”, “sell”, “offer to sell”, “offer for sale”, and “offer” shall include all transactions included in such terms as provided in [paragraph (3)](/usc/15/2.md) of section 2(a) of the [Securities Act of 1933](#17) [[15 U.S.C. 77b(a)](/usc/15/77b.md?p=a)], except that an offer or sale of a certificate of interest or participation shall be deemed an offer or sale of the [security](/usc/15/78lll.md?p=14) or [securities](/usc/15/78lll.md?p=14) in which such certificate evidences an interest or participation if and only if such certificate gives the holder thereof the right to convert the same into such [security](/usc/15/78lll.md?p=14) or [securities](/usc/15/78lll.md?p=14). - (3) The term “[prospectus](/usc/15/77b.md?p=a-10)” shall have the meaning assigned to such term in [paragraph (10)](/usc/15/2.md) of section 2(a) of the [Securities Act of 1933](#17) [[15 U.S.C. 77b(a)](/usc/15/77b.md?p=a)], except that in the case of [securities](/usc/15/78lll.md?p=14) which are not registered under the [Securities Act of 1933](#17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], such term shall not include any communication (A) if it is proved that prior to or at the same time with such communication a written statement if any required by [section 77fff of this title](/usc/15/77fff.md) was sent or given to the [persons](/usc/15/78m.md?p=h-8-E) to whom the communication was made, or (B) if such communication [states](#14) from whom such statement may be obtained (if such statement is required by rules or regulations under paragraphs (1) or (2) of subsection (b) of [section 77fff of this title](/usc/15/77fff.md)) and, in addition, does no more than identify the [security](/usc/15/78lll.md?p=14), [state](#14) the price thereof, [state](#14) by whom [orders](/usc/15/8702.md?p=14) will be executed and contain such other information as the [Commission](#15), by rules or regulations deemed necessary or appropriate in the public interest or for the protection of investors, and subject to such terms and conditions as may be prescribed therein, may permit. - (4) The term “underwriter” means any [person](/usc/15/78m.md?p=h-8-E) who has purchased from an [issuer](/usc/15/636.md?p=a-36-A-xvi) with a view to, or [offers](#2) or [sells](#2) for an [issuer](/usc/15/636.md?p=a-36-A-xvi) in connection with, the distribution of any [security](/usc/15/78lll.md?p=14), or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a [person](/usc/15/78m.md?p=h-8-E) whose interest is limited to a [commission](#15) from an underwriter or [dealer](/usc/15/6102.md?p=d-2-B-i) not in excess of the usual and customary [distributors](/usc/15/1278.md?p=c-1-D-i)’ or sellers’ [commission](#15). - (5) The term “director” means any director of a corporation, or any individual performing similar functions with respect to any organization whether incorporated or unincorporated. - (6) The term “executive officer” means the president, every vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the [board](/usc/15/205c.md?p=1) of [directors](#5). - (7) The term “indenture” means any mortgage, deed of trust, trust or other indenture, or similar instrument or [agreement](/usc/15/7a.md?p=2) (including any supplement or amendment to any of the foregoing), under which [securities](/usc/15/78lll.md?p=14) are outstanding or are to be issued, whether or not any property, real or personal, is, or is to be, pledged, mortgaged, assigned, or conveyed thereunder. - (8) The term “application” or “application for qualification” means the application provided for in [section 77eee of this title](/usc/15/77eee.md) or [section 77ggg of this title](/usc/15/77ggg.md), and includes any amendment thereto and any report, document, or memorandum accompanying such application or incorporated therein by reference. - (9) The term “indenture to be qualified” means (A) the [indenture](#7) under which there has been or is to be issued a [security](/usc/15/78lll.md?p=14) in respect of which a particular [registration statement](/usc/15/77b.md?p=a-8) has been filed, or (B) the [indenture](#7) in respect of which a particular [application](#8) has been filed. - (10) The term “indenture trustee” means each trustee under the [indenture to be qualified](#9), and each successor trustee. - (11) The term “indenture security” means any [security](/usc/15/78lll.md?p=14) issued or issuable under the [indenture to be qualified](#9). - (12) The term “obligor”, when used with respect to any such [indenture security](#11), means every [person](/usc/15/78m.md?p=h-8-E) (including a guarantor) who is liable thereon, and, if such [security](/usc/15/78lll.md?p=14) is a certificate of interest or participation, such term means also every [person](/usc/15/78m.md?p=h-8-E) (including a guarantor) who is liable upon the [security](/usc/15/78lll.md?p=14) or [securities](/usc/15/78lll.md?p=14) in which such certificate evidences an interest or participation; but such term shall not include the trustee under an [indenture](#7) under which certificates of interest or participation, equipment trust certificates, or like [securities](/usc/15/78lll.md?p=14) are outstanding. - (13) The term “paying agent”, when used with respect to any such [indenture security](#11), means any [person](/usc/15/78m.md?p=h-8-E) authorized by an [obligor](#12) thereon (A) to pay the principal of or interest on such [security](/usc/15/78lll.md?p=14) on behalf of such [obligor](#12), or (B) if such [security](/usc/15/78lll.md?p=14) is a certificate of interest or participation, equipment trust certificate, or like [security](/usc/15/78lll.md?p=14), to make such payment on behalf of the trustee. - (14) The term “State” means any State of the United States. - (15) The term “Commission” means the [Securities](/usc/15/78lll.md?p=14) and [Exchange](/usc/15/636.md?p=a-36-A-xvi) Commission. - (16) The term “voting security” means any [security](/usc/15/78lll.md?p=14) presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a [person](/usc/15/78m.md?p=h-8-E), or any [security](/usc/15/78lll.md?p=14) issued under or pursuant to any trust, [agreement](/usc/15/7a.md?p=2), or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such [security](/usc/15/78lll.md?p=14) are presently entitled to vote in the direction or management of the affairs of a [person](/usc/15/78m.md?p=h-8-E); and a specified percentage of the voting securities of a [person](/usc/15/78m.md?p=h-8-E) means such amount of the outstanding voting securities of such [person](/usc/15/78m.md?p=h-8-E) as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such [person](/usc/15/78m.md?p=h-8-E) are entitled to cast in the direction or management of the affairs of such [person](/usc/15/78m.md?p=h-8-E). - (17) The terms “Securities Act of 1933” [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and “Securities Exchange Act of 1934” [[15 U.S.C. 78a](/usc/15/78a.md) et seq.] shall be deemed to refer, respectively, to such Acts, as amended, whether amended prior to or after the enactment of this subchapter. - (18) The term “Bankruptcy Act” means the Bankruptcy Act or [title 11](/usc/11.md). # §77ddd. Exempted securities and transactions - (a) **Specific securities exempted—** The provisions of this subchapter shall not apply to any of the following [securities](/usc/15/78lll.md?p=14): - (1) any [security](/usc/15/78lll.md?p=14) other than (A) a note, bond, debenture, or evidence of indebtedness, whether or not secured, or (B) a certificate of interest or participation in any such note, bond, debenture, or evidence of indebtedness, or (C) a temporary certificate for, or guarantee of, any such note, bond, debenture, evidence of indebtedness, or certificate; - (2) any certificate of interest or participation in two or more [securities](/usc/15/78lll.md?p=14) having substantially different rights and privileges, or a temporary certificate for any such certificate; - (3) Repealed. Pub. L. 101–550, title IV, § 403(1)(A), Nov. 15, 1990, 104 Stat. 2722. - (4) - (A) any [security](/usc/15/78lll.md?p=14) exempted from the provisions of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] by paragraphs [(2) to (8)](/usc/15/3.md?p=a-2..a-8), [(11)](/usc/15/3.md), or [(13)](/usc/15/3.md) of section 3(a) thereof [[15 U.S.C. 77c(a)](/usc/15/77c.md?p=a)]; - (B) any [security](/usc/15/78lll.md?p=14) exempted from the provisions of the [Securities Act of 1933](/usc/15/77ccc.md?p=17), as amended [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], by [paragraph (2)](#a-2) of subsection 3(a) thereof, as amended by section 401 of the Employment [Security](/usc/15/78lll.md?p=14) Amendments of 1970 [[15 U.S.C. 77c(a)(2)](/usc/15/77c.md?p=a-2)]; - (5) any [security](/usc/15/78lll.md?p=14) issued under a mortgage [indenture](/usc/15/77ccc.md?p=7) as to which a contract of insurance under the National Housing Act [[12 U.S.C. 1701](/usc/12/1701.md) et seq.] is in effect; and any such [security](/usc/15/78lll.md?p=14) shall be deemed to be exempt from the provisions of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] to the same extent as though such [security](/usc/15/78lll.md?p=14) were specifically enumerated in [section 3(a)(2)](/usc/15/3.md) of such Act [[15 U.S.C. § 77c(a)(2)](/usc/15/77c.md?p=a-2)]; - (6) any note, bond, debenture, or evidence of indebtedness issued or guaranteed by a foreign government or by a subdivision, department, municipality, agency, or instrumentality thereof; - (7) any guarantee of any [security](/usc/15/78lll.md?p=14) which is exempted by this subsection; - (8) any [security](/usc/15/78lll.md?p=14) which has been or is to be issued otherwise than under an [indenture](/usc/15/77ccc.md?p=7), but this exemption shall not be applied within a period of twelve consecutive months to an aggregate principal amount of [securities](/usc/15/78lll.md?p=14) of the same [issuer](/usc/15/636.md?p=a-36-A-xvi) greater than the figure stated in section 3(b) of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77c(b)](/usc/15/77c.md?p=b)] limiting exemptions thereunder, or such lesser amount as the [Commission](/usc/15/77ccc.md?p=15) may establish by its rules and regulations; - (9) any [security](/usc/15/78lll.md?p=14) which has been or is to be issued under an [indenture](/usc/15/77ccc.md?p=7) which limits the aggregate principal amount of [securities](/usc/15/78lll.md?p=14) at any time outstanding thereunder to $10,000,000, or such lesser amount as the [Commission](/usc/15/77ccc.md?p=15) may establish by its rules and regulations, but this exemption shall not be applied within a period of thirty-six consecutive months to more than $10,000,000 aggregate principal amount of [securities](/usc/15/78lll.md?p=14) of the same [issuer](/usc/15/636.md?p=a-36-A-xvi), or such lesser amount as the [Commission](/usc/15/77ccc.md?p=15) may establish by its rules and regulations; or - (10) any [security](/usc/15/78lll.md?p=14) issued under a mortgage or trust deed [indenture](/usc/15/77ccc.md?p=7) as to which a contract of insurance under title XI of the National Housing Act [[12 U.S.C. 1749aaa](/usc/12/1749aaa.md) et seq.] is in effect; and any such [security](/usc/15/78lll.md?p=14) shall be deemed to be exempt from the provisions of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] to the same extent as though such [security](/usc/15/78lll.md?p=14) were specifically enumerated in [section 3(a)(2)](/usc/15/3.md), as amended, of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77c(a)(2)](/usc/15/77c.md?p=a-2)]. In computing the aggregate principal amount of [securities](/usc/15/78lll.md?p=14) to which the exemptions provided by paragraphs (8) and (9) of this subsection may be applied, [securities](/usc/15/78lll.md?p=14) to which the provisions of sections [77eee](/usc/15/77eee.md) and [77fff](/usc/15/77fff.md) of this title would not have applied, irrespective of the provisions of those paragraphs, shall be disregarded. - (b) **Application of sections 77eee and 77fff—** The provisions of sections [77eee](/usc/15/77eee.md) and [77fff](/usc/15/77fff.md) of this title shall not apply (1) to any of the transactions exempted from the provisions of section 5 of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77e](/usc/15/77e.md)] by [section 4](/usc/15/4.md) thereof [[15 U.S.C. 77d](/usc/15/77d.md)] or (2) to any transaction which would be so exempted but for the last sentence of [paragraph (11)](/usc/15/2.md) of section 2(a) of such Act [[15 U.S.C. 77b(a)](/usc/15/77b.md?p=a)]. - (c) **Securities issued or proposed to be issued under indenture—** The [Commission](/usc/15/77ccc.md?p=15) shall, on [application](/usc/15/77ccc.md?p=8) by the [issuer](/usc/15/636.md?p=a-36-A-xvi) and after opportunity for hearing thereon, by [order](/usc/15/8702.md?p=14) exempt from any one or more provisions of this subchapter any [security](/usc/15/78lll.md?p=14) issued or proposed to be issued under any [indenture](/usc/15/77ccc.md?p=7) under which, at the time such [application](/usc/15/77ccc.md?p=8) is filed, [securities](/usc/15/78lll.md?p=14) referred to in [paragraph (3)](#a-3) of subsection (a) of this section are outstanding or on January 1, 1959, such [securities](/usc/15/78lll.md?p=14) were outstanding, if and to the extent that the [Commission](/usc/15/77ccc.md?p=15) finds that compliance with such provision or provisions, through the execution of a supplemental [indenture](/usc/15/77ccc.md?p=7) or otherwise— - (1) would require, by reason of the provisions of such [indenture](/usc/15/77ccc.md?p=7), or the provisions of any other [indenture](/usc/15/77ccc.md?p=7) or [agreement](/usc/15/7a.md?p=2) made prior to August 3, 1939, or the provisions of any applicable law, the consent of the holders of [securities](/usc/15/78lll.md?p=14) outstanding under any such [indenture](/usc/15/77ccc.md?p=7) or [agreement](/usc/15/7a.md?p=2); or - (2) would impose an undue burden on this [issuer](/usc/15/636.md?p=a-36-A-xvi), having due regard to the public interest and the interests of investors. - (d) **Exemptions in public interest—** The [Commission](/usc/15/77ccc.md?p=15) may, by rules or regulations upon its own motion, or by [order](/usc/15/8702.md?p=14) on [application](/usc/15/77ccc.md?p=8) by an interested [person](/usc/15/78m.md?p=h-8-E), exempt conditionally or unconditionally any [person](/usc/15/78m.md?p=h-8-E), [registration statement](/usc/15/77b.md?p=a-8), [indenture](/usc/15/77ccc.md?p=7), [security](/usc/15/78lll.md?p=14) or transaction, or any class or classes of [persons](/usc/15/78m.md?p=h-8-E), [registration statements](/usc/15/77b.md?p=a-8), [indentures](/usc/15/77ccc.md?p=7), [securities](/usc/15/78lll.md?p=14), or transactions, from any one or more of the provisions of this subchapter, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by this subchapter. The [Commission](/usc/15/77ccc.md?p=15) shall by rules and regulations determine the procedures under which an exemption under this subsection shall be granted, and may, in its sole discretion, decline to entertain any [application](/usc/15/77ccc.md?p=8) for an [order](/usc/15/8702.md?p=14) of exemption under this subsection. - (e) **Securities issued by small investment company—** The [Commission](/usc/15/77ccc.md?p=15) may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed herein, add to the [securities](/usc/15/78lll.md?p=14) exempted as provided in this section any class of [securities](/usc/15/78lll.md?p=14) issued by a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.] if it finds, having regard to the purposes of that Act, that the enforcement of this subchapter with respect to such [securities](/usc/15/78lll.md?p=14) is not necessary in the public interest and for the protection of investors. # §77eee. Securities required to be registered under Securities Act - (a) **Information required—** Subject to the provisions of [section 77ddd of this title](/usc/15/77ddd.md), a [registration statement](/usc/15/77b.md?p=a-8) relating to a [security](/usc/15/78lll.md?p=14) shall include the following information and documents, as though such inclusion were required by the provisions of section 7 of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77g](/usc/15/77g.md)]— - (1) such information and documents as the [Commission](/usc/15/77ccc.md?p=15) may by rules and regulations prescribe in [order](/usc/15/8702.md?p=14) to enable the [Commission](/usc/15/77ccc.md?p=15) to determine whether any [person](/usc/15/78m.md?p=h-8-E) designated to act as trustee under the [indenture](/usc/15/77ccc.md?p=7) under which such [security](/usc/15/78lll.md?p=14) has been or is to be issued is eligible to act as such under subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md); and - (2) an analysis of any provisions of such [indenture](/usc/15/77ccc.md?p=7) with respect to (A) the definition of what shall constitute a default under such [indenture](/usc/15/77ccc.md?p=7), and the withholding of notice to the [indenture security](/usc/15/77ccc.md?p=11) holders of any such default, (B) the authentication and delivery of the [indenture securities](/usc/15/77ccc.md?p=11) and the [application](/usc/15/77ccc.md?p=8) of the proceeds thereof, (C) the release or the release and substitution of any property subject to the lien of the [indenture](/usc/15/77ccc.md?p=7), (D) the satisfaction and discharge of the [indenture](/usc/15/77ccc.md?p=7), and (E) the evidence required to be furnished by the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) to the trustee as to compliance with the conditions and covenants provided for in such [indenture](/usc/15/77ccc.md?p=7). The information and documents required by paragraph (1) of this subsection with respect to the [person](/usc/15/78m.md?p=h-8-E) designated to act as [indenture trustee](/usc/15/77ccc.md?p=10) shall be contained in a separate part of such [registration statement](/usc/15/77b.md?p=a-8), which part shall be signed by such [person](/usc/15/78m.md?p=h-8-E). Such part of the [registration statement](/usc/15/77b.md?p=a-8) shall be deemed to be a document filed pursuant to this subchapter, and the provisions of sections 11, 12, 17, and 24 of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77k](/usc/15/77k.md), 77l, 77q, 77x] shall not apply to statements therein or omissions therefrom. - (b) **Refusal of registration statement—** - (1) Except as may be permitted by paragraph (2) of this subsection, the [Commission](/usc/15/77ccc.md?p=15) shall issue an [order](/usc/15/8702.md?p=14) prior to the effective date of registration refusing to permit such a [registration statement](/usc/15/77b.md?p=a-8) to become effective, if it finds that— - (A) the [security](/usc/15/78lll.md?p=14) to which such [registration statement](/usc/15/77b.md?p=a-8) relates has not been or is not to be issued under an [indenture](/usc/15/77ccc.md?p=7); or - (B) any [person](/usc/15/78m.md?p=h-8-E) designated as trustee under such [indenture](/usc/15/77ccc.md?p=7) is not eligible to act as such under subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md); but no such [order](/usc/15/8702.md?p=14) shall be issued except after notice and opportunity for hearing within the periods and in the manner required with respect to refusal [orders](/usc/15/8702.md?p=14) pursuant to section 8(b) of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77h(b)](/usc/15/77h.md?p=b)]. If and when the [Commission](/usc/15/77ccc.md?p=15) deems that the objections on which such [order](/usc/15/8702.md?p=14) was based have been met, the [Commission](/usc/15/77ccc.md?p=15) shall enter an [order](/usc/15/8702.md?p=14) rescinding such refusal [order](/usc/15/8702.md?p=14), and the registration shall become effective at the time provided in section 8(a) of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77h(a)](/usc/15/77h.md?p=a)], or upon the date of such rescission, whichever shall be the later. - (2) In the case of [securities](/usc/15/78lll.md?p=14) registered under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], which [securities](/usc/15/78lll.md?p=14) are eligible to be issued, offered, or sold on a delayed basis by or on behalf of the registrant, the [Commission](/usc/15/77ccc.md?p=15) shall not be required to issue an [order](/usc/15/8702.md?p=14) pursuant to [paragraph (1)](#b-1) of subsection (b) of this section for failure to designate a trustee eligible to act under subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md) if, in accordance with such rules and regulations as may be prescribed by the [Commission](/usc/15/77ccc.md?p=15), the [issuer](/usc/15/636.md?p=a-36-A-xvi) of such [securities](/usc/15/78lll.md?p=14) files an [application](/usc/15/77ccc.md?p=8) for the purpose of determining such trustee’s eligibility under subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md). The [Commission](/usc/15/77ccc.md?p=15) shall issue an [order](/usc/15/8702.md?p=14) prior to the effective date of such [application](/usc/15/77ccc.md?p=8) refusing to permit the [application](/usc/15/77ccc.md?p=8) to become effective, if it finds that any [person](/usc/15/78m.md?p=h-8-E) designated as trustee under such [indenture](/usc/15/77ccc.md?p=7) is not eligible to act as such under subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md), but no [order](/usc/15/8702.md?p=14) shall be issued except after notice and opportunity for hearing within the periods and in the manner required with respect to refusal [orders](/usc/15/8702.md?p=14) pursuant to section 8(b) of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77h(b)](/usc/15/77h.md?p=b)]. If after notice and opportunity for hearing the [Commission](/usc/15/77ccc.md?p=15) issues an [order](/usc/15/8702.md?p=14) under this provision, the [obligor](/usc/15/77ccc.md?p=12) shall within 5 calendar days appoint a trustee meeting the requirements of subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md). No such appointment shall be effective and such refusal [order](/usc/15/8702.md?p=14) shall not be rescinded by the [Commission](/usc/15/77ccc.md?p=15) until a [person](/usc/15/78m.md?p=h-8-E) eligible to act as trustee under subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md) has been appointed. If no [order](/usc/15/8702.md?p=14) is issued, an [application](/usc/15/77ccc.md?p=8) filed pursuant to this paragraph shall be effective the tenth day after filing thereof or such earlier date as the [Commission](/usc/15/77ccc.md?p=15) may determine, having due regard to the adequacy of information provided therein, the public interest, and the protection of investors. - (c) **Information required in prospectus—** A [prospectus](/usc/15/77b.md?p=a-10) relating to any such [security](/usc/15/78lll.md?p=14) shall include to the extent the [Commission](/usc/15/77ccc.md?p=15) may prescribe by rules and regulations as necessary and appropriate in the public interest or for the protection of investors, as though such inclusion were required by section 10 of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77j](/usc/15/77j.md)], a written statement containing the analysis set forth in the [registration statement](/usc/15/77b.md?p=a-8), of any [indenture](/usc/15/77ccc.md?p=7) provisions with respect to the matters specified in [paragraph (2)](#a-2) of subsection (a) of this section, together with a supplementary analysis, prepared by the [Commission](/usc/15/77ccc.md?p=15), of such provisions and of the effect thereof, if, in the opinion of the [Commission](/usc/15/77ccc.md?p=15), the inclusion of such supplementary analysis is necessary or appropriate in the public interest or for the protection of investors, and the [Commission](/usc/15/77ccc.md?p=15) so declares by [order](/usc/15/8702.md?p=14) after notice and, if demanded by the [issuer](/usc/15/636.md?p=a-36-A-xvi), opportunity for hearing thereon. Such [order](/usc/15/8702.md?p=14) shall be entered prior to the effective date of registration, except that if opportunity for hearing thereon is demanded by the [issuer](/usc/15/636.md?p=a-36-A-xvi) such [order](/usc/15/8702.md?p=14) shall be entered within a reasonable time after such opportunity for hearing. - (d) **Applicability of other statutory provisions—** The provisions of sections 11, 12, 17, and 24 of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77k](/usc/15/77k.md), 77l, 77q, 77x], and the provisions of sections [77www](/usc/15/77www.md) and [77yyy](/usc/15/77yyy.md) of this title, shall not apply to statements in or omissions from any analysis required under the provisions of this section or section [77fff](/usc/15/77fff.md) or [77ggg](/usc/15/77ggg.md) of this title. # §77fff. Securities not registered under Securities Act - (a) **Prohibitions affecting unregistered securities not issued under indenture—** In the case of any [security](/usc/15/78lll.md?p=14) which is not registered under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and to which this subsection is applicable notwithstanding the provisions of [section 77ddd of this title](/usc/15/77ddd.md), unless such [security](/usc/15/78lll.md?p=14) has been or is to be issued under an [indenture](/usc/15/77ccc.md?p=7) and an [application for qualification](/usc/15/77ccc.md?p=8) is effective as to such [indenture](/usc/15/77ccc.md?p=7), it shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), directly or indirectly— - (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to [sell](/usc/15/77ccc.md?p=2) such [security](/usc/15/78lll.md?p=14) through the use or medium of any [prospectus](/usc/15/77b.md?p=a-10) or otherwise; or - (2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such [security](/usc/15/78lll.md?p=14) for the purpose of sale or for delivery after sale. - (b) **Prohibitions affecting unregistered securities issued under indenture—** In the case of any [security](/usc/15/78lll.md?p=14) which is not registered under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], but which has been or is to be issued under an [indenture](/usc/15/77ccc.md?p=7) as to which an [application for qualification](/usc/15/77ccc.md?p=8) is effective, it shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), directly or indirectly— - (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to carry or transmit any [prospectus](/usc/15/77b.md?p=a-10) relating to any such [security](/usc/15/78lll.md?p=14), unless such [prospectus](/usc/15/77b.md?p=a-10), to the extent the [Commission](/usc/15/77ccc.md?p=15) may prescribe by rules and regulations as necessary and appropriate in the public interest or for the protection of investors, includes or is accompanied by a written statement that contains the information specified in subsection (c) of [section 77eee of this title](/usc/15/77eee.md); or - (2) to carry or to cause to be carried through the mails or in interstate commerce any such [security](/usc/15/78lll.md?p=14) for the purpose of sale or for delivery after sale, unless, to the extent the [Commission](/usc/15/77ccc.md?p=15) may prescribe by rules and regulations as necessary or appropriate in the public interest or for the protection of investors, accompanied or preceded by a written statement that contains the information specified in subsection (c) of [section 77eee of this title](/usc/15/77eee.md). - (c) **Necessity of issuance under indenture; application for qualification—** It shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E), directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to [offer to sell](/usc/15/77ccc.md?p=2) through the use or medium of any [prospectus](/usc/15/77b.md?p=a-10) or otherwise any [security](/usc/15/78lll.md?p=14) which is not registered under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and to which this subsection is applicable notwithstanding the provisions of [section 77ddd of this title](/usc/15/77ddd.md), unless such [security](/usc/15/78lll.md?p=14) has been or is to be issued under an [indenture](/usc/15/77ccc.md?p=7) and an [application for qualification](/usc/15/77ccc.md?p=8) has been filed as to such [indenture](/usc/15/77ccc.md?p=7), or while the [application](/usc/15/77ccc.md?p=8) is the subject of a refusal [order](/usc/15/8702.md?p=14) or stop [order](/usc/15/8702.md?p=14) or (prior to qualification) any public proceeding or examination under [section 77ggg(c) of this title](/usc/15/77ggg.md?p=c). # §77ggg. Qualification of indentures covering securities not required to be registered - (a) **Application; information required; availability of information to public—** In the case of any [security](/usc/15/78lll.md?p=14) which is not required to be registered under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and to which subsection (a) of [section 77fff of this title](/usc/15/77fff.md) is applicable notwithstanding the provisions of [section 77ddd of this title](/usc/15/77ddd.md), an [application for qualification](/usc/15/77ccc.md?p=8) of the [indenture](/usc/15/77ccc.md?p=7) under which such [security](/usc/15/78lll.md?p=14) has been or is to be issued shall be filed with the [Commission](/usc/15/77ccc.md?p=15) by the [issuer](/usc/15/636.md?p=a-36-A-xvi) of such [security](/usc/15/78lll.md?p=14). Each such [application](/usc/15/77ccc.md?p=8) shall be in such form, and shall be signed in such manner, as the [Commission](/usc/15/77ccc.md?p=15) may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. Each such [application](/usc/15/77ccc.md?p=8) shall include the information and documents required by subsection (a) of [section 77eee of this title](/usc/15/77eee.md). The information and documents required by paragraph (1) of such subsection with respect to the [person](/usc/15/78m.md?p=h-8-E) designated to act as [indenture trustee](/usc/15/77ccc.md?p=10) shall be contained in a separate part of such [application](/usc/15/77ccc.md?p=8), which part shall be signed by such [person](/usc/15/78m.md?p=h-8-E). Each such [application](/usc/15/77ccc.md?p=8) shall also include such of the other information and documents which would be required to be filed in [order](/usc/15/8702.md?p=14) to register such [indenture security](/usc/15/77ccc.md?p=11) under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) as the [Commission](/usc/15/77ccc.md?p=15) may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. An [application](/usc/15/77ccc.md?p=8) may be withdrawn by the [applicant](/usc/15/7a.md?p=3) at any time prior to the effective date thereof. Subject to the provisions of [section 77uuu of this title](/usc/15/77uuu.md), the information and documents contained in or filed with any [application](/usc/15/77ccc.md?p=8) shall be made available to the public under such regulations as the [Commission](/usc/15/77ccc.md?p=15) may prescribe, and copies thereof, photostatic or otherwise, shall be furnished to every [applicant](/usc/15/7a.md?p=3) therefor at such reasonable charge as the [Commission](/usc/15/77ccc.md?p=15) may prescribe. - (b) **Filing of application—** The filing with the [Commission](/usc/15/77ccc.md?p=15) of an [application](/usc/15/77ccc.md?p=8), or of an amendment to an [application](/usc/15/77ccc.md?p=8), shall be deemed to have taken place upon the receipt thereof by the [Commission](/usc/15/77ccc.md?p=15). - (c) **Applicability of other statutory provisions—** The provisions of [section 77h of this title](/usc/15/77h.md) and the provisions of subsection (b) of [section 77eee of this title](/usc/15/77eee.md) shall apply with respect to every such [application](/usc/15/77ccc.md?p=8), as though such [application](/usc/15/77ccc.md?p=8) were a [registration statement](/usc/15/77b.md?p=a-8) filed pursuant to the provisions of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]. # §77hhh. Integration of procedure with Securities Act and other Acts - (a) **Incorporation by reference—** The [Commission](/usc/15/77ccc.md?p=15), by such rules and regulations or [orders](/usc/15/8702.md?p=14) as it deems necessary or appropriate in the public interest or for the protection of investors, shall authorize the filing of any information or documents required to be filed with the [Commission](/usc/15/77ccc.md?p=15) under this subchapter, or under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] or the [Securities Exchange Act of 1934](/usc/15/77ccc.md?p=17) [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], by incorporating by reference any information or documents on file with the [Commission](/usc/15/77ccc.md?p=15) under this subchapter or under any such Act. - (b) **Consolidation of applications, reports, etc.** The [Commission](/usc/15/77ccc.md?p=15), by such rules and regulations or [orders](/usc/15/8702.md?p=14) as it deems necessary or appropriate in the public interest or for the protection of investors, shall provide for the consolidation of [applications](/usc/15/77ccc.md?p=8), reports, and proceedings under this subchapter with [registration statements](/usc/15/77b.md?p=a-8), [applications](/usc/15/77ccc.md?p=8), reports, and proceedings under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] or the [Securities Exchange Act of 1934](/usc/15/77ccc.md?p=17) [[15 U.S.C. 78a](/usc/15/78a.md) et seq.]. # §77iii. Effective time of qualification - (a) **Effective time of registration or application for qualification of indenture—** The [indenture](/usc/15/77ccc.md?p=7) under which a [security](/usc/15/78lll.md?p=14) has been or is to be issued shall be deemed to have been qualified under this subchapter— - (1) when registration becomes effective as to such [security](/usc/15/78lll.md?p=14); or - (2) when an [application](/usc/15/77ccc.md?p=8) for the qualification of such [indenture](/usc/15/77ccc.md?p=7) becomes effective, pursuant to [section 77ggg of this title](/usc/15/77ggg.md). - (b) **Stop orders after effective time of qualification—** After qualification has become effective as to the [indenture](/usc/15/77ccc.md?p=7) under which a [security](/usc/15/78lll.md?p=14) has been or is to be issued, no stop [order](/usc/15/8702.md?p=14) shall be issued pursuant to [section 77h(d) of this title](/usc/15/77h.md?p=d), suspending the effectiveness of the [registration statement](/usc/15/77b.md?p=a-8) relating to such [security](/usc/15/78lll.md?p=14) or of the [application for qualification](/usc/15/77ccc.md?p=8) of such [indenture](/usc/15/77ccc.md?p=7), except on one or more of the grounds specified in [section 77h of this title](/usc/15/77h.md), or the failure of the [issuer](/usc/15/636.md?p=a-36-A-xvi) to file an [application](/usc/15/77ccc.md?p=8) as provided for by [section 77eee(b)(2) of this title](/usc/15/77eee.md?p=b-2). - (c) **Effect of subsequent rule or regulation on qualification—** The making, amendment, or rescission of a rule, regulation, or [order](/usc/15/8702.md?p=14) under the provisions of this subchapter (except to the extent authorized by subsection (a) of [section 77nnn of this title](/usc/15/77nnn.md) with respect to rules and regulations prescribed pursuant to such subsection) shall not affect the qualification, form, or interpretation of any [indenture](/usc/15/77ccc.md?p=7) as to which qualification became effective prior to the making, amendment, or rescission of such rule, regulation, or [order](/usc/15/8702.md?p=14). - (d) **Liability of trustee under qualified indenture—** No trustee under an [indenture](/usc/15/77ccc.md?p=7) which has been qualified under this subchapter shall be subject to any liability because of any failure of such [indenture](/usc/15/77ccc.md?p=7) to comply with any of the provisions of this subchapter, or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder. - (e) **Power of Commission to conduct investigation—** Nothing in this subchapter shall be construed as empowering the [Commission](/usc/15/77ccc.md?p=15) to conduct an investigation or other proceeding for the purpose of determining whether the provisions of an [indenture](/usc/15/77ccc.md?p=7) which has been qualified under this subchapter are being complied with, or to enforce such provisions. # §77jjj. Eligibility and disqualification of trustee - (a) **Persons eligible for appointment as trustee—** - (1) There shall at all times be one or more trustees under every [indenture](/usc/15/77ccc.md?p=7) qualified or to be qualified pursuant to this subchapter, at least one of whom shall at all times be a corporation organized and doing business under the laws of the United States or of any [State](/usc/15/77ccc.md?p=14) or Territory or of the District of Columbia or a corporation or other [person](/usc/15/78m.md?p=h-8-E) permitted to act as trustee by the [Commission](/usc/15/77ccc.md?p=15) (referred to in this subchapter as the institutional trustee), which (A) is authorized under such laws to exercise corporate trust powers, and (B) is subject to supervision or examination by Federal, [State](/usc/15/77ccc.md?p=14), Territorial, or District of Columbia [authority](/usc/15/3051.md?p=1). The [Commission](/usc/15/77ccc.md?p=15) may, pursuant to such rules and regulations as it may prescribe, or by [order](/usc/15/8702.md?p=14) on [application](/usc/15/77ccc.md?p=8), permit a corporation or other [person](/usc/15/78m.md?p=h-8-E) organized and doing business under the laws of a foreign government to act as sole trustee under an [indenture](/usc/15/77ccc.md?p=7) qualified or to be qualified pursuant to this subchapter, if such corporation or other [person](/usc/15/78m.md?p=h-8-E) (i) is authorized under such laws to exercise corporate trust powers, and (ii) is subject to supervision or examination by [authority](/usc/15/3051.md?p=1) of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees. In prescribing such rules and regulations or making such [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/77ccc.md?p=15) shall consider whether under such laws, a United States institutional trustee is eligible to act as sole trustee under an [indenture](/usc/15/77ccc.md?p=7) relating to [securities](#b-A) sold within the jurisdiction of such foreign government. - (2) Such institution[^1] trustee shall have at all times a combined capital and surplus of a specified minimum amount, which shall not be less than $150,000. If such institutional trustee publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or [examining authority](/usc/15/78lll.md?p=6), the [indenture](/usc/15/77ccc.md?p=7) may provide that, for the purposes of this paragraph, the combined capital and surplus of such trustee shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. - (3) If the [indenture to be qualified](/usc/15/77ccc.md?p=9) requires or permits the appointment of one or more co-trustees in addition to such institutional trustee, the rights, powers, duties, and obligations conferred or imposed upon the trustees or any of them shall be conferred or imposed upon and exercised or performed by such institutional trustee, or such institutional trustee and such co-trustees jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, such institutional trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties, and obligations shall be exercised and performed by such co-trustees. - (4) In the case of certificates of interest or participation, the [indenture trustee](/usc/15/77ccc.md?p=10) or trustees shall have the legal power to exercise all of the rights, powers, and privileges of a holder of the [security](#b-A) or [securities](#b-A) in which such certificates evidence an interest or participation. - (5) No [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) or [person](/usc/15/78m.md?p=h-8-E) directly or indirectly controlling, controlled by, or under common control with such [obligor](/usc/15/77ccc.md?p=12) shall serve as trustee upon such [indenture securities](/usc/15/77ccc.md?p=11). - (b) **Disqualification of trustee—** If any [indenture trustee](/usc/15/77ccc.md?p=10) has or shall acquire any conflicting interest as hereinafter defined— - (i) then, within 90 days after ascertaining that it has such conflicting interest, and if the default (as defined in the next sentence) to which such conflicting interest relates has not been cured or duly waived or otherwise eliminated before the end of such 90-day period, such trustee shall either eliminate such conflicting interest or, except as otherwise provided below in this subsection, resign, and the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) shall take prompt steps to have a successor appointed in the manner provided in the [indenture](/usc/15/77ccc.md?p=7); - (ii) in the event that such trustee shall fail to comply with the provisions of clause (i) of this subsection, such trustee shall, within 10 days after the expiration of such 90-day period, transmit notice of such failure to the [indenture security](/usc/15/77ccc.md?p=11) holders in the manner and to the extent provided in subsection (c) of [section 77mmm of this title](/usc/15/77mmm.md); and - (iii) subject to the provisions of [subsection (e)](/usc/15/77ooo.md?p=e) of section 77ooo of this title, unless such trustee’s duty to resign is stayed as provided below in this subsection, any [security](#b-A) holder who has been a bona fide holder of [indenture securities](/usc/15/77ccc.md?p=11) for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such trustee, and the appointment of a successor, if such trustee fails, after written request thereof by such holder to comply with the provisions of clause (i) of this subsection. For the purposes of this subsection, an [indenture trustee](/usc/15/77ccc.md?p=10) shall be deemed to have a conflicting interest if the [indenture securities](/usc/15/77ccc.md?p=11) are in default (as such term is defined in such [indenture](/usc/15/77ccc.md?p=7), but exclusive of any period of grace or requirement of notice) and— - (1) such trustee is trustee under another [indenture](/usc/15/77ccc.md?p=7) under which any other [securities](#b-A), or certificates of interest or participation in any other [securities](#b-A), of an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) are outstanding or is trustee for more than one outstanding [series of securities](#b), as hereafter defined, under a single [indenture](/usc/15/77ccc.md?p=7) of an [obligor](/usc/15/77ccc.md?p=12), unless— - (A) the [indenture securities](/usc/15/77ccc.md?p=11) are collateral trust notes under which the only collateral consists of [securities](#b-A) issued under such other [indenture](/usc/15/77ccc.md?p=7), - (B) such other [indenture](/usc/15/77ccc.md?p=7) is a collateral trust [indenture](/usc/15/77ccc.md?p=7) under which the only collateral consists of [indenture securities](/usc/15/77ccc.md?p=11), or - (C) such [obligor](/usc/15/77ccc.md?p=12) has no substantial unmortgaged assets and is engaged primarily in the business of owning, or of owning and developing and/or operating, real estate, and the [indenture to be qualified](/usc/15/77ccc.md?p=9) and such other [indenture](/usc/15/77ccc.md?p=7) are secured by wholly separate and distinct parcels of real estate: - (i) the [indenture to be qualified](/usc/15/77ccc.md?p=9) and any such other [indenture](/usc/15/77ccc.md?p=7) or [indentures](/usc/15/77ccc.md?p=7) (and all [series of securities](#b) issuable thereunder) are wholly unsecured and rank equally, and such other [indenture](/usc/15/77ccc.md?p=7) or [indentures](/usc/15/77ccc.md?p=7) (and such [series](#b)) are specifically described in the [indenture to be qualified](/usc/15/77ccc.md?p=9) or are thereafter qualified under this subchapter, unless the [Commission](/usc/15/77ccc.md?p=15) shall have found and declared by [order](/usc/15/8702.md?p=14) pursuant to subsection (b) of [section 77eee of this title](/usc/15/77eee.md) or subsection (c) of [section 77ggg of this title](/usc/15/77ggg.md) that differences exist between the provisions of the [indenture](/usc/15/77ccc.md?p=7) (or such [series](#b)) to be qualified and the provisions of such other [indenture](/usc/15/77ccc.md?p=7) or [indentures](/usc/15/77ccc.md?p=7) (or such [series](#b)) which are so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify such trustee from acting as such under one of such [indentures](/usc/15/77ccc.md?p=7), or - (ii) the [issuer](/usc/15/636.md?p=a-36-A-xvi) shall have sustained the burden of proving, on [application](/usc/15/77ccc.md?p=8) to the [Commission](/usc/15/77ccc.md?p=15) and after opportunity for hearing thereon, that trusteeship under the [indenture to be qualified](/usc/15/77ccc.md?p=9) and such other [indenture](/usc/15/77ccc.md?p=7) or under more than one outstanding [series](#b) under a single [indenture](/usc/15/77ccc.md?p=7) is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify such trustee from acting as such under one of such [indentures](/usc/15/77ccc.md?p=7) or with respect to such [series](#b); - (2) such trustee or any of its [directors](/usc/15/77ccc.md?p=5) or [executive officers](/usc/15/77ccc.md?p=6) is an [underwriter](#b) for an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11); - (3) such trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with an [underwriter](#b) for an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11); - (4) such trustee or any of its [directors](/usc/15/77ccc.md?p=5) or [executive officers](/usc/15/77ccc.md?p=6) is a [director](/usc/15/77ccc.md?p=5), officer, partner, employee, appointee, or representative of an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11), or of an [underwriter](#b) (other than the trustee itself) for such an [obligor](/usc/15/77ccc.md?p=12) who is currently engaged in the business of underwriting, except that— - (A) one individual may be a [director](/usc/15/77ccc.md?p=5) and/or an [executive officer](/usc/15/77ccc.md?p=6) of the trustee and a [director](/usc/15/77ccc.md?p=5) and/or an [executive officer](/usc/15/77ccc.md?p=6) of such [obligor](/usc/15/77ccc.md?p=12), but may not be at the same time an [executive officer](/usc/15/77ccc.md?p=6) of both the trustee and of such [obligor](/usc/15/77ccc.md?p=12), - (B) if and so long as the number of [directors](/usc/15/77ccc.md?p=5) of the trustee in office is more than nine, one additional individual may be a [director](/usc/15/77ccc.md?p=5) and/or an [executive officer](/usc/15/77ccc.md?p=6) of the trustee and a [director](/usc/15/77ccc.md?p=5) of such [obligor](/usc/15/77ccc.md?p=12), and - (C) such trustee may be designated by any such [obligor](/usc/15/77ccc.md?p=12) or by any [underwriter](#b) for any such [obligor](/usc/15/77ccc.md?p=12), to act in the capacity of [transfer agent](/usc/15/6102.md?p=d-2-B-i), [registrar](/usc/15/142.md?p=f), [custodian](/usc/15/57b–1.md?p=a-4), [paying agent](/usc/15/77ccc.md?p=13), fiscal agent, escrow agent, or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this subsection, to act as trustee, whether under an [indenture](/usc/15/77ccc.md?p=7) or otherwise; - (5) 10 per centum or more of the [voting securities](/usc/15/77ccc.md?p=16) of such trustee is beneficially owned either by an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) or by any [director](/usc/15/77ccc.md?p=5), partner or [executive officer](/usc/15/77ccc.md?p=6) thereof, or 20 per centum or more of such [voting securities](/usc/15/77ccc.md?p=16) is beneficially owned, collectively by any two or more of such [persons](/usc/15/78m.md?p=h-8-E); or 10 per centum or more of the [voting securities](/usc/15/77ccc.md?p=16) of such trustee is beneficially owned either by an [underwriter](#b) for any such [obligor](/usc/15/77ccc.md?p=12) or by any [director](/usc/15/77ccc.md?p=5), partner, or [executive officer](/usc/15/77ccc.md?p=6) thereof, or is beneficially owned, collectively, by any two or more such [persons](/usc/15/78m.md?p=h-8-E); - (6) such trustee is the beneficial owner of, or holds as collateral [security](#b-A) for an obligation which is in default as hereinafter defined— - (A) 5 per centum or more of the [voting securities](/usc/15/77ccc.md?p=16), or 10 per centum or more of any other class of [security](#b-A), of an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11), not including [indentures](/usc/15/77ccc.md?p=7)[^2] [securities](#b-A) and [securities](#b-A) issued under any other [indenture](/usc/15/77ccc.md?p=7) under which such trustee is also trustee, or - (B) 10 per centum or more of any class of [security](#b-A) of an [underwriter](#b) for any such [obligor](/usc/15/77ccc.md?p=12); - (7) such trustee is the beneficial owner of, or holds as collateral [security](#b-A) for an obligation which is in default as hereinafter defined, 5 per centum or more of the [voting securities](/usc/15/77ccc.md?p=16) of any [person](/usc/15/78m.md?p=h-8-E) who, to the knowledge of the trustee, owns 10 per centum or more of the [voting securities](/usc/15/77ccc.md?p=16) of, or controls directly or indirectly or is under direct or indirect common control with, an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11); - (8) such trustee is the beneficial owner of, or holds as collateral [security](#b-A) for an obligation which is in default as hereinafter defined, 10 per centum or more of any class of [security](#b-A) of any [person](/usc/15/78m.md?p=h-8-E) who, to the knowledge of the trustee, owns 50 per centum or more of the [voting securities](/usc/15/77ccc.md?p=16) of an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11); - (9) such trustee owns, on the date of default upon the [indenture securities](/usc/15/77ccc.md?p=11) (as such term is defined in such [indenture](/usc/15/77ccc.md?p=7) but exclusive of any period of grace or requirement of notice) or any anniversary of such default while such default upon the [indenture securities](/usc/15/77ccc.md?p=11) remains outstanding, in the capacity of executor, [administrator](/usc/15/9001.md?p=1), testamentary or inter vivos trustee, guardian, [committee](/usc/15/2921.md?p=1) or conservator, or in any other similar capacity, an aggregate of 25 per centum or more of the [voting securities](/usc/15/77ccc.md?p=16), or of any class of [security](#b-A), of any [person](/usc/15/78m.md?p=h-8-E), the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7), or (8) of this subsection. As to any such [securities](#b-A) of which the [indenture trustee](/usc/15/77ccc.md?p=10) acquired ownership through becoming executor, [administrator](/usc/15/9001.md?p=1) or testamentary trustee of an estate which include them, the provisions of the preceding sentence shall not apply for a period of not more than 2 years from the date of such acquisition, to the extent that such [securities](#b-A) included in such estate do not exceed 25 per centum of such [voting securities](/usc/15/77ccc.md?p=16) or 25 per centum of any such class of [security](#b-A). Promptly after the dates of any such default upon the [indenture securities](/usc/15/77ccc.md?p=11) and annually in each succeeding year that the [indenture securities](/usc/15/77ccc.md?p=11) remain in default the trustee shall make a check of its holding of such [securities](#b-A) in any of the above-mentioned capacities as of such dates. If the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) fails to make payment in full of principal or interest under such [indenture](/usc/15/77ccc.md?p=7) when and as the same becomes due and payable, and such failure continues for 30 days thereafter, the trustee shall make a prompt check of its holdings of such [securities](#b-A) in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph, all such [securities](#b-A) so held by the trustee, with sole or joint control over such [securities](#b-A) vested in it, shall be considered as though beneficially owned by such trustee, for the purposes of paragraphs (6), (7), and (8) of this subsection; or - (10) except under the circumstances described in paragraphs[^3] (1), (3), (4), (5) or (6) of [section 77kkk(b) of this title](/usc/15/77kkk.md?p=b), the trustee shall be or shall become a [creditor](/usc/15/1615.md?p=d-2) of the [obligor](/usc/15/77ccc.md?p=12). For purposes of paragraph (1) of this subsection, and of [section 77ppp(a) of this title](/usc/15/77ppp.md?p=a), the term “series of securities” or “series” means a series, class or group of [securities](#b-A) issuable under an [indenture](/usc/15/77ccc.md?p=7) pursuant to whose terms holders of one such series may vote to direct the [indenture trustee](/usc/15/77ccc.md?p=10), or otherwise take action pursuant to a vote of such holders, separately from holders of another such series: Provided, That “series of securities” or “series” shall not include any series of securities issuable under an [indenture](/usc/15/77ccc.md?p=7) if all such series rank equally and are wholly unsecured. The specification of percentages in [paragraphs (5) to (9)](#b-5..b-9), inclusive, of this subsection shall not be construed as indicating that the ownership of such percentages of the [securities](#b-A) of a [person](/usc/15/78m.md?p=h-8-E) is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of this subsection. For the purposes of paragraphs (6), (7), (8), and (9) of this subsection— - (A) the terms “security” and “securities” shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a [person](/usc/15/78m.md?p=h-8-E) by one or more banks, trust companies, or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; - (B) an obligation shall be deemed to be in default when a default in payment of principal shall have continued for thirty days or more, and shall not have been cured; and - (C) the [indenture trustee](/usc/15/77ccc.md?p=10) shall not be deemed the owner or holder of (i) any [security](#b-A) which it holds as collateral [security](#b-A) (as trustee or otherwise) for any obligation which is not in default as above defined, or (ii) any [security](#b-A) which it holds as collateral [security](#b-A) under the [indenture to be qualified](/usc/15/77ccc.md?p=9), irrespective of any default thereunder, or (iii) any [security](#b-A) which it holds as agent for collection, or as [custodian](/usc/15/57b–1.md?p=a-4), escrow agent or depositary, or in any similar representative capacity. For the purposes of this subsection, the term “underwriter” when used with reference to an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) means every [person](/usc/15/78m.md?p=h-8-E) who, within one year prior to the time as of which the determination is made, was an underwriter of any [security](#b-A) of such [obligor](/usc/15/77ccc.md?p=12) outstanding at the time of the determination. Except in the case of a default in the payment of the principal of or interest on any [indenture security](/usc/15/77ccc.md?p=11), or in the payment of any sinking or [purchase](/usc/15/78c–5.md?p=g) fund installment, the [indenture trustee](/usc/15/77ccc.md?p=10) shall not be required to resign as provided by this subsection if such trustee shall have sustained the burden of proving, on [application](/usc/15/77ccc.md?p=8) to the [Commission](/usc/15/77ccc.md?p=15) and after opportunity for hearing thereon, that— - (i) the default under the [indenture](/usc/15/77ccc.md?p=7) may be cured or waived during a reasonable period and under the procedures described in such [application](/usc/15/77ccc.md?p=8), and - (ii) a stay of the trustee’s duty to resign will not be inconsistent with the interests of holders of the [indenture securities](/usc/15/77ccc.md?p=11). The filing of such an [application](/usc/15/77ccc.md?p=8) shall automatically stay the performance of the duty to resign until the [Commission](/usc/15/77ccc.md?p=15) [orders](/usc/15/8702.md?p=14) otherwise. Any resignation of an [indenture trustee](/usc/15/77ccc.md?p=10) shall become effective only upon the appointment of a successor trustee and such successor’s acceptance of such an appointment. # §77kkk. Preferential collection of claims against obligor - (a) **Trustee as creditor of obligor—** Subject to the provisions of [subsection (b)](#b) of this section, if the [indenture trustee](/usc/15/77ccc.md?p=10) shall be, or shall become, a [creditor](/usc/15/1615.md?p=d-2), directly or indirectly, secured or unsecured, of an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11), within three months prior to a default as defined in the last paragraph of this subsection, or subsequent to such a default, then, unless and until such default shall be cured, such trustee shall set apart and hold in a special [account](/usc/15/1681a.md?p=r-4) for the benefit of the trustee individually and the indenture security holders— - (1) an amount equal to any and all reductions in the amount due and owing upon any claim as such [creditor](/usc/15/1615.md?p=d-2) in respect of principal or interest, effected after the beginning of such three months’ period and valid as against such [obligor](/usc/15/77ccc.md?p=12) and its other [creditors](/usc/15/1615.md?p=d-2), except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this subsection, or from the exercise of any right of setoff which the trustee could have exercised if a petition in bankruptcy had been filed by or against such [obligor](/usc/15/77ccc.md?p=12) upon the date of such [default](#a); and - (2) all property received in respect of any claim as such [creditor](/usc/15/1615.md?p=d-2), either as [security](/usc/15/78lll.md?p=14) therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three months’ period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of such [obligor](/usc/15/77ccc.md?p=12) and its other [creditors](/usc/15/1615.md?p=d-2) in such property or such proceeds. Nothing herein contained shall affect the right of the [indenture trustee](/usc/15/77ccc.md?p=10)— - (A) to retain for its own [account](/usc/15/1681a.md?p=r-4) (i) payments made on [account](/usc/15/1681a.md?p=r-4) of any such claim by any [person](/usc/15/78m.md?p=h-8-E) (other than such [obligor](/usc/15/77ccc.md?p=12)) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the trustee to a third [person](/usc/15/78m.md?p=h-8-E), and (iii) distributions made in cash, [securities](/usc/15/78lll.md?p=14), or other property in respect of claims filed against such [obligor](/usc/15/77ccc.md?p=12) in bankruptcy or receivership or in proceedings for reorganization pursuant to the [Bankruptcy Act](/usc/15/77ccc.md?p=18) or applicable [State](/usc/15/77ccc.md?p=14) law; - (B) to realize, for its own [account](/usc/15/1681a.md?p=r-4), upon any property held by it as [security](/usc/15/78lll.md?p=14) for any such claim, if such property was so held prior to the beginning of such three months’ period; - (C) to realize, for its own [account](/usc/15/1681a.md?p=r-4), but only to the extent of the claim hereinafter mentioned, upon any property held by it as [security](/usc/15/78lll.md?p=14) for any such claim, if such claim was created after the beginning of such three months’ period and such property was received as [security](/usc/15/78lll.md?p=14) therefor simultaneously with the creation thereof, and if the trustee shall sustain the burden of proving that at the time such property was so received the trustee had no reasonable cause to believe that a [default](#a) as defined in the last paragraph of this subsection would occur within three months; or - (D) to receive payment on any claim referred to in paragraph (B) or (C) of this subsection, against the release of any property held as [security](/usc/15/78lll.md?p=14) for such claim as provided in said paragraph [(B)](#a-B) or [(C)](#a-C), as the case may be, to the extent of the fair value of such property. For the purposes of paragraphs (B), (C), and (D) of this subsection, property substituted after the beginning of such three months’ period for property held as [security](/usc/15/78lll.md?p=14) at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any preexisting claim of the [indenture trustee](/usc/15/77ccc.md?p=10) as such [creditor](/usc/15/1615.md?p=d-2), such claim shall have the same status as such preexisting claim. If the trustee shall be required to [account](/usc/15/1681a.md?p=r-4), the funds and property held in such special [account](/usc/15/1681a.md?p=r-4) and the proceeds thereof shall be apportioned between the trustee and the indenture security holders in such manner that the trustee and the indenture security holders realize, as a result of payments from such special [account](/usc/15/1681a.md?p=r-4) and payments of dividends on claims filed against such [obligor](/usc/15/77ccc.md?p=12) in bankruptcy or receivership or in proceedings for reorganization pursuant to the [Bankruptcy Act](/usc/15/77ccc.md?p=18) or applicable [State](/usc/15/77ccc.md?p=14) law, the same percentage of their respective claims, figured before crediting to the claim of the trustee anything on [account](/usc/15/1681a.md?p=r-4) of the receipt by it from such [obligor](/usc/15/77ccc.md?p=12) of the funds and property in such special [account](/usc/15/1681a.md?p=r-4) and before crediting to the respective claims of the trustee and the indenture security holders dividends on claims filed against such [obligor](/usc/15/77ccc.md?p=12) in bankruptcy or receivership or in proceedings for reorganization pursuant to the [Bankruptcy Act](/usc/15/77ccc.md?p=18) or applicable [State](/usc/15/77ccc.md?p=14) law, but after crediting thereon receipts on [account](/usc/15/1681a.md?p=r-4) of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special [account](/usc/15/1681a.md?p=r-4). As used in this paragraph, with respect to any claim, the term “dividends” shall include any distribution with respect to such claim, in bankruptcy or receivership or in proceedings for reorganization pursuant to the [Bankruptcy Act](/usc/15/77ccc.md?p=18) or applicable [State](/usc/15/77ccc.md?p=14) law, whether such distribution is made in cash, [securities](/usc/15/78lll.md?p=14), or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership, or proceeding for reorganization is pending shall have jurisdiction (i) to apportion between the [indenture trustee](/usc/15/77ccc.md?p=10) and the indenture security holders, in accordance with the provisions of this paragraph, the funds and property held in such special [account](/usc/15/1681a.md?p=r-4) and the proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the [indenture trustee](/usc/15/77ccc.md?p=10) and the indenture security holders with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any [securities](/usc/15/78lll.md?p=14) or other property held in such special [account](/usc/15/1681a.md?p=r-4) or as [security](/usc/15/78lll.md?p=14) for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any [indenture trustee](/usc/15/77ccc.md?p=10) who has resigned or been removed after the beginning of such three months’ period shall be subject to the provisions of this subsection as though such resignation or removal had not occurred. Any [indenture trustee](/usc/15/77ccc.md?p=10) who has resigned or been removed prior to the beginning of such three months’ period shall be subject to the provisions of this subsection if and only if the following conditions exist— - (i) the receipt of property or reduction of claim which would have given rise to the obligation to [account](/usc/15/1681a.md?p=r-4), if such [indenture trustee](/usc/15/77ccc.md?p=10) had continued as trustee, occurred after the beginning of such three months’ period; and - (ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal. As used in this subsection, the term “default” means any failure to make payment in full of principal or interest, when and as the same becomes due and payable, under any [indenture](/usc/15/77ccc.md?p=7) which has been qualified under this subchapter, and under which the [indenture trustee](/usc/15/77ccc.md?p=10) is trustee and the [person](/usc/15/78m.md?p=h-8-E) of whom the [indenture trustee](/usc/15/77ccc.md?p=10) is directly or indirectly a [creditor](/usc/15/1615.md?p=d-2) is an [obligor](/usc/15/77ccc.md?p=12); and the term “indenture security holder” means all holders of [securities](/usc/15/78lll.md?p=14) outstanding under any such [indenture](/usc/15/77ccc.md?p=7) under which any such default exists. In any case commenced under the [Bankruptcy Act](/usc/15/77ccc.md?p=18) of July 1, 1898, or any amendment thereto enacted prior to November 6, 1978, all references to periods of three months shall be deemed to be references to periods of four months. - (b) **Exclusion of creditor relationship arising from specified classes—** The [indenture to be qualified](/usc/15/77ccc.md?p=9) shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions excluding from the operation of [subsection (a)](#a) of this section a [creditor](/usc/15/1615.md?p=d-2) relationship arising from— - (1) the ownership or acquisition of [securities](/usc/15/78lll.md?p=14) issued under any [indenture](/usc/15/77ccc.md?p=7), or any [security](/usc/15/78lll.md?p=14) or [securities](/usc/15/78lll.md?p=14) having a maturity of one year or more at the time of acquisition by the [indenture trustee](/usc/15/77ccc.md?p=10); - (2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by the [indenture](/usc/15/77ccc.md?p=7), for the purpose of preserving the property subject to the lien of the [indenture](/usc/15/77ccc.md?p=7) or of discharging tax liens or other prior liens or encumbrances on the trust estate, if notice of such advance and of the circumstances surrounding the making thereof is given to the indenture security holders, at the time and in the manner provided in the [indenture](/usc/15/77ccc.md?p=7); - (3) disbursements made in the ordinary course of business in the capacity of trustee under an [indenture](/usc/15/77ccc.md?p=7), [transfer agent](/usc/15/6102.md?p=d-2-B-i), [registrar](/usc/15/142.md?p=f), [custodian](/usc/15/57b–1.md?p=a-4), [paying agent](/usc/15/77ccc.md?p=13), fiscal agent or depositary, or other similar capacity; - (4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or [securities](/usc/15/78lll.md?p=14) sold in a [cash transaction](/usc/15/77sss.md?p=a) as defined in the [indenture](/usc/15/77ccc.md?p=7); - (5) the ownership of stock or of other [securities](/usc/15/78lll.md?p=14) of a corporation organized under the provisions of [section 25(a)](/usc/15/25.md)[^1] of the Federal Reserve Act, as amended [[12 U.S.C. 611](/usc/12/611.md) et seq.], which is directly or indirectly a [creditor](/usc/15/1615.md?p=d-2) of an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11); or - (6) the acquisition, ownership, acceptance, or negotiation of any drafts, bills of [exchange](/usc/15/636.md?p=a-36-A-xvi), acceptances, or obligations which fall within the classification of [self-liquidating paper](/usc/15/77sss.md?p=a) as defined in the [indenture](/usc/15/77ccc.md?p=7). # §77lll. Bondholders’ lists - (a) **Periodic filing of information by obligor with trustee—** Each [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) shall furnish or cause to be furnished to the institutional trustee thereunder at stated intervals of not more than six months, and at such other times as such trustee may request in writing, all information in the possession or control of such [obligor](/usc/15/77ccc.md?p=12), or of any of its [paying agents](/usc/15/77ccc.md?p=13), as to the names and addresses of the [indenture security](/usc/15/77ccc.md?p=11) holders, and requiring such trustee to preserve, in as current a form as is reasonably practicable, all such information so furnished to it or received by it in the capacity of [paying agent](/usc/15/77ccc.md?p=13). - (b) **Access of information to security holders—** Within five business days after the receipt by the institutional trustee of a written [application](/usc/15/77ccc.md?p=8) by any three or more [indenture security](/usc/15/77ccc.md?p=11) holders stating that the [applicants](/usc/15/7a.md?p=3) desire to communicate with other [indenture security](/usc/15/77ccc.md?p=11) holders with respect to their rights under such [indenture](/usc/15/77ccc.md?p=7) or under the [indenture securities](/usc/15/77ccc.md?p=11), and accompanied by a copy of the form of proxy or other communication which such [applicants](/usc/15/7a.md?p=3) propose to transmit, and by reasonable proof that each such [applicant](/usc/15/7a.md?p=3) has owned an [indenture security](/usc/15/77ccc.md?p=11) for a period of at least six months preceding the date of such [application](/usc/15/77ccc.md?p=8), such institutional trustee shall, at its election, either— - (1) afford to such [applicants](/usc/15/7a.md?p=3) access to all information so furnished to or received by such trustee; or - (2) inform such [applicants](/usc/15/7a.md?p=3) as to the approximate number of [indenture security](/usc/15/77ccc.md?p=11) holders according to the most recent information so furnished to or received by such trustee, and as to the approximate cost of mailing to such [indenture security](/usc/15/77ccc.md?p=11) holders the form of proxy or other communication, if any, specified in such [application](/usc/15/77ccc.md?p=8). If such trustee shall elect not to afford to such [applicants](/usc/15/7a.md?p=3) access to such information, such trustee shall, upon the written request of such [applicants](/usc/15/7a.md?p=3), mail to all such [indenture security](/usc/15/77ccc.md?p=11) holders copies of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to such trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of such mailing, unless within five days after such tender, such trustee shall mail to such [applicants](/usc/15/7a.md?p=3), and file with the [Commission](/usc/15/77ccc.md?p=15) together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of such trustee, such mailing would be contrary to the best interests of the [indenture security](/usc/15/77ccc.md?p=11) holders or would be in [violation](/usc/15/57b–1.md?p=a-7) of applicable law. Such written statement shall specify the basis of such opinion. After opportunity for hearing upon the objections specified in the written statement so filed, the [Commission](/usc/15/77ccc.md?p=15) may, and if demanded by such trustee or by such [applicants](/usc/15/7a.md?p=3) shall, enter an [order](/usc/15/8702.md?p=14) either sustaining one or more of such objections or refusing to sustain any of them. If the [Commission](/usc/15/77ccc.md?p=15) shall enter an [order](/usc/15/8702.md?p=14) refusing to sustain any of such objections, or if, after the entry of an [order](/usc/15/8702.md?p=14) sustaining one or more of such objections, the [Commission](/usc/15/77ccc.md?p=15) shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an [order](/usc/15/8702.md?p=14) so declaring, such trustee shall mail copies of such material to all such [indenture security](/usc/15/77ccc.md?p=11) holders with reasonable promptness after the entry of such [order](/usc/15/8702.md?p=14) and the renewal of such tender. - (c) **Disclosure of information deemed not violative of any law—** The disclosure of any such information as to the names and addresses of the [indenture security](/usc/15/77ccc.md?p=11) holders in accordance with the provisions of this section, regardless of the source from which such information was derived, shall not be deemed to be a [violation](/usc/15/57b–1.md?p=a-7) of any existing law, or of any law hereafter enacted which does not specifically refer to this section, nor shall such trustee be held accountable by reason of mailing any material pursuant to a request made under [subsection (b)](#b) of this section. # §77mmm. Reports by indenture trustee - (a) **Report to security holders; time; contents—** The [indenture trustee](/usc/15/77ccc.md?p=10) shall transmit to the [indenture security](/usc/15/77ccc.md?p=11) holders as hereinafter provided, at stated intervals of not more than 12 months, a brief report with respect to any of the following events which may have occurred within the previous 12 months (but if no such event has occurred within such period no report need be transmitted):—[^1] - (1) any change to its eligibility and its qualifications under [section 77jjj of this title](/usc/15/77jjj.md); - (2) the creation of or any material change to a relationship specified in paragraph[^2] (1) through (10) of [section 77jjj(b) of this title](/usc/15/77jjj.md?p=b); - (3) the character and amount of any advances made by it, as [indenture trustee](/usc/15/77ccc.md?p=10), which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the [indenture securities](/usc/15/77ccc.md?p=11), on the trust estate or on property or funds held or collected by it as such trustee, if such advances so remaining unpaid aggregate more than one-half of 1 per centum of the principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) outstanding on such date; - (4) any change to the amount, interest rate, and maturity date of all other indebtedness owing to it in its individual capacity, on the date of such report, by the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11), with a brief description of any property held as collateral [security](/usc/15/78lll.md?p=14) therefor, except an indebtedness based upon a [creditor](/usc/15/1615.md?p=d-2) relationship arising in any manner described in paragraphs [(2)](#b-2), (3), (4), or (6) of subsection (b) of [section 77kkk of this title](/usc/15/77kkk.md); - (5) any change to the property and funds physically in its possession as [indenture trustee](/usc/15/77ccc.md?p=10) on the date of such report; - (6) any release, or release and substitution, of property subject to the lien of the [indenture](/usc/15/77ccc.md?p=7) (and the consideration therefor, if any) which it has not previously reported; - (7) any additional issue of [indenture securities](/usc/15/77ccc.md?p=11) which it has not previously reported; and - (8) any action taken by it in the performance of its duties under the [indenture](/usc/15/77ccc.md?p=7) which it has not previously reported and which in its opinion materially affects the [indenture securities](/usc/15/77ccc.md?p=11) or the trust estate, except action in respect of a default, notice of which has been or is to be withheld by it in accordance with an [indenture](/usc/15/77ccc.md?p=7) provision authorized by [subsection (b)](/usc/15/77ooo.md?p=b) of section 77ooo of this title. - (b) **Additional reports to security holders—** The [indenture trustee](/usc/15/77ccc.md?p=10) shall transmit to the [indenture security](/usc/15/77ccc.md?p=11) holders as hereinafter provided, within the times hereinafter specified, a brief report with respect to— - (1) the release, or release and substitution, of property subject to the lien of the [indenture](/usc/15/77ccc.md?p=7) (and the consideration therefor, if any) unless the fair value of such property, as set forth in the certificate or opinion required by paragraph (1) of subsection (d) of [section 77nnn of this title](/usc/15/77nnn.md), is less than 10 per centum of the principal amount of [indenture securities](/usc/15/77ccc.md?p=11) outstanding at the time of such release, or such release and substitution, such report to be so transmitted within 90 days after such time; and - (2) the character and amount of any advances made by it as such since the date of the last report transmitted pursuant to the provisions of [subsection (a)](#a) (or if no such report has yet been so transmitted, since the date of execution of the [indenture](/usc/15/77ccc.md?p=7)), for the reimbursement of which it claims or may claim a lien or charge, prior to that of the [indenture securities](/usc/15/77ccc.md?p=11), on the trust estate or on property or funds held or collected by it as such trustee, and which it has not previously reported pursuant to this paragraph, if such advances remaining unpaid at any time aggregate more than 10 per centum of the principal amount of [indenture securities](/usc/15/77ccc.md?p=11) outstanding at such time, such report to be so transmitted within 90 days after such time. - (c) **Additional parties to whom reports to be transmitted—** Reports pursuant to this section shall be transmitted by mail— - (1) to all registered holders of [indenture securities](/usc/15/77ccc.md?p=11), as the names and addresses of such holders appear upon the registration books of the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11); - (2) to such holders of [indenture securities](/usc/15/77ccc.md?p=11) as have, within the two years preceding such transmission, filed their names and addresses with the [indenture trustee](/usc/15/77ccc.md?p=10) for that purpose; and - (3) except in the case of reports pursuant to [subsection (b)](#b) of this section, to all holders of [indenture securities](/usc/15/77ccc.md?p=11) whose names and addresses have been furnished to or received by the [indenture trustee](/usc/15/77ccc.md?p=10) pursuant to [section 77lll](/usc/15/77lll.md) of this title. - (d) **Filing of report with stock exchanges—** A copy of each such report shall, at the time of such transmission to [indenture security](/usc/15/77ccc.md?p=11) holders, be filed with each stock [exchange](/usc/15/636.md?p=a-36-A-xvi) upon which the [indenture securities](/usc/15/77ccc.md?p=11) are listed, and also with the [Commission](/usc/15/77ccc.md?p=15). # §77nnn. Reports by obligor; evidence of compliance with indenture provisions - (a) **Periodic reports—** Each [person](/usc/15/78m.md?p=h-8-E) who, as set forth in the [registration statement](/usc/15/77b.md?p=a-8) or [application](/usc/15/77ccc.md?p=8), is or is to be an [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) covered thereby shall— - (1) file with the [indenture trustee](/usc/15/77ccc.md?p=10) copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the [Commission](/usc/15/77ccc.md?p=15) may by rules and regulations prescribe) which such [obligor](/usc/15/77ccc.md?p=12) is required to file with the [Commission](/usc/15/77ccc.md?p=15) pursuant to section [78m](/usc/15/78m.md) or [78o(d)](/usc/15/78o.md?p=d) of this title; or, if the [obligor](/usc/15/77ccc.md?p=12) is not required to file information, documents, or reports pursuant to either of such sections, then to file with the [indenture trustee](/usc/15/77ccc.md?p=10) and the [Commission](/usc/15/77ccc.md?p=15), in accordance with rules and regulations prescribed by the [Commission](/usc/15/77ccc.md?p=15), such of the supplementary and periodic information, documents, and reports which may be required pursuant to [section 78m of this title](/usc/15/78m.md), in respect of a [security](/usc/15/78lll.md?p=14) listed and registered on a [national securities exchange](/usc/15/9009a.md?p=a-5) as may be prescribed in such rules and regulations; - (2) file with the [indenture trustee](/usc/15/77ccc.md?p=10) and the [Commission](/usc/15/77ccc.md?p=15), in accordance with rules and regulations prescribed by the [Commission](/usc/15/77ccc.md?p=15), such additional information, documents, and reports with respect to compliance by such [obligor](/usc/15/77ccc.md?p=12) with the conditions and covenants provided for in the [indenture](/usc/15/77ccc.md?p=7), as may be required by such rules and regulations, including, in the case of annual reports, if required by such rules and regulations, certificates or opinions of independent public accountants, conforming to the requirements of [subsection (e)](#e) of this section, as to compliance with conditions or covenants, compliance with which is subject to verification by accountants, but no such certificate or opinion shall be required as to any matter specified in clauses (A), (B), or (C) of paragraph (3) of [subsection (c)](#c); - (3) transmit to the holders of the [indenture securities](/usc/15/77ccc.md?p=11) upon which such [person](/usc/15/78m.md?p=h-8-E) is an [obligor](/usc/15/77ccc.md?p=12), in the manner and to the extent provided in subsection (c) of [section 77mmm of this title](/usc/15/77mmm.md), such summaries of any information, documents, and reports required to be filed by such [obligor](/usc/15/77ccc.md?p=12) pursuant to the provisions of paragraph (1) or (2) of this subsection as may be required by rules and regulations prescribed by the [Commission](/usc/15/77ccc.md?p=15); and - (4) furnish to the [indenture trustee](/usc/15/77ccc.md?p=10), not less often than annually, a brief certificate from the principal [executive officer](/usc/15/77ccc.md?p=6), principal financial officer or principal accounting officer as to his or her knowledge of such [obligor](/usc/15/77ccc.md?p=12)’s compliance with all conditions and covenants under the [indenture](/usc/15/77ccc.md?p=7). For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under the [indenture](/usc/15/77ccc.md?p=7). The rules and regulations prescribed under this subsection shall be such as are necessary or appropriate in the public interest or for the protection of investors, having due regard to the types of [indentures](/usc/15/77ccc.md?p=7), and the nature of the business of the class of [obligors](/usc/15/77ccc.md?p=12) affected thereby, and the amount of [indenture securities](/usc/15/77ccc.md?p=11) outstanding under such [indentures](/usc/15/77ccc.md?p=7), and, in the case of any such rules and regulations prescribed after the [indentures](/usc/15/77ccc.md?p=7) to which they apply have been qualified under this subchapter, the additional expense, if any, of complying with such rules and regulations. Such rules and regulations may be prescribed either before or after qualification becomes effective as to any such [indenture](/usc/15/77ccc.md?p=7). - (b) **Evidence of recording of indenture—** If the [indenture to be qualified](/usc/15/77ccc.md?p=9) is or is to be secured by the mortgage or pledge of property, the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) shall furnish to the [indenture trustee](/usc/15/77ccc.md?p=10)— - (1) promptly after the execution and delivery of the [indenture](/usc/15/77ccc.md?p=7), an opinion of counsel (who may be of counsel for such [obligor](/usc/15/77ccc.md?p=12)) either stating that in the opinion of such counsel the [indenture](/usc/15/77ccc.md?p=7) has been properly recorded and filed so as to make effective the lien intended to be created thereby, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to make such lien effective; and - (2) at least annually after the execution and delivery of the [indenture](/usc/15/77ccc.md?p=7), an opinion of counsel (who may be of counsel for such [obligor](/usc/15/77ccc.md?p=12)) either stating that in the opinion of such counsel such action has been taken with respect to the recording, filing, re-recording, and refiling of the [indenture](/usc/15/77ccc.md?p=7) as is necessary to maintain the lien of such [indenture](/usc/15/77ccc.md?p=7), and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such lien. - (c) **Evidence of compliance with conditions precedent—** The [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) shall furnish to the [indenture trustee](/usc/15/77ccc.md?p=10) evidence of compliance with the conditions precedent, if any, provided for in the [indenture](/usc/15/77ccc.md?p=7) (including any covenants compliance with which constitutes a condition precedent) which relate to the authentication and delivery of the [indenture securities](/usc/15/77ccc.md?p=11), to the release or the release and substitution of property subject to the lien of the [indenture](/usc/15/77ccc.md?p=7), to the satisfaction and discharge of the [indenture](/usc/15/77ccc.md?p=7), or to any other action to be taken by the [indenture trustee](/usc/15/77ccc.md?p=10) at the request or upon the [application](/usc/15/77ccc.md?p=8) of such [obligor](/usc/15/77ccc.md?p=12). Such evidence shall consist of the following: - (1) certificates or opinions made by officers of such [obligor](/usc/15/77ccc.md?p=12) who are specified in the [indenture](/usc/15/77ccc.md?p=7), stating that such conditions precedent have been complied with; - (2) an opinion of counsel (who may be of counsel for such [obligor](/usc/15/77ccc.md?p=12)) stating that in his opinion such conditions precedent have been complied with; and - (3) in the case of conditions precedent compliance with which is subject to verification by accountants (such as conditions with respect to the preservation of specified ratios, the amount of net quick assets, negative-pledge clauses, and other similar specific conditions), a certificate or opinion of an accountant, who, in the case of any such conditions precedent to the authentication and delivery of [indenture securities](/usc/15/77ccc.md?p=11), and not otherwise, shall be an independent public accountant selected or approved by the [indenture trustee](/usc/15/77ccc.md?p=10) in the exercise of reasonable care, if the aggregate principal amount of such [indenture securities](/usc/15/77ccc.md?p=11) and of other [indenture securities](/usc/15/77ccc.md?p=11) authenticated and delivered since the commencement of the then current calendar year (other than those with respect to which a certificate or opinion of an accountant is not required, or with respect to which a certificate or opinion of an independent public accountant has previously been furnished) is 10 per centum or more of the aggregate amount of the [indenture securities](/usc/15/77ccc.md?p=11) at the time outstanding; but no certificate or opinion need be made by any [person](/usc/15/78m.md?p=h-8-E) other than an officer or employee of such [obligor](/usc/15/77ccc.md?p=12) who is specified in the [indenture](/usc/15/77ccc.md?p=7), as to (A) dates or periods not covered by annual reports required to be filed by the [obligor](/usc/15/77ccc.md?p=12), in the case of conditions precedent which depend upon a [state](/usc/15/77ccc.md?p=14) of facts as of a date or dates or for a period or periods different from that required to be covered by such annual reports, or (B) the amount and value of property additions, except as provided in [paragraph (3)](#d-3) of subsection (d), or (C) the adequacy of depreciation, maintenance, or repairs. - (d) **Certificates of fair value—** If the [indenture to be qualified](/usc/15/77ccc.md?p=9) is or is to be secured by the mortgage or pledge of property or [securities](/usc/15/78lll.md?p=14), the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) shall furnish to the [indenture trustee](/usc/15/77ccc.md?p=10) a certificate or opinion of an engineer, appraiser, or other expert as to the fair value— - (1) of any property or [securities](/usc/15/78lll.md?p=14) to be released from the lien of the [indenture](/usc/15/77ccc.md?p=7), which certificate or opinion shall [state](/usc/15/77ccc.md?p=14) that in the opinion of the [person](/usc/15/78m.md?p=h-8-E) making the same the proposed release will not impair the [security](/usc/15/78lll.md?p=14) under such [indenture](/usc/15/77ccc.md?p=7) in contravention of the provisions thereof, and requiring further that such certificate or opinion shall be made by an independent engineer, appraiser, or other expert, if the fair value of such property or [securities](/usc/15/78lll.md?p=14) and of all other property or [securities](/usc/15/78lll.md?p=14) released since the commencement of the then current calendar year, as set forth in the certificates or opinions required by this paragraph, is 10 per centum or more of the aggregate principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) at the time outstanding; but such a certificate or opinion of an independent engineer, appraiser, or other expert shall not be required in the case of any release of property or [securities](/usc/15/78lll.md?p=14), if the fair value thereof as set forth in the certificate or opinion required by this paragraph is less than $25,000 or less than 1 per centum of the aggregate principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) at the time outstanding; - (2) to such [obligor](/usc/15/77ccc.md?p=12) of any [securities](/usc/15/78lll.md?p=14) (other than [indenture securities](/usc/15/77ccc.md?p=11) and [securities](/usc/15/78lll.md?p=14) secured by a lien prior to the lien of the [indenture](/usc/15/77ccc.md?p=7) upon property subject to the lien of the [indenture](/usc/15/77ccc.md?p=7)), the deposit of which with the trustee is to be made the basis for the authentication and delivery of [indenture securities](/usc/15/77ccc.md?p=11), the withdrawal of cash constituting a part of the trust estate or the release of property or [securities](/usc/15/78lll.md?p=14) subject to the lien of the [indenture](/usc/15/77ccc.md?p=7), and requiring further that if the fair value to such [obligor](/usc/15/77ccc.md?p=12) of such [securities](/usc/15/78lll.md?p=14) and of all other such [securities](/usc/15/78lll.md?p=14) made the basis of any such authentication and delivery, withdrawal, or release since the commencement of the then current calendar year, as set forth in the certificates or opinions required by this paragraph, is 10 per centum or more of the aggregate principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) at the time outstanding, such certificate or opinion shall be made by an independent engineer, appraiser, or other expert and, in the case of the authentication and delivery of [indenture securities](/usc/15/77ccc.md?p=11), shall cover the fair value to such [obligor](/usc/15/77ccc.md?p=12) of all other such [securities](/usc/15/78lll.md?p=14) so deposited since the commencement of the current calendar year as to which a certificate or opinion of an independent engineer, appraiser, or other expert has not previously been furnished; but such a certificate of an independent engineer, appraiser, or other expert shall not be required with respect to any [securities](/usc/15/78lll.md?p=14) so deposited, if the fair value thereof to such [obligor](/usc/15/77ccc.md?p=12) as set forth in the certificate or opinion required by this paragraph is less than $25,000 or less than 1 per centum of the aggregate principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) at the time outstanding; and - (3) to such [obligor](/usc/15/77ccc.md?p=12) of any property the subjection of which to the lien of the [indenture](/usc/15/77ccc.md?p=7) is to be made the basis for the authentication and delivery of [indenture securities](/usc/15/77ccc.md?p=11), the withdrawal of cash constituting a part of the trust estate, or the release of property or [securities](/usc/15/78lll.md?p=14) subject to the lien of the [indenture](/usc/15/77ccc.md?p=7), and requiring further that if - (A) within six months prior to the date of acquisition thereof by such [obligor](/usc/15/77ccc.md?p=12), such property has been used or operated, by a [person](/usc/15/78m.md?p=h-8-E) or [persons](/usc/15/78m.md?p=h-8-E) other than such [obligor](/usc/15/77ccc.md?p=12), in a business similar to that in which it has been or is to be used or operated by such [obligor](/usc/15/77ccc.md?p=12), and - (B) the fair value to such [obligor](/usc/15/77ccc.md?p=12) of such property as set forth in such certificate or opinion is not less than $25,000 and not less than 1 per centum of the aggregate principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) at the time outstanding, such certificate or opinion shall be made by an independent engineer, appraiser, or other expert and, in the case of the authentication and delivery of [indenture securities](/usc/15/77ccc.md?p=11), shall cover the fair value to the [obligor](/usc/15/77ccc.md?p=12) of any property so used or operated which has been so subjected to the lien of the [indenture](/usc/15/77ccc.md?p=7) since the commencement of the then current calendar year, and as to which a certificate or opinion of an independent engineer, appraiser, or other expert has not previously been furnished. The [indenture to be qualified](/usc/15/77ccc.md?p=9) shall automatically be deemed (unless it is expressly provided therein that such provision is excluded) to provide that any such certificate or opinion may be made by an officer or employee of the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) who is duly authorized to make such certificate or opinion by the [obligor](/usc/15/77ccc.md?p=12) from time to time, except in cases in which this subsection requires that such certificate or opinion be made by an independent [person](/usc/15/78m.md?p=h-8-E). In such cases, such certificate or opinion shall be made by an independent engineer, appraiser, or other expert selected or approved by the [indenture trustee](/usc/15/77ccc.md?p=10) in the exercise of reasonable care. - (e) **Recitals as to basis of certificate or opinion—** Each certificate or opinion with respect to compliance with a condition or covenant provided for in the [indenture](/usc/15/77ccc.md?p=7) (other than certificates provided pursuant to [subsection (a)(4)](#a-4) of this section) shall include (1) a statement that the [person](/usc/15/78m.md?p=h-8-E) making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such [person](/usc/15/78m.md?p=h-8-E), he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such [person](/usc/15/78m.md?p=h-8-E), such condition or covenant has been complied with. - (f) **Parties may provide for additional evidence—** Nothing in this section shall be construed either as requiring the inclusion in the [indenture to be qualified](/usc/15/77ccc.md?p=9) of provisions that the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) shall furnish to the [indenture trustee](/usc/15/77ccc.md?p=10) any other evidence of compliance with the conditions and covenants provided for in the [indenture](/usc/15/77ccc.md?p=7) than the evidence specified in this section, or as preventing the inclusion of such provisions in such [indenture](/usc/15/77ccc.md?p=7), if the parties so agree. # §77ooo. Duties and responsibility of the trustee - (a) **Duties prior to default—** The [indenture to be qualified](/usc/15/77ccc.md?p=9) shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to provide that, prior to default (as such term is defined in such [indenture](/usc/15/77ccc.md?p=7))— - (1) the [indenture trustee](/usc/15/77ccc.md?p=10) shall not be liable except for the performance of such duties as are specifically set out in such [indenture](/usc/15/77ccc.md?p=7); and - (2) the [indenture trustee](/usc/15/77ccc.md?p=10) may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, in the absence of bad faith on the part of such trustee, upon certificates or opinions conforming to the requirements of the [indenture](/usc/15/77ccc.md?p=7); but the [indenture trustee](/usc/15/77ccc.md?p=10) shall examine the evidence furnished to it pursuant to [section 77nnn of this title](/usc/15/77nnn.md) to determine whether or not such evidence conforms to the requirements of the [indenture](/usc/15/77ccc.md?p=7). - (b) **Notice of defaults—** The [indenture trustee](/usc/15/77ccc.md?p=10) shall give to the [indenture security](/usc/15/77ccc.md?p=11) holders, in the manner and to the extent provided in subsection (c) of [section 77mmm of this title](/usc/15/77mmm.md), notice of all defaults known to the trustee, within ninety days after the occurrence thereof: Provided, That such [indenture](/usc/15/77ccc.md?p=7) shall automatically be deemed (unless it is expressly provided therein that such provision is excluded) to provide that, except in the case of default in the payment of the principal of or interest on any [indenture security](/usc/15/77ccc.md?p=11), or in the payment of any sinking or [purchase](/usc/15/78c–5.md?p=g) fund installment, the trustee shall be protected in withholding such notice if and so long as the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/77ccc.md?p=5), the executive [committee](/usc/15/2921.md?p=1), or a trust [committee](/usc/15/2921.md?p=1) of [directors](/usc/15/77ccc.md?p=5) and/or responsible officers, of the trustee in good faith determine that the withholding of such notice is in the interests of the [indenture security](/usc/15/77ccc.md?p=11) holders. - (c) **Duties of the trustee in case of default—** The [indenture trustee](/usc/15/77ccc.md?p=10) shall exercise in case of default (as such term is defined in such [indenture](/usc/15/77ccc.md?p=7)) such of the rights and powers vested in it by such [indenture](/usc/15/77ccc.md?p=7), and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. - (d) **Responsibility of the trustee—** The [indenture to be qualified](/usc/15/77ccc.md?p=9) shall not contain any provisions relieving the [indenture trustee](/usc/15/77ccc.md?p=10) from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that— - (1) such [indenture](/usc/15/77ccc.md?p=7) shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain the provisions authorized by paragraphs [(1)](#a-1) and [(2)](#a-2) of subsection (a) of this section; - (2) such [indenture](/usc/15/77ccc.md?p=7) shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions protecting the [indenture trustee](/usc/15/77ccc.md?p=10) from liability for any error of judgment made in good faith by a responsible officer or officers of such trustee, unless it shall be proved that such trustee was negligent in ascertaining the pertinent facts; and - (3) such [indenture](/usc/15/77ccc.md?p=7) shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions protecting the [indenture trustee](/usc/15/77ccc.md?p=10) with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) at the time outstanding (determined as provided in subsection (a) of [section 77ppp of this title](/usc/15/77ppp.md)) relating to the time, method, and place of conducting any proceeding for any remedy available to such trustee, or exercising any trust or power conferred upon such trustee, under such [indenture](/usc/15/77ccc.md?p=7). - (e) **Undertaking for costs—** The [indenture to be qualified](/usc/15/77ccc.md?p=9) shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions to the effect that all parties thereto, including the [indenture security](/usc/15/77ccc.md?p=11) holders, agree that the court may in its discretion require, in any suit for the enforcement of any right or remedy under such [indenture](/usc/15/77ccc.md?p=7), or in any suit against the trustee for any action taken or omitted by it as trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorney’s fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant: Provided, That the provisions of this subsection shall not apply to any suit instituted by such trustee, to any suit instituted by any [indenture security](/usc/15/77ccc.md?p=11) holder, or group of [indenture security](/usc/15/77ccc.md?p=11) holders, holding in the aggregate more than 10 per centum in principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) outstanding, or to any suit instituted by any [indenture security](/usc/15/77ccc.md?p=11) holder for the enforcement of the payment of the principal of or interest on any [indenture security](/usc/15/77ccc.md?p=11), on or after the respective due dates expressed in such [indenture security](/usc/15/77ccc.md?p=11). # §77ppp. Directions and waivers by bondholders; prohibition of impairment of holder’s right to payment; record date - (a) **Directions and waivers by bondholders—** The [indenture to be qualified](/usc/15/77ccc.md?p=9)— - (1) shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions authorizing the holders of not less than a majority in principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) or if expressly specified in such [indenture](/usc/15/77ccc.md?p=7), of any series of [securities](/usc/15/78lll.md?p=14) at the time outstanding (A) to direct the time, method, and place of conducting any proceeding for any remedy available to such trustee, or exercising any trust or power conferred upon such trustee, under such [indenture](/usc/15/77ccc.md?p=7), or (B) on behalf of the holders of all such [indenture securities](/usc/15/77ccc.md?p=11), to consent to the waiver of any past default and its consequences; or - (2) may contain provisions authorizing the holders of not less than 75 per centum in principal amount of the [indenture securities](/usc/15/77ccc.md?p=11) or if expressly specified in such [indenture](/usc/15/77ccc.md?p=7), of any series of [securities](/usc/15/78lll.md?p=14) at the time outstanding to consent on behalf of the holders of all such [indenture securities](/usc/15/77ccc.md?p=11) to the postponement of any interest payment for a period not exceeding three years from its due date. For the purposes of this subsection and paragraph (3) of subsection (d) of [section 77ooo](/usc/15/77ooo.md) of this title, in determining whether the holders of the required principal amount of [indenture securities](/usc/15/77ccc.md?p=11) have concurred in any such direction or consent, [indenture securities](/usc/15/77ccc.md?p=11) owned by any [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11), or by any [person](/usc/15/78m.md?p=h-8-E) directly or indirectly controlling or controlled by or under direct or indirect common control with any such [obligor](/usc/15/77ccc.md?p=12), shall be disregarded, except that for the purposes of determining whether the [indenture trustee](/usc/15/77ccc.md?p=10) shall be protected in relying on any such direction or consent, only [indenture securities](/usc/15/77ccc.md?p=11) which such trustee knows are so owned shall be so disregarded. - (b) **Prohibition of impairment of holder’s right to payment—** Notwithstanding any other provision of the [indenture to be qualified](/usc/15/77ccc.md?p=9), the right of any holder of any [indenture security](/usc/15/77ccc.md?p=11) to receive payment of the principal of and interest on such [indenture security](/usc/15/77ccc.md?p=11), on or after the respective due dates expressed in such [indenture security](/usc/15/77ccc.md?p=11), or to [institute](/usc/15/9401.md?p=7) suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder, except— - (1) as to a postponement of an interest payment consented to as provided in [paragraph (2)](#a-2) of subsection (a); - (2) that such [indenture](/usc/15/77ccc.md?p=7) may contain provisions limiting or denying the right of any such holder to [institute](/usc/15/9401.md?p=7) any such suit, if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver, or loss of the lien of such [indenture](/usc/15/77ccc.md?p=7) upon any property subject to such lien; and - (3) that the right of any holder of any [indenture security](/usc/15/77ccc.md?p=11) to receive payment of the principal of and interest on such [indenture security](/usc/15/77ccc.md?p=11) shall not be deemed to be impaired or affected by any change occurring by the [application](/usc/15/77ccc.md?p=8) of [section 5803 of title 12](/usc/12/5803.md) to any [indenture security](/usc/15/77ccc.md?p=11). - (c) **Record date—** The [obligor](/usc/15/77ccc.md?p=12) upon any [indenture](/usc/15/77ccc.md?p=7) qualified under this subchapter may set a record date for purposes of determining the identity of [indenture security](/usc/15/77ccc.md?p=11) holders entitled to vote or consent to any action by vote or consent authorized or permitted by [subsection (a)](#a) of this section. Unless the [indenture](/usc/15/77ccc.md?p=7) provides otherwise, such record date shall be the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of holders furnished to the trustee pursuant to [section 77lll](/usc/15/77lll.md) of this title prior to such solicitation. # §77qqq. Special powers of trustee; duties of paying agents - (a) The [indenture trustee](/usc/15/77ccc.md?p=10) shall be authorized— - (1) in the case of a default in payment of the principal of any [indenture security](/usc/15/77ccc.md?p=11), when and as the same shall become due and payable, or in the case of a default in payment of the interest on any such [security](/usc/15/78lll.md?p=14), when and as the same shall become due and payable and the continuance of such default for such period as may be prescribed in such [indenture](/usc/15/77ccc.md?p=7), to recover judgment, in its own name and as trustee of an express trust, against the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) for the whole amount of such principal and interest remaining unpaid; and - (2) to file such proofs of claim and other papers or documents as may be necessary or advisable in [order](/usc/15/8702.md?p=14) to have the claims of such trustee and of the [indenture security](/usc/15/77ccc.md?p=11) holders allowed in any judicial proceedings relative to the [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11), its [creditors](/usc/15/1615.md?p=d-2), or its property. - (b) Each [paying agent](/usc/15/77ccc.md?p=13) shall hold in trust for the benefit of the [indenture security](/usc/15/77ccc.md?p=11) holders or the [indenture trustee](/usc/15/77ccc.md?p=10) all sums held by such [paying agent](/usc/15/77ccc.md?p=13) for the payment of the principal of or interest on the [indenture securities](/usc/15/77ccc.md?p=11), and shall give to such trustee notice of any default by any [obligor](/usc/15/77ccc.md?p=12) upon the [indenture securities](/usc/15/77ccc.md?p=11) in the making of any such payment. # §77rrr. Effect of prescribed indenture provisions - (a) **Imposed duties to control—** If any provision of the [indenture to be qualified](/usc/15/77ccc.md?p=9) limits, qualifies, or conflicts with the duties imposed by operation of [subsection (c)](#c) of this section, the imposed duties shall control. - (b) **Additional provisions—** The [indenture to be qualified](/usc/15/77ccc.md?p=9) may contain, in addition to provisions specifically authorized under this subchapter to be included therein, any other provisions the inclusion of which is not in contravention of any provision of this subchapter. - (c) **Provisions governing qualified indentures—** The provisions of [sections 77jjj](/usc/15/77jjj.md) to and including [77qqq](/usc/15/77qqq.md) of this title that impose duties on any [person](/usc/15/78m.md?p=h-8-E) (including provisions automatically deemed included in an [indenture](/usc/15/77ccc.md?p=7) unless the [indenture](/usc/15/77ccc.md?p=7) provides that such provisions are excluded) are a part of and govern every qualified [indenture](/usc/15/77ccc.md?p=7), whether or not physically contained therein, shall be deemed retroactively to govern each [indenture](/usc/15/77ccc.md?p=7) heretofore qualified, and prospectively to govern each [indenture](/usc/15/77ccc.md?p=7) hereafter qualified under this subchapter and shall be deemed retroactively to amend and supersede inconsistent provisions in each such [indenture](/usc/15/77ccc.md?p=7) heretofore qualified. The foregoing provisions of this subsection shall not be deemed to effect the inclusion (by retroactive amendment or otherwise) in the text of any [indenture](/usc/15/77ccc.md?p=7) heretofore qualified of any of the optional provisions contemplated by section [77jjj(b)(1)](/usc/15/77jjj.md?p=b-1), [77kkk(b)](/usc/15/77kkk.md?p=b), [77nnn(d)](/usc/15/77nnn.md?p=d), [77ooo(a)](/usc/15/77ooo.md?p=a), [77ooo(b)](/usc/15/77ooo.md?p=b), [77ooo(d)](/usc/15/77ooo.md?p=d), [77ooo(e)](/usc/15/77ooo.md?p=e), or [77ppp(a)(1)](/usc/15/77ppp.md?p=a-1) of this title. # §77sss. Rules, regulations, and orders - (a) **Authority of Commission; subject matter of rules, etc.** The [Commission](/usc/15/77ccc.md?p=15) shall have [authority](/usc/15/3051.md?p=1) from time to time to make, issue, amend, and rescind such rules and regulations and such [orders](/usc/15/8702.md?p=14) as it may deem necessary or appropriate in the public interest or for the protection of investors to carry out the provisions of this subchapter, including rules and regulations defining accounting, technical, and trade terms used in this subchapter. Among other things, the [Commission](/usc/15/77ccc.md?p=15) shall have [authority](/usc/15/3051.md?p=1), (1) by rules and regulations, to prescribe for the purposes of [section 77jjj(b) of this title](/usc/15/77jjj.md?p=b) the method (to be fixed in [indentures](/usc/15/77ccc.md?p=7) to be qualified under this subchapter) of calculating percentages of [voting securities](/usc/15/77ccc.md?p=16) and other [securities](/usc/15/78lll.md?p=14); (2) by rules and regulations, to prescribe the definitions of the terms “cash transaction” and “self-liquidating paper” which shall be included in [indentures](/usc/15/77ccc.md?p=7) to be qualified under this subchapter, which definitions shall include such of the [creditor](/usc/15/1615.md?p=d-2) relationships referred to in paragraphs (4) and (6) of subsection (b) of [section 77kkk of this title](/usc/15/77kkk.md) as to which the [Commission](/usc/15/77ccc.md?p=15) determines that the [application](/usc/15/77ccc.md?p=8) of subsection (a) of [section 77kkk of this title](/usc/15/77kkk.md) is not necessary in the public interest or for the protection of investors, having due regard for the purposes of such subsection; and (3) for the purposes of this subchapter, to prescribe the form or forms in which information required in any statement, [application](/usc/15/77ccc.md?p=8), report, or other document filed with the [Commission](/usc/15/77ccc.md?p=15) shall be set forth. For the purpose of its rules or regulations the [Commission](/usc/15/77ccc.md?p=15) may classify [persons](/usc/15/78m.md?p=h-8-E), [securities](/usc/15/78lll.md?p=14), [indentures](/usc/15/77ccc.md?p=7), and other matters within its jurisdiction and prescribe different requirements for different classes of [persons](/usc/15/78m.md?p=h-8-E), [securities](/usc/15/78lll.md?p=14), [indentures](/usc/15/77ccc.md?p=7), or matters. - (b) **Rules and regulations effective upon publication—** Subject to the provisions of [chapter 15](/usc/44/ch15.md) of title 44 and regulations prescribed under the [authority](/usc/15/3051.md?p=1) thereof, the rules and regulations of the [Commission](/usc/15/77ccc.md?p=15) under this subchapter shall be effective upon publication in the manner which the [Commission](/usc/15/77ccc.md?p=15) shall prescribe, or upon such later date as may be provided in such rules and regulations. - (c) **Exemption from liability for any acts taken in good faith in conformity with rules, etc.** No provision of this subchapter imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77ccc.md?p=15), notwithstanding that such rule, regulation, or [order](/usc/15/8702.md?p=14) may, after such act or omission, be amended or rescinded or be determined by judicial or other [authority](/usc/15/3051.md?p=1) to be invalid for any reason. # §77ttt. Hearings by Commission Hearings may be public and may be held before the [Commission](/usc/15/77ccc.md?p=15), any member or members thereof, or any officer or officers of the [Commission](/usc/15/77ccc.md?p=15) designated by it, and appropriate records thereof shall be kept. # §77uuu. Special powers of the Commission - (a) **Investigatory powers—** For the purpose of any investigation or any other proceeding which, in the opinion of the [Commission](/usc/15/77ccc.md?p=15), is necessary and proper for the enforcement of this subchapter, any member of the [Commission](/usc/15/77ccc.md?p=15), or any officer thereof designated by it, is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records which the [Commission](/usc/15/77ccc.md?p=15) deems relevant or material to the inquiry. Such attendance of witnesses and the production of any such books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records may be required from any place in the United States or in any Territory at any designated place of investigation or hearing. In addition, the [Commission](/usc/15/77ccc.md?p=15) shall have the powers with respect to investigations and hearings, and with respect to the enforcement of, and offenses and [violations](/usc/15/57b–1.md?p=a-7) under, this subchapter and rules and regulations and [orders](/usc/15/8702.md?p=14) prescribed under the [authority](/usc/15/3051.md?p=1) thereof, provided in sections [77t](/usc/15/77t.md) and [77v(b)](/usc/15/77v.md?p=b), [(c)](/usc/15/77v.md?p=c) of this title. - (b) **Availability of reports from other offices; restrictions—** The Treasury Department, the Comptroller of the Currency, the [Board](/usc/15/205c.md?p=1) of Governors of the Federal Reserve System, the Federal Reserve Banks, and the Federal Deposit Insurance Corporation are authorized, under such conditions as they may prescribe, to make available to the [Commission](/usc/15/77ccc.md?p=15) such reports, records, or other information as they may have available with respect to trustees or prospective trustees under [indentures](/usc/15/77ccc.md?p=7) qualified or to be qualified under this subchapter, and to make through their examiners or other employees for the use of the [Commission](/usc/15/77ccc.md?p=15), examinations of such trustees or prospective trustees. Every such trustee or prospective trustee shall, as a condition precedent to qualification of such [indenture](/usc/15/77ccc.md?p=7), consent that reports of examinations by Federal, [State](/usc/15/77ccc.md?p=14), Territorial, or District [authorities](/usc/15/3051.md?p=1) may be furnished by such [authorities](/usc/15/3051.md?p=1) to the [Commission](/usc/15/77ccc.md?p=15) upon request therefor. Notwithstanding any provision of this subchapter, no report, record, or other information made available to the [Commission](/usc/15/77ccc.md?p=15) under this subsection, no report of an examination made under this subsection for the use of the [Commission](/usc/15/77ccc.md?p=15), no report of an examination made of any trustee or prospective trustee by any Federal, [State](/usc/15/77ccc.md?p=14), Territorial, or District [authority](/usc/15/3051.md?p=1) having jurisdiction to examine or supervise such trustee, no report made by any such trustee or prospective trustee to any such [authority](/usc/15/3051.md?p=1), and no correspondence between any such [authority](/usc/15/3051.md?p=1) and any such trustee or prospective trustee, shall be divulged or made known or available by the [Commission](/usc/15/77ccc.md?p=15) or any member, officer, agent, or employee thereof, to any [person](/usc/15/78m.md?p=h-8-E) other than a member, officer, agent, or employee of the [Commission](/usc/15/77ccc.md?p=15): Provided, That the [Commission](/usc/15/77ccc.md?p=15) may make available to the Attorney General of the United States, in confidence, any information obtained from such records, reports of examination, other reports, or correspondence, and deemed necessary by the [Commission](/usc/15/77ccc.md?p=15), or requested by him, for the purpose of enabling him to perform his duties under this subchapter. - (c) **Investigation of prospective trustees—** Any investigation of a prospective trustee, or any proceeding or requirement for the purpose of obtaining information regarding a prospective trustee, under any provision of this subchapter, shall be limited— - (1) to determining whether such prospective trustee is qualified to act as trustee under the provisions of subsection (b) of [section 77jjj of this title](/usc/15/77jjj.md); - (2) to requiring the inclusion in the [registration statement](/usc/15/77b.md?p=a-8) or [application](/usc/15/77ccc.md?p=8) of information with respect to the eligibility of such prospective trustee under paragraph (1) of subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md); and - (3) to requiring the inclusion in the [registration statement](/usc/15/77b.md?p=a-8) or [application](/usc/15/77ccc.md?p=8) of the most recent published report of condition of such prospective trustee, as described in paragraph (2) of subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md), or, if the [indenture](/usc/15/77ccc.md?p=7) does not contain the provision with respect to combined capital and surplus authorized by the last sentence of paragraph (2) of subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md), to determining whether such prospective trustee is eligible to act as such under paragraph (2) of subsection (a) of [section 77jjj of this title](/usc/15/77jjj.md). - (d) **Appointment and compensation of employees; lease and allocation of real property—** The provisions [section 78d(b) of this title](/usc/15/78d.md?p=b) shall be applicable with respect to the power of the [Commission](/usc/15/77ccc.md?p=15)— - (1) to appoint and fix the compensation of such employees as may be necessary for carrying out its functions under this subchapter, and - (2) to lease and allocate such real property as may be necessary for carrying out its functions under this subchapter. # §77vvv. Judicial review - (a) **Review of orders—** [Orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77ccc.md?p=15) under this subchapter (including [orders](/usc/15/8702.md?p=14) pursuant to the provisions of sections [77eee(b)](/usc/15/77eee.md?p=b) and [77ggg(c)](/usc/15/77ggg.md?p=c) of this title) shall be subject to review in the same manner, upon the same conditions, and to the same extent, as provided in section 9 of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77i](/usc/15/77i.md)], with respect to [orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/77ccc.md?p=15) under such Act. - (b) **Jurisdiction of offenses and suits—** Jurisdiction of offenses and [violations](/usc/15/57b–1.md?p=a-7) under, and jurisdiction and venue of suits and actions brought to enforce any liability or duty created by, this subchapter, or any rules or regulations or [orders](/usc/15/8702.md?p=14) prescribed under the [authority](/usc/15/3051.md?p=1) thereof, shall be as provided in section 22(a) of the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77v(a)](/usc/15/77v.md?p=a)]. # §77www. Liability for misleading statements - (a) Any [person](/usc/15/78m.md?p=h-8-E) who shall make or cause to be made any statement in any [application](/usc/15/77ccc.md?p=8), report, or document filed with the [Commission](/usc/15/77ccc.md?p=15) pursuant to any provisions of this subchapter, or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or who shall omit to [state](/usc/15/77ccc.md?p=14) any material fact required to be stated therein or necessary to make the statements therein not misleading, shall be liable to any [person](/usc/15/78m.md?p=h-8-E) (not knowing that such statement was false or misleading or of such omission) who, in reliance upon such statement or omission, shall have purchased or sold a [security](/usc/15/78lll.md?p=14) issued under the [indenture](/usc/15/77ccc.md?p=7) to which such [application](/usc/15/77ccc.md?p=8), report, or document relates, for damages caused by such reliance, unless the [person](/usc/15/78m.md?p=h-8-E) sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading or of such omission. A [person](/usc/15/78m.md?p=h-8-E) seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit and assess reasonable costs, including reasonable attorneys’ fees, against either party litigant, having due regard to the merits and good faith of the suit or defense. No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued. - (b) The rights and remedies provided by this subchapter shall be in addition to any and all other rights and remedies that may exist under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] or the [Securities Exchange Act of 1934](/usc/15/77ccc.md?p=17) [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or otherwise at law or in equity; but no [person](/usc/15/78m.md?p=h-8-E) permitted to maintain a suit for damages under the provisions of this subchapter shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on [account](/usc/15/1681a.md?p=r-4) of the act complained of. # §77xxx. Unlawful representations It shall be unlawful for any [person](/usc/15/78m.md?p=h-8-E) in offering, selling or issuing any [security](/usc/15/78lll.md?p=14) to represent or imply in any manner whatsoever that any action or failure to act by the [Commission](/usc/15/77ccc.md?p=15) in the [administration](/usc/15/2203.md?p=2) of this subchapter means that the [Commission](/usc/15/77ccc.md?p=15) has in any way passed upon the merits of, or given approval to, any trustee, [indenture](/usc/15/77ccc.md?p=7) or [security](/usc/15/78lll.md?p=14), or any transaction or transactions therein, or that any such action or failure to act with regard to any statement or report filed with or examined by the [Commission](/usc/15/77ccc.md?p=15) pursuant to this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, has the effect of a finding by the [Commission](/usc/15/77ccc.md?p=15) that such statement or report is true and accurate on its face or that it is not false or misleading. # §77yyy. Penalties Any [person](/usc/15/78m.md?p=h-8-E) who willfully violates any provision of this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, or any [person](/usc/15/78m.md?p=h-8-E) who willfully, in any [application](/usc/15/77ccc.md?p=8), report, or document filed or required to be filed under the provisions of this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, makes any untrue statement of a material fact or omits to [state](/usc/15/77ccc.md?p=14) any material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined not more than $10,000 or imprisoned not more than five years, or both. # §77zzz. Effect on existing law Except as otherwise expressly provided, nothing in this subchapter shall affect (1) the jurisdiction of the [Commission](/usc/15/77ccc.md?p=15) under the [Securities Act of 1933](/usc/15/77ccc.md?p=17) [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] or the [Securities Exchange Act of 1934](/usc/15/77ccc.md?p=17) [[15 U.S.C. 78a](/usc/15/78a.md) et seq.] over any [person](/usc/15/78m.md?p=h-8-E), [security](/usc/15/78lll.md?p=14), or contract, or (2) the rights, obligations, duties, or liabilities of any [person](/usc/15/78m.md?p=h-8-E) under such acts; nor shall anything in this subchapter affect the jurisdiction of any other [commission](/usc/15/77ccc.md?p=15), [board](/usc/15/205c.md?p=1), agency, or officer of the United States or of any [State](/usc/15/77ccc.md?p=14) or political subdivision of any [State](/usc/15/77ccc.md?p=14), over any [person](/usc/15/78m.md?p=h-8-E) or [security](/usc/15/78lll.md?p=14), insofar as such jurisdiction does not conflict with any provision of this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder. # §77aaaa. Contrary stipulations void Any condition, stipulation, or provision binding any [person](/usc/15/78m.md?p=h-8-E) to waive compliance with any provision of this subchapter or with any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder shall be void. # §77bbbb. Separability If any provision of this subchapter or the [application](/usc/15/77ccc.md?p=8) of such provision to any [person](/usc/15/78m.md?p=h-8-E) or circumstance shall be held invalid, the remainder of the subchapter and the [application](/usc/15/77ccc.md?p=8) of such provision to [persons](/usc/15/78m.md?p=h-8-E) or circumstances other than those as to which it is held invalid shall not be affected thereby. # §78a. Short title This chapter may be cited as the “[Securities](/usc/15/78c.md?p=a-10) Exchange Act of 1934.” # §78b. Necessity for regulation For the reasons hereinafter enumerated, transactions in [securities](/usc/15/78c.md?p=a-10) as commonly conducted upon [securities](/usc/15/78c.md?p=a-10) [exchanges](/usc/15/78c.md?p=a-1) and over-the-counter markets are effected with a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto, including transactions by officers, [directors](/usc/15/78c.md?p=a-7), and principal [security](/usc/15/78c.md?p=a-10) holders, to require appropriate reports, to remove impediments to and perfect the mechanisms of a national market system for [securities](/usc/15/78c.md?p=a-10) and a national system for the clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions and the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds related thereto, and to impose requirements necessary to make such regulation and control reasonably complete and effective, in [order](/usc/15/8702.md?p=14) to protect [interstate commerce](/usc/15/78c.md?p=a-17), the national [credit](/usc/15/1679a.md?p=4), the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions: - (1) Such transactions (a) are carried on in large volume by the public generally and in large part originate outside the [States](/usc/15/78c.md?p=a-16) in which the [exchanges](/usc/15/78c.md?p=a-1) and over-the-counter markets are located and/or are effected by means of the mails and instrumentalities of [interstate commerce](/usc/15/78c.md?p=a-17); (b) constitute an important part of the current of [interstate commerce](/usc/15/78c.md?p=a-17); (c) involve in large part the [securities](/usc/15/78c.md?p=a-10) of [issuers](/usc/15/78c.md?p=a-8) engaged in [interstate commerce](/usc/15/78c.md?p=a-17); (d) involve the use of [credit](/usc/15/1679a.md?p=4), directly affect the financing of trade, industry, and transportation in [interstate commerce](/usc/15/78c.md?p=a-17), and directly affect and influence the volume of [interstate commerce](/usc/15/78c.md?p=a-17); and affect the national [credit](/usc/15/1679a.md?p=4). - (2) The prices established and offered in such transactions are generally disseminated and quoted throughout the United States and foreign countries and constitute a basis for determining and establishing the prices at which [securities](/usc/15/78c.md?p=a-10) are bought and sold, the amount of certain taxes owing to the United States and to the several [States](/usc/15/78c.md?p=a-16) by owners, buyers, and sellers of [securities](/usc/15/78c.md?p=a-10), and the value of collateral for bank loans. - (3) Frequently the prices of [securities](/usc/15/78c.md?p=a-10) on such [exchanges](/usc/15/78c.md?p=a-1) and markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation, resulting in sudden and unreasonable fluctuations in the prices of [securities](/usc/15/78c.md?p=a-10) which (a) cause alternately unreasonable expansion and unreasonable contraction of the volume of [credit](/usc/15/1679a.md?p=4) available for trade, transportation, and industry in [interstate commerce](/usc/15/78c.md?p=a-17), (b) hinder the proper appraisal of the value of [securities](/usc/15/78c.md?p=a-10) and thus prevent a fair calculation of taxes owing to the United States and to the several [States](/usc/15/78c.md?p=a-16) by owners, buyers, and sellers of [securities](/usc/15/78c.md?p=a-10), and (c) prevent the fair valuation of collateral for bank loans and/or obstruct the effective operation of the national banking system and Federal Reserve System. - (4) National emergencies, which produce widespread unemployment and the dislocation of trade, transportation, and industry, and which burden [interstate commerce](/usc/15/78c.md?p=a-17) and adversely affect the general welfare, are precipitated, intensified, and prolonged by manipulation and sudden and unreasonable fluctuations of [security](/usc/15/78c.md?p=a-10) prices and by excessive speculation on such [exchanges](/usc/15/78c.md?p=a-1) and markets, and to meet such emergencies the Federal Government is put to such great expense as to burden the national [credit](/usc/15/1679a.md?p=4). # §78c. Definitions and application - (a) **Definitions—** When used in this chapter, unless the context otherwise requires— - (1) The term “exchange” means any organization, [association](/usc/15/657h.md?p=a-2), or group of [persons](#a-9), whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or [facilities](#a-2) for bringing together purchasers and sellers of [securities](#a-10) or for otherwise performing with respect to [securities](#a-10) the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market [facilities](#a-2) maintained by such exchange. - (2) The term “facility” when used with respect to an [exchange](#a-1) includes its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an [exchange](#a-1) (including, among other things, any system of communication to or from the [exchange](#a-1), by ticker or otherwise, maintained by or with the consent of the [exchange](#a-1)), and any right of the [exchange](#a-1) to the use of any property or service. - (3) - (A) The term “member” when used with respect to a [national securities exchange](/usc/15/9009a.md?p=a-5) means (i) any natural [person](#a-9) permitted to effect transactions on the floor of the [exchange](#a-1) without the services of another [person](#a-9) acting as [broker](#a-4-A), (ii) any [registered broker or dealer](#a-48) with which such a natural [person](#a-9) is associated, (iii) any [registered broker or dealer](#a-48) permitted to designate as a representative such a natural [person](#a-9), and (iv) any other [registered broker or dealer](#a-48) which agrees to be regulated by such [exchange](#a-1) and with respect to which the [exchange](#a-1) undertakes to enforce compliance with the provisions of this chapter, the rules and regulations thereunder, and its own rules. For purposes of sections [78f(b)(1)](/usc/15/78f.md?p=b-1), [78f(b)(4)](/usc/15/78f.md?p=b-4), [78f(b)(6)](/usc/15/78f.md?p=b-6), [78f(b)(7)](/usc/15/78f.md?p=b-7), [78f(d)](/usc/15/78f.md?p=d), [78q(d)](/usc/15/78q.md?p=d), [78s(d)](/usc/15/78s.md?p=d), [78s(e)](/usc/15/78s.md?p=e), [78s(g)](/usc/15/78s.md?p=g), [78s(h)](/usc/15/78s.md?p=h), and [78u](/usc/15/78u.md) of this title, the term “member” when used with respect to a [national securities exchange](/usc/15/9009a.md?p=a-5) also means, to the extent of the rules of the [exchange](#a-1) specified by the [Commission](#a-15), any [person](#a-9) required by the [Commission](#a-15) to comply with such rules pursuant to [section 78f(f) of this title](/usc/15/78f.md?p=f). - (B) The term “[member](#a-3-A)” when used with respect to a registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2) means any [broker or dealer](#h-2) who agrees to be regulated by such [association](/usc/15/657h.md?p=a-2) and with respect to whom the [association](/usc/15/657h.md?p=a-2) undertakes to enforce compliance with the provisions of this chapter, the rules and regulations thereunder, and its own rules. - (4) **Broker.—** - (A) **In general.—** The term “broker” means any [person](#a-9) engaged in the business of effecting transactions in [securities](#a-10) for the [account](/usc/15/1681a.md?p=r-4) of others. - (B) **Exception for certain bank activities.—** A bank shall not be considered to be a [broker](#a-4-A) because the bank engages in any one or more of the following activities under the conditions described: - (i) **Third party brokerage arrangements.—** The bank enters into a contractual or other written arrangement with a [broker or dealer](#h-2) registered under this chapter under which the [broker or dealer](#h-2) offers brokerage services on or off the premises of the bank if— - (I) such [broker or dealer](#h-2) is clearly identified as the [person](#a-9) performing the brokerage services; - (II) the [broker or dealer](#h-2) performs brokerage services in an area that is clearly marked and, to the extent practicable, physically separate from the routine deposit-taking activities of the bank; - (III) any materials used by the bank to advertise or promote generally the availability of brokerage services under the arrangement clearly indicate that the brokerage services are being provided by the [broker or dealer](#h-2) and not by the bank; - (IV) any materials used by the bank to advertise or promote generally the availability of brokerage services under the arrangement are in compliance with the Federal [securities laws](#a-47) before distribution; - (V) bank employees (other than associated [persons](#a-9) of a [broker or dealer](#h-2) who are qualified pursuant to the [rules of a self-regulatory organization](#a-28)) perform only clerical or ministerial functions in connection with brokerage transactions including scheduling appointments with the associated [persons](#a-9) of a [broker or dealer](#h-2), except that bank employees may forward [customer](/usc/15/78c–5.md?p=g) funds or [securities](#a-10) and may describe in general terms the types of investment vehicles available from the bank and the [broker or dealer](#h-2) under the arrangement; - (VI) bank employees do not receive incentive compensation for any brokerage transaction unless such employees are associated [persons](#a-9) of a [broker or dealer](#h-2) and are qualified pursuant to the [rules of a self-regulatory organization](#a-28), except that the bank employees may receive compensation for the referral of any [customer](/usc/15/78c–5.md?p=g) if the compensation is a nominal one-time cash fee of a fixed dollar amount and the payment of the fee is not contingent on whether the referral results in a transaction; - (VII) such services are provided by the [broker or dealer](#h-2) on a basis in which all [customers](/usc/15/78c–5.md?p=g) that receive any services are fully disclosed to the [broker or dealer](#h-2); - (VIII) the bank does not carry a [securities](#a-10) [account](/usc/15/1681a.md?p=r-4) of the [customer](/usc/15/78c–5.md?p=g) except as permitted under clause (ii) or (viii) of this subparagraph; and - (IX) the bank, [broker](#a-4-A), or [dealer](#a-5-A) informs each [customer](/usc/15/78c–5.md?p=g) that the brokerage services are provided by the [broker or dealer](#h-2) and not by the bank and that the [securities](#a-10) are not deposits or other obligations of the bank, are not guaranteed by the bank, and are not insured by the Federal Deposit Insurance Corporation. - (ii) **Trust activities.—** The bank effects transactions in a trustee capacity, or effects transactions in a [fiduciary capacity](#a-4-D) in its trust department or other department that is regularly examined by bank examiners for compliance with fiduciary principles and standards, and— - (I) is chiefly compensated for such transactions, consistent with fiduciary principles and standards, on the basis of an [administration](/usc/15/2203.md?p=2) or annual fee (payable on a monthly, quarterly, or other basis), a percentage of assets under management, or a flat or capped per [order](/usc/15/8702.md?p=14) processing fee equal to not more than the cost incurred by the bank in connection with executing [securities](#a-10) transactions for trustee and fiduciary [customers](/usc/15/78c–5.md?p=g), or any combination of such fees; and - (II) does not publicly solicit brokerage business, other than by advertising that it effects transactions in [securities](#a-10) in conjunction with advertising its other trust activities. - (iii) **Permissible securities transactions.—** The bank effects transactions in— - (I) commercial paper, bankers acceptances, or commercial bills; - (II) [exempted securities](#a-12-A); - (III) qualified Canadian government obligations as defined in [section 24 of title 12](/usc/12/24.md), in conformity with [section 78o–5](/usc/15/78o–5.md) of this title and the rules and regulations thereunder, or obligations of the North American Development Bank; or - (IV) any standardized, [credit](/usc/15/1679a.md?p=4) enhanced debt [security](#a-10) issued by a foreign government pursuant to the March 1989 plan of then Secretary of the Treasury Brady, used by such foreign government to retire outstanding commercial bank loans. - (iv) **Certain stock purchase plans.—** - (I) **Employee benefit plans.—** The bank effects transactions, as part of its transfer agency activities, in the [securities](#a-10) of an [issuer](#a-8) as part of any pension, retirement, profit-sharing, bonus, thrift, savings, incentive, or other similar benefit plan for the employees of that [issuer](#a-8) or its affiliates (as defined in [section 1841 of title 12](/usc/12/1841.md)), if the bank does not solicit transactions or provide investment advice with respect to the [purchase](#a-13) or sale of [securities](#a-10) in connection with the plan. - (II) **Dividend reinvestment plans.—** The bank effects transactions, as part of its transfer agency activities, in the [securities](#a-10) of an [issuer](#a-8) as part of that [issuer](#a-8)’s dividend reinvestment plan, if— - (aa) the bank does not solicit transactions or provide investment advice with respect to the [purchase](#a-13) or sale of [securities](#a-10) in connection with the plan; and - (bb) the bank does not net shareholders’ buy and [sell](#a-14) [orders](/usc/15/8702.md?p=14), other than for [programs](/usc/15/2921.md?p=6) for odd-lot holders or plans registered with the [Commission](#a-15). - (III) **Issuer plans.—** The bank effects transactions, as part of its transfer agency activities, in the [securities](#a-10) of an [issuer](#a-8) as part of a plan or [program](/usc/15/2921.md?p=6) for the [purchase](#a-13) or sale of that [issuer](#a-8)’s shares, if— - (aa) the bank does not solicit transactions or provide investment advice with respect to the [purchase](#a-13) or sale of [securities](#a-10) in connection with the plan or [program](/usc/15/2921.md?p=6); and - (bb) the bank does not net shareholders’ buy and [sell](#a-14) [orders](/usc/15/8702.md?p=14), other than for [programs](/usc/15/2921.md?p=6) for odd-lot holders or plans registered with the [Commission](#a-15). - (IV) **Permissible delivery of materials.—** The exception to being considered a [broker](#a-4-A) for a bank engaged in activities described in subclauses [(I)](#a-4-B-iv-I), [(II)](#a-4-B-iv-II), and [(III)](#a-4-B-iv-III) will not be affected by delivery of written or electronic plan materials by a bank to employees of the [issuer](#a-8), shareholders of the [issuer](#a-8), or [members](#a-3-A) of affinity groups of the [issuer](#a-8), so long as such materials are— - (aa) comparable in scope or nature to that permitted by the [Commission](#a-15) as of November 12, 1999; or - (bb) otherwise permitted by the [Commission](#a-15). - (v) **Sweep accounts.—** The bank effects transactions as part of a [program](/usc/15/2921.md?p=6) for the investment or reinvestment of deposit funds into any no-load, open-end management [investment company](#a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.] that holds itself out as a money market fund. - (vi) **Affiliate transactions.—** The bank effects transactions for the [account](/usc/15/1681a.md?p=r-4) of any affiliate of the bank (as defined in [section 1841 of title 12](/usc/12/1841.md)) other than— - (I) a [registered broker or dealer](#a-48); or - (II) an affiliate that is engaged in merchant banking, as described in [section 1843(k)(4)(H) of title 12](/usc/12/1843.md?p=k-4-H). - (vii) **Private securities offerings.—** The bank— - (I) effects sales as part of a primary offering of [securities](#a-10) not involving a public offering, pursuant to section 3(b), 4(2),[^1] or 4(5)[^1] of the Securities Act of 1933 [[15 U.S.C. 77c(b)](/usc/15/77c.md?p=b), 77d(a)(2), 77d(a)(5)] or the rules and regulations issued thereunder; - (II) at any time after the date that is 1 year after November 12, 1999, is not affiliated with a [broker or dealer](#h-2) that has been registered for more than 1 year in accordance with this chapter, and engages in dealing, market making, or underwriting activities, other than with respect to [exempted securities](#a-12-A); and - (III) if the bank is not affiliated with a [broker or dealer](#h-2), does not effect any primary offering described in [subclause (I)](#a-4-B-vii-I) the aggregate amount of which exceeds 25 percent of the capital of the bank, except that the limitation of this subclause shall not apply with respect to any sale of [government securities](#a-42) or [municipal securities](#a-29). - (viii) **Safekeeping and custody activities.—** - (I) **In general.—** The bank, as part of customary banking activities— - (aa) provides safekeeping or custody services with respect to [securities](#a-10), including the exercise of warrants and other rights on behalf of [customers](/usc/15/78c–5.md?p=g); - (bb) facilitates the transfer of funds or [securities](#a-10), as a [custodian](/usc/15/57b–1.md?p=a-4) or a [clearing agency](#a-23-B), in connection with the clearance and settlement of its [customers](/usc/15/78c–5.md?p=g)’ transactions in [securities](#a-10); - (cc) effects [securities](#a-10) lending or borrowing transactions with or on behalf of [customers](/usc/15/78c–5.md?p=g) as part of services provided to [customers](/usc/15/78c–5.md?p=g) pursuant to division (aa) or (bb) or invests cash collateral pledged in connection with such transactions; - (dd) holds [securities](#a-10) pledged by a [customer](/usc/15/78c–5.md?p=g) to another [person](#a-9) or [securities](#a-10) subject to [purchase](#a-13) or resale [agreements](/usc/15/7a.md?p=2) involving a [customer](/usc/15/78c–5.md?p=g), or facilitates the pledging or transfer of such [securities](#a-10) by book entry or as otherwise provided under applicable law, if the bank maintains [records](#a-37) separately identifying the [securities](#a-10) and the [customer](/usc/15/78c–5.md?p=g); or - (ee) serves as a [custodian](/usc/15/57b–1.md?p=a-4) or provider of other related administrative services to any individual retirement [account](/usc/15/1681a.md?p=r-4), pension, retirement, profit sharing, bonus, thrift savings, incentive, or other similar benefit plan. - (II) **Exception for carrying broker activities.—** The exception to being considered a [broker](#a-4-A) for a bank engaged in activities described in [subclause (I)](#a-4-B-viii-I) shall not apply if the bank, in connection with such activities, acts in the United States as a carrying [broker](#a-4-A) (as such term, and different formulations thereof, are used in [section 78o(c)(3)](/usc/15/78o.md?p=c-3) of this title and the rules and regulations thereunder) for any [broker or dealer](#h-2), unless such carrying [broker](#a-4-A) activities are engaged in with respect to [government securities](#a-42) (as defined in paragraph (42) of this subsection). - (ix) **Identified banking products.—** The bank effects transactions in identified banking products as defined in [section 206](/usc/15/206.md) of the Gramm-Leach-Bliley Act. - (x) **Municipal securities.—** The bank effects transactions in [municipal securities](#a-29). - (xi) **De minimis exception.—** The bank effects, other than in transactions referred to in [clauses (i) through (x)](#a-4-B-i..a-4-B-x), not more than 500 transactions in [securities](#a-10) in any calendar year, and such transactions are not effected by an employee of the bank who is also an employee of a [broker or dealer](#h-2). - (C) **Execution by broker or dealer.—** The exception to being considered a [broker](#a-4-A) for a bank engaged in activities described in clauses [(ii)](#a-4-B-ii), [(iv)](#a-4-B-iv), and [(viii)](#a-4-B-viii) of subparagraph (B) shall not apply if the activities described in such provisions result in the trade in the United States of any [security](#a-10) that is a publicly traded [security](#a-10) in the United States, unless— - (i) the bank directs such trade to a [registered broker or dealer](#a-48) for execution; - (ii) the trade is a cross trade or other substantially similar trade of a [security](#a-10) that— - (I) is made by the bank or between the bank and an affiliated fiduciary; and - (II) is not in contravention of fiduciary principles established under applicable Federal or [State](#a-16) law; or - (iii) the trade is conducted in some other manner permitted under rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](#a-15) may prescribe or issue. - (D) **Fiduciary capacity.—** For purposes of [subparagraph (B)(ii)](#a-4-B-ii), the term “fiduciary capacity” means— - (i) in the capacity as trustee, executor, [administrator](/usc/15/9001.md?p=1), [registrar](/usc/15/142.md?p=f) of stocks and bonds, [transfer agent](#a-25), guardian, assignee, receiver, or [custodian](/usc/15/57b–1.md?p=a-4) under a uniform gift to minor act, or as an [investment adviser](#a-20) if the bank receives a fee for its investment advice; - (ii) in any capacity in which the bank possesses investment discretion on behalf of another; or - (iii) in any other similar capacity. - (E) **Exception for entities subject to section 78o(e).[^1] —** The term “[broker](#a-4-A)” does not include a bank that— - (i) was, on the day before November 12, 1999, subject to [section 78o(e)](/usc/15/78o.md?p=e)[^1] of this title; and - (ii) is subject to such restrictions and requirements as the [Commission](#a-15) considers appropriate. - (F) **Joint rulemaking required.—** The [Commission](#a-15) and the [Board](#a-73) of Governors of the Federal Reserve System shall jointly adopt a single set of rules or regulations to implement the exceptions in [subparagraph (B)](#a-4-B). - (5) **Dealer.—** - (A) **In general.—** The term “dealer” means any [person](#a-9) engaged in the business of buying and selling [securities](#a-10) (not including [security-based swaps](#a-68-A), other than [security-based swaps](#a-68-A) with or for [persons](#a-9) that are not [eligible contract participants](#a-65)) for such [person](#a-9)’s own [account](/usc/15/1681a.md?p=r-4) through a [broker](#a-4-A) or otherwise. - (B) **Exception for person not engaged in the business of dealing.—** The term “[dealer](#a-5-A)” does not include a [person](#a-9) that buys or [sells](#a-14) [securities](#a-10) (not including [security-based swaps](#a-68-A), other than [security-based swaps](#a-68-A) with or for [persons](#a-9) that are not [eligible contract participants](#a-65)) for such [person](#a-9)’s own [account](/usc/15/1681a.md?p=r-4), either individually or in a [fiduciary capacity](#a-4-D), but not as a part of a regular business. - (C) **Exception for certain bank activities.—** A bank shall not be considered to be a [dealer](#a-5-A) because the bank engages in any of the following activities under the conditions described: - (i) **Permissible securities transactions.—** The bank buys or [sells](#a-14)— - (I) commercial paper, bankers acceptances, or commercial bills; - (II) [exempted securities](#a-12-A); - (III) qualified Canadian government obligations as defined in [section 24 of title 12](/usc/12/24.md), in conformity with [section 78o–5](/usc/15/78o–5.md) of this title and the rules and regulations thereunder, or obligations of the North American Development Bank; or - (IV) any standardized, [credit](/usc/15/1679a.md?p=4) enhanced debt [security](#a-10) issued by a foreign government pursuant to the March 1989 plan of then Secretary of the Treasury Brady, used by such foreign government to retire outstanding commercial bank loans. - (ii) **Investment, trustee, and fiduciary transactions.—** The bank buys or [sells](#a-14) [securities](#a-10) for investment purposes— - (I) for the bank; or - (II) for [accounts](/usc/15/1681a.md?p=r-4) for which the bank acts as a trustee or fiduciary. - (iii) **Asset-backed transactions.—** The bank engages in the issuance or sale to [qualified investors](#a-54-B), through a grantor trust or other separate entity, of [securities](#a-10) backed by or representing an interest in notes, drafts, acceptances, loans, leases, receivables, other obligations (other than [securities](#a-10) of which the bank is not the [issuer](#a-8)), or pools of any such obligations predominantly originated by— - (I) the bank; - (II) an affiliate of any such bank other than a [broker or dealer](#h-2); or - (III) a syndicate of banks of which the bank is a [member](#a-3-A), if the obligations or pool of obligations consists of mortgage obligations or [consumer](/usc/15/1615.md?p=d-2)-related receivables. - (iv) **Identified banking products.—** The bank buys or [sells](#a-14) identified banking products, as defined in [section 206](/usc/15/206.md) of the Gramm-Leach-Bliley Act. - (6) The term “bank” means (A) a banking institution organized under the laws of the United States or a Federal savings [association](/usc/15/657h.md?p=a-2), as defined in section 1462(5)[^1] of [title 12](/usc/12.md), (B) a [member](#a-3-A) bank of the Federal Reserve System, (C) any other banking institution or savings [association](/usc/15/657h.md?p=a-2), as defined in section 1462(4)[^1] of [title 12](/usc/12.md), whether incorporated or not, doing business under the laws of any [State](#a-16) or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the [authority](/usc/15/3051.md?p=1) of the Comptroller of the Currency pursuant to [section 92a of title 12](/usc/12/92a.md), and which is supervised and examined by [State](#a-16) or Federal [authority](/usc/15/3051.md?p=1) having supervision over banks or savings [associations](/usc/15/657h.md?p=a-2), and which is not operated for the purpose of evading the provisions of this chapter, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B), or (C) of this paragraph. - (7) The term “director” means any director of a corporation or any [person](#a-9) performing similar functions with respect to any organization, whether incorporated or unincorporated. - (8) The term “issuer” means any [person](#a-9) who issues or proposes to issue any [security](#a-10); except that with respect to certificates of deposit for [securities](#a-10), voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a [board](#a-73) of [directors](#a-7) or of the fixed, restricted management, or unit type, the term “issuer” means the [person](#a-9) or [persons](#a-9) performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other [agreement](/usc/15/7a.md?p=2) or instrument under which such [securities](#a-10) are issued; and except that with respect to equipment-trust certificates or like [securities](#a-10), the term “issuer” means the [person](#a-9) by whom the equipment or property is, or is to be, used. - (9) The term “person” means a natural person, [company](#a-19), government, or political subdivision, agency, or instrumentality of a government. - (10) The term “security” means any note, stock, treasury stock, [security future](#a-55-A), [security-based swap](#a-68-A), bond, debenture, certificate of interest or participation in any profit-sharing [agreement](/usc/15/7a.md?p=2) or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or [index](#a-68-E) of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a [national securities exchange](/usc/15/9009a.md?p=a-5) relating to foreign currency, or in general, any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or [purchase](#a-13), any of the foregoing; but shall not include currency or any note, draft, bill of [exchange](#a-1), or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited. - (11) The term “equity security” means any stock or similar [security](#a-10); or any [security future](#a-55-A) on any such [security](#a-10); or any [security](#a-10) convertible, with or without consideration, into such a [security](#a-10), or carrying any warrant or right to subscribe to or [purchase](#a-13) such a [security](#a-10); or any such warrant or right; or any other [security](#a-10) which the [Commission](#a-15) shall deem to be of similar nature and consider necessary or appropriate, by such rules and regulations as it may prescribe in the public interest or for the protection of investors, to treat as an equity security. - (12) - (A) The term “exempted security” or “exempted securities” includes— - (i) [government securities](#a-42), as defined in paragraph (42) of this subsection; - (ii) [municipal securities](#a-29), as defined in paragraph (29) of this subsection; - (iii) any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term “investment company” under section 3(c)(3) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(3)](/usc/15/80a–3.md?p=c-3)]; - (iv) any interest or participation in a single trust fund, or a collective trust fund maintained by a bank, or any [security](#a-10) arising out of a contract issued by an [insurance company](#a-19), which interest, participation, or [security](#a-10) is issued in connection with a qualified plan as defined in subparagraph (C) of this paragraph; - (v) any [security](#a-10) issued by or any interest or participation in any pooled income fund, collective trust fund, collective investment fund, or similar fund that is excluded from the definition of an [investment company](#a-12-A-iii) under section 3(c)(10)(B) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(10)(B)](/usc/15/80a–3.md?p=c-10-B)]; - (vi) solely for purposes of sections [78l](/usc/15/78l.md), [78m](/usc/15/78m.md), [78n](/usc/15/78n.md), and [78p](/usc/15/78p.md) of this title, any [security](#a-10) issued by or any interest or participation in any church plan, [company](#a-19), or [account](/usc/15/1681a.md?p=r-4) that is excluded from the definition of an [investment company](#a-12-A-iii) under section 3(c)(14) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(14)](/usc/15/80a–3.md?p=c-14)]; and - (vii) such other [securities](#a-10) (which may include, among others, unregistered [securities](#a-10), the market in which is predominantly intrastate) as the [Commission](#a-15) may, by such rules and regulations as it deems consistent with the public interest and the protection of investors, either unconditionally or upon specified terms and conditions or for stated periods, exempt from the operation of any one or more provisions of this chapter which by their terms do not apply to an “[exempted security](#a-12-A)” or to “[exempted securities](#a-12-A)”. - (B) - (i) Notwithstanding subparagraph (A)(i) of this paragraph, [government securities](#a-42) shall not be deemed to be “[exempted securities](#a-12-A)” for the purposes of [section 78q–1 of this title](/usc/15/78q–1.md). - (ii) Notwithstanding subparagraph (A)(ii) of this paragraph, [municipal securities](#a-29) shall not be deemed to be “[exempted securities](#a-12-A)” for the purposes of sections [78o](/usc/15/78o.md) and [78q–1](/usc/15/78q–1.md) of this title. - (C) For purposes of subparagraph (A)(iv) of this paragraph, the term “qualified plan” means (i) a stock bonus, pension, or profit-sharing plan which meets the requirements for qualification under [section 401 of title 26](/usc/26/401.md), (ii) an annuity plan which meets the requirements for the deduction of the employer’s contribution under [section 404(a)(2) of title 26](/usc/26/404.md?p=a-2), (iii) a governmental plan as defined in [section 414(d) of title 26](/usc/26/414.md?p=d) which has been established by an employer for the exclusive benefit of its employees or their beneficiaries for the purpose of distributing to such employees or their beneficiaries the corpus and income of the funds accumulated under such plan, if under such plan it is impossible, prior to the satisfaction of all liabilities with respect to such employees and their beneficiaries, for any part of the corpus or income to be used for, or diverted to, purposes other than the exclusive benefit of such employees or their beneficiaries, or (iv) a church plan, [company](#a-19), or [account](/usc/15/1681a.md?p=r-4) that is excluded from the definition of an [investment company](#a-12-A-iii) under section 3(c)(14) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(14)](/usc/15/80a–3.md?p=c-14)], other than any plan described in clause (i), (ii), or (iii) of this subparagraph which (I) covers employees some or all of whom are employees within the meaning of [section 401(c) of title 26](/usc/26/401.md?p=c), or (II) is a plan funded by an annuity contract described in [section 403(b) of title 26](/usc/26/403.md?p=b). - (13) The terms “buy” and “purchase” each include any contract to buy, purchase, or otherwise acquire. For [security futures products](#a-56), such term includes any contract, [agreement](/usc/15/7a.md?p=2), or transaction for future delivery. For [security-based swaps](#a-68-A), such terms include the execution, termination (prior to its scheduled maturity date), assignment, [exchange](#a-1), or similar transfer or conveyance of, or extinguishing of rights or obligations under, a [security-based swap](#a-68-A), as the context may require. - (14) The terms “sale” and “sell” each include any contract to sell or otherwise dispose of. For [security futures products](#a-56), such term includes any contract, [agreement](/usc/15/7a.md?p=2), or transaction for future delivery. For [security-based swaps](#a-68-A), such terms include the execution, termination (prior to its scheduled maturity date), assignment, [exchange](#a-1), or similar transfer or conveyance of, or extinguishing of rights or obligations under, a [security-based swap](#a-68-A), as the context may require. - (15) The term “Commission” means the [Securities](#a-10) and [Exchange](#a-1) Commission established by [section 78d of this title](/usc/15/78d.md). - (16) The term “State” means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States. - (17) The term “interstate commerce” means trade, commerce, transportation, or communication among the several [States](#a-16), or between any foreign country and any [State](#a-16), or between any [State](#a-16) and any place or ship outside thereof. The term also includes intrastate use of (A) any [facility](#a-2) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or of a telephone or other interstate means of communication, or (B) any other interstate instrumentality. - (18) The term “person associated with a broker or dealer” or “associated person of a broker or dealer” means any partner, officer, [director](#a-7), or branch manager of such [broker or dealer](#h-2) (or any [person](#a-9) occupying a similar status or performing similar functions), any [person](#a-9) directly or indirectly controlling, controlled by, or under common control with such [broker or dealer](#h-2), or any employee of such [broker or dealer](#h-2), except that any person associated with a broker or dealer whose functions are solely clerical or ministerial shall not be included in the meaning of such term for purposes of [section 78o(b)](/usc/15/78o.md?p=b) of this title (other than [paragraph (6)](#a-6) thereof). - (19) The terms “[investment company](#a-12-A-iii)”, “affiliated person”, “insurance company”, “separate account”, and “company” have the same meanings as in the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.]. - (20) The terms “investment adviser” and “underwriter” have the same meanings as in the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.]. - (21) The term “person associated with a member” or “associated person of a member” when used with respect to a [member](#a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2) means any partner, officer, [director](#a-7), or branch manager of such [member](#a-3-A) (or any [person](#a-9) occupying a similar status or performing similar functions), any [person](#a-9) directly or indirectly controlling, controlled by, or under common control with such [member](#a-3-A), or any employee of such [member](#a-3-A). - (22) - (A) The term “securities information processor” means any [person](#a-9) engaged in the business of (i) collecting, processing, or preparing for distribution or publication, or assisting, participating in, or coordinating the distribution or publication of, information with respect to transactions in or quotations for any [security](#a-10) (other than an [exempted security](#a-12-A)) or (ii) distributing or publishing (whether by means of a ticker tape, a communications network, a terminal display device, or otherwise) on a current and continuing basis, information with respect to such transactions or quotations. The term “securities information processor” does not include any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, any [self-regulatory organizations](#a-26), any bank, [broker](#a-4-A), [dealer](#a-5-A), building and loan, savings and loan, or homestead [association](/usc/15/657h.md?p=a-2), or cooperative bank, if such bank, [broker](#a-4-A), [dealer](#a-5-A), [association](/usc/15/657h.md?p=a-2), or cooperative bank would be deemed to be a securities information processor solely by reason of functions performed by such institutions as part of customary banking, brokerage, dealing, [association](/usc/15/657h.md?p=a-2), or cooperative bank activities, or any common carrier, as defined in [section 153 of title 47](/usc/47/153.md), subject to the jurisdiction of the Federal Communications [Commission](#a-15) or a [State](#a-16) [commission](#a-15), as defined in [section 153 of title 47](/usc/47/153.md), unless the [Commission](#a-15) determines that such carrier is engaged in the business of collecting, processing, or preparing for distribution or publication, information with respect to transactions in or quotations for any [security](#a-10). - (B) The term “exclusive processor” means any [securities information processor](#a-22-A) or [self-regulatory organization](#a-26) which, directly or indirectly, engages on an exclusive basis on behalf of any [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2), or any [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2) which engages on an exclusive basis on its own behalf, in collecting, processing, or preparing for distribution or publication any information with respect to (i) transactions or quotations on or effected or made by means of any [facility](#a-2) of such [exchange](#a-1) or (ii) quotations distributed or published by means of any electronic system operated or controlled by such [association](/usc/15/657h.md?p=a-2). - (23) - (A) The term “[clearing agency](#a-23-B)” means any [person](#a-9) who acts as an [intermediary](/usc/15/6901.md?p=7) in making payments or deliveries or both in connection with transactions in [securities](#a-10) or who provides [facilities](#a-2) for comparison of data respecting the terms of settlement of [securities](#a-10) transactions, to reduce the number of settlements of [securities](#a-10) transactions, or for the allocation of [securities](#a-10) settlement responsibilities. Such term also means any [person](#a-9), such as a [securities](#a-10) depository, who (i) acts as a [custodian](/usc/15/57b–1.md?p=a-4) of [securities](#a-10) in connection with a system for the central handling of [securities](#a-10) whereby all [securities](#a-10) of a particular class or series of any [issuer](#a-8) deposited within the system are treated as fungible and may be transferred, loaned, or pledged by bookkeeping entry without physical delivery of [securities](#a-10) certificates, or (ii) otherwise permits or facilitates the settlement of [securities](#a-10) transactions or the hypothecation or lending of [securities](#a-10) without physical delivery of [securities](#a-10) certificates. - (B) The term “clearing agency” does not include (i) any Federal Reserve bank, Federal home loan bank, or Federal land bank; (ii) any [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2) solely by reason of its providing [facilities](#a-2) for comparison of data respecting the terms of settlement of [securities](#a-10) transactions effected on such [exchange](#a-1) or by means of any electronic system operated or controlled by such [association](/usc/15/657h.md?p=a-2); (iii) any bank, [broker](#a-4-A), [dealer](#a-5-A), building and loan, savings and loan, or homestead [association](/usc/15/657h.md?p=a-2), or cooperative bank if such bank, [broker](#a-4-A), [dealer](#a-5-A), [association](/usc/15/657h.md?p=a-2), or cooperative bank would be deemed to be a clearing agency solely by reason of functions performed by such institution as part of customary banking, brokerage, dealing, [association](/usc/15/657h.md?p=a-2), or cooperative banking activities, or solely by reason of acting on behalf of a clearing agency or a [participant](#a-24) therein in connection with the furnishing by the clearing agency of services to its [participants](#a-24) or the use of services of the clearing agency by its [participants](#a-24), unless the [Commission](#a-15), by rule, otherwise provides as necessary or appropriate to assure the prompt and accurate clearance and settlement of [securities](#a-10) transactions or to prevent evasion of this chapter; (iv) any life [insurance company](#a-19), its registered [separate accounts](#a-19), or a subsidiary of such [insurance company](#a-19) solely by reason of functions commonly performed by such entities in connection with variable annuity contracts or variable life policies issued by such [insurance company](#a-19) or its [separate accounts](#a-19); (v) any registered open-end [investment company](#a-12-A-iii) or unit investment trust solely by reason of functions commonly performed by it in connection with shares in such registered open-end [investment company](#a-12-A-iii) or unit investment trust, or (vi) any [person](#a-9) solely by reason of its performing functions described in paragraph (25)(E) of this subsection. - (24) The term “participant” when used with respect to a [clearing agency](#a-23-B) means any [person](#a-9) who uses a [clearing agency](#a-23-B) to clear or settle [securities](#a-10) transactions or to transfer, pledge, lend, or hypothecate [securities](#a-10). Such term does not include a [person](#a-9) whose only use of a [clearing agency](#a-23-B) is (A) through another [person](#a-9) who is a participant or (B) as a pledgee of [securities](#a-10). - (25) The term “transfer agent” means any [person](#a-9) who engages on behalf of an [issuer](#a-8) of [securities](#a-10) or on behalf of itself as an [issuer](#a-8) of [securities](#a-10) in (A) countersigning such [securities](#a-10) upon issuance; (B) monitoring the issuance of such [securities](#a-10) with a view to preventing unauthorized issuance, a function commonly performed by a [person](#a-9) called a [registrar](/usc/15/142.md?p=f); (C) registering the transfer of such [securities](#a-10); (D) exchanging or converting such [securities](#a-10); or (E) transferring record ownership of [securities](#a-10) by bookkeeping entry without physical issuance of [securities](#a-10) certificates. The term “transfer agent” does not include any [insurance company](#a-19) or [separate account](#a-19) which performs such functions solely with respect to variable annuity contracts or variable life policies which it issues or any registered [clearing agency](#a-23-B) which performs such functions solely with respect to options contracts which it issues. - (26) The term “self-regulatory organization” means any [national securities exchange](/usc/15/9009a.md?p=a-5), registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2), or registered [clearing agency](#a-23-B), or (solely for purposes of sections [78s(b)](/usc/15/78s.md?p=b), [78s(c)](/usc/15/78s.md?p=c), and [78w(b)](/usc/15/78w.md?p=b)[^1] of this title) the [Municipal Securities](#a-29) Rulemaking [Board](#a-73) established by [section 78o–4](/usc/15/78o–4.md) of this title. - (27) The term “rules of an exchange”, “rules of an association”, or “rules of a clearing agency” means the constitution, articles of incorporation, bylaws, and rules, or instruments corresponding to the foregoing, of an [exchange](#a-1), [association](/usc/15/657h.md?p=a-2) of [brokers](#a-4-A) and [dealers](#a-5-A), or [clearing agency](#a-23-B), respectively, and such of the stated policies, practices, and interpretations of such [exchange](#a-1), [association](/usc/15/657h.md?p=a-2), or [clearing agency](#a-23-B) as the [Commission](#a-15), by rule, may determine to be necessary or appropriate in the public interest or for the protection of investors to be deemed to be rules of such [exchange](#a-1), [association](/usc/15/657h.md?p=a-2), or [clearing agency](#a-23-B). - (28) The term “rules of a self-regulatory organization” means the [rules of an exchange](#a-27) which is a [national securities exchange](/usc/15/9009a.md?p=a-5), the [rules of an association](#a-27) of [brokers](#a-4-A) and [dealers](#a-5-A) which is a registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2), the [rules of a clearing agency](#a-27) which is a registered [clearing agency](#a-23-B), or the rules of the [Municipal Securities](#a-29) Rulemaking [Board](#a-73). - (29) The term “municipal securities” means [securities](#a-10) which are direct obligations of, or obligations guaranteed as to principal or interest by, a [State](#a-16) or any political subdivision thereof, or any agency or instrumentality of a [State](#a-16) or any political subdivision thereof, or any municipal corporate instrumentality of one or more [States](#a-16), or any [security](#a-10) which is an industrial development bond (as defined in section 103(c)(2)[^1] of [title 26](/usc/26.md)) the interest on which is excludable from gross income under section 103(a)(1)[^1] of [title 26](/usc/26.md) if, by reason of the [application](/usc/15/77ccc.md?p=8) of paragraph (4) or (6) of section 103(c)[^1] of [title 26](/usc/26.md) (determined as if paragraphs [(4)(A)](#a-4-A), [(5)](#a-5), and [(7)](#a-7) were not included in such section 103(c)),[^1] paragraph (1) of such section 103(c)[^1] does not apply to such [security](#a-10). - (30) The term “municipal securities dealer” means any [person](#a-9) (including a [separately identifiable department or division](/usc/15/78o–4.md?p=b-2-H) of a bank) engaged in the business of buying and selling [municipal securities](#a-29) for his own [account](/usc/15/1681a.md?p=r-4), through a [broker](#a-4-A) or otherwise, but does not include— - (A) any [person](#a-9) insofar as he buys or [sells](#a-14) such [securities](#a-10) for his own [account](/usc/15/1681a.md?p=r-4), either individually or in some [fiduciary capacity](#a-4-D), but not as a part of a regular business; or - (B) a bank, unless the bank is engaged in the business of buying and selling [municipal securities](#a-29) for its own [account](/usc/15/1681a.md?p=r-4) other than in a [fiduciary capacity](#a-4-D), through a [broker](#a-4-A) or otherwise: Provided, however, That if the bank is engaged in such business through a [separately identifiable department or division](/usc/15/78o–4.md?p=b-2-H) (as defined by the [Municipal Securities](#a-29) Rulemaking [Board](#a-73) in accordance with [section 78o–4(b)(2)(H)](/usc/15/78o–4.md?p=b-2-H) of this title), the department or division and not the bank itself shall be deemed to be the [municipal securities dealer](#a-30). - (31) The term “municipal securities broker” means a [broker](#a-4-A) engaged in the business of effecting transactions in [municipal securities](#a-29) for the [account](/usc/15/1681a.md?p=r-4) of others. - (32) The term “person associated with a municipal securities dealer” when used with respect to a [municipal securities dealer](#a-30) which is a bank or a division or department of a bank means any [person](#a-9) directly engaged in the management, direction, supervision, or performance of any of the [municipal securities dealer](#a-30)’s activities with respect to [municipal securities](#a-29), and any [person](#a-9) directly or indirectly controlling such activities or controlled by the [municipal securities dealer](#a-30) in connection with such activities. - (33) The term “municipal securities investment portfolio” means all [municipal securities](#a-29) held for investment and not for sale as part of a regular business by a [municipal securities dealer](#a-30) or by a [person](#a-9), directly or indirectly, controlling, controlled by, or under common control with a [municipal securities dealer](#a-30). - (34) The term “appropriate regulatory agency” means— - (A) When used with respect to a [municipal securities dealer](#a-30): - (i) the Comptroller of the Currency, in the case of a national bank, a subsidiary or a department or division of any such bank, a Federal savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(2) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(2)](/usc/12/1813.md?p=b-2))), the deposits of which are insured by the Federal Deposit Insurance Corporation, or a subsidiary or department or division of any such Federal savings [association](/usc/15/657h.md?p=a-2); - (ii) the [Board](#a-73) of Governors of the Federal Reserve System, in the case of a [State](#a-16) [member](#a-3-A) bank of the Federal Reserve System, a subsidiary or a department or division thereof, a [bank holding company](#a-34), a [subsidiary of a bank holding company](#a-34) which is a bank other than a bank specified in clause (i), (iii), or (iv) of this subparagraph, a subsidiary or a department or division of such subsidiary, or a [savings and loan holding company](#a-34); - (iii) the Federal Deposit Insurance Corporation, in the case of a bank insured by the Federal Deposit Insurance Corporation (other than a [member](#a-3-A) of the Federal Reserve System), a subsidiary or department or division of any such bank, a [State](#a-16) savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(3) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(3)](/usc/12/1813.md?p=b-3))), the deposits of which are insured by the Federal Deposit Insurance Corporation, or a subsidiary or a department or division of any such [State](#a-16) savings [association](/usc/15/657h.md?p=a-2); and - (iv) the [Commission](#a-15) in the case of all other [municipal securities dealers](#a-30). - (B) When used with respect to a [clearing agency](#a-23-B) or [transfer agent](#a-25): - (i) the Comptroller of the Currency, in the case of a national bank, a subsidiary of any such bank, a Federal savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(2) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(2)](/usc/12/1813.md?p=b-2))), the deposits of which are insured by the Federal Deposit Insurance Corporation, or a subsidiary of any such Federal savings [association](/usc/15/657h.md?p=a-2); - (ii) the [Board](#a-73) of Governors of the Federal Reserve System, in the case of a [State](#a-16) [member](#a-3-A) bank of the Federal Reserve System, a subsidiary thereof, a [bank holding company](#a-34), a [subsidiary of a bank holding company](#a-34) that is a bank other than a bank specified in clause (i) or (iii) of this subparagraph, or a [savings and loan holding company](#a-34); - (iii) the Federal Deposit Insurance Corporation, in the case of a bank insured by the Federal Deposit Insurance Corporation (other than a [member](#a-3-A) of the Federal Reserve System), a subsidiary of any such bank, a [State](#a-16) savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(3) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(3)](/usc/12/1813.md?p=b-3))), the deposits of which are insured by the Federal Deposit Insurance Corporation, or a subsidiary of any such [State](#a-16) savings [association](/usc/15/657h.md?p=a-2); and - (iv) the [Commission](#a-15) in the case of all other [clearing agencies](#a-23-B) and [transfer agents](#a-25). - (C) When used with respect to a [participant](#a-24) or [applicant](/usc/15/7a.md?p=3) to become a [participant](#a-24) in a [clearing agency](#a-23-B) or a [person](#a-9) requesting or having access to services offered by a [clearing agency](#a-23-B): - (i) The Comptroller of the Currency, in the case of a national bank or a Federal savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(2) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(2)](/usc/12/1813.md?p=b-2))), the deposits of which are insured by the Federal Deposit Insurance Corporation[^2] when the [appropriate regulatory agency](#a-34) for such [clearing agency](#a-23-B) is not the [Commission](#a-15); - (ii) the [Board](#a-73) of Governors of the Federal Reserve System in the case of a [State](#a-16) [member](#a-3-A) bank of the Federal Reserve System, a [bank holding company](#a-34), or a [subsidiary of a bank holding company](#a-34), a [subsidiary of a bank holding company](#a-34) that is a bank other than a bank specified in clause (i) or (iii) of this subparagraph, or a [savings and loan holding company](#a-34) when the [appropriate regulatory agency](#a-34) for such [clearing agency](#a-23-B) is not the [Commission](#a-15); - (iii) the Federal Deposit Insurance Corporation, in the case of a bank insured by the Federal Deposit Insurance Corporation (other than a [member](#a-3-A) of the Federal Reserve System) or a [State](#a-16) savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(3) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(3)](/usc/12/1813.md?p=b-3))), the deposits of which are insured by the Federal Deposit Insurance Corporation; and[^3] when the [appropriate regulatory agency](#a-34) for such [clearing agency](#a-23-B) is not the [Commission](#a-15);[^4] - (iv) the [Commission](#a-15) in all other cases. - (D) When used with respect to an institutional investment manager which is a bank the deposits of which are insured in accordance with the Federal Deposit Insurance Act [[12 U.S.C. 1811](/usc/12/1811.md) et seq.]: - (i) the Comptroller of the Currency, in the case of a national bank or a Federal savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(2) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(2)](/usc/12/1813.md?p=b-2))), the deposits of which are insured by the Federal Deposit Insurance Corporation; - (ii) the [Board](#a-73) of Governors of the Federal Reserve System, in the case of any other [member](#a-3-A) bank of the Federal Reserve System; and - (iii) the Federal Deposit Insurance Corporation, in the case of any other insured bank or a [State](#a-16) savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(3) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(3)](/usc/12/1813.md?p=b-3))), the deposits of which are insured by the Federal Deposit Insurance Corporation. - (E) When used with respect to a [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2), [member](#a-3-A) thereof, [person associated with a member](#a-21) thereof, [applicant](/usc/15/7a.md?p=3) to become a [member](#a-3-A) thereof or to become associated with a [member](#a-3-A) thereof, or [person](#a-9) requesting or having access to services offered by such [exchange](#a-1) or [association](/usc/15/657h.md?p=a-2) or [member](#a-3-A) thereof, or the [Municipal Securities](#a-29) Rulemaking [Board](#a-73), the [Commission](#a-15). - (F) When used with respect to a [person](#a-9) exercising investment discretion with respect to an [account](/usc/15/1681a.md?p=r-4);[^5] - (i) the Comptroller of the Currency, in the case of a national bank or a Federal savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(2) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(2)](/usc/12/1813.md?p=b-2))), the deposits of which are insured by the Federal Deposit Insurance Corporation; - (ii) the [Board](#a-73) of Governors of the Federal Reserve System in the case of any other [member](#a-3-A) bank of the Federal Reserve System; - (iii) the Federal Deposit Insurance Corporation, in the case of any other bank the deposits of which are insured in accordance with the Federal Deposit Insurance Act [[12 U.S.C. 1811](/usc/12/1811.md) et seq.] or a [State](#a-16) savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(3) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(b)(3)](/usc/12/1813.md?p=b-3))), the deposits of which are insured by the Federal Deposit Insurance Corporation; and - (iv) the [Commission](#a-15) in the case of all other such [persons](#a-9). - (G) When used with respect to a [government securities broker](#a-43) or [government securities dealer](#a-44), or [person associated with a government securities broker or government securities dealer](#a-45): - (i) the Comptroller of the Currency, in the case of a national bank, a Federal savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(2) of the Federal Deposit Insurance Act [[12 U.S.C. 1813(b)(2)](/usc/12/1813.md?p=b-2)]), the deposits of which are insured by the Federal Deposit Insurance Corporation, or a Federal branch or [Federal agency](/usc/15/3719.md?p=a-3) of a foreign bank (as such terms are used in the International Banking Act of 1978 [[12 U.S.C. 3101](/usc/12/3101.md) et seq.]); - (ii) the [Board](#a-73) of Governors of the Federal Reserve System, in the case of a [State](#a-16) [member](#a-3-A) bank of the Federal Reserve System, a foreign bank, an uninsured [State](#a-16) branch or [State](#a-16) agency of a foreign bank, a commercial lending [company](#a-19) owned or controlled by a foreign bank (as such terms are used in the International Banking Act of 1978), or a corporation organized or having an [agreement](/usc/15/7a.md?p=2) with the [Board](#a-73) of Governors of the Federal Reserve System pursuant to [section 25](/usc/15/25.md) or section 25A of the Federal Reserve Act [[12 U.S.C. 601](/usc/12/601.md) et seq., 611 et seq.]; - (iii) the Federal Deposit Insurance Corporation, in the case of a bank insured by the Federal Deposit Insurance Corporation (other than a [member](#a-3-A) of the Federal Reserve System or a Federal savings bank), a [State](#a-16) savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b)(3) of the Federal Deposit Insurance Act [[12 U.S.C. 1813(b)(3)](/usc/12/1813.md?p=b-3)]), the deposits of which are insured by the Federal Deposit Insurance Corporation, or an insured [State](#a-16) branch of a foreign bank (as such terms are used in the International Banking Act of 1978); and - (iv) the [Commission](#a-15), in the case of all other [government securities brokers](#a-43) and [government securities dealers](#a-44). - (H) When used with respect to an institution described in subparagraph [(D)](/usc/15/1841.md), [(F)](/usc/15/1841.md), or [(G)](/usc/15/1841.md) of section 1841(c)(2), or held under [section 1843(f) of title 12](/usc/12/1843.md?p=f)— - (i) the Comptroller of the Currency, in the case of a national bank; - (ii) the [Board](#a-73) of Governors of the Federal Reserve System, in the case of a [State](#a-16) [member](#a-3-A) bank of the Federal Reserve System or any corporation chartered under section 25A of the Federal Reserve Act [[12 U.S.C. 611](/usc/12/611.md) et seq.]; - (iii) the Federal Deposit Insurance Corporation, in the case of any other bank the deposits of which are insured in accordance with the Federal Deposit Insurance Act [[12 U.S.C. 1811](/usc/12/1811.md) et seq.]; or - (iv) the [Commission](#a-15) in the case of all other such institutions. As used in this paragraph, the terms “bank holding company” and “subsidiary of a bank holding company” have the meanings given them in [section 1841 of title 12](/usc/12/1841.md). As used in this paragraph, the term “savings and loan holding company” has the same meaning as in [section 1467a(a) of title 12](/usc/12/1467a.md?p=a). - (35) A [person](#a-9) exercises “investment discretion” with respect to an [account](/usc/15/1681a.md?p=r-4) if, directly or indirectly, such [person](#a-9) (A) is authorized to determine what [securities](#a-10) or other property shall be purchased or sold by or for the [account](/usc/15/1681a.md?p=r-4), (B) makes decisions as to what [securities](#a-10) or other property shall be purchased or sold by or for the [account](/usc/15/1681a.md?p=r-4) even though some other [person](#a-9) may have responsibility for such investment decisions, or (C) otherwise exercises such influence with respect to the [purchase](#a-13) and sale of [securities](#a-10) or other property by or for the [account](/usc/15/1681a.md?p=r-4) as the [Commission](#a-15), by rule, determines, in the public interest or for the protection of investors, should be subject to the operation of the provisions of this chapter and the rules and regulations thereunder. - (36) A class of [persons](#a-9) or markets is subject to “equal regulation” if no [member](#a-3-A) of the class has a competitive advantage over any other [member](#a-3-A) thereof resulting from a disparity in their regulation under this chapter which the [Commission](#a-15) determines is unfair and not necessary or appropriate in furtherance of the purposes of this chapter. - (37) The term “records” means [accounts](/usc/15/1681a.md?p=r-4), correspondence, memorandums, tapes, discs, papers, books, and other documents or transcribed information of any type, whether expressed in ordinary or machine language. - (38) The term “market maker” means any specialist permitted to act as a [dealer](#a-5-A), any [dealer](#a-5-A) acting in the capacity of block positioner, and any [dealer](#a-5-A) who, with respect to a [security](#a-10), holds himself out (by entering quotations in an inter-[dealer](#a-5-A) communications system or otherwise) as being willing to buy and [sell](#a-14) such [security](#a-10) for his own [account](/usc/15/1681a.md?p=r-4) on a regular or continuous basis. - (39) A [person](#a-9) is subject to a “statutory disqualification” with respect to membership or participation in, or [association](/usc/15/657h.md?p=a-2) with a [member](#a-3-A) of, a [self-regulatory organization](#a-26), if such [person](#a-9)— - (A) has been and is expelled or suspended from membership or participation in, or barred or suspended from being associated with a [member](#a-3-A) of, any [self-regulatory organization](#a-26), foreign equivalent of a [self-regulatory organization](#a-26), foreign or international securities exchange, contract market designated pursuant to section 5 of the Commodity Exchange Act ([7 U.S.C. 7](/usc/7/7.md)), or any substantially equivalent foreign statute or regulation, or futures [association](/usc/15/657h.md?p=a-2) registered under [section 17](/usc/15/17.md) of such Act ([7 U.S.C. 21](/usc/7/21.md)), or any substantially equivalent foreign statute or regulation, or has been and is denied trading privileges on any such contract market or foreign equivalent; - (B) is subject to— - (i) an [order](/usc/15/8702.md?p=14) of the [Commission](#a-15), other [appropriate regulatory agency](#a-34), or [foreign financial regulatory authority](#a-52)— - (I) denying, suspending for a period not exceeding 12 months, or revoking his registration as a [broker](#a-4-A), [dealer](#a-5-A), [municipal securities dealer](#a-30), [government securities broker](#a-43), [government securities dealer](#a-44), [security-based swap dealer](#a-71-A), or [major security-based swap participant](#a-67-A) or limiting his activities as a foreign [person](#a-9) performing a function substantially equivalent to any of the above; or - (II) barring or suspending for a period not exceeding 12 months his being associated with a [broker](#a-4-A), [dealer](#a-5-A), [municipal securities dealer](#a-30), [government securities broker](#a-43), [government securities dealer](#a-44), [security-based swap dealer](#a-71-A), [major security-based swap participant](#a-67-A), or foreign [person](#a-9) performing a function substantially equivalent to any of the above; - (ii) an [order](/usc/15/8702.md?p=14) of the Commodity Futures Trading [Commission](#a-15) denying, suspending, or revoking his registration under the Commodity Exchange Act ([7 U.S.C. 1](/usc/7/1.md) et seq.); or - (iii) an [order](/usc/15/8702.md?p=14) by a [foreign financial regulatory authority](#a-52) denying, suspending, or revoking the [person](#a-9)’s [authority](/usc/15/3051.md?p=1) to engage in transactions in contracts of sale of a commodity for future delivery or other instruments traded on or subject to the rules of a contract market, [board](#a-73) of trade, or foreign equivalent thereof; - (C) by his conduct while associated with a [broker](#a-4-A), [dealer](#a-5-A), [municipal securities dealer](#a-30), [government securities broker](#a-43), [government securities dealer](#a-44), [security-based swap dealer](#a-71-A), or [major security-based swap participant](#a-67-A), or while associated with an entity or [person](#a-9) required to be registered under the Commodity Exchange Act, has been found to be a cause of any effective suspension, expulsion, or [order](/usc/15/8702.md?p=14) of the character described in subparagraph (A) or (B) of this paragraph, and in entering such a suspension, expulsion, or [order](/usc/15/8702.md?p=14), the [Commission](#a-15), an [appropriate regulatory agency](#a-34), or any such [self-regulatory organization](#a-26) shall have jurisdiction to find whether or not any [person](#a-9) was a cause thereof; - (D) by his conduct while associated with any [broker](#a-4-A), [dealer](#a-5-A), [municipal securities dealer](#a-30), [government securities broker](#a-43), [government securities dealer](#a-44), [security-based swap dealer](#a-71-A), [major security-based swap participant](#a-67-A), or any other entity engaged in transactions in [securities](#a-10), or while associated with an entity engaged in transactions in contracts of sale of a commodity for future delivery or other instruments traded on or subject to the rules of a contract market, [board](#a-73) of trade, or foreign equivalent thereof, has been found to be a cause of any effective suspension, expulsion, or [order](/usc/15/8702.md?p=14) by a foreign or international securities exchange or [foreign financial regulatory authority](#a-52) empowered by a foreign government to administer or enforce its laws relating to financial transactions as described in subparagraph (A) or (B) of this paragraph; - (E) has associated with him any [person](#a-9) who is known, or in the exercise of reasonable care should be known, to him to be a [person](#a-9) described by subparagraph (A), (B), (C), or (D) of this paragraph; or - (F) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph [(D)](#a-4-D), [(E)](#a-4-E), (H), or (G) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title, has been convicted of any offense specified in [subparagraph (B)](#a-39-B) of such [paragraph (4)](#a-4) or any other felony within ten years of the date of the filing of an [application](/usc/15/77ccc.md?p=8) for membership or participation in, or to become associated with a [member](#a-3-A) of, such [self-regulatory organization](#a-26), is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#a-39-C) of such [paragraph (4)](#a-4), has willfully made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for membership or participation in, or to become associated with a [member](#a-3-A) of, a [self-regulatory organization](#a-26), report required to be filed with a [self-regulatory organization](#a-26), or proceeding before a [self-regulatory organization](#a-26), any statement which was at the time, and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to [state](#a-16) in any such [application](/usc/15/77ccc.md?p=8), report, or proceeding any material fact which is required to be stated therein. - (40) The term “financial responsibility rules” means the rules and regulations of the [Commission](#a-15) or the rules and regulations prescribed by any [self-regulatory organization](#a-26) relating to financial responsibility and related practices which are designated by the [Commission](#a-15), by rule or regulation, to be financial responsibility rules. - (41) The term “mortgage related security” means a [security](#a-10) that meets standards of [credit](/usc/15/1679a.md?p=4)-worthiness as established by the [Commission](#a-15), and either: - (A) represents ownership of one or more [promissory notes](#a-41) or certificates of interest or participation in such notes (including any rights designed to assure servicing of, or the receipt or timeliness of receipt by the holders of such notes, certificates, or participations of amounts payable under, such notes, certificates, or participations), which notes: - (i) are directly secured by a first lien on a single parcel of real estate, including stock allocated to a dwelling unit in a residential cooperative housing corporation, upon which is located a dwelling or mixed residential and commercial structure, on a residential manufactured home as defined in [section 5402(6) of title 42](/usc/42/5402.md?p=6), whether such manufactured home is considered real or personal property under the laws of the [State](#a-16) in which it is to be located, or on one or more parcels of real estate upon which is located one or more commercial structures; and - (ii) were originated by a savings and loan [association](/usc/15/657h.md?p=a-2), savings bank, commercial bank, [credit](/usc/15/1679a.md?p=4) union, [insurance company](#a-19), or similar institution which is supervised and examined by a Federal or [State](#a-16) [authority](/usc/15/3051.md?p=1), or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to sections [1709](/usc/12/1709.md) and [1715b](/usc/12/1715b.md) of title 12, or, where such notes involve a lien on the manufactured home, by any such institution or by any [financial institution](#a-46) approved for insurance by the Secretary of Housing and Urban Development pursuant to [section 1703 of title 12](/usc/12/1703.md); or - (B) is secured by one or more [promissory notes](#a-41) or certificates of interest or participations in such notes (with or without recourse to the [issuer](#a-8) thereof) and, by its terms, provides for payments of principal in relation to payments, or reasonable projections of payments, on notes meeting the requirements of subparagraphs [(A)(i)](#a-41-A-i) and [(ii)](#a-41-A-ii) or certificates of interest or participations in [promissory notes](#a-41) meeting such requirements. For the purpose of this paragraph, the term “promissory note”, when used in connection with a manufactured home, shall also include a loan, advance, or [credit](/usc/15/1679a.md?p=4) sale as evidence[^6] by a retail installment sales contract or other instrument. - (42) The term “government securities” means— - (A) [securities](#a-10) which are direct obligations of, or obligations guaranteed as to principal or interest by, the United States; - (B) [securities](#a-10) which are issued or guaranteed by the Tennessee Valley [Authority](/usc/15/3051.md?p=1) or by corporations in which the United States has a direct or indirect interest and which are designated by the Secretary of the Treasury for exemption as necessary or appropriate in the public interest or for the protection of investors; - (C) [securities](#a-10) issued or guaranteed as to principal or interest by any corporation the [securities](#a-10) of which are designated, by statute specifically naming such corporation, to constitute exempt [securities](#a-10) within the meaning of the laws administered by the [Commission](#a-15); - (D) for purposes of sections [78o–5](/usc/15/78o–5.md) and [78q–1](/usc/15/78q–1.md) of this title, any put, call, straddle, option, or privilege on a [security](#a-10) described in subparagraph [(A)](#a-42-A), [(B)](#a-42-B), or [(C)](#a-42-C) other than a put, call, straddle, option, or privilege— - (i) that is traded on one or more [national securities exchanges](/usc/15/9009a.md?p=a-5); or - (ii) for which quotations are disseminated through an automated quotation system operated by a registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2); or - (E) for purposes of sections [78o](/usc/15/78o.md), [78o–5](/usc/15/78o–5.md), and [78q–1](/usc/15/78q–1.md) of this title as applied to a bank, a qualified Canadian government obligation as defined in [section 24 of title 12](/usc/12/24.md). - (43) The term “government securities broker” means any [person](#a-9) regularly engaged in the business of effecting transactions in [government securities](#a-42) for the [account](/usc/15/1681a.md?p=r-4) of others, but does not include— - (A) any corporation the [securities](#a-10) of which are [government securities](#a-42) under subparagraph [(B)](#a-42-B) or [(C)](#a-42-C) of paragraph (42) of this subsection; or - (B) any [person](#a-9) registered with the Commodity Futures Trading [Commission](#a-15), any contract market designated by the Commodity Futures Trading [Commission](#a-15), such contract market’s affiliated clearing organization, or any floor trader on such contract market, solely because such [person](#a-9) effects transactions in [government securities](#a-42) that the [Commission](#a-15), after consultation with the Commodity Futures Trading [Commission](#a-15), has determined by rule or [order](/usc/15/8702.md?p=14) to be incidental to such [person](#a-9)’s futures-related business. - (44) The term “government securities dealer” means any [person](#a-9) engaged in the business of buying and selling [government securities](#a-42) for his own [account](/usc/15/1681a.md?p=r-4), through a [broker](#a-4-A) or otherwise, but does not include— - (A) any [person](#a-9) insofar as he buys or [sells](#a-14) such [securities](#a-10) for his own [account](/usc/15/1681a.md?p=r-4), either individually or in some [fiduciary capacity](#a-4-D), but not as a part of a regular business; - (B) any corporation the [securities](#a-10) of which are [government securities](#a-42) under subparagraph [(B)](#a-42-B) or [(C)](#a-42-C) of paragraph (42) of this subsection; - (C) any bank, unless the bank is engaged in the business of buying and selling [government securities](#a-42) for its own [account](/usc/15/1681a.md?p=r-4) other than in a [fiduciary capacity](#a-4-D), through a [broker](#a-4-A) or otherwise; or - (D) any [person](#a-9) registered with the Commodity Futures Trading [Commission](#a-15), any contract market designated by the Commodity Futures Trading [Commission](#a-15), such contract market’s affiliated clearing organization, or any floor trader on such contract market, solely because such [person](#a-9) effects transactions in [government securities](#a-42) that the [Commission](#a-15), after consultation with the Commodity Futures Trading [Commission](#a-15), has determined by rule or [order](/usc/15/8702.md?p=14) to be incidental to such [person](#a-9)’s futures-related business. - (45) The term “person associated with a government securities broker or government securities dealer” means any partner, officer, [director](#a-7), or branch manager of such [government securities broker](#a-43) or [government securities dealer](#a-44) (or any [person](#a-9) occupying a similar status or performing similar functions), and any other employee of such [government securities broker](#a-43) or [government securities dealer](#a-44) who is engaged in the management, direction, supervision, or performance of any activities relating to [government securities](#a-42), and any [person](#a-9) directly or indirectly controlling, controlled by, or under common control with such [government securities broker](#a-43) or [government securities dealer](#a-44). - (46) The term “financial institution” means— - (A) a bank (as defined in paragraph (6) of this subsection); - (B) a foreign bank (as such term is used in the International Banking Act of 1978); and - (C) a savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b) of the Federal Deposit Insurance Act [[12 U.S.C. 1813(b)](/usc/12/1813.md?p=b)]) the deposits of which are insured by the Federal Deposit Insurance Corporation. - (47) The term “securities laws” means the Securities Act of 1933 ([15 U.S.C. 77a](/usc/15/77a.md) et seq.), the [Securities](#a-10) Exchange Act of 1934 ([15 U.S.C. 78a](/usc/15/78a.md) et seq.), the Sarbanes-Oxley Act of 2002 [[15 U.S.C. 7201](/usc/15/7201.md) et seq.], the Trust Indenture Act of 1939 ([15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.), the Investment Company Act of 1940 ([15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.), the Investment Advisers Act of 1940 ([15 U.S.C. 80b](https://uscode.house.gov/view.xhtml?req=(/us/usc/t15/s80b)) et seq.) [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.], and the [Securities](#a-10) Investor Protection Act of 1970 ([15 U.S.C. 78aaa](/usc/15/78aaa.md) et seq.). - (48) The term “registered broker or dealer” means a [broker or dealer](#h-2) registered or required to register pursuant to section [78o](/usc/15/78o.md) or [78o–4](/usc/15/78o–4.md) of this title, except that in paragraph (3) of this subsection and sections [78f](/usc/15/78f.md) and [78o–3](/usc/15/78o–3.md) of this title the term means such a [broker or dealer](#h-2) and a [government securities broker](#a-43) or [government securities dealer](#a-44) registered or required to register pursuant to [section 78o–5(a)(1)(A)](/usc/15/78o–5.md?p=a-1-A) of this title. - (49) The term “person associated with a transfer agent” and “associated person of a transfer agent” mean any [person](#a-9) (except an employee whose functions are solely clerical or ministerial) directly engaged in the management, direction, supervision, or performance of any of the [transfer agent](#a-25)’s activities with respect to [transfer agent](#a-25) functions, and any [person](#a-9) directly or indirectly controlling such activities or controlled by the [transfer agent](#a-25) in connection with such activities. - (50) The term “foreign securities authority” means any foreign government, or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate to [securities](#a-10) matters. - (51) - (A) The term “penny stock” means any [equity security](#a-11) other than a [security](#a-10) that is— - (i) registered or approved for registration and traded on a [national securities exchange](/usc/15/9009a.md?p=a-5) that meets such criteria as the [Commission](#a-15) shall prescribe by rule or regulation for purposes of this paragraph; - (ii) authorized for quotation on an automated quotation system sponsored by a registered [securities](#a-10) [association](/usc/15/657h.md?p=a-2), if such system (I) was established and in operation before January 1, 1990, and (II) meets such criteria as the [Commission](#a-15) shall prescribe by rule or regulation for purposes of this paragraph; - (iii) issued by an [investment company](#a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.]; - (iv) excluded, on the basis of exceeding a minimum price, net tangible assets of the [issuer](#a-8), or other relevant criteria, from the definition of such term by rule or regulation which the [Commission](#a-15) shall prescribe for purposes of this paragraph; or - (v) exempted, in whole or in part, conditionally or unconditionally, from the definition of such term by rule, regulation, or [order](/usc/15/8702.md?p=14) prescribed by the [Commission](#a-15). - (B) The [Commission](#a-15) may, by rule, regulation, or [order](/usc/15/8702.md?p=14), designate any [equity security](#a-11) or class of [equity securities](#a-11) described in clause [(i)](#a-51-A-i) or [(ii)](#a-51-A-ii) of subparagraph (A) as within the meaning of the term “[penny stock](#a-51-A)” if such [security](#a-10) or class of [securities](#a-10) is traded other than on a [national securities exchange](/usc/15/9009a.md?p=a-5) or through an automated quotation system described in [clause (ii)](#a-51-A-ii) of subparagraph (A). - (C) In exercising its [authority](/usc/15/3051.md?p=1) under this paragraph to prescribe rules, regulations, and [orders](/usc/15/8702.md?p=14), the [Commission](#a-15) shall determine that such rule, regulation, or [order](/usc/15/8702.md?p=14) is consistent with the public interest and the protection of investors. - (52) The term “foreign financial regulatory authority” means any (A) [foreign securities authority](#a-50), (B) other governmental body or foreign equivalent of a [self-regulatory organization](#a-26) empowered by a foreign government to administer or enforce its laws relating to the regulation of fiduciaries, trusts, commercial lending, insurance, trading in contracts of sale of a commodity for future delivery, or other instruments traded on or subject to the rules of a contract market, [board](#a-73) of trade, or foreign equivalent, or other financial activities, or (C) membership organization a function of which is to regulate participation of its [members](#a-3-A) in activities listed above. - (53) - (A) The term “small business related security” means a [security](#a-10) that meets standards of [credit](/usc/15/1679a.md?p=4)-worthiness as established by the [Commission](#a-15), and either— - (i) represents an interest in 1 or more [promissory notes](#a-41) or leases of personal property evidencing the obligation of a [small business concern](#a-53-B-ii) and originated by an [insured depository institution](#a-53-B-iii), [insured credit union](#a-53-B-iv), [insurance company](#a-19), or similar institution which is supervised and examined by a Federal or [State](#a-16) [authority](/usc/15/3051.md?p=1), or a finance [company](#a-19) or leasing [company](#a-19); or - (ii) is secured by an interest in 1 or more [promissory notes](#a-41) or leases of personal property (with or without recourse to the [issuer](#a-8) or lessee) and provides for payments of principal in relation to payments, or reasonable projections of payments, on notes or leases described in [clause (i)](#a-53-A-i). - (B) For purposes of this paragraph— - (i) an “interest in a [promissory note](#a-41) or a lease of personal property” includes ownership rights, certificates of interest or participation in such notes or leases, and rights designed to assure servicing of such notes or leases, or the receipt or timely receipt of amounts payable under such notes or leases; - (ii) the term “small business concern” means a business that meets the criteria for a small business concern established by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2) under [section 632(a) of this title](/usc/15/632.md?p=a); - (iii) the term “insured depository institution” has the same meaning as in section 3 of the Federal Deposit Insurance Act [[12 U.S.C. 1813](/usc/12/1813.md)]; and - (iv) the term “insured credit union” has the same meaning as in [section 1752 of title 12](/usc/12/1752.md). - (54) **Qualified investor.—** - (A) **Definition.—** Except as provided in [subparagraph (B)](#a-54-B), for purposes of this chapter, the term “[qualified investor](#a-54-B)” means— - (i) any [investment company](#a-12-A-iii) registered with the [Commission](#a-15) under section 8 of the Investment Company Act of 1940 [[15 U.S.C. 80a–8](/usc/15/80a–8.md)]; - (ii) any [issuer](#a-8) eligible for an exclusion from the definition of [investment company](#a-12-A-iii) pursuant to section 3(c)(7) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(7)](/usc/15/80a–3.md?p=c-7)]; - (iii) any bank (as defined in paragraph (6) of this subsection), savings [association](/usc/15/657h.md?p=a-2) (as defined in section 3(b) of the Federal Deposit Insurance Act [[12 U.S.C. 1813(b)](/usc/12/1813.md?p=b)]), [broker](#a-4-A), [dealer](#a-5-A), [insurance company](#a-19) (as defined in section 2(a)(13) of the Securities Act of 1933 [[15 U.S.C. 77b(a)(13)](/usc/15/77b.md?p=a-13)]), or [business development company](/usc/15/80b–2.md?p=a-22) (as defined in section 2(a)(48) of the Investment Company Act of 1940 [[15 U.S.C. 80a–2(a)(48)](/usc/15/80a–2.md?p=a-48)]); - (iv) any [small business](/usc/15/1691c–2.md?p=h-2) [investment company](#a-12-A-iii) licensed by the United States [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2) under section 301(c) [[15 U.S.C. 681(c)](/usc/15/681.md?p=c)] or (d)[^1] of the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958; - (v) any [State](#a-16) sponsored employee benefit plan, or any other employee benefit plan, within the meaning of the Employee Retirement Income Security Act of 1974 [[29 U.S.C. 1001](/usc/29/1001.md) et seq.], other than an individual retirement [account](/usc/15/1681a.md?p=r-4), if the investment decisions are made by a plan fiduciary, as defined in [section 3(21)](/usc/15/3.md) of that Act [[29 U.S.C. 1002(21)](/usc/29/1002.md?p=21)], which is either a bank, savings and loan [association](/usc/15/657h.md?p=a-2), [insurance company](#a-19), or registered [investment adviser](#a-20); - (vi) any trust whose [purchases](#a-13) of [securities](#a-10) are directed by a [person](#a-9) described in [clauses (i) through (v)](#a-54-i..a-54-v) of this subparagraph; - (vii) any market [intermediary](/usc/15/6901.md?p=7) exempt under section 3(c)(2) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(2)](/usc/15/80a–3.md?p=c-2)]; - (viii) any [associated person of a broker or dealer](#a-18) other than a natural [person](#a-9); - (ix) any foreign bank (as defined in section 1(b)(7) of the International Banking Act of 1978 [[12 U.S.C. 3101(7)](/usc/12/3101.md?p=7)]); - (x) the government of any foreign country; - (xi) any corporation, [company](#a-19), or partnership that owns and invests on a discretionary basis, not less than [$25,000,000](#a-54-B) in investments; - (xii) any natural [person](#a-9) who owns and invests on a discretionary basis, not less than [$25,000,000](#a-54-B) in investments; - (xiii) any government or political subdivision, agency, or instrumentality of a government who owns and invests on a discretionary basis not less than $50,000,000 in investments; or - (xiv) any multinational or supranational entity or any agency or instrumentality thereof. - (B) **Altered thresholds for asset-backed securities and loan participations.—** For purposes of [subsection (a)(5)(C)(iii)](#a-5-C-iii) of this section and [section 206(a)(5)](/usc/15/206.md) of the Gramm-Leach-Bliley Act, the term “qualified investor” has the meaning given such term by subparagraph (A) of this paragraph except that clauses (xi) and (xii) shall be applied by substituting “$10,000,000” for “$25,000,000”. - (C) **Additional authority.—** The [Commission](#a-15) may, by rule or [order](/usc/15/8702.md?p=14), define a “[qualified investor](#a-54-B)” as any other [person](#a-9), taking into consideration such factors as the financial sophistication of the [person](#a-9), net worth, and knowledge and experience in financial matters. - (55) - (A) The term “security future” means a contract of sale for future delivery of a single [security](#a-10) or of a [narrow-based security index](#a-55-B), including any interest therein or based on the value thereof, except an [exempted security](#a-12-A) under paragraph (12) of this subsection as in effect on January 11, 1983 (other than any municipal [security](#a-10) as defined in paragraph (29) of this subsection as in effect on January 11, 1983). The term “security future” does not include any [agreement](/usc/15/7a.md?p=2), contract, or transaction excluded from the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.] under section 2(c), 2(d), 2(f), or 2(g) of the Commodity Exchange Act [[7 U.S.C. 2(c)](/usc/7/2.md?p=c), (d), (f), (g)] (as in effect on December 21, 2000) or [sections 27 to 27f](/usc/7/27..27f.md) of title 7. - (B) The term “narrow-based security index” means an [index](#a-68-E)— - (i) that has 9 or fewer component [securities](#a-10); - (ii) in which a component [security](#a-10) comprises more than 30 percent of the [index](#a-68-E)’s weighting; - (iii) in which the five highest weighted component [securities](#a-10) in the aggregate comprise more than 60 percent of the [index](#a-68-E)’s weighting; or - (iv) in which the lowest weighted component [securities](#a-10) comprising, in the aggregate, 25 percent of the [index](#a-68-E)’s weighting have an aggregate dollar value of average daily trading volume of less than $50,000,000 (or in the case of an [index](#a-68-E) with 15 or more component [securities](#a-10), $30,000,000), except that if there are two or more [securities](#a-10) with equal weighting that could be included in the calculation of the lowest weighted component [securities](#a-10) comprising, in the aggregate, 25 percent of the [index](#a-68-E)’s weighting, such [securities](#a-10) shall be ranked from lowest to highest dollar value of average daily trading volume and shall be included in the calculation based on their ranking starting with the lowest ranked [security](#a-10). - (C) Notwithstanding [subparagraph (B)](#a-55-B), an [index](#a-68-E) is not a [narrow-based security index](#a-55-B) if— - (i) - (I) it has at least nine component [securities](#a-10); - (II) no component [security](#a-10) comprises more than 30 percent of the [index](#a-68-E)’s weighting; and - (III) each component [security](#a-10) is— - (aa) registered pursuant to [section 78l](/usc/15/78l.md) of this title; - (bb) one of 750 [securities](#a-10) with the largest market capitalization; and - (cc) one of 675 [securities](#a-10) with the largest dollar value of average daily trading volume; - (ii) a [board](#a-73) of trade was designated as a contract market by the Commodity Futures Trading [Commission](#a-15) with respect to a contract of sale for future delivery on the [index](#a-68-E), before December 21, 2000; - (iii) - (I) a contract of sale for future delivery on the [index](#a-68-E) traded on a designated contract market or registered derivatives transaction execution [facility](#a-2) for at least 30 days as a contract of sale for future delivery on an [index](#a-68-E) that was not a [narrow-based security index](#a-55-B); and - (II) it has been a [narrow-based security index](#a-55-B) for no more than 45 business days over 3 consecutive calendar months; - (iv) a contract of sale for future delivery on the [index](#a-68-E) is traded on or subject to the rules of a foreign [board](#a-73) of trade and meets such requirements as are jointly established by rule or regulation by the [Commission](#a-15) and the Commodity Futures Trading [Commission](#a-15); - (v) no more than 18 months have passed since December 21, 2000, and— - (I) it is traded on or subject to the rules of a foreign [board](#a-73) of trade; - (II) the offer and sale in the United States of a contract of sale for future delivery on the [index](#a-68-E) was authorized before December 21, 2000; and - (III) the conditions of such authorization continue to be met; or - (vi) a contract of sale for future delivery on the [index](#a-68-E) is traded on or subject to the rules of a [board](#a-73) of trade and meets such requirements as are jointly established by rule, regulation, or [order](/usc/15/8702.md?p=14) by the [Commission](#a-15) and the Commodity Futures Trading [Commission](#a-15). - (D) Within 1 year after December 21, 2000, the [Commission](#a-15) and the Commodity Futures Trading [Commission](#a-15) jointly shall adopt rules or regulations that set forth the requirements under [clause (iv)](#a-55-C-iv) of subparagraph (C). - (E) An [index](#a-68-E) that is a [narrow-based security index](#a-55-B) solely because it was a [narrow-based security index](#a-55-B) for more than 45 business days over 3 consecutive calendar months pursuant to [clause (iii)](#a-55-C-iii) of subparagraph (C) shall not be a [narrow-based security index](#a-55-B) for the 3 following calendar months. - (F) For purposes of subparagraphs (B) and (C) of this paragraph— - (i) the dollar value of average daily trading volume and the market capitalization shall be calculated as of the preceding 6 full calendar months; and - (ii) the [Commission](#a-15) and the Commodity Futures Trading [Commission](#a-15) shall, by rule or regulation, jointly specify the method to be used to determine market capitalization and dollar value of average daily trading volume. - (56) The term “security futures product” means a [security future](#a-55-A) or any put, call, straddle, option, or privilege on any [security future](#a-55-A). - (57) - (A) The term “margin”, when used with respect to a [security futures product](#a-56), means the amount, type, and form of collateral required to secure any extension or maintenance of [credit](/usc/15/1679a.md?p=4), or the amount, type, and form of collateral required as a performance bond related to the [purchase](#a-13), sale, or carrying of a [security futures product](#a-56). - (B) The terms “margin level” and “level of margin”, when used with respect to a [security futures product](#a-56), mean the amount of [margin](#a-57-A) required to secure any extension or maintenance of [credit](/usc/15/1679a.md?p=4), or the amount of [margin](#a-57-A) required as a performance bond related to the [purchase](#a-13), sale, or carrying of a [security futures product](#a-56). - (C) The terms “higher margin level” and “higher level of margin”, when used with respect to a [security futures product](#a-56), mean a [margin level](#a-57-B) established by a [national securities exchange](/usc/15/9009a.md?p=a-5) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g) that is higher than the minimum amount established and in effect pursuant to [section 78g(c)(2)(B) of this title](/usc/15/78g.md?p=c-2-B). - (58) **Audit committee.—** The term “audit committee” means— - (A) a [committee](/usc/15/2921.md?p=1) (or equivalent body) established by and amongst the [board](#a-73) of [directors](#a-7) of an [issuer](#a-8) for the purpose of overseeing the accounting and financial reporting processes of the [issuer](#a-8) and [audits](/usc/15/7201.md?p=2) of the financial statements of the [issuer](#a-8); and - (B) if no such [committee](/usc/15/2921.md?p=1) exists with respect to an [issuer](#a-8), the entire [board](#a-73) of [directors](#a-7) of the [issuer](#a-8). - (59) **Registered public accounting firm.—** The term “registered public accounting firm” has the same meaning as in [section 2](/usc/15/2.md) of the Sarbanes-Oxley Act of 2002 [[15 U.S.C. 7201](/usc/15/7201.md)]. - (60) **Credit rating.—** The term “credit rating” means an assessment of the creditworthiness of an obligor as an entity or with respect to specific [securities](#a-10) or money market instruments. - (61) **Credit rating agency.—** The term “credit rating agency” means any [person](#a-9)— - (A) engaged in the business of issuing [credit ratings](#a-60) on the Internet or through another readily accessible means, for free or for a reasonable fee, but does not include a commercial [credit](/usc/15/1679a.md?p=4) reporting [company](#a-19); - (B) employing either a quantitative or qualitative model, or both, to determine [credit ratings](#a-60); and - (C) receiving fees from either [issuers](#a-8), investors, or other market [participants](#a-24), or a combination thereof. - (62) **Nationally recognized statistical rating organization.—** The term “nationally recognized statistical rating organization” means a [credit rating agency](#a-61) that— - (A) issues [credit ratings](#a-60) certified by [qualified institutional buyers](#a-64), in accordance with [section 78o–7(a)(1)(B)(ix)](/usc/15/78o–7.md?p=a-1-B-ix) of this title, with respect to— - (i) [financial institutions](#a-46), [brokers](#a-4-A), or [dealers](#a-5-A); - (ii) [insurance companies](#a-19); - (iii) corporate [issuers](#a-8); - (iv) [issuers](#a-8) of [asset-backed securities](#a-79) (as that term is defined in section 1101(c) of [part 229 of title 17, Code of Federal Regulations](/cfr/17/part229.md), as in effect on September 29, 2006); - (v) [issuers](#a-8) of [government securities](#a-42), [municipal securities](#a-29), or [securities](#a-10) issued by a foreign government; or - (vi) a combination of one or more categories of obligors described in any of [clauses (i) through (v)](#a-62-A-i..a-62-A-v); and - (B) is registered under [section 78o–7](/usc/15/78o–7.md) of this title. - (63) **Person associated with a nationally recognized statistical rating organization.—** The term “person associated with” a [nationally recognized statistical rating organization](#a-62) means any partner, officer, [director](#a-7), or branch manager of a [nationally recognized statistical rating organization](#a-62) (or any [person](#a-9) occupying a similar status or performing similar functions), any [person](#a-9) directly or indirectly controlling, controlled by, or under common control with a [nationally recognized statistical rating organization](#a-62), or any employee of a [nationally recognized statistical rating organization](#a-62). - (64) **Qualified institutional buyer.—** The term “qualified institutional buyer” has the meaning given such term in [section 230.144A(a) of title 17, Code of Federal Regulations](/cfr/17/230.144A.md?p=a), or any successor thereto. - (65) **Eligible contract participant.—** The term “eligible contract participant” has the same meaning as in section 1a of the Commodity Exchange Act ([7 U.S.C. 1a](/usc/7/1a.md)). - (66) **Major swap participant.—** The term “major swap participant” has the same meaning as in section 1a of the Commodity Exchange Act ([7 U.S.C. 1a](/usc/7/1a.md)). - (67) **Major security-based swap participant.—** - (A) **In general.—** The term “major security-based swap participant” means any [person](#a-9)— - (i) who is not a [security-based swap dealer](#a-71-A); and - (ii) - (I) who maintains a substantial position in [security-based swaps](#a-68-A) for any of the major [security-based swap](#a-68-A) categories, as such categories are determined by the [Commission](#a-15), excluding both positions held for hedging or mitigating commercial risk and positions maintained by any employee benefit plan (or any contract held by such a plan) as defined in paragraphs [(3)](/usc/15/3.md) and [(32)](/usc/15/3.md) of section 3 of the Employee Retirement Income Security Act of 1974 ([29 U.S.C. 1002](/usc/29/1002.md)) for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan; - (II) whose outstanding [security-based swaps](#a-68-A) create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets; or - (III) that is a financial entity that— - (aa) is highly leveraged relative to the amount of capital such entity holds and that is not subject to capital requirements established by an [appropriate Federal banking agency](#a-72); and - (bb) maintains a substantial position in outstanding [security-based swaps](#a-68-A) in any major [security-based swap](#a-68-A) category, as such categories are determined by the [Commission](#a-15). - (B) **Definition of substantial position.—** For purposes of [subparagraph (A)](#a-67-A), the [Commission](#a-15) shall define, by rule or regulation, the term “substantial position” at the threshold that the [Commission](#a-15) determines to be prudent for the effective monitoring, management, and oversight of entities that are systemically important or can significantly impact the financial system of the United States. In setting the definition under this subparagraph, the [Commission](#a-15) shall consider the [person](#a-9)’s relative position in uncleared as opposed to cleared [security-based swaps](#a-68-A) and may take into consideration the value and quality of collateral held against counterparty exposures. - (C) **Scope of designation.—** For purposes of [subparagraph (A)](#a-67-A), a [person](#a-9) may be designated as a [major security-based swap participant](#a-67-A) for 1 or more categories of [security-based swaps](#a-68-A) without being classified as a [major security-based swap participant](#a-67-A) for all classes of [security-based swaps](#a-68-A). - (68) **Security-based swap.—** - (A) **In general.—** Except as provided in [subparagraph (B)](#a-68-B), the term “security-based swap” means any [agreement](/usc/15/7a.md?p=2), contract, or transaction that— - (i) is a [swap](#a-69), as that term is defined under section 1a of the Commodity Exchange Act [[7 U.S.C. 1a](/usc/7/1a.md)] (without regard to [paragraph (47)(B)(x)](/usc/7/1a.md?p=47-B-x) of such section); and - (ii) is based on— - (I) an [index](#a-68-E) that is a [narrow-based security index](#a-55-B), including any interest therein or on the value thereof; - (II) a single [security](#a-10) or loan, including any interest therein or on the value thereof; or - (III) the occurrence, nonoccurrence, or extent of the occurrence of an event relating to a single [issuer](#a-8) of a [security](#a-10) or the [issuers](#a-8) of [securities](#a-10) in a [narrow-based security index](#a-55-B), provided that such event directly affects the financial statements, financial condition, or financial obligations of the [issuer](#a-8). - (B) **Rule of construction regarding master agreements.—** The term “[security-based swap](#a-68-A)” shall be construed to include a master [agreement](/usc/15/7a.md?p=2) that provides for an [agreement](/usc/15/7a.md?p=2), contract, or transaction that is a [security-based swap](#a-68-A) pursuant to [subparagraph (A)](#a-68-A), together with all supplements to any such master [agreement](/usc/15/7a.md?p=2), without regard to whether the master [agreement](/usc/15/7a.md?p=2) contains an [agreement](/usc/15/7a.md?p=2), contract, or transaction that is not a [security-based swap](#a-68-A) pursuant to [subparagraph (A)](#a-68-A), except that the master [agreement](/usc/15/7a.md?p=2) shall be considered to be a [security-based swap](#a-68-A) only with respect to each [agreement](/usc/15/7a.md?p=2), contract, or transaction under the master [agreement](/usc/15/7a.md?p=2) that is a [security-based swap](#a-68-A) pursuant to [subparagraph (A)](#a-68-A). - (C) **Exclusions.—** The term “[security-based swap](#a-68-A)” does not include any [agreement](/usc/15/7a.md?p=2), contract, or transaction that meets the definition of a [security-based swap](#a-68-A) only because such [agreement](/usc/15/7a.md?p=2), contract, or transaction references, is based upon, or settles through the transfer, delivery, or receipt of an [exempted security](#a-12-A) under [paragraph (12)](#a-12), as in effect on January 11, 1983 (other than any municipal [security](#a-10) as defined in [paragraph (29)](#a-29) as in effect on January 11, 1983), unless such [agreement](/usc/15/7a.md?p=2), contract, or transaction is of the character of, or is commonly known in the trade as, a put, call, or other option. - (D) **Mixed swap.—** The term “[security-based swap](#a-68-A)” includes any [agreement](/usc/15/7a.md?p=2), contract, or transaction that is as described in [subparagraph (A)](#a-68-A) and also is based on the value of 1 or more interest or other rates, currencies, commodities, instruments of indebtedness, indices, quantitative measures, other financial or economic interest or property of any kind (other than a single [security](#a-10) or a [narrow-based security index](#a-55-B)), or the occurrence, non-occurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence (other than an event described in [subparagraph (A)(ii)(III)](#a-68-A-ii-III)). - (E) **Rule of construction regarding use of the term index.—** The term “index” means an index or group of [securities](#a-10), including any interest therein or based on the value thereof. - (69) **Swap.—** The term “swap” has the same meaning as in section 1a of the Commodity Exchange Act ([7 U.S.C. 1a](/usc/7/1a.md)). - (70) **Person associated with a security-based swap dealer or major security-based swap participant.—** - (A) **In general.—** The term “person associated with a security-based swap dealer or major security-based swap participant” or “associated person of a security-based swap dealer or major security-based swap participant” means— - (i) any partner, officer, [director](#a-7), or branch manager of such [security-based swap dealer](#a-71-A) or [major security-based swap participant](#a-67-A) (or any [person](#a-9) occupying a similar status or performing similar functions); - (ii) any [person](#a-9) directly or indirectly controlling, controlled by, or under common control with such [security-based swap dealer](#a-71-A) or [major security-based swap participant](#a-67-A); or - (iii) any employee of such [security-based swap dealer](#a-71-A) or [major security-based swap participant](#a-67-A). - (B) **Exclusion.—** Other than for purposes of [section 78o–10(l)(2)](/usc/15/78o–10.md?p=l-2) of this title, the term “[person associated with a security-based swap dealer or major security-based swap participant](#a-70-A)” or “[associated person of a security-based swap dealer or major security-based swap participant](#a-70-A)” does not include any [person associated with a security-based swap dealer or major security-based swap participant](#a-70-A) whose functions are solely clerical or ministerial. - (71) **Security-based swap dealer.—** - (A) **In general.—** The term “security-based swap dealer” means any [person](#a-9) who— - (i) holds themself out as a [dealer](#a-5-A) in [security-based swaps](#a-68-A); - (ii) makes a market in [security-based swaps](#a-68-A); - (iii) regularly enters into [security-based swaps](#a-68-A) with counterparties as an ordinary course of business for its own [account](/usc/15/1681a.md?p=r-4); or - (iv) engages in any activity causing it to be commonly known in the trade as a [dealer](#a-5-A) or [market maker](#a-38) in [security-based swaps](#a-68-A). - (B) **Designation by type or class.—** A [person](#a-9) may be designated as a [security-based swap dealer](#a-71-A) for a single type or single class or category of [security-based swap](#a-68-A) or activities and considered not to be a [security-based swap dealer](#a-71-A) for other types, classes, or categories of [security-based swaps](#a-68-A) or activities. - (C) **Exception.—** The term “[security-based swap dealer](#a-71-A)” does not include a [person](#a-9) that enters into [security-based swaps](#a-68-A) for such [person](#a-9)’s own [account](/usc/15/1681a.md?p=r-4), either individually or in a [fiduciary capacity](#a-4-D), but not as a part of regular business. - (D) **De minimis exception.—** The [Commission](#a-15) shall exempt from designation as a [security-based swap dealer](#a-71-A) an entity that engages in a de minimis quantity of [security-based swap](#a-68-A) dealing in connection with transactions with or on behalf of its [customers](/usc/15/78c–5.md?p=g). The [Commission](#a-15) shall promulgate regulations to establish factors with respect to the making of any determination to exempt. - (72) **Appropriate federal banking agency.—** The term “appropriate Federal banking agency” has the same meaning as in section 3(q) of the Federal Deposit Insurance Act ([12 U.S.C. 1813(q)](/usc/12/1813.md?p=q)). - (73) **Board.—** The term “Board” means the Board of Governors of the Federal Reserve System. - (74) **Prudential regulator.—** The term “prudential regulator” has the same meaning as in section 1a of the Commodity Exchange Act ([7 U.S.C. 1a](/usc/7/1a.md)). - (75) **Security-based swap data repository.—** The term “security-based swap data repository” means any [person](#a-9) that collects and maintains information or [records](#a-37) with respect to transactions or positions in, or the terms and conditions of, [security-based swaps](#a-68-A) entered into by third parties for the purpose of providing a centralized recordkeeping [facility](#a-2) for [security-based swaps](#a-68-A). - (76) **Swap dealer.—** The term “swap dealer” has the same meaning as in section 1a of the Commodity Exchange Act ([7 U.S.C. 1a](/usc/7/1a.md)). - (77) **Security-based swap execution facility.—** The term “security-based swap execution facility” means a trading system or platform in which multiple [participants](#a-24) have the ability to execute or trade [security-based swaps](#a-68-A) by accepting bids and offers made by multiple [participants](#a-24) in the [facility](#a-2) or system, through any means of [interstate commerce](#a-17), including any trading [facility](#a-2), that— - (A) facilitates the execution of [security-based swaps](#a-68-A) between [persons](#a-9); and - (B) is not a [national securities exchange](/usc/15/9009a.md?p=a-5). - (78) **Security-based swap agreement.—** - (A) **In general.—** For purposes of sections [78i](/usc/15/78i.md), [78j](/usc/15/78j.md), [78p](/usc/15/78p.md), [78t](/usc/15/78t.md), and [78u–1](/usc/15/78u–1.md) of this title, and section 17 of the Securities Act of 1933 ([15 U.S.C. 77q](/usc/15/77q.md)), the term “[security-based swap agreement](#a-78-B)” means a [swap](#a-69) [agreement](/usc/15/7a.md?p=2) as defined in section 206A of the Gramm-Leach-Bliley Act (15 U.S.C. 78c note) of which a material term is based on the price, yield, value, or volatility of any [security](#a-10) or any group or [index](#a-68-E) of [securities](#a-10), or any interest therein. - (B) **Exclusions.—** The term “security-based swap agreement” does not include any [security-based swap](#a-68-A). - (79) **Asset-backed security.—** The term “asset-backed security”— - (A) means a fixed-income or other [security](#a-10) 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](#a-10) 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](#a-79); - (v) a collateralized debt obligation of collateralized debt obligations; and - (vi) a [security](#a-10) that the [Commission](#a-15), by rule, determines to be an [asset-backed security](#a-79) for purposes of this section; and - (B) does not include a [security](#a-10) issued by a finance subsidiary held by the parent [company](#a-19) or a [company](#a-19) controlled by the parent [company](#a-19), if none of the [securities](#a-10) issued by the finance subsidiary are held by an entity that is not controlled by the parent [company](#a-19). - (80) **[^7] Emerging growth company.—** The term “emerging growth company” means an [issuer](#a-8) that had total annual gross revenues of less than $1,000,000,000 (as such amount is indexed for inflation every 5 years by the [Commission](#a-15) to reflect the change in the [Consumer](/usc/15/1615.md?p=d-2) Price [Index](#a-68-E) for All Urban [Consumers](/usc/15/1615.md?p=d-2) published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) during its most recently completed fiscal year. An [issuer](#a-8) that is an emerging growth company as of the first day of that fiscal year shall continue to be deemed an emerging growth company until the earliest of— - (A) the last day of the fiscal year of the [issuer](#a-8) during which it had total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every 5 years by the [Commission](#a-15) to reflect the change in the [Consumer](/usc/15/1615.md?p=d-2) Price [Index](#a-68-E) for All Urban [Consumers](/usc/15/1615.md?p=d-2) published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more; - (B) the last day of the fiscal year of the [issuer](#a-8) following the fifth anniversary of the date of the first sale of common [equity securities](#a-11) of the [issuer](#a-8) pursuant to an effective [registration statement](/usc/15/77b.md?p=a-8) under the Securities Act of 1933; - (C) the date on which such [issuer](#a-8) has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or - (D) the date on which such [issuer](#a-8) is deemed to be a “large accelerated filer”, as defined in [section 240.12b–2 of title 17, Code of Federal Regulations](/cfr/17/240.12b–2.md), or any successor thereto. - (80) **[^7] Funding portal.—** The term “funding portal” means any [person](#a-9) acting as an [intermediary](/usc/15/6901.md?p=7) in a transaction involving the offer or sale of [securities](#a-10) for the [account](/usc/15/1681a.md?p=r-4) of others, solely pursuant to [section 4(6)](/usc/15/4.md)[^1] of the Securities Act of 1933 ([15 U.S.C. 77d(6)](/usc/15/77d.md)), that does not— - (A) offer investment advice or recommendations; - (B) solicit [purchases](#a-13), sales, or offers to buy the [securities](#a-10) offered or displayed on its website or portal; - (C) compensate employees, agents, or other [persons](#a-9) for such solicitation or based on the sale of [securities](#a-10) displayed or referenced on its website or portal; - (D) hold, manage, possess, or otherwise handle investor funds or [securities](#a-10); or - (E) engage in such other activities as the [Commission](#a-15), by rule, determines appropriate. - (b) **Power to define technical, trade, accounting, and other terms—** The [Commission](#a-15) and the [Board](#a-73) of Governors of the Federal Reserve System, as to matters within their respective jurisdictions, shall have power by rules and regulations to define technical, trade, accounting, and other terms used in this chapter, consistently with the provisions and purposes of this chapter. - (c) **Application to governmental departments or agencies—** No provision of this chapter shall apply to, or be deemed to include, any executive department or independent establishment of the United States, or any lending agency which is wholly owned, directly or indirectly, by the United States, or any officer, agent, or employee of any such department, establishment, or agency, acting in the course of his official duty as such, unless such provision makes specific reference to such department, establishment, or agency. - (d) **Issuers of municipal securities—** No [issuer](#a-8) of [municipal securities](#a-29) or officer or employee thereof acting in the course of his official duties as such shall be deemed to be a “[broker](#a-4-A)”, “[dealer](#a-5-A)”, or “[municipal securities dealer](#a-30)” solely by reason of buying, selling, or effecting transactions in the [issuer](#a-8)’s [securities](#a-10). - (e) **Charitable organizations—** - (1) **Exemption—** Notwithstanding any other provision of this chapter, but subject to paragraph (2) of this subsection, a charitable organization, as defined in section 3(c)(10)(D) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(10)(D)](/usc/15/80a–3.md?p=c-10-D)], or any trustee, [director](#a-7), officer, employee, or volunteer of such a charitable organization acting within the scope of such [person](#a-9)’s employment or duties with such organization, shall not be deemed to be a “[broker](#a-4-A)”, “[dealer](#a-5-A)”, “[municipal securities broker](#a-31)”, “[municipal securities dealer](#a-30)”, “[government securities broker](#a-43)”, or “[government securities dealer](#a-44)” for purposes of this chapter solely because such organization or [person](#a-9) buys, holds, [sells](#a-14), or trades in [securities](#a-10) for its own [account](/usc/15/1681a.md?p=r-4) in its capacity as trustee or [administrator](/usc/15/9001.md?p=1) of, or otherwise on behalf of or for the [account](/usc/15/1681a.md?p=r-4) of— - (A) such a charitable organization; - (B) a fund that is excluded from the definition of an [investment company](#a-12-A-iii) under section 3(c)(10)(B) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(10)(B)](/usc/15/80a–3.md?p=c-10-B)]; or - (C) a trust or other donative instrument described in section 3(c)(10)(B) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(10)(B)](/usc/15/80a–3.md?p=c-10-B)], or the settlors (or potential settlors) or beneficiaries of any such trust or other instrument. - (2) **Limitation on compensation—** The exemption provided under [paragraph (1)](#e-1) shall not be available to any charitable organization, or any trustee, [director](#a-7), officer, employee, or volunteer of such a charitable organization, unless each [person](#a-9) who, on or after 90 days after December 8, 1995, solicits donations on behalf of such charitable organization from any donor to a fund that is excluded from the definition of an [investment company](#a-12-A-iii) under section 3(c)(10)(B) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(10)(B)](/usc/15/80a–3.md?p=c-10-B)], is either a volunteer or is engaged in the overall fund raising activities of a charitable organization and receives no [commission](#a-15) or other special compensation based on the number or the value of donations collected for the fund. - (f) **Consideration of promotion of efficiency, competition, and capital formation—** Whenever pursuant to this chapter the [Commission](#a-15) is engaged in rulemaking, or in the review of a rule of a [self-regulatory organization](#a-26), and is required to consider or determine whether an action is necessary or appropriate in the public interest, the [Commission](#a-15) shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. - (g) **Church plans—** No church plan described in [section 414(e) of title 26](/usc/26/414.md?p=e), no [person](#a-9) or entity eligible to establish and maintain such a plan under [title 26](/usc/26.md), no [company](#a-19) or [account](/usc/15/1681a.md?p=r-4) that is excluded from the definition of an [investment company](#a-12-A-iii) under section 3(c)(14) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(14)](/usc/15/80a–3.md?p=c-14)], and no trustee, [director](#a-7), officer or employee of or volunteer for such plan, [company](#a-19), [account](/usc/15/1681a.md?p=r-4), [person](#a-9), or entity, acting within the scope of that [person](#a-9)’s employment or activities with respect to such plan, shall be deemed to be a “[broker](#a-4-A)”, “[dealer](#a-5-A)”, “[municipal securities broker](#a-31)”, “[municipal securities dealer](#a-30)”, “[government securities broker](#a-43)”, “[government securities dealer](#a-44)”, “[clearing agency](#a-23-A)”, or “[transfer agent](#a-25)” for purposes of this chapter— - (1) solely because such plan, [company](#a-19), [person](#a-9), or entity buys, holds, [sells](#a-14), trades in, or transfers [securities](#a-10) or acts as an [intermediary](/usc/15/6901.md?p=7) in making payments in connection with transactions in [securities](#a-10) for its own [account](/usc/15/1681a.md?p=r-4) in its capacity as trustee or [administrator](/usc/15/9001.md?p=1) of, or otherwise on behalf of, or for the [account](/usc/15/1681a.md?p=r-4) of, any church plan, [company](#a-19), or [account](/usc/15/1681a.md?p=r-4) that is excluded from the definition of an [investment company](#a-12-A-iii) under section 3(c)(14) of the Investment Company Act of 1940 [[15 U.S.C. 80a–3(c)(14)](/usc/15/80a–3.md?p=c-14)]; and - (2) if no such [person](#a-9) or entity receives a [commission](#a-15) or other transaction-related sales compensation in connection with any activities conducted in reliance on the exemption provided by this subsection. - (h) **Limited exemption for funding portals—** - (1) **In general—** The [Commission](#a-15) shall, by rule, exempt, conditionally or unconditionally, a registered [funding portal](#a-80) from the requirement to register as a [broker or dealer](#h-2) under [section 78o(a)(1)](/usc/15/78o.md?p=a-1) of this title, provided that such [funding portal](#a-80)— - (A) remains subject to the examination, enforcement, and other rulemaking [authority](/usc/15/3051.md?p=1) of the [Commission](#a-15); - (B) is a [member](#a-3-A) of a national [securities](#a-10) [association](/usc/15/657h.md?p=a-2) registered under [section 78o–3](/usc/15/78o–3.md) of this title; and - (C) is subject to such other requirements under this chapter as the [Commission](#a-15) determines appropriate under such rule. - (2) **National securities association membership—** For purposes of sections [78o(b)(8)](/usc/15/78o.md?p=b-8) and [78o–3](/usc/15/78o–3.md) of this title, the term “broker or dealer” includes a [funding portal](#a-80) and the term “registered broker or dealer” includes a registered [funding portal](#a-80), except to the extent that the [Commission](#a-15), by rule, determines otherwise, provided that a national [securities](#a-10) [association](/usc/15/657h.md?p=a-2) shall only examine for and enforce against a registered [funding portal](#a-80) rules of such national [securities](#a-10) [association](/usc/15/657h.md?p=a-2) written specifically for registered [funding portals](#a-80). # §78c–1. Swap agreements - (a) **Reserved—** - (b) **Security-based swap agreements—** - (1) The definition of “[security](/usc/15/78c.md?p=a-10)” in [section 78c(a)(10) of this title](/usc/15/78c.md?p=a-10) does not include any [security-based swap agreement](/usc/15/78c.md?p=a-78-B). - (2) The [Commission](/usc/15/78c.md?p=a-15) is prohibited from registering, or requiring, recommending, or suggesting, the registration under this chapter of any [security-based swap agreement](/usc/15/78c.md?p=a-78-B). If the [Commission](/usc/15/78c.md?p=a-15) becomes aware that a registrant has filed a registration [application](/usc/15/77ccc.md?p=8) with respect to such a [swap](/usc/15/78c.md?p=a-69) [agreement](/usc/15/7a.md?p=2), the [Commission](/usc/15/78c.md?p=a-15) shall promptly so notify the registrant. Any such registration with respect to such a [swap](/usc/15/78c.md?p=a-69) [agreement](/usc/15/7a.md?p=2) shall be void and of no force or effect. - (3) Except as provided in [section 78p(a) of this title](/usc/15/78p.md?p=a) with respect to reporting requirements, the [Commission](/usc/15/78c.md?p=a-15) is prohibited from— - (A) promulgating, interpreting, or enforcing rules; or - (B) issuing [orders](/usc/15/8702.md?p=14) of general applicability; under this chapter in a manner that imposes or specifies reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading with respect to any [security-based swap agreement](/usc/15/78c.md?p=a-78-B). - (4) References in this chapter to the “[purchase](/usc/15/78c.md?p=a-13)” or “sale” of a [security-based swap agreement](/usc/15/78c.md?p=a-78-B) shall be deemed to mean the execution, termination (prior to its scheduled maturity date), assignment, [exchange](/usc/15/78c.md?p=a-1), or similar transfer or conveyance of, or extinguishing of rights or obligations under, a [security-based swap agreement](/usc/15/78c.md?p=a-78-B), as the context may require. # §78c–2. Securities-related derivatives - (a) Any [agreement](/usc/15/7a.md?p=2), contract, or transaction (or class thereof) that is exempted by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 6(c)(1) of title 7](/usc/7/6.md?p=c-1) with the condition that the [Commission](/usc/15/78c.md?p=a-15) exercise concurrent jurisdiction over such [agreement](/usc/15/7a.md?p=2), contract, or transaction (or class thereof) shall be deemed a [security](/usc/15/78c.md?p=a-10) for purposes of the [securities laws](/usc/15/78c.md?p=a-47). - (b) With respect to any [agreement](/usc/15/7a.md?p=2), contract, or transaction (or class thereof) that is exempted by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 6(c)(1) of title 7](/usc/7/6.md?p=c-1) with the condition that the [Commission](/usc/15/78c.md?p=a-15) exercise concurrent jurisdiction over such [agreement](/usc/15/7a.md?p=2), contract, or transaction (or class thereof), references in the [securities laws](/usc/15/78c.md?p=a-47) to the “[purchase](/usc/15/78c.md?p=a-13)” or “sale” of a [security](/usc/15/78c.md?p=a-10) shall be deemed to include the execution, termination (prior to its scheduled maturity date), assignment, [exchange](/usc/15/78c.md?p=a-1), or similar transfer or conveyance of, or extinguishing of rights or obligations under such [agreement](/usc/15/7a.md?p=2), contract, or transaction, as the context may require. # §78c–3. Clearing for security-based swaps - (a) **In general—** - (1) **Standard for clearing—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to engage in a [security-based swap](/usc/15/78c.md?p=a-68-A) unless that [person](/usc/15/78c.md?p=a-9) submits such [security-based swap](/usc/15/78c.md?p=a-68-A) for clearing to a [clearing agency](/usc/15/78c.md?p=a-23-A) that is registered under this chapter or a [clearing agency](/usc/15/78c.md?p=a-23-A) that is exempt from registration under this chapter if the [security-based swap](/usc/15/78c.md?p=a-68-A) is required to be cleared. - (2) **Open access—** The [rules of a clearing agency](/usc/15/78c.md?p=a-27) described in [paragraph (1)](#a-1) shall— - (A) prescribe that all [security-based swaps](/usc/15/78c.md?p=a-68-A) submitted to the [clearing agency](/usc/15/78c.md?p=a-23-A) with the same terms and conditions are economically equivalent within the [clearing agency](/usc/15/78c.md?p=a-23-A) and may be offset with each other within the [clearing agency](/usc/15/78c.md?p=a-23-A); and - (B) provide for non-discriminatory clearing of a [security-based swap](/usc/15/78c.md?p=a-68-A) executed bilaterally or on or through the rules of an unaffiliated [national securities exchange](/usc/15/9009a.md?p=a-5) or [security-based swap execution facility](/usc/15/78c.md?p=a-77). - (b) **Commission review—** - (1) **Commission-initiated review—** - (A) The [Commission](/usc/15/78c.md?p=a-15) on an ongoing basis shall review each [security-based swap](/usc/15/78c.md?p=a-68-A), or any group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) to make a determination that such [security-based swap](/usc/15/78c.md?p=a-68-A), or group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) should be required to be cleared. - (B) The [Commission](/usc/15/78c.md?p=a-15) shall provide at least a 30-day public comment period regarding any determination under [subparagraph (A)](#b-1-A). - (2) **Swap submissions—** - (A) A [clearing agency](/usc/15/78c.md?p=a-23-A) shall submit to the [Commission](/usc/15/78c.md?p=a-15) each [security-based swap](/usc/15/78c.md?p=a-68-A), or any group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) that it plans to accept for clearing and provide notice to its [members](/usc/15/78c.md?p=a-3-A) (in a manner to be determined by the [Commission](/usc/15/78c.md?p=a-15)) of such submission. - (B) Any [security-based swap](/usc/15/78c.md?p=a-68-A) or group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) listed for clearing by a [clearing agency](/usc/15/78c.md?p=a-23-A) as of July 21, 2010, shall be considered submitted to the [Commission](/usc/15/78c.md?p=a-15). - (C) The [Commission](/usc/15/78c.md?p=a-15) shall— - (i) make available to the public any submission received under subparagraphs [(A)](#b-2-A) and [(B)](#b-2-B); - (ii) review each submission made under subparagraphs [(A)](#b-2-A) and [(B)](#b-2-B), and determine whether the [security-based swap](/usc/15/78c.md?p=a-68-A), or group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A), described in the submission is required to be cleared; and - (iii) provide at least a 30-day public comment period regarding its determination whether the clearing requirement under [subsection (a)(1)](#a-1) shall apply to the submission. - (3) **Deadline—** The [Commission](/usc/15/78c.md?p=a-15) shall make its determination under [paragraph (2)(C)](#b-2-C) not later than 90 days after receiving a submission made under paragraphs [(2)(A)](#b-2-A) and [(2)(B)](#b-2-B), unless the submitting [clearing agency](/usc/15/78c.md?p=a-23-A) agrees to an extension for the time limitation established under this paragraph. - (4) **Determination—** - (A) In reviewing a submission made under [paragraph (2)](#b-2), the [Commission](/usc/15/78c.md?p=a-15) shall review whether the submission is consistent with [section 78q–1 of this title](/usc/15/78q–1.md). - (B) In reviewing a [security-based swap](/usc/15/78c.md?p=a-68-A), group of [security-based swaps](/usc/15/78c.md?p=a-68-A) or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) pursuant to [paragraph (1)](#b-1) or a submission made under [paragraph (2)](#b-2), the [Commission](/usc/15/78c.md?p=a-15) shall take into [account](/usc/15/1681a.md?p=r-4) the following factors: - (i) The existence of significant outstanding notional exposures, trading liquidity and adequate pricing data. - (ii) The availability of rule framework, capacity, operational expertise and resources, and [credit](/usc/15/1679a.md?p=4) support infrastructure to clear the contract on terms that are consistent with the material terms and trading conventions on which the contract is then traded. - (iii) The effect on the mitigation of systemic risk, taking into [account](/usc/15/1681a.md?p=r-4) the size of the market for such contract and the resources of the [clearing agency](/usc/15/78c.md?p=a-23-A) available to clear the contract. - (iv) The effect on competition, including appropriate fees and charges applied to clearing. - (v) The existence of reasonable legal certainty in the event of the insolvency of the relevant [clearing agency](/usc/15/78c.md?p=a-23-A) or 1 or more of its clearing [members](/usc/15/78c.md?p=a-3-A) with regard to the treatment of [customer](/usc/15/78c–5.md?p=g) and [security-based swap](/usc/15/78c.md?p=a-68-A) counterparty positions, funds, and property. - (C) In making a determination under [subsection (b)(1)](#b-1) or [paragraph (2)(C)](#b-2-C) that the clearing requirement shall apply, the [Commission](/usc/15/78c.md?p=a-15) may require such terms and conditions to the requirement as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate. - (5) **Rules—** Not later than 1 year after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall adopt rules for a [clearing agency](/usc/15/78c.md?p=a-23-A)’s submission for review, pursuant to this subsection, of a [security-based swap](/usc/15/78c.md?p=a-68-A), or a group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A), that it seeks to accept for clearing. Nothing in this paragraph limits the [Commission](/usc/15/78c.md?p=a-15) from making a determination under [paragraph (2)(C)](#b-2-C) for [security-based swaps](/usc/15/78c.md?p=a-68-A) described in [paragraph (2)(B)](#b-2-B). - (c) **Stay of clearing requirement—** - (1) **In general—** After making a determination pursuant to [subsection (b)(2)](#b-2), the [Commission](/usc/15/78c.md?p=a-15), on [application](/usc/15/77ccc.md?p=8) of a counterparty to a [security-based swap](/usc/15/78c.md?p=a-68-A) or on its own [initiative](/usc/15/9401.md?p=5), may stay the clearing requirement of [subsection (a)(1)](#a-1) until the [Commission](/usc/15/78c.md?p=a-15) completes a review of the terms of the [security-based swap](/usc/15/78c.md?p=a-68-A) (or the group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A)) and the clearing arrangement. - (2) **Deadline—** The [Commission](/usc/15/78c.md?p=a-15) shall complete a review undertaken pursuant to [paragraph (1)](#c-1) not later than 90 days after issuance of the stay, unless the [clearing agency](/usc/15/78c.md?p=a-23-A) that clears the [security-based swap](/usc/15/78c.md?p=a-68-A), or group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A), agrees to an extension of the time limitation established under this paragraph. - (3) **Determination—** Upon completion of the review undertaken pursuant to [paragraph (1)](#c-1), the [Commission](/usc/15/78c.md?p=a-15) may— - (A) determine, unconditionally or subject to such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate, that the [security-based swap](/usc/15/78c.md?p=a-68-A), or group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A), must be cleared pursuant to this subsection if it finds that such clearing is consistent with [subsection (b)(4)](#b-4); or - (B) determine that the clearing requirement of [subsection (a)(1)](#a-1) shall not apply to the [security-based swap](/usc/15/78c.md?p=a-68-A), or group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A). - (4) **Rules—** Not later than 1 year after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall adopt rules for reviewing, pursuant to this subsection, a [clearing agency](/usc/15/78c.md?p=a-23-A)’s clearing of a [security-based swap](/usc/15/78c.md?p=a-68-A), or a group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A), that it has accepted for clearing. - (d) **Prevention of evasion—** - (1) **In general—** The [Commission](/usc/15/78c.md?p=a-15) shall prescribe rules under this section (and issue interpretations of rules prescribed under this section), as determined by the [Commission](/usc/15/78c.md?p=a-15) to be necessary to prevent evasions of the mandatory clearing requirements under this chapter. - (2) **Duty of Commission to investigate and take certain actions—** To the extent the [Commission](/usc/15/78c.md?p=a-15) finds that a particular [security-based swap](/usc/15/78c.md?p=a-68-A) or any group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) that would otherwise be subject to mandatory clearing but no [clearing agency](/usc/15/78c.md?p=a-23-A) has listed the [security-based swap](/usc/15/78c.md?p=a-68-A) or the group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) for clearing, the [Commission](/usc/15/78c.md?p=a-15) shall— - (A) investigate the relevant facts and circumstances; - (B) within 30 days issue a public report containing the results of the investigation; and - (C) take such actions as the [Commission](/usc/15/78c.md?p=a-15) determines to be necessary and in the public interest, which may include requiring the retaining of adequate [margin](/usc/15/78c.md?p=a-57-A) or capital by parties to the [security-based swap](/usc/15/78c.md?p=a-68-A) or the group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A). - (3) **Effect on authority—** Nothing in this subsection— - (A) authorizes the [Commission](/usc/15/78c.md?p=a-15) to adopt rules requiring a [clearing agency](/usc/15/78c.md?p=a-23-A) to list for clearing a [security-based swap](/usc/15/78c.md?p=a-68-A) or any group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) if the clearing of the [security-based swap](/usc/15/78c.md?p=a-68-A) or the group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) would threaten the financial integrity of the [clearing agency](/usc/15/78c.md?p=a-23-A); and - (B) affects the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) to enforce the open access provisions of [subsection (a)(2)](#a-2) with respect to a [security-based swap](/usc/15/78c.md?p=a-68-A) or the group, category, type, or class of [security-based swaps](/usc/15/78c.md?p=a-68-A) that is listed for clearing by a [clearing agency](/usc/15/78c.md?p=a-23-A). - (e) **Reporting transition rules—** Rules adopted by the [Commission](/usc/15/78c.md?p=a-15) under this section shall provide for the reporting of data, as follows: - (1) [Security-based swaps](/usc/15/78c.md?p=a-68-A) entered into before July 21, 2010, shall be reported to a registered [security-based swap data repository](/usc/15/78c.md?p=a-75) or the [Commission](/usc/15/78c.md?p=a-15) no later than 180 days after the effective date of this section. - (2) [Security-based swaps](/usc/15/78c.md?p=a-68-A) entered into on or after July 21, 2010, shall be reported to a registered [security-based swap data repository](/usc/15/78c.md?p=a-75) or the [Commission](/usc/15/78c.md?p=a-15) no later than the later of— - (A) 90 days after such effective date; or - (B) such other time after entering into the [security-based swap](/usc/15/78c.md?p=a-68-A) as the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule or regulation. - (f) **Clearing transition rules—** - (1) [Security-based swaps](/usc/15/78c.md?p=a-68-A) entered into before July 21, 2010, are exempt from the clearing requirements of this subsection if reported pursuant to [subsection (e)(1)](#e-1). - (2) [Security-based swaps](/usc/15/78c.md?p=a-68-A) entered into before [application](/usc/15/77ccc.md?p=8) of the clearing requirement pursuant to this section are exempt from the clearing requirements of this section if reported pursuant to [subsection (e)(2)](#e-2). - (g) **Exceptions—** - (1) **In general—** The requirements of [subsection (a)(1)](#a-1) shall not apply to a [security-based swap](/usc/15/78c.md?p=a-68-A) if 1 of the counterparties to the [security-based swap](/usc/15/78c.md?p=a-68-A)— - (A) is not a [financial entity](#g-3-A); - (B) is using [security-based swaps](/usc/15/78c.md?p=a-68-A) to hedge or mitigate commercial risk; and - (C) notifies the [Commission](/usc/15/78c.md?p=a-15), in a manner set forth by the [Commission](/usc/15/78c.md?p=a-15), how it generally meets its financial obligations associated with entering into non-cleared [security-based swaps](/usc/15/78c.md?p=a-68-A). - (2) **Option to clear—** The [application](/usc/15/77ccc.md?p=8) of the clearing exception in [paragraph (1)](#g-1) is solely at the discretion of the counterparty to the [security-based swap](/usc/15/78c.md?p=a-68-A) that meets the conditions of [subparagraphs (A) through (C)](#g-1-A..g-1-C) of paragraph (1). - (3) **Financial entity definition—** - (A) **In general—** For the purposes of this subsection, the term “financial entity” means— - (i) a [swap dealer](/usc/15/78c.md?p=a-76); - (ii) a [security-based swap dealer](/usc/15/78c.md?p=a-71-A); - (iii) a [major swap participant](/usc/15/78c.md?p=a-66); - (iv) a [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (v) a commodity pool as defined in [section 1a(10) of title 7](/usc/7/1a.md?p=10); - (vi) a private fund as defined in [section 80b–2(a) of this title](/usc/15/80b–2.md?p=a); - (vii) an employee benefit plan as defined in paragraphs (3) and (32) of [section 1002 of title 29](/usc/29/1002.md); - (viii) a [person](/usc/15/78c.md?p=a-9) predominantly engaged in activities that are in the business of banking or financial in nature, as defined in [section 1843(k) of title 12](/usc/12/1843.md?p=k). - (B) **Exclusion—** The [Commission](/usc/15/78c.md?p=a-15) shall consider whether to exempt small banks, savings [associations](/usc/15/657h.md?p=a-2), farm [credit](/usc/15/1679a.md?p=4) system institutions, and [credit](/usc/15/1679a.md?p=4) unions, including— - (i) depository institutions with total assets of $10,000,000,000 or less; - (ii) farm [credit](/usc/15/1679a.md?p=4) system institutions with total assets of $10,000,000,000 or less; or - (iii) [credit](/usc/15/1679a.md?p=4) unions with total assets of $10,000,000,000 or less. - (4) **Treatment of affiliates—** - (A) **In general—** An affiliate of a [person](/usc/15/78c.md?p=a-9) that qualifies for an exception under this subsection (including affiliate entities predominantly engaged in providing financing for the [purchase](/usc/15/78c.md?p=a-13) of the merchandise or manufactured goods of the [person](/usc/15/78c.md?p=a-9)) may qualify for the exception only if the affiliate— - (i) enters into the [security-based swap](/usc/15/78c.md?p=a-68-A) to hedge or mitigate the commercial risk of the [person](/usc/15/78c.md?p=a-9) or other affiliate of the [person](/usc/15/78c.md?p=a-9) that is not a [financial entity](#g-3-A), and the commercial risk that the affiliate is hedging or mitigating has been transferred to the affiliate; - (ii) is directly and wholly-owned by another affiliate qualified for the exception under this paragraph or an entity that is not a [financial entity](#g-3-A); - (iii) is not indirectly majority-owned by a [financial entity](#g-3-A); - (iv) is not ultimately owned by a parent [company](/usc/15/78c.md?p=a-19) that is a [financial entity](#g-3-A); and - (v) does not provide any services, financial or otherwise, to any affiliate that is a nonbank financial [company](/usc/15/78c.md?p=a-19) supervised by the [Board](/usc/15/78c.md?p=a-73) of Governors (as defined under [section 5311 of title 12](/usc/12/5311.md)). - (B) **Limitation on qualifying affiliates—** The exception in [subparagraph (A)](#g-4-A) shall not apply if the affiliate is— - (i) a [swap dealer](/usc/15/78c.md?p=a-76); - (ii) a [security-based swap dealer](/usc/15/78c.md?p=a-71-A); - (iii) a [major swap participant](/usc/15/78c.md?p=a-66); - (iv) a [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (v) a commodity pool; - (vi) a [bank holding company](/usc/15/78c.md?p=a-34); - (vii) a private fund, as defined in [section 80b–2(a) of this title](/usc/15/80b–2.md?p=a); - (viii) an employee benefit plan or government[^1] plan, as defined in paragraphs (3) and (32) of [section 1002 of title 29](/usc/29/1002.md); - (ix) an insured depository institution; - (x) a farm [credit](/usc/15/1679a.md?p=4) system institution; - (xi) a [credit](/usc/15/1679a.md?p=4) union; - (xii) a nonbank financial [company](/usc/15/78c.md?p=a-19) supervised by the [Board](/usc/15/78c.md?p=a-73) of Governors (as defined under [section 5311 of title 12](/usc/12/5311.md)); or - (xiii) an entity engaged in the business of insurance and subject to capital requirements established by an insurance governmental [authority](/usc/15/3051.md?p=1) of a [State](/usc/15/78c.md?p=a-16), a territory of the United States, the District of Columbia, a country other than the United States, or a political subdivision of a country other than the United States that is engaged in the supervision of [insurance companies](/usc/15/78c.md?p=a-19) under insurance law. - (C) **Limitation on affiliates’ affiliates—** Unless the [Commission](/usc/15/78c.md?p=a-15) determines, by [order](/usc/15/8702.md?p=14), rule, or regulation, that it is in the public interest, the exception in [subparagraph (A)](#g-4-A) shall not apply with respect to an affiliate if such affiliate is itself affiliated with— - (i) a [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (ii) a [security-based swap dealer](/usc/15/78c.md?p=a-71-A); - (iii) a [major swap participant](/usc/15/78c.md?p=a-66); or - (iv) a [swap dealer](/usc/15/78c.md?p=a-76). - (D) **Conditions on transactions—** With respect to an affiliate that qualifies for the exception in [subparagraph (A)](#g-4-A)— - (i) such affiliate may not enter into any [security-based swap](/usc/15/78c.md?p=a-68-A) other than for the purpose of hedging or mitigating commercial risk; and - (ii) neither such affiliate nor any [person](/usc/15/78c.md?p=a-9) affiliated with such affiliate that is not a [financial entity](#g-3-A) may enter into a [security-based swap](/usc/15/78c.md?p=a-68-A) with or on behalf of any affiliate that is a [financial entity](#g-3-A) or otherwise assume, net, combine, or consolidate the risk of [security-based swaps](/usc/15/78c.md?p=a-68-A) entered into by any such [financial entity](#g-3-A), except one that is an affiliate that qualifies for the exception under [subparagraph (A)](#g-4-A). - (E) **Transition rule for affiliates—** An affiliate, subsidiary, or a wholly owned entity of a [person](/usc/15/78c.md?p=a-9) that qualifies for an exception under [subparagraph (A)](#g-4-A) and is predominantly engaged in providing financing for the [purchase](/usc/15/78c.md?p=a-13) or lease of merchandise or manufactured goods of the [person](/usc/15/78c.md?p=a-9) shall be exempt from the [margin](/usc/15/78c.md?p=a-57-A) requirement described in [section 78o–10(e)](/usc/15/78o–10.md?p=e) of this title and the clearing requirement described in [subsection (a)](#a) with regard to [security-based swaps](/usc/15/78c.md?p=a-68-A) entered into to mitigate the risk of the financing activities for not less than a 2-year period beginning on July 21, 2010. - (F) **Risk management program—** Any [security-based swap](/usc/15/78c.md?p=a-68-A) entered into by an affiliate that qualifies for the exception in [subparagraph (A)](#g-4-A) shall be subject to a centralized risk management [program](/usc/15/2921.md?p=6) of the affiliate, which is reasonably designed both to monitor and manage the risks associated with the [security-based swap](/usc/15/78c.md?p=a-68-A) and to identify each of the affiliates on whose behalf a [security-based swap](/usc/15/78c.md?p=a-68-A) was entered into. - (5) **Election of counterparty—** - (A) **Security-based swaps required to be cleared—** With respect to any [security-based swap](/usc/15/78c.md?p=a-68-A) that is subject to the mandatory clearing requirement under [subsection (a)](#a) and entered into by a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) with a counterparty that is not a [swap dealer](/usc/15/78c.md?p=a-76), [major swap participant](/usc/15/78c.md?p=a-66), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), the counterparty shall have the sole right to select the [clearing agency](/usc/15/78c.md?p=a-23-A) at which the [security-based swap](/usc/15/78c.md?p=a-68-A) will be cleared. - (B) **Security-based swaps not required to be cleared—** With respect to any [security-based swap](/usc/15/78c.md?p=a-68-A) that is not subject to the mandatory clearing requirement under [subsection (a)](#a) and entered into by a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) with a counterparty that is not a [swap dealer](/usc/15/78c.md?p=a-76), [major swap participant](/usc/15/78c.md?p=a-66), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), the counterparty— - (i) may elect to require clearing of the [security-based swap](/usc/15/78c.md?p=a-68-A); and - (ii) shall have the sole right to select the [clearing agency](/usc/15/78c.md?p=a-23-A) at which the [security-based swap](/usc/15/78c.md?p=a-68-A) will be cleared. - (6) **Abuse of exception—** The [Commission](/usc/15/78c.md?p=a-15) may prescribe such rules or issue interpretations of the rules as the [Commission](/usc/15/78c.md?p=a-15) determines to be necessary to prevent abuse of the exceptions described in this subsection. The [Commission](/usc/15/78c.md?p=a-15) may also request information from those [persons](/usc/15/78c.md?p=a-9) claiming the clearing exception as necessary to prevent abuse of the exceptions described in this subsection. - (h) **Trade execution—** - (1) **In general—** With respect to transactions involving [security-based swaps](/usc/15/78c.md?p=a-68-A) subject to the clearing requirement of [subsection (a)(1)](#a-1), counterparties shall— - (A) execute the transaction on an [exchange](/usc/15/78c.md?p=a-1); or - (B) execute the transaction on a [security-based swap execution facility](/usc/15/78c.md?p=a-77) registered under [section 78c–4 of this title](/usc/15/78c–4.md) or a [security-based swap execution facility](/usc/15/78c.md?p=a-77) that is exempt from registration under [section 78c–4(e) of this title](/usc/15/78c–4.md?p=e). - (2) **Exception—** The requirements of subparagraphs [(A)](#h-1-A) and [(B)](#h-1-B) of paragraph (1) shall not apply if no [exchange](/usc/15/78c.md?p=a-1) or [security-based swap execution facility](/usc/15/78c.md?p=a-77) makes the [security-based swap](/usc/15/78c.md?p=a-68-A) available to trade or for [security-based swap](/usc/15/78c.md?p=a-68-A) transactions subject to the clearing exception under [subsection (g)](#g). - (i) **Board approval—** Exemptions from the requirements of this section to clear a [security-based swap](/usc/15/78c.md?p=a-68-A) or execute a [security-based swap](/usc/15/78c.md?p=a-68-A) through a [national securities exchange](/usc/15/9009a.md?p=a-5) or [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall be available to a counterparty that is an [issuer](/usc/15/78c.md?p=a-8) of [securities](/usc/15/78c.md?p=a-10) that are registered under [section 78l](/usc/15/78l.md) of this title or that is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title, only if an appropriate [committee](/usc/15/2921.md?p=1) of the [issuer](/usc/15/78c.md?p=a-8)’s [board](/usc/15/78c.md?p=a-73) or governing body has reviewed and approved the [issuer](/usc/15/78c.md?p=a-8)’s decision to enter into [security-based swaps](/usc/15/78c.md?p=a-68-A) that are subject to such exemptions. - (j) **Designation of chief compliance officer—** - (1) **In general—** Each registered [clearing agency](/usc/15/78c.md?p=a-23-A) shall designate an individual to serve as a chief compliance officer. - (2) **Duties—** The chief compliance officer shall— - (A) report directly to the [board](/usc/15/78c.md?p=a-73) or to the senior officer of the [clearing agency](/usc/15/78c.md?p=a-23-A); - (B) in consultation with its [board](/usc/15/78c.md?p=a-73), a body performing a function similar thereto, or the senior officer of the registered [clearing agency](/usc/15/78c.md?p=a-23-A), resolve any conflicts of interest that may arise; - (C) be responsible for administering each policy and procedure that is required to be established pursuant to this section; - (D) ensure compliance with this chapter (including regulations issued under this chapter) relating to [agreements](/usc/15/7a.md?p=2), contracts, or transactions, including each rule prescribed by the [Commission](/usc/15/78c.md?p=a-15) under this section; - (E) establish procedures for the remediation of noncompliance issues identified by the compliance officer through any— - (i) compliance office review; - (ii) look-back; - (iii) internal or external [audit](/usc/15/7201.md?p=2) finding; - (iv) self-reported error; or - (v) validated complaint; and - (F) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues. - (3) **Annual reports—** - (A) **In general—** In accordance with rules prescribed by the [Commission](/usc/15/78c.md?p=a-15), the chief compliance officer shall annually prepare and sign a report that contains a description of— - (i) the compliance of the registered [clearing agency](/usc/15/78c.md?p=a-23-A) or [security-based swap execution facility](/usc/15/78c.md?p=a-77) of the compliance officer with respect to this chapter (including regulations under this chapter); and - (ii) each policy and procedure of the registered [clearing agency](/usc/15/78c.md?p=a-23-A) of the compliance officer (including the code of ethics and conflict of interest policies of the registered [clearing agency](/usc/15/78c.md?p=a-23-A)). - (B) **Requirements—** A compliance report under [subparagraph (A)](#j-3-A) shall— - (i) accompany each appropriate financial report of the registered [clearing agency](/usc/15/78c.md?p=a-23-A) that is required to be furnished to the [Commission](/usc/15/78c.md?p=a-15) pursuant to this section; and - (ii) include a certification that, under penalty of law, the compliance report is accurate and complete. # §78c–4. Security-based swap execution facilities - (a) **Registration—** - (1) **In general—** No [person](/usc/15/78c.md?p=a-9) may operate a [facility](/usc/15/78c.md?p=a-2) for the trading or processing of [security-based swaps](/usc/15/78c.md?p=a-68-A), unless the [facility](/usc/15/78c.md?p=a-2) is registered as a [security-based swap execution facility](/usc/15/78c.md?p=a-77) or as a [national securities exchange](/usc/15/9009a.md?p=a-5) under this section. - (2) **Dual registration—** Any [person](/usc/15/78c.md?p=a-9) that is registered as a [security-based swap execution facility](/usc/15/78c.md?p=a-77) under this section shall register with the [Commission](/usc/15/78c.md?p=a-15) regardless of whether the [person](/usc/15/78c.md?p=a-9) also is registered with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) as a [swap](/usc/15/78c.md?p=a-69) execution [facility](/usc/15/78c.md?p=a-2). - (b) **Trading and trade processing—** A [security-based swap execution facility](/usc/15/78c.md?p=a-77) that is registered under [subsection (a)](#a) may— - (1) make available for trading any [security-based swap](/usc/15/78c.md?p=a-68-A); and - (2) facilitate trade processing of any [security-based swap](/usc/15/78c.md?p=a-68-A). - (c) **Identification of facility used to trade security-based swaps by national securities exchanges—** A [national securities exchange](/usc/15/9009a.md?p=a-5) shall, to the extent that the [exchange](/usc/15/78c.md?p=a-1) also operates a [security-based swap execution facility](/usc/15/78c.md?p=a-77) and uses the same electronic trade execution system for listing and executing trades of [security-based swaps](/usc/15/78c.md?p=a-68-A) on or through the [exchange](/usc/15/78c.md?p=a-1) and the [facility](/usc/15/78c.md?p=a-2), identify whether electronic trading of such [security-based swaps](/usc/15/78c.md?p=a-68-A) is taking place on or through the [national securities exchange](/usc/15/9009a.md?p=a-5) or the [security-based swap execution facility](/usc/15/78c.md?p=a-77). - (d) **Core principles for security-based swap execution facilities—** - (1) **Compliance with core principles—** - (A) **In general—** To be registered, and maintain registration, as a [security-based swap execution facility](/usc/15/78c.md?p=a-77), the [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall comply with— - (i) the core principles described in this subsection; and - (ii) any requirement that the [Commission](/usc/15/78c.md?p=a-15) may impose by rule or regulation. - (B) **Reasonable discretion of security-based swap execution facility—** Unless otherwise determined by the [Commission](/usc/15/78c.md?p=a-15), by rule or regulation, a [security-based swap execution facility](/usc/15/78c.md?p=a-77) described in [subparagraph (A)](#d-1-A) shall have reasonable discretion in establishing the manner in which it complies with the core principles described in this subsection. - (2) **Compliance with rules—** A [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall— - (A) establish and enforce compliance with any rule established by such [security-based swap execution facility](/usc/15/78c.md?p=a-77), including— - (i) the terms and conditions of the [security-based swaps](/usc/15/78c.md?p=a-68-A) traded or processed on or through the [facility](/usc/15/78c.md?p=a-2); and - (ii) any limitation on access to the [facility](/usc/15/78c.md?p=a-2); - (B) establish and enforce trading, trade processing, and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce those rules, including means— - (i) to provide market [participants](/usc/15/78c.md?p=a-24) with impartial access to the market; and - (ii) to capture information that may be used in establishing whether rule [violations](/usc/15/57b–1.md?p=a-7) have occurred; and - (C) establish rules governing the operation of the [facility](/usc/15/78c.md?p=a-2), including rules specifying trading procedures to be used in entering and executing [orders](/usc/15/8702.md?p=14) traded or posted on the [facility](/usc/15/78c.md?p=a-2), including block trades. - (3) **Security-based swaps not readily susceptible to manipulation—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall permit trading only in [security-based swaps](/usc/15/78c.md?p=a-68-A) that are not readily susceptible to manipulation. - (4) **Monitoring of trading and trade processing—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall— - (A) establish and enforce rules or terms and conditions defining, or specifications detailing— - (i) trading procedures to be used in entering and executing [orders](/usc/15/8702.md?p=14) traded on or through the [facilities](/usc/15/78c.md?p=a-2) of the [security-based swap execution facility](/usc/15/78c.md?p=a-77); and - (ii) procedures for trade processing of [security-based swaps](/usc/15/78c.md?p=a-68-A) on or through the [facilities](/usc/15/78c.md?p=a-2) of the [security-based swap execution facility](/usc/15/78c.md?p=a-77); and - (B) monitor trading in [security-based swaps](/usc/15/78c.md?p=a-68-A) to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through surveillance, compliance, and disciplinary practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions. - (5) **Ability to obtain information—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall— - (A) establish and enforce rules that will allow the [facility](/usc/15/78c.md?p=a-2) to obtain any necessary information to perform any of the functions described in this subsection; - (B) provide the information to the [Commission](/usc/15/78c.md?p=a-15) on request; and - (C) have the capacity to carry out such international information-sharing [agreements](/usc/15/7a.md?p=2) as the [Commission](/usc/15/78c.md?p=a-15) may require. - (6) **Financial integrity of transactions—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall establish and enforce rules and procedures for ensuring the financial integrity of [security-based swaps](/usc/15/78c.md?p=a-68-A) entered on or through the [facilities](/usc/15/78c.md?p=a-2) of the [security-based swap execution facility](/usc/15/78c.md?p=a-77), including the clearance and settlement of [security-based swaps](/usc/15/78c.md?p=a-68-A) pursuant to [section 78c–3(a)(1) of this title](/usc/15/78c–3.md?p=a-1). - (7) **Emergency authority—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall adopt rules to provide for the exercise of emergency [authority](/usc/15/3051.md?p=1), in consultation or cooperation with the [Commission](/usc/15/78c.md?p=a-15), as is necessary and appropriate, including the [authority](/usc/15/3051.md?p=1) to liquidate or transfer open positions in any [security-based swap](/usc/15/78c.md?p=a-68-A) or to suspend or curtail trading in a [security-based swap](/usc/15/78c.md?p=a-68-A). - (8) **Timely publication of trading information—** - (A) **In general—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall make public timely information on price, trading volume, and other trading data on [security-based swaps](/usc/15/78c.md?p=a-68-A) to the extent prescribed by the [Commission](/usc/15/78c.md?p=a-15). - (B) **Capacity of security-based swap execution facility—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall be required to have the capacity to electronically capture and transmit and disseminate trade information with respect to transactions executed on or through the [facility](/usc/15/78c.md?p=a-2). - (9) **Recordkeeping and reporting—** - (A) **In general—** A [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall— - (i) maintain [records](/usc/15/78c.md?p=a-37) of all activities relating to the business of the [facility](/usc/15/78c.md?p=a-2), including a complete [audit](/usc/15/7201.md?p=2) trail, in a form and manner acceptable to the [Commission](/usc/15/78c.md?p=a-15) for a period of 5 years; and - (ii) report to the [Commission](/usc/15/78c.md?p=a-15), in a form and manner acceptable to the [Commission](/usc/15/78c.md?p=a-15), such information as the [Commission](/usc/15/78c.md?p=a-15) determines to be necessary or appropriate for the [Commission](/usc/15/78c.md?p=a-15) to perform the duties of the [Commission](/usc/15/78c.md?p=a-15) under this chapter. - (B) **Requirements—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt data collection and reporting requirements for [security-based swap execution facilities](/usc/15/78c.md?p=a-77) that are comparable to corresponding requirements for [clearing agencies](/usc/15/78c.md?p=a-23-A) and [security-based swap data repositories](/usc/15/78c.md?p=a-75). - (10) **Antitrust considerations—** Unless necessary or appropriate to achieve the purposes of this chapter, the [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall not— - (A) adopt any rules or taking[^1] any actions that result in any unreasonable restraint of trade; or - (B) impose any material anticompetitive burden on trading or clearing. - (11) **Conflicts of interest—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall— - (A) establish and enforce rules to minimize conflicts of interest in its decision-making process; and - (B) establish a process for resolving the conflicts of interest. - (12) **Financial resources—** - (A) **In general—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall have adequate financial, operational, and managerial resources to discharge each responsibility of the [security-based swap execution facility](/usc/15/78c.md?p=a-77), as determined by the [Commission](/usc/15/78c.md?p=a-15). - (B) **Determination of resource adequacy—** The financial resources of a [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall be considered to be adequate if the value of the financial resources— - (i) enables the organization to meet its financial obligations to its [members](/usc/15/78c.md?p=a-3-A) and [participants](/usc/15/78c.md?p=a-24) notwithstanding a default by the [member](/usc/15/78c.md?p=a-3-A) or [participant](/usc/15/78c.md?p=a-24) creating the largest financial exposure for that organization in extreme but plausible market conditions; and - (ii) exceeds the total amount that would enable the [security-based swap execution facility](/usc/15/78c.md?p=a-77) to cover the operating costs of the [security-based swap execution facility](/usc/15/78c.md?p=a-77) for a 1-year period, as calculated on a rolling basis. - (13) **System safeguards—** The [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall— - (A) establish and maintain a [program](/usc/15/2921.md?p=6) of risk analysis and oversight to identify and minimize sources of operational risk, through the development of appropriate controls and procedures, and automated systems, that— - (i) are reliable and secure; and - (ii) have adequate scalable capacity; - (B) establish and maintain emergency procedures, backup [facilities](/usc/15/78c.md?p=a-2), and a plan for [disaster](/usc/15/632.md?p=k-2) recovery that allow for— - (i) the timely recovery and resumption of operations; and - (ii) the fulfillment of the responsibilities and obligations of the [security-based swap execution facility](/usc/15/78c.md?p=a-77); and - (C) periodically conduct tests to verify that the backup resources of the [security-based swap execution facility](/usc/15/78c.md?p=a-77) are sufficient to ensure continued— - (i) [order](/usc/15/8702.md?p=14) processing and trade matching; - (ii) price reporting; - (iii) market surveillance; and - (iv) maintenance of a comprehensive and accurate [audit](/usc/15/7201.md?p=2) trail. - (14) **Designation of chief compliance officer—** - (A) **In general—** Each [security-based swap execution facility](/usc/15/78c.md?p=a-77) shall designate an individual to serve as a chief compliance officer. - (B) **Duties—** The chief compliance officer shall— - (i) report directly to the [board](/usc/15/78c.md?p=a-73) or to the senior officer of the [facility](/usc/15/78c.md?p=a-2); - (ii) review compliance with the core principles in this subsection; - (iii) in consultation with the [board](/usc/15/78c.md?p=a-73) of the [facility](/usc/15/78c.md?p=a-2), a body performing a function similar to that of a [board](/usc/15/78c.md?p=a-73), or the senior officer of the [facility](/usc/15/78c.md?p=a-2), resolve any conflicts of interest that may arise; - (iv) be responsible for establishing and administering the policies and procedures required to be established pursuant to this section; - (v) ensure compliance with this chapter and the rules and regulations issued under this chapter, including rules prescribed by the [Commission](/usc/15/78c.md?p=a-15) pursuant to this section; - (vi) establish procedures for the remediation of noncompliance issues found during— - (I) compliance office reviews; - (II) look backs; - (III) internal or external [audit](/usc/15/7201.md?p=2) findings; - (IV) self-reported errors; or - (V) through validated complaints; and - (vii) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues. - (C) **Annual reports—** - (i) **In general—** In accordance with rules prescribed by the [Commission](/usc/15/78c.md?p=a-15), the chief compliance officer shall annually prepare and sign a report that contains a description of— - (I) the compliance of the [security-based swap execution facility](/usc/15/78c.md?p=a-77) with this chapter; and - (II) the policies and procedures, including the code of ethics and conflict of interest policies, of the [security](/usc/15/78c.md?p=a-10)-based [security](/usc/15/78c.md?p=a-10)-based[^2] [swap](/usc/15/78c.md?p=a-69) execution [facility](/usc/15/78c.md?p=a-2). - (ii) **Requirements—** The chief compliance officer shall— - (I) submit each report described in [clause (i)](#d-14-C-i) with the appropriate financial report of the [security-based swap execution facility](/usc/15/78c.md?p=a-77) that is required to be submitted to the [Commission](/usc/15/78c.md?p=a-15) pursuant to this section; and - (II) include in the report a certification that, under penalty of law, the report is accurate and complete. - (e) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15) may exempt, conditionally or unconditionally, a [security-based swap execution facility](/usc/15/78c.md?p=a-77) from registration under this section if the [Commission](/usc/15/78c.md?p=a-15) finds that the [facility](/usc/15/78c.md?p=a-2) is subject to comparable, comprehensive supervision and regulation on a consolidated basis by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15). - (f) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall prescribe rules governing the regulation of [security-based swap execution facilities](/usc/15/78c.md?p=a-77) under this section. # §78c–5. Segregation of assets held as collateral in security-based swap transactions - (a) **Registration requirement—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to accept any money, [securities](/usc/15/78c.md?p=a-10), or property (or to extend any [credit](/usc/15/1679a.md?p=4) in lieu of money, [securities](/usc/15/78c.md?p=a-10), or property) from, for, or on behalf of a [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) to [margin](/usc/15/78c.md?p=a-57-A), guarantee, or secure a [security-based swap](/usc/15/78c.md?p=a-68-A) cleared by or through a [clearing agency](/usc/15/78c.md?p=a-23-A) (including money, [securities](/usc/15/78c.md?p=a-10), or property accruing to the [customer](#g) as the result of such a [security-based swap](/usc/15/78c.md?p=a-68-A)), unless the [person](/usc/15/78c.md?p=a-9) shall have registered under this chapter with the [Commission](/usc/15/78c.md?p=a-15) as a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A), and the registration shall not have expired nor been suspended nor revoked. - (b) **Cleared security-based swaps—** - (1) **Segregation required—** A [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A) shall treat and deal with all money, [securities](/usc/15/78c.md?p=a-10), and property of any [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) received to [margin](/usc/15/78c.md?p=a-57-A), guarantee, or secure a [security-based swap](/usc/15/78c.md?p=a-68-A) cleared by or though[^1] a [clearing agency](/usc/15/78c.md?p=a-23-A) (including money, [securities](/usc/15/78c.md?p=a-10), or property accruing to the [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) as the result of such a [security-based swap](/usc/15/78c.md?p=a-68-A)) as belonging to the [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g). - (2) **Commingling prohibited—** Money, [securities](/usc/15/78c.md?p=a-10), and property of a [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) described in [paragraph (1)](#b-1) shall be separately accounted for and shall not be commingled with the funds of the [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or be used to [margin](/usc/15/78c.md?p=a-57-A), secure, or guarantee any trades or contracts of any [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) or [person](/usc/15/78c.md?p=a-9) other than the [person](/usc/15/78c.md?p=a-9) for whom the same are held. - (c) **Exceptions—** - (1) **Use of funds—** - (A) **In general—** Notwithstanding [subsection (b)](#b), money, [securities](/usc/15/78c.md?p=a-10), and property of a [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A) described in [subsection (b)](#b) may, for convenience, be commingled and deposited in the same 1 or more [accounts](/usc/15/1681a.md?p=r-4) with any bank or trust [company](/usc/15/78c.md?p=a-19) or with a [clearing agency](/usc/15/78c.md?p=a-23-A). - (B) **Withdrawal—** Notwithstanding [subsection (b)](#b), such share of the money, [securities](/usc/15/78c.md?p=a-10), and property described in [subparagraph (A)](#c-1-A) as in the normal course of business shall be necessary to [margin](/usc/15/78c.md?p=a-57-A), guarantee, secure, transfer, adjust, or settle a cleared [security-based swap](/usc/15/78c.md?p=a-68-A) with a [clearing agency](/usc/15/78c.md?p=a-23-A), or with any [member](/usc/15/78c.md?p=a-3-A) of the [clearing agency](/usc/15/78c.md?p=a-23-A), may be withdrawn and applied to such purposes, including the payment of [commissions](/usc/15/78c.md?p=a-15), brokerage, interest, taxes, storage, and other charges, lawfully accruing in connection with the cleared [security-based swap](/usc/15/78c.md?p=a-68-A). - (2) **Commission action—** Notwithstanding [subsection (b)](#b), in accordance with such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule, regulation, or [order](/usc/15/8702.md?p=14), any money, [securities](/usc/15/78c.md?p=a-10), or property of the [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A) described in [subsection (b)](#b) may be commingled and deposited as provided in this section with any other money, [securities](/usc/15/78c.md?p=a-10), or property received by the [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and required by the [Commission](/usc/15/78c.md?p=a-15) to be separately accounted for and treated and dealt with as belonging to the [security-based swaps](/usc/15/78c.md?p=a-68-A) [customer](#g) of the [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A). - (d) **Permitted investments—** Money described in [subsection (b)](#b) may be invested in obligations of the United States, in general obligations of any [State](/usc/15/78c.md?p=a-16) or of any political subdivision of a [State](/usc/15/78c.md?p=a-16), and in obligations fully guaranteed as to principal and interest by the United States, or in any other investment that the [Commission](/usc/15/78c.md?p=a-15) may by rule or regulation prescribe, and such investments shall be made in accordance with such rules and regulations and subject to such conditions as the [Commission](/usc/15/78c.md?p=a-15) may prescribe. - (e) **Prohibition—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), including any [clearing agency](/usc/15/78c.md?p=a-23-A) and any depository institution, that has received any money, [securities](/usc/15/78c.md?p=a-10), or property for deposit in a [separate account](/usc/15/78c.md?p=a-19) or [accounts](/usc/15/1681a.md?p=r-4) as provided in [subsection (b)](#b) to hold, dispose of, or use any such money, [securities](/usc/15/78c.md?p=a-10), or property as belonging to the depositing [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or any [person](/usc/15/78c.md?p=a-9) other than the [swaps](/usc/15/78c.md?p=a-69) [customer](#g) of the [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [security-based swap dealer](/usc/15/78c.md?p=a-71-A). - (f) **Segregation requirements for uncleared security-based swaps—** - (1) **Segregation of assets held as collateral in uncleared security-based swap transactions—** - (A) **Notification—** A [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall be required to notify the counterparty of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) at the beginning of a [security-based swap](/usc/15/78c.md?p=a-68-A) transaction that the counterparty has the right to require segregation of the funds of other property supplied to [margin](/usc/15/78c.md?p=a-57-A), guarantee, or secure the obligations of the counterparty. - (B) **Segregation and maintenance of funds—** At the request of a counterparty to a [security-based swap](/usc/15/78c.md?p=a-68-A) that provides funds or other property to a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) to [margin](/usc/15/78c.md?p=a-57-A), guarantee, or secure the obligations of the counterparty, the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall— - (i) segregate the funds or other property for the benefit of the counterparty; and - (ii) in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may promulgate, maintain the funds or other property in a segregated [account](/usc/15/1681a.md?p=r-4) separate from the assets and other interests of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A). - (2) **Applicability—** The requirements described in [paragraph (1)](#f-1) shall— - (A) apply only to a [security-based swap](/usc/15/78c.md?p=a-68-A) between a counterparty and a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) that is not submitted for clearing to a [clearing agency](/usc/15/78c.md?p=a-23-A); and - (B) - (i) not apply to variation [margin](/usc/15/78c.md?p=a-57-A) payments; or - (ii) not preclude any commercial arrangement regarding— - (I) the investment of segregated funds or other property that may only be invested in such investments as the [Commission](/usc/15/78c.md?p=a-15) may permit by rule or regulation; and - (II) the related allocation of gains and losses resulting from any investment of the segregated funds or other property. - (3) **Use of independent third-party custodians—** The segregated [account](/usc/15/1681a.md?p=r-4) described in [paragraph (1)](#f-1) shall be— - (A) carried by an independent third-party [custodian](/usc/15/57b–1.md?p=a-4); and - (B) designated as a segregated [account](/usc/15/1681a.md?p=r-4) for and on behalf of the counterparty. - (4) **Reporting requirement—** If the counterparty does not choose to require segregation of the funds or other property supplied to [margin](/usc/15/78c.md?p=a-57-A), guarantee, or secure the obligations of the counterparty, the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall report to the counterparty of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) on a quarterly basis that the back office procedures of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) relating to [margin](/usc/15/78c.md?p=a-57-A) and collateral requirements are in compliance with the [agreement](/usc/15/7a.md?p=2) of the counterparties. - (g) **Bankruptcy—** A [security-based swap](/usc/15/78c.md?p=a-68-A), as defined in [section 78c(a)(68) of this title](/usc/15/78c.md?p=a-68) shall be considered to be a [security](/usc/15/78c.md?p=a-10) as such term is used in section 101(53A)(B) and subchapter III of title 11.[^2] An [account](/usc/15/1681a.md?p=r-4) that holds a [security-based swap](/usc/15/78c.md?p=a-68-A), other than a portfolio margining [account](/usc/15/1681a.md?p=r-4) referred to in [section 78o(c)(3)(C)](/usc/15/78o.md?p=c-3-C) of this title shall be considered to be a [securities](/usc/15/78c.md?p=a-10) [account](/usc/15/1681a.md?p=r-4), as that term is defined in [section 741 of title 11](/usc/11/741.md). The definitions of the terms “[purchase](/usc/15/78c.md?p=a-13)” and “sale” in section [78c(a)(13)](/usc/15/78c.md?p=a-13) and [(14)](/usc/15/78c.md?p=a-14) of this title shall be applied to the terms “[purchase](/usc/15/78c.md?p=a-13)” and “sale”, as used in [section 741 of title 11](/usc/11/741.md). The term “customer”, as defined in [section 741 of title 11](/usc/11/741.md), excludes any [person](/usc/15/78c.md?p=a-9), to the extent that such [person](/usc/15/78c.md?p=a-9) has a claim based on any open repurchase [agreement](/usc/15/7a.md?p=2), open reverse repurchase [agreement](/usc/15/7a.md?p=2), stock borrowed [agreement](/usc/15/7a.md?p=2), non-cleared option, or non-cleared [security-based swap](/usc/15/78c.md?p=a-68-A) except to the extent of any [margin](/usc/15/78c.md?p=a-57-A) delivered to or by the customer with respect to which there is a customer protection requirement under [section 78o(c)(3)](/usc/15/78o.md?p=c-3) of this title or a segregation requirement. # §78d. Securities and Exchange Commission - (a) **Establishment; composition; limitations on commissioners; terms of office—** There is hereby established a [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) (hereinafter referred to as the “[Commission](/usc/15/78c.md?p=a-15)”) to be composed of five commissioners to be appointed by the President by and with the advice and consent of the Senate. Not more than three of such commissioners shall be [members](/usc/15/78c.md?p=a-3-A) of the same political party, and in making appointments [members](/usc/15/78c.md?p=a-3-A) of different political parties shall be appointed alternately as nearly as may be practicable. No commissioner shall engage in any other business, vocation, or employment than that of serving as commissioner, nor shall any commissioner participate, directly or indirectly, in any stock-market operations or transactions of a character subject to regulation by the [Commission](/usc/15/78c.md?p=a-15) pursuant to this chapter. Each commissioner shall hold office for a term of five years and until his successor is appointed and has qualified, except that he shall not so continue to serve beyond the expiration of the next session of Congress subsequent to the expiration of said fixed term of office, and except (1) any commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed shall be appointed for the remainder of such term, and (2) the terms of office of the commissioners first taking office after June 6, 1934, shall expire as designated by the President at the time of nomination, one at the end of one year, one at the end of two years, one at the end of three years, one at the end of four years, and one at the end of five years, after June 6, 1934. - (b) **Appointment and compensation of staff and leasing authority—** - (1) **Appointment and compensation—** The [Commission](/usc/15/78c.md?p=a-15) shall appoint and compensate officers, attorneys, economists, examiners, and other employees in accordance with [section 4802 of title 5](/usc/5/4802.md). - (2) **Reporting of information—** In establishing and adjusting schedules of compensation and benefits for officers, attorneys, economists, examiners, and other employees of the [Commission](/usc/15/78c.md?p=a-15) under applicable provisions of law, the [Commission](/usc/15/78c.md?p=a-15) shall inform the heads of the agencies referred to under [section 1833b of title 12](/usc/12/1833b.md) and Congress of such compensation and benefits and shall seek to maintain comparability with such agencies regarding compensation and benefits. - (3) **Leasing authority—** Nothwithstanding[^1] any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) is authorized to enter directly into leases for real property for office, meeting, storage, and such other space as is necessary to carry out its functions, and shall be exempt from any General Services [Administration](/usc/15/2203.md?p=2) space management regulations or directives. - (c) **Acceptance of travel support for Commission activities from non-Federal sources; regulations—** Notwithstanding any other provision of law, in accordance with regulations which the [Commission](/usc/15/78c.md?p=a-15) shall prescribe to prevent conflicts of interest, the [Commission](/usc/15/78c.md?p=a-15) may accept payment and reimbursement, in cash or in kind, from non-[Federal agencies](/usc/15/3719.md?p=a-3), organizations, and individuals for travel, subsistence, and other necessary expenses incurred by [Commission](/usc/15/78c.md?p=a-15) [members](/usc/15/78c.md?p=a-3-A) and employees in attending meetings and conferences concerning the functions or activities of the [Commission](/usc/15/78c.md?p=a-15). Any payment or reimbursement accepted shall be credited to the appropriated funds of the [Commission](/usc/15/78c.md?p=a-15). The amount of travel, subsistence, and other necessary expenses for [members](/usc/15/78c.md?p=a-3-A) and employees paid or reimbursed under this subsection may exceed per diem amounts established in official travel regulations, but the [Commission](/usc/15/78c.md?p=a-15) may include in its regulations under this subsection a limitation on such amounts. - (d) **Acceptance of relocation expenses from former employers by professional fellows program participants—** Notwithstanding any other provision of law, former employers of [participants](/usc/15/78c.md?p=a-24) in the [Commission](/usc/15/78c.md?p=a-15)’s professional fellows [programs](/usc/15/2921.md?p=6) may pay such [participants](/usc/15/78c.md?p=a-24) their actual expenses for relocation to Washington, District of Columbia, to facilitate their participation in such [programs](/usc/15/2921.md?p=6), and [program](/usc/15/2921.md?p=6) [participants](/usc/15/78c.md?p=a-24) may accept such payments. - (e) **Fee payments—** Notwithstanding any other provision of law, whenever any fee is required to be paid to the [Commission](/usc/15/78c.md?p=a-15) pursuant to any provision of the [securities laws](/usc/15/78c.md?p=a-47) or any other law, the [Commission](/usc/15/78c.md?p=a-15) may provide by rule that such fee shall be paid in a manner other than in cash and the [Commission](/usc/15/78c.md?p=a-15) may also specify the time that such fee shall be determined and paid relative to the filing of any statement or document with the [Commission](/usc/15/78c.md?p=a-15). - (f) **Reimbursement of expenses for assisting foreign securities authorities—** Notwithstanding any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) may accept payment and reimbursement, in cash or in kind, from a [foreign securities authority](/usc/15/78c.md?p=a-50), or made on behalf of such [authority](/usc/15/3051.md?p=1), for necessary expenses incurred by the [Commission](/usc/15/78c.md?p=a-15), its [members](/usc/15/78c.md?p=a-3-A), and employees in carrying out any investigation pursuant to [section 78u(a)(2) of this title](/usc/15/78u.md?p=a-2) or in providing any other assistance to a [foreign securities authority](/usc/15/78c.md?p=a-50). Any payment or reimbursement accepted shall be considered a reimbursement to the appropriated funds of the [Commission](/usc/15/78c.md?p=a-15). - (g) **Office of the Investor Advocate—** - (1) **Office established—** There is established within the [Commission](/usc/15/78c.md?p=a-15) the Office of the Investor Advocate (in this subsection referred to as the “Office”). - (2) **Investor Advocate—** - (A) **In general—** The head of the Office shall be the Investor Advocate, who shall— - (i) report directly to the Chairman; and - (ii) be appointed by the Chairman, in consultation with the [Commission](/usc/15/78c.md?p=a-15), from among individuals having experience in advocating for the interests of investors in [securities](/usc/15/78c.md?p=a-10) and investor protection issues, from the perspective of investors. - (B) **Compensation—** The annual rate of pay for the Investor Advocate shall be equal to the highest rate of annual pay for other senior executives who report to the Chairman of the [Commission](/usc/15/78c.md?p=a-15). - (C) **Limitation on service—** An individual who serves as the Investor Advocate may not be employed by the [Commission](/usc/15/78c.md?p=a-15)— - (i) during the 2-year period ending on the date of appointment as Investor Advocate; or - (ii) during the 5-year period beginning on the date on which the [person](/usc/15/78c.md?p=a-9) ceases to serve as the Investor Advocate. - (3) **Staff of Office—** The Investor Advocate, after consultation with the Chairman of the [Commission](/usc/15/78c.md?p=a-15), may retain or employ independent counsel, research staff, and service staff, as the Investor Advocate deems necessary to carry out the functions, powers, and duties of the Office. - (4) **Functions of the Investor Advocate—** The Investor Advocate shall— - (A) assist retail investors in resolving significant problems such investors may have with the [Commission](/usc/15/78c.md?p=a-15) or with [self-regulatory organizations](/usc/15/78c.md?p=a-26); - (B) identify areas in which investors would benefit from changes in the regulations of the [Commission](/usc/15/78c.md?p=a-15) or the rules of [self-regulatory organizations](/usc/15/78c.md?p=a-26); - (C) identify problems that investors have with financial service providers and investment products; - (D) analyze the potential impact on investors of— - (i) proposed regulations of the [Commission](/usc/15/78c.md?p=a-15); and - (ii) proposed rules of [self-regulatory organizations](/usc/15/78c.md?p=a-26) registered under this chapter; and - (E) to the extent practicable, propose to the [Commission](/usc/15/78c.md?p=a-15) changes in the regulations or [orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) and to Congress any legislative, administrative, or personnel changes that may be appropriate to mitigate problems identified under this paragraph and to promote the interests of investors. - (5) **Access to documents—** The [Commission](/usc/15/78c.md?p=a-15) shall ensure that the Investor Advocate has full access to the documents of the [Commission](/usc/15/78c.md?p=a-15) and any [self-regulatory organization](/usc/15/78c.md?p=a-26), as necessary to carry out the functions of the Office. - (6) **Annual reports—** - (A) **Report on objectives—** - (i) **In general—** Not later than June 30 of each year after 2010, the Investor Advocate shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives a report on the objectives of the Investor Advocate for the following fiscal year. - (ii) **Contents—** Each report required under [clause (i)](#g-6-A-i) shall contain full and substantive analysis and explanation. - (B) **Report on activities—** - (i) **In general—** Not later than December 31 of each year after 2010, the Investor Advocate shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives a report on the activities of the Investor Advocate during the immediately preceding fiscal year. - (ii) **Contents—** Each report required under [clause (i)](#g-6-B-i) shall include— - (I) appropriate statistical information and full and substantive analysis; - (II) information on steps that the Investor Advocate has taken during the reporting period to improve investor services and the responsiveness of the [Commission](/usc/15/78c.md?p=a-15) and [self-regulatory organizations](/usc/15/78c.md?p=a-26) to investor concerns; - (III) a summary of the most serious problems encountered by investors during the reporting period; - (IV) an inventory of the items described in [subclause (III)](#g-6-B-ii-III) that includes— - (aa) identification of any action taken by the [Commission](/usc/15/78c.md?p=a-15) or the [self-regulatory organization](/usc/15/78c.md?p=a-26) and the result of such action; - (bb) the length of time that each item has remained on such inventory; and - (cc) for items on which no action has been taken, the reasons for inaction, and an identification of any official who is responsible for such action; - (V) recommendations for such administrative and legislative actions as may be appropriate to resolve problems encountered by investors; and - (VI) any other information, as determined appropriate by the Investor Advocate. - (iii) **Independence—** Each report required under this paragraph shall be provided directly to the [Committees](/usc/15/2921.md?p=1) listed in [clause (i)](#g-6-B-i) without any prior review or comment from the [Commission](/usc/15/78c.md?p=a-15), any commissioner, any other officer or employee of the [Commission](/usc/15/78c.md?p=a-15), or the Office of Management and Budget. - (iv) **Confidentiality—** No report required under [clause (i)](#g-6-B-i) may contain confidential information. - (7) **Regulations—** The [Commission](/usc/15/78c.md?p=a-15) shall, by regulation, establish procedures requiring a formal response to all recommendations submitted to the [Commission](/usc/15/78c.md?p=a-15) by the Investor Advocate, not later than 3 months after the date of such submission. - (8) **Ombudsman—** - (A) **Appointment—** Not later than 180 days after the date on which the first Investor Advocate is appointed under [paragraph (2)(A)(i)](#g-2-A-i),[^2] the Investor Advocate shall appoint an Ombudsman, who shall report directly to the Investor Advocate. - (B) **Duties—** The Ombudsman appointed under [subparagraph (A)](#g-8-A) shall— - (i) act as a liaison between the [Commission](/usc/15/78c.md?p=a-15) and any retail investor in resolving problems that retail investors may have with the [Commission](/usc/15/78c.md?p=a-15) or with [self-regulatory organizations](/usc/15/78c.md?p=a-26); - (ii) review and make recommendations regarding policies and procedures to encourage [persons](/usc/15/78c.md?p=a-9) to present questions to the Investor Advocate regarding compliance with the [securities laws](/usc/15/78c.md?p=a-47); and - (iii) establish safeguards to maintain the confidentiality of communications between the [persons](/usc/15/78c.md?p=a-9) described in [clause (ii)](#g-8-B-ii) and the Ombudsman. - (C) **Limitation—** In carrying out the duties of the Ombudsman under [subparagraph (B)](#g-8-B), the Ombudsman shall utilize personnel of the [Commission](/usc/15/78c.md?p=a-15) to the extent practicable. Nothing in this paragraph shall be construed as replacing, altering, or diminishing the activities of any ombudsman or similar office of any other agency. - (D) **Report—** The Ombudsman shall submit a semiannual report to the Investor Advocate that describes the activities and evaluates the effectiveness of the Ombudsman during the preceding year. The Investor Advocate shall include the reports required under this section in the reports required to be submitted by the Inspector Advocate under [paragraph (6)](#g-6). - (h) **Examiners—** - (1) **Division of Trading and Markets—** The Division of Trading and Markets of the [Commission](/usc/15/78c.md?p=a-15), 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](/usc/15/78c.md?p=a-7) of that Division. - (2) **Division of Investment Management—** The Division of Investment Management of the [Commission](/usc/15/78c.md?p=a-15), 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](/usc/15/78c.md?p=a-7) of that Division. - (i) **Office of the Advocate for Small Business Capital Formation—** - (1) **Office established—** There is established within the [Commission](/usc/15/78c.md?p=a-15) the Office of the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation (hereafter in this subsection referred to as the “Office”). - (2) **Advocate for Small Business Capital Formation—** - (A) **In general—** The head of the Office shall be the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation, who shall— - (i) report directly to the [Commission](/usc/15/78c.md?p=a-15); and - (ii) be appointed by the [Commission](/usc/15/78c.md?p=a-15), from among individuals having experience in advocating for the interests of [small businesses](/usc/15/1691c–2.md?p=h-2) and encouraging [small business](/usc/15/1691c–2.md?p=h-2) capital formation. - (B) **Compensation—** The annual rate of pay for the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation shall be equal to the highest rate of annual pay for other senior executives who report directly to the [Commission](/usc/15/78c.md?p=a-15). - (C) **No current employee of the Commission—** An individual may not be appointed as the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation if the individual is currently employed by the [Commission](/usc/15/78c.md?p=a-15). - (3) **Staff of Office—** The Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation, after consultation with the [Commission](/usc/15/78c.md?p=a-15), may retain or employ independent counsel, research staff, and service staff, as the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation determines to be necessary to carry out the functions of the Office. - (4) **Functions of the Advocate for Small Business Capital Formation—** The Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation shall— - (A) assist [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors in resolving significant problems such businesses and investors may have with the [Commission](/usc/15/78c.md?p=a-15) or with [self-regulatory organizations](/usc/15/78c.md?p=a-26); - (B) identify areas in which [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors would benefit from changes in the regulations of the [Commission](/usc/15/78c.md?p=a-15) or the rules of [self-regulatory organizations](/usc/15/78c.md?p=a-26); - (C) identify problems that [small businesses](/usc/15/1691c–2.md?p=h-2) have with securing access to capital, including any unique challenges to minority-owned [small businesses](/usc/15/1691c–2.md?p=h-2), [women](/usc/15/657p.md?p=a-10)-owned [small businesses](/usc/15/1691c–2.md?p=h-2), and [small businesses](/usc/15/1691c–2.md?p=h-2) affected by hurricanes or other natural [disasters](/usc/15/632.md?p=k-2); - (D) analyze the potential impact on [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors of— - (i) proposed regulations of the [Commission](/usc/15/78c.md?p=a-15) that are likely to have a significant economic impact on [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) capital formation; and - (ii) proposed rules that are likely to have a significant economic impact on [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) capital formation of [self-regulatory organizations](/usc/15/78c.md?p=a-26) registered under this chapter; - (E) conduct outreach to [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors, including through regional roundtables, in [order](/usc/15/8702.md?p=14) to solicit views on relevant capital formation issues; - (F) to the extent practicable, propose to the [Commission](/usc/15/78c.md?p=a-15) changes in the regulations or [orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) and to Congress any legislative, administrative, or personnel changes that may be appropriate to mitigate problems identified under this paragraph and to promote the interests of [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors; - (G) consult with the Investor Advocate on proposed recommendations made under [subparagraph (F)](#i-4-F); and - (H) advise the Investor Advocate on issues related to [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors. - (5) **Access to documents—** The [Commission](/usc/15/78c.md?p=a-15) shall ensure that the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation has full access to the documents and information of the [Commission](/usc/15/78c.md?p=a-15) and any [self-regulatory organization](/usc/15/78c.md?p=a-26), as necessary to carry out the functions of the Office. - (6) **Annual report on activities—** - (A) **In general—** Not later than December 31 of each year after 2015, the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives a report on the activities of the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation during the immediately preceding fiscal year. - (B) **Contents—** Each report required under [subparagraph (A)](#i-6-A) shall include— - (i) appropriate statistical information and full and substantive analysis; - (ii) information on steps that the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation has taken during the reporting period to improve [small business](/usc/15/1691c–2.md?p=h-2) services and the responsiveness of the [Commission](/usc/15/78c.md?p=a-15) and [self-regulatory organizations](/usc/15/78c.md?p=a-26) to [small business](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investor concerns; - (iii) a summary of the most serious issues encountered by [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors, including any unique issues encountered by minority-owned [small businesses](/usc/15/1691c–2.md?p=h-2), [women](/usc/15/657p.md?p=a-10)-owned [small businesses](/usc/15/1691c–2.md?p=h-2), and [small businesses](/usc/15/1691c–2.md?p=h-2) affected by hurricanes or other natural [disasters](/usc/15/632.md?p=k-2) and their investors, during the reporting period; - (iv) an inventory of the items summarized under [clause (iii)](#i-6-B-iii) (including items summarized under such clause for any prior reporting period on which no action has been taken or that have not been resolved to the satisfaction of the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation as of the beginning of the reporting period covered by the report) that includes— - (I) identification of any action taken by the [Commission](/usc/15/78c.md?p=a-15) or the [self-regulatory organization](/usc/15/78c.md?p=a-26) and the result of such action; - (II) the length of time that each item has remained on such inventory; and - (III) for items on which no action has been taken, the reasons for inaction, and an identification of any official who is responsible for such action; - (v) recommendations for such changes to the regulations, guidance and [orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) and such legislative actions as may be appropriate to resolve problems with the [Commission](/usc/15/78c.md?p=a-15) and [self-regulatory organizations](/usc/15/78c.md?p=a-26) encountered by [small businesses](/usc/15/1691c–2.md?p=h-2) and [small business](/usc/15/1691c–2.md?p=h-2) investors and to encourage [small business](/usc/15/1691c–2.md?p=h-2) capital formation; and - (vi) any other information, as determined appropriate by the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation. - (C) **Confidentiality—** No report required by [subparagraph (A)](#i-6-A) may contain confidential information. - (D) **Independence—** Each report required under [subparagraph (A)](#i-6-A) shall be provided directly to the [committees](/usc/15/2921.md?p=1) of Congress listed in such subparagraph without any prior review or comment from the [Commission](/usc/15/78c.md?p=a-15), any commissioner, any other officer or employee of the [Commission](/usc/15/78c.md?p=a-15), or the Office of Management and Budget. - (7) **Regulations—** The [Commission](/usc/15/78c.md?p=a-15) shall establish procedures requiring a formal response to all recommendations submitted to the [Commission](/usc/15/78c.md?p=a-15) by the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation, not later than 3 months after the date of such submission. - (8) **Government-Business Forum on Small Business Capital Formation—** The Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation shall be responsible for planning, organizing, and executing the annual Government-Business Forum on [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation described in [section 80c–1 of this title](/usc/15/80c–1.md). - (9) **Rule of construction—** Nothing in this subsection may be construed as replacing or reducing the responsibilities of the Investor Advocate with respect to [small business](/usc/15/1691c–2.md?p=h-2) investors. - (j) **Open data publication—** All public data assets published by the [Commission](/usc/15/78c.md?p=a-15) under the [securities laws](/usc/15/78c.md?p=a-47) and the Dodd-Frank Wall Street Reform and [Consumer](/usc/15/1615.md?p=d-2) Protection Act (Public Law 111–203; 124 Stat. 1376) shall be— - (1) made available as an open Government data asset (as defined in [section 3502 of title 44](/usc/44/3502.md)); - (2) freely available for download; - (3) rendered in a human-readable format; and - (4) accessible via [application](/usc/15/77ccc.md?p=8) programming interface where appropriate. # §78d–1. Delegation of functions by Commission - (a) **Authorization; functions delegable; eligible persons; application of other laws—** In addition to its existing [authority](/usc/15/3051.md?p=1), the [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) shall have the [authority](/usc/15/3051.md?p=1) to delegate, by published [order](/usc/15/8702.md?p=14) or rule, any of its functions to a division of the [Commission](/usc/15/78c.md?p=a-15), an individual Commissioner, an administrative law judge, or an employee or employee [board](/usc/15/78c.md?p=a-73), including functions with respect to hearing, determining, ordering, certifying, reporting, or otherwise acting as to any work, business, or matter. Nothing in this section shall be deemed to supersede the provisions of [section 556(b) of title 5](/usc/5/556.md?p=b), or to authorize the delegation of the function of rulemaking as defined in subchapter II of [chapter 5](/usc/5/chptI-ch5.md) of title 5, with reference to general rules as distinguished from rules of particular applicability, or of the making of any rule pursuant to [section 78s(c) of this title](/usc/15/78s.md?p=c). - (b) **Right of review; procedure—** With respect to the delegation of any of its functions, as provided in [subsection (a)](#a) of this section, the [Commission](/usc/15/78c.md?p=a-15) shall retain a discretionary right to review the action of any such division of the [Commission](/usc/15/78c.md?p=a-15), individual Commissioner, administrative law judge, employee, or employee [board](/usc/15/78c.md?p=a-73), upon its own [initiative](/usc/15/9401.md?p=5) or upon petition of a party to or intervenor in such action, within such time and in such manner as the [Commission](/usc/15/78c.md?p=a-15) by rule shall prescribe. The vote of one [member](/usc/15/78c.md?p=a-3-A) of the [Commission](/usc/15/78c.md?p=a-15) shall be sufficient to bring any such action before the [Commission](/usc/15/78c.md?p=a-15) for review. A [person](/usc/15/78c.md?p=a-9) or party shall be entitled to review by the [Commission](/usc/15/78c.md?p=a-15) if he or it is adversely affected by action at a delegated level which (1) denies any request for action pursuant to [section 77h(a)](/usc/15/77h.md?p=a) or [section 77h(c) of this title](/usc/15/77h.md?p=c) or the first sentence of [section 78l(d)](/usc/15/78l.md?p=d) of this title; (2) suspends trading in a [security](/usc/15/78c.md?p=a-10) pursuant to [section 78l(k)](/usc/15/78l.md?p=k) of this title; or (3) is pursuant to any provision of this chapter in a case of adjudication, as defined in [section 551 of title 5](/usc/5/551.md), not required by this chapter to be determined on the record after notice and opportunity for hearing (except to the extent there is involved a matter described in [section 554(a)(1) through (6)](/usc/5/554.md?p=a-1..a-6) of such title 5). - (c) **Finality of delegated action—** If the right to exercise such review is declined, or if no such review is sought within the time stated in the rules promulgated by the [Commission](/usc/15/78c.md?p=a-15), then the action of any such division of the [Commission](/usc/15/78c.md?p=a-15), individual Commissioner, administrative law judge, employee, or employee [board](/usc/15/78c.md?p=a-73), shall, for all purposes, including appeal or review thereof, be deemed the action of the [Commission](/usc/15/78c.md?p=a-15). # §78d–2. Transfer of functions with respect to assignment of personnel to chairman In addition to the functions transferred by the provisions of Reorganization Plan Numbered 10 of 1950 (64 Stat. 1265), there are hereby transferred from the [Commission](/usc/15/78c.md?p=a-15) to the Chairman of the [Commission](/usc/15/78c.md?p=a-15) the functions of the [Commission](/usc/15/78c.md?p=a-15) with respect to the assignment of [Commission](/usc/15/78c.md?p=a-15) personnel, including Commissioners, to perform such functions as may have been delegated by the [Commission](/usc/15/78c.md?p=a-15) to the [Commission](/usc/15/78c.md?p=a-15) personnel, including Commissioners, pursuant to [section 78d–1 of this title](/usc/15/78d–1.md). # §78d–3. Appearance and practice before the Commission - (a) **Authority to censure—** The [Commission](/usc/15/78c.md?p=a-15) may censure any [person](/usc/15/78c.md?p=a-9), or deny, temporarily or permanently, to any [person](/usc/15/78c.md?p=a-9) the privilege of appearing or practicing before the [Commission](/usc/15/78c.md?p=a-15) in any way, if that [person](/usc/15/78c.md?p=a-9) is found by the [Commission](/usc/15/78c.md?p=a-15), after notice and opportunity for hearing in the matter— - (1) not to possess the requisite qualifications to represent others; - (2) to be lacking in character or integrity, or to have engaged in unethical or [improper professional conduct](#b); or - (3) to have willfully violated, or willfully aided and abetted the [violation](/usc/15/57b–1.md?p=a-7) of, any provision of the [securities laws](/usc/15/78c.md?p=a-47) or the rules and regulations issued thereunder. - (b) **Definition—** With respect to any [registered public accounting firm](/usc/15/78c.md?p=a-59) or associated [person](/usc/15/78c.md?p=a-9), for purposes of this section, the term “improper professional conduct” means— - (1) intentional or knowing conduct, including reckless conduct, that results in a [violation](/usc/15/57b–1.md?p=a-7) of applicable professional standards; and - (2) negligent conduct in the form of— - (A) a single instance of highly unreasonable conduct that results in a [violation](/usc/15/57b–1.md?p=a-7) of applicable professional standards in circumstances in which the [registered public accounting firm](/usc/15/78c.md?p=a-59) or associated [person](/usc/15/78c.md?p=a-9) knows, or should know, that heightened scrutiny is warranted; or - (B) repeated instances of unreasonable conduct, each resulting in a [violation](/usc/15/57b–1.md?p=a-7) of applicable professional standards, that indicate a lack of competence to practice before the [Commission](/usc/15/78c.md?p=a-15). # §78d–4. Additional duties of Inspector General - (a) **Suggestion submissions by Commission employees—** - (1) **Hotline established—** The Inspector General of the [Commission](/usc/15/78c.md?p=a-15) shall establish and maintain a telephone hotline or other electronic means for the receipt of— - (A) suggestions by employees of the [Commission](/usc/15/78c.md?p=a-15) for improvements in the work efficiency, effectiveness, and productivity, and the use of the resources, of the [Commission](/usc/15/78c.md?p=a-15); and - (B) allegations by employees of the [Commission](/usc/15/78c.md?p=a-15) of waste, abuse, misconduct, or mismanagement within the [Commission](/usc/15/78c.md?p=a-15). - (2) **Confidentiality—** The Inspector General shall maintain as confidential— - (A) the identity of any individual who provides information by the means established under [paragraph (1)](#a-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 established under [subsection (a)(1)](#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)](#a-1) (or by other means) that would or does— - (1) increase the work efficiency, effectiveness, or productivity of the [Commission](/usc/15/78c.md?p=a-15); or - (2) reduce waste, abuse, misconduct, or mismanagement within the [Commission](/usc/15/78c.md?p=a-15). - (d) **Report—** The Inspector General of the [Commission](/usc/15/78c.md?p=a-15) 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)](#a); - (2) the nature, number, and seriousness of any allegations received under [subsection (a)](#a); - (3) any recommendations made or actions taken by the Inspector General in response to substantiated allegations received under [subsection (a)](#a); and - (4) any action the [Commission](/usc/15/78c.md?p=a-15) has taken in response to suggestions or allegations received under [subsection (a)](#a). - (e) **Funding—** The activities of the Inspector General under this subsection shall be funded by the [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) Investor Protection Fund established under [section 78u–6 of this title](/usc/15/78u–6.md). # §78d–5. Deadline for completing enforcement investigations and compliance examinations and inspections - (a) **Enforcement investigations—** - (1) **In general—** Not later than 180 days after the date on which [Commission](/usc/15/78c.md?p=a-15) staff provide[^1] a written Wells notification to any [person](/usc/15/78c.md?p=a-9), the [Commission](/usc/15/78c.md?p=a-15) staff shall either file an action against such [person](/usc/15/78c.md?p=a-9) or provide notice to the [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement of its intent to not file an action. - (2) **Exceptions for certain complex actions—** Notwithstanding [paragraph (1)](#a-1), if the [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement of the [Commission](/usc/15/78c.md?p=a-15) or the [Director](/usc/15/78c.md?p=a-7)’s designee determines that a particular enforcement investigation is sufficiently complex such that a determination regarding the filing of an action against a [person](/usc/15/78c.md?p=a-9) cannot be completed within the deadline specified in [paragraph (1)](#a-1), the [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement of the [Commission](/usc/15/78c.md?p=a-15) or the [Director](/usc/15/78c.md?p=a-7)’s designee may, after providing notice to the Chairman of the [Commission](/usc/15/78c.md?p=a-15), extend such deadline as needed for one additional 180-day period. If after the additional 180-day period the [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement of the [Commission](/usc/15/78c.md?p=a-15) or the [Director](/usc/15/78c.md?p=a-7)’s designee determines that a particular enforcement investigation is sufficiently complex such that a determination regarding the filing of an action against a [person](/usc/15/78c.md?p=a-9) cannot be completed within the additional 180-day period, the [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement of the [Commission](/usc/15/78c.md?p=a-15) or the [Director](/usc/15/78c.md?p=a-7)’s designee may, after providing notice to and receiving approval of the [Commission](/usc/15/78c.md?p=a-15), 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](/usc/15/78c.md?p=a-15) staff completes the on-site portion of its compliance examination or inspection or receives all [records](/usc/15/78c.md?p=a-37) requested from the entity being examined or inspected, whichever is later, [Commission](/usc/15/78c.md?p=a-15) 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—** Notwithstanding [paragraph (1)](#b-1), if the head of any division or office within the [Commission](/usc/15/78c.md?p=a-15) 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 examination or inspection, or regarding the staff requests the entity undertake corrective action, cannot be completed within the deadline specified in [paragraph (1)](#b-1), the head of any division or office within the [Commission](/usc/15/78c.md?p=a-15) responsible for compliance examinations and inspections or his designee may, after providing notice to the Chairman of the [Commission](/usc/15/78c.md?p=a-15), extend such deadline as needed for one additional 180-day period. # §78d–6. 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](/usc/15/78c.md?p=a-15) shall submit a report to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives on the conduct by the [Commission](/usc/15/78c.md?p=a-15) of examinations of registered entities, enforcement investigations, and review of corporate financial [securities](/usc/15/78c.md?p=a-10) filings. - (b) **Contents of reports—** Each report under [subsection (a)](#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 [Commission](/usc/15/78c.md?p=a-15); and - (B) the procedures of the [Commission](/usc/15/78c.md?p=a-15) applicable to the staff of the [Commission](/usc/15/78c.md?p=a-15) who perform examinations of registered entities, enforcement investigations, and reviews of corporate financial [securities](/usc/15/78c.md?p=a-10) filings; - (2) a certification that the [Commission](/usc/15/78c.md?p=a-15) has adequate internal supervisory controls to carry out the duties of the [Commission](/usc/15/78c.md?p=a-15) described in [paragraph (1)(B)](#b-1-B); and - (3) a summary by the Comptroller General of the United States of the review carried out under [subsection (d)](#d).[^1] - (c) **Certification—** - (1) **Signature—** The certification under [subsection (b)(2)](#b-2) shall be signed by the [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement, the [Director](/usc/15/78c.md?p=a-7) of the Division of Corporation Finance, and the [Director](/usc/15/78c.md?p=a-7) of the Office of Compliance Inspections and Examinations (or the head of any successor division or office). - (2) **Content of certification—** Each individual described in [paragraph (1)](#c-1) shall certify that the individual— - (A) is directly responsible for establishing and maintaining the internal supervisory controls of the Division 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; - (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](/usc/15/78c.md?p=a-15) any significant deficiencies in the design or operation of internal supervisory 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)](#a), if the [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement, the [Director](/usc/15/78c.md?p=a-7) of the Division of Corporate Finance, or the [Director](/usc/15/78c.md?p=a-7) of the Office of Compliance Inspections and Examinations has served as [Director](/usc/15/78c.md?p=a-7) 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)](#a), the [Commission](/usc/15/78c.md?p=a-15) may submit the report on the date on which the [Director](/usc/15/78c.md?p=a-7) has served as [Director](/usc/15/78c.md?p=a-7) for 90 days. If there is no [Director](/usc/15/78c.md?p=a-7) of the Division of Enforcement, the Division of Corporate Finance, or the Office of Compliance Inspections and Examinations, on the date on which a report is required to be submitted under [subsection (a)](#a), the Acting [Director](/usc/15/78c.md?p=a-7) of the Division or Office may make the certification required under [subsection (c)](#c). - (e) **Review by the Comptroller General—** - (1) **Report—** The Comptroller General of the United States shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) 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)](#b-1), not less frequently than once every 3 years, at a time to coincide with the publication of the reports of the [Commission](/usc/15/78c.md?p=a-15) 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](/usc/15/8702.md?p=14) to assist the Comptroller General in carrying out such duties. # §78d–7. 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](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives on the quality of personnel management by the [Commission](/usc/15/78c.md?p=a-15). - (b) **Contents of report—** Each report under [subsection (a)](#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](/usc/15/78c.md?p=a-15) to achieve the goals of the [Commission](/usc/15/78c.md?p=a-15); - (B) the criteria for promoting employees of the [Commission](/usc/15/78c.md?p=a-15) to supervisory positions; - (C) the fairness of the [application](/usc/15/77ccc.md?p=8) of the promotion criteria to the decisions of the [Commission](/usc/15/78c.md?p=a-15); - (D) the competence of the professional staff of the [Commission](/usc/15/78c.md?p=a-15); - (E) the efficiency of communication between the units of the [Commission](/usc/15/78c.md?p=a-15) regarding the work of the [Commission](/usc/15/78c.md?p=a-15) (including communication between divisions and between subunits of a division) and the efforts by the [Commission](/usc/15/78c.md?p=a-15) to promote such communication; - (F) the turnover within subunits of the [Commission](/usc/15/78c.md?p=a-15), including the consideration of supervisors whose subordinates 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](/usc/15/9401.md?p=5) of the [Commission](/usc/15/78c.md?p=a-15) that increase the competence of the staff of the [Commission](/usc/15/78c.md?p=a-15); - (I) the actions taken by the [Commission](/usc/15/78c.md?p=a-15) regarding employees of the [Commission](/usc/15/78c.md?p=a-15) who have failed to perform their duties and circumstances under which the [Commission](/usc/15/78c.md?p=a-15) has issued to employees a notice of termination; and - (J) such other factors relating to the management of the [Commission](/usc/15/78c.md?p=a-15) as the Comptroller General determines are appropriate; - (2) an evaluation of any improvements made with respect to the areas described in [paragraph (1)](#b-1) since the date of submission of the previous report; and - (3) recommendations for how the [Commission](/usc/15/78c.md?p=a-15) can use the human resources of the [Commission](/usc/15/78c.md?p=a-15) more effectively and efficiently to carry out the mission of the [Commission](/usc/15/78c.md?p=a-15). - (c) **Consultation—** In preparing the report under [subsection (a)](#a), the Comptroller General shall consult with current employees of the [Commission](/usc/15/78c.md?p=a-15), retired employees and other former employees of the [Commission](/usc/15/78c.md?p=a-15), the Inspector General of the [Commission](/usc/15/78c.md?p=a-15), [persons](/usc/15/78c.md?p=a-9) that have business before the [Commission](/usc/15/78c.md?p=a-15), any union representing the employees of the [Commission](/usc/15/78c.md?p=a-15), 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)](#a), the [Commission](/usc/15/78c.md?p=a-15) shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives a report describing the actions taken by the [Commission](/usc/15/78c.md?p=a-15) in response to the recommendations contained in the report under [subsection (a)](#a). - (e) **Reimbursements for cost of reports—** - (1) **Reimbursements required—** The [Commission](/usc/15/78c.md?p=a-15) 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](/usc/15/1681a.md?p=r-4) “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 specialized expertise in any area relevant to the duties of the Comptroller General described in this section, in [order](/usc/15/8702.md?p=14) to assist the Comptroller General in carrying out such duties. # §78d–8. 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](/usc/15/78c.md?p=a-15) shall publish and submit to Congress a report that— - (A) describes the responsibility of the management of the [Commission](/usc/15/78c.md?p=a-15) for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and - (B) contains an assessment of the effectiveness of the internal control structure and procedures for financial reporting of the [Commission](/usc/15/78c.md?p=a-15) during that fiscal year. - (2) **Attestation—** The reports required under [paragraph (1)](#a-1) shall be attested to by the Chairman and chief financial officer of the [Commission](/usc/15/78c.md?p=a-15). - (b) **Report by Comptroller General—** - (1) **Report required—** Not later than 6 months after the end of the first fiscal year after July 21, 2010, 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](/usc/15/78c.md?p=a-15) for financial reporting; and - (B) the assessment of the [Commission](/usc/15/78c.md?p=a-15) under [subsection (a)(1)(B)](#a-1-B). - (2) **Attestation—** The Comptroller General shall attest to, and report on, the assessment made by the [Commission](/usc/15/78c.md?p=a-15) under [subsection (a)](#a). - (c) **Reimbursements for cost of reports—** - (1) **Reimbursements required—** The [Commission](/usc/15/78c.md?p=a-15) shall reimburse the Government Accountability Office for the full cost of making the reports under [subsection (b)](#b), as billed therefor by the Comptroller General. - (2) **Crediting and use of reimbursements—** Such reimbursements shall— - (A) be credited to the appropriation [account](/usc/15/1681a.md?p=r-4) “Salaries and Expenses, Government Accountability Office” current when the payment is received; and - (B) remain available until expended. # §78d–9. Report on oversight of national securities associations - (a) **Report required—** Not later than 2 years after July 21, 2010, and every 3 years thereafter, the Comptroller General of the United States shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives a report that includes an evaluation of the oversight by the [Commission](/usc/15/78c.md?p=a-15) of national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) registered under [section 78o–3](/usc/15/78o–3.md) of this title with respect to— - (1) the governance of such national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2), including the identification and management of conflicts of interest by such national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2), together with an analysis of the impact of any conflicts of interest on the regulatory enforcement or rulemaking by such national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2); - (2) the examinations carried out by the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2), including the expertise of the examiners; - (3) the executive compensation practices of such national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2); - (4) the arbitration services provided by the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2); - (5) the review performed by national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) of advertising by the [members](/usc/15/78c.md?p=a-3-A) of the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2); - (6) the cooperation with and assistance to [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) [administrators](/usc/15/9001.md?p=1) by the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) to promote investor protection; - (7) how the funding of national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) is used to support the mission of the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2), including— - (A) the methods of funding; - (B) the sufficiency of funds; - (C) how funds are invested by the national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) pending use; and - (D) the impact of the methods, sufficiency, and investment of funds on regulatory enforcement by the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2); - (8) the policies regarding the employment of former employees of national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) by regulated entities; - (9) the ongoing effectiveness of the rules of the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) in achieving the goals of the rules; - (10) the transparency of governance and activities of the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2); and - (11) any other issue that has an impact, as determined by the Comptroller General, on the effectiveness of such national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) in performing their mission and in dealing fairly with investors and [members](/usc/15/78c.md?p=a-3-A);[^1] - (b) **Reimbursements for cost of reports—** - (1) **Reimbursements required—** The [Commission](/usc/15/78c.md?p=a-15) shall reimburse the Government Accountability Office for the full cost of making the reports under [subsection (a)](#a), as billed therefor by the Comptroller General. - (2) **Crediting and use of reimbursements—** Such reimbursements shall— - (A) be credited to the appropriation [account](/usc/15/1681a.md?p=r-4) “Salaries and Expenses, Government Accountability Office” current when the payment is received; and - (B) remain available until expended. # §78e. Transactions on unregistered exchanges It shall be unlawful for any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [exchange](/usc/15/78c.md?p=a-1), directly or indirectly, to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) for the purpose of using any [facility](/usc/15/78c.md?p=a-2) of an [exchange](/usc/15/78c.md?p=a-1) within or subject to the jurisdiction of the United States to effect any transaction in a [security](/usc/15/78c.md?p=a-10), or to report any such transaction, unless such [exchange](/usc/15/78c.md?p=a-1) (1) is registered as [national securities exchange](/usc/15/9009a.md?p=a-5) under [section 78f of this title](/usc/15/78f.md), or (2) is exempted from such registration upon [application](/usc/15/77ccc.md?p=8) by the [exchange](/usc/15/78c.md?p=a-1) because, in the opinion of the [Commission](/usc/15/78c.md?p=a-15), by reason of the limited volume of transactions effected on such [exchange](/usc/15/78c.md?p=a-1), it is not practicable and not necessary or appropriate in the public interest or for the protection of investors to require such registration. # §78f. National securities exchanges - (a) **Registration; application—** An [exchange](/usc/15/78c.md?p=a-1) may be registered as a [national securities exchange](/usc/15/9009a.md?p=a-5) under the terms and conditions hereinafter provided in this section and in accordance with the provisions of [section 78s(a) of this title](/usc/15/78s.md?p=a), by filing with the [Commission](/usc/15/78c.md?p=a-15) an [application](/usc/15/77ccc.md?p=8) for registration in such form as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe containing the rules of the [exchange](/usc/15/78c.md?p=a-1) and such other information and documents as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (b) **Determination by Commission requisite to registration of applicant as a national securities exchange—** An [exchange](/usc/15/78c.md?p=a-1) shall not be registered as a [national securities exchange](/usc/15/9009a.md?p=a-5) unless the [Commission](/usc/15/78c.md?p=a-15) determines that— - (1) Such [exchange](/usc/15/78c.md?p=a-1) is so organized and has the capacity to be able to carry out the purposes of this chapter and to comply, and (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to section [78q(d)](/usc/15/78q.md?p=d) or [78s(g)(2)](/usc/15/78s.md?p=g-2) of this title) to enforce compliance by its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A), with the provisions of this chapter, the rules and regulations thereunder, and the rules of the [exchange](/usc/15/78c.md?p=a-1). - (2) Subject to the provisions of [subsection (c)](#c) of this section, the rules of the [exchange](/usc/15/78c.md?p=a-1) provide that any [registered broker or dealer](/usc/15/78c.md?p=h-2) or natural [person associated with](/usc/15/78c.md?p=a-63) a [registered broker or dealer](/usc/15/78c.md?p=h-2) may become a [member](/usc/15/78c.md?p=a-3-A) of such [exchange](/usc/15/78c.md?p=a-1) and any [person](/usc/15/78c.md?p=a-9) may become associated with a [member](/usc/15/78c.md?p=a-3-A) thereof. - (3) The rules of the [exchange](/usc/15/78c.md?p=a-1) assure a fair representation of its [members](/usc/15/78c.md?p=a-3-A) in the selection of its [directors](/usc/15/78c.md?p=a-7) and [administration](/usc/15/2203.md?p=2) of its affairs and provide that one or more [directors](/usc/15/78c.md?p=a-7) shall be representative of [issuers](/usc/15/78c.md?p=a-8) and investors and not be associated with a [member](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A). - (4) The rules of the [exchange](/usc/15/78c.md?p=a-1) provide for the equitable allocation of reasonable dues, fees, and other charges among its [members](/usc/15/78c.md?p=a-3-A) and [issuers](/usc/15/78c.md?p=a-8) and other [persons](/usc/15/78c.md?p=a-9) using its [facilities](/usc/15/78c.md?p=a-2). - (5) The rules of the [exchange](/usc/15/78c.md?p=a-1) are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with [persons](/usc/15/78c.md?p=a-9) engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in [securities](/usc/15/78c.md?p=a-10), to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination between [customers](/usc/15/78c–5.md?p=g), [issuers](/usc/15/78c.md?p=a-8), [brokers](/usc/15/78c.md?p=a-4-A), or [dealers](/usc/15/78c.md?p=a-5-A), or to regulate by virtue of any [authority](/usc/15/3051.md?p=1) conferred by this chapter matters not related to the purposes of this chapter or the [administration](/usc/15/2203.md?p=2) of the [exchange](/usc/15/78c.md?p=a-1). - (6) The rules of the [exchange](/usc/15/78c.md?p=a-1) provide that (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to section [78q(d)](/usc/15/78q.md?p=d) or [78s(g)(2)](/usc/15/78s.md?p=g-2) of this title) its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A) shall be appropriately disciplined for [violation](/usc/15/57b–1.md?p=a-7) of the provisions of this chapter, the rules or regulations thereunder, or the rules of the [exchange](/usc/15/78c.md?p=a-1), by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, being suspended or barred from being associated with a [member](/usc/15/78c.md?p=a-3-A), or any other fitting sanction. - (7) The rules of the [exchange](/usc/15/78c.md?p=a-1) are in accordance with the provisions of [subsection (d)](#d) of this section, and in general, provide a fair procedure for the disciplining of [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with [members](/usc/15/78c.md?p=a-3-A), the denial of membership to any [person](/usc/15/78c.md?p=a-9) seeking membership therein, the barring of any [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) thereof, and the prohibition or limitation by the [exchange](/usc/15/78c.md?p=a-1) of any [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [exchange](/usc/15/78c.md?p=a-1) or a [member](/usc/15/78c.md?p=a-3-A) thereof. - (8) The rules of the [exchange](/usc/15/78c.md?p=a-1) do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. - (9) - (A) The rules of the [exchange](/usc/15/78c.md?p=a-1) prohibit the listing of any [security](/usc/15/78c.md?p=a-10) issued in a limited partnership rollup transaction (as such term is defined in paragraphs (4) and (5) of [section 78n(h) of this title](/usc/15/78n.md?p=h)), unless such transaction was conducted in accordance with procedures designed to protect the rights of limited partners, including— - (i) the right of [dissenting limited partners](#b-9-B) to one of the following: - (I) an appraisal and compensation; - (II) retention of a [security](/usc/15/78c.md?p=a-10) under substantially the same terms and conditions as the original issue; - (III) approval of the limited partnership rollup transaction by not less than 75 percent of the outstanding [securities](/usc/15/78c.md?p=a-10) of each of the participating limited partnerships; - (IV) the use of a [committee](/usc/15/2921.md?p=1) of limited partners that is independent, as determined in accordance with rules prescribed by the [exchange](/usc/15/78c.md?p=a-1), of the general partner or sponsor, that has been approved by a majority of the outstanding units of each of the participating limited partnerships, and that has such [authority](/usc/15/3051.md?p=1) as is necessary to protect the interest of limited partners, including the [authority](/usc/15/3051.md?p=1) to hire independent advisors, to negotiate with the general partner or sponsor on behalf of the limited partners, and to make a recommendation to the limited partners with respect to the proposed transaction; or - (V) other comparable rights that are prescribed by rule by the [exchange](/usc/15/78c.md?p=a-1) and that are designed to protect [dissenting limited partners](#b-9-B); - (ii) the right not to have their voting power unfairly reduced or abridged; - (iii) the right not to bear an unfair portion of the costs of a proposed limited partnership rollup transaction that is rejected; and - (iv) restrictions on the conversion of contingent interests or fees into non-contingent interests or fees and restrictions on the receipt of a non-contingent equity interest in [exchange](/usc/15/78c.md?p=a-1) for fees for services which have not yet been provided. - (B) As used in this paragraph, the term “dissenting limited partner” means a [person](/usc/15/78c.md?p=a-9) who, on the date on which soliciting material is mailed to investors, is a holder of a beneficial interest in a limited partnership that is the subject of a limited partnership rollup transaction, and who casts a vote against the transaction and complies with procedures established by the [exchange](/usc/15/78c.md?p=a-1), except that for purposes of an [exchange](/usc/15/78c.md?p=a-1) or tender offer, such [person](/usc/15/78c.md?p=a-9) shall file an objection in writing under the rules of the [exchange](/usc/15/78c.md?p=a-1) during the period during which the offer is outstanding. - (10) - (A) The rules of the [exchange](/usc/15/78c.md?p=a-1) prohibit any [member](/usc/15/78c.md?p=a-3-A) that is not the beneficial owner of a [security](/usc/15/78c.md?p=a-10) registered under [section 78l](/usc/15/78l.md) of this title from granting a proxy to vote the [security](/usc/15/78c.md?p=a-10) in connection with a shareholder vote described in [subparagraph (B)](#b-10-B), unless the beneficial owner of the [security](/usc/15/78c.md?p=a-10) has instructed the [member](/usc/15/78c.md?p=a-3-A) to vote the proxy in accordance with the voting instructions of the beneficial owner. - (B) A shareholder vote described in this subparagraph is a shareholder vote with respect to the election of a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8), executive compensation, or any other significant matter, as determined by the [Commission](/usc/15/78c.md?p=a-15), by rule, and does not include a vote with respect to the uncontested election of a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of any [investment company](/usc/15/78c.md?p=a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.]. - (C) Nothing in this paragraph shall be construed to prohibit a [national securities exchange](/usc/15/9009a.md?p=a-5) from prohibiting a [member](/usc/15/78c.md?p=a-3-A) that is not the beneficial owner of a [security](/usc/15/78c.md?p=a-10) registered under [section 78l](/usc/15/78l.md) of this title from granting a proxy to vote the [security](/usc/15/78c.md?p=a-10) in connection with a shareholder vote not described in [subparagraph (A)](#b-10-A). - (c) **Denial of membership in national exchanges; denial of association with member; conditions; limitation of membership—** - (1) A [national securities exchange](/usc/15/9009a.md?p=a-5) shall deny membership to (A) any [person](/usc/15/78c.md?p=a-9), other than a natural [person](/usc/15/78c.md?p=a-9), which is not a [registered broker or dealer](/usc/15/78c.md?p=h-2) or (B) any natural [person](/usc/15/78c.md?p=a-9) who is not, or is not associated with, a [registered broker or dealer](/usc/15/78c.md?p=h-2). - (2) A [national securities exchange](/usc/15/9009a.md?p=a-5) may, and in cases in which the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), directs as necessary or appropriate in the public interest or for the protection of investors shall, deny membership to any [registered broker or dealer](/usc/15/78c.md?p=h-2) or natural [person associated with](/usc/15/78c.md?p=a-63) a [registered broker or dealer](/usc/15/78c.md?p=h-2), and bar from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) any [person](/usc/15/78c.md?p=a-9), who is subject to a statutory disqualification. A [national securities exchange](/usc/15/9009a.md?p=a-5) shall file notice with the [Commission](/usc/15/78c.md?p=a-15) not less than thirty days prior to admitting any [person](/usc/15/78c.md?p=a-9) to membership or permitting any [person](/usc/15/78c.md?p=a-9) to become associated with a [member](/usc/15/78c.md?p=a-3-A), if the [exchange](/usc/15/78c.md?p=a-1) knew, or in the exercise of reasonable care should have known, that such [person](/usc/15/78c.md?p=a-9) was subject to a statutory disqualification. The notice shall be in such form and contain such information as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (3) - (A) A [national securities exchange](/usc/15/9009a.md?p=a-5) may deny membership to, or condition the membership of, a [registered broker or dealer](/usc/15/78c.md?p=h-2) if (i) such [broker or dealer](/usc/15/78c.md?p=h-2) does not meet such standards of financial responsibility or operational capability or such [broker or dealer](/usc/15/78c.md?p=h-2) or any natural [person associated with](/usc/15/78c.md?p=a-63) such [broker or dealer](/usc/15/78c.md?p=h-2) does not meet such standards of training, experience, and competence as are prescribed by the rules of the [exchange](/usc/15/78c.md?p=a-1) or (ii) such [broker or dealer](/usc/15/78c.md?p=h-2) or [person associated with](/usc/15/78c.md?p=a-63) such [broker or dealer](/usc/15/78c.md?p=h-2) has engaged and there is a reasonable likelihood he may again engage in acts or practices inconsistent with just and equitable principles of trade. A [national securities exchange](/usc/15/9009a.md?p=a-5) may examine and verify the qualifications of an [applicant](/usc/15/7a.md?p=3) to become a [member](/usc/15/78c.md?p=a-3-A) and the [natural persons](/usc/15/15g.md?p=3) associated with such an [applicant](/usc/15/7a.md?p=3) in accordance with procedures established by the rules of the [exchange](/usc/15/78c.md?p=a-1). - (B) A [national securities exchange](/usc/15/9009a.md?p=a-5) may bar a natural [person](/usc/15/78c.md?p=a-9) from becoming a [member](/usc/15/78c.md?p=a-3-A) or associated with a [member](/usc/15/78c.md?p=a-3-A), or condition the membership of a natural [person](/usc/15/78c.md?p=a-9) or [association](/usc/15/657h.md?p=a-2) of a natural [person](/usc/15/78c.md?p=a-9) with a [member](/usc/15/78c.md?p=a-3-A), if such natural [person](/usc/15/78c.md?p=a-9) (i) does not meet such standards of training, experience, and competence as are prescribed by the rules of the [exchange](/usc/15/78c.md?p=a-1) or (ii) has engaged and there is a reasonable likelihood he may again engage in acts or practices inconsistent with just and equitable principles of trade. A [national securities exchange](/usc/15/9009a.md?p=a-5) may examine and verify the qualifications of an [applicant](/usc/15/7a.md?p=3) to become a [person associated with a member](/usc/15/78c.md?p=a-21) in accordance with procedures established by the rules of the [exchange](/usc/15/78c.md?p=a-1) and require any [person associated with a member](/usc/15/78c.md?p=a-21), or any class of such [persons](/usc/15/78c.md?p=a-9), to be registered with the [exchange](/usc/15/78c.md?p=a-1) in accordance with procedures so established. - (C) A [national securities exchange](/usc/15/9009a.md?p=a-5) may bar any [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) if such [person](/usc/15/78c.md?p=a-9) does not agree (i) to supply the [exchange](/usc/15/78c.md?p=a-1) with such information with respect to its relationship and dealings with the [member](/usc/15/78c.md?p=a-3-A) as may be specified in the rules of the [exchange](/usc/15/78c.md?p=a-1) and (ii) to permit the examination of its books and [records](/usc/15/78c.md?p=a-37) to verify the accuracy of any information so supplied. - (4) A [national securities exchange](/usc/15/9009a.md?p=a-5) may limit (A) the number of [members](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1) and (B) the number of [members](/usc/15/78c.md?p=a-3-A) and designated representatives of [members](/usc/15/78c.md?p=a-3-A) permitted to effect transactions on the floor of the [exchange](/usc/15/78c.md?p=a-1) without the services of another [person](/usc/15/78c.md?p=a-9) acting as [broker](/usc/15/78c.md?p=a-4-A): Provided, however, That no [national securities exchange](/usc/15/9009a.md?p=a-5) shall have the [authority](/usc/15/3051.md?p=1) to decrease the number of memberships in such [exchange](/usc/15/78c.md?p=a-1), or the number of [members](/usc/15/78c.md?p=a-3-A) and designated representatives of [members](/usc/15/78c.md?p=a-3-A) permitted to effect transactions on the floor of such [exchange](/usc/15/78c.md?p=a-1) without the services of another [person](/usc/15/78c.md?p=a-9) acting as [broker](/usc/15/78c.md?p=a-4-A), below such number in effect on May 1, 1975, or the date such [exchange](/usc/15/78c.md?p=a-1) was registered with the [Commission](/usc/15/78c.md?p=a-15), whichever is later: And provided further, That the [Commission](/usc/15/78c.md?p=a-15), in accordance with the provisions of [section 78s(c) of this title](/usc/15/78s.md?p=c), may amend the rules of any [national securities exchange](/usc/15/9009a.md?p=a-5) to increase (but not to decrease) or to remove any limitation on the number of memberships in such [exchange](/usc/15/78c.md?p=a-1) or the number of [members](/usc/15/78c.md?p=a-3-A) or designated representatives of [members](/usc/15/78c.md?p=a-3-A) permitted to effect transactions on the floor of the [exchange](/usc/15/78c.md?p=a-1) without the services of another [person](/usc/15/78c.md?p=a-9) acting as [broker](/usc/15/78c.md?p=a-4-A), if the [Commission](/usc/15/78c.md?p=a-15) finds that such limitation imposes a burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. - (d) **Discipline of national securities exchange members and persons associated with members; summary proceedings—** - (1) In any proceeding by a [national securities exchange](/usc/15/9009a.md?p=a-5) to determine whether a [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21) should be disciplined (other than a summary proceeding pursuant to paragraph (3) of this subsection), the [exchange](/usc/15/78c.md?p=a-1) shall bring specific charges, notify such [member](/usc/15/78c.md?p=a-3-A) or [person](/usc/15/78c.md?p=a-9) of, and give him an opportunity to defend against, such charges, and keep a record. A determination by the [exchange](/usc/15/78c.md?p=a-1) to impose a disciplinary sanction shall be supported by a statement setting forth— - (A) any act or practice in which such [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21) has been found to have engaged, or which such [member](/usc/15/78c.md?p=a-3-A) or [person](/usc/15/78c.md?p=a-9) has been found to have omitted; - (B) the specific provision of this chapter, the rules or regulations thereunder, or the rules of the [exchange](/usc/15/78c.md?p=a-1) which any such act or practice, or omission to act, is deemed to violate; and - (C) the sanction imposed and the reasons therefor. - (2) In any proceeding by a [national securities exchange](/usc/15/9009a.md?p=a-5) to determine whether a [person](/usc/15/78c.md?p=a-9) shall be denied membership, barred from becoming associated with a [member](/usc/15/78c.md?p=a-3-A), or prohibited or limited with respect to access to services offered by the [exchange](/usc/15/78c.md?p=a-1) or a [member](/usc/15/78c.md?p=a-3-A) thereof (other than a summary proceeding pursuant to paragraph (3) of this subsection), the [exchange](/usc/15/78c.md?p=a-1) shall notify such [person](/usc/15/78c.md?p=a-9) of, and give him an opportunity to be heard upon, the specific grounds for denial, bar, or prohibition or limitation under consideration and keep a record. A determination by the [exchange](/usc/15/78c.md?p=a-1) to deny membership, bar a [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A), or prohibit or limit a [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [exchange](/usc/15/78c.md?p=a-1) or a [member](/usc/15/78c.md?p=a-3-A) thereof shall be supported by a statement setting forth the specific grounds on which the denial, bar, or prohibition or limitation is based. - (3) A [national securities exchange](/usc/15/9009a.md?p=a-5) may summarily (A) suspend a [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21) who has been and is expelled or suspended from any [self-regulatory organization](/usc/15/78c.md?p=a-26) or barred or suspended from being associated with a [member](/usc/15/78c.md?p=a-3-A) of any [self-regulatory organization](/usc/15/78c.md?p=a-26), (B) suspend a [member](/usc/15/78c.md?p=a-3-A) who is in such financial or operating difficulty that the [exchange](/usc/15/78c.md?p=a-1) determines and so notifies the [Commission](/usc/15/78c.md?p=a-15) that the [member](/usc/15/78c.md?p=a-3-A) cannot be permitted to continue to do business as a [member](/usc/15/78c.md?p=a-3-A) with safety to investors, [creditors](/usc/15/1615.md?p=d-2), other [members](/usc/15/78c.md?p=a-3-A), or the [exchange](/usc/15/78c.md?p=a-1), or (C) limit or prohibit any [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [exchange](/usc/15/78c.md?p=a-1) if subparagraph (A) or (B) of this paragraph is applicable to such [person](/usc/15/78c.md?p=a-9) or, in the case of a [person](/usc/15/78c.md?p=a-9) who is not a [member](/usc/15/78c.md?p=a-3-A), if the [exchange](/usc/15/78c.md?p=a-1) determines that such [person](/usc/15/78c.md?p=a-9) does not meet the qualification requirements or other prerequisites for such access and such [person](/usc/15/78c.md?p=a-9) cannot be permitted to continue to have such access with safety to investors, [creditors](/usc/15/1615.md?p=d-2), [members](/usc/15/78c.md?p=a-3-A), or the [exchange](/usc/15/78c.md?p=a-1). Any [person](/usc/15/78c.md?p=a-9) aggrieved by any such summary action shall be promptly afforded an opportunity for a hearing by the [exchange](/usc/15/78c.md?p=a-1) in accordance with the provisions of paragraph (1) or (2) of this subsection. The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), may stay any such summary action on its own motion or upon [application](/usc/15/77ccc.md?p=8) by any [person](/usc/15/78c.md?p=a-9) aggrieved thereby, if the [Commission](/usc/15/78c.md?p=a-15) determines summarily or after notice and opportunity for hearing (which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that such stay is consistent with the public interest and the protection of investors. - (e) **Commissions, allowances, discounts, and other fees—** - (1) On and after June 4, 1975, no [national securities exchange](/usc/15/9009a.md?p=a-5) may impose any schedule or fix rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees to be charged by its [members](/usc/15/78c.md?p=a-3-A): Provided, however, That until May 1, 1976, the preceding provisions of this paragraph shall not prohibit any such [exchange](/usc/15/78c.md?p=a-1) from imposing or fixing any schedule of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees to be charged by its [members](/usc/15/78c.md?p=a-3-A) for acting as [broker](/usc/15/78c.md?p=a-4-A) on the floor of the [exchange](/usc/15/78c.md?p=a-1) or as odd-lot [dealer](/usc/15/78c.md?p=a-5-A): And provided further, That the [Commission](/usc/15/78c.md?p=a-15), in accordance with the provisions of [section 78s(b) of this title](/usc/15/78s.md?p=b) as modified by the provisions of paragraph (3) of this subsection, may— - (A) permit a [national securities exchange](/usc/15/9009a.md?p=a-5), by rule, to impose a reasonable schedule or fix reasonable rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees to be charged by its [members](/usc/15/78c.md?p=a-3-A) for effecting transactions on such [exchange](/usc/15/78c.md?p=a-1) prior to November 1, 1976, if the [Commission](/usc/15/78c.md?p=a-15) finds that such schedule or fixed rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees are in the public interest; and - (B) permit a [national securities exchange](/usc/15/9009a.md?p=a-5), by rule, to impose a schedule or fix rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees to be charged by its [members](/usc/15/78c.md?p=a-3-A) for effecting transactions on such [exchange](/usc/15/78c.md?p=a-1) after November 1, 1976, if the [Commission](/usc/15/78c.md?p=a-15) finds that such schedule or fixed rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees (i) are reasonable in relation to the costs of providing the service for which such fees are charged (and the [Commission](/usc/15/78c.md?p=a-15) publishes the standards employed in adjudging reasonableness) and (ii) do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter, taking into consideration the competitive effects of permitting such schedule or fixed rates weighed against the competitive effects of other lawful actions which the [Commission](/usc/15/78c.md?p=a-15) is authorized to take under this chapter. - (2) Notwithstanding the provisions of [section 78s(c) of this title](/usc/15/78s.md?p=c), the [Commission](/usc/15/78c.md?p=a-15), by rule, may abrogate any [exchange](/usc/15/78c.md?p=a-1) rule which imposes a schedule or fixes rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees, if the [Commission](/usc/15/78c.md?p=a-15) determines that such schedule or fixed rates are no longer reasonable, in the public interest, or necessary to accomplish the purposes of this chapter. - (3) - (A) Before approving or disapproving any proposed rule change submitted by a [national securities exchange](/usc/15/9009a.md?p=a-5) which would impose a schedule or fix rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees to be charged by its [members](/usc/15/78c.md?p=a-3-A) for effecting transactions on such [exchange](/usc/15/78c.md?p=a-1), the [Commission](/usc/15/78c.md?p=a-15) shall afford interested [persons](/usc/15/78c.md?p=a-9) (i) an opportunity for oral presentation of data, views, and arguments and (ii) with respect to any such rule concerning transactions effected after November 1, 1976, if the [Commission](/usc/15/78c.md?p=a-15) determines there are disputed issues of material fact, to present such rebuttal submissions and to conduct (or have conducted under subparagraph (B) of this paragraph) such cross-examination as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate and required for full disclosure and proper resolution of such disputed issues of material fact. - (B) The [Commission](/usc/15/78c.md?p=a-15) shall prescribe rules and make rulings concerning any proceeding in accordance with subparagraph (A) of this paragraph designed to avoid unnecessary costs or delay. Such rules or rulings may (i) impose reasonable time limits on each interested [person](/usc/15/78c.md?p=a-9)’s oral presentations, and (ii) require any cross-examination to which a [person](/usc/15/78c.md?p=a-9) may be entitled under subparagraph (A) of this paragraph to be conducted by the [Commission](/usc/15/78c.md?p=a-15) on behalf of that [person](/usc/15/78c.md?p=a-9) in such manner as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate and required for full disclosure and proper resolution of disputed issues of material fact. - (C) - (i) If any class of [persons](/usc/15/78c.md?p=a-9), the [members](/usc/15/78c.md?p=a-3-A) of which are entitled to conduct (or have conducted) cross-examination under subparagraphs (A) and (B) of this paragraph and which have, in the view of the [Commission](/usc/15/78c.md?p=a-15), the same or similar interests in the proceeding, cannot agree upon a single representative of such interests for purposes of cross-examination, the [Commission](/usc/15/78c.md?p=a-15) may make rules and rulings specifying the manner in which such interests shall be represented and such cross-examination conducted. - (ii) No [member](/usc/15/78c.md?p=a-3-A) of any class of [persons](/usc/15/78c.md?p=a-9) with respect to which the [Commission](/usc/15/78c.md?p=a-15) has specified the manner in which its interests shall be represented pursuant to clause (i) of this subparagraph shall be denied, pursuant to such [clause (i)](#e-3-C-i), the opportunity to conduct (or have conducted) cross-examination as to issues affecting his particular interests if he satisfies the [Commission](/usc/15/78c.md?p=a-15) that he has made a reasonable and good faith effort to reach [agreement](/usc/15/7a.md?p=2) upon group representation and there are substantial and relevant issues which would not be presented adequately by group representation. - (D) A transcript shall be kept of any oral presentation and cross-examination. - (E) In addition to the bases specified in [section 78y(a) of this title](/usc/15/78y.md?p=a), a reviewing Court may set aside an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) under [section 78s(b) of this title](/usc/15/78s.md?p=b) approving an [exchange](/usc/15/78c.md?p=a-1) rule imposing a schedule or fixing rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees, if the Court finds— has precluded full disclosure and proper resolution of disputed issues of material fact which were necessary for fair determination by the [Commission](/usc/15/78c.md?p=a-15). - (f) **Compliance of non-members with exchange rules—** The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), as it deems necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to assure equal regulation, may require— - (1) any [person](/usc/15/78c.md?p=a-9) not a [member](/usc/15/78c.md?p=a-3-A) or a designated representative of a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) effecting transactions on such [exchange](/usc/15/78c.md?p=a-1) without the services of another [person](/usc/15/78c.md?p=a-9) acting as a [broker](/usc/15/78c.md?p=a-4-A), or - (2) any [broker or dealer](/usc/15/78c.md?p=h-2) not a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) effecting transactions on such [exchange](/usc/15/78c.md?p=a-1) on a regular basis, to comply with such rules of such [exchange](/usc/15/78c.md?p=a-1) as the [Commission](/usc/15/78c.md?p=a-15) may specify. - (g) **Notice registration of security futures product exchanges—** - (1) **Registration required—** An [exchange](/usc/15/78c.md?p=a-1) that lists or trades [security futures products](/usc/15/78c.md?p=a-56) may register as a [national securities exchange](/usc/15/9009a.md?p=a-5) solely for the purposes of trading [security futures products](/usc/15/78c.md?p=a-56) if— - (A) the [exchange](/usc/15/78c.md?p=a-1) is a [board](/usc/15/78c.md?p=a-73) of trade, as that term is defined by the Commodity Exchange Act ([7 U.S.C. 1a(2)](/usc/7/1a.md?p=2)) [[7 U.S.C. 1](/usc/7/1.md) et seq.], that has been designated a contract market by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) and such designation is not suspended by [order](/usc/15/8702.md?p=14) of the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15); and - (B) such [exchange](/usc/15/78c.md?p=a-1) does not serve as a market place for transactions in [securities](/usc/15/78c.md?p=a-10) other than— - (i) [security futures products](/usc/15/78c.md?p=a-56); or - (ii) futures on [exempted securities](/usc/15/78c.md?p=a-12-A) or groups or [indexes](/usc/15/78c.md?p=a-68-E) of [securities](/usc/15/78c.md?p=a-10) or options thereon that have been authorized under section 2(a)(1)(C) of the Commodity Exchange Act [[7 U.S.C. 2(a)(1)(C)](/usc/7/2.md?p=a-1-C)]. - (2) **Registration by notice filing—** - (A) **Form and content—** An [exchange](/usc/15/78c.md?p=a-1) required to register only because such [exchange](/usc/15/78c.md?p=a-1) lists or trades [security futures products](/usc/15/78c.md?p=a-56) may register for purposes of this section by filing with the [Commission](/usc/15/78c.md?p=a-15) a written notice in such form as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe containing the rules of the [exchange](/usc/15/78c.md?p=a-1) and such other information and documents concerning such [exchange](/usc/15/78c.md?p=a-1), comparable to the information and documents required for [national securities exchanges](/usc/15/9009a.md?p=a-5) under [subsection (a)](#a), as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. If such [exchange](/usc/15/78c.md?p=a-1) has filed documents with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), to the extent that such documents contain information satisfying the [Commission](/usc/15/78c.md?p=a-15)’s informational requirements, copies of such documents may be filed with the [Commission](/usc/15/78c.md?p=a-15) in lieu of the required written notice. - (B) **Immediate effectiveness—** Such registration shall be effective contemporaneously with the submission of notice, in written or electronic form, to the [Commission](/usc/15/78c.md?p=a-15), except that such registration shall not be effective if such registration would be subject to suspension or revocation. - (C) **Termination—** Such registration shall be terminated immediately if any of the conditions for registration set forth in this subsection are no longer satisfied. - (3) **Public availability—** The [Commission](/usc/15/78c.md?p=a-15) shall promptly publish in the Federal Register an acknowledgment of receipt of all notices the [Commission](/usc/15/78c.md?p=a-15) receives under this subsection and shall make all such notices available to the public. - (4) **Exemption of exchanges from specified provisions—** - (A) **Transaction exemptions—** An [exchange](/usc/15/78c.md?p=a-1) that is registered under paragraph (1) of this subsection shall be exempt from, and shall not be required to enforce compliance by its [members](/usc/15/78c.md?p=a-3-A) with, and its [members](/usc/15/78c.md?p=a-3-A) shall not, solely with respect to those transactions effected on such [exchange](/usc/15/78c.md?p=a-1) in [security futures products](/usc/15/78c.md?p=a-56), be required to comply with, the following provisions of this chapter and the rules thereunder: - (i) Subsections [(b)(2)](#b-2), [(b)(3)](#b-3), [(b)(4)](#b-4), [(b)(7)](#b-7), [(b)(9)](#b-9), (c), (d), and [(e)](#e) of this section. - (ii) [Section 78h of this title](/usc/15/78h.md). - (iii) [Section 78k of this title](/usc/15/78k.md). - (iv) Subsections [(d)](#d), [(f)](#f), and [(k)](#k)[^1] of [section 78q of this title](/usc/15/78q.md). - (v) Subsections (a), (f), and (h) of [section 78s of this title](/usc/15/78s.md). - (B) **Rule change exemptions—** An [exchange](/usc/15/78c.md?p=a-1) that registered under paragraph (1) of this subsection shall also be exempt from submitting proposed rule changes pursuant to [section 78s(b) of this title](/usc/15/78s.md?p=b), except that— - (i) such [exchange](/usc/15/78c.md?p=a-1) shall file proposed rule changes related to [higher margin levels](/usc/15/78c.md?p=a-57-C), fraud or manipulation, recordkeeping, reporting, listing standards, or decimal pricing for [security futures products](/usc/15/78c.md?p=a-56), sales practices for [security futures products](/usc/15/78c.md?p=a-56) for [persons](/usc/15/78c.md?p=a-9) who effect transactions in [security futures products](/usc/15/78c.md?p=a-56), or rules effectuating such [exchange](/usc/15/78c.md?p=a-1)’s obligation to enforce the [securities laws](/usc/15/78c.md?p=a-47) pursuant to [section 78s(b)(7) of this title](/usc/15/78s.md?p=b-7); - (ii) such [exchange](/usc/15/78c.md?p=a-1) shall file pursuant to sections [78s(b)(1)](/usc/15/78s.md?p=b-1) and [78s(b)(2)](/usc/15/78s.md?p=b-2) of this title proposed rule changes related to [margin](/usc/15/78c.md?p=a-57-A), except for changes resulting in [higher margin levels](/usc/15/78c.md?p=a-57-C); and - (iii) such [exchange](/usc/15/78c.md?p=a-1) shall file pursuant to [section 78s(b)(1) of this title](/usc/15/78s.md?p=b-1) proposed rule changes that have been abrogated by the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78s(b)(7)(C) of this title](/usc/15/78s.md?p=b-7-C). - (5) **Trading in security futures products—** - (A) **In general—** Subject to [subparagraph (B)](#g-5-B), it shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to execute or trade a [security futures product](/usc/15/78c.md?p=a-56) until the later of— - (i) 1 year after December 21, 2000; or - (ii) such date that a futures [association](/usc/15/657h.md?p=a-2) registered under section 17 of the Commodity Exchange Act [[7 U.S.C. 21](/usc/7/21.md)] has met the requirements set forth in [section 78o–3(k)(2)](/usc/15/78o–3.md?p=k-2) of this title. - (B) **Principal-to-principal transactions—** Notwithstanding [subparagraph (A)](#g-5-A), a [person](/usc/15/78c.md?p=a-9) may execute or trade a [security futures product](/usc/15/78c.md?p=a-56) transaction if— - (i) the transaction is entered into— - (I) on a principal-to-principal basis between parties trading for their own [accounts](/usc/15/1681a.md?p=r-4) or as described in section 1a(18)(B)(ii) of the Commodity Exchange Act [[7 U.S.C. 1a(18)(B)(ii)](/usc/7/1a.md?p=18-B-ii)]; and - (II) only between [eligible contract participants](/usc/15/78c.md?p=a-65) (as defined in subparagraphs (A), (B)(ii), and (C) of such section 1a(18) [[7 U.S.C. 1a(18)(A)](/usc/7/1a.md?p=18-A), (B)(ii), (C)]) at the time at which the [persons](/usc/15/78c.md?p=a-9) enter into the [agreement](/usc/15/7a.md?p=2), contract, or transaction; and - (ii) the transaction is entered into on or after the later of— - (I) 8 months after December 21, 2000; or - (II) such date that a futures [association](/usc/15/657h.md?p=a-2) registered under section 17 of the Commodity Exchange Act [[7 U.S.C. 21](/usc/7/21.md)] has met the requirements set forth in [section 78o–3(k)(2)](/usc/15/78o–3.md?p=k-2) of this title. - (h) **Trading in security futures products—** - (1) **Trading on exchange or association required—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to effect transactions in [security futures products](/usc/15/78c.md?p=a-56) that are not listed on a [national securities exchange](/usc/15/9009a.md?p=a-5) or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title. - (2) **Listing standards required—** Except as otherwise provided in [paragraph (7)](#h-7), a [national securities exchange](/usc/15/9009a.md?p=a-5) or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title may trade only [security futures products](/usc/15/78c.md?p=a-56) that (A) conform with listing standards that such [exchange](/usc/15/78c.md?p=a-1) or [association](/usc/15/657h.md?p=a-2) files with the [Commission](/usc/15/78c.md?p=a-15) under [section 78s(b) of this title](/usc/15/78s.md?p=b) and (B) meet the criteria specified in section 2(a)(1)(D)(i) of the Commodity Exchange Act [[7 U.S.C. 2(a)(1)(D)(i)](/usc/7/2.md?p=a-1-D-i)]. - (3) **Requirements for listing standards and conditions for trading—** Such listing standards shall— - (A) except as otherwise provided in a rule, regulation, or [order](/usc/15/8702.md?p=14) issued pursuant to [paragraph (4)](#h-4), require that any [security](/usc/15/78c.md?p=a-10) underlying the [security future](/usc/15/77b.md?p=a-16), including each component [security](/usc/15/78c.md?p=a-10) of a [narrow-based security index](/usc/15/78c.md?p=a-55-B), be registered pursuant to [section 78l](/usc/15/78l.md) of this title; - (B) require that if the [security futures product](/usc/15/78c.md?p=a-56) is not cash settled, the market on which the [security futures product](/usc/15/78c.md?p=a-56) is traded have arrangements in place with a registered [clearing agency](/usc/15/78c.md?p=a-23-A) for the payment and delivery of the [securities](/usc/15/78c.md?p=a-10) underlying the [security futures product](/usc/15/78c.md?p=a-56); - (C) be no less restrictive than comparable listing standards for options traded on a [national securities exchange](/usc/15/9009a.md?p=a-5) or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title; - (D) except as otherwise provided in a rule, regulation, or [order](/usc/15/8702.md?p=14) issued pursuant to [paragraph (4)](#h-4), require that the [security future](/usc/15/77b.md?p=a-16) be based upon common stock and such other [equity securities](/usc/15/78c.md?p=a-11) as the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) jointly determine appropriate; - (E) require that the [security futures product](/usc/15/78c.md?p=a-56) is cleared by a [clearing agency](/usc/15/78c.md?p=a-23-A) that has in place provisions for linked and coordinated clearing with other [clearing agencies](/usc/15/78c.md?p=a-23-A) that clear [security futures products](/usc/15/78c.md?p=a-56), which permits the [security futures product](/usc/15/78c.md?p=a-56) to be purchased on one market and offset on another market that trades such product; - (F) require that only a [broker or dealer](/usc/15/78c.md?p=h-2) subject to suitability rules comparable to those of a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title effect transactions in the [security futures product](/usc/15/78c.md?p=a-56); - (G) require that the [security futures product](/usc/15/78c.md?p=a-56) be subject to the prohibition against dual trading in section 4j of the Commodity Exchange Act ([7 U.S.C. 6j](/usc/7/6j.md)) and the rules and regulations thereunder or the provisions of [section 78k(a) of this title](/usc/15/78k.md?p=a) and the rules and regulations thereunder, except to the extent otherwise permitted under this chapter and the rules and regulations thereunder; - (H) require that trading in the [security futures product](/usc/15/78c.md?p=a-56) not be readily susceptible to manipulation of the price of such [security futures product](/usc/15/78c.md?p=a-56), nor to causing or being used in the manipulation of the price of any underlying [security](/usc/15/78c.md?p=a-10), option on such [security](/usc/15/78c.md?p=a-10), or option on a group or [index](/usc/15/78c.md?p=a-68-E) including such [securities](/usc/15/78c.md?p=a-10); - (I) require that procedures be in place for coordinated surveillance among the market on which the [security futures product](/usc/15/78c.md?p=a-56) is traded, any market on which any [security](/usc/15/78c.md?p=a-10) underlying the [security futures product](/usc/15/78c.md?p=a-56) is traded, and other markets on which any related [security](/usc/15/78c.md?p=a-10) is traded to detect manipulation and insider trading; - (J) require that the market on which the [security futures product](/usc/15/78c.md?p=a-56) is traded has in place [audit](/usc/15/7201.md?p=2) trails necessary or appropriate to facilitate the coordinated surveillance required in [subparagraph (I)](#h-3-I); - (K) require that the market on which the [security futures product](/usc/15/78c.md?p=a-56) is traded has in place procedures to coordinate trading halts between such market and any market on which any [security](/usc/15/78c.md?p=a-10) underlying the [security futures product](/usc/15/78c.md?p=a-56) is traded and other markets on which any related [security](/usc/15/78c.md?p=a-10) is traded; and - (L) require that the [margin](/usc/15/78c.md?p=a-57-A) requirements for a [security futures product](/usc/15/78c.md?p=a-56) comply with the regulations prescribed pursuant to [section 78g(c)(2)(B) of this title](/usc/15/78g.md?p=c-2-B), except that nothing in this subparagraph shall be construed to prevent a [national securities exchange](/usc/15/9009a.md?p=a-5) or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) from requiring [higher margin levels](/usc/15/78c.md?p=a-57-C) for a [security futures product](/usc/15/78c.md?p=a-56) when it deems such action to be necessary or appropriate. - (4) **Authority to modify certain listing standard requirements—** - (A) **Authority to modify—** The [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), by rule, regulation, or [order](/usc/15/8702.md?p=14), may jointly modify the listing standard requirements specified in subparagraph [(A)](#h-3-A) or [(D)](#h-3-D) of paragraph (3) to the extent such modification fosters the development of fair and orderly markets in [security futures products](/usc/15/78c.md?p=a-56), is necessary or appropriate in the public interest, and is consistent with the protection of investors. - (B) **Authority to grant exemptions—** The [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), may jointly exempt any [person](/usc/15/78c.md?p=a-9) from compliance with the listing standard requirement specified in [subparagraph (E)](#h-3-E) of paragraph (3) to the extent such exemption fosters the development of fair and orderly markets in [security futures products](/usc/15/78c.md?p=a-56), is necessary or appropriate in the public interest, and is consistent with the protection of investors. - (5) **Requirements for other persons trading security future products—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) (other than a [national securities exchange](/usc/15/9009a.md?p=a-5) or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title) to constitute, maintain, or provide a marketplace or [facilities](/usc/15/78c.md?p=a-2) for bringing together purchasers and sellers of [security future](/usc/15/77b.md?p=a-16) products or to otherwise perform with respect to [security future](/usc/15/77b.md?p=a-16) products the functions commonly performed by a stock [exchange](/usc/15/78c.md?p=a-1) as that term is generally understood, unless a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title or a [national securities exchange](/usc/15/9009a.md?p=a-5) of which such [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A)— - (A) has in place procedures for coordinated surveillance among such [person](/usc/15/78c.md?p=a-9), the market trading the [securities](/usc/15/78c.md?p=a-10) underlying the [security future](/usc/15/77b.md?p=a-16) products, and other markets trading related [securities](/usc/15/78c.md?p=a-10) to detect manipulation and insider trading; - (B) has rules to require [audit](/usc/15/7201.md?p=2) trails necessary or appropriate to facilitate the coordinated surveillance required in [subparagraph (A)](#h-5-A); and - (C) has rules to require such [person](/usc/15/78c.md?p=a-9) to coordinate trading halts with markets trading the [securities](/usc/15/78c.md?p=a-10) underlying the [security future](/usc/15/77b.md?p=a-16) products and other markets trading related [securities](/usc/15/78c.md?p=a-10). - (6) **Deferral of options on security futures trading—** No [person](/usc/15/78c.md?p=a-9) shall offer to enter into, enter into, or confirm the execution of any put, call, straddle, option, or privilege on a [security future](/usc/15/77b.md?p=a-16), except that, after 3 years after December 21, 2000, the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) may by [order](/usc/15/8702.md?p=14) jointly determine to permit trading of puts, calls, straddles, options, or privileges on any [security future](/usc/15/77b.md?p=a-16) authorized to be traded under the provisions of this chapter and the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.]. - (7) **Deferral of linked and coordinated clearing—** - (A) Notwithstanding [paragraph (2)](#h-2), until the [compliance date](#h-7-C), a [national securities exchange](/usc/15/9009a.md?p=a-5) or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title may trade a [security futures product](/usc/15/78c.md?p=a-56) that does not— - (i) conform with any listing standard promulgated to meet the requirement specified in [subparagraph (E)](#h-3-E) of paragraph (3); or - (ii) meet the criterion specified in section 2(a)(1)(D)(i)(IV) of the Commodity Exchange Act [[7 U.S.C. 2(a)(1)(D)(i)(IV)](/usc/7/2.md?p=a-1-D-i-IV)]. - (B) The [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) shall jointly publish in the Federal Register a notice of the [compliance date](#h-7-C) no later than 165 days before the [compliance date](#h-7-C). - (C) For purposes of this paragraph, the term “compliance date” means the later of— - (i) 180 days after the end of the first full calendar month period in which the average aggregate comparable share volume for all [security futures products](/usc/15/78c.md?p=a-56) based on single [equity securities](/usc/15/78c.md?p=a-11) traded on all [national securities exchanges](/usc/15/9009a.md?p=a-5), any national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title, and all other [persons](/usc/15/78c.md?p=a-9) equals or exceeds 10 percent of the average aggregate comparable share volume of options on single [equity securities](/usc/15/78c.md?p=a-11) traded on all [national securities exchanges](/usc/15/9009a.md?p=a-5) and any national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title; or - (ii) 2 years after the date on which trading in any [security futures product](/usc/15/78c.md?p=a-56) commences under this chapter. - (i) **Rules to avoid duplicative regulation of dual registrants—** Consistent with this chapter, each [national securities exchange](/usc/15/9009a.md?p=a-5) registered pursuant to [subsection (a)](#a) of this section shall issue such rules as are necessary to avoid duplicative or conflicting rules applicable to any [broker or dealer](/usc/15/78c.md?p=h-2) registered with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78o(b)](/usc/15/78o.md?p=b) of this title (except paragraph (11) thereof), that is also registered with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) pursuant to section 4f(a) of the Commodity Exchange Act [[7 U.S.C. 6f(a)](/usc/7/6f.md?p=a)] (except [paragraph (2)](#i-2) thereof), with respect to the [application](/usc/15/77ccc.md?p=8) of— - (1) rules of such [national securities exchange](/usc/15/9009a.md?p=a-5) of the type specified in [section 78o(c)(3)(B)](/usc/15/78o.md?p=c-3-B) of this title involving [security futures products](/usc/15/78c.md?p=a-56); and - (2) similar rules of [national securities exchanges](/usc/15/9009a.md?p=a-5) registered pursuant to [subsection (g)](#g) and national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title involving [security futures products](/usc/15/78c.md?p=a-56). - (j) **Procedures and rules for security future products—** A [national securities exchange](/usc/15/9009a.md?p=a-5) registered pursuant to [subsection (a)](#a) shall implement the procedures specified in [subsection (h)(5)(A)](#h-5-A) and adopt the rules specified in subparagraphs [(B)](#h-5-B) and [(C)](#h-5-C) of subsection (h)(5) not later than 8 months after the date of receipt of a request from an alternative trading system for such implementation and rules. - (k) **Rules relating to security futures products traded on foreign boards of trade—** - (1) To the extent necessary or appropriate in the public interest, to promote fair competition, and consistent with the promotion of market efficiency, innovation, and expansion of investment opportunities, the protection of investors, and the maintenance of fair and orderly markets, the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) shall jointly issue such rules, regulations, or [orders](/usc/15/8702.md?p=14) as are necessary and appropriate to permit the offer and sale of a [security futures product](/usc/15/78c.md?p=a-56) traded on or subject to the rules of a foreign [board](/usc/15/78c.md?p=a-73) of trade to United States [persons](/usc/15/78c.md?p=a-9). - (2) The rules, regulations, or [orders](/usc/15/8702.md?p=14) adopted under [paragraph (1)](#k-1) shall take into [account](/usc/15/1681a.md?p=r-4), as appropriate, the nature and size of the markets that the [securities](/usc/15/78c.md?p=a-10) underlying the [security futures product](/usc/15/78c.md?p=a-56) reflect. - (l) **Security-based swaps—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to effect a transaction in a [security-based swap](/usc/15/78c.md?p=a-68-A) with or for a [person](/usc/15/78c.md?p=a-9) that is not an [eligible contract participant](/usc/15/78c.md?p=a-65), unless such transaction is effected on a [national securities exchange](/usc/15/9009a.md?p=a-5) registered pursuant to [subsection (b)](#b). # §78g. Margin requirements - (a) **Rules and regulations for extension of credit; standard for initial extension; undermargined accounts—** For the purpose of preventing the excessive use of [credit](/usc/15/1679a.md?p=4) for the [purchase](/usc/15/78c.md?p=a-13) or carrying of [securities](/usc/15/78c.md?p=a-10), the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System shall, prior to October 1, 1934, and from time to time thereafter, prescribe rules and regulations with respect to the amount of [credit](/usc/15/1679a.md?p=4) that may be initially extended and subsequently maintained on any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A) or a [security futures product](/usc/15/78c.md?p=a-56)). For the initial extension of [credit](/usc/15/1679a.md?p=4), such rules and regulations shall be based upon the following standard: An amount not greater than whichever is the higher of— - (1) 55 per centum of the current market price of the [security](/usc/15/78c.md?p=a-10), or - (2) 100 per centum of the lowest market price of the [security](/usc/15/78c.md?p=a-10) during the preceding thirty-six calendar months, but not more than 75 per centum of the current market price. Such rules and regulations may make appropriate provision with respect to the carrying of undermargined [accounts](/usc/15/1681a.md?p=r-4) for limited periods and under specified conditions; the withdrawal of funds or [securities](/usc/15/78c.md?p=a-10); the substitution or additional [purchases](/usc/15/78c.md?p=a-13) of [securities](/usc/15/78c.md?p=a-10); the transfer of [accounts](/usc/15/1681a.md?p=r-4) from one lender to another; special or different [margin](/usc/15/78c.md?p=a-57-A) requirements for delayed deliveries, short sales, arbitrage transactions, and [securities](/usc/15/78c.md?p=a-10) to which paragraph (2) of this subsection does not apply; the bases and the methods to be used in calculating loans, and [margins](/usc/15/78c.md?p=a-57-A) and market prices; and similar administrative adjustments and details. For the purposes of paragraph (2) of this subsection, until July 1, 1936, the lowest price at which a [security](/usc/15/78c.md?p=a-10) has sold on or after July 1, 1933, shall be considered as the lowest price at which such [security](/usc/15/78c.md?p=a-10) has sold during the preceding thirty-six calendar months. - (b) **Lower and higher margin requirements—** Notwithstanding the provisions of [subsection (a)](#a) of this section, the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, may, from time to time, with respect to all or specified [securities](/usc/15/78c.md?p=a-10) or transactions, or classes of [securities](/usc/15/78c.md?p=a-10), or classes of transactions, by such rules and regulations (1) prescribe such lower [margin](/usc/15/78c.md?p=a-57-A) requirements for the initial extension or maintenance of [credit](/usc/15/1679a.md?p=4) as it deems necessary or appropriate for the accommodation of commerce and industry, having due regard to the general [credit](/usc/15/1679a.md?p=4) situation of the country, and (2) prescribe such higher [margin](/usc/15/78c.md?p=a-57-A) requirements for the initial extension or maintenance of [credit](/usc/15/1679a.md?p=4) as it may deem necessary or appropriate to prevent the excessive use of [credit](/usc/15/1679a.md?p=4) to finance transactions in [securities](/usc/15/78c.md?p=a-10). - (c) **Unlawful credit extension to customers—** - (1) **Prohibition—** It shall be unlawful for any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or any [broker or dealer](/usc/15/78c.md?p=h-2), directly or indirectly, to extend or maintain [credit](/usc/15/1679a.md?p=4) or arrange for the extension or maintenance of [credit](/usc/15/1679a.md?p=4) to or for any [customer](/usc/15/78c–5.md?p=g)— - (A) on any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)), except as provided in [paragraph (2)](#c-2), in contravention of the rules and regulations which the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System (hereafter in this section referred to as the “[Board](/usc/15/78c.md?p=a-73)”) shall prescribe under subsections [(a)](#a) and [(b)](#b); or - (B) without collateral or on any collateral other than [securities](/usc/15/78c.md?p=a-10), except in accordance with such rules and regulations as the [Board](/usc/15/78c.md?p=a-73) may prescribe— - (i) to permit under specified conditions and for a limited period any such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) to maintain a [credit](/usc/15/1679a.md?p=4) initially extended in conformity with the rules and regulations of the [Board](/usc/15/78c.md?p=a-73); and - (ii) to permit the extension or maintenance of [credit](/usc/15/1679a.md?p=4) in cases where the extension or maintenance of [credit](/usc/15/1679a.md?p=4) is not for the purpose of purchasing or carrying [securities](/usc/15/78c.md?p=a-10) or of evading or circumventing the provisions of [subparagraph (A)](#c-1-A). - (2) **Margin regulations—** - (A) **Compliance with margin rules required—** It shall be unlawful for any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) to, directly or indirectly, extend or maintain [credit](/usc/15/1679a.md?p=4) to or for, or collect [margin](/usc/15/78c.md?p=a-57-A) from any [customer](/usc/15/78c–5.md?p=g) on, any [security futures product](/usc/15/78c.md?p=a-56) unless such activities comply with the regulations— - (i) which the [Board](/usc/15/78c.md?p=a-73) shall prescribe pursuant to [subparagraph (B)](#c-2-B); or - (ii) if the [Board](/usc/15/78c.md?p=a-73) determines to delegate the [authority](/usc/15/3051.md?p=1) to prescribe such regulations, which the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) shall jointly prescribe pursuant to [subparagraph (B)](#c-2-B). If the [Board](/usc/15/78c.md?p=a-73) delegates the [authority](/usc/15/3051.md?p=1) to prescribe such regulations under [clause (ii)](#c-2-A-ii) and the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) have not jointly prescribed such regulations within a reasonable period of time after the date of such delegation, the [Board](/usc/15/78c.md?p=a-73) shall prescribe such regulations pursuant to [subparagraph (B)](#c-2-B). - (B) **Criteria for issuance of rules—** The [Board](/usc/15/78c.md?p=a-73) shall prescribe, or, if the [authority](/usc/15/3051.md?p=1) is delegated pursuant to [subparagraph (A)(ii)](#c-2-A-ii), the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) shall jointly prescribe, such regulations to establish [margin](/usc/15/78c.md?p=a-57-A) requirements, including the establishment of levels of [margin](/usc/15/78c.md?p=a-57-A) (initial and maintenance) for [security futures products](/usc/15/78c.md?p=a-56) under such terms, and at such levels, as the [Board](/usc/15/78c.md?p=a-73) deems appropriate, or as the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) jointly deem appropriate— - (i) to preserve the financial integrity of markets trading [security futures products](/usc/15/78c.md?p=a-56); - (ii) to prevent systemic risk; - (iii) to require that— - (I) the [margin](/usc/15/78c.md?p=a-57-A) requirements for a [security future](/usc/15/77b.md?p=a-16) product be consistent with the [margin](/usc/15/78c.md?p=a-57-A) requirements for comparable option contracts traded on any [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(a) of this title](/usc/15/78f.md?p=a); and - (II) initial and maintenance [margin levels](/usc/15/78c.md?p=a-57-B) for a [security future](/usc/15/77b.md?p=a-16) product not be lower than the lowest [level of margin](/usc/15/78c.md?p=a-57-B), exclusive of premium, required for any comparable option contract traded on any [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(a) of this title](/usc/15/78f.md?p=a), other than an option on a [security future](/usc/15/77b.md?p=a-16); except that nothing in this subparagraph shall be construed to prevent a [national securities exchange](/usc/15/9009a.md?p=a-5) or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) from requiring [higher margin levels](/usc/15/78c.md?p=a-57-C) for a [security future](/usc/15/77b.md?p=a-16) product when it deems such action to be necessary or appropriate; and - (iv) to ensure that the [margin](/usc/15/78c.md?p=a-57-A) requirements (other than levels of [margin](/usc/15/78c.md?p=a-57-A)), including the type, form, and use of collateral for [security futures products](/usc/15/78c.md?p=a-56), are and remain consistent with the requirements established by the [Board](/usc/15/78c.md?p=a-73), pursuant to subparagraphs [(A)](#c-1-A) and [(B)](#c-1-B) of paragraph (1). - (3) **Exception—** This subsection and the rules and regulations issued under this subsection shall not apply to any [credit](/usc/15/1679a.md?p=4) extended, maintained, or arranged by a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or a [broker or dealer](/usc/15/78c.md?p=h-2) to or for a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or a [registered broker or dealer](/usc/15/78c.md?p=h-2)— - (A) a substantial portion of whose business consists of transactions with [persons](/usc/15/78c.md?p=a-9) other than [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A); or - (B) to finance its activities as a [market maker](/usc/15/78c.md?p=a-38) or an [underwriter](/usc/15/78c.md?p=a-20); except that the [Board](/usc/15/78c.md?p=a-73) may impose such rules and regulations, in whole or in part, on any [credit](/usc/15/1679a.md?p=4) otherwise exempted by this paragraph if the [Board](/usc/15/78c.md?p=a-73) determines that such action is necessary or appropriate in the public interest or for the protection of investors. - (d) **Unlawful credit extension in violation of rules and regulations; exceptions to application of rules, etc.** - (1) **Prohibition—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) not subject to [subsection (c)](#c) to extend or maintain [credit](/usc/15/1679a.md?p=4) or to arrange for the extension or maintenance of [credit](/usc/15/1679a.md?p=4) for the purpose of purchasing or carrying any [security](/usc/15/78c.md?p=a-10), in contravention of such rules and regulations as the [Board](/usc/15/78c.md?p=a-73) shall prescribe to prevent the excessive use of [credit](/usc/15/1679a.md?p=4) for the purchasing or carrying of or trading in [securities](/usc/15/78c.md?p=a-10) 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 carrying [securities](/usc/15/78c.md?p=a-10) limitations similar to those imposed upon [members](/usc/15/78c.md?p=a-3-A), [brokers](/usc/15/78c.md?p=a-4-A), or [dealers](/usc/15/78c.md?p=a-5-A) by [subsection (c)](#c) and the rules and regulations thereunder. - (2) **Exceptions—** This subsection and the rules and regulations issued under this subsection shall not apply to any [credit](/usc/15/1679a.md?p=4) extended, maintained, or arranged— - (A) by a [person](/usc/15/78c.md?p=a-9) not in the ordinary course of business; - (B) on an [exempted security](/usc/15/78c.md?p=a-12-A); - (C) to or for a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or a [registered broker or dealer](/usc/15/78c.md?p=h-2)— - (i) a substantial portion of whose business consists of transactions with [persons](/usc/15/78c.md?p=a-9) other than [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A); or - (ii) to finance its activities as a [market maker](/usc/15/78c.md?p=a-38) or an [underwriter](/usc/15/78c.md?p=a-20); - (D) by a bank on a [security](/usc/15/78c.md?p=a-10) other than an [equity security](/usc/15/78c.md?p=a-11); or - (E) as the [Board](/usc/15/78c.md?p=a-73) shall, by such rules, regulations, or [orders](/usc/15/8702.md?p=14) as it may deem necessary or appropriate in the public interest or for the protection of investors, exempt, either unconditionally or upon specified terms and conditions or for stated periods, from the operation of this subsection and the rules and regulations thereunder. - (3) **Board authority—** The [Board](/usc/15/78c.md?p=a-73) may impose such rules and regulations, in whole or in part, on any [credit](/usc/15/1679a.md?p=4) otherwise exempted by subparagraph (C) if it determines that such action is necessary or appropriate in the public interest or for the protection of investors. - (e) **Effective date of this section and rules and regulations—** The provisions of this section or the rules and regulations thereunder shall not apply on or before July 1, 1937, to any loan or extension of [credit](/usc/15/1679a.md?p=4) made prior to June 6, 1934, or to the maintenance, renewal, or extension of any such loan or [credit](/usc/15/1679a.md?p=4), except to the extent that the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System may by rules and regulations prescribe as necessary to prevent the circumvention of the provisions of this section or the rules and regulations thereunder by means of withdrawals of funds or [securities](/usc/15/78c.md?p=a-10), substitutions of [securities](/usc/15/78c.md?p=a-10), or additional [purchases](/usc/15/78c.md?p=a-13) or by any other device. - (f) **Unlawful receipt of credit; exemptions—** - (1) It is unlawful for any [United States person](#f-2-A), or any [foreign person controlled by a United States person](#f-2-C) or acting on behalf of or in conjunction with such [person](/usc/15/78c.md?p=a-9), to obtain, receive, or enjoy the beneficial use of a loan or other extension of [credit](/usc/15/1679a.md?p=4) from any lender (without regard to whether the lender’s office or place of business is in a [State](/usc/15/78c.md?p=a-16) or the transaction occurred in whole or in part within a [State](/usc/15/78c.md?p=a-16)) for the purpose of (A) purchasing or carrying [United States securities](#f-2-B), or (B) purchasing or carrying within the United States of any other [securities](/usc/15/78c.md?p=a-10), if, under this section or rules and regulations prescribed thereunder, the loan or other [credit](/usc/15/1679a.md?p=4) transaction is prohibited or would be prohibited if it had been made or the transaction had otherwise occurred in a lender’s office or other place of business in a [State](/usc/15/78c.md?p=a-16). - (2) For the purposes of this subsection— - (A) The term “United States person” includes a [person](/usc/15/78c.md?p=a-9) which is organized or exists under the laws of any [State](/usc/15/78c.md?p=a-16) or, in the case of a natural [person](/usc/15/78c.md?p=a-9), a citizen or resident of the United States; a domestic estate; or a trust in which one or more of the foregoing [persons](/usc/15/78c.md?p=a-9) has a cumulative direct or indirect beneficial interest in excess of 50 per centum of the value of the trust. - (B) The term “United States security” means a [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) issued by a [person](/usc/15/78c.md?p=a-9) incorporated under the laws of any [State](/usc/15/78c.md?p=a-16), or whose principal place of business is within a [State](/usc/15/78c.md?p=a-16). - (C) The term “foreign person controlled by a United States person” includes any noncorporate entity in which [United States persons](#f-2-A) directly or indirectly have more than a 50 per centum beneficial interest, and any corporation in which one or more [United States persons](#f-2-A), directly or indirectly, own stock possessing more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock. - (3) The [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System may, in its discretion and with due regard for the purposes of this section, by rule or regulation exempt any class of [United States persons](#f-2-A) or foreign [persons](/usc/15/78c.md?p=a-9) controlled by a [United States person](#f-2-A) from the [application](/usc/15/77ccc.md?p=8) of this subsection. - (g) **Effect of bona fide agreement for delayed delivery of mortgage related security—** Subject to such rules and regulations as the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System may adopt in the public interest and for the protection of investors, no [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or [broker or dealer](/usc/15/78c.md?p=h-2) shall be deemed to have extended or maintained [credit](/usc/15/1679a.md?p=4) or arranged for the extension or maintenance of [credit](/usc/15/1679a.md?p=4) for the purpose of purchasing a [security](/usc/15/78c.md?p=a-10), within the meaning of this section, by reason of a bona fide [agreement](/usc/15/7a.md?p=2) for delayed delivery of a [mortgage related security](/usc/15/78c.md?p=a-41) or a [small business related security](/usc/15/78c.md?p=a-53-A) against full payment of the [purchase](/usc/15/78c.md?p=a-13) price thereof upon such delivery within one hundred and eighty days after the [purchase](/usc/15/78c.md?p=a-13), or within such shorter period as the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System may prescribe by rule or regulation. # §78h. Restrictions on borrowing and lending by members, brokers, and dealers It shall be unlawful for any [registered broker or dealer](/usc/15/78c.md?p=h-2), [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), or [broker or dealer](/usc/15/78c.md?p=h-2) who transacts a business in [securities](/usc/15/78c.md?p=a-10) through the medium of any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), directly or indirectly— - (a) In contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe for the protection of investors to hypothecate or arrange for the hypothecation of any [securities](/usc/15/78c.md?p=a-10) carried for the [account](/usc/15/1681a.md?p=r-4) of any [customer](/usc/15/78c–5.md?p=g) under circumstances (1) that will permit the commingling of his [securities](/usc/15/78c.md?p=a-10) without his written consent with the [securities](/usc/15/78c.md?p=a-10) of any other [customer](/usc/15/78c–5.md?p=g), (2) that will permit such [securities](/usc/15/78c.md?p=a-10) to be commingled with the [securities](/usc/15/78c.md?p=a-10) of any [person](/usc/15/78c.md?p=a-9) other than a bona fide [customer](/usc/15/78c–5.md?p=g), or (3) that will permit such [securities](/usc/15/78c.md?p=a-10) to be hypothecated, or subjected to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such [customers](/usc/15/78c–5.md?p=g) in respect of such [securities](/usc/15/78c.md?p=a-10). - (b) To lend or arrange for the lending of any [securities](/usc/15/78c.md?p=a-10) carried for the [account](/usc/15/1681a.md?p=r-4) of any [customer](/usc/15/78c–5.md?p=g) without the written consent of such [customer](/usc/15/78c–5.md?p=g) or in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe for the protection of investors. # §78i. Manipulation of security prices - (a) **Transactions relating to purchase or sale of security—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), directly or indirectly, by the use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17), or of any [facility](/usc/15/78c.md?p=a-2) of any [national securities exchange](/usc/15/9009a.md?p=a-5), or for any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5)— - (1) For the purpose of creating a false or misleading appearance of active trading in any [security](/usc/15/78c.md?p=a-10) other than a government [security](/usc/15/78c.md?p=a-10), or a false or misleading appearance with respect to the market for any such [security](/usc/15/78c.md?p=a-10), (A) to effect any transaction in such [security](/usc/15/78c.md?p=a-10) which involves no change in the beneficial ownership thereof, or (B) to enter an [order](/usc/15/8702.md?p=14) or [orders](/usc/15/8702.md?p=14) for the [purchase](/usc/15/78c.md?p=a-13) of such [security](/usc/15/78c.md?p=a-10) with the knowledge that an [order](/usc/15/8702.md?p=14) or [orders](/usc/15/8702.md?p=14) of substantially the same size, at substantially the same time, and at substantially the same price, for the sale of any such [security](/usc/15/78c.md?p=a-10), has been or will be entered by or for the same or different parties, or (C) to enter any [order](/usc/15/8702.md?p=14) or [orders](/usc/15/8702.md?p=14) for the sale of any such [security](/usc/15/78c.md?p=a-10) with the knowledge that an [order](/usc/15/8702.md?p=14) or [orders](/usc/15/8702.md?p=14) of substantially the same size, at substantially the same time, and at substantially the same price, for the [purchase](/usc/15/78c.md?p=a-13) of such [security](/usc/15/78c.md?p=a-10), has been or will be entered by or for the same or different parties. - (2) To effect, alone or with 1 or more other [persons](/usc/15/78c.md?p=a-9), a series of transactions in any [security](/usc/15/78c.md?p=a-10) registered on a [national securities exchange](/usc/15/9009a.md?p=a-5), any [security](/usc/15/78c.md?p=a-10) not so registered, or in connection with any [security-based swap](/usc/15/78c.md?p=a-68-A) or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10) creating actual or apparent active trading in such [security](/usc/15/78c.md?p=a-10), or raising or depressing the price of such [security](/usc/15/78c.md?p=a-10), for the purpose of inducing the [purchase](/usc/15/78c.md?p=a-13) or sale of such [security](/usc/15/78c.md?p=a-10) by others. - (3) If a [dealer](/usc/15/78c.md?p=a-5-A), [broker](/usc/15/78c.md?p=a-4-A), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), [major security-based swap participant](/usc/15/78c.md?p=a-67-A), or other [person](/usc/15/78c.md?p=a-9) selling or offering for sale or purchasing or offering to [purchase](/usc/15/78c.md?p=a-13) the [security](/usc/15/78c.md?p=a-10), a [security-based swap](/usc/15/78c.md?p=a-68-A), or a [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10), to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of any [security](/usc/15/78c.md?p=a-10) registered on a [national securities exchange](/usc/15/9009a.md?p=a-5), any [security](/usc/15/78c.md?p=a-10) not so registered, any [security-based swap](/usc/15/78c.md?p=a-68-A), or any [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10) by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such [security](/usc/15/78c.md?p=a-10) will or is likely to rise or fall because of market operations of any 1 or more [persons](/usc/15/78c.md?p=a-9) conducted for the purpose of raising or depressing the price of such [security](/usc/15/78c.md?p=a-10). - (4) If a [dealer](/usc/15/78c.md?p=a-5-A), [broker](/usc/15/78c.md?p=a-4-A), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), [major security-based swap participant](/usc/15/78c.md?p=a-67-A), or other [person](/usc/15/78c.md?p=a-9) selling or offering for sale or purchasing or offering to [purchase](/usc/15/78c.md?p=a-13) the [security](/usc/15/78c.md?p=a-10), a [security-based swap](/usc/15/78c.md?p=a-68-A), or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10), to make, regarding any [security](/usc/15/78c.md?p=a-10) registered on a [national securities exchange](/usc/15/9009a.md?p=a-5), any [security](/usc/15/78c.md?p=a-10) not so registered, any [security-based swap](/usc/15/78c.md?p=a-68-A), or any [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10), for the purpose of inducing the [purchase](/usc/15/78c.md?p=a-13) or sale of such [security](/usc/15/78c.md?p=a-10), such [security-based swap](/usc/15/78c.md?p=a-68-A), or such [security-based swap agreement](/usc/15/78c.md?p=a-78-B) any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which that [person](/usc/15/78c.md?p=a-9) knew or had reasonable ground to believe was so false or misleading. - (5) For a consideration, received directly or indirectly from a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), [major security-based swap participant](/usc/15/78c.md?p=a-67-A), or other [person](/usc/15/78c.md?p=a-9) selling or offering for sale or purchasing or offering to [purchase](/usc/15/78c.md?p=a-13) the [security](/usc/15/78c.md?p=a-10), a [security-based swap](/usc/15/78c.md?p=a-68-A), or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10), to induce the [purchase](/usc/15/78c.md?p=a-13) of any [security](/usc/15/78c.md?p=a-10) registered on a [national securities exchange](/usc/15/9009a.md?p=a-5), any [security](/usc/15/78c.md?p=a-10) not so registered, any [security-based swap](/usc/15/78c.md?p=a-68-A), or any [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10) by the circulation or dissemination of information to the effect that the price of any such [security](/usc/15/78c.md?p=a-10) will or is likely to rise or fall because of the market operations of any 1 or more [persons](/usc/15/78c.md?p=a-9) conducted for the purpose of raising or depressing the price of such [security](/usc/15/78c.md?p=a-10). - (6) To effect either alone or with one or more other [persons](/usc/15/78c.md?p=a-9) any series of transactions for the [purchase](/usc/15/78c.md?p=a-13) and/or sale of any [security](/usc/15/78c.md?p=a-10) other than a government [security](/usc/15/78c.md?p=a-10) for the purpose of pegging, fixing, or stabilizing the price of such [security](/usc/15/78c.md?p=a-10) in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (b) **Transactions relating to puts, calls, straddles, options, futures, or security-based swaps—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to effect, in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors— - (1) any transaction in connection with any [security](/usc/15/78c.md?p=a-10) whereby any party to such transaction acquires— - (A) any [put](#e), [call](#e), [straddle](#e), or other [option](#e) or [privilege](#e) of buying the [security](/usc/15/78c.md?p=a-10) from or selling the [security](/usc/15/78c.md?p=a-10) to another without being bound to do so; - (B) any [security futures product](/usc/15/78c.md?p=a-56) on the [security](/usc/15/78c.md?p=a-10); or - (C) any [security-based swap](/usc/15/78c.md?p=a-68-A) involving the [security](/usc/15/78c.md?p=a-10) or the [issuer](/usc/15/78c.md?p=a-8) of the [security](/usc/15/78c.md?p=a-10); - (2) any transaction in connection with any [security](/usc/15/78c.md?p=a-10) with relation to which such [person](/usc/15/78c.md?p=a-9) has, directly or indirectly, any interest in any— - (A) such [put](#e), [call](#e), [straddle](#e), [option](#e), or [privilege](#e); - (B) such [security futures product](/usc/15/78c.md?p=a-56); or - (C) such [security-based swap](/usc/15/78c.md?p=a-68-A); or - (3) any transaction in any [security](/usc/15/78c.md?p=a-10) for the [account](/usc/15/1681a.md?p=r-4) of any [person](/usc/15/78c.md?p=a-9) who such [person](/usc/15/78c.md?p=a-9) has reason to believe has, and who actually has, directly or indirectly, any interest in any— - (A) such [put](#e), [call](#e), [straddle](#e), [option](#e), or [privilege](#e); - (B) such [security futures product](/usc/15/78c.md?p=a-56) with relation to such [security](/usc/15/78c.md?p=a-10); or - (C) any [security-based swap](/usc/15/78c.md?p=a-68-A) involving such [security](/usc/15/78c.md?p=a-10) or the [issuer](/usc/15/78c.md?p=a-8) of such [security](/usc/15/78c.md?p=a-10). - (c) **Endorsement or guarantee of puts, calls, straddles, or options—** It shall be unlawful for any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) directly or indirectly to endorse or guarantee the performance of any [put](#e), [call](#e), [straddle](#e), [option](#e), or [privilege](#e) in relation to any [security](/usc/15/78c.md?p=a-10) other than a government [security](/usc/15/78c.md?p=a-10), in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (d) **Transactions relating to short sales of securities—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), directly or indirectly, by the use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17), or of any [facility](/usc/15/78c.md?p=a-2) of any [national securities exchange](/usc/15/9009a.md?p=a-5), or for any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) to effect, alone or with one or more other [persons](/usc/15/78c.md?p=a-9), a manipulative short sale of any [security](/usc/15/78c.md?p=a-10). The [Commission](/usc/15/78c.md?p=a-15) shall issue such other rules as are necessary or appropriate to ensure that the appropriate enforcement [options](#e) and remedies are available for [violations](/usc/15/57b–1.md?p=a-7) of this subsection in the public interest or for the protection of investors. - (e) **Registered warrant, right, or convertible security not included in “put”, “call”, “straddle”, or “option”—** The terms “put”, “call”, “straddle”, “option”, or “privilege” as used in this section shall not include any registered warrant, right, or convertible [security](/usc/15/78c.md?p=a-10). - (f) **Persons liable; suits at law or in equity—** Any [person](/usc/15/78c.md?p=a-9) who willfully participates in any act or transaction in [violation](/usc/15/57b–1.md?p=a-7) of subsections [(a)](#a), [(b)](#b), or [(c)](#c) of this section, shall be liable to any [person](/usc/15/78c.md?p=a-9) who shall [purchase](/usc/15/78c.md?p=a-13) or [sell](/usc/15/78c.md?p=a-14) any [security](/usc/15/78c.md?p=a-10) at a price which was affected by such act or transaction, and the [person](/usc/15/78c.md?p=a-9) so injured may sue in law or in equity in any court of competent jurisdiction to recover the damages sustained as a result of any such act or transaction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against either party litigant. Every [person](/usc/15/78c.md?p=a-9) who becomes liable to make any payment under this subsection may recover contribution as in cases of contract from any [person](/usc/15/78c.md?p=a-9) who, if joined in the original suit, would have been liable to make the same payment. No action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the [violation](/usc/15/57b–1.md?p=a-7) and within three years after such [violation](/usc/15/57b–1.md?p=a-7). - (g) **Subsection (a) not applicable to exempted securities—** The provisions of [subsection (a)](#a) shall not apply to an [exempted security](/usc/15/78c.md?p=a-12-A). - (h) **Foreign currencies and security futures products—** - (1) Notwithstanding any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) shall have the [authority](/usc/15/3051.md?p=1) to regulate the trading of any [put](#e), [call](#e), [straddle](#e), [option](#e), or [privilege](#e) on any [security](/usc/15/78c.md?p=a-10), certificate of deposit, or group or [index](/usc/15/78c.md?p=a-68-E) of [securities](/usc/15/78c.md?p=a-10) (including any interest therein or based on the value thereof), or any [put](#e), [call](#e), [straddle](#e), [option](#e), or [privilege](#e) entered into on a [national securities exchange](/usc/15/9009a.md?p=a-5) relating to foreign currency (but not, with respect to any of the foregoing, an [option](#e) on a contract for future delivery other than a [security futures product](/usc/15/78c.md?p=a-56)). - (2) Notwithstanding the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], the [Commission](/usc/15/78c.md?p=a-15) shall have the [authority](/usc/15/3051.md?p=1) to regulate the trading of any [security futures product](/usc/15/78c.md?p=a-56) to the extent provided in the [securities laws](/usc/15/78c.md?p=a-47). - (i) **Limitations on practices that affect market volatility—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), by the use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) or of any [facility](/usc/15/78c.md?p=a-2) of any [national securities exchange](/usc/15/9009a.md?p=a-5), to use or employ any act or practice in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of any [equity security](/usc/15/78c.md?p=a-11) in contravention of such rules or regulations as the [Commission](/usc/15/78c.md?p=a-15) may adopt, consistent with the public interest, the protection of investors, and the maintenance of fair and orderly markets— - (1) to prescribe means reasonably designed to prevent manipulation of price levels of the [equity securities](/usc/15/78c.md?p=a-11) market or a substantial segment thereof; and - (2) to prohibit or constrain, during periods of extraordinary market volatility, any trading practice in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of [equity securities](/usc/15/78c.md?p=a-11) that the [Commission](/usc/15/78c.md?p=a-15) determines (A) has previously contributed significantly to extraordinary levels of volatility that have threatened the maintenance of fair and orderly markets; and (B) is reasonably certain to engender such levels of volatility if not prohibited or constrained. In adopting rules under [paragraph (2)](#i-2), the [Commission](/usc/15/78c.md?p=a-15) shall, consistent with the purposes of this subsection, minimize the impact on the normal operations of the market and a natural [person](/usc/15/78c.md?p=a-9)’s freedom to buy or [sell](/usc/15/78c.md?p=a-14) any [equity security](/usc/15/78c.md?p=a-11). - (j) **[^1] Limitation on Commission authority—** The [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this section with respect to [security-based swap agreements](/usc/15/78c.md?p=a-78-B) shall be subject to the restrictions and limitations of [section 78c–1(b) of this title](/usc/15/78c–1.md?p=b). - (j) **[^1] Regulations relating to security-based swaps—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), directly or indirectly, by the use of any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) or of the mails, or of any [facility](/usc/15/78c.md?p=a-2) of any [national securities exchange](/usc/15/9009a.md?p=a-5), to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security-based swap](/usc/15/78c.md?p=a-68-A), in connection with which such [person](/usc/15/78c.md?p=a-9) engages in any fraudulent, deceptive, or manipulative act or practice, makes any fictitious quotation, or engages in any transaction, practice, or course of business which operates as a fraud or deceit upon any [person](/usc/15/78c.md?p=a-9). The [Commission](/usc/15/78c.md?p=a-15) shall, for the purposes of this subsection, by rules and regulations define, and prescribe means reasonably designed to prevent, such transactions, acts, practices, and courses of business as are fraudulent, deceptive, or manipulative, and such quotations as are fictitious. # §78j. Manipulative and deceptive devices It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), directly or indirectly, by the use of any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) or of the mails, or of any [facility](/usc/15/78c.md?p=a-2) of any [national securities exchange](/usc/15/9009a.md?p=a-5)— - (a) - (1) To effect a short sale, or to use or employ any stop-loss [order](/usc/15/8702.md?p=14) in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale, of any [security](/usc/15/78c.md?p=a-10) other than a government [security](/usc/15/78c.md?p=a-10), in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (2) Paragraph (1) of this subsection shall not apply to [security futures products](/usc/15/78c.md?p=a-56). - (b) To use or employ, in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of any [security](/usc/15/78c.md?p=a-10) registered on a [national securities exchange](/usc/15/9009a.md?p=a-5) or any [security](/usc/15/78c.md?p=a-10) not so registered, or any [securities](/usc/15/78c.md?p=a-10)-based [swap](/usc/15/78c.md?p=a-69) [agreement](/usc/15/7a.md?p=2)[^1] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (c) - (1) To effect, accept, or facilitate a transaction involving the loan or borrowing of [securities](/usc/15/78c.md?p=a-10) in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (2) Nothing in [paragraph (1)](#c-1) may be construed to limit the [authority](/usc/15/3051.md?p=1) of the [appropriate Federal banking agency](/usc/15/78c.md?p=a-72) (as defined in [section 1813(q) of title 12](/usc/12/1813.md?p=q)), the National [Credit](/usc/15/1679a.md?p=4) Union [Administration](/usc/15/2203.md?p=2), or any other Federal department or agency having a responsibility under Federal law to prescribe rules or regulations restricting transactions involving the loan or borrowing of [securities](/usc/15/78c.md?p=a-10) in [order](/usc/15/8702.md?p=14) to protect the safety and soundness of a [financial institution](/usc/15/78c.md?p=a-46) or to protect the financial system from systemic risk. Rules promulgated under [subsection (b)](#b) that prohibit fraud, manipulation, or insider trading (but not rules imposing or specifying reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading), and judicial precedents decided under [subsection (b)](#b) and rules promulgated thereunder that prohibit fraud, manipulation, or insider trading, shall apply to [security-based swap agreements](/usc/15/78c.md?p=a-78-B) to the same extent as they apply to [securities](/usc/15/78c.md?p=a-10). Judicial precedents decided under [section 77q(a) of this title](/usc/15/77q.md?p=a) and sections [78i](/usc/15/78i.md), [78o](/usc/15/78o.md), [78p](/usc/15/78p.md), [78t](/usc/15/78t.md), and [78u–1](/usc/15/78u–1.md) of this title, and judicial precedents decided under applicable rules promulgated under such sections, shall apply to [security-based swap agreements](/usc/15/78c.md?p=a-78-B) to the same extent as they apply to [securities](/usc/15/78c.md?p=a-10). # §78j–1. Audit requirements - (a) **In general—** Each [audit](/usc/15/7201.md?p=2) required pursuant to this chapter of the financial statements of an [issuer](#f) by a [registered public accounting firm](/usc/15/78c.md?p=a-59) shall include, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the [Commission](/usc/15/78c.md?p=a-15)— - (1) procedures designed to provide reasonable assurance of detecting [illegal acts](#f) that would have a direct and material effect on the determination of financial statement amounts; - (2) procedures designed to identify related party transactions that are material to the financial statements or otherwise require disclosure therein; and - (3) an evaluation of whether there is substantial doubt about the ability of the [issuer](#f) to continue as a going concern during the ensuing fiscal year. - (b) **Required response to audit discoveries—** - (1) **Investigation and report to management—** If, in the course of conducting an [audit](/usc/15/7201.md?p=2) pursuant to this chapter to which [subsection (a)](#a) applies, the [registered public accounting firm](/usc/15/78c.md?p=a-59) detects or otherwise becomes aware of information indicating that an [illegal act](#f) (whether or not perceived to have a material effect on the financial statements of the [issuer](#f)) has or may have occurred, the firm shall, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the [Commission](/usc/15/78c.md?p=a-15)— - (A) - (i) determine whether it is likely that an [illegal act](#f) has occurred; and - (ii) if so, determine and consider the possible effect of the [illegal act](#f) on the financial statements of the [issuer](#f), including any contingent monetary effects, such as fines, penalties, and damages; and - (B) as soon as practicable, inform the appropriate level of the management of the [issuer](#f) and assure that the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](#f), or the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](#f) in the absence of such a [committee](/usc/15/2921.md?p=1), is adequately informed with respect to [illegal acts](#f) that have been detected or have otherwise come to the attention of such firm in the course of the [audit](/usc/15/7201.md?p=2), unless the [illegal act](#f) is clearly inconsequential. - (2) **Response to failure to take remedial action—** If, after determining that the [audit committee](/usc/15/78c.md?p=a-58) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](#f), or the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](#f) in the absence of an [audit committee](/usc/15/78c.md?p=a-58), is adequately informed with respect to [illegal acts](#f) that have been detected or have otherwise come to the attention of the firm in the course of the [audit](/usc/15/7201.md?p=2) of such firm, the [registered public accounting firm](/usc/15/78c.md?p=a-59) concludes that— - (A) the [illegal act](#f) has a material effect on the financial statements of the [issuer](#f); - (B) the senior management has not taken, and the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) has not caused senior management to take, timely and appropriate remedial actions with respect to the [illegal act](#f); and - (C) the failure to take remedial action is reasonably expected to warrant departure from a standard report of the auditor, when made, or warrant resignation from the [audit](/usc/15/7201.md?p=2) engagement; the [registered public accounting firm](/usc/15/78c.md?p=a-59) shall, as soon as practicable, directly report its conclusions to the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7). - (3) **Notice to Commission; response to failure to notify—** An [issuer](#f) whose [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) receives a report under [paragraph (2)](#b-2) shall inform the [Commission](/usc/15/78c.md?p=a-15) by notice not later than 1 business day after the receipt of such report and shall furnish the [registered public accounting firm](/usc/15/78c.md?p=a-59) making such report with a copy of the notice furnished to the [Commission](/usc/15/78c.md?p=a-15). If the [registered public accounting firm](/usc/15/78c.md?p=a-59) fails to receive a copy of the notice before the expiration of the required 1-business-day period, the [registered public accounting firm](/usc/15/78c.md?p=a-59) shall— - (A) resign from the engagement; or - (B) furnish to the [Commission](/usc/15/78c.md?p=a-15) a copy of its report (or the documentation of any oral report given) not later than 1 business day following such failure to receive notice. - (4) **Report after resignation—** If a [registered public accounting firm](/usc/15/78c.md?p=a-59) resigns from an engagement under [paragraph (3)(A)](#b-3-A), the firm shall, not later than 1 business day following the failure by the [issuer](#f) to notify the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (3)](#b-3), furnish to the [Commission](/usc/15/78c.md?p=a-15) a copy of the report of the firm (or the documentation of any oral report given). - (c) **Auditor liability limitation—** No [registered public accounting firm](/usc/15/78c.md?p=a-59) shall be liable in a private action for any finding, conclusion, or statement expressed in a report made pursuant to paragraph [(3)](#b-3) or [(4)](#b-4) of subsection (b), including any rule promulgated pursuant thereto. - (d) **Civil penalties in cease-and-desist proceedings—** If the [Commission](/usc/15/78c.md?p=a-15) finds, after notice and opportunity for hearing in a proceeding instituted pursuant to [section 78u–3 of this title](/usc/15/78u–3.md), that a [registered public accounting firm](/usc/15/78c.md?p=a-59) has willfully violated paragraph [(3)](#b-3) or [(4)](#b-4) of subsection (b), the [Commission](/usc/15/78c.md?p=a-15) may, in addition to entering an [order](/usc/15/8702.md?p=14) under [section 78u–3 of this title](/usc/15/78u–3.md), impose a civil penalty against the [registered public accounting firm](/usc/15/78c.md?p=a-59) and any other [person](/usc/15/78c.md?p=a-9) that the [Commission](/usc/15/78c.md?p=a-15) finds was a cause of such [violation](/usc/15/57b–1.md?p=a-7). The determination to impose a civil penalty and the amount of the penalty shall be governed by the standards set forth in [section 78u–2 of this title](/usc/15/78u–2.md). - (e) **Preservation of existing authority—** Except as provided in [subsection (d)](#d), nothing in this section shall be held to limit or otherwise affect the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this chapter. - (f) **Definitions—** As used in this section, the term “illegal act” means an act or omission that violates any law, or any rule or regulation having the force of law. As used in this section, the term “issuer” means an issuer (as defined in [section 78c of this title](/usc/15/78c.md)), the [securities](/usc/15/78c.md?p=a-10) of which are registered under [section 78l](/usc/15/78l.md) of this title, or that is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title, or that files or has filed a [registration statement](/usc/15/77b.md?p=a-8) that has not yet become effective under the Securities Act of 1933 ([15 U.S.C. 77a](/usc/15/77a.md) et seq.), and that it has not withdrawn. - (g) **Prohibited activities—** Except as provided in [subsection (h)](#h), it shall be unlawful for a [registered public accounting firm](/usc/15/78c.md?p=a-59) (and any associated [person](/usc/15/78c.md?p=a-9) of that firm, to the extent determined appropriate by the [Commission](/usc/15/78c.md?p=a-15)) that performs for any [issuer](#f) any [audit](/usc/15/7201.md?p=2) required by this chapter or the rules of the [Commission](/usc/15/78c.md?p=a-15) under this chapter or, beginning 180 days after the date of commencement of the operations of the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73) established under [section 7211 of this title](/usc/15/7211.md) (in this section referred to as the “[Board](/usc/15/78c.md?p=a-73)”), the [rules of the Board](/usc/15/7201.md?p=13), to provide to that [issuer](#f), contemporaneously with the [audit](/usc/15/7201.md?p=2), any non-[audit](/usc/15/7201.md?p=2) service, including— - (1) bookkeeping or other services related to the accounting [records](/usc/15/78c.md?p=a-37) or financial statements of the [audit](/usc/15/7201.md?p=2) client; - (2) financial information systems design and implementation; - (3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports; - (4) actuarial services; - (5) internal [audit](/usc/15/7201.md?p=2) outsourcing services; - (6) management functions or human resources; - (7) [broker or dealer](/usc/15/78c.md?p=h-2), [investment adviser](/usc/15/78c.md?p=a-20), or investment banking services; - (8) legal services and expert services unrelated to the [audit](/usc/15/7201.md?p=2); and - (9) any other service that the [Board](/usc/15/78c.md?p=a-73) determines, by regulation, is impermissible. - (h) **Preapproval required for non-audit services—** A [registered public accounting firm](/usc/15/78c.md?p=a-59) may engage in any non-[audit](/usc/15/7201.md?p=2) service, including tax services, that is not described in any of [paragraphs (1) through (9)](#g-1..g-9) of subsection (g) for an [audit](/usc/15/7201.md?p=2) client, only if the activity is approved in advance by the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](#f), in accordance with [subsection (i)](#i). - (i) **Preapproval requirements—** - (1) **In general—** - (A) **Audit committee action—** All auditing services (which may entail providing comfort letters in connection with [securities](/usc/15/78c.md?p=a-10) underwritings or statutory [audits](/usc/15/7201.md?p=2) required for [insurance companies](/usc/15/78c.md?p=a-19) for purposes of [State](/usc/15/78c.md?p=a-16) law) and non-[audit](/usc/15/7201.md?p=2) services, other than as provided in [subparagraph (B)](#i-1-B), provided to an [issuer](#f) by the auditor of the [issuer](#f) shall be preapproved by the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](#f). - (B) **De minimis exception—** The preapproval requirement under [subparagraph (A)](#i-1-A) is waived with respect to the provision of non-[audit](/usc/15/7201.md?p=2) services for an [issuer](#f), if— - (i) the aggregate amount of all such non-[audit](/usc/15/7201.md?p=2) services provided to the [issuer](#f) constitutes not more than 5 percent of the total amount of revenues paid by the [issuer](#f) to its auditor during the fiscal year in which the non-[audit](/usc/15/7201.md?p=2) services are provided; - (ii) such services were not recognized by the [issuer](#f) at the time of the engagement to be non-[audit](/usc/15/7201.md?p=2) services; and - (iii) such services are promptly brought to the attention of the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](#f) and approved prior to the completion of the [audit](/usc/15/7201.md?p=2) by the [audit committee](/usc/15/78c.md?p=a-58) or by 1 or more [members](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58) who are [members](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) to whom [authority](/usc/15/3051.md?p=1) to grant such approvals has been delegated by the [audit committee](/usc/15/78c.md?p=a-58). - (2) **Disclosure to investors—** Approval by an [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](#f) under this subsection of a non-[audit](/usc/15/7201.md?p=2) service to be performed by the auditor of the [issuer](#f) shall be disclosed to investors in periodic reports required by [section 78m(a) of this title](/usc/15/78m.md?p=a). - (3) **Delegation authority—** The [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](#f) may delegate to 1 or more designated [members](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58) who are independent [directors](/usc/15/78c.md?p=a-7) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), the [authority](/usc/15/3051.md?p=1) to grant preapprovals required by this subsection. The decisions of any [member](/usc/15/78c.md?p=a-3-A) to whom [authority](/usc/15/3051.md?p=1) is delegated under this paragraph to preapprove an activity under this subsection shall be presented to the full [audit committee](/usc/15/78c.md?p=a-58) at each of its scheduled meetings. - (4) **Approval of audit services for other purposes—** In carrying out its duties under [subsection (m)(2)](#m-2), if the [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](#f) approves an [audit](/usc/15/7201.md?p=2) service within the scope of the engagement of the auditor, such [audit](/usc/15/7201.md?p=2) service shall be deemed to have been preapproved for purposes of this subsection. - (j) **Audit partner rotation—** It shall be unlawful for a [registered public accounting firm](/usc/15/78c.md?p=a-59) to provide [audit](/usc/15/7201.md?p=2) services to an [issuer](#f) if the lead (or coordinating) [audit](/usc/15/7201.md?p=2) partner (having primary responsibility for the [audit](/usc/15/7201.md?p=2)), or the [audit](/usc/15/7201.md?p=2) partner responsible for reviewing the [audit](/usc/15/7201.md?p=2), has performed [audit](/usc/15/7201.md?p=2) services for that [issuer](#f) in each of the 5 previous fiscal years of that [issuer](#f). - (k) **Reports to audit committees—** Each [registered public accounting firm](/usc/15/78c.md?p=a-59) that performs for any [issuer](#f) any [audit](/usc/15/7201.md?p=2) required by this chapter shall timely report to the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](#f)— - (1) all critical accounting policies and practices to be used; - (2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management officials of the [issuer](#f), ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the [registered public accounting firm](/usc/15/78c.md?p=a-59); and - (3) other material written communications between the [registered public accounting firm](/usc/15/78c.md?p=a-59) and the management of the [issuer](#f), such as any management letter or schedule of unadjusted differences. - (l) **Conflicts of interest—** It shall be unlawful for a [registered public accounting firm](/usc/15/78c.md?p=a-59) to perform for an [issuer](#f) any [audit](/usc/15/7201.md?p=2) service required by this chapter, if a chief executive officer, controller, chief financial officer, chief accounting officer, or any [person](/usc/15/78c.md?p=a-9) serving in an equivalent position for the [issuer](#f), was employed by that registered independent public accounting firm and participated in any capacity in the [audit](/usc/15/7201.md?p=2) of that [issuer](#f) during the 1-year period preceding the date of the initiation of the [audit](/usc/15/7201.md?p=2). - (m) **Standards relating to audit committees—** - (1) **Commission rules—** - (A) **In general—** Effective not later than 270 days after July 30, 2002, the [Commission](/usc/15/78c.md?p=a-15) shall, by rule, direct the [national securities exchanges](/usc/15/9009a.md?p=a-5) and national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) to prohibit the listing of any [security](/usc/15/78c.md?p=a-10) of an [issuer](#f) that is not in compliance with the requirements of any portion of [paragraphs (2) through (6)](#m-2..m-6). - (B) **Opportunity to cure defects—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [subparagraph (A)](#m-1-A) shall provide for appropriate procedures for an [issuer](#f) to have an opportunity to cure any defects that would be the basis for a prohibition under [subparagraph (A)](#m-1-A), before the imposition of such prohibition. - (2) **Responsibilities relating to registered public accounting firms—** The [audit committee](/usc/15/78c.md?p=a-58) of each [issuer](#f), in its capacity as a [committee](/usc/15/2921.md?p=1) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), shall be directly responsible for the appointment, compensation, and oversight of the work of any [registered public accounting firm](/usc/15/78c.md?p=a-59) employed by that [issuer](#f) (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an [audit report](/usc/15/7214a.md?p=a-1) or related work, and each such [registered public accounting firm](/usc/15/78c.md?p=a-59) shall report directly to the [audit committee](/usc/15/78c.md?p=a-58). - (3) **Independence—** - (A) **In general—** Each [member](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](#f) shall be a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](#f), and shall otherwise be independent. - (B) **Criteria—** In [order](/usc/15/8702.md?p=14) to be considered to be independent for purposes of this paragraph, a [member](/usc/15/78c.md?p=a-3-A) of an [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](#f) may not, other than in his or her capacity as a [member](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58), the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), or any other [board](/usc/15/78c.md?p=a-73) [committee](/usc/15/2921.md?p=1)— - (i) accept any consulting, advisory, or other compensatory fee from the [issuer](#f); or - (ii) be an [affiliated person](/usc/15/78c.md?p=a-19) of the [issuer](#f) or any subsidiary thereof. - (C) **Exemption authority—** The [Commission](/usc/15/78c.md?p=a-15) may exempt from the requirements of [subparagraph (B)](#m-3-B) a particular relationship with respect to [audit committee](/usc/15/78c.md?p=a-58) [members](/usc/15/78c.md?p=a-3-A), as the [Commission](/usc/15/78c.md?p=a-15) determines appropriate in light of the circumstances. - (4) **Complaints—** Each [audit committee](/usc/15/78c.md?p=a-58) shall establish procedures for— - (A) the receipt, retention, and treatment of complaints received by the [issuer](#f) regarding accounting, internal accounting controls, or auditing matters; and - (B) the confidential, anonymous submission by employees of the [issuer](#f) of concerns regarding questionable accounting or auditing matters. - (5) **Authority to engage advisers—** Each [audit committee](/usc/15/78c.md?p=a-58) shall have the [authority](/usc/15/3051.md?p=1) to engage independent counsel and other advisers, as it determines necessary to carry out its duties. - (6) **Funding—** Each [issuer](#f) shall provide for appropriate funding, as determined by the [audit committee](/usc/15/78c.md?p=a-58), in its capacity as a [committee](/usc/15/2921.md?p=1) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), for payment of compensation— - (A) to the [registered public accounting firm](/usc/15/78c.md?p=a-59) employed by the [issuer](#f) for the purpose of rendering or issuing an [audit report](/usc/15/7214a.md?p=a-1); and - (B) to any advisers employed by the [audit committee](/usc/15/78c.md?p=a-58) under [paragraph (5)](#m-5). # §78j–2. Position limits and position accountability for security-based swaps and large trader reporting - (a) **Position limits—** As a means reasonably designed to prevent fraud and manipulation, the [Commission](/usc/15/78c.md?p=a-15) shall, by rule or regulation, as necessary or appropriate in the public interest or for the protection of investors, establish limits (including related hedge exemption provisions) on the size of positions in any [security-based swap](/usc/15/78c.md?p=a-68-A) that may be held by any [person](/usc/15/78c.md?p=a-9). In establishing such limits, the [Commission](/usc/15/78c.md?p=a-15) may require any [person](/usc/15/78c.md?p=a-9) to aggregate positions in— - (1) any [security-based swap](/usc/15/78c.md?p=a-68-A) and any [security](/usc/15/78c.md?p=a-10) or loan or group of [securities](/usc/15/78c.md?p=a-10) or loans on which such [security-based swap](/usc/15/78c.md?p=a-68-A) is based, which such [security-based swap](/usc/15/78c.md?p=a-68-A) references, or to which such [security-based swap](/usc/15/78c.md?p=a-68-A) is related as described in paragraph (68) of [section 78c(a) of this title](/usc/15/78c.md?p=a), and any other instrument relating to such [security](/usc/15/78c.md?p=a-10) or loan or group or [index](/usc/15/78c.md?p=a-68-E) of [securities](/usc/15/78c.md?p=a-10) or loans; or - (2) any [security-based swap](/usc/15/78c.md?p=a-68-A) and— - (A) any [security](/usc/15/78c.md?p=a-10) or group or [index](/usc/15/78c.md?p=a-68-E) of [securities](/usc/15/78c.md?p=a-10), the price, yield, value, or volatility of which, or of which any interest therein, is the basis for a material term of such [security-based swap](/usc/15/78c.md?p=a-68-A) as described in paragraph (68) of [section 78c(a) of this title](/usc/15/78c.md?p=a); and - (B) any other instrument relating to the same [security](/usc/15/78c.md?p=a-10) or group or [index](/usc/15/78c.md?p=a-68-E) of [securities](/usc/15/78c.md?p=a-10) described under [subparagraph (A)](#a-2-A). - (b) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15), by rule, regulation, or [order](/usc/15/8702.md?p=14), may conditionally or unconditionally exempt any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), any [security-based swap](/usc/15/78c.md?p=a-68-A) or class of [security-based swaps](/usc/15/78c.md?p=a-68-A), or any transaction or class of transactions from any requirement the [Commission](/usc/15/78c.md?p=a-15) may establish under this section with respect to position limits. - (c) **SRO rules—** - (1) **In general—** As a means reasonably designed to prevent fraud or manipulation, the [Commission](/usc/15/78c.md?p=a-15), by rule, regulation, or [order](/usc/15/8702.md?p=14), as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, may direct a [self-regulatory organization](/usc/15/78c.md?p=a-26)— - (A) to adopt rules regarding the size of positions in any [security-based swap](/usc/15/78c.md?p=a-68-A) that may be held by— - (i) any [member](/usc/15/78c.md?p=a-3-A) of such [self-regulatory organization](/usc/15/78c.md?p=a-26); or - (ii) any [person](/usc/15/78c.md?p=a-9) for whom a [member](/usc/15/78c.md?p=a-3-A) of such [self-regulatory organization](/usc/15/78c.md?p=a-26) effects transactions in such [security-based swap](/usc/15/78c.md?p=a-68-A); and - (B) to adopt rules reasonably designed to ensure compliance with requirements prescribed by the [Commission](/usc/15/78c.md?p=a-15) under this subsection. - (2) **Requirement to aggregate positions—** In establishing the limits under [paragraph (1)](#c-1), the [self-regulatory organization](/usc/15/78c.md?p=a-26) may require such [member](/usc/15/78c.md?p=a-3-A) or [person](/usc/15/78c.md?p=a-9) to aggregate positions in— - (A) any [security-based swap](/usc/15/78c.md?p=a-68-A) and any [security](/usc/15/78c.md?p=a-10) or loan or group or [narrow-based security index](/usc/15/78c.md?p=a-55-B) of [securities](/usc/15/78c.md?p=a-10) or loans on which such [security-based swap](/usc/15/78c.md?p=a-68-A) is based, which such [security-based swap](/usc/15/78c.md?p=a-68-A) references, or to which such [security-based swap](/usc/15/78c.md?p=a-68-A) is related as described in [section 78c(a)(68) of this title](/usc/15/78c.md?p=a-68), and any other instrument relating to such [security](/usc/15/78c.md?p=a-10) or loan or group or [narrow-based security index](/usc/15/78c.md?p=a-55-B) of [securities](/usc/15/78c.md?p=a-10) or loans; or - (B) - (i) any [security-based swap](/usc/15/78c.md?p=a-68-A); and - (ii) any [security-based swap](/usc/15/78c.md?p=a-68-A) and any other instrument relating to the same [security](/usc/15/78c.md?p=a-10) or group or [narrow-based security index](/usc/15/78c.md?p=a-55-B) of [securities](/usc/15/78c.md?p=a-10). - (d) **Large trader reporting—** The [Commission](/usc/15/78c.md?p=a-15), by rule or regulation, may require any [person](/usc/15/78c.md?p=a-9) that effects transactions for such [person](/usc/15/78c.md?p=a-9)’s own [account](/usc/15/1681a.md?p=r-4) or the [account](/usc/15/1681a.md?p=r-4) of others in any [securities](/usc/15/78c.md?p=a-10)-based [swap](/usc/15/78c.md?p=a-69) or uncleared [security-based swap](/usc/15/78c.md?p=a-68-A) and any [security](/usc/15/78c.md?p=a-10) or loan or group or [narrow-based security index](/usc/15/78c.md?p=a-55-B) of [securities](/usc/15/78c.md?p=a-10) or loans as set forth in paragraphs [(1)](#a-1) and [(2)](#a-2) of subsection (a) under this section to report such information as the [Commission](/usc/15/78c.md?p=a-15) may prescribe regarding any position or positions in any [security-based swap](/usc/15/78c.md?p=a-68-A) or uncleared [security-based swap](/usc/15/78c.md?p=a-68-A) and any [security](/usc/15/78c.md?p=a-10) or loan or group or [narrow-based security index](/usc/15/78c.md?p=a-55-B) of [securities](/usc/15/78c.md?p=a-10) or loans and any other instrument relating to such [security](/usc/15/78c.md?p=a-10) or loan or group or [narrow-based security index](/usc/15/78c.md?p=a-55-B) of [securities](/usc/15/78c.md?p=a-10) or loans as set forth in paragraphs [(1)](#a-1) and [(2)](#a-2) of subsection (a) under this section. # §78j–3. Compensation committees - (a) **Independence of compensation committees—** - (1) **Listing standards—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, direct the [national securities exchanges](/usc/15/9009a.md?p=a-5) and national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) to prohibit the listing of any [equity security](/usc/15/78c.md?p=a-11) of an [issuer](/usc/15/78c.md?p=a-8), other than an [issuer](/usc/15/78c.md?p=a-8) that is a [controlled company](#g-2), limited partnership, [company](/usc/15/78c.md?p=a-19) in bankruptcy proceedings, open-ended management [investment company](/usc/15/78c.md?p=a-12-A-iii) that is registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], or a foreign private [issuer](/usc/15/78c.md?p=a-8) that provides annual disclosures to shareholders of the reasons that the foreign private [issuer](/usc/15/78c.md?p=a-8) does not have an independent compensation [committee](/usc/15/2921.md?p=1), that does not comply with the requirements of this subsection. - (2) **Independence of compensation committees—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) shall require that each [member](/usc/15/78c.md?p=a-3-A) of the compensation [committee](/usc/15/2921.md?p=1) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8) be— - (A) a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8); and - (B) independent. - (3) **Independence—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) shall require that, in determining the definition of the term “independence” for purposes of [paragraph (2)](#a-2), the [national securities exchanges](/usc/15/9009a.md?p=a-5) and the national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) shall consider relevant factors, including— - (A) the source of compensation of a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8), including any consulting, advisory, or other compensatory fee paid by the [issuer](/usc/15/78c.md?p=a-8) to such [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7); and - (B) whether a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8) is affiliated with the [issuer](/usc/15/78c.md?p=a-8), a subsidiary of the [issuer](/usc/15/78c.md?p=a-8), or an affiliate of a subsidiary of the [issuer](/usc/15/78c.md?p=a-8). - (4) **Exemption authority—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) shall permit a [national securities exchange](/usc/15/9009a.md?p=a-5) or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to exempt a particular relationship from the requirements of [paragraph (2)](#a-2), with respect to the [members](/usc/15/78c.md?p=a-3-A) of a compensation [committee](/usc/15/2921.md?p=1), as the [national securities exchange](/usc/15/9009a.md?p=a-5) or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) determines is appropriate, taking into consideration the size of an [issuer](/usc/15/78c.md?p=a-8) and any other relevant factors. - (b) **Independence of compensation consultants and other compensation committee advisers—** - (1) **In general—** The compensation [committee](/usc/15/2921.md?p=1) of an [issuer](/usc/15/78c.md?p=a-8) may only select a compensation consultant, legal counsel, or other adviser to the compensation [committee](/usc/15/2921.md?p=1) after taking into consideration the factors identified by the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (2)](#b-2). - (2) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall identify factors that affect the [independence](#a-3) of a compensation consultant, legal counsel, or other adviser to a compensation [committee](/usc/15/2921.md?p=1) of an [issuer](/usc/15/78c.md?p=a-8). Such factors shall be competitively neutral among categories of consultants, legal counsel, or other advisers and preserve the ability of compensation [committees](/usc/15/2921.md?p=1) to retain the services of [members](/usc/15/78c.md?p=a-3-A) of any such category, and shall include— - (A) the provision of other services to the [issuer](/usc/15/78c.md?p=a-8) by the [person](/usc/15/78c.md?p=a-9) that employs the compensation consultant, legal counsel, or other adviser; - (B) the amount of fees received from the [issuer](/usc/15/78c.md?p=a-8) by the [person](/usc/15/78c.md?p=a-9) that employs the compensation consultant, legal counsel, or other adviser, as a percentage of the total revenue of the [person](/usc/15/78c.md?p=a-9) that employs the compensation consultant, legal counsel, or other adviser; - (C) the policies and procedures of the [person](/usc/15/78c.md?p=a-9) 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 compensation consultant, legal counsel, or other adviser with a [member](/usc/15/78c.md?p=a-3-A) of the compensation [committee](/usc/15/2921.md?p=1); and - (E) any stock of the [issuer](/usc/15/78c.md?p=a-8) owned by the compensation consultant, legal counsel, or other adviser. - (c) **Compensation committee authority relating to compensation consultants—** - (1) **Authority to retain compensation consultant—** - (A) **In general—** The compensation [committee](/usc/15/2921.md?p=1) of an [issuer](/usc/15/78c.md?p=a-8), in its capacity as a [committee](/usc/15/2921.md?p=1) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), may, in its sole discretion, retain or obtain the advice of a compensation consultant. - (B) **Direct responsibility of compensation committee—** The compensation [committee](/usc/15/2921.md?p=1) of an [issuer](/usc/15/78c.md?p=a-8) 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](/usc/15/2921.md?p=1) to implement or act consistently with the advice or recommendations of the compensation consultant; or - (ii) to affect the ability or obligation of a compensation [committee](/usc/15/2921.md?p=1) to exercise its own judgment in fulfillment of the duties of the compensation [committee](/usc/15/2921.md?p=1). - (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 July 21, 2010, each [issuer](/usc/15/78c.md?p=a-8) shall disclose in the proxy or consent material, in accordance with regulations of the [Commission](/usc/15/78c.md?p=a-15), whether— - (A) the compensation [committee](/usc/15/2921.md?p=1) of the [issuer](/usc/15/78c.md?p=a-8) 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](/usc/15/2921.md?p=1) of an [issuer](/usc/15/78c.md?p=a-8), in its capacity as a [committee](/usc/15/2921.md?p=1) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), may, in its sole discretion, retain and obtain the advice of independent legal counsel and other advisers. - (2) **Direct responsibility of compensation committee—** The compensation [committee](/usc/15/2921.md?p=1) of an [issuer](/usc/15/78c.md?p=a-8) 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](/usc/15/2921.md?p=1) 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](/usc/15/2921.md?p=1) to exercise its own judgment in fulfillment of the duties of the compensation [committee](/usc/15/2921.md?p=1). - (e) **Compensation of compensation consultants, independent legal counsel, and other advisers—** Each [issuer](/usc/15/78c.md?p=a-8) shall provide for appropriate funding, as determined by the compensation [committee](/usc/15/2921.md?p=1) in its capacity as a [committee](/usc/15/2921.md?p=1) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), for payment of reasonable compensation— - (1) to a compensation consultant; and - (2) to independent legal counsel or any other adviser to the compensation [committee](/usc/15/2921.md?p=1). - (f) **Commission rules—** - (1) **In general—** Not later than 360 days after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall, by rule, direct the [national securities exchanges](/usc/15/9009a.md?p=a-5) and national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) to prohibit the listing of any [security](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) that is not in compliance with the requirements of this section. - (2) **Opportunity to cure defects—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#f-1) shall provide for appropriate procedures for an [issuer](/usc/15/78c.md?p=a-8) to have a reasonable opportunity to cure any defects that would be the basis for the prohibition under [paragraph (1)](#f-1), before the imposition of such prohibition. - (3) **Exemption authority—** - (A) **In general—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#f-1) shall permit a [national securities exchange](/usc/15/9009a.md?p=a-5) or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to exempt a category of [issuers](/usc/15/78c.md?p=a-8) from the requirements under this section, as the [national securities exchange](/usc/15/9009a.md?p=a-5) or the national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) determines is appropriate. - (B) **Considerations—** In determining appropriate exemptions under [subparagraph (A)](#f-3-A), the [national securities exchange](/usc/15/9009a.md?p=a-5) or the national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall take into [account](/usc/15/1681a.md?p=r-4) the potential impact of the requirements of this section on smaller reporting [issuers](/usc/15/78c.md?p=a-8). - (g) **Controlled company exemption—** - (1) **In general—** This section shall not apply to any [controlled company](#g-2). - (2) **Definition—** For purposes of this section, the term “controlled company” means an [issuer](/usc/15/78c.md?p=a-8)— - (A) that is listed on a [national securities exchange](/usc/15/9009a.md?p=a-5) or by a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2); and - (B) that holds an election for the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8) in which more than 50 percent of the voting power is held by an individual, a group, or another [issuer](/usc/15/78c.md?p=a-8). # §78j–4. Recovery of erroneously awarded compensation policy - (a) **Listing standards—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, direct the [national securities exchanges](/usc/15/9009a.md?p=a-5) and national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) to prohibit the listing of any [security](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) that does not comply with the requirements of this section. - (b) **Recovery of funds—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [subsection (a)](#a) shall require each [issuer](/usc/15/78c.md?p=a-8) to develop and implement a policy providing— - (1) for disclosure of the policy of the [issuer](/usc/15/78c.md?p=a-8) on incentive-based compensation that is based on financial information required to be reported under the [securities laws](/usc/15/78c.md?p=a-47); and - (2) that, in the event that the [issuer](/usc/15/78c.md?p=a-8) is required to prepare an accounting restatement due to the material noncompliance of the [issuer](/usc/15/78c.md?p=a-8) with any financial reporting requirement under the [securities laws](/usc/15/78c.md?p=a-47), the [issuer](/usc/15/78c.md?p=a-8) will recover from any current or former executive officer of the [issuer](/usc/15/78c.md?p=a-8) who received incentive-based compensation (including stock options awarded as compensation) during the 3-year period preceding the date on which the [issuer](/usc/15/78c.md?p=a-8) is required to prepare an accounting restatement, based on the erroneous data, in[^1] excess of what would have been paid to the executive officer under the accounting restatement. # §78k. Trading by members of exchanges, brokers, and dealers - (a) **Trading for own account or account of associated person; exceptions—** - (1) It shall be unlawful for any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) to effect any transaction on such [exchange](/usc/15/78c.md?p=a-1) for its own [account](/usc/15/1681a.md?p=r-4), the [account](/usc/15/1681a.md?p=r-4) of an associated [person](/usc/15/78c.md?p=a-9), or an [account](/usc/15/1681a.md?p=r-4) with respect to which it or an associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion: Provided, however, That this paragraph shall not make unlawful— - (A) any transaction by a [dealer](/usc/15/78c.md?p=a-5-A) acting in the capacity of [market maker](/usc/15/78c.md?p=a-38); - (B) any transaction for the [account](/usc/15/1681a.md?p=r-4) of an odd-lot [dealer](/usc/15/78c.md?p=a-5-A) in a [security](/usc/15/78c.md?p=a-10) in which he is so registered; - (C) any stabilizing transaction effected in compliance with rules under [section 78j(b) of this title](/usc/15/78j.md?p=b) to facilitate a distribution of a [security](/usc/15/78c.md?p=a-10) in which the [member](/usc/15/78c.md?p=a-3-A) effecting such transaction is participating; - (D) any bona fide arbitrage transaction, any bona fide hedge transaction involving a long or short position in an [equity security](/usc/15/78c.md?p=a-11) and a long or short position in a [security](/usc/15/78c.md?p=a-10) entitling the holder to acquire or [sell](/usc/15/78c.md?p=a-14) such [equity security](/usc/15/78c.md?p=a-11), or any risk arbitrage transaction in connection with a merger, acquisition, tender offer, or similar transaction involving a recapitalization; - (E) any transaction for the [account](/usc/15/1681a.md?p=r-4) of a natural [person](/usc/15/78c.md?p=a-9), the estate of a natural [person](/usc/15/78c.md?p=a-9), or a trust created by a natural [person](/usc/15/78c.md?p=a-9) for himself or another natural [person](/usc/15/78c.md?p=a-9); - (F) any transaction to offset a transaction made in error; - (G) any other transaction for a [member](/usc/15/78c.md?p=a-3-A)’s own [account](/usc/15/1681a.md?p=r-4) provided that (i) such [member](/usc/15/78c.md?p=a-3-A) is primarily engaged in the business of underwriting and distributing [securities](/usc/15/78c.md?p=a-10) issued by other [persons](/usc/15/78c.md?p=a-9), selling [securities](/usc/15/78c.md?p=a-10) to [customers](/usc/15/78c–5.md?p=g), and acting as [broker](/usc/15/78c.md?p=a-4-A), or any one or more of such activities, and whose gross income normally is derived principally from such business and related activities and (ii) such transaction is effected in compliance with rules of the [Commission](/usc/15/78c.md?p=a-15) which, as a minimum, assure that the transaction is not inconsistent with the maintenance of fair and orderly markets and yields priority, parity, and precedence in execution to [orders](/usc/15/8702.md?p=14) for the [account](/usc/15/1681a.md?p=r-4) of [persons](/usc/15/78c.md?p=a-9) who are not [members](/usc/15/78c.md?p=a-3-A) or associated with [members](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1); - (H) any transaction for an [account](/usc/15/1681a.md?p=r-4) with respect to which such [member](/usc/15/78c.md?p=a-3-A) or an associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion if such [member](/usc/15/78c.md?p=a-3-A)— - (i) has obtained, from the [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) authorized to transact business for the [account](/usc/15/1681a.md?p=r-4), express authorization for such [member](/usc/15/78c.md?p=a-3-A) or associated [person](/usc/15/78c.md?p=a-9) to effect such transactions prior to engaging in the practice of effecting such transactions; - (ii) furnishes the [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) authorized to transact business for the [account](/usc/15/1681a.md?p=r-4) with a statement at least annually disclosing the aggregate compensation received by the [exchange](/usc/15/78c.md?p=a-1) [member](/usc/15/78c.md?p=a-3-A) in effecting such transactions; and - (iii) complies with any rules the [Commission](/usc/15/78c.md?p=a-15) has prescribed with respect to the requirements of clauses [(i)](#a-1-H-i) and [(ii)](#a-1-H-ii); and - (I) any other transaction of a kind which the [Commission](/usc/15/78c.md?p=a-15), by rule, determines is consistent with the purposes of this paragraph, the protection of investors, and the maintenance of fair and orderly markets. - (2) The [Commission](/usc/15/78c.md?p=a-15), by rule, as it deems necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to assure equal regulation of [exchange](/usc/15/78c.md?p=a-1) markets and markets occurring otherwise than on an [exchange](/usc/15/78c.md?p=a-1), may regulate or prohibit: - (A) transactions on a [national securities exchange](/usc/15/9009a.md?p=a-5) not unlawful under paragraph (1) of this subsection effected by any [member](/usc/15/78c.md?p=a-3-A) thereof for its own [account](/usc/15/1681a.md?p=r-4) (unless such [member](/usc/15/78c.md?p=a-3-A) is acting in the capacity of [market maker](/usc/15/78c.md?p=a-38) or odd-lot [dealer](/usc/15/78c.md?p=a-5-A)), the [account](/usc/15/1681a.md?p=r-4) of an associated [person](/usc/15/78c.md?p=a-9), or an [account](/usc/15/1681a.md?p=r-4) with respect to which such [member](/usc/15/78c.md?p=a-3-A) or an associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion; - (B) transactions otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5) effected by use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) by any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) for the [account](/usc/15/1681a.md?p=r-4) of such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) (unless such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) is acting in the capacity of a [market maker](/usc/15/78c.md?p=a-38))[^1] the [account](/usc/15/1681a.md?p=r-4) of an associated [person](/usc/15/78c.md?p=a-9), or an [account](/usc/15/1681a.md?p=r-4) with respect to which such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) or associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion; and - (C) transactions on a [national securities exchange](/usc/15/9009a.md?p=a-5) effected by any [broker or dealer](/usc/15/78c.md?p=h-2) not a [member](/usc/15/78c.md?p=a-3-A) thereof for the [account](/usc/15/1681a.md?p=r-4) of such [broker or dealer](/usc/15/78c.md?p=h-2) (unless such [broker or dealer](/usc/15/78c.md?p=h-2) is acting in the capacity of [market maker](/usc/15/78c.md?p=a-38)), the [account](/usc/15/1681a.md?p=r-4) of an associated [person](/usc/15/78c.md?p=a-9), or an [account](/usc/15/1681a.md?p=r-4) with respect to which such [broker or dealer](/usc/15/78c.md?p=h-2) or associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion. - (3) The provisions of paragraph (1) of this subsection insofar as they apply to transactions on a [national securities exchange](/usc/15/9009a.md?p=a-5) effected by a [member](/usc/15/78c.md?p=a-3-A) thereof who was a [member](/usc/15/78c.md?p=a-3-A) on February 1, 1978 shall not become effective until February 1, 1979. Nothing in this paragraph shall be construed to impair or limit the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) to regulate or prohibit such transactions prior to February 1, 1979, pursuant to paragraph (2) of this subsection. - (b) **Registration of members as odd-lot dealers and specialists—** When not in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to remove impediments to and perfect the mechanism of a national market system, the rules of a [national securities exchange](/usc/15/9009a.md?p=a-5) may permit (1) a [member](/usc/15/78c.md?p=a-3-A) to be registered as an odd-lot [dealer](/usc/15/78c.md?p=a-5-A) and as such to buy and [sell](/usc/15/78c.md?p=a-14) for his own [account](/usc/15/1681a.md?p=r-4) so far as may be reasonably necessary to carry on such odd-lot transactions, and (2) a [member](/usc/15/78c.md?p=a-3-A) to be registered as a specialist. Under the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) a specialist may be permitted to act as a [broker](/usc/15/78c.md?p=a-4-A) and [dealer](/usc/15/78c.md?p=a-5-A) or limited to acting as a [broker or dealer](/usc/15/78c.md?p=h-2). It shall be unlawful for a specialist or an official of the [exchange](/usc/15/78c.md?p=a-1) to disclose information in regard to [orders](/usc/15/8702.md?p=14) placed with such specialist which is not available to all [members](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1), to any [person](/usc/15/78c.md?p=a-9) other than an official of the [exchange](/usc/15/78c.md?p=a-1), a representative of the [Commission](/usc/15/78c.md?p=a-15), or a specialist who may be acting for such specialist: Provided, however, That the [Commission](/usc/15/78c.md?p=a-15), by rule, may require disclosure to all [members](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1) of all [orders](/usc/15/8702.md?p=14) placed with specialists, under such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. It shall also be unlawful for a specialist permitted to act as a [broker](/usc/15/78c.md?p=a-4-A) and [dealer](/usc/15/78c.md?p=a-5-A) to effect on the [exchange](/usc/15/78c.md?p=a-1) as [broker](/usc/15/78c.md?p=a-4-A) any transaction except upon a market or limited price [order](/usc/15/8702.md?p=14). - (c) **Exemptions from provisions of section and rules and regulations—** If because of the limited volume of transactions effected on an [exchange](/usc/15/78c.md?p=a-1), it is in the opinion of the [Commission](/usc/15/78c.md?p=a-15) impracticable and not necessary or appropriate in the public interest or for the protection of investors to apply any of the foregoing provisions of this section or the rules and regulations thereunder, the [Commission](/usc/15/78c.md?p=a-15) shall have power, upon [application](/usc/15/77ccc.md?p=8) of the [exchange](/usc/15/78c.md?p=a-1) and on a showing that the rules of such [exchange](/usc/15/78c.md?p=a-1) are otherwise adequate for the protection of investors, to exempt such [exchange](/usc/15/78c.md?p=a-1) and its [members](/usc/15/78c.md?p=a-3-A) from any such provision or rules and regulations. - (d) **Prohibition on extension of credit by broker-dealer—** It shall be unlawful for a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) who is both a [dealer](/usc/15/78c.md?p=a-5-A) and a [broker](/usc/15/78c.md?p=a-4-A), or for any [person](/usc/15/78c.md?p=a-9) who both as a [broker](/usc/15/78c.md?p=a-4-A) and a [dealer](/usc/15/78c.md?p=a-5-A) transacts a business in [securities](/usc/15/78c.md?p=a-10) through the medium of a [member](/usc/15/78c.md?p=a-3-A) or otherwise, to effect through the use of any [facility](/usc/15/78c.md?p=a-2) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or of the mails or of any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17), or otherwise in the case of a [member](/usc/15/78c.md?p=a-3-A), (1) any transaction in connection with which, directly or indirectly, he extends or maintains or arranges for the extension or maintenance of [credit](/usc/15/1679a.md?p=4) to or for a [customer](/usc/15/78c–5.md?p=g) on any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) which was a part of a new issue in the distribution of which he participated as a [member](/usc/15/78c.md?p=a-3-A) of a selling syndicate or group within thirty days prior to such transaction: Provided, That [credit](/usc/15/1679a.md?p=4) shall not be deemed extended by reason of a bona fide delayed delivery of (i) any such [security](/usc/15/78c.md?p=a-10) against full payment of the entire [purchase](/usc/15/78c.md?p=a-13) price thereof upon such delivery within thirty-five days after such [purchase](/usc/15/78c.md?p=a-13) or (ii) any [mortgage related security](/usc/15/78c.md?p=a-41) or any [small business related security](/usc/15/78c.md?p=a-53-A) against full payment of the entire [purchase](/usc/15/78c.md?p=a-13) price thereof upon such delivery within one hundred and eighty days after such [purchase](/usc/15/78c.md?p=a-13), or within such shorter period as the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule or regulation, or (2) any transaction with respect to any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) unless, if the transaction is with a [customer](/usc/15/78c–5.md?p=g), he discloses to such [customer](/usc/15/78c–5.md?p=g) in writing at or before the completion of the transaction whether he is acting as a [dealer](/usc/15/78c.md?p=a-5-A) for his own [account](/usc/15/1681a.md?p=r-4), as a [broker](/usc/15/78c.md?p=a-4-A) for such [customer](/usc/15/78c–5.md?p=g), or as a [broker](/usc/15/78c.md?p=a-4-A) for some other [person](/usc/15/78c.md?p=a-9). # §78k–1. National market system for securities; securities information processors - (a) **Congressional findings; facilitating establishment of national market system for securities; designation of qualified securities—** - (1) The Congress finds that— - (A) The [securities](/usc/15/78c.md?p=a-10) markets are an important national asset which must be preserved and strengthened. - (B) New data processing and communications techniques create the opportunity for more efficient and effective market operations. - (C) It is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure— - (i) economically efficient execution of [securities](/usc/15/78c.md?p=a-10) transactions; - (ii) fair competition among [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A), among [exchange](/usc/15/78c.md?p=a-1) markets, and between [exchange](/usc/15/78c.md?p=a-1) markets and markets other than [exchange](/usc/15/78c.md?p=a-1) markets; - (iii) the availability to [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), and investors of information with respect to quotations for and transactions in [securities](/usc/15/78c.md?p=a-10); - (iv) the practicability of [brokers](/usc/15/78c.md?p=a-4-A) executing investors’ [orders](/usc/15/8702.md?p=14) in the best market; and - (v) an opportunity, consistent with the provisions of clauses (i) and (iv) of this subparagraph, for investors’ [orders](/usc/15/8702.md?p=14) to be executed without the participation of a [dealer](/usc/15/78c.md?p=a-5-A). - (D) The linking of all markets for qualified [securities](/usc/15/78c.md?p=a-10) through communication and data processing [facilities](/usc/15/78c.md?p=a-2) will foster efficiency, enhance competition, increase the information available to [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), and investors, facilitate the offsetting of investors’ [orders](/usc/15/8702.md?p=14), and contribute to best execution of such [orders](/usc/15/8702.md?p=14). - (2) The [Commission](/usc/15/78c.md?p=a-15) is directed, therefore, having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets, to use its [authority](/usc/15/3051.md?p=1) under this chapter to facilitate the establishment of a national market system for [securities](/usc/15/78c.md?p=a-10) (which may include subsystems for particular types of [securities](/usc/15/78c.md?p=a-10) with unique trading characteristics) in accordance with the findings and to carry out the objectives set forth in paragraph (1) of this subsection. The [Commission](/usc/15/78c.md?p=a-15), by rule, shall designate the [securities](/usc/15/78c.md?p=a-10) or classes of [securities](/usc/15/78c.md?p=a-10) qualified for trading in the national market system from among [securities](/usc/15/78c.md?p=a-10) other than [exempted securities](/usc/15/78c.md?p=a-12-A). ([Securities](/usc/15/78c.md?p=a-10) or classes of [securities](/usc/15/78c.md?p=a-10) so designated hereinafter[^1] in this section referred to as “qualified [securities](/usc/15/78c.md?p=a-10)”.) - (3) The [Commission](/usc/15/78c.md?p=a-15) is authorized in furtherance of the directive in paragraph (2) of this subsection— - (A) to create one or more [advisory committees](/usc/15/8801.md?p=1) pursuant to [chapter 10](/usc/5/chptI-ch10.md) of title 5 (which shall be in addition to the National Market Advisory [Board](/usc/15/78c.md?p=a-73) established pursuant to [subsection (d)](#d) of this section),[^2] and to employ one or more outside experts; - (B) by rule or [order](/usc/15/8702.md?p=14), to authorize or require [self-regulatory organizations](/usc/15/78c.md?p=a-26) to act jointly with respect to matters as to which they share [authority](/usc/15/3051.md?p=1) under this chapter in planning, developing, operating, or regulating a national market system (or a subsystem thereof) or one or more [facilities](/usc/15/78c.md?p=a-2) thereof; and - (C) to conduct studies and make recommendations to the Congress from time to time as to the possible need for modifications of the scheme of self-regulation provided for in this chapter so as to adapt it to a national market system. - (b) **Securities information processors; registration; withdrawal of registration; access to services; censure; suspension or revocation of registration—** - (1) Except as otherwise provided in this section, it shall be unlawful for any [securities information processor](/usc/15/78c.md?p=a-22-A) unless registered in accordance with this subsection, directly or indirectly, to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to perform the functions of a [securities information processor](/usc/15/78c.md?p=a-22-A). The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [securities information processor](/usc/15/78c.md?p=a-22-A) or class of [securities information processors](/usc/15/78c.md?p=a-22-A) or [security](/usc/15/78c.md?p=a-10) or class of [securities](/usc/15/78c.md?p=a-10) from any provision of this section or the rules or regulations thereunder, if the [Commission](/usc/15/78c.md?p=a-15) finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of this section, including the maintenance of fair and orderly markets in [securities](/usc/15/78c.md?p=a-10) and the removal of impediments to and perfection of the mechanism of a national market system: Provided, however, That a [securities information processor](/usc/15/78c.md?p=a-22-A) not acting as the [exclusive processor](/usc/15/78c.md?p=a-22-B) of any information with respect to quotations for or transactions in [securities](/usc/15/78c.md?p=a-10) is exempt from the requirement to register in accordance with this subsection unless the [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), finds that the registration of such [securities information processor](/usc/15/78c.md?p=a-22-A) is necessary or appropriate in the public interest, for the protection of investors, or for the achievement of the purposes of this section. - (2) A [securities information processor](/usc/15/78c.md?p=a-22-A) may be registered by filing with the [Commission](/usc/15/78c.md?p=a-15) an [application](/usc/15/77ccc.md?p=8) for registration in such form as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe containing the address of its principal office, or offices, the names of the [securities](/usc/15/78c.md?p=a-10) and markets for which it is then acting and for which it proposes to act as a [securities information processor](/usc/15/78c.md?p=a-22-A), and such other information and documents as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe with regard to performance capability, standards and procedures for the collection, processing, distribution, and publication of information with respect to quotations for and transactions in [securities](/usc/15/78c.md?p=a-10), personnel qualifications, financial condition, and such other matters as the [Commission](/usc/15/78c.md?p=a-15) determines to be germane to the provisions of this chapter and the rules and regulations thereunder, or necessary or appropriate in furtherance of the purposes of this section. - (3) The [Commission](/usc/15/78c.md?p=a-15) shall, upon the filing of an [application](/usc/15/77ccc.md?p=8) for registration pursuant to paragraph (2) of this subsection, publish notice of the filing and afford interested [persons](/usc/15/78c.md?p=a-9) an opportunity to submit written data, views, and arguments concerning such [application](/usc/15/77ccc.md?p=8). Within ninety days of the date of the publication of such notice (or within such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents) the [Commission](/usc/15/78c.md?p=a-15) shall— - (A) by [order](/usc/15/8702.md?p=14) grant such registration, or - (B) [institute](/usc/15/9401.md?p=7) proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred eighty days of the date of publication of notice of the filing of the [application](/usc/15/77ccc.md?p=8) for registration. At the conclusion of such proceedings the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall grant or deny such registration. The [Commission](/usc/15/78c.md?p=a-15) may extend the time for the conclusion of such proceedings for up to sixty days if it finds good cause for such extension and publishes its reasons for so finding or for such longer periods as to which the [applicant](/usc/15/7a.md?p=3) consents. The [Commission](/usc/15/78c.md?p=a-15) shall grant the registration of a [securities information processor](/usc/15/78c.md?p=a-22-A) if the [Commission](/usc/15/78c.md?p=a-15) finds that such [securities information processor](/usc/15/78c.md?p=a-22-A) is so organized, and has the capacity, to be able to assure the prompt, accurate, and reliable performance of its functions as a [securities information processor](/usc/15/78c.md?p=a-22-A), comply with the provisions of this chapter and the rules and regulations thereunder, carry out its functions in a manner consistent with the purposes of this section, and, insofar as it is acting as an [exclusive processor](/usc/15/78c.md?p=a-22-B), operate fairly and efficiently. The [Commission](/usc/15/78c.md?p=a-15) shall deny the registration of a [securities information processor](/usc/15/78c.md?p=a-22-A) if the [Commission](/usc/15/78c.md?p=a-15) does not make any such finding. - (4) A registered [securities information processor](/usc/15/78c.md?p=a-22-A) may, upon such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) deems necessary or appropriate in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the [Commission](/usc/15/78c.md?p=a-15). If the [Commission](/usc/15/78c.md?p=a-15) finds that any registered [securities information processor](/usc/15/78c.md?p=a-22-A) is no longer in existence or has ceased to do business in the capacity specified in its [application](/usc/15/77ccc.md?p=8) for registration, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall cancel the registration. - (5) - (A) If any registered [securities information processor](/usc/15/78c.md?p=a-22-A) prohibits or limits any [person](/usc/15/78c.md?p=a-9) in respect of access to services offered, directly or indirectly, by such [securities information processor](/usc/15/78c.md?p=a-22-A), the registered [securities information processor](/usc/15/78c.md?p=a-22-A) shall promptly file notice thereof with the [Commission](/usc/15/78c.md?p=a-15). The notice shall be in such form and contain such information as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Any prohibition or limitation on access to services with respect to which a registered [securities information processor](/usc/15/78c.md?p=a-22-A) is required by this paragraph to file notice shall be subject to review by the [Commission](/usc/15/78c.md?p=a-15) on its own motion, or upon [application](/usc/15/77ccc.md?p=8) by any [person](/usc/15/78c.md?p=a-9) aggrieved thereby filed within thirty days after such notice has been filed with the [Commission](/usc/15/78c.md?p=a-15) and received by such aggrieved [person](/usc/15/78c.md?p=a-9), or within such longer period as the [Commission](/usc/15/78c.md?p=a-15) may determine. [Application](/usc/15/77ccc.md?p=8) to the [Commission](/usc/15/78c.md?p=a-15) for review, or the institution of review by the [Commission](/usc/15/78c.md?p=a-15) on its own motion, shall not operate as a stay of such prohibition or limitation, unless the [Commission](/usc/15/78c.md?p=a-15) otherwise [orders](/usc/15/8702.md?p=14), summarily or after notice and opportunity for hearing on the question of a stay (which hearing may consist solely of the submission of affidavits or presentation of oral arguments). The [Commission](/usc/15/78c.md?p=a-15) shall establish for appropriate cases an expedited procedure for consideration and determination of the question of a stay. - (B) In any proceeding to review the prohibition or limitation of any [person](/usc/15/78c.md?p=a-9) in respect of access to services offered by a registered [securities information processor](/usc/15/78c.md?p=a-22-A), if the [Commission](/usc/15/78c.md?p=a-15) finds, after notice and opportunity for hearing, that such prohibition or limitation is consistent with the provisions of this chapter and the rules and regulations thereunder and that such [person](/usc/15/78c.md?p=a-9) has not been discriminated against unfairly, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall dismiss the proceeding. If the [Commission](/usc/15/78c.md?p=a-15) does not make any such finding or if it finds that such prohibition or limitation imposes any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall set aside the prohibition or limitation and require the registered [securities information processor](/usc/15/78c.md?p=a-22-A) to permit such [person](/usc/15/78c.md?p=a-9) access to services offered by the registered [securities information processor](/usc/15/78c.md?p=a-22-A). - (6) The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), may censure or place limitations upon the activities, functions, or operations of any registered [securities information processor](/usc/15/78c.md?p=a-22-A) or suspend for a period not exceeding twelve months or revoke the registration of any such processor, if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is in the public interest, necessary or appropriate for the protection of investors or to assure the prompt, accurate, or reliable performance of the functions of such [securities information processor](/usc/15/78c.md?p=a-22-A), and that such [securities information processor](/usc/15/78c.md?p=a-22-A) has violated or is unable to comply with any provision of this chapter or the rules or regulations thereunder. - (c) **Rules and regulations covering use of mails or other means or instrumentalities of interstate commerce; reports of purchase or sale of qualified securities; limiting registered securities transactions to national securities exchanges—** - (1) No [self-regulatory organization](/usc/15/78c.md?p=a-26), [member](/usc/15/78c.md?p=a-3-A) thereof, [securities information processor](/usc/15/78c.md?p=a-22-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to collect, process, distribute, publish, or prepare for distribution or publication any information with respect to quotations for or transactions in any [security](/usc/15/78c.md?p=a-10) other than an [exempted security](/usc/15/78c.md?p=a-12-A), to assist, participate in, or coordinate the distribution or publication of such information, or to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any such [security](/usc/15/78c.md?p=a-10) in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter to— - (A) prevent the use, distribution, or publication of fraudulent, deceptive, or manipulative information with respect to quotations for and transactions in such [securities](/usc/15/78c.md?p=a-10); - (B) assure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such [securities](/usc/15/78c.md?p=a-10) and the fairness and usefulness of the form and content of such information; - (C) assure that all [securities information processors](/usc/15/78c.md?p=a-22-A) may, for purposes of distribution and publication, obtain on fair and reasonable terms such information with respect to quotations for and transactions in such [securities](/usc/15/78c.md?p=a-10) as is collected, processed, or prepared for distribution or publication by any [exclusive processor](/usc/15/78c.md?p=a-22-B) of such information acting in such capacity; - (D) assure that all [exchange](/usc/15/78c.md?p=a-1) [members](/usc/15/78c.md?p=a-3-A), [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), [securities information processors](/usc/15/78c.md?p=a-22-A), and, subject to such limitations as the [Commission](/usc/15/78c.md?p=a-15), by rule, may impose as necessary or appropriate for the protection of investors or maintenance of fair and orderly markets, all other [persons](/usc/15/78c.md?p=a-9) may obtain on terms which are not unreasonably discriminatory such information with respect to quotations for and transactions in such [securities](/usc/15/78c.md?p=a-10) as is published or distributed by any [self-regulatory organization](/usc/15/78c.md?p=a-26) or [securities information processor](/usc/15/78c.md?p=a-22-A); - (E) assure that all [exchange](/usc/15/78c.md?p=a-1) [members](/usc/15/78c.md?p=a-3-A), [brokers](/usc/15/78c.md?p=a-4-A), and [dealers](/usc/15/78c.md?p=a-5-A) transmit and direct [orders](/usc/15/8702.md?p=14) for the [purchase](/usc/15/78c.md?p=a-13) or sale of qualified [securities](/usc/15/78c.md?p=a-10) in a manner consistent with the establishment and operation of a national market system; and - (F) assure equal regulation of all markets for qualified [securities](/usc/15/78c.md?p=a-10) and all [exchange](/usc/15/78c.md?p=a-1) [members](/usc/15/78c.md?p=a-3-A), [brokers](/usc/15/78c.md?p=a-4-A), and [dealers](/usc/15/78c.md?p=a-5-A) effecting transactions in such [securities](/usc/15/78c.md?p=a-10). - (2) The [Commission](/usc/15/78c.md?p=a-15), by rule, as it deems necessary or appropriate in the public interest or for the protection of investors, may require any [person](/usc/15/78c.md?p=a-9) who has effected the [purchase](/usc/15/78c.md?p=a-13) or sale of any qualified [security](/usc/15/78c.md?p=a-10) by use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to report such [purchase](/usc/15/78c.md?p=a-13) or sale to a registered [securities information processor](/usc/15/78c.md?p=a-22-A), [national securities exchange](/usc/15/9009a.md?p=a-5), or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) and require such processor, [exchange](/usc/15/78c.md?p=a-1), or [association](/usc/15/657h.md?p=a-2) to make appropriate distribution and publication of information with respect to such [purchase](/usc/15/78c.md?p=a-13) or sale. - (3) - (A) The [Commission](/usc/15/78c.md?p=a-15), by rule, is authorized to prohibit [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) from effecting transactions in [securities](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l(b)](/usc/15/78l.md?p=b) of this title otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that— - (i) as a result of transactions in such [securities](/usc/15/78c.md?p=a-10) effected otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5) the fairness or orderliness of the markets for such [securities](/usc/15/78c.md?p=a-10) has been affected in a manner contrary to the public interest or the protection of investors; - (ii) no rule of any [national securities exchange](/usc/15/9009a.md?p=a-5) unreasonably impairs the ability of any [dealer](/usc/15/78c.md?p=a-5-A) to solicit or effect transactions in such [securities](/usc/15/78c.md?p=a-10) for his own [account](/usc/15/1681a.md?p=r-4) or unreasonably restricts competition among [dealers](/usc/15/78c.md?p=a-5-A) in such [securities](/usc/15/78c.md?p=a-10) or between [dealers](/usc/15/78c.md?p=a-5-A) acting in the capacity of [market makers](/usc/15/78c.md?p=a-38) who are specialists in such [securities](/usc/15/78c.md?p=a-10) and such [dealers](/usc/15/78c.md?p=a-5-A) who are not specialists in such [securities](/usc/15/78c.md?p=a-10), and - (iii) the maintenance or restoration of fair and orderly markets in such [securities](/usc/15/78c.md?p=a-10) may not be assured through other lawful means under this chapter. The [Commission](/usc/15/78c.md?p=a-15) may conditionally or unconditionally exempt any [security](/usc/15/78c.md?p=a-10) or transaction or any class of [securities](/usc/15/78c.md?p=a-10) or transactions from any such prohibition if the [Commission](/usc/15/78c.md?p=a-15) deems such exemption consistent with the public interest, the protection of investors, and the maintenance of fair and orderly markets. - (B) For the purposes of subparagraph (A) of this paragraph, the ability of a [dealer](/usc/15/78c.md?p=a-5-A) to solicit or effect transactions in [securities](/usc/15/78c.md?p=a-10) for his own [account](/usc/15/1681a.md?p=r-4) shall not be deemed to be unreasonably impaired by any rule of an [exchange](/usc/15/78c.md?p=a-1) fairly and reasonably prescribing the sequence in which [orders](/usc/15/8702.md?p=14) brought to the [exchange](/usc/15/78c.md?p=a-1) must be executed or which has been adopted to effect compliance with a rule of the [Commission](/usc/15/78c.md?p=a-15) promulgated under this chapter. - (4) The [Commission](/usc/15/78c.md?p=a-15) is directed to review any and all rules of [national securities exchanges](/usc/15/9009a.md?p=a-5) which limit or condition the ability of [members](/usc/15/78c.md?p=a-3-A) to effect transactions in [securities](/usc/15/78c.md?p=a-10) otherwise than on such [exchanges](/usc/15/78c.md?p=a-1). - (5) No [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may limit or condition the participation of any [member](/usc/15/78c.md?p=a-3-A) in any registered [clearing agency](/usc/15/78c.md?p=a-23-A). - (6) **Tick size.—** - (A) **Study and report.—** The [Commission](/usc/15/78c.md?p=a-15) shall conduct a study examining the transition to trading and quoting [securities](/usc/15/78c.md?p=a-10) in one penny increments, also known as decimalization. The study shall examine the impact that decimalization has had on the number of initial public offerings since its implementation relative to the period before its implementation. The study shall also examine the impact that this change has had on liquidity for small and middle capitalization [company](/usc/15/78c.md?p=a-19) [securities](/usc/15/78c.md?p=a-10) and whether there is sufficient economic incentive to support trading operations in these [securities](/usc/15/78c.md?p=a-10) in penny increments. Not later than 90 days after April 5, 2012, the [Commission](/usc/15/78c.md?p=a-15) shall submit to Congress a report on the findings of the study. - (B) **Designation.—** If the [Commission](/usc/15/78c.md?p=a-15) determines that the [securities](/usc/15/78c.md?p=a-10) of [emerging growth companies](/usc/15/78c.md?p=a-80) should be quoted and traded using a minimum increment of greater than $0.01, the [Commission](/usc/15/78c.md?p=a-15) may, by rule not later than 180 days after April 5, 2012, designate a minimum increment for the [securities](/usc/15/78c.md?p=a-10) of [emerging growth companies](/usc/15/78c.md?p=a-80) that is greater than $0.01 but less than $0.10 for use in all quoting and trading of [securities](/usc/15/78c.md?p=a-10) in any [exchange](/usc/15/78c.md?p=a-1) or other execution venue. - (d) **National Market Advisory Board—** - (1) Not later than one hundred eighty days after June 4, 1975, the [Commission](/usc/15/78c.md?p=a-15) shall establish a National Market Advisory [Board](/usc/15/78c.md?p=a-73) (hereinafter in this section referred to as the “Advisory [Board](/usc/15/78c.md?p=a-73)”) to be composed of fifteen [members](/usc/15/78c.md?p=a-3-A), not all of whom shall be from the same geographical area of the United States, appointed by the [Commission](/usc/15/78c.md?p=a-15) for a term specified by the [Commission](/usc/15/78c.md?p=a-15) of not less than two years or more than five years. The Advisory [Board](/usc/15/78c.md?p=a-73) shall consist of [persons](/usc/15/78c.md?p=a-9) associated with [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) (who shall be a majority) and [persons](/usc/15/78c.md?p=a-9) not so associated who are representative of the public and, to the extent feasible, have knowledge of the [securities](/usc/15/78c.md?p=a-10) markets of the United States. - (2) It shall be the responsibility of the Advisory [Board](/usc/15/78c.md?p=a-73) to formulate and furnish to the [Commission](/usc/15/78c.md?p=a-15) its views on significant regulatory proposals made by the [Commission](/usc/15/78c.md?p=a-15) or any [self-regulatory organization](/usc/15/78c.md?p=a-26) concerning the establishment, operation, and regulation of the markets for [securities](/usc/15/78c.md?p=a-10) in the United States. - (3) - (A) The Advisory [Board](/usc/15/78c.md?p=a-73) shall study and make recommendations to the [Commission](/usc/15/78c.md?p=a-15) as to the steps it finds appropriate to facilitate the establishment of a national market system. In so doing, the Advisory [Board](/usc/15/78c.md?p=a-73) shall assume the responsibilities of any [advisory committee](/usc/15/8801.md?p=1) appointed to advise the [Commission](/usc/15/78c.md?p=a-15) with respect to the national market system which is in existence at the time of the establishment of the Advisory [Board](/usc/15/78c.md?p=a-73). - (B) The Advisory [Board](/usc/15/78c.md?p=a-73) shall study the possible need for modifications of the scheme of self-regulation provided for in this chapter so as to adapt it to a national market system, including the need for the establishment of a new [self-regulatory organization](/usc/15/78c.md?p=a-26) (hereinafter in this section referred to as a “National Market Regulatory [Board](/usc/15/78c.md?p=a-73)” or “Regulatory [Board](/usc/15/78c.md?p=a-73)”) to administer the national market system. In the event the Advisory [Board](/usc/15/78c.md?p=a-73) determines a National Market Regulatory [Board](/usc/15/78c.md?p=a-73) should be established, it shall make recommendations as to: - (i) the point in time at which a Regulatory [Board](/usc/15/78c.md?p=a-73) should be established; - (ii) the composition of a Regulatory [Board](/usc/15/78c.md?p=a-73); - (iii) the scope of the [authority](/usc/15/3051.md?p=1) of a Regulatory [Board](/usc/15/78c.md?p=a-73); - (iv) the relationship of a Regulatory [Board](/usc/15/78c.md?p=a-73) to the [Commission](/usc/15/78c.md?p=a-15) and to existing [self-regulatory organizations](/usc/15/78c.md?p=a-26); and - (v) the manner in which a Regulatory [Board](/usc/15/78c.md?p=a-73) should be funded. The Advisory [Board](/usc/15/78c.md?p=a-73) shall report to the Congress, on or before December 31, 1976, the results of such study and its recommendations, including such recommendations for legislation as it deems appropriate. - (C) In carrying out its responsibilities under this paragraph, the Advisory [Board](/usc/15/78c.md?p=a-73) shall consult with [self-regulatory organizations](/usc/15/78c.md?p=a-26), [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), [securities information processors](/usc/15/78c.md?p=a-22-A), [issuers](/usc/15/78c.md?p=a-8), investors, representatives of Government agencies, and other [persons](/usc/15/78c.md?p=a-9) interested or likely to participate in the establishment, operation, or regulation of the national market system. - (e) **National markets system for security futures products—** - (1) **Consultation and cooperation required—** With respect to [security futures products](/usc/15/78c.md?p=a-56), the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) shall consult and cooperate so that, to the maximum extent practicable, their respective regulatory responsibilities may be fulfilled and the rules and regulations applicable to [security futures products](/usc/15/78c.md?p=a-56) may foster a national market system for [security futures products](/usc/15/78c.md?p=a-56) if the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) jointly determine that such a system would be consistent with the congressional findings in [subsection (a)(1)](#a-1). In accordance with this objective, the [Commission](/usc/15/78c.md?p=a-15) shall, at least 15 days prior to the issuance for public comment of any proposed rule or regulation under this section concerning [security futures products](/usc/15/78c.md?p=a-56), consult and request the views of the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15). - (2) **Application of rules by order of CFTC—** No rule adopted pursuant to this section shall be applied to any [person](/usc/15/78c.md?p=a-9) with respect to the trading of [security futures products](/usc/15/78c.md?p=a-56) on an [exchange](/usc/15/78c.md?p=a-1) that is registered under [section 78f(g) of this title](/usc/15/78f.md?p=g) unless the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) has issued an [order](/usc/15/8702.md?p=14) directing that such rule is applicable to such [persons](/usc/15/78c.md?p=a-9). # §78l. Registration requirements for securities - (a) **General requirement of registration—** It shall be unlawful for any [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) to effect any transaction in any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) on a [national securities exchange](/usc/15/9009a.md?p=a-5) unless a registration is effective as to such [security](/usc/15/78c.md?p=a-10) for such [exchange](/usc/15/78c.md?p=a-1) in accordance with the provisions of this chapter and the rules and regulations thereunder. The provisions of this subsection shall not apply in respect of a [security futures product](/usc/15/78c.md?p=a-56) traded on a [national securities exchange](/usc/15/9009a.md?p=a-5). - (b) **Procedure for registration; information—** A [security](/usc/15/78c.md?p=a-10) may be registered on a [national securities exchange](/usc/15/9009a.md?p=a-5) by the [issuer](/usc/15/78c.md?p=a-8) filing an [application](/usc/15/77ccc.md?p=8) with the [exchange](/usc/15/78c.md?p=a-1) (and filing with the [Commission](/usc/15/78c.md?p=a-15) such duplicate originals thereof as the [Commission](/usc/15/78c.md?p=a-15) may require), which [application](/usc/15/77ccc.md?p=8) shall contain— - (1) Such information, in such detail, as to the [issuer](/usc/15/78c.md?p=a-8) and any [person](/usc/15/78c.md?p=a-9) directly or indirectly controlling or controlled by, or under direct or indirect common control with, the [issuer](/usc/15/78c.md?p=a-8), and any guarantor of the [security](/usc/15/78c.md?p=a-10) as to principal or interest or both, as the [Commission](/usc/15/78c.md?p=a-15) may by rules and regulations require, as necessary or appropriate in the public interest or for the protection of investors, in respect of the following: - (A) the organization, financial structure, and nature of the business; - (B) the terms, position, rights, and privileges of the different classes of [securities](/usc/15/78c.md?p=a-10) outstanding; - (C) the terms on which their [securities](/usc/15/78c.md?p=a-10) are to be, and during the preceding three years have been, offered to the public or otherwise; - (D) the [directors](/usc/15/78c.md?p=a-7), officers, and [underwriters](/usc/15/78c.md?p=a-20), and each [security](/usc/15/78c.md?p=a-10) holder of record holding more than 10 per centum of any class of any [equity security](/usc/15/78c.md?p=a-11) of the [issuer](/usc/15/78c.md?p=a-8) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)), their remuneration and their interests in the [securities](/usc/15/78c.md?p=a-10) of, and their material contracts with, the [issuer](/usc/15/78c.md?p=a-8) and any [person](/usc/15/78c.md?p=a-9) directly or indirectly controlling or controlled by, or under direct or indirect common control with, the [issuer](/usc/15/78c.md?p=a-8); - (E) remuneration to others than [directors](/usc/15/78c.md?p=a-7) and officers exceeding $20,000 per annum; - (F) bonus and profit-sharing arrangements; - (G) management and service contracts; - (H) options existing or to be created in respect of their [securities](/usc/15/78c.md?p=a-10); - (I) material contracts, not made in the ordinary course of business, which are to be executed in whole or in part at or after the filing of the [application](/usc/15/77ccc.md?p=8) or which were made not more than two years before such filing, and every material patent or contract for a material patent right shall be deemed a material contract; - (J) balance sheets for not more than the three preceding fiscal years, certified if required by the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) by a [registered public accounting firm](/usc/15/78c.md?p=a-59); - (K) profit and loss statements for not more than the three preceding fiscal years, certified if required by the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) by a [registered public accounting firm](/usc/15/78c.md?p=a-59); and - (L) any further financial statements which the [Commission](/usc/15/78c.md?p=a-15) may deem necessary or appropriate for the protection of investors. - (2) Such copies of articles of incorporation, bylaws, trust indentures, or corresponding documents by whatever name known, underwriting arrangements, and other similar documents of, and voting trust [agreements](/usc/15/7a.md?p=2) with respect to, the [issuer](/usc/15/78c.md?p=a-8) and any [person](/usc/15/78c.md?p=a-9) directly or indirectly controlling or controlled by, or under direct or indirect common control with, the [issuer](/usc/15/78c.md?p=a-8) as the [Commission](/usc/15/78c.md?p=a-15) may require as necessary or appropriate for the proper protection of investors and to insure fair dealing in the [security](/usc/15/78c.md?p=a-10). - (3) Such copies of material contracts, referred to in [paragraph (1)(I)](#b-1-I) above, as the [Commission](/usc/15/78c.md?p=a-15) may require as necessary or appropriate for the proper protection of investors and to insure fair dealing in the [security](/usc/15/78c.md?p=a-10). - (c) **Additional or alternative information—** If in the judgment of the [Commission](/usc/15/78c.md?p=a-15) any information required under [subsection (b)](#b) is inapplicable to any specified class or classes of [issuers](/usc/15/78c.md?p=a-8), the [Commission](/usc/15/78c.md?p=a-15) shall require in lieu thereof the submission of such other information of comparable character as it may deem applicable to such class of [issuers](/usc/15/78c.md?p=a-8). - (d) **Effective date of registration; withdrawal of registration—** If the [exchange](/usc/15/78c.md?p=a-1) [authorities](/usc/15/3051.md?p=1) certify to the [Commission](/usc/15/78c.md?p=a-15) that the [security](/usc/15/78c.md?p=a-10) has been approved by the [exchange](/usc/15/78c.md?p=a-1) for listing and registration, the registration shall become effective thirty days after the receipt of such certification by the [Commission](/usc/15/78c.md?p=a-15) or within such shorter period of time as the [Commission](/usc/15/78c.md?p=a-15) may determine. A [security](/usc/15/78c.md?p=a-10) registered with a [national securities exchange](/usc/15/9009a.md?p=a-5) may be withdrawn or stricken from listing and registration in accordance with the rules of the [exchange](/usc/15/78c.md?p=a-1) and, upon such terms as the [Commission](/usc/15/78c.md?p=a-15) may deem necessary to impose for the protection of investors, upon [application](/usc/15/77ccc.md?p=8) by the [issuer](/usc/15/78c.md?p=a-8) or the [exchange](/usc/15/78c.md?p=a-1) to the [Commission](/usc/15/78c.md?p=a-15); whereupon the [issuer](/usc/15/78c.md?p=a-8) shall be relieved from further compliance with the provisions of this section and [section 78m of this title](/usc/15/78m.md) and any rules or regulations under such sections as to the [securities](/usc/15/78c.md?p=a-10) so withdrawn or stricken. An unissued [security](/usc/15/78c.md?p=a-10) may be registered only in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (e) **Exemption from provisions of section for period ending not later than July 1, 1935—** Notwithstanding the foregoing provisions of this section, the [Commission](/usc/15/78c.md?p=a-15) may by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, permit [securities](/usc/15/78c.md?p=a-10) listed on any [exchange](/usc/15/78c.md?p=a-1) at the time the registration of such [exchange](/usc/15/78c.md?p=a-1) as a [national securities exchange](/usc/15/9009a.md?p=a-5) becomes effective, to be registered for a period ending not later than July 1, 1935, without complying with the provisions of this section. - (f) **Unlisted trading privileges for security originally listed on another national exchange—** - (1) - (A) Notwithstanding the preceding subsections of this section, any [national securities exchange](/usc/15/9009a.md?p=a-5), in accordance with the requirements of this subsection and the rules hereunder, may extend unlisted trading privileges to— - (i) any [security](/usc/15/78c.md?p=a-10) that is listed and registered on a [national securities exchange](/usc/15/9009a.md?p=a-5), subject to [subparagraph (B)](#f-1-B); and - (ii) any [security](/usc/15/78c.md?p=a-10) that is otherwise registered pursuant to this section, or that would be required to be so registered except for the exemption from registration provided in subparagraph [(B)](#g-2-B) or [(G)](#g-2-G) of subsection (g)(2), subject to subparagraph (E) of this paragraph. - (B) A [national securities exchange](/usc/15/9009a.md?p=a-5) may not extend unlisted trading privileges to a [security](/usc/15/78c.md?p=a-10) described in [subparagraph (A)(i)](#f-1-A-i) during such interval, if any, after the commencement of an initial public offering of such [security](/usc/15/78c.md?p=a-10), as is or may be required pursuant to [subparagraph (C)](#f-1-C). - (C) Not later than 180 days after October 22, 1994, the [Commission](/usc/15/78c.md?p=a-15) shall prescribe, by rule or regulation, the duration of the interval referred to in [subparagraph (B)](#f-1-B), if any, as the [Commission](/usc/15/78c.md?p=a-15) determines to be necessary or appropriate for the maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this chapter. Until the earlier of the effective date of such rule or regulation or 240 days after October 22, 1994, such interval shall begin at the opening of trading on the day on which such [security](/usc/15/78c.md?p=a-10) commences trading on the [national securities exchange](/usc/15/9009a.md?p=a-5) with which such [security](/usc/15/78c.md?p=a-10) is registered and end at the conclusion of the next day of trading. - (D) The [Commission](/usc/15/78c.md?p=a-15) may prescribe, by rule or regulation such additional procedures or requirements for extending unlisted trading privileges to any [security](/usc/15/78c.md?p=a-10) as the [Commission](/usc/15/78c.md?p=a-15) deems necessary or appropriate for the maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this chapter. - (E) No extension of unlisted trading privileges to [securities](/usc/15/78c.md?p=a-10) described in [subparagraph (A)(ii)](#f-1-A-ii) may occur except pursuant to a rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) approving such extension or extensions. In promulgating such rule or regulation or in issuing such [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/78c.md?p=a-15)— - (i) shall find that such extension or extensions of unlisted trading privileges is consistent with the maintenance of fair and orderly markets, the protection of investors and the public interest, and otherwise in furtherance of the purposes of this chapter; - (ii) shall take [account](/usc/15/1681a.md?p=r-4) of the public trading activity in such [securities](/usc/15/78c.md?p=a-10), the character of such trading, the impact of such extension on the existing markets for such [securities](/usc/15/78c.md?p=a-10), and the desirability of removing impediments to and the progress that has been made toward the development of a national market system; and - (iii) shall not permit a [national securities exchange](/usc/15/9009a.md?p=a-5) to extend unlisted trading privileges to such [securities](/usc/15/78c.md?p=a-10) if any rule of such [national securities exchange](/usc/15/9009a.md?p=a-5) would unreasonably impair the ability of a [dealer](/usc/15/78c.md?p=a-5-A) to solicit or effect transactions in such [securities](/usc/15/78c.md?p=a-10) for its own [account](/usc/15/1681a.md?p=r-4), or would unreasonably restrict competition among [dealers](/usc/15/78c.md?p=a-5-A) in such [securities](/usc/15/78c.md?p=a-10) or between such [dealers](/usc/15/78c.md?p=a-5-A) acting in the capacity of [market makers](/usc/15/78c.md?p=a-38) who are specialists and such [dealers](/usc/15/78c.md?p=a-5-A) who are not specialists. - (F) An [exchange](/usc/15/78c.md?p=a-1) may continue to extend unlisted trading privileges in accordance with this paragraph only if the [exchange](/usc/15/78c.md?p=a-1) and the subject [security](/usc/15/78c.md?p=a-10) continue to satisfy the requirements for eligibility under this paragraph, including any rules and regulations issued by the [Commission](/usc/15/78c.md?p=a-15) pursuant to this paragraph, except that unlisted trading privileges may continue with regard to [securities](/usc/15/78c.md?p=a-10) which had been admitted on such [exchange](/usc/15/78c.md?p=a-1) prior to July 1, 1964, notwithstanding the failure to satisfy such requirements. If unlisted trading privileges in a [security](/usc/15/78c.md?p=a-10) are discontinued pursuant to this subparagraph, the [exchange](/usc/15/78c.md?p=a-1) shall cease trading in that [security](/usc/15/78c.md?p=a-10), unless the [exchange](/usc/15/78c.md?p=a-1) and the subject [security](/usc/15/78c.md?p=a-10) thereafter satisfy the requirements of this paragraph and the rules issued hereunder. - (G) For purposes of this paragraph— - (i) a [security](/usc/15/78c.md?p=a-10) is the subject of an initial public offering if— - (I) the offering of the subject [security](/usc/15/78c.md?p=a-10) is registered under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]; and - (II) the [issuer](/usc/15/78c.md?p=a-8) of the [security](/usc/15/78c.md?p=a-10), immediately prior to filing the [registration statement](/usc/15/77b.md?p=a-8) with respect to the offering, was not subject to the reporting requirements of section [78m](/usc/15/78m.md) or [78o(d)](/usc/15/78o.md?p=d) of this title; and - (ii) an initial public offering of such [security](/usc/15/78c.md?p=a-10) commences at the opening of trading on the day on which such [security](/usc/15/78c.md?p=a-10) commences trading on the [national securities exchange](/usc/15/9009a.md?p=a-5) with which such [security](/usc/15/78c.md?p=a-10) is registered. - (2) - (A) At any time within 60 days of commencement of trading on an [exchange](/usc/15/78c.md?p=a-1) of a [security](/usc/15/78c.md?p=a-10) pursuant to unlisted trading privileges, the [Commission](/usc/15/78c.md?p=a-15) may summarily suspend such unlisted trading privileges on the [exchange](/usc/15/78c.md?p=a-1). Such suspension shall not be reviewable under [section 78y of this title](/usc/15/78y.md) and shall not be deemed to be a final agency action for purposes of [section 704 of title 5](/usc/5/704.md). Upon such suspension— - (i) the [exchange](/usc/15/78c.md?p=a-1) shall cease trading in the [security](/usc/15/78c.md?p=a-10) by the close of business on the date of such suspension, or at such time as the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule or [order](/usc/15/8702.md?p=14) for the maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this chapter; and - (ii) if the [exchange](/usc/15/78c.md?p=a-1) seeks to extend unlisted trading privileges to the [security](/usc/15/78c.md?p=a-10), the [exchange](/usc/15/78c.md?p=a-1) shall file an [application](/usc/15/77ccc.md?p=8) to reinstate its ability to do so with the [Commission](/usc/15/78c.md?p=a-15) pursuant to such procedures as the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule or [order](/usc/15/8702.md?p=14) for the maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this chapter. - (B) A suspension under [subparagraph (A)](#f-2-A) shall remain in effect until the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), grants approval of an [application](/usc/15/77ccc.md?p=8) to reinstate, as described in [subparagraph (A)(ii)](#f-2-A-ii). - (C) A suspension under [subparagraph (A)](#f-2-A) shall not affect the validity or force of an extension of unlisted trading privileges in effect prior to such suspension. - (D) The [Commission](/usc/15/78c.md?p=a-15) shall not approve an [application](/usc/15/77ccc.md?p=8) by a [national securities exchange](/usc/15/9009a.md?p=a-5) to reinstate its ability to extend unlisted trading privileges to a [security](/usc/15/78c.md?p=a-10) unless the [Commission](/usc/15/78c.md?p=a-15) finds, after notice and opportunity for hearing, that the extension of unlisted trading privileges pursuant to such [application](/usc/15/77ccc.md?p=8) is consistent with the maintenance of fair and orderly markets, the protection of investors and the public interest, and otherwise in furtherance of the purposes of this chapter. If the [application](/usc/15/77ccc.md?p=8) is made to reinstate unlisted trading privileges to a [security](/usc/15/78c.md?p=a-10) described in [paragraph (1)(A)(ii)](#f-1-A-ii), the [Commission](/usc/15/78c.md?p=a-15)— - (i) shall take [account](/usc/15/1681a.md?p=r-4) of the public trading activity in such [security](/usc/15/78c.md?p=a-10), the character of such trading, the impact of such extension on the existing markets for such a [security](/usc/15/78c.md?p=a-10), and the desirability of removing impediments to and the progress that has been made toward the development of a national market system; and - (ii) shall not grant any such [application](/usc/15/77ccc.md?p=8) if any rule of the [national securities exchange](/usc/15/9009a.md?p=a-5) making [application](/usc/15/77ccc.md?p=8) under this subsection would unreasonably impair the ability of a [dealer](/usc/15/78c.md?p=a-5-A) to solicit or effect transactions in such [security](/usc/15/78c.md?p=a-10) for its own [account](/usc/15/1681a.md?p=r-4), or would unreasonably restrict competition among [dealers](/usc/15/78c.md?p=a-5-A) in such [security](/usc/15/78c.md?p=a-10) or between such [dealers](/usc/15/78c.md?p=a-5-A) acting in the capacity of marketmakers who are specialists and such [dealers](/usc/15/78c.md?p=a-5-A) who are not specialists. - (3) Notwithstanding [paragraph (2)](#f-2), the [Commission](/usc/15/78c.md?p=a-15) shall by rules and regulations suspend unlisted trading privileges in whole or in part for any or all classes of [securities](/usc/15/78c.md?p=a-10) for a period not exceeding twelve months, if it deems such suspension necessary or appropriate in the public interest or for the protection of investors or to prevent evasion of the purposes of this chapter. - (4) On the [application](/usc/15/77ccc.md?p=8) of the [issuer](/usc/15/78c.md?p=a-8) of any [security](/usc/15/78c.md?p=a-10) for which unlisted trading privileges on any [exchange](/usc/15/78c.md?p=a-1) have been continued or extended pursuant to this subsection, or of any [broker or dealer](/usc/15/78c.md?p=h-2) who makes or creates a market for such [security](/usc/15/78c.md?p=a-10), or of any other [person](/usc/15/78c.md?p=a-9) having a bona fide interest in the question of termination or suspension of such unlisted trading privileges, or on its own motion, the [Commission](/usc/15/78c.md?p=a-15) shall by [order](/usc/15/8702.md?p=14) terminate, or suspend for a period not exceeding twelve months, such unlisted trading privileges for such [security](/usc/15/78c.md?p=a-10) if the [Commission](/usc/15/78c.md?p=a-15) finds, after appropriate notice and opportunity for hearing, that such termination or suspension is necessary or appropriate in the public interest or for the protection of investors. - (5) In any proceeding under this subsection in which appropriate notice and opportunity for hearing are required, notice of not less than ten days to the [applicant](/usc/15/7a.md?p=3) in such proceeding, to the [issuer](/usc/15/78c.md?p=a-8) of the [security](/usc/15/78c.md?p=a-10) involved, to the [exchange](/usc/15/78c.md?p=a-1) which is seeking to continue or extend or has continued or extended unlisted trading privileges for such [security](/usc/15/78c.md?p=a-10), and to the [exchange](/usc/15/78c.md?p=a-1), if any, on which such [security](/usc/15/78c.md?p=a-10) is listed and registered, shall be deemed [adequate notice](/usc/15/1602.md?p=k), and any [broker or dealer](/usc/15/78c.md?p=h-2) who makes or creates a market for such [security](/usc/15/78c.md?p=a-10), and any other [person](/usc/15/78c.md?p=a-9) having a bona fide interest in such proceeding, shall upon [application](/usc/15/77ccc.md?p=8) be entitled to be heard. - (6) Any [security](/usc/15/78c.md?p=a-10) for which unlisted trading privileges are continued or extended pursuant to this subsection shall be deemed to be registered on a [national securities exchange](/usc/15/9009a.md?p=a-5) within the meaning of this chapter. The powers and duties of the [Commission](/usc/15/78c.md?p=a-15) under this chapter shall be applicable to the [rules of an exchange](/usc/15/78c.md?p=a-27) in respect of any such [security](/usc/15/78c.md?p=a-10). The [Commission](/usc/15/78c.md?p=a-15) may, by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions, or for stated periods, exempt such [securities](/usc/15/78c.md?p=a-10) from the operation of any provision of section [78m](/usc/15/78m.md), [78n](/usc/15/78n.md), or [78p](/usc/15/78p.md) of this title. - (g) **Registration of securities by issuer; exemptions—** - (1) Every [issuer](/usc/15/78c.md?p=a-8) which is engaged in [interstate commerce](/usc/15/78c.md?p=a-17), or in a business affecting [interstate commerce](/usc/15/78c.md?p=a-17), or whose [securities](/usc/15/78c.md?p=a-10) are traded by use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) shall— - (A) within 120 days after the last day of its first fiscal year ended on which the [issuer](/usc/15/78c.md?p=a-8) has [total assets](#g-5) exceeding $10,000,000 and a [class](#g-5) of [equity security](/usc/15/78c.md?p=a-11) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) [held of record](#g-5) by either— - (i) 2,000 [persons](/usc/15/78c.md?p=a-9), or - (ii) 500 [persons](/usc/15/78c.md?p=a-9) who are not accredited investors (as such term is defined by the [Commission](/usc/15/78c.md?p=a-15)), and - (B) in the case of an [issuer](/usc/15/78c.md?p=a-8) that is a bank, a [savings and loan holding company](/usc/15/78c.md?p=a-34) (as defined in [section 1467a of title 12](/usc/12/1467a.md)), or a [bank holding company](/usc/15/78c.md?p=a-34), as such term is defined in [section 1841 of title 12](/usc/12/1841.md), not later than 120 days after the last day of its first fiscal year ended after the effective date of this subsection, on which the [issuer](/usc/15/78c.md?p=a-8) has [total assets](#g-5) exceeding $10,000,000 and a [class](#g-5) of [equity security](/usc/15/78c.md?p=a-11) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) [held of record](#g-5) by 2,000 or more [persons](/usc/15/78c.md?p=a-9), register such [security](/usc/15/78c.md?p=a-10) by filing with the [Commission](/usc/15/78c.md?p=a-15) a [registration statement](/usc/15/77b.md?p=a-8) (and such copies thereof as the [Commission](/usc/15/78c.md?p=a-15) may require) with respect to such [security](/usc/15/78c.md?p=a-10) containing such information and documents as the [Commission](/usc/15/78c.md?p=a-15) may specify comparable to that which is required in an [application](/usc/15/77ccc.md?p=8) to register a [security](/usc/15/78c.md?p=a-10) pursuant to [subsection (b)](#b) of this section. Each such [registration statement](/usc/15/77b.md?p=a-8) shall become effective sixty days after filing with the [Commission](/usc/15/78c.md?p=a-15) or within such shorter period as the [Commission](/usc/15/78c.md?p=a-15) may direct. Until such [registration statement](/usc/15/77b.md?p=a-8) becomes effective it shall not be deemed filed for the purposes of [section 78r of this title](/usc/15/78r.md). Any [issuer](/usc/15/78c.md?p=a-8) may register any [class](#g-5) of [equity security](/usc/15/78c.md?p=a-11) not required to be registered by filing a [registration statement](/usc/15/77b.md?p=a-8) pursuant to the provisions of this paragraph. The [Commission](/usc/15/78c.md?p=a-15) is authorized to extend the date upon which any [issuer](/usc/15/78c.md?p=a-8) or [class](#g-5) of [issuers](/usc/15/78c.md?p=a-8) is required to register a [security](/usc/15/78c.md?p=a-10) pursuant to the provisions of this paragraph. - (2) The provisions of this subsection shall not apply in respect of— - (A) any [security](/usc/15/78c.md?p=a-10) listed and registered on a [national securities exchange](/usc/15/9009a.md?p=a-5). - (B) any [security](/usc/15/78c.md?p=a-10) issued by an [investment company](/usc/15/78c.md?p=a-12-A-iii) registered pursuant to [section 80a–8 of this title](/usc/15/80a–8.md). - (C) any [security](/usc/15/78c.md?p=a-10), other than permanent stock, guaranty stock, permanent reserve stock, or any similar certificate evidencing nonwithdrawable capital, issued by a savings and loan [association](/usc/15/657h.md?p=a-2), building and loan [association](/usc/15/657h.md?p=a-2), cooperative bank, homestead [association](/usc/15/657h.md?p=a-2), or similar institution, which is supervised and examined by [State](/usc/15/78c.md?p=a-16) or Federal [authority](/usc/15/3051.md?p=1) having supervision over any such institution. - (D) any [security](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any private shareholder or individual; or any [security](/usc/15/78c.md?p=a-10) of a fund that is excluded from the definition of an [investment company](/usc/15/78c.md?p=a-12-A-iii) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B). - (E) any [security](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) which is a “cooperative [association](/usc/15/657h.md?p=a-2)” as defined in the Agricultural Marketing Act, approved June 15, 1929, as amended [[12 U.S.C. 1141](/usc/12/1141.md) et seq.], or a federation of such cooperative [associations](/usc/15/657h.md?p=a-2), if such federation possesses no greater powers or purposes than cooperative [associations](/usc/15/657h.md?p=a-2) so defined. - (F) any [security](/usc/15/78c.md?p=a-10) issued by a mutual or cooperative organization which supplies a commodity or service primarily for the benefit of its [members](/usc/15/78c.md?p=a-3-A) and operates not for pecuniary profit, but only if the [security](/usc/15/78c.md?p=a-10) is part of a [class](#g-5) issuable only to [persons](/usc/15/78c.md?p=a-9) who [purchase](/usc/15/78c.md?p=a-13) commodities or services from the [issuer](/usc/15/78c.md?p=a-8), the [security](/usc/15/78c.md?p=a-10) is transferable only to a successor in interest or occupancy of premises serviced or to be served by the [issuer](/usc/15/78c.md?p=a-8), and no dividends are payable to the holder of the [security](/usc/15/78c.md?p=a-10). - (G) any [security](/usc/15/78c.md?p=a-10) issued by an [insurance company](/usc/15/78c.md?p=a-19) if all of the following conditions are met: - (i) Such [insurance company](/usc/15/78c.md?p=a-19) is required to and does file an annual statement with the Commissioner of Insurance (or other officer or agency performing a similar function) of its domiciliary [State](/usc/15/78c.md?p=a-16), and such annual statement conforms to that prescribed by the National [Association](/usc/15/657h.md?p=a-2) of Insurance Commissioners or in the determination of such [State](/usc/15/78c.md?p=a-16) commissioner, officer or agency substantially conforms to that so prescribed. - (ii) Such [insurance company](/usc/15/78c.md?p=a-19) is subject to regulation by its domiciliary [State](/usc/15/78c.md?p=a-16) of proxies, consents, or authorizations in respect of [securities](/usc/15/78c.md?p=a-10) issued by such [company](/usc/15/78c.md?p=a-19) and such regulation conforms to that prescribed by the National [Association](/usc/15/657h.md?p=a-2) of Insurance Commissioners. - (iii) After July 1, 1966, the [purchase](/usc/15/78c.md?p=a-13) and sales of [securities](/usc/15/78c.md?p=a-10) issued by such [insurance company](/usc/15/78c.md?p=a-19) by beneficial owners, [directors](/usc/15/78c.md?p=a-7), or officers of such [company](/usc/15/78c.md?p=a-19) are subject to regulation (including reporting) by its domiciliary [State](/usc/15/78c.md?p=a-16) substantially in the manner provided in [section 78p of this title](/usc/15/78p.md). - (H) any interest or participation in any collective trust funds maintained by a bank or in a [separate account](/usc/15/78c.md?p=a-19) maintained by an [insurance company](/usc/15/78c.md?p=a-19) which interest or participation is issued in connection with (i) a stock-bonus, pension, or profit-sharing plan which meets the requirements for qualification under [section 401 of title 26](/usc/26/401.md), (ii) an annuity plan which meets the requirements for deduction of the employer’s contribution under [section 404(a)(2) of title 26](/usc/26/404.md?p=a-2), or (iii) a church plan, [company](/usc/15/78c.md?p=a-19), or [account](/usc/15/1681a.md?p=r-4) that is excluded from the definition of an [investment company](/usc/15/78c.md?p=a-12-A-iii) under [section 80a–3(c)(14) of this title](/usc/15/80a–3.md?p=c-14). - (3) The [Commission](/usc/15/78c.md?p=a-15) may by rules or regulations or, on its own motion, after notice and opportunity for hearing, by [order](/usc/15/8702.md?p=14), exempt from this subsection any [security](/usc/15/78c.md?p=a-10) of a foreign [issuer](/usc/15/78c.md?p=a-8), including any certificate of deposit for such a [security](/usc/15/78c.md?p=a-10), if the [Commission](/usc/15/78c.md?p=a-15) finds that such exemption is in the public interest and is consistent with the protection of investors. - (4) Registration of any [class](#g-5) of [security](/usc/15/78c.md?p=a-10) pursuant to this subsection shall be terminated ninety days, or such shorter period as the [Commission](/usc/15/78c.md?p=a-15) may determine, after the [issuer](/usc/15/78c.md?p=a-8) files a certification with the [Commission](/usc/15/78c.md?p=a-15) that the number of holders of record of such [class](#g-5) of [security](/usc/15/78c.md?p=a-10) is reduced to less than 300 [persons](/usc/15/78c.md?p=a-9), or, in the case of a bank, a [savings and loan holding company](/usc/15/78c.md?p=a-34) (as defined in [section 1467a of title 12](/usc/12/1467a.md)), or a [bank holding company](/usc/15/78c.md?p=a-34), as such term is defined in [section 1841 of title 12](/usc/12/1841.md), 1,200 [persons](/usc/15/78c.md?p=a-9) [persons](/usc/15/78c.md?p=a-9).[^1] The [Commission](/usc/15/78c.md?p=a-15) shall after notice and opportunity for hearing deny termination of registration if it finds that the certification is untrue. Termination of registration shall be deferred pending final determination on the question of denial. - (5) For the purposes of this subsection the term “class” shall include all [securities](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) which are of substantially similar character and the holders of which enjoy substantially similar rights and privileges. The [Commission](/usc/15/78c.md?p=a-15) may for the purpose of this subsection define by rules and regulations the terms “total assets” and “held of record” as it deems necessary or appropriate in the public interest or for the protection of investors in [order](/usc/15/8702.md?p=14) to prevent circumvention of the provisions of this subsection. For purposes of this subsection, a [security futures product](/usc/15/78c.md?p=a-56) shall not be considered a class of [equity security](/usc/15/78c.md?p=a-11) of the [issuer](/usc/15/78c.md?p=a-8) of the [securities](/usc/15/78c.md?p=a-10) underlying the [security futures product](/usc/15/78c.md?p=a-56). For purposes of determining whether an [issuer](/usc/15/78c.md?p=a-8) is required to register a [security](/usc/15/78c.md?p=a-10) with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [paragraph (1)](#g-1), the definition of “held of record” shall not include [securities](/usc/15/78c.md?p=a-10) held by [persons](/usc/15/78c.md?p=a-9) who received the [securities](/usc/15/78c.md?p=a-10) pursuant to an employee compensation plan in transactions exempted from the registration requirements of section 5 of the Securities Act of 1933 [[15 U.S.C. 77e](/usc/15/77e.md)]. - (6) **Exclusion for persons holding certain securities.—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, exempt, conditionally or unconditionally, [securities](/usc/15/78c.md?p=a-10) acquired pursuant to an offering made under [section 4(6)](/usc/15/4.md)[^2] of the Securities Act of 1933 [[15 U.S.C. 77d(a)(6)](/usc/15/77d.md?p=a-6)] from the provisions of this subsection. - (h) **Exemption by rules and regulations from certain provisions of section—** The [Commission](/usc/15/78c.md?p=a-15) may by rules and regulations, or upon [application](/usc/15/77ccc.md?p=8) of an interested [person](/usc/15/78c.md?p=a-9), by [order](/usc/15/8702.md?p=14), after notice and opportunity for hearing, exempt in whole or in part any [issuer](/usc/15/78c.md?p=a-8) or class of [issuers](/usc/15/78c.md?p=a-8) from the provisions of [subsection (g)](#g) of this section or from section [78m](/usc/15/78m.md), [78n](/usc/15/78n.md), or [78o(d)](/usc/15/78o.md?p=d) of this title or may exempt from [section 78p of this title](/usc/15/78p.md) any officer, [director](/usc/15/78c.md?p=a-7), or beneficial owner of [securities](/usc/15/78c.md?p=a-10) of any [issuer](/usc/15/78c.md?p=a-8), any [security](/usc/15/78c.md?p=a-10) of which is required to be registered pursuant to [subsection (g)](#g) hereof, upon such terms and conditions and for such period as it deems necessary or appropriate, if the [Commission](/usc/15/78c.md?p=a-15) finds, by reason of the number of public investors, amount of trading interest in the [securities](/usc/15/78c.md?p=a-10), the nature and extent of the activities of the [issuer](/usc/15/78c.md?p=a-8), income or assets of the [issuer](/usc/15/78c.md?p=a-8), or otherwise, that such action is not inconsistent with the public interest or the protection of investors. The [Commission](/usc/15/78c.md?p=a-15) may, for the purposes of any of the above-mentioned sections or subsections of this chapter, classify [issuers](/usc/15/78c.md?p=a-8) and prescribe requirements appropriate for each such class. - (i) **Securities issued by banks—** In respect of any [securities](/usc/15/78c.md?p=a-10) issued by banks and savings [associations](/usc/15/657h.md?p=a-2) the deposits of which are insured in accordance with the Federal Deposit Insurance Act [[12 U.S.C. 1811](/usc/12/1811.md) et seq.], the powers, functions, and duties vested in the [Commission](/usc/15/78c.md?p=a-15) to administer and enforce this section and sections [78j–1(m)](/usc/15/78j–1.md?p=m), [78m](/usc/15/78m.md), [78n(a)](/usc/15/78n.md?p=a), [78n(c)](/usc/15/78n.md?p=c), [78n(d)](/usc/15/78n.md?p=d), [78n(f)](/usc/15/78n.md?p=f), and [78p](/usc/15/78p.md) of this title, and sections [7241](/usc/15/7241.md), [7242](/usc/15/7242.md), [7243](/usc/15/7243.md), [7244](/usc/15/7244.md), [7261(b)](/usc/15/7261.md?p=b), [7262](/usc/15/7262.md), [7264](/usc/15/7264.md), and [7265](/usc/15/7265.md) of this title, (1) with respect to national banks and Federal savings [associations](/usc/15/657h.md?p=a-2), the [accounts](/usc/15/1681a.md?p=r-4) of which are insured by the Federal Deposit Insurance Corporation[^3] are vested in the Comptroller of the Currency, (2) with respect to all other [member](/usc/15/78c.md?p=a-3-A) banks of the Federal Reserve System are vested in the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, and (3) with respect to all other insured banks and [State](/usc/15/78c.md?p=a-16) savings [associations](/usc/15/657h.md?p=a-2), the [accounts](/usc/15/1681a.md?p=r-4) of which are insured by the Federal Deposit Insurance Corporation, are vested in the Federal Deposit Insurance Corporation. The Comptroller of the Currency, the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation shall have the power to make such rules and regulations as may be necessary for the execution of the functions vested in them as provided in this subsection. In carrying out their responsibilities under this subsection, the agencies named in the first sentence of this subsection shall issue substantially similar regulations to regulations and rules issued by the [Commission](/usc/15/78c.md?p=a-15) under this section and sections [78j–1(m)](/usc/15/78j–1.md?p=m), [78m](/usc/15/78m.md), [78n(a)](/usc/15/78n.md?p=a), [78n(c)](/usc/15/78n.md?p=c), [78n(d)](/usc/15/78n.md?p=d), [78n(f)](/usc/15/78n.md?p=f), and [78p](/usc/15/78p.md) of this title, and sections [7241](/usc/15/7241.md), [7242](/usc/15/7242.md), [7243](/usc/15/7243.md), [7244](/usc/15/7244.md), [7261(b)](/usc/15/7261.md?p=b), [7262](/usc/15/7262.md), [7264](/usc/15/7264.md), and [7265](/usc/15/7265.md) of this title, unless they find that implementation of substantially similar regulations with respect to insured banks and insured institutions are not necessary or appropriate in the public interest or for protection of investors, and publish such findings, and the detailed reasons therefor, in the Federal Register. Such regulations of the above-named agencies, or the reasons for failure to publish such substantially similar regulations to those of the [Commission](/usc/15/78c.md?p=a-15), shall be published in the Federal Register within 120 days of October 28, 1974, and, thereafter, within 60 days of any changes made by the [Commission](/usc/15/78c.md?p=a-15) in its relevant regulations and rules. - (j) **Denial, suspension, or revocation of registration; notice and hearing—** The [Commission](/usc/15/78c.md?p=a-15) is authorized, by [order](/usc/15/8702.md?p=14), as it deems necessary or appropriate for the protection of investors to deny, to suspend the effective date of, to suspend for a period not exceeding twelve months, or to revoke the registration of a [security](/usc/15/78c.md?p=a-10), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that the [issuer](/usc/15/78c.md?p=a-8), of such [security](/usc/15/78c.md?p=a-10) has failed to comply with any provision of this chapter or the rules and regulations thereunder. No [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) the registration of which has been and is suspended or revoked pursuant to the preceding sentence. - (k) **Trading suspensions; emergency authority—** - (1) **Trading suspensions—** If in its opinion the public interest and the protection of investors so require, the [Commission](/usc/15/78c.md?p=a-15) is authorized by [order](/usc/15/8702.md?p=14)— - (A) summarily to suspend trading in any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) for a period not exceeding 10 business days, and - (B) summarily to suspend all trading on any [national securities exchange](/usc/15/9009a.md?p=a-5) or otherwise, in [securities](/usc/15/78c.md?p=a-10) other than [exempted securities](/usc/15/78c.md?p=a-12-A), for a period not exceeding 90 calendar days. The action described in [subparagraph (B)](#k-1-B) shall not take effect unless the [Commission](/usc/15/78c.md?p=a-15) notifies the President of its decision and the President notifies the [Commission](/usc/15/78c.md?p=a-15) that the President does not disapprove of such decision. If the actions described in subparagraph [(A)](#k-1-A) or [(B)](#k-1-B) involve a [security futures product](/usc/15/78c.md?p=a-56), the [Commission](/usc/15/78c.md?p=a-15) shall consult with and consider the views of the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15). - (2) **Emergency orders—** - (A) **In general—** The [Commission](/usc/15/78c.md?p=a-15), in an [emergency](#k-7), may by [order](/usc/15/8702.md?p=14) summarily take such action to alter, supplement, suspend, or impose requirements or restrictions with respect to any matter or action subject to regulation by the [Commission](/usc/15/78c.md?p=a-15) or a [self-regulatory organization](/usc/15/78c.md?p=a-26) under the [securities laws](/usc/15/78c.md?p=a-47), as the [Commission](/usc/15/78c.md?p=a-15) determines is necessary in the public interest and for the protection of investors— - (i) to maintain or restore fair and orderly [securities](/usc/15/78c.md?p=a-10) markets (other than markets in [exempted securities](/usc/15/78c.md?p=a-12-A)); - (ii) to ensure prompt, accurate, and safe clearance and settlement of transactions in [securities](/usc/15/78c.md?p=a-10) (other than [exempted securities](/usc/15/78c.md?p=a-12-A)); or - (iii) to reduce, eliminate, or prevent the substantial disruption by the [emergency](#k-7) of— - (I) [securities](/usc/15/78c.md?p=a-10) markets (other than markets in [exempted securities](/usc/15/78c.md?p=a-12-A)), [investment companies](/usc/15/78c.md?p=a-12-A-iii), or any other significant portion or segment of such markets; or - (II) the transmission or processing of [securities](/usc/15/78c.md?p=a-10) transactions (other than transactions in [exempted securities](/usc/15/78c.md?p=a-12-A)). - (B) **Effective period—** An [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) under this paragraph shall continue in effect for the period specified by the [Commission](/usc/15/78c.md?p=a-15), and may be extended. Except as provided in [subparagraph (C)](#k-2-C), an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) under this paragraph may not continue in effect for more than 10 business days, including extensions. - (C) **Extension—** An [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) under this paragraph may be extended to continue in effect for more than 10 business days if, at the time of the extension, the [Commission](/usc/15/78c.md?p=a-15) finds that the [emergency](#k-7) still exists and determines that the continuation of the [order](/usc/15/8702.md?p=14) beyond 10 business days is necessary in the public interest and for the protection of investors to attain an objective described in clause [(i)](#k-2-A-i), [(ii)](#k-2-A-ii), or [(iii)](#k-2-A-iii) of subparagraph (A). In no event shall an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) under this paragraph continue in effect for more than 30 calendar days. - (D) **Security futures—** If the actions described in [subparagraph (A)](#k-2-A) involve a [security futures product](/usc/15/78c.md?p=a-56), the [Commission](/usc/15/78c.md?p=a-15) shall consult with and consider the views of the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15). - (E) **Exemption—** In exercising its [authority](/usc/15/3051.md?p=1) under this paragraph, the [Commission](/usc/15/78c.md?p=a-15) shall not be required to comply with the provisions of— - (i) [section 78s(c) of this title](/usc/15/78s.md?p=c); or - (ii) [section 553 of title 5](/usc/5/553.md). - (3) **Termination of emergency actions by President—** The President may direct that action taken by the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)(B)](#k-1-B) or paragraph (2) of this subsection shall not continue in effect. - (4) **Compliance with orders—** No [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) in contravention of an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) under this subsection unless such [order](/usc/15/8702.md?p=14) has been stayed, modified, or set aside as provided in paragraph (5) of this subsection or has ceased to be effective upon direction of the President as provided in [paragraph (3)](#k-3). - (5) **Limitations on review of orders—** An [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to this subsection shall be subject to review only as provided in [section 78y(a) of this title](/usc/15/78y.md?p=a). Review shall be based on an examination of all the information before the [Commission](/usc/15/78c.md?p=a-15) at the time such [order](/usc/15/8702.md?p=14) was issued. The reviewing court shall not enter a stay, writ of mandamus, or similar relief unless the court finds, after notice and hearing before a panel of the court, that the [Commission](/usc/15/78c.md?p=a-15)’s action is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. - (6) **Consultation—** Prior to taking any action described in [paragraph (1)(B)](#k-1-B), the [Commission](/usc/15/78c.md?p=a-15) shall consult with and consider the views of the Secretary of the Treasury, the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), unless such consultation is impracticable in light of the [emergency](#k-7). - (7) **Definition—** For purposes of this subsection, the term “emergency” means— - (A) a major market disturbance characterized by or constituting— - (i) sudden and excessive fluctuations of [securities](/usc/15/78c.md?p=a-10) prices generally, or a substantial threat thereof, that threaten fair and orderly markets; or - (ii) a substantial disruption of the safe or efficient operation of the national system for clearance and settlement of transactions in [securities](/usc/15/78c.md?p=a-10), or a substantial threat thereof; or - (B) a major disturbance that substantially disrupts, or threatens to substantially disrupt— - (i) the functioning of [securities](/usc/15/78c.md?p=a-10) markets, [investment companies](/usc/15/78c.md?p=a-12-A-iii), or any other significant portion or segment of the [securities](/usc/15/78c.md?p=a-10) markets; or - (ii) the transmission or processing of [securities](/usc/15/78c.md?p=a-10) transactions. - (l) **Issuance of any security in contravention of rules and regulations; application to annuity contracts and variable life policies—** It shall be unlawful for an [issuer](/usc/15/78c.md?p=a-8), any class of whose [securities](/usc/15/78c.md?p=a-10) is registered pursuant to this section or would be required to be so registered except for the exemption from registration provided by subsection [(g)(2)(B)](#g-2-B) or [(g)(2)(G)](#g-2-G) of this section, by the use of any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17), or of the mails, to issue, either originally or upon transfer, any of such [securities](/usc/15/78c.md?p=a-10) in a form or with a format which contravenes such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate for the prompt and accurate clearance and settlement of transactions in [securities](/usc/15/78c.md?p=a-10). The provisions of this subsection shall not apply to variable annuity contracts or variable life policies issued by an [insurance company](/usc/15/78c.md?p=a-19) or its [separate accounts](/usc/15/78c.md?p=a-19). # §78l–1. Applications for unlisted trading privileges deemed filed under section 78l of this title Any [application](/usc/15/77ccc.md?p=8) to continue unlisted trading privileges for any [security](/usc/15/78c.md?p=a-10) heretofore filed by any [exchange](/usc/15/78c.md?p=a-1) and approved by the [Commission](/usc/15/78c.md?p=a-15) pursuant to clause (1) of subsection (f) of [section 78l](/usc/15/78l.md) of this title and rules and regulations thereunder shall be deemed to have been filed and approved pursuant to clause (1) of said subsection (f). # §78m. Periodical and other reports - (a) **Reports by issuer of security; contents—** Every [issuer](/usc/15/78c.md?p=a-8) of a [security](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title shall file with the [Commission](/usc/15/78c.md?p=a-15), in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the [security](/usc/15/78c.md?p=a-10)— - (1) such information and documents (and such copies thereof) as the [Commission](/usc/15/78c.md?p=a-15) shall require to keep reasonably current the information and documents required to be included in or filed with an [application](/usc/15/77ccc.md?p=8) or [registration statement](/usc/15/77b.md?p=a-8) filed pursuant to [section 78l](/usc/15/78l.md) of this title, except that the [Commission](/usc/15/78c.md?p=a-15) may not require the filing of any material contract wholly executed before July 1, 1962. - (2) such annual reports (and such copies thereof), certified if required by the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) by independent public accountants, and such quarterly reports (and such copies thereof), as the [Commission](/usc/15/78c.md?p=a-15) may prescribe. Every [issuer](/usc/15/78c.md?p=a-8) of a [security](/usc/15/78c.md?p=a-10) registered on a [national securities exchange](/usc/15/9009a.md?p=a-5) shall also file a duplicate original of such information, documents, and reports with the [exchange](/usc/15/78c.md?p=a-1). In any [registration statement](/usc/15/77b.md?p=a-8), periodic report, or other reports to be filed with the [Commission](/usc/15/78c.md?p=a-15), an [emerging growth company](/usc/15/78c.md?p=a-80) need not present selected financial data in accordance with [section 229.301 of title 17, Code of Federal Regulations](/cfr/17/229.301.md), for any period prior to the earliest audited period presented in connection with its first [registration statement](/usc/15/77b.md?p=a-8) that became effective under this chapter or the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and, with respect to any such statement or reports, an [emerging growth company](/usc/15/78c.md?p=a-80) may not be required to comply with any new or revised financial accounting standard until such date that a [company](/usc/15/78c.md?p=a-19) that is not an [issuer](/usc/15/78c.md?p=a-8) (as defined under [section 7201 of this title](/usc/15/7201.md)) is required to comply with such new or revised accounting standard, if such standard applies to [companies](/usc/15/78c.md?p=a-19) that are not [issuers](/usc/15/78c.md?p=a-8). - (b) **Form of report; books, records, and internal accounting; directives—** - (1) The [Commission](/usc/15/78c.md?p=a-15) may prescribe, in regard to reports made pursuant to this chapter, the form or forms in which the required information shall be set forth, the items or details to be shown in the balance sheet and the earnings statement, and the methods to be followed in the preparation of reports, in the appraisal or valuation of assets and liabilities, in the determination of depreciation and depletion, in the differentiation of recurring and nonrecurring income, in the differentiation of investment and operating income, and in the preparation, where the [Commission](/usc/15/78c.md?p=a-15) deems it necessary or desirable, of separate and/or consolidated balance sheets or income [accounts](/usc/15/1681a.md?p=r-4) of any [person](/usc/15/78c.md?p=a-9) directly or indirectly controlling or controlled by the [issuer](/usc/15/78c.md?p=a-8), or any [person](/usc/15/78c.md?p=a-9) under direct or indirect common control with the [issuer](/usc/15/78c.md?p=a-8); but in the case of the reports of any [person](/usc/15/78c.md?p=a-9) whose methods of accounting are prescribed under the provisions of any law of the United States, or any rule or regulation thereunder, the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) with respect to reports shall not be inconsistent with the requirements imposed by such law or rule or regulation in respect of the same subject matter (except that such rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) may be inconsistent with such requirements to the extent that the [Commission](/usc/15/78c.md?p=a-15) determines that the public interest or the protection of investors so requires). - (2) Every [issuer](/usc/15/78c.md?p=a-8) which has a class of [securities](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title and every [issuer](/usc/15/78c.md?p=a-8) which is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title shall— - (A) make and keep books, [records](/usc/15/78c.md?p=a-37), and [accounts](/usc/15/1681a.md?p=r-4), which, in [reasonable detail](#b-7), accurately and fairly reflect the transactions and dispositions of the assets of the [issuer](/usc/15/78c.md?p=a-8); - (B) devise and maintain a system of internal accounting controls sufficient to provide [reasonable assurances](#b-7) that— - (i) transactions are executed in accordance with management’s general or specific authorization; - (ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets; - (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and - (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and - (C) notwithstanding any other provision of law, pay the allocable share of such [issuer](/usc/15/78c.md?p=a-8) of a reasonable annual accounting support fee or fees, determined in accordance with [section 7219 of this title](/usc/15/7219.md). - (3) - (A) With respect to matters concerning the national [security](/usc/15/78c.md?p=a-10) of the United States, no duty or liability under paragraph (2) of this subsection shall be imposed upon any [person](/usc/15/78c.md?p=a-9) acting in cooperation with the head of any Federal department or agency responsible for such matters if such act in cooperation with such head of a department or agency was done upon the specific, written directive of the head of such department or agency pursuant to Presidential [authority](/usc/15/3051.md?p=1) to issue such directives. Each directive issued under this paragraph shall set forth the specific facts and circumstances with respect to which the provisions of this paragraph are to be invoked. Each such directive shall, unless renewed in writing, expire one year after the date of issuance. - (B) Each head of a Federal department or agency of the United States who issues a directive pursuant to this paragraph shall maintain a complete file of all such directives and shall, on October 1 of each year, transmit a summary of matters covered by such directives in force at any time during the previous year to the Permanent Select [Committee](/usc/15/2921.md?p=1) on Intelligence of the House of Representatives and the Select [Committee](/usc/15/2921.md?p=1) on Intelligence of the Senate. - (4) No criminal liability shall be imposed for failing to comply with the requirements of paragraph (2) of this subsection except as provided in paragraph (5) of this subsection. - (5) No [person](/usc/15/78c.md?p=a-9) shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or [account](/usc/15/1681a.md?p=r-4) described in [paragraph (2)](#b-2). - (6) Where an [issuer](/usc/15/78c.md?p=a-8) which has a class of [securities](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title or an [issuer](/usc/15/78c.md?p=a-8) which is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title holds 50 per centum or less of the voting power with respect to a domestic or foreign firm, the provisions of [paragraph (2)](#b-2) require only that the [issuer](/usc/15/78c.md?p=a-8) proceed in good faith to use its influence, to the extent reasonable under the [issuer](/usc/15/78c.md?p=a-8)’s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls consistent with [paragraph (2)](#b-2). Such circumstances include the relative degree of the [issuer](/usc/15/78c.md?p=a-8)’s ownership of the domestic or foreign firm and the laws and practices governing the business operations of the country in which such firm is located. An [issuer](/usc/15/78c.md?p=a-8) which demonstrates good faith efforts to use such influence shall be conclusively presumed to have complied with the requirements of [paragraph (2)](#b-2). - (7) For the purpose of paragraph (2) of this subsection, the terms “reasonable assurances” and “reasonable detail” mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs. - (c) **Alternative reports—** If in the judgment of the [Commission](/usc/15/78c.md?p=a-15) any report required under [subsection (a)](#a) is inapplicable to any specified class or classes of [issuers](/usc/15/78c.md?p=a-8), the [Commission](/usc/15/78c.md?p=a-15) shall require in lieu thereof the submission of such reports of comparable character as it may deem applicable to such class or classes of [issuers](/usc/15/78c.md?p=a-8). - (d) **Reports by persons acquiring more than five per centum of certain classes of securities—** - (1) Any [person](/usc/15/78c.md?p=a-9) who, after acquiring directly or indirectly the beneficial ownership of any [equity security](/usc/15/78c.md?p=a-11) of a class which is registered pursuant to [section 78l](/usc/15/78l.md) of this title, or any [equity security](/usc/15/78c.md?p=a-11) of an [insurance company](/usc/15/78c.md?p=a-19) which would have been required to be so registered except for the exemption contained in [section 78l(g)(2)(G)](/usc/15/78l.md?p=g-2-G) of this title, or any [equity security](/usc/15/78c.md?p=a-11) issued by a closed-end [investment company](/usc/15/78c.md?p=a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.] or any [equity security](/usc/15/78c.md?p=a-11) issued by a Native Corporation pursuant to [section 1629c(d)(6) of title 43](/usc/43/1629c.md?p=d-6), or otherwise becomes or is deemed to become a beneficial owner of any of the foregoing upon the [purchase](/usc/15/78c.md?p=a-13) or sale of a [security-based swap](/usc/15/78c.md?p=a-68-A) that the [Commission](/usc/15/78c.md?p=a-15) may define by rule, and is directly or indirectly the beneficial owner of more than 5 per centum of such class shall, within ten days after such acquisition or within such shorter time as the [Commission](/usc/15/78c.md?p=a-15) may establish by rule, file with the [Commission](/usc/15/78c.md?p=a-15), a statement containing such of the following information, and such additional information, as the [Commission](/usc/15/78c.md?p=a-15) may by rules and regulations, prescribe as necessary or appropriate in the public interest or for the protection of investors— - (A) the background, and identity, residence, and citizenship of, and the nature of such beneficial ownership by, such [person](/usc/15/78c.md?p=a-9) and all other [persons](/usc/15/78c.md?p=a-9) by whom or on whose behalf the [purchases](/usc/15/78c.md?p=a-13) have been or are to be effected; - (B) the source and amount of the funds or other consideration used or to be used in making the [purchases](/usc/15/78c.md?p=a-13), and if any part of the [purchase](/usc/15/78c.md?p=a-13) price is represented or is to be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding, or trading such [security](/usc/15/78c.md?p=a-10), a description of the transaction and the names of the parties thereto, except that where a source of funds is a loan made in the ordinary course of business by a bank, as defined in [section 78c(a)(6) of this title](/usc/15/78c.md?p=a-6), if the [person](/usc/15/78c.md?p=a-9) filing such statement so requests, the name of the bank shall not be made available to the public; - (C) if the purpose of the [purchases](/usc/15/78c.md?p=a-13) or prospective [purchases](/usc/15/78c.md?p=a-13) is to acquire control of the business of the [issuer](/usc/15/78c.md?p=a-8) of the [securities](/usc/15/78c.md?p=a-10), any plans or proposals which such [persons](/usc/15/78c.md?p=a-9) may have to liquidate such [issuer](/usc/15/78c.md?p=a-8), to [sell](/usc/15/78c.md?p=a-14) its assets to or merge it with any other [persons](/usc/15/78c.md?p=a-9), or to make any other major change in its business or corporate structure; - (D) the number of shares of such [security](/usc/15/78c.md?p=a-10) which are beneficially owned, and the number of shares concerning which there is a right to acquire, directly or indirectly, by (i) such [person](/usc/15/78c.md?p=a-9), and (ii) by each associate of such [person](/usc/15/78c.md?p=a-9), giving the background, identity, residence, and citizenship of each such associate; and - (E) information as to any contracts, arrangements, or understandings with any [person](/usc/15/78c.md?p=a-9) with respect to any [securities](/usc/15/78c.md?p=a-10) of the [issuer](/usc/15/78c.md?p=a-8), including but not limited to transfer of any of the [securities](/usc/15/78c.md?p=a-10), joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or guaranties of profits, division of losses or profits, or the giving or withholding of proxies, naming the [persons](/usc/15/78c.md?p=a-9) with whom such contracts, arrangements, or understandings have been entered into, and giving the details thereof. - (2) If any material change occurs in the facts set forth in the statement filed with the [Commission](/usc/15/78c.md?p=a-15), an amendment shall be filed with the [Commission](/usc/15/78c.md?p=a-15), in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (3) When two or more persons act as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of [securities](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8), such syndicate or group shall be deemed a “[person](/usc/15/78c.md?p=a-9)” for the purposes of this subsection. - (4) In determining, for purposes of this subsection, any percentage of a class of any [security](/usc/15/78c.md?p=a-10), such class shall be deemed to consist of the amount of the outstanding [securities](/usc/15/78c.md?p=a-10) of such class, exclusive of any [securities](/usc/15/78c.md?p=a-10) of such class held by or for the [account](/usc/15/1681a.md?p=r-4) of the [issuer](/usc/15/78c.md?p=a-8) or a subsidiary of the [issuer](/usc/15/78c.md?p=a-8). - (5) The [Commission](/usc/15/78c.md?p=a-15), by rule or regulation or by [order](/usc/15/8702.md?p=14), may permit any [person](/usc/15/78c.md?p=a-9) to file in lieu of the statement required by paragraph (1) of this subsection or the rules and regulations thereunder, a notice stating the name of such [person](/usc/15/78c.md?p=a-9), the number of shares of any [equity securities](/usc/15/78c.md?p=a-11) subject to [paragraph (1)](#d-1) which are owned by him, the date of their acquisition and such other information as the [Commission](/usc/15/78c.md?p=a-15) may specify, if it appears to the [Commission](/usc/15/78c.md?p=a-15) that such [securities](/usc/15/78c.md?p=a-10) were acquired by such [person](/usc/15/78c.md?p=a-9) in the ordinary course of his business and were not acquired for the purpose of and do not have the effect of changing or influencing the control of the [issuer](/usc/15/78c.md?p=a-8) nor in connection with or as a [participant](/usc/15/78c.md?p=a-24) in any transaction having such purpose or effect. - (6) The provisions of this subsection shall not apply to— - (A) any acquisition or offer to acquire [securities](/usc/15/78c.md?p=a-10) made or proposed to be made by means of a [registration statement](/usc/15/77b.md?p=a-8) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]; - (B) any acquisition of the beneficial ownership of a [security](/usc/15/78c.md?p=a-10) which, together with all other acquisitions by the same [person](/usc/15/78c.md?p=a-9) of [securities](/usc/15/78c.md?p=a-10) of the same class during the preceding twelve months, does not exceed 2 per centum of that class; - (C) any acquisition of an [equity security](/usc/15/78c.md?p=a-11) by the [issuer](/usc/15/78c.md?p=a-8) of such [security](/usc/15/78c.md?p=a-10); - (D) any acquisition or proposed acquisition of a [security](/usc/15/78c.md?p=a-10) which the [Commission](/usc/15/78c.md?p=a-15), by rules or regulations or by [order](/usc/15/8702.md?p=14), shall exempt from the provisions of this subsection as not entered into for the purpose of, and not having the effect of, changing or influencing the control of the [issuer](/usc/15/78c.md?p=a-8) or otherwise as not comprehended within the purposes of this subsection. - (e) **Purchase of securities by issuer—** - (1) It shall be unlawful for an [issuer](/usc/15/78c.md?p=a-8) which has a class of [equity securities](/usc/15/78c.md?p=a-11) registered pursuant to [section 78l](/usc/15/78l.md) of this title, or which is a closed-end [investment company](/usc/15/78c.md?p=a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], to [purchase](/usc/15/78c.md?p=a-13) any [equity security](/usc/15/78c.md?p=a-11) issued by it if such [purchase](/usc/15/78c.md?p=a-13) is in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15), in the public interest or for the protection of investors, may adopt (A) to define acts and practices which are fraudulent, deceptive, or manipulative, and (B) to prescribe means reasonably designed to prevent such acts and practices. Such rules and regulations may require such [issuer](/usc/15/78c.md?p=a-8) to provide holders of [equity securities](/usc/15/78c.md?p=a-11) of such class with such information relating to the reasons for such [purchase](/usc/15/78c.md?p=a-13), the source of funds, the number of shares to be purchased, the price to be paid for such [securities](/usc/15/78c.md?p=a-10), the method of [purchase](/usc/15/78c.md?p=a-13), and such additional information, as the [Commission](/usc/15/78c.md?p=a-15) deems necessary or appropriate in the public interest or for the protection of investors, or which the [Commission](/usc/15/78c.md?p=a-15) deems to be material to a determination whether such [security](/usc/15/78c.md?p=a-10) should be sold. - (2) For the purpose of this subsection, a [purchase](/usc/15/78c.md?p=a-13) by or for the [issuer](/usc/15/78c.md?p=a-8) or any [person](/usc/15/78c.md?p=a-9) controlling, controlled by, or under common control with the [issuer](/usc/15/78c.md?p=a-8), or a [purchase](/usc/15/78c.md?p=a-13) subject to control of the [issuer](/usc/15/78c.md?p=a-8) or any such [person](/usc/15/78c.md?p=a-9), shall be deemed to be a [purchase](/usc/15/78c.md?p=a-13) by the [issuer](/usc/15/78c.md?p=a-8). The [Commission](/usc/15/78c.md?p=a-15) shall have power to make rules and regulations implementing this paragraph in the public interest and for the protection of investors, including exemptive rules and regulations covering situations in which the [Commission](/usc/15/78c.md?p=a-15) deems it unnecessary or inappropriate that a [purchase](/usc/15/78c.md?p=a-13) of the type described in this paragraph shall be deemed to be a [purchase](/usc/15/78c.md?p=a-13) by the [issuer](/usc/15/78c.md?p=a-8) for purposes of some or all of the provisions of paragraph (1) of this subsection. - (3) At the time of filing such statement as the [Commission](/usc/15/78c.md?p=a-15) may require by rule pursuant to paragraph (1) of this subsection, the [person](/usc/15/78c.md?p=a-9) making the filing shall pay to the [Commission](/usc/15/78c.md?p=a-15) a fee at a rate that, subject to [paragraph (4)](#e-4), is equal to $92[^1] per $1,000,000 of the value of [securities](/usc/15/78c.md?p=a-10) proposed to be purchased. The fee shall be reduced with respect to [securities](/usc/15/78c.md?p=a-10) in an amount equal to any fee paid with respect to any [securities](/usc/15/78c.md?p=a-10) issued in connection with the proposed transaction under section 6(b) of the Securities Act of 1933 [[15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)], or the fee paid under that section shall be reduced in an amount equal to the fee paid to the [Commission](/usc/15/78c.md?p=a-15) in connection with such transaction under this paragraph. - (4) **Annual adjustment.—** For each fiscal year, the [Commission](/usc/15/78c.md?p=a-15) shall by [order](/usc/15/8702.md?p=14) adjust the rate required by [paragraph (3)](#e-3) for such fiscal year to a rate that is equal to the rate (expressed in dollars per million) that is applicable under section 6(b) of the Securities Act of 1933 [[15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)] for such fiscal year. - (5) **Fee collections.—** Fees collected pursuant to this subsection for fiscal year 2012 and each fiscal year thereafter shall be deposited and credited as general revenue of the Treasury and shall not be available for obligation. - (6) **Effective date; publication.—** In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall not be required to comply with the provisions of [section 553 of title 5](/usc/5/553.md). An adjusted rate prescribed under [paragraph (4)](#e-4) shall be published and take effect in accordance with section 6(b) of the Securities Act of 1933 ([15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)). - (7) **Pro rata application.—** The rates per $1,000,000 required by this subsection shall be applied pro rata to amounts and balances of less than $1,000,000. - (f) **Reports by institutional investment managers—** - (1) Every [institutional investment manager](#f-6-A) which uses the mails, or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) in the course of its business as an [institutional investment manager](#f-6-A) and which exercises investment discretion with respect to [accounts](/usc/15/1681a.md?p=r-4) holding [equity securities](/usc/15/78c.md?p=a-11) of a class described in [subsection (d)(1)](#d-1) or otherwise becomes or is deemed to become a beneficial owner of any [security](/usc/15/78c.md?p=a-10) of a class described in [subsection (d)(1)](#d-1) upon the [purchase](/usc/15/78c.md?p=a-13) or sale of a [security-based swap](/usc/15/78c.md?p=a-68-A) that the [Commission](/usc/15/78c.md?p=a-15) may define by rule, having an aggregate fair market value on the last trading day in any of the preceding twelve months of at least $100,000,000 or such lesser amount (but in no case less than $10,000,000) as the [Commission](/usc/15/78c.md?p=a-15), by rule, may determine, shall file reports with the [Commission](/usc/15/78c.md?p=a-15) in such form, for such periods, and at such times after the end of such periods as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe, but in no event shall such reports be filed for periods longer than one year or shorter than one quarter. Such reports shall include for each such [equity security](/usc/15/78c.md?p=a-11) held on the last day of the reporting period by [accounts](/usc/15/1681a.md?p=r-4) (in aggregate or by type as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe) with respect to which the [institutional investment manager](#f-6-A) exercises investment discretion (other than [securities](/usc/15/78c.md?p=a-10) held in amounts which the [Commission](/usc/15/78c.md?p=a-15), by rule, determines to be insignificant for purposes of this subsection), the name of the [issuer](/usc/15/78c.md?p=a-8) and the title, class, CUSIP number, number of shares or principal amount, and aggregate fair market value of each such [security](/usc/15/78c.md?p=a-10). Such reports may also include for [accounts](/usc/15/1681a.md?p=r-4) (in aggregate or by type) with respect to which the [institutional investment manager](#f-6-A) exercises investment discretion such of the following information as the [Commission](/usc/15/78c.md?p=a-15), by rule, prescribes— - (A) the name of the [issuer](/usc/15/78c.md?p=a-8) and the title, class, CUSIP number, number of shares or principal amount, and aggregate fair market value or cost or amortized cost of each other [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) held on the last day of the reporting period by such [accounts](/usc/15/1681a.md?p=r-4); - (B) the aggregate fair market value or cost or amortized cost of [exempted securities](/usc/15/78c.md?p=a-12-A) (in aggregate or by class) held on the last day of the reporting period by such [accounts](/usc/15/1681a.md?p=r-4); - (C) the number of shares of each [equity security](/usc/15/78c.md?p=a-11) of a class described in [subsection (d)(1)](#d-1) held on the last day of the reporting period by such [accounts](/usc/15/1681a.md?p=r-4) with respect to which the [institutional investment manager](#f-6-A) possesses sole or shared [authority](/usc/15/3051.md?p=1) to exercise the voting rights evidenced by such [securities](/usc/15/78c.md?p=a-10); - (D) the aggregate [purchases](/usc/15/78c.md?p=a-13) and aggregate sales during the reporting period of each [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) effected by or for such [accounts](/usc/15/1681a.md?p=r-4); and - (E) with respect to any transaction or series of transactions having a market value of at least $500,000 or such other amount as the [Commission](/usc/15/78c.md?p=a-15), by rule, may determine, effected during the reporting period by or for such [accounts](/usc/15/1681a.md?p=r-4) in any [equity security](/usc/15/78c.md?p=a-11) of a class described in [subsection (d)(1)](#d-1)— - (i) the name of the [issuer](/usc/15/78c.md?p=a-8) and the title, class, and CUSIP number of the [security](/usc/15/78c.md?p=a-10); - (ii) the number of shares or principal amount of the [security](/usc/15/78c.md?p=a-10) involved in the transaction; - (iii) whether the transaction was a [purchase](/usc/15/78c.md?p=a-13) or sale; - (iv) the per share price or prices at which the transaction was effected; - (v) the date or dates of the transaction; - (vi) the date or dates of the settlement of the transaction; - (vii) the [broker or dealer](/usc/15/78c.md?p=h-2) through whom the transaction was effected; - (viii) the market or markets in which the transaction was effected; and - (ix) such other related information as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe. - (2) The [Commission](/usc/15/78c.md?p=a-15) shall prescribe rules providing for the public disclosure of the name of the [issuer](/usc/15/78c.md?p=a-8) and the title, class, CUSIP number, aggregate amount of the number of short sales of each [security](/usc/15/78c.md?p=a-10), and any additional information determined by the [Commission](/usc/15/78c.md?p=a-15) following the end of the reporting period. At a minimum, such public disclosure shall occur every month. - (3) The [Commission](/usc/15/78c.md?p=a-15), by rule, or [order](/usc/15/8702.md?p=14), may exempt, conditionally or unconditionally, any [institutional investment manager](#f-6-A) or [security](/usc/15/78c.md?p=a-10) or any class of [institutional investment managers](#f-6-A) or [securities](/usc/15/78c.md?p=a-10) from any or all of the provisions of this subsection or the rules thereunder. - (4) The [Commission](/usc/15/78c.md?p=a-15) shall make available to the public for a reasonable fee a list of all [equity securities](/usc/15/78c.md?p=a-11) of a class described in [subsection (d)(1)](#d-1), updated no less frequently than reports are required to be filed pursuant to paragraph (1) of this subsection. The [Commission](/usc/15/78c.md?p=a-15) shall tabulate the information contained in any report filed pursuant to this subsection in a manner which will, in the view of the [Commission](/usc/15/78c.md?p=a-15), maximize the usefulness of the information to other Federal and [State](/usc/15/78c.md?p=a-16) [authorities](/usc/15/3051.md?p=1) and the public. Promptly after the filing of any such report, the [Commission](/usc/15/78c.md?p=a-15) shall make the information contained therein conveniently available to the public for a reasonable fee in such form as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe, except that the [Commission](/usc/15/78c.md?p=a-15), as it determines to be necessary or appropriate in the public interest or for the protection of investors, may delay or prevent public disclosure of any such information in accordance with [section 552 of title 5](/usc/5/552.md). Notwithstanding the preceding sentence, any such information identifying the [securities](/usc/15/78c.md?p=a-10) held by the [account](/usc/15/1681a.md?p=r-4) of a natural [person](/usc/15/78c.md?p=a-9) or an estate or trust (other than a business trust or [investment company](/usc/15/78c.md?p=a-12-A-iii)) shall not be disclosed to the public. - (5) In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall determine (and so [state](/usc/15/78c.md?p=a-16)) that its action is necessary or appropriate in the public interest and for the protection of investors or to maintain fair and orderly markets or, in granting an exemption, that its action is consistent with the protection of investors and the purposes of this subsection. In exercising such [authority](/usc/15/3051.md?p=1) the [Commission](/usc/15/78c.md?p=a-15) shall take such steps as are within its power, including consulting with the Comptroller General of the United States, the [Director](/usc/15/78c.md?p=a-7) of the Office of Management and Budget, the [appropriate regulatory agencies](/usc/15/78c.md?p=a-34), Federal and [State](/usc/15/78c.md?p=a-16) [authorities](/usc/15/3051.md?p=1) which, directly or indirectly, require reports from [institutional investment managers](#f-6-A) of information substantially similar to that called for by this subsection, [national securities exchanges](/usc/15/9009a.md?p=a-5), and registered [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2), (A) to achieve uniform, centralized reporting of information concerning the [securities](/usc/15/78c.md?p=a-10) holdings of and transactions by or for [accounts](/usc/15/1681a.md?p=r-4) with respect to which [institutional investment managers](#f-6-A) exercise investment discretion, and (B) consistently with the objective set forth in the preceding subparagraph, to avoid unnecessarily duplicative reporting by, and minimize the compliance burden on, [institutional investment managers](#f-6-A). Federal [authorities](/usc/15/3051.md?p=1) which, directly or indirectly, require reports from [institutional investment managers](#f-6-A) of information substantially similar to that called for by this subsection shall cooperate with the [Commission](/usc/15/78c.md?p=a-15) in the performance of its responsibilities under the preceding sentence. An [institutional investment manager](#f-6-A) which is a bank, the deposits of which are insured in accordance with the Federal Deposit Insurance Act [[12 U.S.C. 1811](/usc/12/1811.md) et seq.], shall file with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) a copy of every report filed with the [Commission](/usc/15/78c.md?p=a-15) pursuant to this subsection. - (6) - (A) For purposes of this subsection the term “institutional investment manager” includes any [person](/usc/15/78c.md?p=a-9), other than a natural [person](/usc/15/78c.md?p=a-9), investing in or buying and selling [securities](/usc/15/78c.md?p=a-10) for its own [account](/usc/15/1681a.md?p=r-4), and any [person](/usc/15/78c.md?p=a-9) exercising investment discretion with respect to the [account](/usc/15/1681a.md?p=r-4) of any other [person](/usc/15/78c.md?p=a-9). - (B) The [Commission](/usc/15/78c.md?p=a-15) shall adopt such rules as it deems necessary or appropriate to prevent duplicative reporting pursuant to this subsection by two or more [institutional investment managers](#f-6-A) exercising investment discretion with respect to the same amount.[^2] - (g) **Statement of equity security ownership—** - (1) Any [person](/usc/15/78c.md?p=a-9) who is directly or indirectly the beneficial owner of more than 5 per centum of any [security](/usc/15/78c.md?p=a-10) of a class described in [subsection (d)(1)](#d-1) of this section or otherwise becomes or is deemed to become a beneficial owner of any [security](/usc/15/78c.md?p=a-10) of a class described in [subsection (d)(1)](#d-1) upon the [purchase](/usc/15/78c.md?p=a-13) or sale of a [security-based swap](/usc/15/78c.md?p=a-68-A) that the [Commission](/usc/15/78c.md?p=a-15) may define by rule shall file with the [Commission](/usc/15/78c.md?p=a-15) a statement setting forth, in such form and at such time as the [Commission](/usc/15/78c.md?p=a-15) may, by rule, prescribe— - (A) such [person](/usc/15/78c.md?p=a-9)’s identity, residence, and citizenship; and - (B) the number and description of the shares in which such [person](/usc/15/78c.md?p=a-9) has an interest and the nature of such interest. - (2) If any material change occurs in the facts set forth in the statement filed with the [Commission](/usc/15/78c.md?p=a-15), an amendment shall be filed with the [Commission](/usc/15/78c.md?p=a-15), in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (3) When two or more persons act as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of [securities](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8), such syndicate or group shall be deemed a “[person](/usc/15/78c.md?p=a-9)” for the purposes of this subsection. - (4) In determining, for purposes of this subsection, any percentage of a class of any [security](/usc/15/78c.md?p=a-10), such class shall be deemed to consist of the amount of the outstanding [securities](/usc/15/78c.md?p=a-10) of such class, exclusive of any [securities](/usc/15/78c.md?p=a-10) of such class held by or for the [account](/usc/15/1681a.md?p=r-4) of the [issuer](/usc/15/78c.md?p=a-8) or a subsidiary of the [issuer](/usc/15/78c.md?p=a-8). - (5) In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall take such steps as it deems necessary or appropriate in the public interest or for the protection of investors (A) to achieve centralized reporting of information regarding ownership, (B) to avoid unnecessarily duplicative reporting by and minimize the compliance burden on [persons](/usc/15/78c.md?p=a-9) required to report, and (C) to tabulate and promptly make available the information contained in any report filed pursuant to this subsection in a manner which will, in the view of the [Commission](/usc/15/78c.md?p=a-15), maximize the usefulness of the information to other Federal and [State](/usc/15/78c.md?p=a-16) agencies and the public. - (6) The [Commission](/usc/15/78c.md?p=a-15) may, by rule or [order](/usc/15/8702.md?p=14), exempt, in whole or in part, any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9) from any or all of the reporting requirements of this subsection as it deems necessary or appropriate in the public interest or for the protection of investors. - (h) **Large trader reporting—** - (1) **Identification requirements for large traders—** For the purpose of monitoring the impact on the [securities](/usc/15/78c.md?p=a-10) markets of [securities](/usc/15/78c.md?p=a-10) transactions involving a substantial volume or a large fair market value or exercise value and for the purpose of otherwise assisting the [Commission](/usc/15/78c.md?p=a-15) in the enforcement of this chapter, each [large trader](#h-8-A) shall— - (A) provide such information to the [Commission](/usc/15/78c.md?p=a-15) as the [Commission](/usc/15/78c.md?p=a-15) may by rule or regulation prescribe as necessary or appropriate, identifying such [large trader](#h-8-A) and all [accounts](/usc/15/1681a.md?p=r-4) in or through which such [large trader](#h-8-A) effects such transactions; and - (B) identify, in accordance with such rules or regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate, to any [registered broker or dealer](/usc/15/78c.md?p=h-2) by or through whom such [large trader](#h-8-A) directly or indirectly effects [securities](/usc/15/78c.md?p=a-10) transactions, such [large trader](#h-8-A) and all [accounts](/usc/15/1681a.md?p=r-4) directly or indirectly maintained with such [broker or dealer](/usc/15/78c.md?p=h-2) by such [large trader](#h-8-A) in or through which such transactions are effected. - (2) **Recordkeeping and reporting requirements for brokers and dealers—** Every [registered broker or dealer](/usc/15/78c.md?p=h-2) shall make and keep for prescribed periods such [records](/usc/15/78c.md?p=a-37) as the [Commission](/usc/15/78c.md?p=a-15) by rule or regulation prescribes as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, with respect to [securities](/usc/15/78c.md?p=a-10) transactions that equal or exceed the [reporting activity level](#h-8-D) effected directly or indirectly by or through such [registered broker or dealer](/usc/15/78c.md?p=h-2) of or for any [person](/usc/15/78c.md?p=a-9) that such [broker or dealer](/usc/15/78c.md?p=h-2) knows is a [large trader](#h-8-A), or any [person](/usc/15/78c.md?p=a-9) that such [broker or dealer](/usc/15/78c.md?p=h-2) has reason to know is a [large trader](#h-8-A) on the basis of transactions in [securities](/usc/15/78c.md?p=a-10) effected by or through such [broker or dealer](/usc/15/78c.md?p=h-2). Such [records](/usc/15/78c.md?p=a-37) shall be available for reporting to the [Commission](/usc/15/78c.md?p=a-15), or any [self-regulatory organization](/usc/15/78c.md?p=a-26) that the [Commission](/usc/15/78c.md?p=a-15) shall designate to receive such reports, on the morning of the day following the day the transactions were effected, and shall be reported to the [Commission](/usc/15/78c.md?p=a-15) or a [self-regulatory organization](/usc/15/78c.md?p=a-26) designated by the [Commission](/usc/15/78c.md?p=a-15) immediately upon request by the [Commission](/usc/15/78c.md?p=a-15) or such a [self-regulatory organization](/usc/15/78c.md?p=a-26). Such [records](/usc/15/78c.md?p=a-37) and reports shall be in a format and transmitted in a manner prescribed by the [Commission](/usc/15/78c.md?p=a-15) (including, but not limited to, machine readable form). - (3) **Aggregation rules—** The [Commission](/usc/15/78c.md?p=a-15) may prescribe rules or regulations governing the manner in which transactions and [accounts](/usc/15/1681a.md?p=r-4) shall be aggregated for the purpose of this subsection, including aggregation on the basis of common ownership or control. - (4) **Examination of broker and dealer records—** All [records](/usc/15/78c.md?p=a-37) required to be made and kept by registered [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) pursuant to this subsection with respect to transactions effected by [large traders](#h-8-A) are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the [Commission](/usc/15/78c.md?p=a-15) as the [Commission](/usc/15/78c.md?p=a-15) deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. - (5) **Factors to be considered in Commission actions—** In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall take into [account](/usc/15/1681a.md?p=r-4)— - (A) existing reporting systems; - (B) the costs associated with maintaining information with respect to transactions effected by [large traders](#h-8-A) and reporting such information to the [Commission](/usc/15/78c.md?p=a-15) or [self-regulatory organizations](/usc/15/78c.md?p=a-26); and - (C) the relationship between the United States and international [securities](/usc/15/78c.md?p=a-10) markets. - (6) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15), by rule, regulation, or [order](/usc/15/8702.md?p=14), consistent with the purposes of this chapter, may exempt any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9) or any transaction or class of transactions, either conditionally or upon specified terms and conditions or for stated periods, from the operation of this subsection, and the rules and regulations thereunder. - (7) **Authority of Commission to limit disclosure of information—** Notwithstanding any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) shall not be compelled to disclose any information required to be kept or reported under this subsection. Nothing in this subsection shall authorize the [Commission](/usc/15/78c.md?p=a-15) to withhold information from Congress, or prevent the [Commission](/usc/15/78c.md?p=a-15) from complying with a request for information from any other Federal department or agency requesting information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/78c.md?p=a-15). For purposes of [section 552 of title 5](/usc/5/552.md), this subsection shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. - (8) **Definitions—** For purposes of this subsection— - (A) the term “large trader” means every [person](/usc/15/78c.md?p=a-9) who, for his own [account](/usc/15/1681a.md?p=r-4) or an [account](/usc/15/1681a.md?p=r-4) for which he exercises investment discretion, effects transactions for the [purchase](/usc/15/78c.md?p=a-13) or sale of any [publicly traded security](#h-8-B) or [securities](/usc/15/78c.md?p=a-10) by use of any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) or of the mails, or of any [facility](/usc/15/78c.md?p=a-2) of a [national securities exchange](/usc/15/9009a.md?p=a-5), directly or indirectly by or through a [registered broker or dealer](/usc/15/78c.md?p=h-2) in an aggregate amount equal to or in excess of the [identifying activity level](#h-8-C); - (B) the term “publicly traded security” means any [equity security](/usc/15/78c.md?p=a-11) (including an option on individual [equity securities](/usc/15/78c.md?p=a-11), and an option on a group or [index](/usc/15/78c.md?p=a-68-E) of such [securities](/usc/15/78c.md?p=a-10)) listed, or admitted to unlisted trading privileges, on a [national securities exchange](/usc/15/9009a.md?p=a-5), or quoted in an automated interdealer quotation system; - (C) the term “identifying activity level” means transactions in [publicly traded securities](#h-8-B) at or above a level of volume, fair market value, or exercise value as shall be fixed from time to time by the [Commission](/usc/15/78c.md?p=a-15) by rule or regulation, specifying the time interval during which such transactions shall be aggregated; - (D) the term “reporting activity level” means transactions in [publicly traded securities](#h-8-B) at or above a level of volume, fair market value, or exercise value as shall be fixed from time to time by the [Commission](/usc/15/78c.md?p=a-15) by rule, regulation, or [order](/usc/15/8702.md?p=14), specifying the time interval during which such transactions shall be aggregated; and - (E) the term “[person](/usc/15/78c.md?p=a-9)” has the meaning given in [section 78c(a)(9) of this title](/usc/15/78c.md?p=a-9) and also includes two or more [persons](/usc/15/78c.md?p=a-9) acting as a partnership, limited partnership, syndicate, or other group, but does not include a foreign central bank. - (i) **Accuracy of financial reports—** Each financial report that contains financial statements, and that is required to be prepared in accordance with (or reconciled to) generally accepted accounting principles under this chapter and filed with the [Commission](/usc/15/78c.md?p=a-15) shall reflect all material correcting adjustments that have been identified by a [registered public accounting firm](/usc/15/78c.md?p=a-59) in accordance with generally accepted accounting principles and the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15). - (j) **Off-balance sheet transactions—** Not later than 180 days after July 30, 2002, the [Commission](/usc/15/78c.md?p=a-15) shall issue final rules providing that each annual and quarterly financial report required to be filed with the [Commission](/usc/15/78c.md?p=a-15) shall disclose all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the [issuer](/usc/15/78c.md?p=a-8) with unconsolidated entities or other [persons](/usc/15/78c.md?p=a-9), that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. - (k) **Prohibition on personal loans to executives—** - (1) **In general—** It shall be unlawful for any [issuer](/usc/15/78c.md?p=a-8) (as defined in [section 7201 of this title](/usc/15/7201.md)), directly or indirectly, including through any subsidiary, to extend or maintain [credit](/usc/15/1679a.md?p=4), to arrange for the extension of [credit](/usc/15/1679a.md?p=4), or to renew an extension of [credit](/usc/15/1679a.md?p=4), in the form of a personal loan to or for any [director](/usc/15/78c.md?p=a-7) or executive officer (or equivalent thereof) of that [issuer](/usc/15/78c.md?p=a-8). An extension of [credit](/usc/15/1679a.md?p=4) maintained by the [issuer](/usc/15/78c.md?p=a-8) on July 30, 2002, shall not be subject to the provisions of this subsection, provided that there is no material modification to any term of any such extension of [credit](/usc/15/1679a.md?p=4) or any renewal of any such extension of [credit](/usc/15/1679a.md?p=4) on or after July 30, 2002. - (2) **Limitation—** [Paragraph (1)](#k-1) does not preclude any home improvement and manufactured home loans (as that term is defined in [section 1464 of title 12](/usc/12/1464.md)), [consumer](/usc/15/1615.md?p=d-2) [credit](/usc/15/1679a.md?p=4) (as defined in [section 1602 of this title](/usc/15/1602.md)), or any extension of [credit](/usc/15/1679a.md?p=4) under an open end [credit](/usc/15/1679a.md?p=4) plan (as defined in [section 1602 of this title](/usc/15/1602.md)), or a charge card (as defined in [section 1637(c)(4)(e) of this title](/usc/15/1637.md)), or any extension of [credit](/usc/15/1679a.md?p=4) by a [broker or dealer](/usc/15/78c.md?p=h-2) registered under [section 78o](/usc/15/78o.md) of this title to an employee of that [broker or dealer](/usc/15/78c.md?p=h-2) to buy, trade, or carry [securities](/usc/15/78c.md?p=a-10), that is permitted under rules or regulations of the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System pursuant to [section 78g of this title](/usc/15/78g.md) (other than an extension of [credit](/usc/15/1679a.md?p=4) that would be used to [purchase](/usc/15/78c.md?p=a-13) the stock of that [issuer](/usc/15/78c.md?p=a-8)), that is— - (A) made or provided in the ordinary course of the [consumer](/usc/15/1615.md?p=d-2) [credit](/usc/15/1679a.md?p=4) business of such [issuer](/usc/15/78c.md?p=a-8); - (B) of a type that is generally made available by such [issuer](/usc/15/78c.md?p=a-8) to the public; and - (C) made by such [issuer](/usc/15/78c.md?p=a-8) on market terms, or terms that are no more favorable than those offered by the [issuer](/usc/15/78c.md?p=a-8) to the general public for such extensions of [credit](/usc/15/1679a.md?p=4). - (3) **Rule of construction for certain loans—** [Paragraph (1)](#k-1) does not apply to any loan made or maintained by an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act ([12 U.S.C. 1813](/usc/12/1813.md))), if the loan is subject to the insider lending restrictions of [section 375b of title 12](/usc/12/375b.md). - (l) **Real time issuer disclosures—** Each [issuer](/usc/15/78c.md?p=a-8) reporting under [subsec. (a)](#a) or [section 78o(d)](/usc/15/78o.md?p=d) of this title shall disclose to the public on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the [issuer](/usc/15/78c.md?p=a-8), in plain English, which may include trend and qualitative information and graphic presentations, as the [Commission](/usc/15/78c.md?p=a-15) determines, by rule, is necessary or useful for the protection of investors and in the public interest. - (m) **Public availability of security-based swap transaction data—** - (1) **In general—** - (A) **Definition of real-time public reporting—** In this paragraph, the term “real-time public reporting” means to report data relating to a [security-based swap](/usc/15/78c.md?p=a-68-A) transaction, including price and volume, as soon as technologically practicable after the time at which the [security-based swap](/usc/15/78c.md?p=a-68-A) transaction has been executed. - (B) **Purpose—** The purpose of this subsection is to authorize the [Commission](/usc/15/78c.md?p=a-15) to make [security-based swap](/usc/15/78c.md?p=a-68-A) transaction and pricing data available to the public in such form and at such times as the [Commission](/usc/15/78c.md?p=a-15) determines appropriate to enhance price discovery. - (C) **General rule—** The [Commission](/usc/15/78c.md?p=a-15) is authorized to provide by rule for the public availability of [security-based swap](/usc/15/78c.md?p=a-68-A) transaction, volume, and pricing data as follows: - (i) With respect to those [security-based swaps](/usc/15/78c.md?p=a-68-A) that are subject to the mandatory clearing requirement described in [section 78c–3(a)(1) of this title](/usc/15/78c–3.md?p=a-1) (including those [security-based swaps](/usc/15/78c.md?p=a-68-A) that are excepted from the requirement pursuant to [section 78c–3(g) of this title](/usc/15/78c–3.md?p=g)), the [Commission](/usc/15/78c.md?p=a-15) shall require [real-time public reporting](#m-1-A) for such transactions. - (ii) With respect to those [security-based swaps](/usc/15/78c.md?p=a-68-A) that are not subject to the mandatory clearing requirement described in [section 78c–3(a)(1) of this title](/usc/15/78c–3.md?p=a-1), but are cleared at a registered [clearing agency](/usc/15/78c.md?p=a-23-A), the [Commission](/usc/15/78c.md?p=a-15) shall require [real-time public reporting](#m-1-A) for such transactions. - (iii) With respect to [security-based swaps](/usc/15/78c.md?p=a-68-A) that are not cleared at a registered [clearing agency](/usc/15/78c.md?p=a-23-A) and which are reported to a [security-based swap data repository](/usc/15/78c.md?p=a-75) or the [Commission](/usc/15/78c.md?p=a-15) under [section 78c–3(a)(6) of this title](/usc/15/78c–3.md),[^3] the [Commission](/usc/15/78c.md?p=a-15) shall require [real-time public reporting](#m-1-A) for such transactions, in a manner that does not disclose the business transactions and market positions of any [person](/usc/15/78c.md?p=a-9). - (iv) With respect to [security-based swaps](/usc/15/78c.md?p=a-68-A) that are determined to be required to be cleared under [section 78c–3(b) of this title](/usc/15/78c–3.md?p=b) but are not cleared, the [Commission](/usc/15/78c.md?p=a-15) shall require [real-time public reporting](#m-1-A) for such transactions. - (D) **Registered entities and public reporting—** The [Commission](/usc/15/78c.md?p=a-15) may require registered entities to publicly disseminate the [security-based swap](/usc/15/78c.md?p=a-68-A) transaction and pricing data required to be reported under this paragraph. - (E) **Rulemaking required—** With respect to the rule providing for the public availability of transaction and pricing data for [security-based swaps](/usc/15/78c.md?p=a-68-A) described in clauses [(i)](#m-1-C-i) and [(ii)](#m-1-C-ii) of subparagraph (C), the rule promulgated by the [Commission](/usc/15/78c.md?p=a-15) shall contain provisions— - (i) to ensure such information does not identify the [participants](/usc/15/78c.md?p=a-24); - (ii) to specify the criteria for determining what constitutes a large notional [security-based swap](/usc/15/78c.md?p=a-68-A) transaction (block trade) for particular markets and contracts; - (iii) to specify the appropriate time delay for reporting large notional [security-based swap](/usc/15/78c.md?p=a-68-A) transactions (block trades) to the public; and - (iv) that take into [account](/usc/15/1681a.md?p=r-4) whether the public disclosure will materially reduce market liquidity. - (F) **Timeliness of reporting—** Parties to a [security-based swap](/usc/15/78c.md?p=a-68-A) (including agents of the parties to a [security-based swap](/usc/15/78c.md?p=a-68-A)) shall be responsible for reporting [security-based swap](/usc/15/78c.md?p=a-68-A) transaction information to the appropriate registered entity in a timely manner as may be prescribed by the [Commission](/usc/15/78c.md?p=a-15). - (G) **Reporting of swaps to registered security-based swap data repositories—** Each [security-based swap](/usc/15/78c.md?p=a-68-A) (whether cleared or uncleared) shall be reported to a registered [security-based swap data repository](/usc/15/78c.md?p=a-75). - (H) **Registration of clearing agencies—** A [clearing agency](/usc/15/78c.md?p=a-23-A) may register as a [security-based swap data repository](/usc/15/78c.md?p=a-75). - (2) **Semiannual and annual public reporting of aggregate security-based swap data—** - (A) **In general—** In accordance with [subparagraph (B)](#m-2-B), the [Commission](/usc/15/78c.md?p=a-15) shall issue a written report on a semiannual and annual basis to make available to the public information relating to— - (i) the trading and clearing in the major [security-based swap](/usc/15/78c.md?p=a-68-A) categories; and - (ii) the market [participants](/usc/15/78c.md?p=a-24) and developments in new products. - (B) **Use; consultation—** In preparing a report under [subparagraph (A)](#m-2-A), the [Commission](/usc/15/78c.md?p=a-15) shall— - (i) use information from [security-based swap data repositories](/usc/15/78c.md?p=a-75) and [clearing agencies](/usc/15/78c.md?p=a-23-A); and - (ii) consult with the Office of the Comptroller of the Currency, the Bank for International Settlements, and such other regulatory bodies as may be necessary. - (C) **Authority of Commission—** The [Commission](/usc/15/78c.md?p=a-15) may, by rule, regulation, or [order](/usc/15/8702.md?p=14), delegate the public reporting responsibilities of the [Commission](/usc/15/78c.md?p=a-15) under this paragraph in accordance with such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate and in the public interest. - (n) **Security-based swap data repositories—** - (1) **Registration requirement—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), unless registered with the [Commission](/usc/15/78c.md?p=a-15), directly or indirectly, to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to perform the functions of a [security-based swap data repository](/usc/15/78c.md?p=a-75). - (2) **Inspection and examination—** Each registered [security-based swap data repository](/usc/15/78c.md?p=a-75) shall be subject to inspection and examination by any representative of the [Commission](/usc/15/78c.md?p=a-15). - (3) **Compliance with core principles—** - (A) **In general—** To be registered, and maintain registration, as a [security-based swap data repository](/usc/15/78c.md?p=a-75), the [security-based swap data repository](/usc/15/78c.md?p=a-75) shall comply with— - (i) the requirements and core principles described in this subsection; and - (ii) any requirement that the [Commission](/usc/15/78c.md?p=a-15) may impose by rule or regulation. - (B) **Reasonable discretion of security-based swap data repository—** Unless otherwise determined by the [Commission](/usc/15/78c.md?p=a-15), by rule or regulation, a [security-based swap data repository](/usc/15/78c.md?p=a-75) described in [subparagraph (A)](#n-3-A) shall have reasonable discretion in establishing the manner in which the [security-based swap data repository](/usc/15/78c.md?p=a-75) complies with the core principles described in this subsection. - (4) **Standard setting—** - (A) **Data identification—** - (i) **In general—** In accordance with [clause (ii)](#n-4-A-ii), the [Commission](/usc/15/78c.md?p=a-15) shall prescribe standards that specify the data elements for each [security-based swap](/usc/15/78c.md?p=a-68-A) that shall be collected and maintained by each registered [security-based swap data repository](/usc/15/78c.md?p=a-75). - (ii) **Requirement—** In carrying out [clause (i)](#n-4-A-i), the [Commission](/usc/15/78c.md?p=a-15) shall prescribe consistent data element standards applicable to registered entities and reporting counterparties. - (B) **Data collection and maintenance—** The [Commission](/usc/15/78c.md?p=a-15) shall prescribe data collection and data maintenance standards for [security-based swap data repositories](/usc/15/78c.md?p=a-75). - (C) **Comparability—** The standards prescribed by the [Commission](/usc/15/78c.md?p=a-15) under this subsection shall be comparable to the data standards imposed by the [Commission](/usc/15/78c.md?p=a-15) on [clearing agencies](/usc/15/78c.md?p=a-23-A) in connection with their clearing of [security-based swaps](/usc/15/78c.md?p=a-68-A). - (5) **Duties—** A [security-based swap data repository](/usc/15/78c.md?p=a-75) shall— - (A) accept data prescribed by the [Commission](/usc/15/78c.md?p=a-15) for each [security-based swap](/usc/15/78c.md?p=a-68-A) under [subsection (b)](#b); - (B) confirm with both counterparties to the [security-based swap](/usc/15/78c.md?p=a-68-A) the accuracy of the data that was submitted; - (C) maintain the data described in [subparagraph (A)](#n-5-A) in such form, in such manner, and for such period as may be required by the [Commission](/usc/15/78c.md?p=a-15); - (D) - (i) provide direct electronic access to the [Commission](/usc/15/78c.md?p=a-15) (or any designee of the [Commission](/usc/15/78c.md?p=a-15), including another registered entity); and - (ii) provide the information described in [subparagraph (A)](#n-5-A) in such form and at such frequency as the [Commission](/usc/15/78c.md?p=a-15) may require to comply with the public reporting requirements set forth in [subsection (m)](#m); - (E) at the direction of the [Commission](/usc/15/78c.md?p=a-15), establish automated systems for monitoring, screening, and analyzing [security-based swap](/usc/15/78c.md?p=a-68-A) data; - (F) maintain the privacy of any and all [security-based swap](/usc/15/78c.md?p=a-68-A) transaction information that the [security-based swap data repository](/usc/15/78c.md?p=a-75) receives from a [security-based swap dealer](/usc/15/78c.md?p=a-71-A), counterparty, or any other registered entity; and - (G) on a confidential basis pursuant to [section 78x of this title](/usc/15/78x.md), upon request, and after notifying the [Commission](/usc/15/78c.md?p=a-15) of the request, make available [security-based swap](/usc/15/78c.md?p=a-68-A) data obtained by the [security-based swap data repository](/usc/15/78c.md?p=a-75), including individual counterparty trade and position data, to— - (i) each appropriate [prudential regulator](/usc/15/78c.md?p=a-74); - (ii) the Financial Stability Oversight [Council](/usc/15/4601.md?p=c-1); - (iii) the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15); - (iv) the Department of Justice; and - (v) any other [person](/usc/15/78c.md?p=a-9) that the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate, including— - (I) foreign financial supervisors (including foreign futures [authorities](/usc/15/3051.md?p=1)); - (II) foreign central banks; - (III) foreign ministries; and - (IV) other foreign [authorities](/usc/15/3051.md?p=1). - (H) **Confidentiality agreement.—** Before the [security-based swap data repository](/usc/15/78c.md?p=a-75) may share information with any entity described in [subparagraph (G)](#n-5-G), the [security-based swap data repository](/usc/15/78c.md?p=a-75) shall receive a written [agreement](/usc/15/7a.md?p=2) from each entity stating that the entity shall abide by the confidentiality requirements described in [section 78x of this title](/usc/15/78x.md) relating to the information on [security-based swap](/usc/15/78c.md?p=a-68-A) transactions that is provided. - (6) **Designation of chief compliance officer—** - (A) **In general—** Each [security-based swap data repository](/usc/15/78c.md?p=a-75) shall designate an individual to serve as a chief compliance officer. - (B) **Duties—** The chief compliance officer shall— - (i) report directly to the [board](/usc/15/78c.md?p=a-73) or to the senior officer of the [security-based swap data repository](/usc/15/78c.md?p=a-75); - (ii) review the compliance of the [security-based swap data repository](/usc/15/78c.md?p=a-75) with respect to the requirements and core principles described in this subsection; - (iii) in consultation with the [board](/usc/15/78c.md?p=a-73) of the [security-based swap data repository](/usc/15/78c.md?p=a-75), a body performing a function similar to the [board](/usc/15/78c.md?p=a-73) of the [security-based swap data repository](/usc/15/78c.md?p=a-75), or the senior officer of the [security-based swap data repository](/usc/15/78c.md?p=a-75), resolve any conflicts of interest that may arise; - (iv) be responsible for administering each policy and procedure that is required to be established pursuant to this section; - (v) ensure compliance with this chapter (including regulations) relating to [agreements](/usc/15/7a.md?p=2), contracts, or transactions, including each rule prescribed by the [Commission](/usc/15/78c.md?p=a-15) under this section; - (vi) establish procedures for the remediation of noncompliance issues identified by the chief compliance officer through any— - (I) compliance office review; - (II) look-back; - (III) internal or external [audit](/usc/15/7201.md?p=2) finding; - (IV) self-reported error; or - (V) validated complaint; and - (vii) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues. - (C) **Annual reports—** - (i) **In general—** In accordance with rules prescribed by the [Commission](/usc/15/78c.md?p=a-15), the chief compliance officer shall annually prepare and sign a report that contains a description of— - (I) the compliance of the [security-based swap data repository](/usc/15/78c.md?p=a-75) of the chief compliance officer with respect to this chapter (including regulations); and - (II) each policy and procedure of the [security-based swap data repository](/usc/15/78c.md?p=a-75) of the chief compliance officer (including the code of ethics and conflict of interest policies of the [security-based swap data repository](/usc/15/78c.md?p=a-75)). - (ii) **Requirements—** A compliance report under [clause (i)](#n-6-C-i) shall— - (I) accompany each appropriate financial report of the [security-based swap data repository](/usc/15/78c.md?p=a-75) that is required to be furnished to the [Commission](/usc/15/78c.md?p=a-15) pursuant to this section; and - (II) include a certification that, under penalty of law, the compliance report is accurate and complete. - (7) **Core principles applicable to security-based swap data repositories—** - (A) **Antitrust considerations—** Unless necessary or appropriate to achieve the purposes of this chapter, the [swap](/usc/15/78c.md?p=a-69) data repository shall not— - (i) adopt any rule or take any action that results in any unreasonable restraint of trade; or - (ii) impose any material anticompetitive burden on the trading, clearing, or reporting of transactions. - (B) **Governance arrangements—** Each [security-based swap data repository](/usc/15/78c.md?p=a-75) shall establish governance arrangements that are transparent— - (i) to fulfill public interest requirements; and - (ii) to support the objectives of the Federal Government, owners, and [participants](/usc/15/78c.md?p=a-24). - (C) **Conflicts of interest—** Each [security-based swap data repository](/usc/15/78c.md?p=a-75) shall— - (i) establish and enforce rules to minimize conflicts of interest in the decision-making process of the [security-based swap data repository](/usc/15/78c.md?p=a-75); and - (ii) establish a process for resolving any conflicts of interest described in [clause (i)](#n-7-C-i). - (D) **Additional duties developed by Commission—** - (i) **In general—** The [Commission](/usc/15/78c.md?p=a-15) may develop 1 or more additional duties applicable to [security-based swap data repositories](/usc/15/78c.md?p=a-75). - (ii) **Consideration of evolving standards—** In developing additional duties under [subparagraph (A)](#n-7-A),[^4] the [Commission](/usc/15/78c.md?p=a-15) may take into consideration any evolving standard of the United States or the international community. - (iii) **Additional duties for Commission designees—** The [Commission](/usc/15/78c.md?p=a-15) shall establish additional duties for any registrant described in [subsection (m)(2)(C)](#m-2-C) in [order](/usc/15/8702.md?p=14) to minimize conflicts of interest, protect data, ensure compliance, and guarantee the safety and [security](/usc/15/78c.md?p=a-10) of the [security-based swap data repository](/usc/15/78c.md?p=a-75). - (8) **Required registration for security-based swap data repositories—** Any [person](/usc/15/78c.md?p=a-9) that is required to be registered as a [security-based swap data repository](/usc/15/78c.md?p=a-75) under this subsection shall register with the [Commission](/usc/15/78c.md?p=a-15), regardless of whether that [person](/usc/15/78c.md?p=a-9) is also licensed under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.] as a [swap](/usc/15/78c.md?p=a-69) data repository. - (9) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules governing [persons](/usc/15/78c.md?p=a-9) that are registered under this subsection. - (o) **Beneficial ownership—** For purposes of this section and [section 78p of this title](/usc/15/78p.md), a [person](/usc/15/78c.md?p=a-9) shall be deemed to acquire beneficial ownership of an [equity security](/usc/15/78c.md?p=a-11) based on the [purchase](/usc/15/78c.md?p=a-13) or sale of a [security-based swap](/usc/15/78c.md?p=a-68-A), only to the extent that the [Commission](/usc/15/78c.md?p=a-15), by rule, determines after consultation with the [prudential regulators](/usc/15/78c.md?p=a-74) and the Secretary of the Treasury, that the [purchase](/usc/15/78c.md?p=a-13) or sale of the [security-based swap](/usc/15/78c.md?p=a-68-A), or class of [security-based swap](/usc/15/78c.md?p=a-68-A), provides incidents of ownership comparable to direct ownership of the [equity security](/usc/15/78c.md?p=a-11), and that it is necessary to achieve the purposes of this section that the [purchase](/usc/15/78c.md?p=a-13) or sale of the [security-based swaps](/usc/15/78c.md?p=a-68-A), or class of [security-based swap](/usc/15/78c.md?p=a-68-A), be deemed the acquisition of beneficial ownership of the [equity security](/usc/15/78c.md?p=a-11). - (p) **Disclosures relating to conflict minerals originating in the Democratic Republic of the Congo—** - (1) **Regulations—** - (A) **In general—** Not later than 270 days after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall promulgate regulations requiring any [person](/usc/15/78c.md?p=a-9) described in [paragraph (2)](#p-2) to disclose annually, beginning with the [person](/usc/15/78c.md?p=a-9)’s first full fiscal year that begins after the date of promulgation of such regulations, whether [conflict minerals](#p-5) that are necessary as described in [paragraph (2)(B)](#p-2-B), in the year for which such reporting is required, did originate in the Democratic Republic of the Congo or an [adjoining country](#p-5) and, in cases in which such [conflict minerals](#p-5) did originate in any such country, submit to the [Commission](/usc/15/78c.md?p=a-15) a report that includes, with respect to the period covered by the report— - (i) a description of the measures taken by the [person](/usc/15/78c.md?p=a-9) to exercise due diligence on the source and chain of custody of such minerals, which measures shall include an independent private sector [audit](/usc/15/7201.md?p=2) of such report submitted through the [Commission](/usc/15/78c.md?p=a-15) that is conducted in accordance with standards established by the Comptroller General of the United States, in accordance with rules promulgated by the [Commission](/usc/15/78c.md?p=a-15), in consultation with the Secretary of State; and - (ii) a description of the products manufactured or contracted to be manufactured that are not DRC conflict free (“DRC conflict free” is defined to mean the products that do not contain minerals that directly or indirectly finance or benefit [armed groups](#p-5) in the Democratic Republic of the Congo or an [adjoining country](#p-5)), the entity that conducted the independent private sector [audit](/usc/15/7201.md?p=2) in accordance with [clause (i)](#p-1-A-i), the [facilities](/usc/15/78c.md?p=a-2) used to process the [conflict minerals](#p-5), the country of origin of the [conflict minerals](#p-5), and the efforts to determine the mine or location of origin with the greatest possible specificity. - (B) **Certification—** The [person](/usc/15/78c.md?p=a-9) submitting a report under [subparagraph (A)](#p-1-A) shall certify the [audit](/usc/15/7201.md?p=2) described in [clause (i)](#p-1-A-i) of such subparagraph that is included in such report. Such a certified [audit](/usc/15/7201.md?p=2) shall constitute a critical component of due diligence in establishing the source and chain of custody of such minerals. - (C) **Unreliable determination—** If a report required to be submitted by a [person](/usc/15/78c.md?p=a-9) under [subparagraph (A)](#p-1-A) relies on a determination of an independent private sector [audit](/usc/15/7201.md?p=2), as described under [subparagraph (A)(i)](#p-1-A-i), or other due diligence processes previously determined by the [Commission](/usc/15/78c.md?p=a-15) to be unreliable, the report shall not satisfy the requirements of the regulations promulgated under [subparagraph (A)(i)](#p-1-A-i). - (D) **DRC conflict free—** For purposes of this paragraph, a product may be labeled as “DRC conflict free” if the product does not contain [conflict minerals](#p-5) that directly or indirectly finance or benefit [armed groups](#p-5) in the Democratic Republic of the Congo or an [adjoining country](#p-5). - (E) **Information available to the public—** Each [person](/usc/15/78c.md?p=a-9) described under [paragraph (2)](#p-2) shall make available to the public on the Internet website of such [person](/usc/15/78c.md?p=a-9) the information disclosed by such [person](/usc/15/78c.md?p=a-9) under [subparagraph (A)](#p-1-A). - (2) **Person described—** A [person](/usc/15/78c.md?p=a-9) is described in this paragraph if— - (A) the [person](/usc/15/78c.md?p=a-9) is required to file reports with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [paragraph (1)(A)](#p-1-A); and - (B) [conflict minerals](#p-5) are necessary to the functionality or production of a product manufactured by such [person](/usc/15/78c.md?p=a-9). - (3) **Revisions and waivers—** The [Commission](/usc/15/78c.md?p=a-15) shall revise or temporarily waive the requirements described in [paragraph (1)](#p-1) if the President transmits to the [Commission](/usc/15/78c.md?p=a-15) a determination that— - (A) such revision or waiver is in the national [security](/usc/15/78c.md?p=a-10) interest of the United States and the President includes the reasons therefor; and - (B) establishes a date, not later than 2 years after the initial publication of such exemption, on which such exemption shall expire. - (4) **Termination of disclosure requirements—** The requirements of [paragraph (1)](#p-1) shall terminate on the date on which the President determines and certifies to the [appropriate congressional committees](#p-5), but in no case earlier than the date that is one day after the end of the 5-year period beginning on July 21, 2010, that no [armed groups](#p-5) continue to be directly involved and benefitting from commercial activity involving [conflict minerals](#p-5). - (5) **Definitions—** For purposes of this subsection, the terms “adjoining country”, “appropriate congressional committees”, “armed group”, and “conflict mineral” have the meaning given those terms under [section 1502](/usc/15/1502.md) of the Dodd-Frank Wall Street Reform and [Consumer](/usc/15/1615.md?p=d-2) Protection Act. - (q) **Disclosure of payments by resource extraction issuers—** - (1) **Definitions—** In this subsection— - (A) the term “commercial development of oil, natural gas, or minerals” includes exploration, extraction, processing, export, and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a [license](/usc/15/662.md?p=7) for any such activity, as determined by the [Commission](/usc/15/78c.md?p=a-15); - (B) the term “foreign government” means a foreign government, a department, agency, or instrumentality of a foreign government, or a [company](/usc/15/78c.md?p=a-19) owned by a foreign government, as determined by the [Commission](/usc/15/78c.md?p=a-15); - (C) the term “payment”— - (i) means a [payment](#q-1-C) that is— - (I) made to further the [commercial development of oil, natural gas, or minerals](#q-1-A); and - (II) not de minimis; and - (ii) includes taxes, royalties, fees (including [license](/usc/15/662.md?p=7) fees), production entitlements, bonuses, and other material benefits, that the [Commission](/usc/15/78c.md?p=a-15), consistent with the guidelines of the Extractive Industries Transparency [Initiative](/usc/15/9401.md?p=5) (to the extent practicable), determines are part of the commonly recognized revenue stream for the [commercial development of oil, natural gas, or minerals](#q-1-A); - (D) the term “resource extraction issuer” means an [issuer](/usc/15/78c.md?p=a-8) that— - (i) is required to file an annual report with the [Commission](/usc/15/78c.md?p=a-15); and - (ii) engages in the [commercial development of oil, natural gas, or minerals](#q-1-A); - (E) the term “interactive data format” means an electronic data format in which pieces of information are identified using an [interactive data standard](#q-1-F); and - (F) the term “interactive data standard” means[^5] standardized list of electronic tags that mark information included in the annual report of a [resource extraction issuer](#q-1-D). - (2) **Disclosure—** - (A) **Information required—** Not later than 270 days after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall issue final rules that require each [resource extraction issuer](#q-1-D) to include in an annual report of the [resource extraction issuer](#q-1-D) information relating to any [payment](#q-1-C) made by the [resource extraction issuer](#q-1-D), a subsidiary of the [resource extraction issuer](#q-1-D), or an entity under the control of the [resource extraction issuer](#q-1-D) to a [foreign government](#q-1-B) or the Federal Government for the purpose of the [commercial development of oil, natural gas, or minerals](#q-1-A), including— - (i) the type and total amount of such [payments](#q-1-C) made for each [project](/usc/15/2502.md?p=6) of the [resource extraction issuer](#q-1-D) relating to the [commercial development of oil, natural gas, or minerals](#q-1-A); and - (ii) the type and total amount of such [payments](#q-1-C) made to each government. - (B) **Consultation in rulemaking—** In issuing rules under [subparagraph (A)](#q-2-A), the [Commission](/usc/15/78c.md?p=a-15) may consult with any agency or entity that the [Commission](/usc/15/78c.md?p=a-15) determines is relevant. - (C) **Interactive data format—** The rules issued under [subparagraph (A)](#q-2-A) shall require that the information included in the annual report of a [resource extraction issuer](#q-1-D) be submitted in an [interactive data format](#q-1-E). - (D) **Interactive data standard—** - (i) **In general—** The rules issued under [subparagraph (A)](#q-2-A) shall establish an [interactive data standard](#q-1-F) for the information included in the annual report of a [resource extraction issuer](#q-1-D). - (ii) **Electronic tags—** The [interactive data standard](#q-1-F) shall include electronic tags that identify, for any [payments](#q-1-C) made by a [resource extraction issuer](#q-1-D) to a [foreign government](#q-1-B) or the Federal Government— - (I) the total amounts of the [payments](#q-1-C), by category; - (II) the currency used to make the [payments](#q-1-C); - (III) the financial period in which the [payments](#q-1-C) were made; - (IV) the business segment of the [resource extraction issuer](#q-1-D) that made the [payments](#q-1-C); - (V) the government that received the [payments](#q-1-C), and the country in which the government is located; - (VI) the [project](/usc/15/2502.md?p=6) of the [resource extraction issuer](#q-1-D) to which the [payments](#q-1-C) relate; and - (VII) such other information as the [Commission](/usc/15/78c.md?p=a-15) may determine is necessary or appropriate in the public interest or for the protection of investors. - (E) **International transparency efforts—** To the extent practicable, the rules issued under [subparagraph (A)](#q-2-A) shall support the commitment of the Federal Government to international transparency promotion efforts relating to the [commercial development of oil, natural gas, or minerals](#q-1-A). - (F) **Effective date—** With respect to each [resource extraction issuer](#q-1-D), the final rules issued under [subparagraph (A)](#q-2-A) shall take effect on the date on which the [resource extraction issuer](#q-1-D) is required to submit an annual report relating to the fiscal year of the [resource extraction issuer](#q-1-D) that ends not earlier than 1 year after the date on which the [Commission](/usc/15/78c.md?p=a-15) issues final rules under [subparagraph (A)](#q-2-A). - (3) **Public availability of information—** - (A) **In general—** To the extent practicable, the [Commission](/usc/15/78c.md?p=a-15) shall make available online, to the public, a compilation of the information required to be submitted under the rules issued under [paragraph (2)(A)](#q-2-A). - (B) **Other information—** Nothing in this paragraph shall require the [Commission](/usc/15/78c.md?p=a-15) to make available online information other than the information required to be submitted under the rules issued under [paragraph (2)(A)](#q-2-A). - (4) **Authorization of appropriations—** There are authorized to be appropriated to the [Commission](/usc/15/78c.md?p=a-15) such sums as may be necessary to carry out this subsection. - (r) **Disclosure of certain activities relating to Iran—** - (1) **In general—** Each [issuer](/usc/15/78c.md?p=a-8) required to file an annual or quarterly report under [subsection (a)](#a) shall disclose in that report the information required by [paragraph (2)](#r-2) if, during the period covered by the report, the [issuer](/usc/15/78c.md?p=a-8) or any affiliate of the [issuer](/usc/15/78c.md?p=a-8)— - (A) knowingly engaged in an activity described in subsection [(a)](/usc/15/5.md) or [(b)](/usc/15/5.md) of section 5 of the Iran Sanctions Act of 1996 (Public Law 104–172; [50 U.S.C. 1701](/usc/50/1701.md) note); - (B) knowingly engaged in an activity described in subsection (c)(2) of [section 8513 of title 22](/usc/22/8513.md) or a transaction described in [subsection (d)(1)](/usc/15/8513.md) of that section; - (C) knowingly engaged in an activity described in [section 8514a(b)(2) of title 22](/usc/22/8514a.md?p=b-2); or - (D) knowingly conducted any transaction or dealing with— - (i) any [person](/usc/15/78c.md?p=a-9) the property and interests in property of which are blocked pursuant to Executive [Order](/usc/15/8702.md?p=14) No. 13224 (66 Fed. Reg. 49079; relating to blocking property and prohibiting transactions with [persons](/usc/15/78c.md?p=a-9) who commit, threaten to commit, or support terrorism); - (ii) any [person](/usc/15/78c.md?p=a-9) the property and interests in property of which are blocked pursuant to Executive [Order](/usc/15/8702.md?p=14) No. 13382 (70 Fed. Reg. 38567; relating to blocking of property of weapons of mass destruction proliferators and their supporters); or - (iii) any [person](/usc/15/78c.md?p=a-9) or entity identified under [section 560.304 of title 31, Code of Federal Regulations](/cfr/31/560.304.md) (relating to the definition of the Government of Iran) without the specific authorization of a Federal department or agency. - (2) **Information required—** If an [issuer](/usc/15/78c.md?p=a-8) or an affiliate of the [issuer](/usc/15/78c.md?p=a-8) has engaged in any activity described in [paragraph (1)](#r-1), the [issuer](/usc/15/78c.md?p=a-8) shall disclose a detailed description of each such activity, including— - (A) the nature and extent of the activity; - (B) the gross revenues and net profits, if any, attributable to the activity; and - (C) whether the [issuer](/usc/15/78c.md?p=a-8) or the affiliate of the [issuer](/usc/15/78c.md?p=a-8) (as the case may be) intends to continue the activity. - (3) **Notice of disclosures—** If an [issuer](/usc/15/78c.md?p=a-8) reports under [paragraph (1)](#r-1) that the [issuer](/usc/15/78c.md?p=a-8) or an affiliate of the [issuer](/usc/15/78c.md?p=a-8) has knowingly engaged in any activity described in that paragraph, the [issuer](/usc/15/78c.md?p=a-8) shall separately file with the [Commission](/usc/15/78c.md?p=a-15), concurrently with the annual or quarterly report under [subsection (a)](#a), a notice that the disclosure of that activity has been included in that annual or quarterly report that identifies the [issuer](/usc/15/78c.md?p=a-8) and contains the information required by [paragraph (2)](#r-2). - (4) **Public disclosure of information—** Upon receiving a notice under [paragraph (3)](#r-3) that an annual or quarterly report includes a disclosure of an activity described in [paragraph (1)](#r-1), the [Commission](/usc/15/78c.md?p=a-15) shall promptly— - (A) transmit the report to— - (i) the President; - (ii) the [Committee](/usc/15/2921.md?p=1) on Foreign Affairs and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives; and - (iii) the [Committee](/usc/15/2921.md?p=1) on Foreign Relations and the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate; and - (B) make the information provided in the disclosure and the notice available to the public by posting the information on the Internet website of the [Commission](/usc/15/78c.md?p=a-15). - (5) **Investigations—** Upon receiving a report under [paragraph (4)](#r-4) that includes a disclosure of an activity described in [paragraph (1)](#r-1) (other than an activity described in [subparagraph (D)(iii)](#r-1-D-iii) of that paragraph), the President shall— - (A) initiate an investigation into the possible imposition of sanctions under the Iran Sanctions Act of 1996 (Public Law 104–172; [50 U.S.C. 1701](/usc/50/1701.md) note), section [8513](/usc/22/8513.md) or [8514a](/usc/22/8514a.md) of title 22, an Executive [order](/usc/15/8702.md?p=14) specified in clause [(i)](#r-1-D-i) or [(ii)](#r-1-D-ii) of paragraph (1)(D), or any other provision of law relating to the imposition of sanctions with respect to Iran, as applicable; and - (B) not later than 180 days after initiating such an investigation, make a determination with respect to whether sanctions should be imposed with respect to the [issuer](/usc/15/78c.md?p=a-8) or the affiliate of the [issuer](/usc/15/78c.md?p=a-8) (as the case may be). - (6) **Sunset—** The provisions of this subsection shall terminate on the date that is 30 days after the date on which the President makes the certification described in [section 8551(a) of title 22](/usc/22/8551.md?p=a). - (s) **Data standards—** - (1) **Requirement—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, adopt data standards for all collections of information with respect to periodic and current reports required to be filed or furnished under this section or under [section 78o(d)](/usc/15/78o.md?p=d) of this title, except that the [Commission](/usc/15/78c.md?p=a-15) may exempt exhibits, signatures, and certifications from those data standards. - (2) **Consistency—** The data standards required under [paragraph (1)](#s-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §78m–1. Reporting and recordkeeping for certain security-based swaps - (a) **Required reporting of security-based swaps not accepted by any clearing agency or derivatives clearing organization—** - (1) **In general—** Each [security-based swap](/usc/15/78c.md?p=a-68-A) that is not accepted for clearing by any [clearing agency](/usc/15/78c.md?p=a-23-A) or derivatives clearing organization shall be reported to— - (A) a [security-based swap data repository](/usc/15/78c.md?p=a-75) described in [section 78m(n) of this title](/usc/15/78m.md?p=n); or - (B) in the case in which there is no [security-based swap data repository](/usc/15/78c.md?p=a-75) that would accept the [security-based swap](/usc/15/78c.md?p=a-68-A), to the [Commission](/usc/15/78c.md?p=a-15) pursuant to this section within such time period as the [Commission](/usc/15/78c.md?p=a-15) may by rule or regulation prescribe. - (2) **Transition rule for preenactment security-based swaps—** - (A) **Security-based swaps entered into before July 21, 2010—** Each [security-based swap](/usc/15/78c.md?p=a-68-A) entered into before July 21, 2010, the terms of which have not expired as of July 21, 2010, shall be reported to a registered [security-based swap data repository](/usc/15/78c.md?p=a-75) or the [Commission](/usc/15/78c.md?p=a-15) by a date that is not later than— - (i) 30 days after issuance of the interim final rule; or - (ii) such other period as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate. - (B) **Commission rulemaking—** The [Commission](/usc/15/78c.md?p=a-15) shall promulgate an interim final rule within 90 days of July 21, 2010, providing for the reporting of each [security-based swap](/usc/15/78c.md?p=a-68-A) entered into before July 21, 2010, as referenced in [subparagraph (A)](#a-2-A). - (C) **Effective date—** The reporting provisions described in this section shall be effective upon July 21, 2010. - (3) **Reporting obligations—** - (A) **Security-based swaps in which only 1 counterparty is a security-based swap dealer or major security-based swap participant—** With respect to a [security-based swap](/usc/15/78c.md?p=a-68-A) in which only 1 counterparty is a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall report the [security-based swap](/usc/15/78c.md?p=a-68-A) as required under paragraphs [(1)](#a-1) and [(2)](#a-2). - (B) **Security-based swaps in which 1 counterparty is a security-based swap dealer and the other a major security-based swap participant—** With respect to a [security-based swap](/usc/15/78c.md?p=a-68-A) in which 1 counterparty is a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and the other a [major security-based swap participant](/usc/15/78c.md?p=a-67-A), the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) shall report the [security-based swap](/usc/15/78c.md?p=a-68-A) as required under paragraphs [(1)](#a-1) and [(2)](#a-2). - (C) **Other security-based swaps—** With respect to any other [security-based swap](/usc/15/78c.md?p=a-68-A) not described in subparagraph [(A)](#a-3-A) or [(B)](#a-3-B), the counterparties to the [security-based swap](/usc/15/78c.md?p=a-68-A) shall select a counterparty to report the [security-based swap](/usc/15/78c.md?p=a-68-A) as required under paragraphs [(1)](#a-1) and [(2)](#a-2). - (b) **Duties of certain individuals—** Any individual or entity that enters into a [security-based swap](/usc/15/78c.md?p=a-68-A) shall meet each requirement described in [subsection (c)](#c) if the individual or entity did not— - (1) clear the [security-based swap](/usc/15/78c.md?p=a-68-A) in accordance with [section 78c–3(a)(1) of this title](/usc/15/78c–3.md?p=a-1); or - (2) have the data regarding the [security-based swap](/usc/15/78c.md?p=a-68-A) accepted by a [security-based swap data repository](/usc/15/78c.md?p=a-75) in accordance with rules (including timeframes) adopted by the [Commission](/usc/15/78c.md?p=a-15) under this chapter. - (c) **Requirements—** An individual or entity described in [subsection (b)](#b) shall— - (1) upon written request from the [Commission](/usc/15/78c.md?p=a-15), provide reports regarding the [security-based swaps](/usc/15/78c.md?p=a-68-A) held by the individual or entity to the [Commission](/usc/15/78c.md?p=a-15) in such form and in such manner as the [Commission](/usc/15/78c.md?p=a-15) may request; and - (2) maintain books and [records](/usc/15/78c.md?p=a-37) pertaining to the [security-based swaps](/usc/15/78c.md?p=a-68-A) held by the individual or entity in such form, in such manner, and for such period as the [Commission](/usc/15/78c.md?p=a-15) may require, which shall be open to inspection by— - (A) any representative of the [Commission](/usc/15/78c.md?p=a-15); - (B) an appropriate [prudential regulator](/usc/15/78c.md?p=a-74); - (C) the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15); - (D) the Financial Stability Oversight [Council](/usc/15/4601.md?p=c-1); and - (E) the Department of Justice. - (d) **Identical data—** In prescribing rules under this section, the [Commission](/usc/15/78c.md?p=a-15) shall require individuals and entities described in [subsection (b)](#b) to submit to the [Commission](/usc/15/78c.md?p=a-15) a report that contains data that is not less comprehensive than the data required to be collected by [security-based swap data repositories](/usc/15/78c.md?p=a-75) under this chapter. # §78m–2. Reporting requirements regarding coal or other mine safety - (a) **Reporting mine safety information—** Each [issuer](#e-1) that is required to file reports pursuant to section 13(a) or 15(d) of the [Securities](/usc/15/78c.md?p=a-10) Exchange Act of 1934 [[15 U.S.C. 78m(a)](/usc/15/78m.md?p=a), 78o(d)] and that is an [operator](#e-3), or that has a subsidiary that is an [operator](#e-3), of a [coal or other mine](#e-2) shall include, in each periodic report filed with the [Commission](/usc/15/78c.md?p=a-15) under the [securities laws](#e-1) on or after July 21, 2010, the following information for the time period covered by such report: - (1) For each [coal or other mine](#e-2) of which the [issuer](#e-1) or a subsidiary of the [issuer](#e-1) is an [operator](#e-3)— - (A) the total number of [violations](/usc/15/57b–1.md?p=a-7) of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a [coal or other mine](#e-2) safety or health hazard under section 104 of the Federal Mine Safety and Health Act of 1977 ([30 U.S.C. 814](/usc/30/814.md)) for which the [operator](#e-3) received a citation from the Mine Safety and Health [Administration](/usc/15/2203.md?p=2); - (B) the total number of [orders](/usc/15/8702.md?p=14) issued under section 104(b) of such Act ([30 U.S.C. 814(b)](/usc/30/814.md?p=b)); - (C) the total number of citations and [orders](/usc/15/8702.md?p=14) for unwarrantable failure of the mine [operator](#e-3) to comply with mandatory health or safety standards under section 104(d) of such Act ([30 U.S.C. 814(d)](/usc/30/814.md?p=d)); - (D) the total number of flagrant [violations](/usc/15/57b–1.md?p=a-7) under section 110(b)(2) of such Act ([30 U.S.C. 820(b)(2)](/usc/30/820.md?p=b-2)); - (E) the total number of imminent danger [orders](/usc/15/8702.md?p=14) issued under section 107(a) of such Act ([30 U.S.C. 817(a)](/usc/30/817.md?p=a)); - (F) the total dollar value of proposed assessments from the Mine Safety and Health [Administration](/usc/15/2203.md?p=2) under such Act ([30 U.S.C. 801](/usc/30/801.md) et seq.); and - (G) the total number of mining-related fatalities. - (2) A list of such [coal or other mines](#e-2), of which the [issuer](#e-1) or a subsidiary of the [issuer](#e-1) is an [operator](#e-3), that receive written notice from the Mine Safety and Health [Administration](/usc/15/2203.md?p=2) of— - (A) a pattern of [violations](/usc/15/57b–1.md?p=a-7) of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of [coal or other mine](#e-2) health or safety hazards under section 104(e) of such Act ([30 U.S.C. 814(e)](/usc/30/814.md?p=e)); or - (B) the potential to have such a pattern. - (3) Any pending legal action before the Federal Mine Safety and Health Review [Commission](/usc/15/78c.md?p=a-15) involving such [coal or other mine](#e-2). - (b) **Reporting shutdowns and patterns of violations—** Beginning on and after July 21, 2010, each [issuer](#e-1) that is an [operator](#e-3), or that has a subsidiary that is an [operator](#e-3), of a [coal or other mine](#e-2) shall file a current report with the [Commission](/usc/15/78c.md?p=a-15) on Form 8–K (or any successor form) disclosing the following regarding each [coal or other mine](#e-2) of which the [issuer](#e-1) or subsidiary is an [operator](#e-3): - (1) The receipt of an imminent danger [order](/usc/15/8702.md?p=14) issued under section 107(a) of the Federal Mine Safety and Health Act of 1977 ([30 U.S.C. 817(a)](/usc/30/817.md?p=a)). - (2) The receipt of written notice from the Mine Safety and Health [Administration](/usc/15/2203.md?p=2) that the [coal or other mine](#e-2) has— - (A) a pattern of [violations](/usc/15/57b–1.md?p=a-7) of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of [coal or other mine](#e-2) health or safety hazards under section 104(e) of such Act ([30 U.S.C. 814(e)](/usc/30/814.md?p=e)); or - (B) the potential to have such a pattern. - (c) **Rule of construction—** Nothing in this section shall be construed to affect any obligation of a [person](/usc/15/78c.md?p=a-9) to make a disclosure under any other applicable law in effect before, on, or after July 21, 2010. - (d) **Commission authority—** - (1) **Enforcement—** A [violation](/usc/15/57b–1.md?p=a-7) by any [person](/usc/15/78c.md?p=a-9) of this section, or any rule or regulation of the [Commission](/usc/15/78c.md?p=a-15) issued under this section, shall be treated for all purposes in the same manner as a [violation](/usc/15/57b–1.md?p=a-7) of the [Securities](/usc/15/78c.md?p=a-10) Exchange Act of 1934 ([15 U.S.C. 78a](/usc/15/78a.md) et seq.) or the rules and regulations issued thereunder, consistent with the provisions of this section, and any such [person](/usc/15/78c.md?p=a-9) shall be subject to the same penalties, and to the same extent, as for a [violation](/usc/15/57b–1.md?p=a-7) of such Act or the rules or regulations issued thereunder. - (2) **Rules and regulations—** The [Commission](/usc/15/78c.md?p=a-15) is authorized to issue such rules or regulations as are necessary or appropriate for the protection of investors and to carry out the purposes of this section. - (e) **Definitions—** In this section— - (1) the terms “issuer” and “securities laws” have the meaning given the terms in section 3 of the [Securities](/usc/15/78c.md?p=a-10) Exchange Act of 1934 ([15 U.S.C. 78c](/usc/15/78c.md)); - (2) the term “coal or other mine” means a coal or other mine, as defined in [section 3](/usc/15/3.md) of the Federal Mine Safety and Health Act of 1977 ([30 U.S.C. 802](/usc/30/802.md)), that is subject to the provisions of such Act ([30 U.S.C. 801](/usc/30/801.md) et seq.); and - (3) the term “operator” has the meaning given the term in [section 3](/usc/15/3.md) of the Federal Mine Safety and Health Act of 1977 ([30 U.S.C. 802](/usc/30/802.md)). - (f) **Effective date—** This section shall take effect on the day that is 30 days after July 21, 2010. # §78n. Proxies - (a) **Solicitation of proxies in violation of rules and regulations—** - (1) It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), by the use of the mails or by any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) or of any [facility](/usc/15/78c.md?p=a-2) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or otherwise, in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) registered pursuant to [section 78l](/usc/15/78l.md) of this title. - (2) The rules and regulations prescribed by the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) may include— - (A) a requirement that a solicitation of proxy, consent, or authorization by (or on behalf of) an [issuer](/usc/15/78c.md?p=a-8) include a nominee submitted by a shareholder to serve on the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8); and - (B) a requirement that an [issuer](/usc/15/78c.md?p=a-8) follow a certain procedure in relation to a solicitation described in [subparagraph (A)](#a-2-A). - (b) **Giving or refraining from giving proxy in respect of any security carried for account of customer—** - (1) It shall be unlawful for any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), or any [broker or dealer](/usc/15/78c.md?p=h-2) registered under this chapter, or any bank, [association](/usc/15/657h.md?p=a-2), or other entity that exercises fiduciary powers, in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors, to give, or to refrain from giving a proxy, consent, authorization, or information statement in respect of any [security](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title, or any [security](/usc/15/78c.md?p=a-10) issued by an [investment company](/usc/15/78c.md?p=a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], and carried for the [account](/usc/15/1681a.md?p=r-4) of a [customer](/usc/15/78c–5.md?p=g). - (2) With respect to banks, the rules and regulations prescribed by the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#b-1) shall not require the disclosure of the names of beneficial owners of [securities](/usc/15/78c.md?p=a-10) in an [account](/usc/15/1681a.md?p=r-4) held by the bank on December 28, 1985, unless the beneficial owner consents to the disclosure. The provisions of this paragraph shall not apply in the case of a bank which the [Commission](/usc/15/78c.md?p=a-15) finds has not made a good faith effort to obtain such consent from such beneficial owners. - (c) **Information to holders of record prior to annual or other meeting—** Unless proxies, consents, or authorizations in respect of a [security](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title, or a [security](/usc/15/78c.md?p=a-10) issued by an [investment company](/usc/15/78c.md?p=a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], are solicited by or on behalf of the management of the [issuer](/usc/15/78c.md?p=a-8) from the holders of record of such [security](/usc/15/78c.md?p=a-10) in accordance with the rules and regulations prescribed under [subsection (a)](#a) of this section, prior to any annual or other meeting of the holders of such [security](/usc/15/78c.md?p=a-10), such [issuer](/usc/15/78c.md?p=a-8) shall, in accordance with rules and regulations prescribed by the [Commission](/usc/15/78c.md?p=a-15), file with the [Commission](/usc/15/78c.md?p=a-15) and transmit to all holders of record of such [security](/usc/15/78c.md?p=a-10) information substantially equivalent to the information which would be required to be transmitted if a solicitation were made, but no information shall be required to be filed or transmitted pursuant to this subsection before July 1, 1964. - (d) **Tender offer by owner of more than five per centum of class of securities; exceptions—** - (1) It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), directly or indirectly, by use of the mails or by any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) or of any [facility](/usc/15/78c.md?p=a-2) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or otherwise, to make a tender offer for, or a request or invitation for tenders of, any class of any [equity security](/usc/15/78c.md?p=a-11) which is registered pursuant to [section 78l](/usc/15/78l.md) of this title, or any [equity security](/usc/15/78c.md?p=a-11) of an [insurance company](/usc/15/78c.md?p=a-19) which would have been required to be so registered except for the exemption contained in [section 78l(g)(2)(G)](/usc/15/78l.md?p=g-2-G) of this title, or any [equity security](/usc/15/78c.md?p=a-11) issued by a a closed-end [investment company](/usc/15/78c.md?p=a-12-A-iii) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], if, after consummation thereof, such [person](/usc/15/78c.md?p=a-9) would, directly or indirectly, be the beneficial owner of more than 5 per centum of such class, unless at the time copies of the offer or request or invitation are first published or sent or given to [security](/usc/15/78c.md?p=a-10) holders such [person](/usc/15/78c.md?p=a-9) has filed with the [Commission](/usc/15/78c.md?p=a-15) a statement containing such of the information specified in [section 78m(d) of this title](/usc/15/78m.md?p=d), and such additional information as the [Commission](/usc/15/78c.md?p=a-15) may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. All requests or invitations for tenders or advertisements making a tender offer or requesting or inviting tenders of such a [security](/usc/15/78c.md?p=a-10) shall be filed as a part of such statement and shall contain such of the information contained in such statement as the [Commission](/usc/15/78c.md?p=a-15) may by rules and regulations prescribe. Copies of any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request shall contain such information as the [Commission](/usc/15/78c.md?p=a-15) may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors, and shall be filed with the [Commission](/usc/15/78c.md?p=a-15) not later than the time copies of such material are first published or sent or given to [security](/usc/15/78c.md?p=a-10) holders. Copies of all statements, in the form in which such material is furnished to [security](/usc/15/78c.md?p=a-10) holders and the [Commission](/usc/15/78c.md?p=a-15), shall be sent to the [issuer](/usc/15/78c.md?p=a-8) not later than the date such material is first published or sent or given to any [security](/usc/15/78c.md?p=a-10) holders. - (2) When two or more persons act as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of [securities](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8), such syndicate or group shall be deemed a “[person](/usc/15/78c.md?p=a-9)” for purposes of this subsection. - (3) In determining, for purposes of this subsection, any percentage of a class of any [security](/usc/15/78c.md?p=a-10), such class shall be deemed to consist of the amount of the outstanding [securities](/usc/15/78c.md?p=a-10) of such class, exclusive of any [securities](/usc/15/78c.md?p=a-10) of such class held by or for the [account](/usc/15/1681a.md?p=r-4) of the [issuer](/usc/15/78c.md?p=a-8) or a subsidiary of the [issuer](/usc/15/78c.md?p=a-8). - (4) Any solicitation or recommendation to the holders of such a [security](/usc/15/78c.md?p=a-10) to accept or reject a tender offer or request or invitation for tenders shall be made in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (5) [Securities](/usc/15/78c.md?p=a-10) deposited pursuant to a tender offer or request or invitation for tenders may be withdrawn by or on behalf of the depositor at any time until the expiration of seven days after the time definitive copies of the offer or request or invitation are first published or sent or given to [security](/usc/15/78c.md?p=a-10) holders, and at any time after sixty days from the date of the original tender offer or request or invitation, except as the [Commission](/usc/15/78c.md?p=a-15) may otherwise prescribe by rules, regulations, or [order](/usc/15/8702.md?p=14) as necessary or appropriate in the public interest or for the protection of investors. - (6) Where any [person](/usc/15/78c.md?p=a-9) makes a tender offer, or request or invitation for tenders, for less than all the outstanding [equity securities](/usc/15/78c.md?p=a-11) of a class, and where a greater number of [securities](/usc/15/78c.md?p=a-10) is deposited pursuant thereto within ten days after copies of the offer or request or invitation are first published or sent or given to [security](/usc/15/78c.md?p=a-10) holders than such [person](/usc/15/78c.md?p=a-9) is bound or willing to take up and pay for, the [securities](/usc/15/78c.md?p=a-10) taken up shall be taken up as nearly as may be pro rata, disregarding fractions, according to the number of [securities](/usc/15/78c.md?p=a-10) deposited by each depositor. The provisions of this subsection shall also apply to [securities](/usc/15/78c.md?p=a-10) deposited within ten days after notice of an increase in the consideration offered to [security](/usc/15/78c.md?p=a-10) holders, as described in [paragraph (7)](#d-7), is first published or sent or given to [security](/usc/15/78c.md?p=a-10) holders. - (7) Where any [person](/usc/15/78c.md?p=a-9) varies the terms of a tender offer or request or invitation for tenders before the expiration thereof by increasing the consideration offered to holders of such [securities](/usc/15/78c.md?p=a-10), such [person](/usc/15/78c.md?p=a-9) shall pay the increased consideration to each [security](/usc/15/78c.md?p=a-10) holder whose [securities](/usc/15/78c.md?p=a-10) are taken up and paid for pursuant to the tender offer or request or invitation for tenders whether or not such [securities](/usc/15/78c.md?p=a-10) have been taken up by such [person](/usc/15/78c.md?p=a-9) before the variation of the tender offer or request or invitation. - (8) The provisions of this subsection shall not apply to any offer for, or request or invitation for tenders of, any [security](/usc/15/78c.md?p=a-10)— - (A) if the acquisition of such [security](/usc/15/78c.md?p=a-10), together with all other acquisitions by the same [person](/usc/15/78c.md?p=a-9) of [securities](/usc/15/78c.md?p=a-10) of the same class during the preceding twelve months, would not exceed 2 per centum of that class; - (B) by the [issuer](/usc/15/78c.md?p=a-8) of such [security](/usc/15/78c.md?p=a-10); or - (C) which the [Commission](/usc/15/78c.md?p=a-15), by rules or regulations or by [order](/usc/15/8702.md?p=14), shall exempt from the provisions of this subsection as not entered into for the purpose of, and not having the effect of, changing or influencing the control of the [issuer](/usc/15/78c.md?p=a-8) or otherwise as not comprehended within the purposes of this subsection. - (e) **Untrue statement of material fact or omission of fact with respect to tender offer—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to make any untrue statement of a material fact or omit to [state](/usc/15/78c.md?p=a-16) any material fact necessary in [order](/usc/15/8702.md?p=14) to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of [security](/usc/15/78c.md?p=a-10) holders in opposition to or in favor of any such offer, request, or invitation. The [Commission](/usc/15/78c.md?p=a-15) shall, for the purposes of this subsection, by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative. - (f) **Election or designation of majority of directors of issuer by owner of more than five per centum of class of securities at other than meeting of security holders—** If, pursuant to any arrangement or understanding with the [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) acquiring [securities](/usc/15/78c.md?p=a-10) in a transaction subject to [subsection (d)](#d) of this section or subsection (d) of [section 78m of this title](/usc/15/78m.md), any [persons](/usc/15/78c.md?p=a-9) are to be elected or designated as [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8), otherwise than at a meeting of [security](/usc/15/78c.md?p=a-10) holders, and the [persons](/usc/15/78c.md?p=a-9) so elected or designated will constitute a majority of the [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8), then, prior to the time any such [person](/usc/15/78c.md?p=a-9) takes office as a [director](/usc/15/78c.md?p=a-7), and in accordance with rules and regulations prescribed by the [Commission](/usc/15/78c.md?p=a-15), the [issuer](/usc/15/78c.md?p=a-8) shall file with the [Commission](/usc/15/78c.md?p=a-15), and transmit to all holders of record of [securities](/usc/15/78c.md?p=a-10) of the [issuer](/usc/15/78c.md?p=a-8) who would be entitled to vote at a meeting for election of [directors](/usc/15/78c.md?p=a-7), information substantially equivalent to the information which would be required by subsection [(a)](#a) or [(c)](#c) of this section to be transmitted if such [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) were nominees for election as [directors](/usc/15/78c.md?p=a-7) at a meeting of such [security](/usc/15/78c.md?p=a-10) holders. - (g) **Filing fees—** - (1) - (A) At the time of filing such preliminary proxy solicitation material as the [Commission](/usc/15/78c.md?p=a-15) may require by rule pursuant to [subsection (a)](#a) of this section that concerns an acquisition, merger, consolidation, or proposed sale or other disposition of substantially all the assets of a [company](/usc/15/78c.md?p=a-19), the [person](/usc/15/78c.md?p=a-9) making such filing, other than a [company](/usc/15/78c.md?p=a-19) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], shall pay to the [Commission](/usc/15/78c.md?p=a-15) the following fees: - (i) for preliminary proxy solicitation material involving an acquisition, merger, or consolidation, if there is a proposed payment of cash or transfer of [securities](/usc/15/78c.md?p=a-10) or property to shareholders, a fee at a rate that, subject to [paragraph (4)](#g-4), is equal to $92[^1] per $1,000,000 of such proposed payment, or of the value of such [securities](/usc/15/78c.md?p=a-10) or other property proposed to be transferred; and - (ii) for preliminary proxy solicitation material involving a proposed sale or other disposition of substantially all of the assets of a [company](/usc/15/78c.md?p=a-19), a fee at a rate that, subject to [paragraph (4)](#g-4), is equal to $92[^1] per $1,000,000 of the cash or of the value of any [securities](/usc/15/78c.md?p=a-10) or other property proposed to be received upon such sale or disposition. - (B) The fee imposed under [subparagraph (A)](#g-1-A) shall be reduced with respect to [securities](/usc/15/78c.md?p=a-10) in an amount equal to any fee paid to the [Commission](/usc/15/78c.md?p=a-15) with respect to such [securities](/usc/15/78c.md?p=a-10) in connection with the proposed transaction under [section 77f(b) of this title](/usc/15/77f.md?p=b), or the fee paid under that section shall be reduced in an amount equal to the fee paid to the [Commission](/usc/15/78c.md?p=a-15) in connection with such transaction under this subsection. Where two or more [companies](/usc/15/78c.md?p=a-19) involved in an acquisition, merger, consolidation, sale, or other disposition of substantially all the assets of a [company](/usc/15/78c.md?p=a-19) must file such proxy material with the [Commission](/usc/15/78c.md?p=a-15), each shall pay a proportionate share of such fee. - (2) At the time of filing such preliminary information statement as the [Commission](/usc/15/78c.md?p=a-15) may require by rule pursuant to [subsection (c)](#c) of this section, the [issuer](/usc/15/78c.md?p=a-8) shall pay to the [Commission](/usc/15/78c.md?p=a-15) the same fee as required for preliminary proxy solicitation material under paragraph (1) of this subsection. - (3) At the time of filing such statement as the [Commission](/usc/15/78c.md?p=a-15) may require by rule pursuant to [subsection (d)(1)](#d-1) of this section, the [person](/usc/15/78c.md?p=a-9) making the filing shall pay to the [Commission](/usc/15/78c.md?p=a-15) a fee at a rate that, subject to [paragraph (4)](#g-4), is equal to $92[^1] per $1,000,000 of the aggregate amount of cash or of the value of [securities](/usc/15/78c.md?p=a-10) or other property proposed to be offered. The fee shall be reduced with respect to [securities](/usc/15/78c.md?p=a-10) in an amount equal to any fee paid with respect to such [securities](/usc/15/78c.md?p=a-10) in connection with the proposed transaction under section 6(b) of the Securities Act of 1933 ([15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)), or the fee paid under that section shall be reduced in an amount equal to the fee paid to the [Commission](/usc/15/78c.md?p=a-15) in connection with such transaction under this subsection. - (4) **Annual adjustment.—** For each fiscal year, the [Commission](/usc/15/78c.md?p=a-15) shall by [order](/usc/15/8702.md?p=14) adjust the rate required by paragraphs [(1)](#g-1) and [(3)](#g-3) for such fiscal year to a rate that is equal to the rate (expressed in dollars per million) that is applicable under section 6(b) of the Securities Act of 1933 ([15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)) for such fiscal year. - (5) **Fee collection.—** Fees collected pursuant to this subsection for fiscal year 2012 and each fiscal year thereafter shall be deposited and credited as general revenue of the Treasury and shall not be available for obligation. - (6) **Review; effective date; publication.—** In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall not be required to comply with the provisions of [section 553 of title 5](/usc/5/553.md). An adjusted rate prescribed under [paragraph (4)](#g-4) shall be published and take effect in accordance with section 6(b) of the Securities Act of 1933 ([15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)). - (7) **Pro rata application.—** The rates per $1,000,000 required by this subsection shall be applied pro rata to amounts and balances of less than $1,000,000. - (8) Notwithstanding any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) may impose fees, charges, or prices for matters not involving any acquisition, merger, consolidation, sale, or other disposition of assets described in this subsection, as authorized by [section 9701 of title 31](/usc/31/9701.md), or otherwise. - (h) **Proxy solicitations and tender offers in connection with limited partnership rollup transactions—** - (1) **Proxy rules to contain special provisions—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to solicit any proxy, consent, or authorization concerning a [limited partnership rollup transaction](#h-4), or to make any tender offer in furtherance of a [limited partnership rollup transaction](#h-4), unless such transaction is conducted in accordance with rules prescribed by the [Commission](/usc/15/78c.md?p=a-15) under subsections [(a)](#a) and [(d)](#d) as required by this subsection. Such rules shall— - (A) permit any holder of a [security](/usc/15/78c.md?p=a-10) that is the subject of the proposed [limited partnership rollup transaction](#h-4) to engage in preliminary communications for the purpose of determining whether to solicit proxies, consents, or authorizations in opposition to the proposed [limited partnership rollup transaction](#h-4), without regard to whether any such communication would otherwise be considered a solicitation of proxies, and without being required to file soliciting material with the [Commission](/usc/15/78c.md?p=a-15) prior to making that determination, except that— - (i) nothing in this subparagraph shall be construed to limit the [application](/usc/15/77ccc.md?p=8) of any provision of this chapter prohibiting, or reasonably designed to prevent, fraudulent, deceptive, or manipulative acts or practices under this chapter; and - (ii) any holder of not less than 5 percent of the outstanding [securities](/usc/15/78c.md?p=a-10) that are the subject of the proposed [limited partnership rollup transaction](#h-4) who engages in the business of buying and selling limited partnership interests in the secondary market shall be required to disclose such ownership interests and any potential conflicts of interests in such preliminary communications; - (B) require the [issuer](/usc/15/78c.md?p=a-8) to provide to holders of the [securities](/usc/15/78c.md?p=a-10) that are the subject of the [limited partnership rollup transaction](#h-4) such list of the holders of the [issuer](/usc/15/78c.md?p=a-8)’s [securities](/usc/15/78c.md?p=a-10) as the [Commission](/usc/15/78c.md?p=a-15) may determine in such form and subject to such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) may specify; - (C) prohibit compensating any [person](/usc/15/78c.md?p=a-9) soliciting proxies, consents, or authorizations directly from [security](/usc/15/78c.md?p=a-10) holders concerning such a [limited partnership rollup transaction](#h-4)— - (i) on the basis of whether the solicited proxy, consent, or authorization either approves or disapproves the proposed [limited partnership rollup transaction](#h-4); or - (ii) contingent on the approval, disapproval, or completion of the [limited partnership rollup transaction](#h-4); - (D) set forth disclosure requirements for soliciting material distributed in connection with a [limited partnership rollup transaction](#h-4), including requirements for clear, concise, and comprehensible disclosure with respect to— - (i) any changes in the business plan, voting rights, form of ownership interest, or the compensation of the general partner in the proposed [limited partnership rollup transaction](#h-4) from each of the original limited partnerships; - (ii) the conflicts of interest, if any, of the general partner; - (iii) whether it is expected that there will be a significant difference between the [exchange](/usc/15/78c.md?p=a-1) values of the limited partnerships and the trading price of the [securities](/usc/15/78c.md?p=a-10) to be issued in the [limited partnership rollup transaction](#h-4); - (iv) the valuation of the limited partnerships and the method used to determine the value of the interests of the limited partners to be exchanged for the [securities](/usc/15/78c.md?p=a-10) in the [limited partnership rollup transaction](#h-4); - (v) the differing risks and effects of the [limited partnership rollup transaction](#h-4) for investors in different limited partnerships proposed to be included, and the risks and effects of completing the [limited partnership rollup transaction](#h-4) with less than all limited partnerships; - (vi) the statement by the general partner required under [subparagraph (E)](#h-1-E); - (vii) such other matters deemed necessary or appropriate by the [Commission](/usc/15/78c.md?p=a-15); - (E) require a statement by the general partner as to whether the proposed [limited partnership rollup transaction](#h-4) is fair or unfair to investors in each limited partnership, a discussion of the basis for that conclusion, and an evaluation and a description by the general partner of alternatives to the [limited partnership rollup transaction](#h-4), such as liquidation; - (F) provide that, if the general partner or sponsor has obtained any opinion (other than an opinion of counsel), appraisal, or report that is prepared by an outside party and that is materially related to the [limited partnership rollup transaction](#h-4), such soliciting materials shall contain or be accompanied by clear, concise, and comprehensible disclosure with respect to— - (i) the analysis of the transaction, scope of review, preparation of the opinion, and basis for and methods of arriving at conclusions, and any representations and undertakings with respect thereto; - (ii) the identity and qualifications of the [person](/usc/15/78c.md?p=a-9) who prepared the opinion, the method of selection of such [person](/usc/15/78c.md?p=a-9), and any material past, existing, or contemplated relationships between the [person](/usc/15/78c.md?p=a-9) or any of its affiliates and the general partner, sponsor, successor, or any other affiliate; - (iii) any compensation of the preparer of such opinion, appraisal, or report that is contingent on the transaction’s approval or completion; and - (iv) any limitations imposed by the [issuer](/usc/15/78c.md?p=a-8) on the access afforded to such preparer to the [issuer](/usc/15/78c.md?p=a-8)’s personnel, premises, and relevant books and [records](/usc/15/78c.md?p=a-37); - (G) provide that, if the general partner or sponsor has obtained any opinion, appraisal, or report as described in [subparagraph (F)](#h-1-F) from any [person](/usc/15/78c.md?p=a-9) whose compensation is contingent on the transaction’s approval or completion or who has not been given access by the [issuer](/usc/15/78c.md?p=a-8) to its personnel and premises and relevant books and [records](/usc/15/78c.md?p=a-37), the general partner or sponsor shall [state](/usc/15/78c.md?p=a-16) the reasons therefor; - (H) provide that, if the general partner or sponsor has not obtained any opinion on the fairness of the proposed [limited partnership rollup transaction](#h-4) to investors in each of the affected partnerships, such soliciting materials shall contain or be accompanied by a statement of such partner’s or sponsor’s reasons for concluding that such an opinion is not necessary in [order](/usc/15/8702.md?p=14) to permit the limited partners to make an informed decision on the proposed transaction; - (I) require that the soliciting material include a clear, concise, and comprehensible summary of the [limited partnership rollup transaction](#h-4) (including a summary of the matters referred to in [clauses (i) through (vii)](#h-1-D-i..h-1-D-vii) of subparagraph (D) and a summary of the matter referred to in subparagraphs [(F)](#h-1-F), [(G)](#h-1-G), and [(H)](#h-1-H)), with the risks of the [limited partnership rollup transaction](#h-4) set forth prominently in the fore part thereof; - (J) provide that any solicitation or offering period with respect to any proxy solicitation, tender offer, or information statement in a [limited partnership rollup transaction](#h-4) shall be for not less than the lesser of 60 calendar days or the maximum number of days permitted under applicable [State](/usc/15/78c.md?p=a-16) law; and - (K) contain such other provisions as the [Commission](/usc/15/78c.md?p=a-15) determines to be necessary or appropriate for the protection of investors in [limited partnership rollup transactions](#h-4). - (2) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15) may, consistent with the public interest, the protection of investors, and the purposes of this chapter, exempt by rule or [order](/usc/15/8702.md?p=14) any [security](/usc/15/78c.md?p=a-10) or class of [securities](/usc/15/78c.md?p=a-10), any transaction or class of transactions, or any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), in whole or in part, conditionally or unconditionally, from the requirements imposed pursuant to [paragraph (1)](#h-1) or from the definition contained in [paragraph (4)](#h-4). - (3) **Effect on Commission authority—** Nothing in this subsection limits the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under subsection [(a)](#a) or [(d)](#d) or any other provision of this chapter or precludes the [Commission](/usc/15/78c.md?p=a-15) from imposing, under subsection [(a)](#a) or [(d)](#d) or any other provision of this chapter, a remedy or procedure required to be imposed under this subsection. - (4) **“Limited partnership rollup transaction” defined—** Except as provided in [paragraph (5)](#h-5), as used in this subsection, the term “limited partnership rollup transaction” means a transaction involving the combination or reorganization of one or more limited partnerships, directly or indirectly, in which— - (A) some or all of the investors in any of such limited partnerships will receive new [securities](/usc/15/78c.md?p=a-10), or [securities](/usc/15/78c.md?p=a-10) in another entity, that will be reported under a transaction reporting plan declared effective before December 17, 1993, by the [Commission](/usc/15/78c.md?p=a-15) under [section 78k–1 of this title](/usc/15/78k–1.md); - (B) any of the investors’ limited partnership [securities](/usc/15/78c.md?p=a-10) are not, as of the date of filing, reported under a transaction reporting plan declared effective before December 17, 1993, by the [Commission](/usc/15/78c.md?p=a-15) under [section 78k–1 of this title](/usc/15/78k–1.md); - (C) investors in any of the limited partnerships involved in the transaction are subject to a significant adverse change with respect to voting rights, the term of existence of the entity, management compensation, or investment objectives; and - (D) any of such investors are not provided an option to receive or retain a [security](/usc/15/78c.md?p=a-10) under substantially the same terms and conditions as the original issue. - (5) **Exclusions from definition—** Notwithstanding [paragraph (4)](#h-4), the term “[limited partnership rollup transaction](#h-4)” does not include— - (A) a transaction that involves only a limited partnership or partnerships having an operating policy or practice of retaining cash available for distribution and reinvesting proceeds from the sale, financing, or refinancing of assets in accordance with such criteria as the [Commission](/usc/15/78c.md?p=a-15) determines appropriate; - (B) a transaction involving only limited partnerships wherein the interests of the limited partners are repurchased, recalled, or exchanged in accordance with the terms of the preexisting limited partnership [agreements](/usc/15/7a.md?p=2) for [securities](/usc/15/78c.md?p=a-10) in an operating [company](/usc/15/78c.md?p=a-19) specifically identified at the time of the formation of the original limited partnership; - (C) a transaction in which the [securities](/usc/15/78c.md?p=a-10) to be issued or exchanged are not required to be and are not registered under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]; - (D) a transaction that involves only [issuers](/usc/15/78c.md?p=a-8) that are not required to register or report under [section 78l](/usc/15/78l.md) of this title, both before and after the transaction; - (E) a transaction, except as the [Commission](/usc/15/78c.md?p=a-15) may otherwise provide by rule for the protection of investors, involving the combination or reorganization of one or more limited partnerships in which a non-affiliated party succeeds to the interests of a general partner or sponsor, if— - (i) such action is approved by not less than 66⅔ percent of the outstanding units of each of the participating limited partnerships; and - (ii) as a result of the transaction, the existing general partners will receive only compensation to which they are entitled as expressly provided for in the preexisting limited partnership [agreements](/usc/15/7a.md?p=2); or - (F) a transaction, except as the [Commission](/usc/15/78c.md?p=a-15) may otherwise provide by rule for the protection of investors, in which the [securities](/usc/15/78c.md?p=a-10) offered to investors are [securities](/usc/15/78c.md?p=a-10) of another entity that are reported under a transaction reporting plan declared effective before December 17, 1993, by the [Commission](/usc/15/78c.md?p=a-15) under [section 78k–1 of this title](/usc/15/78k–1.md), if— - (i) such other entity was formed, and such class of [securities](/usc/15/78c.md?p=a-10) was reported and regularly traded, not less than 12 months before the date on which soliciting material is mailed to investors; and - (ii) the [securities](/usc/15/78c.md?p=a-10) of that entity issued to investors in the transaction do not exceed 20 percent of the total outstanding [securities](/usc/15/78c.md?p=a-10) of the entity, exclusive of any [securities](/usc/15/78c.md?p=a-10) of such class held by or for the [account](/usc/15/1681a.md?p=r-4) of the entity or a subsidiary of the entity. - (i) **Disclosure of pay versus performance—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, require each [issuer](/usc/15/78c.md?p=a-8) to disclose in any proxy or consent solicitation material for an annual meeting of the shareholders of the [issuer](/usc/15/78c.md?p=a-8) a clear description of any compensation required to be disclosed by the [issuer](/usc/15/78c.md?p=a-8) under [section 229.402 of title 17, Code of Federal Regulations](/cfr/17/229.402.md) (or any successor thereto), including, for any [issuer](/usc/15/78c.md?p=a-8) other than an [emerging growth company](/usc/15/78c.md?p=a-80), information that shows the relationship between executive compensation actually paid and the financial performance of the [issuer](/usc/15/78c.md?p=a-8), taking into [account](/usc/15/1681a.md?p=r-4) any change in the value of the shares of stock and dividends of the [issuer](/usc/15/78c.md?p=a-8) and any distributions. The disclosure under this subsection may include a graphic representation of the information required to be disclosed. - (j) **Disclosure of hedging by employees and directors—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, require each [issuer](/usc/15/78c.md?p=a-8) to disclose in any proxy or consent solicitation material for an annual meeting of the shareholders of the [issuer](/usc/15/78c.md?p=a-8) whether any employee or [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8), or any designee of such employee or [member](/usc/15/78c.md?p=a-3-A), is permitted to [purchase](/usc/15/78c.md?p=a-13) financial instruments (including prepaid variable forward contracts, equity [swaps](/usc/15/78c.md?p=a-69), collars, and [exchange](/usc/15/78c.md?p=a-1) funds) that are designed to hedge or offset any decrease in the market value of [equity securities](/usc/15/78c.md?p=a-11)— - (1) granted to the employee or [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) by the [issuer](/usc/15/78c.md?p=a-8) as part of the compensation of the employee or [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7); or - (2) held, directly or indirectly, by the employee or [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7). - (k) **Data standards for proxy and consent solicitation materials—** - (1) **Requirement—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, adopt data standards for all information contained in any proxy or consent solicitation material prepared by an [issuer](/usc/15/78c.md?p=a-8) for an annual meeting of the shareholders of the [issuer](/usc/15/78c.md?p=a-8), except that the [Commission](/usc/15/78c.md?p=a-15) may exempt exhibits, signatures, and certifications from those data standards. - (2) **Consistency—** The data standards required under [paragraph (1)](#k-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §78n–1. 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 solicitation rules of the [Commission](/usc/15/78c.md?p=a-15) require compensation disclosure shall include a separate resolution subject to shareholder vote to approve the compensation of executives, as disclosed pursuant to [section 229.402 of title 17, Code of Federal Regulations](/cfr/17/229.402.md), 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 solicitation rules of the [Commission](/usc/15/78c.md?p=a-15) require compensation disclosure shall include a separate resolution subject to shareholder vote to determine whether votes on the resolutions required under [paragraph (1)](#a-1) will occur every 1, 2, or 3 years. - (3) **Effective date—** The proxy or consent or authorization for the first annual or other meeting of the shareholders occurring after the end of the 6-month period beginning on July 21, 2010, shall include— - (A) the resolution described in [paragraph (1)](#a-1); and - (B) a separate resolution subject to shareholder vote to determine whether votes on the resolutions required under [paragraph (1)](#a-1) will occur every 1, 2, or 3 years. - (b) **Shareholder approval of golden parachute compensation—** - (1) **Disclosure—** In any proxy or consent solicitation material (the solicitation of which is subject to the rules of the [Commission](/usc/15/78c.md?p=a-15) pursuant to [subsection (a)](#a)) for a meeting of the shareholders occurring after the end of the 6-month period beginning on July 21, 2010, 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](/usc/15/78c.md?p=a-8), the [person](/usc/15/78c.md?p=a-9) making such solicitation shall disclose in the proxy or consent solicitation material, in a clear and simple form in accordance with regulations to be promulgated by the [Commission](/usc/15/78c.md?p=a-15), any [agreements](/usc/15/7a.md?p=2) or understandings that such [person](/usc/15/78c.md?p=a-9) has with any named executive officers of such [issuer](/usc/15/78c.md?p=a-8) (or of the acquiring [issuer](/usc/15/78c.md?p=a-8), if such [issuer](/usc/15/78c.md?p=a-8) is not the acquiring [issuer](/usc/15/78c.md?p=a-8)) 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](/usc/15/78c.md?p=a-8) and the aggregate total of all such compensation that may (and the conditions upon which 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 material containing the disclosure required by [paragraph (1)](#b-1) shall include a separate resolution subject to shareholder vote to approve such [agreements](/usc/15/7a.md?p=2) or understandings and compensation as disclosed, unless such [agreements](/usc/15/7a.md?p=2) or understandings have been subject to a shareholder vote under [subsection (a)](#a). - (c) **Rule of construction—** The shareholder vote referred to in subsections [(a)](#a) and [(b)](#b) shall not be binding on the [issuer](/usc/15/78c.md?p=a-8) or the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8), and may not be construed— - (1) as overruling a decision by such [issuer](/usc/15/78c.md?p=a-8) or [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7); - (2) to create or imply any change to the fiduciary duties of such [issuer](/usc/15/78c.md?p=a-8) or [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7); - (3) to create or imply any additional fiduciary duties for such [issuer](/usc/15/78c.md?p=a-8) or [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7); 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 78m(f) of this title](/usc/15/78m.md?p=f) shall report at least annually how it voted on any shareholder vote pursuant to subsections [(a)](#a) and [(b)](#b), unless such vote is otherwise required to be reported publicly by rule or regulation of the [Commission](/usc/15/78c.md?p=a-15). - (e) **Exemption—** - (1) **In general—** The [Commission](/usc/15/78c.md?p=a-15) may, by rule or [order](/usc/15/8702.md?p=14), exempt any other [issuer](/usc/15/78c.md?p=a-8) or class of [issuers](/usc/15/78c.md?p=a-8) from the requirement under subsection [(a)](#a) or [(b)](#b). In determining whether to make an exemption under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall take into [account](/usc/15/1681a.md?p=r-4), among other considerations, whether the requirements under subsections [(a)](#a) and [(b)](#b) disproportionately burdens[^1] small [issuers](/usc/15/78c.md?p=a-8). - (2) **Treatment of emerging growth companies—** - (A) **In general—** An [emerging growth company](/usc/15/78c.md?p=a-80) shall be exempt from the requirements of subsections [(a)](#a) and [(b)](#b). - (B) **Compliance after termination of emerging growth company treatment—** An [issuer](/usc/15/78c.md?p=a-8) that was an [emerging growth company](/usc/15/78c.md?p=a-80) but is no longer an [emerging growth company](/usc/15/78c.md?p=a-80) shall include the first separate resolution described under [subsection (a)(1)](#a-1) not later than the end of— - (i) in the case of an [issuer](/usc/15/78c.md?p=a-8) that was an [emerging growth company](/usc/15/78c.md?p=a-80) for less than 2 years after the date of first sale of common [equity securities](/usc/15/78c.md?p=a-11) of the [issuer](/usc/15/78c.md?p=a-8) pursuant to an effective [registration statement](/usc/15/77b.md?p=a-8) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the 3-year period beginning on such date; and - (ii) in the case of any other [issuer](/usc/15/78c.md?p=a-8), the 1-year period beginning on the date the [issuer](/usc/15/78c.md?p=a-8) is no longer an [emerging growth company](/usc/15/78c.md?p=a-80). # §78n–2. Corporate governance Not later than 180 days after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall issue rules that require an [issuer](/usc/15/78c.md?p=a-8) to disclose in the annual proxy sent to investors the reasons why the [issuer](/usc/15/78c.md?p=a-8) has chosen— - (1) the same [person](/usc/15/78c.md?p=a-9) to serve as chairman of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) and chief executive officer (or in equivalent positions); or - (2) different individuals to serve as chairman of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) and chief executive officer (or in equivalent positions of the [issuer](/usc/15/78c.md?p=a-8)). # §78o. Registration and regulation of brokers and dealers - (a) **Registration of all persons utilizing exchange facilities to effect transactions; exemptions—** - (1) It shall be unlawful for any [broker or dealer](/usc/15/78c.md?p=h-2) which is either a [person](/usc/15/78c.md?p=a-9) other than a natural [person](/usc/15/78c.md?p=a-9) or a natural [person](/usc/15/78c.md?p=a-9) not associated with a [broker or dealer](/usc/15/78c.md?p=h-2) which is a [person](/usc/15/78c.md?p=a-9) other than a natural [person](/usc/15/78c.md?p=a-9) (other than such a [broker or dealer](/usc/15/78c.md?p=h-2) whose business is exclusively intrastate and who does not make use of any [facility](/usc/15/78c.md?p=a-2) of a [national securities exchange](/usc/15/9009a.md?p=a-5)) to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transactions in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A) or commercial paper, bankers’ acceptances, or commercial bills) unless such [broker or dealer](/usc/15/78c.md?p=h-2) is registered in accordance with [subsection (b)](#b) of this section. - (2) The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), as it deems consistent with the public interest and the protection of investors, may conditionally or unconditionally exempt from paragraph (1) of this subsection any [broker or dealer](/usc/15/78c.md?p=h-2) or class of [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A) specified in such rule or [order](/usc/15/8702.md?p=14). - (b) **Manner of registration of brokers and dealers—** - (1) A [broker or dealer](/usc/15/78c.md?p=h-2) may be registered by filing with the [Commission](#b-10) an [application](/usc/15/77ccc.md?p=8) for registration in such form and containing such information and documents concerning such [broker or dealer](/usc/15/78c.md?p=h-2) and any [persons](/usc/15/78c.md?p=a-9) associated with such [broker or dealer](/usc/15/78c.md?p=h-2) as the [Commission](#b-10), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Within forty-five days of the date of the filing of such [application](/usc/15/77ccc.md?p=8) (or within such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents), the [Commission](#b-10) shall— - (A) by [order](/usc/15/8702.md?p=14) grant registration, or - (B) [institute](/usc/15/9401.md?p=7) proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred twenty days of the date of the filing of the [application](/usc/15/77ccc.md?p=8) for registration. At the conclusion of such proceedings, the [Commission](#b-10), by [order](/usc/15/8702.md?p=14), shall grant or deny such registration. The [Commission](#b-10) may extend the time for conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents. The [Commission](#b-10) shall grant such registration if the [Commission](#b-10) finds that the requirements of this section are satisfied. The [order](/usc/15/8702.md?p=14) granting registration shall not be effective until such [broker or dealer](/usc/15/78c.md?p=h-2) has become a [member](/usc/15/78c.md?p=a-3-A) of a registered [securities](/usc/15/78c.md?p=a-10) [association](#b-10), or until such [broker or dealer](/usc/15/78c.md?p=h-2) has become a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), if such [broker or dealer](/usc/15/78c.md?p=h-2) effects transactions solely on that [exchange](/usc/15/78c.md?p=a-1), unless the [Commission](#b-10) has exempted such [broker or dealer](/usc/15/78c.md?p=h-2), by rule or [order](/usc/15/8702.md?p=14), from such membership. The [Commission](#b-10) shall deny such registration if it does not make such a finding or if it finds that if the [applicant](/usc/15/7a.md?p=3) were so registered, its registration would be subject to suspension or revocation under paragraph (4) of this subsection. - (2) - (A) An [application](/usc/15/77ccc.md?p=8) for registration of a [broker or dealer](/usc/15/78c.md?p=h-2) to be formed or organized may be made by a [broker or dealer](/usc/15/78c.md?p=h-2) to which the [broker or dealer](/usc/15/78c.md?p=h-2) to be formed or organized is to be the successor. Such [application](/usc/15/77ccc.md?p=8), in such form as the [Commission](#b-10), by rule, may prescribe, shall contain such information and documents concerning the [applicant](/usc/15/7a.md?p=3), the successor, and any [persons](/usc/15/78c.md?p=a-9) associated with the [applicant](/usc/15/7a.md?p=3) or the successor, as the [Commission](#b-10), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. The grant or denial of registration to such an [applicant](/usc/15/7a.md?p=3) shall be in accordance with the procedures set forth in paragraph (1) of this subsection. If the [Commission](#b-10) grants such registration, the registration shall terminate on the forty-fifth day after the effective date thereof, unless prior thereto the successor shall, in accordance with such rules and regulations as the [Commission](#b-10) may prescribe, adopt the [application](/usc/15/77ccc.md?p=8) for registration as its own. - (B) Any [person](/usc/15/78c.md?p=a-9) who is a [broker or dealer](/usc/15/78c.md?p=h-2) solely by reason of acting as a [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal securities broker](/usc/15/78c.md?p=a-31), who so acts through a [separately identifiable department or division](/usc/15/78o–4.md?p=b-2-H), and who so acted in such a manner on June 4, 1975, may, in accordance with such terms and conditions as the [Commission](#b-10), by rule, prescribes as necessary and appropriate in the public interest and for the protection of investors, register such [separately identifiable department or division](/usc/15/78o–4.md?p=b-2-H) in accordance with this subsection. If any such department or division is so registered, the department or division and not such [person](/usc/15/78c.md?p=a-9) himself shall be the [broker or dealer](/usc/15/78c.md?p=h-2) for purposes of this chapter. - (C) Within six months of the date of the granting of registration to a [broker or dealer](/usc/15/78c.md?p=h-2), the [Commission](#b-10), or upon the authorization and direction of the [Commission](#b-10), a registered [securities](/usc/15/78c.md?p=a-10) [association](#b-10) or [national securities exchange](/usc/15/9009a.md?p=a-5) of which such [broker or dealer](/usc/15/78c.md?p=h-2) is a [member](/usc/15/78c.md?p=a-3-A), shall conduct an inspection of the [broker or dealer](/usc/15/78c.md?p=h-2) to determine whether it is operating in conformity with the provisions of this chapter and the rules and regulations thereunder: Provided, however, That the [Commission](#b-10) may delay such inspection of any class of [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A) for a period not to exceed six months. - (3) Any provision of this chapter (other than [section 78e of this title](/usc/15/78e.md) and [subsection (a)](#a) of this section) which prohibits any act, practice, or course of business if the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) is used in connection therewith shall also prohibit any such act, practice, or course of business by any [registered broker or dealer](/usc/15/78c.md?p=h-2) or any [person](/usc/15/78c.md?p=a-9) acting on behalf of such a [broker or dealer](/usc/15/78c.md?p=h-2), irrespective of any use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) in connection therewith. - (4) The [Commission](#b-10), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding twelve months, or revoke the registration of any [broker or dealer](/usc/15/78c.md?p=h-2) if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is in the public interest and that such [broker or dealer](/usc/15/78c.md?p=h-2), whether prior or subsequent to becoming such, or any [person associated with](/usc/15/78c.md?p=a-63) such [broker or dealer](/usc/15/78c.md?p=h-2), whether prior or subsequent to becoming so associated— - (A) has willfully made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with the [Commission](#b-10) or with any other [appropriate regulatory agency](/usc/15/78c.md?p=a-34) under this chapter, or in any proceeding before the [Commission](#b-10) with respect to registration, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/78c.md?p=a-16) in any such [application](/usc/15/77ccc.md?p=8) or report any material fact which is required to be stated therein. - (B) has been convicted within ten years preceding the filing of any [application](/usc/15/77ccc.md?p=8) for registration or at any time thereafter of any felony or misdemeanor or of a substantially equivalent crime by a foreign court of competent jurisdiction which the [Commission](#b-10) finds— - (i) involves the [purchase](/usc/15/78c.md?p=a-13) or sale of any [security](/usc/15/78c.md?p=a-10), the taking of a false oath, the making of a false report, bribery, perjury, burglary, any substantially equivalent activity however denominated by the laws of the relevant foreign government, or conspiracy to commit any such offense; - (ii) arises out of the conduct of the business of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30) municipal advisor,,[^1] [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), [investment adviser](/usc/15/78c.md?p=a-20), bank, [insurance company](/usc/15/78c.md?p=a-19), fiduciary, [transfer agent](/usc/15/78c.md?p=a-25), [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62), foreign [person](/usc/15/78c.md?p=a-9) performing a function substantially equivalent to any of the above, or entity or [person](/usc/15/78c.md?p=a-9) required to be registered under the Commodity Exchange Act ([7 U.S.C. 1](/usc/7/1.md) et seq.) or any substantially equivalent foreign statute or regulation; - (iii) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or [securities](/usc/15/78c.md?p=a-10), or substantially equivalent activity however denominated by the laws of the relevant foreign government; or - (iv) involves the [violation](/usc/15/57b–1.md?p=a-7) of section [152](/usc/15/152.md), [1341](/usc/15/1341.md), 1342, or 1343 or chapter [25](/usc/18/chptI-ch25.md) or [47](/usc/18/chptI-ch47.md) of title 18 or a [violation](/usc/15/57b–1.md?p=a-7) of a substantially equivalent foreign statute. - (C) is permanently or temporarily enjoined by [order](/usc/15/8702.md?p=14), judgment, or decree of any court of competent jurisdiction from acting as an [investment adviser](/usc/15/78c.md?p=a-20), [underwriter](/usc/15/78c.md?p=a-20), [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30) municipal advisor,,[^1] [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), [major security-based swap participant](/usc/15/78c.md?p=a-67-A), [transfer agent](/usc/15/78c.md?p=a-25), [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62), foreign [person](/usc/15/78c.md?p=a-9) performing a function substantially equivalent to any of the above, or entity or [person](/usc/15/78c.md?p=a-9) required to be registered under the Commodity Exchange Act or any substantially equivalent foreign statute or regulation, or as an [affiliated person](/usc/15/78c.md?p=a-19) or employee of any [investment company](/usc/15/78c.md?p=a-12-A-iii), bank, [insurance company](/usc/15/78c.md?p=a-19), foreign entity substantially equivalent to any of the above, or entity or [person](/usc/15/78c.md?p=a-9) required to be registered under the Commodity Exchange Act or any substantially equivalent foreign statute or regulation, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of any [security](/usc/15/78c.md?p=a-10). - (D) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.], the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], the Commodity Exchange Act, this chapter, the rules or regulations under any of such statutes, or the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), or is unable to comply with any such provision. - (E) has willfully aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/78c.md?p=a-9) of any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Commodity Exchange Act, this chapter, the rules or regulations under any of such statutes, or the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), or has failed reasonably to supervise, with a view to preventing [violations](/usc/15/57b–1.md?p=a-7) of the provisions of such statutes, rules, and regulations, another [person](/usc/15/78c.md?p=a-9) who commits such a [violation](/usc/15/57b–1.md?p=a-7), if such other [person](/usc/15/78c.md?p=a-9) is subject to his supervision. For the purposes of this [subparagraph (E)](#b-4-E) no [person](/usc/15/78c.md?p=a-9) shall be deemed to have failed reasonably to supervise any other [person](/usc/15/78c.md?p=a-9), if— - (i) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such [violation](/usc/15/57b–1.md?p=a-7) by such other [person](/usc/15/78c.md?p=a-9), and - (ii) such [person](/usc/15/78c.md?p=a-9) has reasonably discharged the duties and obligations incumbent upon him by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with. - (F) is subject to any [order](/usc/15/8702.md?p=14) of the [Commission](#b-10) barring or suspending the right of the [person](/usc/15/78c.md?p=a-9) to be associated with a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), or a [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (G) has been found by a [foreign financial regulatory authority](/usc/15/78c.md?p=a-52) to have— - (i) made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with a [foreign financial regulatory authority](/usc/15/78c.md?p=a-52), or in any proceeding before a [foreign financial regulatory authority](/usc/15/78c.md?p=a-52) with respect to registration, any statement that was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/78c.md?p=a-16) in any [application](/usc/15/77ccc.md?p=8) or report to the [foreign financial regulatory authority](/usc/15/78c.md?p=a-52) any material fact that is required to be stated therein; - (ii) violated any foreign statute or regulation regarding transactions in [securities](/usc/15/78c.md?p=a-10), or contracts of sale of a commodity for future delivery, traded on or subject to the rules of a contract market or any [board](/usc/15/78c.md?p=a-73) of trade; - (iii) aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any [person](/usc/15/78c.md?p=a-9) of any provision of any statutory provisions enacted by a foreign government, or rules or regulations thereunder, empowering a [foreign financial regulatory authority](/usc/15/78c.md?p=a-52) regarding transactions in [securities](/usc/15/78c.md?p=a-10), or contracts of sale of a commodity for future delivery, traded on or subject to the rules of a contract market or any [board](/usc/15/78c.md?p=a-73) of trade, or has been found, by a [foreign financial regulatory authority](/usc/15/78c.md?p=a-52), to have failed reasonably to supervise, with a view to preventing [violations](/usc/15/57b–1.md?p=a-7) of such statutory provisions, rules, and regulations, another [person](/usc/15/78c.md?p=a-9) who commits such a [violation](/usc/15/57b–1.md?p=a-7), if such other [person](/usc/15/78c.md?p=a-9) is subject to his supervision; or - (H) is subject to any final [order](/usc/15/8702.md?p=14) of a [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) [commission](#b-10) (or any agency or officer performing like functions), [State](/usc/15/78c.md?p=a-16) [authority](/usc/15/3051.md?p=1) that supervises or examines banks, savings [associations](#b-10), or [credit](/usc/15/1679a.md?p=4) unions, [State](/usc/15/78c.md?p=a-16) insurance [commission](#b-10) (or any agency or office performing like functions), an [appropriate Federal banking agency](/usc/15/78c.md?p=a-72) (as defined in section 3 of the Federal Deposit Insurance Act ([12 U.S.C. 1813(q)](/usc/12/1813.md?p=q))), or the National [Credit](/usc/15/1679a.md?p=4) Union [Administration](/usc/15/2203.md?p=2), that— - (i) bars such [person](/usc/15/78c.md?p=a-9) from [association](#b-10) with an entity regulated by such [commission](#b-10), [authority](/usc/15/3051.md?p=1), agency, or officer, or from engaging in the business of [securities](/usc/15/78c.md?p=a-10), insurance, banking, savings [association](#b-10) activities, or [credit](/usc/15/1679a.md?p=4) union activities; or - (ii) constitutes a final [order](/usc/15/8702.md?p=14) based on [violations](/usc/15/57b–1.md?p=a-7) of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct. - (5) Pending final determination whether any registration under this subsection shall be revoked, the [Commission](#b-10), by [order](/usc/15/8702.md?p=14), may suspend such registration, if such suspension appears to the [Commission](#b-10), after notice and opportunity for hearing, to be necessary or appropriate in the public interest or for the protection of investors. Any [registered broker or dealer](/usc/15/78c.md?p=h-2) may, upon such terms and conditions as the [Commission](#b-10) deems necessary or appropriate in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the [Commission](#b-10). If the [Commission](#b-10) finds that any [registered broker or dealer](/usc/15/78c.md?p=h-2) is no longer in existence or has ceased to do business as a [broker or dealer](/usc/15/78c.md?p=h-2), the [Commission](#b-10), by [order](/usc/15/8702.md?p=14), shall cancel the registration of such [broker or dealer](/usc/15/78c.md?p=h-2). - (6) - (A) With respect to any [person](/usc/15/78c.md?p=a-9) who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a [broker or dealer](/usc/15/78c.md?p=h-2), or any [person](/usc/15/78c.md?p=a-9) participating, or, at the time of the alleged misconduct, who was participating, in an offering of any [penny stock](/usc/15/78c.md?p=a-51-A), the [Commission](#b-10), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities or functions of such [person](/usc/15/78c.md?p=a-9), or suspend for a period not exceeding 12 months, or bar any such [person](/usc/15/78c.md?p=a-9) from being associated with a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [investment adviser](/usc/15/78c.md?p=a-20), [municipal securities dealer](/usc/15/78c.md?p=a-30), municipal advisor, [transfer agent](/usc/15/78c.md?p=a-25), or [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62), or from participating in an offering of [penny stock](/usc/15/78c.md?p=a-51-A), if the [Commission](#b-10) finds, on the record after notice and opportunity for a hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such [person](/usc/15/78c.md?p=a-9)— - (i) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph [(A)](#b-4-A), [(D)](#b-4-D), [(E)](#b-4-E), [(H)](#b-4-H), or [(G)](#b-4-G) of paragraph (4) of this subsection; - (ii) has been convicted of any offense specified in [subparagraph (B)](#b-6-B) of such [paragraph (4)](#b-4) within 10 years of the commencement of the proceedings under this paragraph; or - (iii) is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#b-6-C) of such [paragraph (4)](#b-4). - (B) It shall be unlawful— - (i) for any [person](/usc/15/78c.md?p=a-9) as to whom an [order](/usc/15/8702.md?p=14) under [subparagraph (A)](#b-6-A) is in effect, without the consent of the [Commission](#b-10), willfully to become, or to be, associated with a [broker or dealer](/usc/15/78c.md?p=h-2) in contravention of such [order](/usc/15/8702.md?p=14), or to participate in an offering of [penny stock](/usc/15/78c.md?p=a-51-A) in contravention of such [order](/usc/15/8702.md?p=14); - (ii) for any [broker or dealer](/usc/15/78c.md?p=h-2) to permit such a [person](/usc/15/78c.md?p=a-9), without the consent of the [Commission](#b-10), to become or remain, a [person associated with](/usc/15/78c.md?p=a-63) the [broker or dealer](/usc/15/78c.md?p=h-2) in contravention of such [order](/usc/15/8702.md?p=14), if such [broker or dealer](/usc/15/78c.md?p=h-2) knew, or in the exercise of reasonable care should have known, of such [order](/usc/15/8702.md?p=14); or - (iii) for any [broker or dealer](/usc/15/78c.md?p=h-2) to permit such a [person](/usc/15/78c.md?p=a-9), without the consent of the [Commission](#b-10), to participate in an offering of [penny stock](/usc/15/78c.md?p=a-51-A) in contravention of such [order](/usc/15/8702.md?p=14), if such [broker or dealer](/usc/15/78c.md?p=h-2) knew, or in the exercise of reasonable care should have known, of such [order](/usc/15/8702.md?p=14) and of such participation. - (C) For purposes of this paragraph, the term “person participating in an offering of penny stock” includes any [person](/usc/15/78c.md?p=a-9) acting as any promoter, finder, consultant, agent, or other [person](/usc/15/78c.md?p=a-9) who engages in activities with a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [issuer](/usc/15/78c.md?p=a-8) for purposes of the issuance or trading in any [penny stock](/usc/15/78c.md?p=a-51-A), or inducing or attempting to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of any [penny stock](/usc/15/78c.md?p=a-51-A). The [Commission](#b-10) may, by rule or regulation, define such term to include other activities, and may, by rule, regulation, or [order](/usc/15/8702.md?p=14), exempt any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), in whole or in part, conditionally or unconditionally, from such term. - (7) No [registered broker or dealer](/usc/15/78c.md?p=h-2) or [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) registered (or required to register) under [section 78o–5(a)(1)(A)](/usc/15/78o–5.md?p=a-1-A) of this title shall effect any transaction in, or induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) unless such [broker or dealer](/usc/15/78c.md?p=h-2) meets such standards of operational capability and such [broker or dealer](/usc/15/78c.md?p=h-2) and all [natural persons](/usc/15/15g.md?p=3) associated with such [broker or dealer](/usc/15/78c.md?p=h-2) meet such standards of training, experience, competence, and such other qualifications as the [Commission](#b-10) finds necessary or appropriate in the public interest or for the protection of investors. The [Commission](#b-10) shall establish such standards by rules and regulations, which may— - (A) specify that all or any portion of such standards shall be applicable to any class of [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) and [persons](/usc/15/78c.md?p=a-9) associated with [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A); - (B) require [persons](/usc/15/78c.md?p=a-9) in any such class to pass tests prescribed in accordance with such rules and regulations, which tests shall, with respect to any class of partners, officers, or supervisory employees (which latter term may be defined by the [Commission](#b-10)’s rules and regulations and as so defined shall include branch managers of [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A)) engaged in the management of the [broker or dealer](/usc/15/78c.md?p=h-2), include questions relating to bookkeeping, accounting, internal control over cash and [securities](/usc/15/78c.md?p=a-10), supervision of employees, maintenance of [records](/usc/15/78c.md?p=a-37), and other appropriate matters; and - (C) provide that [persons](/usc/15/78c.md?p=a-9) in any such class other than [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) and partners, officers, and supervisory employees of [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A), may be qualified solely on the basis of compliance with such standards of training and such other qualifications as the [Commission](#b-10) finds appropriate. The [Commission](#b-10), by rule, may prescribe reasonable fees and charges to defray its costs in carrying out this paragraph, including, but not limited to, fees for any test administered by it or under its direction. The [Commission](#b-10) may cooperate with registered [securities](/usc/15/78c.md?p=a-10) [associations](#b-10) and [national securities exchanges](/usc/15/9009a.md?p=a-5) in devising and administering tests and may require registered [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) and [persons](/usc/15/78c.md?p=a-9) associated with such [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) to pass tests administered by or on behalf of any such [association](#b-10) or [exchange](/usc/15/78c.md?p=a-1) and to pay such [association](#b-10) or [exchange](/usc/15/78c.md?p=a-1) reasonable fees or charges to defray the costs incurred by such [association](#b-10) or [exchange](/usc/15/78c.md?p=a-1) in administering such tests. - (8) It shall be unlawful for any [registered broker or dealer](/usc/15/78c.md?p=h-2) to effect any transaction in, or induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) (other than or[^2] commercial paper, bankers’ acceptances, or commercial bills), unless such [broker or dealer](/usc/15/78c.md?p=h-2) is a [member](/usc/15/78c.md?p=a-3-A) of a [securities](/usc/15/78c.md?p=a-10) [association](#b-10) registered pursuant to [section 78o–3](/usc/15/78o–3.md) of this title or effects transactions in [securities](/usc/15/78c.md?p=a-10) solely on a [national securities exchange](/usc/15/9009a.md?p=a-5) of which it is a [member](/usc/15/78c.md?p=a-3-A). - (9) The [Commission](#b-10) by rule or [order](/usc/15/8702.md?p=14), as it deems consistent with the public interest and the protection of investors, may conditionally or unconditionally exempt from paragraph (8) of this subsection any [broker or dealer](/usc/15/78c.md?p=h-2) or class of [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A) specified in such rule or [order](/usc/15/8702.md?p=14). - (10) For the purposes of determining whether a [person](/usc/15/78c.md?p=a-9) is subject to a statutory disqualification under section [78f(c)(2)](/usc/15/78f.md?p=c-2), [78o–3(g)(2)](/usc/15/78o–3.md?p=g-2), or [78q–1(b)(4)(A)](/usc/15/78q–1.md?p=b-4-A) of this title, the term “Commission” in paragraph (4)(B) of this subsection shall mean “[exchange](/usc/15/78c.md?p=a-1)”, “association”, or “clearing agency”, respectively. - (11) **Broker/dealer registration with respect to transactions in security futures products.—** - (A) **Notice registration.—** - (i) **Contents of notice.—** Notwithstanding paragraphs [(1)](#b-1) and [(2)](#b-2), a [broker or dealer](/usc/15/78c.md?p=h-2) required to register only because it effects transactions in [security futures products](/usc/15/78c.md?p=a-56) on an [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g) may register for purposes of this section by filing with the [Commission](#b-10) a written notice in such form and containing such information concerning such [broker or dealer](/usc/15/78c.md?p=h-2) and any [persons](/usc/15/78c.md?p=a-9) associated with such [broker or dealer](/usc/15/78c.md?p=h-2) as the [Commission](#b-10), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. A [broker or dealer](/usc/15/78c.md?p=h-2) may not register under this paragraph unless that [broker or dealer](/usc/15/78c.md?p=h-2) is a [member](/usc/15/78c.md?p=a-3-A) of a national [securities](/usc/15/78c.md?p=a-10) [association](#b-10) registered under [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title. - (ii) **Immediate effectiveness.—** Such registration shall be effective contemporaneously with the submission of notice, in written or electronic form, to the [Commission](#b-10), except that such registration shall not be effective if the registration would be subject to suspension or revocation under [paragraph (4)](#b-4). - (iii) **Suspension.—** Such registration shall be suspended immediately if a national [securities](/usc/15/78c.md?p=a-10) [association](#b-10) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title suspends the membership of that [broker or dealer](/usc/15/78c.md?p=h-2). - (iv) **Termination.—** Such registration shall be terminated immediately if any of the above stated conditions for registration set forth in this paragraph are no longer satisfied. - (B) **Exemptions for registered brokers and dealers.—** A [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to the requirements of [subparagraph (A)](#b-11-A) shall be exempt from the following provisions of this chapter and the rules thereunder with respect to transactions in [security futures products](/usc/15/78c.md?p=a-56): - (i) [Section 78h of this title](/usc/15/78h.md). - (ii) [Section 78k of this title](/usc/15/78k.md). - (iii) Subsections [(c)(3)](#c-3) and [(c)(5)](#c-5) of this section. - (iv) [Section 78o–4](/usc/15/78o–4.md) of this title. - (v) [Section 78o–5](/usc/15/78o–5.md) of this title. - (vi) Subsections [(d)](#d), [(e)](#e), [(f)](#f), [(g)](#g), [(h)](#h), and [(i)](#i)[^3] of [section 78q of this title](/usc/15/78q.md). - (12) **Exemption for security futures product exchange members.—** - (A) **Registration exemption.—** A natural [person](/usc/15/78c.md?p=a-9) shall be exempt from the registration requirements of this section if such [person](/usc/15/78c.md?p=a-9)— - (i) is a [member](/usc/15/78c.md?p=a-3-A) of a designated contract market registered with the [Commission](#b-10) as an [exchange](/usc/15/78c.md?p=a-1) pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g); - (ii) effects transactions only in [securities](/usc/15/78c.md?p=a-10) on the [exchange](/usc/15/78c.md?p=a-1) of which such [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A); and - (iii) does not directly accept or solicit [orders](/usc/15/8702.md?p=14) from public [customers](/usc/15/78c–5.md?p=g) or provide advice to public [customers](/usc/15/78c–5.md?p=g) in connection with the trading of [security futures products](/usc/15/78c.md?p=a-56). - (B) **Other exemptions.—** A natural [person](/usc/15/78c.md?p=a-9) exempt from registration pursuant to [subparagraph (A)](#b-12-A) shall also be exempt from the following provisions of this chapter and the rules thereunder: - (i) [Section 78h of this title](/usc/15/78h.md). - (ii) [Section 78k of this title](/usc/15/78k.md). - (iii) Subsections [(c)(3)](#c-3), [(c)(5)](#c-5), and (e) of this section. - (iv) [Section 78o–4](/usc/15/78o–4.md) of this title. - (v) [Section 78o–5](/usc/15/78o–5.md) of this title. - (vi) Subsections [(d)](#d), [(e)](#e), [(f)](#f), [(g)](#g), [(h)](#h), and [(i)](#i)[^3] of [section 78q of this title](/usc/15/78q.md). - (13) **Registration exemption for merger and acquisition brokers.—** - (A) **In general.—** Except as provided in [subparagraph (B)](#b-13-B), an [M&A broker](#b-13-E-iv) shall be exempt from registration under this section. - (B) **Excluded activities.—** An [M&A broker](#b-13-E-iv) is not exempt from registration under this paragraph if such [broker](/usc/15/78c.md?p=a-4-A) does any of the following: - (i) Directly or indirectly, in connection with the transfer of ownership of an [eligible privately held company](#b-13-E-iii), receives, holds, transmits, or has custody of the funds or [securities](/usc/15/78c.md?p=a-10) to be exchanged by the parties to the transaction. - (ii) Engages on behalf of an [issuer](/usc/15/78c.md?p=a-8) in a public offering of any class of [securities](/usc/15/78c.md?p=a-10) that is registered, or is required to be registered, with the [Commission](#b-10) under [section 78l](/usc/15/78l.md) of this title or with respect to which the [issuer](/usc/15/78c.md?p=a-8) files, or is required to file, periodic information, documents, and reports under [subsection (d)](#d). - (iii) Engages on behalf of any party in a transaction involving a [shell company](#b-13-E-v), other than a [business combination related shell company](#b-13-E-i). - (iv) Directly, or indirectly through any of its affiliates, provides financing related to the transfer of ownership of an [eligible privately held company](#b-13-E-iii). - (v) Assists any party to obtain financing from an unaffiliated third party without— - (I) complying with all other applicable laws in connection with such assistance, including, if applicable, Regulation T ([12 C.F.R. 220](/cfr/12/220.md) et seq.); and - (II) disclosing any compensation in writing to the party. - (vi) Represents both the buyer and the seller in the same transaction without providing clear written disclosure as to the parties the [broker](/usc/15/78c.md?p=a-4-A) represents and obtaining written consent from both parties to the joint representation. - (vii) Facilitates a transaction with a group of buyers formed with the assistance of the [M&A broker](#b-13-E-iv) to acquire the [eligible privately held company](#b-13-E-iii). - (viii) Engages in a transaction involving the transfer of ownership of an [eligible privately held company](#b-13-E-iii) to a passive buyer or group of passive buyers. - (ix) Binds a party to a transfer of ownership of an [eligible privately held company](#b-13-E-iii). - (C) **Disqualification.—** An [M&A broker](#b-13-E-iv) is not exempt from registration under this paragraph if such [broker](/usc/15/78c.md?p=a-4-A) (and if and as applicable, including any officer, [director](/usc/15/78c.md?p=a-7), [member](/usc/15/78c.md?p=a-3-A), manager, partner, or employee of such [broker](/usc/15/78c.md?p=a-4-A))— - (i) has been barred from [association](#b-10) with a [broker or dealer](/usc/15/78c.md?p=h-2) by the [Commission](#b-10), any [State](/usc/15/78c.md?p=a-16), or any [self-regulatory organization](/usc/15/78c.md?p=a-26); or - (ii) is suspended from [association](#b-10) with a [broker or dealer](/usc/15/78c.md?p=h-2). - (D) **Rule of construction.—** Nothing in this paragraph shall be construed to limit any other [authority](/usc/15/3051.md?p=1) of the [Commission](#b-10) to exempt any [person](/usc/15/78c.md?p=a-9), or any class of [persons](/usc/15/78c.md?p=a-9), from any provision of this chapter, or from any provision of any rule or regulation thereunder. - (E) **Definitions.—** In this paragraph: - (i) **Business combination related shell company.—** The term “business combination related shell company” means a [shell company](#b-13-E-v) that is formed by an entity that is not a [shell company](#b-13-E-v)— - (I) solely for the purpose of changing the corporate domicile of that entity solely within the United States; or - (II) solely for the purpose of completing a business combination transaction (as defined under [section 230.165(f) of title 17, Code of Federal Regulations](/cfr/17/230.165.md?p=f)) among one or more entities other than the [company](/usc/15/78c.md?p=a-19) itself, none of which is a [shell company](#b-13-E-v). - (ii) **Control.—** The term “control” means the power, directly or indirectly, to direct the management or policies of a [company](/usc/15/78c.md?p=a-19), whether through ownership of [securities](/usc/15/78c.md?p=a-10), by contract, or otherwise. There is a presumption of control if, upon completion of a transaction, the buyer or group of buyers— - (I) has the right to vote 25 percent or more of a class of voting [securities](/usc/15/78c.md?p=a-10) or the power to [sell](/usc/15/78c.md?p=a-14) or direct the sale of 25 percent or more of a class of voting [securities](/usc/15/78c.md?p=a-10); or - (II) in the case of a partnership or limited liability [company](/usc/15/78c.md?p=a-19), has the right to receive upon dissolution, or has contributed, 25 percent or more of the capital. - (iii) **Eligible privately held company.—** The term “eligible privately held company” means a privately held [company](/usc/15/78c.md?p=a-19) that meets both of the following conditions: - (I) The [company](/usc/15/78c.md?p=a-19) does not have any class of [securities](/usc/15/78c.md?p=a-10) registered, or required to be registered, with the [Commission](#b-10) under [section 78l](/usc/15/78l.md) of this title or with respect to which the [company](/usc/15/78c.md?p=a-19) files, or is required to file, periodic information, documents, and reports under [subsection (d)](#d). - (II) In the fiscal year ending immediately before the fiscal year in which the services of the [M&A broker](#b-13-E-iv) are initially engaged with respect to the [securities](/usc/15/78c.md?p=a-10) transaction, the [company](/usc/15/78c.md?p=a-19) meets either or both of the following conditions (determined in accordance with the historical financial accounting [records](/usc/15/78c.md?p=a-37) of the [company](/usc/15/78c.md?p=a-19)): - (aa) The earnings of the [company](/usc/15/78c.md?p=a-19) before interest, taxes, depreciation, and amortization are less than $25,000,000. - (bb) The gross revenues of the [company](/usc/15/78c.md?p=a-19) are less than $250,000,000. For purposes of this subclause, the [Commission](#b-10) may by rule modify the dollar figures if the [Commission](#b-10) determines that such a modification is necessary or appropriate in the public interest or for the protection of investors. - (iv) **M&A broker.—** The term “M&A broker” means a [broker](/usc/15/78c.md?p=a-4-A), and any [person associated with](/usc/15/78c.md?p=a-63) a [broker](/usc/15/78c.md?p=a-4-A), engaged in the business of effecting [securities](/usc/15/78c.md?p=a-10) transactions solely in connection with the transfer of ownership of an [eligible privately held company](#b-13-E-iii), regardless of whether the [broker](/usc/15/78c.md?p=a-4-A) acts on behalf of a seller or buyer, through the [purchase](/usc/15/78c.md?p=a-13), sale, [exchange](/usc/15/78c.md?p=a-1), issuance, repurchase, or redemption of, or a business combination involving, [securities](/usc/15/78c.md?p=a-10) or assets of the [eligible privately held company](#b-13-E-iii), if the [broker](/usc/15/78c.md?p=a-4-A) reasonably believes that— - (I) upon consummation of the transaction, any [person](/usc/15/78c.md?p=a-9) acquiring [securities](/usc/15/78c.md?p=a-10) or assets of the [eligible privately held company](#b-13-E-iii), acting alone or in concert— - (aa) will [control](#b-13-E-ii) the [eligible privately held company](#b-13-E-iii) or the business conducted with the assets of the [eligible privately held company](#b-13-E-iii); and - (bb) directly or indirectly, will be active in the management of the [eligible privately held company](#b-13-E-iii) or the business conducted with the assets of the [eligible privately held company](#b-13-E-iii), including without limitation, for example, by— - (AA) electing executive officers; - (BB) approving the annual budget; - (CC) serving as an executive or other executive manager; or - (DD) carrying out such other activities as the [Commission](#b-10) may, by rule, determine to be in the public interest; and - (II) if any [person](/usc/15/78c.md?p=a-9) is offered [securities](/usc/15/78c.md?p=a-10) in [exchange](/usc/15/78c.md?p=a-1) for [securities](/usc/15/78c.md?p=a-10) or assets of the [eligible privately held company](#b-13-E-iii), such [person](/usc/15/78c.md?p=a-9) will, prior to becoming legally bound to consummate the transaction, receive or have reasonable access to the most recent fiscal year-end financial statements of the [issuer](/usc/15/78c.md?p=a-8) of the [securities](/usc/15/78c.md?p=a-10) as customarily prepared by the management of the [issuer](/usc/15/78c.md?p=a-8) in the normal course of operations and, if the financial statements of the [issuer](/usc/15/78c.md?p=a-8) are audited, reviewed, or compiled, any related statement by the independent accountant, a balance sheet dated not more than 120 days before the date of the offer, and information pertaining to the management, business, results of operations for the period covered by the foregoing financial statements, and material loss contingencies of the [issuer](/usc/15/78c.md?p=a-8). - (v) **Shell company.—** The term “shell company” means a [company](/usc/15/78c.md?p=a-19) that at the time of a transaction with an [eligible privately held company](#b-13-E-iii)— - (I) has no or nominal operations; and - (II) has— - (aa) no or nominal assets; - (bb) assets consisting solely of cash and cash equivalents; or - (cc) assets consisting of any amount of cash and cash equivalents and nominal other assets. - (F) **Inflation adjustment.—** - (i) **In general.—** On the date that is 5 years after December 29, 2022, and every 5 years thereafter, each dollar amount in [subparagraph (E)(iii)(II)](#b-13-E-iii-II) shall be adjusted by— - (I) dividing the annual value of the Employment Cost [Index](/usc/15/78c.md?p=a-68-E) For Wages and Salaries, Private Industry Workers (or any successor [index](/usc/15/78c.md?p=a-68-E)), as published by the Bureau of Labor Statistics, for the calendar year preceding the calendar year in which the adjustment is being made by the annual value of such [index](/usc/15/78c.md?p=a-68-E) (or successor) for the calendar year ending December 31, 2020; and - (II) multiplying such dollar amount by the quotient obtained under [subclause (I)](#b-13-F-i-I). - (ii) **Rounding.—** Each dollar amount determined under [clause (i)](#b-13-F-i) shall be rounded to the nearest multiple of $100,000. - (c) **Use of manipulative or deceptive devices; contravention of rules and regulations—** - (1) - (A) No [broker or dealer](/usc/15/78c.md?p=h-2) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) (other than commercial paper, bankers’ acceptances, or commercial bills), or any [security-based swap agreement](/usc/15/78c.md?p=a-78-B) by means of any manipulative, deceptive, or other fraudulent device or contrivance. - (B) No [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any municipal [security](/usc/15/78c.md?p=a-10) or any [security-based swap agreement](/usc/15/78c.md?p=a-78-B) involving a municipal [security](/usc/15/78c.md?p=a-10) by means of any manipulative, deceptive, or other fraudulent device or contrivance. - (C) No [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or to attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any government [security](/usc/15/78c.md?p=a-10) or any [security-based swap agreement](/usc/15/78c.md?p=a-78-B) involving a government [security](/usc/15/78c.md?p=a-10) by means of any manipulative, deceptive, or other fraudulent device or contrivance. - (2) - (A) No [broker or dealer](/usc/15/78c.md?p=h-2) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A) or commercial paper, bankers’ acceptances, or commercial bills) otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5) of which it is a [member](/usc/15/78c.md?p=a-3-A), in connection with which such [broker or dealer](/usc/15/78c.md?p=h-2) engages in any fraudulent, deceptive, or manipulative act or practice, or makes any fictitious quotation. - (B) No [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any municipal [security](/usc/15/78c.md?p=a-10) in connection with which such [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) engages in any fraudulent, deceptive, or manipulative act or practice, or makes any fictitious quotation. - (C) No [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any government [security](/usc/15/78c.md?p=a-10) in connection with which such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) engages in any fraudulent, deceptive, or manipulative act or practice, or makes any fictitious quotation. - (D) The [Commission](/usc/15/78c.md?p=a-15) shall, for the purposes of this paragraph, by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative and such quotations as are fictitious. - (E) The [Commission](/usc/15/78c.md?p=a-15) shall, prior to adopting any rule or regulation under [subparagraph (C)](#c-2-C), consult with and consider the views of the Secretary of the Treasury and each [appropriate regulatory agency](/usc/15/78c.md?p=a-34). If the Secretary of the Treasury or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) comments in writing on a proposed rule or regulation of the [Commission](/usc/15/78c.md?p=a-15) under such [subparagraph (C)](#c-2-C) that has been published for comment, the [Commission](/usc/15/78c.md?p=a-15) shall respond in writing to such written comment before adopting the proposed rule. If the Secretary of the Treasury determines, and notifies the [Commission](/usc/15/78c.md?p=a-15), that such rule or regulation, if implemented, would, or as applied does (i) adversely affect the liquidity or efficiency of the market for [government securities](/usc/15/78c.md?p=a-42); or (ii) impose any burden on competition not necessary or appropriate in furtherance of the purposes of this section, the [Commission](/usc/15/78c.md?p=a-15) shall, prior to adopting the proposed rule or regulation, find that such rule or regulation is necessary and appropriate in furtherance of the purposes of this section notwithstanding the Secretary’s determination. - (3) - (A) No [broker or dealer](/usc/15/78c.md?p=h-2) (other than a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), except a [registered broker or dealer](/usc/15/78c.md?p=h-2)) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A) (except a government [security](/usc/15/78c.md?p=a-10)) or commercial paper, bankers’ acceptances, or commercial bills) in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe as necessary or appropriate in the public interest or for the protection of investors to provide safeguards with respect to the financial responsibility and related practices of [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) including, but not limited to, the acceptance of custody and use of [customers](/usc/15/78c–5.md?p=g)’ [securities](/usc/15/78c.md?p=a-10) and the carrying and use of [customers](/usc/15/78c–5.md?p=g)’ deposits or [credit](/usc/15/1679a.md?p=4) balances. Such rules and regulations shall (A) require the maintenance of reserves with respect to [customers](/usc/15/78c–5.md?p=g)’ deposits or [credit](/usc/15/1679a.md?p=4) balances, and (B) no later than September 1, 1975, establish minimum financial responsibility requirements for all [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A). - (B) Consistent with this chapter, the [Commission](/usc/15/78c.md?p=a-15), in consultation with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), shall issue such rules, regulations, or [orders](/usc/15/8702.md?p=14) as are necessary to avoid duplicative or conflicting regulations applicable to any [broker or dealer](/usc/15/78c.md?p=h-2) registered with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [subsection (b)](#b) (except [paragraph (11)](#b-11) thereof), that is also registered with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) pursuant to section 4f(a) of the Commodity Exchange Act [[7 U.S.C. 6f(a)](/usc/7/6f.md?p=a)] (except [paragraph (2)](#c-2) thereof), with respect to the [application](/usc/15/77ccc.md?p=8) of: (i) the provisions of [section 78h of this title](/usc/15/78h.md), [subsection (c)(3)](#c-3), and [section 78q of this title](/usc/15/78q.md) and the rules and regulations thereunder related to the treatment of [customer](/usc/15/78c–5.md?p=g) funds, [securities](/usc/15/78c.md?p=a-10), or property, maintenance of books and [records](/usc/15/78c.md?p=a-37), financial reporting, or other [financial responsibility rules](/usc/15/78c.md?p=a-40), involving [security futures products](/usc/15/78c.md?p=a-56); and (ii) similar provisions of the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.] and rules and regulations thereunder involving [security futures products](/usc/15/78c.md?p=a-56). - (C) Notwithstanding any provision of sections 2(a)(1)(C)(i) or 4d(a)(2) of the Commodity Exchange Act [[7 U.S.C. 2(a)(1)(C)(i)](/usc/7/2.md?p=a-1-C-i), 6d(a)(2)] and the rules and regulations thereunder, and pursuant to an exemption granted by the [Commission](/usc/15/78c.md?p=a-15) under [section 78mm of this title](/usc/15/78mm.md) or pursuant to a rule or regulation, cash and [securities](/usc/15/78c.md?p=a-10) may be held by a [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [subsection (b)(1)](#b-1) and also registered as a futures [commission](/usc/15/78c.md?p=a-15) merchant pursuant to section 4f(a)(1) of the Commodity Exchange Act [[7 U.S.C. 6f(a)(1)](/usc/7/6f.md?p=a-1)], in a portfolio margining [account](/usc/15/1681a.md?p=r-4) carried as a futures [account](/usc/15/1681a.md?p=r-4) subject to section 4d of the Commodity Exchange Act [[7 U.S.C. 6d](/usc/7/6d.md)] and the rules and regulations thereunder, pursuant to a portfolio margining [program](/usc/15/2921.md?p=6) approved by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), and subject to subchapter IV of [chapter 7](/usc/11/ch7.md) of title 11 and the rules and regulations thereunder. The [Commission](/usc/15/78c.md?p=a-15) shall consult with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) to adopt rules to ensure that such transactions and [accounts](/usc/15/1681a.md?p=r-4) are subject to comparable requirements to the extent practicable for similar products. - (4) If the [Commission](/usc/15/78c.md?p=a-15) finds, after notice and opportunity for a hearing, that any [person](/usc/15/78c.md?p=a-9) subject to the provisions of section [78l](/usc/15/78l.md), [78m](/usc/15/78m.md), [78n](/usc/15/78n.md) of this title or [subsection (d)](#d) or any rule or regulation thereunder has failed to comply with any such provision, rule, or regulation in any material respect, the [Commission](/usc/15/78c.md?p=a-15) may publish its findings and issue an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/78c.md?p=a-9), and any [person](/usc/15/78c.md?p=a-9) who was a cause of the failure to comply due to an act or omission the [person](/usc/15/78c.md?p=a-9) knew or should have known would contribute to the failure to comply, to comply, or to take steps to effect compliance, with such provision or such rule or regulation thereunder upon such terms and conditions and within such time as the [Commission](/usc/15/78c.md?p=a-15) may specify in such [order](/usc/15/8702.md?p=14). - (5) No [dealer](/usc/15/78c.md?p=a-5-A) (other than a specialist registered on a [national securities exchange](/usc/15/9009a.md?p=a-5)) acting in the capacity of [market maker](/usc/15/78c.md?p=a-38) or otherwise shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A) or a municipal [security](/usc/15/78c.md?p=a-10)) in contravention of such specified and appropriate standards with respect to dealing as the [Commission](/usc/15/78c.md?p=a-15), by rule, shall prescribe as necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to remove impediments to and perfect the mechanism of a national market system. Under the rules of the [Commission](/usc/15/78c.md?p=a-15) a [dealer](/usc/15/78c.md?p=a-5-A) in a [security](/usc/15/78c.md?p=a-10) may be prohibited from acting as a [broker](/usc/15/78c.md?p=a-4-A) in that [security](/usc/15/78c.md?p=a-10). - (6) No [broker or dealer](/usc/15/78c.md?p=h-2) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A), municipal [security](/usc/15/78c.md?p=a-10), commercial paper, bankers’ acceptances, or commercial bills) in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe as necessary or appropriate in the public interest and for the protection of investors or to perfect or remove impediments to a national system for the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions, with respect to the time and method of, and the form and format of documents used in connection with, making settlements of and payments for transactions in [securities](/usc/15/78c.md?p=a-10), making transfers and deliveries of [securities](/usc/15/78c.md?p=a-10), and closing [accounts](/usc/15/1681a.md?p=r-4). Nothing in this paragraph shall be construed (A) to affect the [authority](/usc/15/3051.md?p=1) of the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, pursuant to [section 78g of this title](/usc/15/78g.md), to prescribe rules and regulations for the purpose of preventing the excessive use of [credit](/usc/15/1679a.md?p=4) for the [purchase](/usc/15/78c.md?p=a-13) or carrying of [securities](/usc/15/78c.md?p=a-10), or (B) to authorize the [Commission](/usc/15/78c.md?p=a-15) to prescribe rules or regulations for such purpose. - (7) In connection with any bid for or [purchase](/usc/15/78c.md?p=a-13) of a government [security](/usc/15/78c.md?p=a-10) related to an offering of [government securities](/usc/15/78c.md?p=a-42) by or on behalf of an [issuer](/usc/15/78c.md?p=a-8), no [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), or bidder for or purchaser of [securities](/usc/15/78c.md?p=a-10) in such offering shall knowingly or willfully make any false or misleading written statement or omit any fact necessary to make any written statement made not misleading. - (8) **Prohibition of referral fees.—** No [broker or dealer](/usc/15/78c.md?p=h-2), or [person associated with a broker or dealer](/usc/15/78c.md?p=a-18), may solicit or accept, directly or indirectly, remuneration for assisting an attorney in obtaining the representation of any [person](/usc/15/78c.md?p=a-9) in any private action arising under this chapter or under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]. - (d) **Supplementary and periodic information—** - (1) **In general—** Each [issuer](/usc/15/78c.md?p=a-8) which has filed a [registration statement](/usc/15/77b.md?p=a-8) containing an undertaking which is or becomes operative under this subsection as in effect prior to August 20, 1964, and each [issuer](/usc/15/78c.md?p=a-8) which shall after such date file a [registration statement](/usc/15/77b.md?p=a-8) which has become effective pursuant to the Securities Act of 1933, as amended [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], shall file with the [Commission](/usc/15/78c.md?p=a-15), in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors, such supplementary and periodic information, documents, and reports as may be required pursuant to [section 78m of this title](/usc/15/78m.md) in respect of a [security](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title. The duty to file under this subsection shall be automatically suspended if and so long as any issue of [securities](/usc/15/78c.md?p=a-10) of such [issuer](/usc/15/78c.md?p=a-8) is registered pursuant to [section 78l](/usc/15/78l.md) of this title. The duty to file under this subsection shall also be automatically suspended as to any fiscal year, other than the fiscal year within which such [registration statement](/usc/15/77b.md?p=a-8) became effective, if, at the beginning of such fiscal year, the [securities](/usc/15/78c.md?p=a-10) of each class, other than any class of [asset-backed securities](/usc/15/78c.md?p=a-79), to which the [registration statement](/usc/15/77b.md?p=a-8) relates are held of record by less than 300 [persons](/usc/15/78c.md?p=a-9), or, in the case of a bank, a [savings and loan holding company](/usc/15/78c.md?p=a-34) (as defined in [section 1467a of title 12](/usc/12/1467a.md)), or a [bank holding company](/usc/15/78c.md?p=a-34), as such term is defined in [section 1841 of title 12](/usc/12/1841.md), 1,200 [persons](/usc/15/78c.md?p=a-9) [persons](/usc/15/78c.md?p=a-9).[^1] For the purposes of this subsection, the term “class” shall be construed to include all [securities](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) which are of substantially similar character and the holders of which enjoy substantially similar rights and privileges. The [Commission](/usc/15/78c.md?p=a-15) may, for the purpose of this subsection, define by rules and regulations the term “held of record” as it deems necessary or appropriate in the public interest or for the protection of investors in [order](/usc/15/8702.md?p=14) to prevent circumvention of the provisions of this subsection. Nothing in this subsection shall apply to [securities](/usc/15/78c.md?p=a-10) issued by a foreign government or political subdivision thereof. - (2) **Asset-backed securities—** - (A) **Suspension of duty to file—** The [Commission](/usc/15/78c.md?p=a-15) may, by rule or regulation, provide for the suspension or termination of the duty to file under this subsection for any [class](#d-1) of [asset-backed security](/usc/15/78c.md?p=a-79), on such terms and conditions and for such period or periods as the [Commission](/usc/15/78c.md?p=a-15) deems necessary or appropriate in the public interest or for the protection of investors. - (B) **Classification of issuers—** The [Commission](/usc/15/78c.md?p=a-15) may, for purposes of this subsection, classify [issuers](/usc/15/78c.md?p=a-8) and prescribe requirements appropriate for each [class](#d-1) of [issuers](/usc/15/78c.md?p=a-8) of [asset-backed securities](/usc/15/78c.md?p=a-79). - (e) **Notices to customers regarding securities lending—** Every [registered broker or dealer](/usc/15/78c.md?p=h-2) shall provide notice to its [customers](/usc/15/78c–5.md?p=g) that they may elect not to allow their fully paid [securities](/usc/15/78c.md?p=a-10) to be used in connection with short sales. If a [broker or dealer](/usc/15/78c.md?p=h-2) uses a [customer](/usc/15/78c–5.md?p=g)’s [securities](/usc/15/78c.md?p=a-10) in connection with short sales, the [broker or dealer](/usc/15/78c.md?p=h-2) shall provide notice to its [customer](/usc/15/78c–5.md?p=g) that the [broker or dealer](/usc/15/78c.md?p=h-2) may receive compensation in connection with lending the [customer](/usc/15/78c–5.md?p=g)’s [securities](/usc/15/78c.md?p=a-10). The [Commission](/usc/15/78c.md?p=a-15), by rule, as it deems necessary or appropriate in the public interest and for the protection of investors, may prescribe the form, content, time, and manner of delivery of any notice required under this paragraph. - (f) **Compliance with this chapter by members not required to be registered—** The [Commission](/usc/15/78c.md?p=a-15), by rule, as it deems necessary or appropriate in the public interest and for the protection of investors or to assure equal regulation, may require any [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) not required to register under this section and any [person associated with](/usc/15/78c.md?p=a-63) any such [member](/usc/15/78c.md?p=a-3-A) to comply with any provision of this chapter (other than [subsection (a)](#a)) or the rules or regulations thereunder which by its terms regulates or prohibits any act, practice, or course of business by a “[broker or dealer](/usc/15/78c.md?p=h-2)” or “[registered broker or dealer](/usc/15/78c.md?p=h-2)” or a “[person associated with a broker or dealer](/usc/15/78c.md?p=a-18),” respectively. - (g) **Prevention of misuse of material, nonpublic information—** Every [registered broker or dealer](/usc/15/78c.md?p=h-2) shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such [broker](/usc/15/78c.md?p=a-4-A)’s or [dealer](/usc/15/78c.md?p=a-5-A)’s business, to prevent the misuse in [violation](/usc/15/57b–1.md?p=a-7) of this chapter, or the rules or regulations thereunder, of material, nonpublic information by such [broker or dealer](/usc/15/78c.md?p=h-2) or any [person associated with](/usc/15/78c.md?p=a-63) such [broker or dealer](/usc/15/78c.md?p=h-2). The [Commission](/usc/15/78c.md?p=a-15), as it deems necessary or appropriate in the public interest or for the protection of investors, shall adopt rules or regulations to require specific policies or procedures reasonably designed to prevent misuse in [violation](/usc/15/57b–1.md?p=a-7) of this chapter (or the rules or regulations thereunder) of material, nonpublic information. - (h) **Requirements for transactions in penny stocks—** - (1) **In general—** No [broker or dealer](/usc/15/78c.md?p=h-2) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [penny stock](/usc/15/78c.md?p=a-51-A) by any [customer](/usc/15/78c–5.md?p=g) except in accordance with the requirements of this subsection and the rules and regulations prescribed under this subsection. - (2) **Risk disclosure with respect to penny stocks—** Prior to effecting any transaction in any [penny stock](/usc/15/78c.md?p=a-51-A), a [broker or dealer](/usc/15/78c.md?p=h-2) shall give the [customer](/usc/15/78c–5.md?p=g) a risk disclosure document that— - (A) contains a description of the nature and level of risk in the market for [penny stocks](/usc/15/78c.md?p=a-51-A) in both public offerings and secondary trading; - (B) contains a description of the [broker](/usc/15/78c.md?p=a-4-A)’s or [dealer](/usc/15/78c.md?p=a-5-A)’s duties to the [customer](/usc/15/78c–5.md?p=g) and of the rights and remedies available to the [customer](/usc/15/78c–5.md?p=g) with respect to [violations](/usc/15/57b–1.md?p=a-7) of such duties or other requirements of Federal [securities laws](/usc/15/78c.md?p=a-47); - (C) contains a brief, clear, narrative description of a [dealer](/usc/15/78c.md?p=a-5-A) market, including “bid” and “ask” prices for [penny stocks](/usc/15/78c.md?p=a-51-A) and the significance of the spread between the bid and ask prices; - (D) contains the toll free telephone number for inquiries on disciplinary actions established pursuant to [section 78o–3(i)](/usc/15/78o–3.md?p=i) of this title; - (E) defines significant terms used in the disclosure document or in the conduct of trading in [penny stocks](/usc/15/78c.md?p=a-51-A); and - (F) contains such other information, and is in such form (including language, type size, and format), as the [Commission](/usc/15/78c.md?p=a-15) shall require by rule or regulation. - (3) **Commission rules relating to disclosure—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules setting forth additional standards for the disclosure by [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) to [customers](/usc/15/78c–5.md?p=g) of information concerning transactions in [penny stocks](/usc/15/78c.md?p=a-51-A). Such rules— - (A) shall require [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) to disclose to each [customer](/usc/15/78c–5.md?p=g), prior to effecting any transaction in, and at the time of confirming any transaction with respect to any [penny stock](/usc/15/78c.md?p=a-51-A), in accordance with such procedures and methods as the [Commission](/usc/15/78c.md?p=a-15) may require consistent with the public interest and the protection of investors— - (i) the bid and ask prices for [penny stock](/usc/15/78c.md?p=a-51-A), or such other information as the [Commission](/usc/15/78c.md?p=a-15) may, by rule, require to provide [customers](/usc/15/78c–5.md?p=g) with more useful and reliable information relating to the price of such stock; - (ii) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and - (iii) the amount and a description of any compensation that the [broker or dealer](/usc/15/78c.md?p=h-2) and the associated [person](/usc/15/78c.md?p=a-9) thereof will receive or has received in connection with such transaction; - (B) shall require [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) to provide, to each [customer](/usc/15/78c–5.md?p=g) whose [account](/usc/15/1681a.md?p=r-4) with the [broker or dealer](/usc/15/78c.md?p=h-2) contains [penny stocks](/usc/15/78c.md?p=a-51-A), a monthly statement indicating the market value of the [penny stocks](/usc/15/78c.md?p=a-51-A) in that [account](/usc/15/1681a.md?p=r-4) or indicating that the market value of such stock cannot be determined because of the unavailability of firm quotes; and - (C) may, as the [Commission](/usc/15/78c.md?p=a-15) finds necessary or appropriate in the public interest or for the protection of investors, require [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) to disclose to [customers](/usc/15/78c–5.md?p=g) additional information concerning transactions in [penny stocks](/usc/15/78c.md?p=a-51-A). - (4) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15), as it determines consistent with the public interest and the protection of investors, may by rule, regulation, or [order](/usc/15/8702.md?p=14) exempt in whole or in part, conditionally or unconditionally, any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), or any transaction or class of transactions, from the requirements of this subsection. Such exemptions shall include an exemption for [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) based on the minimal percentage of the [broker](/usc/15/78c.md?p=a-4-A)’s or [dealer](/usc/15/78c.md?p=a-5-A)’s [commissions](/usc/15/78c.md?p=a-15), [commission](/usc/15/78c.md?p=a-15)-equivalents, and markups received from transactions in [penny stocks](/usc/15/78c.md?p=a-51-A). - (5) **Regulations—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to violate such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe in the public interest or for the protection of investors or to maintain fair and orderly markets— - (A) as necessary or appropriate to carry out this subsection; or - (B) as reasonably designed to prevent fraudulent, deceptive, or manipulative acts and practices with respect to [penny stocks](/usc/15/78c.md?p=a-51-A). - (i) **Limitations on State law—** - (1) **Capital, margin, books and records, bonding, and reports—** No law, rule, regulation, or [order](/usc/15/8702.md?p=14), or other administrative action of any [State](/usc/15/78c.md?p=a-16) or political subdivision thereof shall establish capital, custody, [margin](/usc/15/78c.md?p=a-57-A), financial responsibility, making and keeping [records](/usc/15/78c.md?p=a-37), bonding, or financial or operational reporting requirements for [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), [municipal securities dealers](/usc/15/78c.md?p=a-30), [government securities brokers](/usc/15/78c.md?p=a-43), or [government securities dealers](/usc/15/78c.md?p=a-44) that differ from, or are in addition to, the requirements in those areas established under this chapter. The [Commission](/usc/15/78c.md?p=a-15) shall consult periodically the [securities](/usc/15/78c.md?p=a-10) [commissions](/usc/15/78c.md?p=a-15) (or any agency or office performing like functions) of the [States](/usc/15/78c.md?p=a-16) concerning the adequacy of such requirements as established under this chapter. - (2) **Funding portals—** - (A) **Limitation on State laws—** Except as provided in [subparagraph (B)](#i-2-B), no [State](#i-2-C) or political subdivision thereof may enforce any law, rule, regulation, or other administrative action against a registered [funding portal](/usc/15/78c.md?p=a-80) with respect to its business as such. - (B) **Examination and enforcement authority—** [Subparagraph (A)](#i-2-A) does not apply with respect to the examination and enforcement of any law, rule, regulation, or administrative action of a [State](#i-2-C) or political subdivision thereof in which the principal place of business of a registered [funding portal](/usc/15/78c.md?p=a-80) is located, provided that such law, rule, regulation, or administrative action is not in addition to or different from the requirements for registered [funding portals](/usc/15/78c.md?p=a-80) established by the [Commission](/usc/15/78c.md?p=a-15). - (C) **Definition—** For purposes of this paragraph, the term “State” includes the District of Columbia and the territories of the United States. - (3) **De minimis transactions by associated persons—** No law, rule, regulation, or [order](/usc/15/8702.md?p=14), or other administrative action of any [State](/usc/15/78c.md?p=a-16) or political subdivision thereof may prohibit an [associated person of a broker or dealer](/usc/15/78c.md?p=a-18) from effecting a transaction described in [paragraph (3)](#i-3)[^3] for a [customer](/usc/15/78c–5.md?p=g) in such [State](/usc/15/78c.md?p=a-16) if— - (A) such associated [person](/usc/15/78c.md?p=a-9) is not ineligible to register with such [State](/usc/15/78c.md?p=a-16) for any reason other than such a transaction; - (B) such associated [person](/usc/15/78c.md?p=a-9) is registered with a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) and at least one [State](/usc/15/78c.md?p=a-16); and - (C) the [broker or dealer](/usc/15/78c.md?p=h-2) with which such [person](/usc/15/78c.md?p=a-9) is associated is registered with such [State](/usc/15/78c.md?p=a-16). - (4) **Described transactions—** - (A) **In general—** A transaction is described in this paragraph if— - (i) such transaction is effected— - (I) on behalf of a [customer](/usc/15/78c–5.md?p=g) that, for 30 days prior to the day of the transaction, maintained an [account](/usc/15/1681a.md?p=r-4) with the [broker or dealer](/usc/15/78c.md?p=h-2); and - (II) by an associated [person](/usc/15/78c.md?p=a-9) of the [broker or dealer](/usc/15/78c.md?p=h-2)— - (aa) to which the [customer](/usc/15/78c–5.md?p=g) was assigned for 14 days prior to the day of the transaction; and - (bb) who is registered with a [State](/usc/15/78c.md?p=a-16) in which the [customer](/usc/15/78c–5.md?p=g) was a resident or was present for at least 30 consecutive days during the 1-year period prior to the day of the transaction; or - (ii) the transaction is effected— - (I) on behalf of a [customer](/usc/15/78c–5.md?p=g) that, for 30 days prior to the day of the transaction, maintained an [account](/usc/15/1681a.md?p=r-4) with the [broker or dealer](/usc/15/78c.md?p=h-2); and - (II) during the period beginning on the date on which such associated [person](/usc/15/78c.md?p=a-9) files an [application](/usc/15/77ccc.md?p=8) for registration with the [State](/usc/15/78c.md?p=a-16) in which the transaction is effected and ending on the earlier of— - (aa) 60 days after the date on which the [application](/usc/15/77ccc.md?p=8) is filed; or - (bb) the date on which such [State](/usc/15/78c.md?p=a-16) notifies the associated [person](/usc/15/78c.md?p=a-9) that it has denied the [application](/usc/15/77ccc.md?p=8) for registration or has stayed the pendency of the [application](/usc/15/77ccc.md?p=8) for cause. - (B) **Rules of construction—** For purposes of [subparagraph (A)(i)(II)](#i-4-A-i-II)— - (i) each of up to 3 associated [persons](/usc/15/78c.md?p=a-9) of a [broker or dealer](/usc/15/78c.md?p=h-2) who are designated to effect transactions during the absence or unavailability of the principal associated [person](/usc/15/78c.md?p=a-9) for a [customer](/usc/15/78c–5.md?p=g) may be treated as an associated [person](/usc/15/78c.md?p=a-9) to which such [customer](/usc/15/78c–5.md?p=g) is assigned; and - (ii) if the [customer](/usc/15/78c–5.md?p=g) is present in another [State](/usc/15/78c.md?p=a-16) for 30 or more consecutive days or has permanently changed his or her residence to another [State](/usc/15/78c.md?p=a-16), a transaction is not described in this paragraph, unless the associated [person](/usc/15/78c.md?p=a-9) of the [broker or dealer](/usc/15/78c.md?p=h-2) files an [application](/usc/15/77ccc.md?p=8) for registration with such [State](/usc/15/78c.md?p=a-16) not later than 10 business days after the later of the date of the transaction, or the date of the discovery of the presence of the [customer](/usc/15/78c–5.md?p=g) in the other [State](/usc/15/78c.md?p=a-16) for 30 or more consecutive days or the change in the [customer](/usc/15/78c–5.md?p=g)’s residence. - (j) **[^4] Rulemaking to extend requirements to new hybrid products—** - (1) **Consultation—** Prior to commencing a rulemaking under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall consult with and seek the concurrence of the [Board](#j-6-B) concerning the imposition of [broker or dealer](/usc/15/78c.md?p=h-2) registration requirements with respect to any [new hybrid product](#j-6-A). In developing and promulgating rules under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall consider the views of the [Board](#j-6-B), including views with respect to the nature of the [new hybrid product](#j-6-A); the history, purpose, extent, and appropriateness of the regulation of the new product under the Federal banking laws; and the impact of the proposed rule on the banking industry. - (2) **Limitation—** The [Commission](/usc/15/78c.md?p=a-15) shall not— - (A) require a bank to register as a [broker or dealer](/usc/15/78c.md?p=h-2) under this section because the bank engages in any transaction in, or buys or [sells](/usc/15/78c.md?p=a-14), a [new hybrid product](#j-6-A); or - (B) bring an action against a bank for a failure to comply with a requirement described in [subparagraph (A)](#j-2-A), unless the [Commission](/usc/15/78c.md?p=a-15) has imposed such requirement by rule or regulation issued in accordance with this section. - (3) **Criteria for rulemaking—** The [Commission](/usc/15/78c.md?p=a-15) shall not impose a requirement under paragraph (2) of this subsection with respect to any [new hybrid product](#j-6-A) unless the [Commission](/usc/15/78c.md?p=a-15) determines that— - (A) the [new hybrid product](#j-6-A) is a [security](/usc/15/78c.md?p=a-10); and - (B) imposing such requirement is necessary and appropriate in the public interest and for the protection of investors. - (4) **Considerations—** In making a determination under [paragraph (3)](#j-3), the [Commission](/usc/15/78c.md?p=a-15) shall consider— - (A) the nature of the [new hybrid product](#j-6-A); and - (B) the history, purpose, extent, and appropriateness of the regulation of the [new hybrid product](#j-6-A) under the Federal [securities laws](/usc/15/78c.md?p=a-47) and under the Federal banking laws. - (5) **Objection to Commission regulation—** - (A) **Filing of petition for review—** The [Board](#j-6-B) may obtain review of any final regulation described in [paragraph (2)](#j-2) in the United States Court of Appeals for the District of Columbia Circuit by filing in such court, not later than 60 days after the date of publication of the final regulation, a written petition requesting that the regulation be set aside. Any proceeding to challenge any such rule shall be expedited by the Court of Appeals. - (B) **Transmittal of petition and record—** A copy of a petition described in [subparagraph (A)](#j-5-A) shall be transmitted as soon as possible by the Clerk of the Court to an officer or employee of the [Commission](/usc/15/78c.md?p=a-15) designated for that purpose. Upon receipt of the petition, the [Commission](/usc/15/78c.md?p=a-15) shall file with the court the regulation under review and any documents referred to therein, and any other relevant materials prescribed by the court. - (C) **Exclusive jurisdiction—** On the date of the filing of the petition under [subparagraph (A)](#j-5-A), the court has jurisdiction, which becomes exclusive on the filing of the materials set forth in [subparagraph (B)](#j-5-B), to affirm and enforce or to set aside the regulation at issue. - (D) **Standard of review—** The court shall determine to affirm and enforce or set aside a regulation of the [Commission](/usc/15/78c.md?p=a-15) under this subsection, based on the determination of the court as to whether— - (i) the subject product is a [new hybrid product](#j-6-A), as defined in this subsection; - (ii) the subject product is a [security](/usc/15/78c.md?p=a-10); and - (iii) imposing a requirement to register as a [broker or dealer](/usc/15/78c.md?p=h-2) for banks engaging in transactions in such product is appropriate in light of the history, purpose, and extent of regulation under the Federal [securities laws](/usc/15/78c.md?p=a-47) and under the Federal banking laws, giving deference neither to the views of the [Commission](/usc/15/78c.md?p=a-15) nor the [Board](#j-6-B). - (E) **Judicial stay—** The filing of a petition by the [Board](#j-6-B) pursuant to [subparagraph (A)](#j-5-A) shall operate as a judicial stay, until the date on which the determination of the court is final (including any appeal of such determination). - (F) **Other authority to challenge—** Any aggrieved party may seek judicial review of the [Commission](/usc/15/78c.md?p=a-15)’s rulemaking under this subsection pursuant to [section 78y of this title](/usc/15/78y.md). - (6) **Definitions—** For purposes of this subsection: - (A) **New hybrid product—** The term “new hybrid product” means a product that— - (i) was not subjected to regulation by the [Commission](/usc/15/78c.md?p=a-15) as a [security](/usc/15/78c.md?p=a-10) prior to the date of the enactment of the Gramm-Leach-Bliley Act [Nov. 12, 1999]; - (ii) is not an identified banking product as such term is defined in [section 206](/usc/15/206.md) of such Act; and - (iii) is not an equity [swap](/usc/15/78c.md?p=a-69) within the meaning of [section 206(a)(6)](/usc/15/206.md) of such Act. - (B) **Board—** The term “Board” means the Board of Governors of the Federal Reserve System. - (j) **[^4] Limitation on Commission authority—** The [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this section with respect to [security-based swap agreements](/usc/15/78c.md?p=a-78-B) shall be subject to the restrictions and limitations of [section 78c–1(b) of this title](/usc/15/78c–1.md?p=b). - (k) **[^5] Registration or succession to a United States broker or dealer—** In determining whether to permit a foreign [person](/usc/15/78c.md?p=a-9) or an affiliate of a foreign [person](/usc/15/78c.md?p=a-9) to register as a United States [broker or dealer](/usc/15/78c.md?p=h-2), or succeed to the registration of a United States [broker or dealer](/usc/15/78c.md?p=h-2), the [Commission](/usc/15/78c.md?p=a-15) may consider whether, for a foreign [person](/usc/15/78c.md?p=a-9), or an affiliate of a foreign [person](/usc/15/78c.md?p=a-9) that presents a risk to the stability of the United States financial system, the home country of the foreign [person](/usc/15/78c.md?p=a-9) has adopted, or made demonstrable progress toward adopting, an appropriate system of financial regulation to mitigate such risk. - (l) **[^6] Termination of a United States broker or dealer—** For a foreign [person](/usc/15/78c.md?p=a-9) or an affiliate of a foreign [person](/usc/15/78c.md?p=a-9) that presents such a risk to the stability of the United States financial system, the [Commission](/usc/15/78c.md?p=a-15) may determine to terminate the registration of such foreign [person](/usc/15/78c.md?p=a-9) or an affiliate of such foreign [person](/usc/15/78c.md?p=a-9) as a [broker or dealer](/usc/15/78c.md?p=h-2) in the United States, if the [Commission](/usc/15/78c.md?p=a-15) determines that the home country of the foreign [person](/usc/15/78c.md?p=a-9) has not adopted, or made demonstrable progress toward adopting, an appropriate system of financial regulation to mitigate such risk. - (k) **[^7] Standard of conduct—** - (1) **In general—** Notwithstanding any other provision of this chapter or the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.], the [Commission](/usc/15/78c.md?p=a-15) may promulgate rules to provide that, with respect to a [broker or dealer](/usc/15/78c.md?p=h-2), when providing personalized investment advice about [securities](/usc/15/78c.md?p=a-10) to a retail [customer](/usc/15/78c–5.md?p=g) (and such other [customers](/usc/15/78c–5.md?p=g) as the [Commission](/usc/15/78c.md?p=a-15) may by rule provide), the standard of conduct for such [broker or dealer](/usc/15/78c.md?p=h-2) with respect to such [customer](/usc/15/78c–5.md?p=g) shall be the same as the standard of conduct applicable to an [investment adviser](/usc/15/78c.md?p=a-20) under section 211 of the Investment Advisers Act of 1940 [[15 U.S.C. 80b–11](/usc/15/80b–11.md)]. The receipt of compensation based on [commission](/usc/15/78c.md?p=a-15) or other standard compensation for the sale of [securities](/usc/15/78c.md?p=a-10) shall not, in and of itself, be considered a [violation](/usc/15/57b–1.md?p=a-7) of such standard applied to a [broker or dealer](/usc/15/78c.md?p=h-2). Nothing in this section shall require a [broker or dealer](/usc/15/78c.md?p=h-2) or registered representative to have a continuing duty of care or loyalty to the [customer](/usc/15/78c–5.md?p=g) after providing personalized investment advice about [securities](/usc/15/78c.md?p=a-10). - (2) **Disclosure of range of products offered—** Where a [broker or dealer](/usc/15/78c.md?p=h-2) [sells](/usc/15/78c.md?p=a-14) only proprietary or other limited range of products, as determined by the [Commission](/usc/15/78c.md?p=a-15), the [Commission](/usc/15/78c.md?p=a-15) may by rule require that such [broker or dealer](/usc/15/78c.md?p=h-2) provide notice to each retail [customer](/usc/15/78c–5.md?p=g) and obtain the consent or acknowledgment of the [customer](/usc/15/78c–5.md?p=g). The sale of only proprietary or other limited range of products by a [broker or dealer](/usc/15/78c.md?p=h-2) shall not, in and of itself, be considered a [violation](/usc/15/57b–1.md?p=a-7) of the standard set forth in [paragraph (1)](#k-1). - (l) **[^8] Other matters—** The [Commission](/usc/15/78c.md?p=a-15) shall— - (1) facilitate the provision of simple and clear disclosures to investors regarding the terms of their relationships with [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), and [investment advisers](/usc/15/78c.md?p=a-20), including any material conflicts of interest; and - (2) examine and, where appropriate, promulgate rules prohibiting or restricting certain sales practices, conflicts of interest, and compensation schemes for [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), and [investment advisers](/usc/15/78c.md?p=a-20) that the [Commission](/usc/15/78c.md?p=a-15) deems contrary to the public interest and the protection of investors. - (m) **Harmonization of enforcement—** The enforcement [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) with respect to [violations](/usc/15/57b–1.md?p=a-7) of the standard of conduct applicable to a [broker or dealer](/usc/15/78c.md?p=h-2) providing personalized investment advice about [securities](/usc/15/78c.md?p=a-10) to a retail [customer](/usc/15/78c–5.md?p=g) shall include— - (1) the enforcement [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) with respect to such [violations](/usc/15/57b–1.md?p=a-7) provided under this chapter; and - (2) the enforcement [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) with respect to [violations](/usc/15/57b–1.md?p=a-7) of the standard of conduct applicable to an [investment adviser](/usc/15/78c.md?p=a-20) under the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.], including the [authority](/usc/15/3051.md?p=1) to impose sanctions for such [violations](/usc/15/57b–1.md?p=a-7), and the [Commission](/usc/15/78c.md?p=a-15) shall seek to prosecute and sanction [violators](/usc/15/1114.md?p=2-E-i) of the standard of conduct applicable to a [broker or dealer](/usc/15/78c.md?p=h-2) providing personalized investment advice about [securities](/usc/15/78c.md?p=a-10) to a retail [customer](/usc/15/78c–5.md?p=g) under this chapter to[^9] same extent as the [Commission](/usc/15/78c.md?p=a-15) prosecutes and sanctions [violators](/usc/15/1114.md?p=2-E-i) of the standard of conduct applicable to an investment advisor under the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.]. - (n) **Disclosures to retail investors—** - (1) **In general—** Notwithstanding any other provision of the [securities laws](/usc/15/78c.md?p=a-47), the [Commission](/usc/15/78c.md?p=a-15) may issue rules designating documents or information that shall be provided by a [broker or dealer](/usc/15/78c.md?p=h-2) to a retail investor before the [purchase](/usc/15/78c.md?p=a-13) of an investment product or service by the retail investor. - (2) **Considerations—** In developing any rules under [paragraph (1)](#n-1), the [Commission](/usc/15/78c.md?p=a-15) shall consider whether the rules will promote investor protection, efficiency, competition, and capital formation. - (3) **Form and contents of documents and information—** Any documents or information designated under a rule promulgated under [paragraph (1)](#n-1) shall— - (A) be in a summary format; and - (B) contain clear and concise information about— - (i) investment objectives, strategies, costs, and risks; and - (ii) any compensation or other financial incentive received by a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or other [intermediary](/usc/15/6901.md?p=7) in connection with the [purchase](/usc/15/78c.md?p=a-13) of retail investment products. - (o) **Authority to restrict mandatory pre-dispute arbitration—** The [Commission](/usc/15/78c.md?p=a-15), by rule, may prohibit, or impose conditions or limitations on the use of, [agreements](/usc/15/7a.md?p=2) that require [customers](/usc/15/78c–5.md?p=g) or clients of any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) to arbitrate any future dispute between them arising under the Federal [securities laws](/usc/15/78c.md?p=a-47), the rules and regulations thereunder, or the [rules of a self-regulatory organization](/usc/15/78c.md?p=a-28) if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors. # §78o–1. Brokers deemed to be registered All [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) for whom registration was in effect on May 27, 1936, in accordance with rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) prescribed pursuant to [section 78o](/usc/15/78o.md) of this title shall be deemed to be registered pursuant to said section. # §78o–2. Liabilities arising prior to amendment unaffected Nothing in this Act shall be deemed to extinguish any liability which may have arisen prior to the effective date of this Act by reason of any [violation](/usc/15/57b–1.md?p=a-7) of [section 78o](/usc/15/78o.md) of this title or of any rule or regulation thereunder. # §78o–3. Registered securities associations - (a) **Registration; application—** An [association](/usc/15/657h.md?p=a-2) of [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) may be registered as a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) pursuant to [subsection (b)](#b), or as an affiliated [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) pursuant to [subsection (d)](#d), under the terms and conditions hereinafter provided in this section and in accordance with the provisions of [section 78s(a) of this title](/usc/15/78s.md?p=a), by filing with the [Commission](/usc/15/78c.md?p=a-15) an [application](/usc/15/77ccc.md?p=8) for registration in such form as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe containing the rules of the [association](/usc/15/657h.md?p=a-2) and such other information and documents as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (b) **Determinations by Commission requisite to registration of applicant as national securities association—** An [association](/usc/15/657h.md?p=a-2) of [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) shall not be registered as a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) unless the [Commission](/usc/15/78c.md?p=a-15) determines that— - (1) By reason of the number and geographical distribution of its [members](/usc/15/78c.md?p=a-3-A) and the scope of their transactions, such [association](/usc/15/657h.md?p=a-2) will be able to carry out the purposes of this section. - (2) Such [association](/usc/15/657h.md?p=a-2) is so organized and has the capacity to be able to carry out the purposes of this chapter and to comply, and (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to section [78q(d)](/usc/15/78q.md?p=d) or [78s(g)(2)](/usc/15/78s.md?p=g-2) of this title) to enforce compliance by its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A), with the provisions of this chapter, the rules and regulations thereunder, the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), and the rules of the [association](/usc/15/657h.md?p=a-2). - (3) Subject to the provisions of [subsection (g)](#g) of this section, the rules of the [association](/usc/15/657h.md?p=a-2) provide that any [registered broker or dealer](/usc/15/78c.md?p=h-2) may become a [member](/usc/15/78c.md?p=a-3-A) of such [association](/usc/15/657h.md?p=a-2) and any [person](/usc/15/78c.md?p=a-9) may become associated with a [member](/usc/15/78c.md?p=a-3-A) thereof. - (4) The rules of the [association](/usc/15/657h.md?p=a-2) assure a fair representation of its [members](/usc/15/78c.md?p=a-3-A) in the selection of its [directors](/usc/15/78c.md?p=a-7) and [administration](/usc/15/2203.md?p=2) of its affairs and provide that one or more [directors](/usc/15/78c.md?p=a-7) shall be representative of [issuers](/usc/15/78c.md?p=a-8) and investors and not be associated with a [member](/usc/15/78c.md?p=a-3-A) of the [association](/usc/15/657h.md?p=a-2), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A). - (5) The rules of the [association](/usc/15/657h.md?p=a-2) provide for the equitable allocation of reasonable dues, fees, and other charges among [members](/usc/15/78c.md?p=a-3-A) and [issuers](/usc/15/78c.md?p=a-8) and other [persons](/usc/15/78c.md?p=a-9) using any [facility](/usc/15/78c.md?p=a-2) or system which the [association](/usc/15/657h.md?p=a-2) operates or controls. - (6) The rules of the [association](/usc/15/657h.md?p=a-2) are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with [persons](/usc/15/78c.md?p=a-9) engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in [securities](/usc/15/78c.md?p=a-10), to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination between [customers](/usc/15/78c–5.md?p=g), [issuers](/usc/15/78c.md?p=a-8), [brokers](/usc/15/78c.md?p=a-4-A), or [dealers](/usc/15/78c.md?p=a-5-A), to fix minimum profits, to impose any schedule or fix rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees to be charged by its [members](/usc/15/78c.md?p=a-3-A), or to regulate by virtue of any [authority](/usc/15/3051.md?p=1) conferred by this chapter matters not related to the purposes of this chapter or the [administration](/usc/15/2203.md?p=2) of the [association](/usc/15/657h.md?p=a-2). - (7) The rules of the [association](/usc/15/657h.md?p=a-2) provide that (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to section [78q(d)](/usc/15/78q.md?p=d) or [78s(g)(2)](/usc/15/78s.md?p=g-2) of this title) its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A) shall be appropriately disciplined for [violation](/usc/15/57b–1.md?p=a-7) of any provision of this chapter, the rules or regulations thereunder, the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), or the rules of the [association](/usc/15/657h.md?p=a-2), by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, being suspended or barred from being associated with a [member](/usc/15/78c.md?p=a-3-A), or any other fitting sanction. - (8) The rules of the [association](/usc/15/657h.md?p=a-2) are in accordance with the provisions of [subsection (h)](#h) of this section, and, in general, provide a fair procedure for the disciplining of [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with [members](/usc/15/78c.md?p=a-3-A), the denial of membership to any [person](/usc/15/78c.md?p=a-9) seeking membership therein, the barring of any [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) thereof, and the prohibition or limitation by the [association](/usc/15/657h.md?p=a-2) of any [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [association](/usc/15/657h.md?p=a-2) or a [member](/usc/15/78c.md?p=a-3-A) thereof. - (9) The rules of the [association](/usc/15/657h.md?p=a-2) do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. - (10) The requirements of [subsection (c)](#c), insofar as these may be applicable, are satisfied. - (11) The rules of the [association](/usc/15/657h.md?p=a-2) include provisions governing the form and content of quotations relating to [securities](/usc/15/78c.md?p=a-10) sold otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5) which may be distributed or published by any [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21), and the [persons](/usc/15/78c.md?p=a-9) to whom such quotations may be supplied. Such rules relating to quotations shall be designed to produce fair and informative quotations, to prevent fictitious or misleading quotations, and to promote orderly procedures for collecting, distributing, and publishing quotations. - (12) The rules of the [association](/usc/15/657h.md?p=a-2) to promote just and equitable principles of trade, as required by [paragraph (6)](#b-6), include rules to prevent [members](/usc/15/78c.md?p=a-3-A) of the [association](/usc/15/657h.md?p=a-2) from participating in any limited partnership rollup transaction (as such term is defined in paragraphs (4) and (5) of [section 78n(h) of this title](/usc/15/78n.md?p=h)) unless such transaction was conducted in accordance with procedures designed to protect the rights of limited partners, including— - (A) the right of [dissenting limited partners](#b-12) to one of the following: - (i) an appraisal and compensation; - (ii) retention of a [security](/usc/15/78c.md?p=a-10) under substantially the same terms and conditions as the original issue; - (iii) approval of the limited partnership rollup transaction by not less than 75 percent of the outstanding [securities](/usc/15/78c.md?p=a-10) of each of the participating limited partnerships; - (iv) the use of a [committee](/usc/15/2921.md?p=1) that is independent, as determined in accordance with rules prescribed by the [association](/usc/15/657h.md?p=a-2), of the general partner or sponsor, that has been approved by a majority of the outstanding [securities](/usc/15/78c.md?p=a-10) of each of the participating partnerships, and that has such [authority](/usc/15/3051.md?p=1) as is necessary to protect the interest of limited partners, including the [authority](/usc/15/3051.md?p=1) to hire independent advisors, to negotiate with the general partner or sponsor on behalf of the limited partners, and to make a recommendation to the limited partners with respect to the proposed transaction; or - (v) other comparable rights that are prescribed by rule by the [association](/usc/15/657h.md?p=a-2) and that are designed to protect [dissenting limited partners](#b-12); - (B) the right not to have their voting power unfairly reduced or abridged; - (C) the right not to bear an unfair portion of the costs of a proposed limited partnership rollup transaction that is rejected; and - (D) restrictions on the conversion of contingent interests or fees into non-contingent interests or fees and restrictions on the receipt of a non-contingent equity interest in [exchange](/usc/15/78c.md?p=a-1) for fees for services which have not yet been provided. As used in this paragraph, the term “dissenting limited partner” means a [person](/usc/15/78c.md?p=a-9) who, on the date on which soliciting material is mailed to investors, is a holder of a beneficial interest in a limited partnership that is the subject of a limited partnership rollup transaction, and who casts a vote against the transaction and complies with procedures established by the [association](/usc/15/657h.md?p=a-2), except that for purposes of an [exchange](/usc/15/78c.md?p=a-1) or tender offer, such [person](/usc/15/78c.md?p=a-9) shall file an objection in writing under the rules of the [association](/usc/15/657h.md?p=a-2) during the period in which the offer is outstanding. - (13) The rules of the [association](/usc/15/657h.md?p=a-2) prohibit the authorization for quotation on an automated interdealer quotation system sponsored by the [association](/usc/15/657h.md?p=a-2) of any [security](/usc/15/78c.md?p=a-10) designated by the [Commission](/usc/15/78c.md?p=a-15) as a national market system [security](/usc/15/78c.md?p=a-10) resulting from a limited partnership rollup transaction (as such term is defined in paragraphs (4) and (5) of [section 78n(h) of this title](/usc/15/78n.md?p=h)), unless such transaction was conducted in accordance with procedures designed to protect the rights of limited partners, including— - (A) the right of [dissenting limited partners](#b-12) to one of the following: - (i) an appraisal and compensation; - (ii) retention of a [security](/usc/15/78c.md?p=a-10) under substantially the same terms and conditions as the original issue; - (iii) approval of the limited partnership rollup transaction by not less than 75 percent of the outstanding [securities](/usc/15/78c.md?p=a-10) of each of the participating limited partnerships; - (iv) the use of a [committee](/usc/15/2921.md?p=1) that is independent, as determined in accordance with rules prescribed by the [association](/usc/15/657h.md?p=a-2), of the general partner or sponsor, that has been approved by a majority of the outstanding [securities](/usc/15/78c.md?p=a-10) of each of the participating partnerships, and that has such [authority](/usc/15/3051.md?p=1) as is necessary to protect the interest of limited partners, including the [authority](/usc/15/3051.md?p=1) to hire independent advisors, to negotiate with the general partner or sponsor on behalf of the limited partners, and to make a recommendation to the limited partners with respect to the proposed transaction; or - (v) other comparable rights that are prescribed by rule by the [association](/usc/15/657h.md?p=a-2) and that are designed to protect [dissenting limited partners](#b-12); - (B) the right not to have their voting power unfairly reduced or abridged; - (C) the right not to bear an unfair portion of the costs of a proposed limited partnership rollup transaction that is rejected; and - (D) restrictions on the conversion of contingent interests or fees into non-contingent interests or fees and restrictions on the receipt of a non-contingent equity interest in [exchange](/usc/15/78c.md?p=a-1) for fees for services which have not yet been provided. As used in this paragraph, the term “[dissenting limited partner](#b-12)” means a [person](/usc/15/78c.md?p=a-9) who, on the date on which soliciting material is mailed to investors, is a holder of a beneficial interest in a limited partnership that is the subject of a limited partnership rollup transaction, and who casts a vote against the transaction and complies with procedures established by the [association](/usc/15/657h.md?p=a-2), except that for purposes of an [exchange](/usc/15/78c.md?p=a-1) or tender offer, such [person](/usc/15/78c.md?p=a-9) shall file an objection in writing under the rules of the [association](/usc/15/657h.md?p=a-2) during the period during which the offer is outstanding. - (14) The rules of the [association](/usc/15/657h.md?p=a-2) include provisions governing the sales, or offers of sales, of [securities](/usc/15/78c.md?p=a-10) on the premises of any military installation to any [member](/usc/15/78c.md?p=a-3-A) of the Armed Forces or a dependent thereof, which rules require— - (A) the [broker or dealer](/usc/15/78c.md?p=h-2) performing brokerage services to clearly and conspicuously disclose to potential investors— - (i) that the [securities](/usc/15/78c.md?p=a-10) offered are not being offered or provided by the [broker or dealer](/usc/15/78c.md?p=h-2) on behalf of the Federal Government, and that its offer is not sanctioned, recommended, or encouraged by the Federal Government; and - (ii) the identity of the registered [broker](/usc/15/78c.md?p=a-4-A)-[dealer](/usc/15/78c.md?p=a-5-A) offering the [securities](/usc/15/78c.md?p=a-10); - (B) such [broker or dealer](/usc/15/78c.md?p=h-2) to perform an appropriate suitability determination, including consideration of costs and knowledge about [securities](/usc/15/78c.md?p=a-10), prior to making a recommendation of a [security](/usc/15/78c.md?p=a-10) to a [member](/usc/15/78c.md?p=a-3-A) of the Armed Forces or a dependent thereof; and - (C) that no [person](/usc/15/78c.md?p=a-9) receive any referral fee or incentive compensation in connection with a sale or offer of sale of [securities](/usc/15/78c.md?p=a-10), unless such [person](/usc/15/78c.md?p=a-9) is an associated [person](/usc/15/78c.md?p=a-9) of a [registered broker or dealer](/usc/15/78c.md?p=h-2) and is qualified pursuant to the [rules of a self-regulatory organization](/usc/15/78c.md?p=a-28). - (15) The rules of the [association](/usc/15/657h.md?p=a-2) provide that the [association](/usc/15/657h.md?p=a-2) shall— - (A) request guidance from the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) in interpretation of the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73); and - (B) provide information to the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) about the enforcement actions and examinations of the [association](/usc/15/657h.md?p=a-2) under [section 78o–4(b)(2)(E)](/usc/15/78o–4.md?p=b-2-E) of this title, so that the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) may— - (i) assist in such enforcement actions and examinations; and - (ii) evaluate the ongoing effectiveness of the [rules of the Board](/usc/15/7201.md?p=13). - (c) **National association rules; provision for registration of affiliated securities association—** The [Commission](/usc/15/78c.md?p=a-15) may permit or require the [rules of an association](/usc/15/78c.md?p=a-27) applying for registration pursuant to [subsection (b)](#b), to provide for the admission of an [association](/usc/15/657h.md?p=a-2) registered as an affiliated [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) pursuant to [subsection (d)](#d), to participation in said [applicant](/usc/15/7a.md?p=3) [association](/usc/15/657h.md?p=a-2) as an affiliate thereof, under terms permitting such powers and responsibilities to such affiliate, and under such other appropriate terms and conditions, as may be provided by the rules of said [applicant](/usc/15/7a.md?p=3) [association](/usc/15/657h.md?p=a-2), if such rules appear to the [Commission](/usc/15/78c.md?p=a-15) to be necessary or appropriate in the public interest or for the protection of investors and to carry out the purposes of this section. The duties and powers of the [Commission](/usc/15/78c.md?p=a-15) with respect to any national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) or any affiliated [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall in no way be limited by reason of any such affiliation. - (d) **Registration as affiliated association; prerequisites; association rules—** An [applicant](/usc/15/7a.md?p=3) [association](/usc/15/657h.md?p=a-2) shall not be registered as an affiliated [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) unless it appears to the [Commission](/usc/15/78c.md?p=a-15) that— - (1) such [association](/usc/15/657h.md?p=a-2), notwithstanding that it does not satisfy the requirements set forth in [paragraph (1)](#b-1) of subsection (b), will, forthwith upon the registration thereof, be admitted to affiliation with an [association](/usc/15/657h.md?p=a-2) registered as a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) pursuant to [subsection (b)](#b), in the manner and under the terms and conditions provided by the rules of said national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) in accordance with [subsection (c)](#c); and - (2) such [association](/usc/15/657h.md?p=a-2) and its rules satisfy the requirements set forth in [paragraphs (2) to (10)](#d-2..d-10), inclusive, and paragraph (12),[^1] of [subsection (b)](#b); except that in the case of any such [association](/usc/15/657h.md?p=a-2) any restrictions upon membership therein of the type authorized by [paragraph (3)](#b-3) of subsection (b) shall not be less stringent than in the case of the national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) with which such [association](/usc/15/657h.md?p=a-2) is to be affiliated. - (e) **Dealings with nonmember professionals—** - (1) The rules of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may provide that no [member](/usc/15/78c.md?p=a-3-A) thereof shall deal with any [nonmember professional](#e-2) (as defined in paragraph (2) of this subsection) except at the same prices, for the same [commissions](/usc/15/78c.md?p=a-15) or fees, and on the same terms and conditions as are by such [member](/usc/15/78c.md?p=a-3-A) accorded to the general public. - (2) For the purposes of this subsection, the term “nonmember professional” shall include (A) with respect to transactions in [securities](/usc/15/78c.md?p=a-10) other than [municipal securities](/usc/15/78c.md?p=a-29), any [registered broker or dealer](/usc/15/78c.md?p=h-2) who is not a [member](/usc/15/78c.md?p=a-3-A) of any registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), except such a [broker or dealer](/usc/15/78c.md?p=h-2) who deals exclusively in commercial paper, bankers’ acceptances, and commercial bills, and (B) with respect to transactions in [municipal securities](/usc/15/78c.md?p=a-29), any [municipal securities dealer](/usc/15/78c.md?p=a-30) (other than a bank or division or department of a bank) who is not a [member](/usc/15/78c.md?p=a-3-A) of any registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) and any [municipal securities broker](/usc/15/78c.md?p=a-31) who is not a [member](/usc/15/78c.md?p=a-3-A) of any such [association](/usc/15/657h.md?p=a-2). - (3) Nothing in this subsection shall be so construed or applied as to prevent (A) any [member](/usc/15/78c.md?p=a-3-A) of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) from granting to any other [member](/usc/15/78c.md?p=a-3-A) of any registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) any [dealer](/usc/15/78c.md?p=a-5-A)’s [discount](/usc/15/1602.md?p=q), allowance, [commission](/usc/15/78c.md?p=a-15), or special terms, in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of [securities](/usc/15/78c.md?p=a-10), or (B) any [member](/usc/15/78c.md?p=a-3-A) of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) or any [municipal securities dealer](/usc/15/78c.md?p=a-30) which is a bank or a division or department of a bank from granting to any [member](/usc/15/78c.md?p=a-3-A) of any registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) or any such [municipal securities dealer](/usc/15/78c.md?p=a-30) any [dealer](/usc/15/78c.md?p=a-5-A)’s [discount](/usc/15/1602.md?p=q), allowance, [commission](/usc/15/78c.md?p=a-15), or special terms in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of [municipal securities](/usc/15/78c.md?p=a-29): Provided, however, That the granting of any such [discount](/usc/15/1602.md?p=q), allowance, [commission](/usc/15/78c.md?p=a-15), or special terms in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of [municipal securities](/usc/15/78c.md?p=a-29) shall be subject to rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) adopted pursuant to [section 78o–4(b)(2)(K)](/usc/15/78o–4.md?p=b-2-K) of this title. - (f) **Transactions in municipal securities—** Nothing in subsection [(b)(6)](#b-6) or [(b)(11)](#b-11) of this section shall be construed to permit a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to make rules concerning any transaction by a [registered broker or dealer](/usc/15/78c.md?p=h-2) in a municipal [security](/usc/15/78c.md?p=a-10). - (g) **Denial of membership—** - (1) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall deny membership to any [person](/usc/15/78c.md?p=a-9) who is not a [registered broker or dealer](/usc/15/78c.md?p=h-2). - (2) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may, and in cases in which the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), directs as necessary or appropriate in the public interest or for the protection of investors shall, deny membership to any [registered broker or dealer](/usc/15/78c.md?p=h-2), and bar from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) any [person](/usc/15/78c.md?p=a-9), who is subject to a statutory disqualification. A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall file notice with the [Commission](/usc/15/78c.md?p=a-15) not less than thirty days prior to admitting any [registered broker or dealer](/usc/15/78c.md?p=h-2) to membership or permitting any [person](/usc/15/78c.md?p=a-9) to become associated with a [member](/usc/15/78c.md?p=a-3-A), if the [association](/usc/15/657h.md?p=a-2) knew, or in the exercise of reasonable care should have known, that such [broker or dealer](/usc/15/78c.md?p=h-2) or [person](/usc/15/78c.md?p=a-9) was subject to a statutory disqualification. The notice shall be in such form and contain such information as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (3) - (A) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may deny membership to, or condition the membership of, a [registered broker or dealer](/usc/15/78c.md?p=h-2) if (i) such [broker or dealer](/usc/15/78c.md?p=h-2) does not meet such standards of financial responsibility or operational capability or such [broker or dealer](/usc/15/78c.md?p=h-2) or any natural [person associated with](/usc/15/78c.md?p=a-63) such [broker or dealer](/usc/15/78c.md?p=h-2) does not meet such standards of training, experience, and competence as are prescribed by the rules of the [association](/usc/15/657h.md?p=a-2) or (ii) such [broker or dealer](/usc/15/78c.md?p=h-2) or [person associated with](/usc/15/78c.md?p=a-63) such [broker or dealer](/usc/15/78c.md?p=h-2) has engaged and there is a reasonable likelihood he will again engage in acts or practices inconsistent with just and equitable principles of trade. A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may examine and verify the qualifications of an [applicant](/usc/15/7a.md?p=3) to become a [member](/usc/15/78c.md?p=a-3-A) and the [natural persons](/usc/15/15g.md?p=3) associated with such an [applicant](/usc/15/7a.md?p=3) in accordance with procedures established by the rules of the [association](/usc/15/657h.md?p=a-2). - (B) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may bar a natural [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) or condition the [association](/usc/15/657h.md?p=a-2) of a natural [person](/usc/15/78c.md?p=a-9) with a [member](/usc/15/78c.md?p=a-3-A) if such natural [person](/usc/15/78c.md?p=a-9) (i) does not meet such standards of training, experience, and competence as are prescribed by the rules of the [association](/usc/15/657h.md?p=a-2) or (ii) has engaged and there is a reasonable likelihood he will again engage in acts or practices inconsistent with just and equitable principles of trade. A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may examine and verify the qualifications of an [applicant](/usc/15/7a.md?p=3) to become a [person associated with a member](/usc/15/78c.md?p=a-21) in accordance with procedures established by the rules of the [association](/usc/15/657h.md?p=a-2) and require a natural [person associated with a member](/usc/15/78c.md?p=a-21), or any class of such [natural persons](/usc/15/15g.md?p=3), to be registered with the [association](/usc/15/657h.md?p=a-2) in accordance with procedures so established. - (C) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may bar any [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) if such [person](/usc/15/78c.md?p=a-9) does not agree (i) to supply the [association](/usc/15/657h.md?p=a-2) with such information with respect to its relationship and dealings with the [member](/usc/15/78c.md?p=a-3-A) as may be specified in the rules of the [association](/usc/15/657h.md?p=a-2) and (ii) to permit examination of its books and [records](/usc/15/78c.md?p=a-37) to verify the accuracy of any information so supplied. - (D) Nothing in subparagraph (A), (B), or (C) of this paragraph shall be construed to permit a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to deny membership to or condition the membership of, or bar any [person](/usc/15/78c.md?p=a-9) from becoming associated with or condition the [association](/usc/15/657h.md?p=a-2) of any [person](/usc/15/78c.md?p=a-9) with, a [broker or dealer](/usc/15/78c.md?p=h-2) that engages exclusively in transactions in [municipal securities](/usc/15/78c.md?p=a-29). - (4) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may deny membership to a [registered broker or dealer](/usc/15/78c.md?p=h-2) not engaged in a type of business in which the rules of the [association](/usc/15/657h.md?p=a-2) require [members](/usc/15/78c.md?p=a-3-A) to be engaged: Provided, however, That no registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may deny membership to a [registered broker or dealer](/usc/15/78c.md?p=h-2) by reason of the amount of such type of business done by such [broker or dealer](/usc/15/78c.md?p=h-2) or the other types of business in which he is engaged. - (h) **Discipline of registered securities association members and persons associated with members; summary proceedings—** - (1) In any proceeding by a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to determine whether a [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21) should be disciplined (other than a summary proceeding pursuant to paragraph (3) of this subsection) the [association](/usc/15/657h.md?p=a-2) shall bring specific charges, notify such [member](/usc/15/78c.md?p=a-3-A) or [person](/usc/15/78c.md?p=a-9) of, and give him an opportunity to defend against, such charges, and keep a record. A determination by the [association](/usc/15/657h.md?p=a-2) to impose a disciplinary sanction shall be supported by a statement setting forth— - (A) any act or practice in which such [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21) has been found to have engaged, or which such [member](/usc/15/78c.md?p=a-3-A) or [person](/usc/15/78c.md?p=a-9) has been found to have omitted; - (B) the specific provision of this chapter, the rules or regulations thereunder, the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), or the rules of the [association](/usc/15/657h.md?p=a-2) which any such act or practice, or omission to act, is deemed to violate; and - (C) the sanction imposed and the reason therefor. - (2) In any proceeding by a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to determine whether a [person](/usc/15/78c.md?p=a-9) shall be denied membership, barred from becoming associated with a [member](/usc/15/78c.md?p=a-3-A), or prohibited or limited with respect to access to services offered by the [association](/usc/15/657h.md?p=a-2) or a [member](/usc/15/78c.md?p=a-3-A) thereof (other than a summary proceeding pursuant to paragraph (3) of this subsection), the [association](/usc/15/657h.md?p=a-2) shall notify such [person](/usc/15/78c.md?p=a-9) of and give him an opportunity to be heard upon, the specific grounds for denial, bar, or prohibition or limitation under consideration and keep a record. A determination by the [association](/usc/15/657h.md?p=a-2) to deny membership, bar a [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A), or prohibit or limit a [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [association](/usc/15/657h.md?p=a-2) or a [member](/usc/15/78c.md?p=a-3-A) thereof shall be supported by a statement setting forth the specific grounds on which the denial, bar, or prohibition or limitation is based. - (3) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may summarily (A) suspend a [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21) who has been and is expelled or suspended from any [self-regulatory organization](/usc/15/78c.md?p=a-26) or barred or suspended from being associated with a [member](/usc/15/78c.md?p=a-3-A) of any [self-regulatory organization](/usc/15/78c.md?p=a-26), (B) suspend a [member](/usc/15/78c.md?p=a-3-A) who is in such financial or operating difficulty that the [association](/usc/15/657h.md?p=a-2) determines and so notifies the [Commission](/usc/15/78c.md?p=a-15) that the [member](/usc/15/78c.md?p=a-3-A) cannot be permitted to continue to do business as a [member](/usc/15/78c.md?p=a-3-A) with safety to investors, [creditors](/usc/15/1615.md?p=d-2), other [members](/usc/15/78c.md?p=a-3-A), or the [association](/usc/15/657h.md?p=a-2), or (C) limit or prohibit any [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [association](/usc/15/657h.md?p=a-2) if subparagraph (A) or (B) of this paragraph is applicable to such [person](/usc/15/78c.md?p=a-9) or, in the case of a [person](/usc/15/78c.md?p=a-9) who is not a [member](/usc/15/78c.md?p=a-3-A), if the [association](/usc/15/657h.md?p=a-2) determines that such [person](/usc/15/78c.md?p=a-9) does not meet the qualification requirements or other prerequisites for such access and such [person](/usc/15/78c.md?p=a-9) cannot be permitted to continue to have such access with safety to investors, [creditors](/usc/15/1615.md?p=d-2), [members](/usc/15/78c.md?p=a-3-A), or the [association](/usc/15/657h.md?p=a-2). Any [person](/usc/15/78c.md?p=a-9) aggrieved by any such summary action shall be promptly afforded an opportunity for a hearing by the [association](/usc/15/657h.md?p=a-2) in accordance with the provisions of paragraph (1) or (2) of this subsection. The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), may stay any such summary action on its own motion or upon [application](/usc/15/77ccc.md?p=8) by any [person](/usc/15/78c.md?p=a-9) aggrieved thereby, if the [Commission](/usc/15/78c.md?p=a-15) determines summarily or after notice and opportunity for hearing (which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that such stay is consistent with the public interest and the protection of investors. - (i) **Obligation to maintain registration, disciplinary, and other data—** - (1) **Maintenance of system to respond to inquiries—** A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall— - (A) establish and maintain a system for collecting and retaining [registration information](#i-5); - (B) establish and maintain a toll-free telephone listing, and a readily accessible electronic or other process, to receive and promptly respond to inquiries regarding— - (i) [registration information](#i-5) on its [members](/usc/15/78c.md?p=a-3-A) and their associated [persons](/usc/15/78c.md?p=a-9); and - (ii) [registration information](#i-5) on the [members](/usc/15/78c.md?p=a-3-A) and their associated [persons](/usc/15/78c.md?p=a-9) of any registered [national securities exchange](/usc/15/9009a.md?p=a-5) that uses the system described in [subparagraph (A)](#i-1-A) for the registration of its [members](/usc/15/78c.md?p=a-3-A) and their associated [persons](/usc/15/78c.md?p=a-9); and - (C) adopt rules governing the process for making inquiries and the type, scope, and presentation of information to be provided in response to such inquiries in consultation with any registered [national securities exchange](/usc/15/9009a.md?p=a-5) providing information pursuant to [subparagraph (B)(ii)](#i-1-B-ii). - (2) **Recovery of costs—** A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) may charge [persons](/usc/15/78c.md?p=a-9) making inquiries described in [paragraph (1)(B)](#i-1-B), other than individual investors, reasonable fees for responses to such inquiries. - (3) **Process for disputed information—** Each registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall adopt rules establishing an administrative process for disputing the accuracy of information provided in response to inquiries under this subsection in consultation with any registered [national securities exchange](/usc/15/9009a.md?p=a-5) providing information pursuant to [paragraph (1)(B)(ii)](#i-1-B-ii). - (4) **Limitation on liability—** A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), or an [exchange](/usc/15/78c.md?p=a-1) reporting information to such an [association](/usc/15/657h.md?p=a-2), shall not have any liability to any [person](/usc/15/78c.md?p=a-9) for any actions taken or omitted in good faith under this subsection. - (5) **Definition—** For purposes of this subsection, the term “registration information” means the information reported in connection with the registration or licensing of [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) and their associated [persons](/usc/15/78c.md?p=a-9), including disciplinary actions, regulatory, judicial, and arbitration proceedings, and other information required by law, or [exchange](/usc/15/78c.md?p=a-1) or [association](/usc/15/657h.md?p=a-2) rule, and the source and status of such information. - (j) **Registration for sales of private securities offerings—** A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall create a limited qualification category for any [associated person of a member](/usc/15/78c.md?p=a-21) who effects sales as part of a primary offering of [securities](/usc/15/78c.md?p=a-10) not involving a public offering, pursuant to section 77c(b), 77d(2),[^1] or 77d(6)[^1] of this title and the rules and regulations thereunder, and shall deem qualified in such limited qualification category, without testing, any bank employee who, in the six month period preceding November 12, 1999, engaged in effecting such sales. - (k) **Limited purpose national securities association—** - (1) **Regulation of members with respect to security futures products—** A futures [association](/usc/15/657h.md?p=a-2) registered under [section 21 of title 7](/usc/7/21.md) shall be a registered national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) for the limited purpose of regulating the activities of [members](/usc/15/78c.md?p=a-3-A) who are registered as [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A) in [security futures products](/usc/15/78c.md?p=a-56) pursuant to [section 78o(b)(11)](/usc/15/78o.md?p=b-11) of this title. - (2) **Requirements for registration—** Such a [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall— - (A) be so organized and have the capacity to carry out the purposes of the [securities laws](/usc/15/78c.md?p=a-47) applicable to [security futures products](/usc/15/78c.md?p=a-56) and to comply, and (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78s(g)(2) of this title](/usc/15/78s.md?p=g-2)) to enforce compliance by its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A), with the provisions of the [securities laws](/usc/15/78c.md?p=a-47) applicable to [security futures products](/usc/15/78c.md?p=a-56), the rules and regulations thereunder, and its rules; - (B) have rules that— - (i) are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, including rules governing sales practices and the advertising of [security futures products](/usc/15/78c.md?p=a-56) reasonably comparable to those of other national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) registered pursuant to [subsection (a)](#a) that are applicable to [security futures products](/usc/15/78c.md?p=a-56); and - (ii) are not designed to regulate by virtue of any [authority](/usc/15/3051.md?p=1) conferred by this chapter matters not related to the purposes of this chapter or the [administration](/usc/15/2203.md?p=2) of the [association](/usc/15/657h.md?p=a-2); - (C) have rules that provide that (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78s(g)(2) of this title](/usc/15/78s.md?p=g-2)) its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A) shall be appropriately disciplined for [violation](/usc/15/57b–1.md?p=a-7) of any provision of the [securities laws](/usc/15/78c.md?p=a-47) applicable to [security futures products](/usc/15/78c.md?p=a-56), the rules or regulations thereunder, or the rules of the [association](/usc/15/657h.md?p=a-2), by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, being suspended or barred from being associated with a [member](/usc/15/78c.md?p=a-3-A), or any other fitting sanction; and - (D) have rules that ensure that [members](/usc/15/78c.md?p=a-3-A) and [natural persons](/usc/15/15g.md?p=3) associated with [members](/usc/15/78c.md?p=a-3-A) meet such standards of training, experience, and competence necessary to effect transactions in [security futures products](/usc/15/78c.md?p=a-56) and are tested for their knowledge of [securities](/usc/15/78c.md?p=a-10) and [security futures products](/usc/15/78c.md?p=a-56). - (3) **Exemption from rule change submission—** Such a [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall be exempt from submitting proposed rule changes pursuant to [section 78s(b) of this title](/usc/15/78s.md?p=b), except that— - (A) the [association](/usc/15/657h.md?p=a-2) shall file proposed rule changes related to [higher margin levels](/usc/15/78c.md?p=a-57-C), fraud or manipulation, recordkeeping, reporting, listing standards, or decimal pricing for [security futures products](/usc/15/78c.md?p=a-56), sales practices for, advertising of, or standards of training, experience, competence, or other qualifications for [security futures products](/usc/15/78c.md?p=a-56) for [persons](/usc/15/78c.md?p=a-9) who effect transactions in [security futures products](/usc/15/78c.md?p=a-56), or rules effectuating the [association](/usc/15/657h.md?p=a-2)’s obligation to enforce the [securities laws](/usc/15/78c.md?p=a-47) pursuant to [section 78s(b)(7) of this title](/usc/15/78s.md?p=b-7); - (B) the [association](/usc/15/657h.md?p=a-2) shall file pursuant to sections [78s(b)(1)](/usc/15/78s.md?p=b-1) and [78s(b)(2)](/usc/15/78s.md?p=b-2) of this title proposed rule changes related to [margin](/usc/15/78c.md?p=a-57-A), except for changes resulting in [higher margin levels](/usc/15/78c.md?p=a-57-C); and - (C) the [association](/usc/15/657h.md?p=a-2) shall file pursuant to [section 78s(b)(1) of this title](/usc/15/78s.md?p=b-1) proposed rule changes that have been abrogated by the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78s(b)(7)(C) of this title](/usc/15/78s.md?p=b-7-C). - (4) **Other exemptions—** Such a [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall be exempt from and shall not be required to enforce compliance by its [members](/usc/15/78c.md?p=a-3-A), and its [members](/usc/15/78c.md?p=a-3-A) shall not, solely with respect to their transactions effected in [security futures products](/usc/15/78c.md?p=a-56), be required to comply, with the following provisions of this chapter and the rules thereunder: - (A) [Section 78h of this title](/usc/15/78h.md). - (B) Subsections [(b)(1)](#b-1), [(b)(3)](#b-3), [(b)(4)](#b-4), [(b)(5)](#b-5), [(b)(8)](#b-8), [(b)(10)](#b-10), [(b)(11)](#b-11), [(b)(12)](#b-12), [(b)(13)](#b-13), (c), (d), [(e)](#e), [(f)](#f), [(g)](#g), [(h)](#h), and [(i)](#i) of this section. - (C) Subsections [(d)](#d), [(f)](#f), and [(k)](#k)[^1] of [section 78q of this title](/usc/15/78q.md). - (D) Subsections (a), (f), and (h) of [section 78s of this title](/usc/15/78s.md). - (l) **Rules to avoid duplicative regulation of dual registrants—** Consistent with this chapter, each national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [subsection (a)](#a) of this section shall issue such rules as are necessary to avoid duplicative or conflicting rules applicable to any [broker or dealer](/usc/15/78c.md?p=h-2) registered with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78o(b)](/usc/15/78o.md?p=b) of this title (except paragraph (11) thereof), that is also registered with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 6f(a) of title 7](/usc/7/6f.md?p=a) (except [paragraph (2)](#l-2) thereof), with respect to the [application](/usc/15/77ccc.md?p=8) of— - (1) rules of such national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) of the type specified in [section 78o(c)(3)(B)](/usc/15/78o.md?p=c-3-B) of this title involving [security futures products](/usc/15/78c.md?p=a-56); and - (2) similar rules of national [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) registered pursuant to [subsection (k)](#k) of this section and [national securities exchanges](/usc/15/9009a.md?p=a-5) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g) involving [security futures products](/usc/15/78c.md?p=a-56). - (m) **Procedures and rules for security future products—** A national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [subsection (a)](#a) shall, not later than 8 months after December 21, 2000, implement the procedures specified in [section 78f(h)(5)(A) of this title](/usc/15/78f.md?p=h-5-A) and adopt the rules specified in subparagraphs (B) and (C) of [section 78f(h)(5) of this title](/usc/15/78f.md?p=h-5). - (n) **Data standards—** - (1) **Requirement—** A national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [subsection (a)](#a) shall adopt data standards for all information that is regularly filed with or submitted to the [association](/usc/15/657h.md?p=a-2). - (2) **Consistency—** The data standards required under [paragraph (1)](#n-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §78o–4. Municipal securities - (a) **Registration of municipal securities dealers—** - (1) - (A) It shall be unlawful for any [municipal securities dealer](/usc/15/78c.md?p=a-30) (other than one registered as a [broker or dealer](/usc/15/78c.md?p=h-2) under [section 78o](/usc/15/78o.md) of this title) to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any municipal [security](/usc/15/78c.md?p=a-10) unless such [municipal securities dealer](/usc/15/78c.md?p=a-30) is registered in accordance with this subsection. - (B) It shall be unlawful for a [municipal advisor](#e-4) to provide advice to or on behalf of a [municipal entity](#e-8) or [obligated person](#e-10) with respect to [municipal financial products](#e-5) or the issuance of [municipal securities](/usc/15/78c.md?p=a-29), or to undertake a [solicitation of a municipal entity or obligated person](#e-9), unless the [municipal advisor](#e-4) is registered in accordance with this subsection. - (2) A [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) may be registered by filing with the [Commission](/usc/15/78c.md?p=a-15) an [application](/usc/15/77ccc.md?p=8) for registration in such form and containing such information and documents concerning such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) and any [persons](/usc/15/78c.md?p=a-9) associated with such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Within forty-five days of the date of the filing of such [application](/usc/15/77ccc.md?p=8) (or within such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents), the [Commission](/usc/15/78c.md?p=a-15) shall— - (A) by [order](/usc/15/8702.md?p=14) grant registration, or - (B) [institute](/usc/15/9401.md?p=7) proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred twenty days of the date of the filing of the [application](/usc/15/77ccc.md?p=8) for registration. At the conclusion of such proceedings the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall grant or deny such registration. The [Commission](/usc/15/78c.md?p=a-15) may extend the time for the conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents. The [Commission](/usc/15/78c.md?p=a-15) shall grant the registration of a [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) if the [Commission](/usc/15/78c.md?p=a-15) finds that the requirements of this section are satisfied. The [Commission](/usc/15/78c.md?p=a-15) shall deny such registration if it does not make such a finding or if it finds that if the [applicant](/usc/15/7a.md?p=3) were so registered, its registration would be subject to suspension or revocation under [subsection (c)](#c) of this section. - (3) Any provision of this chapter (other than [section 78e of this title](/usc/15/78e.md) or paragraph (1) of this subsection) which prohibits any act, practice, or course of business if the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) is used in connection therewith shall also prohibit any such act, practice, or course of business by any registered [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) or any [person](/usc/15/78c.md?p=a-9) acting on behalf of such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4), irrespective of any use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) in connection therewith. - (4) The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4), or class of [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), [municipal securities dealers](/usc/15/78c.md?p=a-30), or [municipal advisors](#e-4) from any provision of this section or the rules or regulations thereunder, if the [Commission](/usc/15/78c.md?p=a-15) finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of this section. - (5) No [municipal advisor](#e-4) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to provide advice to or on behalf of a [municipal entity](#e-8) or [obligated person](#e-10) with respect to [municipal financial products](#e-5), the issuance of [municipal securities](/usc/15/78c.md?p=a-29), or to undertake a [solicitation of a municipal entity or obligated person](#e-9), in connection with which such [municipal advisor](#e-4) engages in any fraudulent, deceptive, or manipulative act or practice. - (b) **Municipal Securities Rulemaking Board; rules and regulations—** - (1) The [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](#e-1) shall be composed of 15 [members](/usc/15/78c.md?p=a-3-A), or such other number of [members](/usc/15/78c.md?p=a-3-A) as specified by [rules of the Board](#e-6) pursuant to [paragraph (2)(B)](#b-2-B),,[^1] which shall perform the duties set forth in this section. The [members](/usc/15/78c.md?p=a-3-A) of the [Board](#e-1) shall serve as [members](/usc/15/78c.md?p=a-3-A) for a term of 3 years or for such other terms as specified by [rules of the Board](#e-6) pursuant to [paragraph (2)(B)](#b-2-B), and shall consist of (A) 8 individuals who are independent of any [municipal securities broker](/usc/15/78c.md?p=a-31), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4), at least 1 of whom shall be representative of institutional or retail investors in [municipal securities](/usc/15/78c.md?p=a-29), at least 1 of whom shall be representative of [municipal entities](#e-8), and at least 1 of whom shall be a [member](/usc/15/78c.md?p=a-3-A) of the public with knowledge of or experience in the municipal industry (which [members](/usc/15/78c.md?p=a-3-A) are hereinafter referred to as “public representatives”); and (B) 7 individuals who are associated with a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4), including at least 1 individual who is associated with and representative of [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), or [municipal securities dealers](/usc/15/78c.md?p=a-30) that are not banks or subsidiaries or departments or divisions of banks (which [members](/usc/15/78c.md?p=a-3-A) are hereinafter referred to as “[broker](/usc/15/78c.md?p=a-4-A)-[dealer](/usc/15/78c.md?p=a-5-A) representatives”), at least 1 individual who is associated with and representative of [municipal securities dealers](/usc/15/78c.md?p=a-30) which are banks or subsidiaries or departments or divisions of banks (which [members](/usc/15/78c.md?p=a-3-A) are hereinafter referred to as “bank representatives”), and at least 1 individual who is associated with a [municipal advisor](#e-4) (which [members](/usc/15/78c.md?p=a-3-A) are hereinafter referred to as “advisor representatives” and, together with the [broker](/usc/15/78c.md?p=a-4-A)-[dealer](/usc/15/78c.md?p=a-5-A) representatives and the bank representatives, are referred to as “regulated representatives”). Each [member](/usc/15/78c.md?p=a-3-A) of the [board](#e-1) shall be knowledgeable of matters related to the [municipal securities](/usc/15/78c.md?p=a-29) markets. Prior to the expiration of the terms of office of the [members](/usc/15/78c.md?p=a-3-A) of the [Board](#e-1), an election shall be held under rules adopted by the [Board](#e-1) (pursuant to [subsection (b)(2)(B)](#b-2-B) of this section) of the [members](/usc/15/78c.md?p=a-3-A) to succeed such [members](/usc/15/78c.md?p=a-3-A). - (2) The [Board](#e-1) shall propose and adopt rules to effect the purposes of this chapter with respect to transactions in [municipal securities](/usc/15/78c.md?p=a-29) effected by [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), and [municipal securities dealers](/usc/15/78c.md?p=a-30) and advice provided to or on behalf of [municipal entities](#e-8) or [obligated persons](#e-10) by [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), [municipal securities dealers](/usc/15/78c.md?p=a-30), and [municipal advisors](#e-4) with respect to [municipal financial products](#e-5), the issuance of [municipal securities](/usc/15/78c.md?p=a-29), and solicitations of [municipal entities](#e-8) or [obligated persons](#e-10) undertaken by [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), [municipal securities dealers](/usc/15/78c.md?p=a-30), and [municipal advisors](#e-4). The [rules of the Board](#e-6), as a minimum, shall: - (A) provide that no [municipal securities broker](/usc/15/78c.md?p=a-31) or [municipal securities dealer](/usc/15/78c.md?p=a-30) shall effect any transaction in, or induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any municipal [security](/usc/15/78c.md?p=a-10), and no [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4) shall provide advice to or on behalf of a [municipal entity](#e-8) or [obligated person](#e-10) with respect to [municipal financial products](#e-5) or the issuance of [municipal securities](/usc/15/78c.md?p=a-29), unless such [municipal securities broker](/usc/15/78c.md?p=a-31) or [municipal securities dealer](/usc/15/78c.md?p=a-30) meets such standards of operational capability and such [municipal securities broker](/usc/15/78c.md?p=a-31) or [municipal securities dealer](/usc/15/78c.md?p=a-30) and every natural [person associated with](/usc/15/78c.md?p=a-63) such [municipal securities broker](/usc/15/78c.md?p=a-31) or [municipal securities dealer](/usc/15/78c.md?p=a-30) meet such standards of training, experience, competence, and such other qualifications as the [Board](#e-1) finds necessary or appropriate in the public interest or for the protection of investors and [municipal entities](#e-8) or [obligated persons](#e-10). In connection with the definition and [application](/usc/15/77ccc.md?p=8) of such standards the [Board](#e-1) may— - (i) appropriately classify [municipal securities brokers](/usc/15/78c.md?p=a-31), [municipal securities dealers](/usc/15/78c.md?p=a-30), and [municipal advisors](#e-4) (taking into [account](/usc/15/1681a.md?p=r-4) relevant matters, including types of business done, nature of [securities](/usc/15/78c.md?p=a-10) other than [municipal securities](/usc/15/78c.md?p=a-29) sold, and character of business organization), and [persons](/usc/15/78c.md?p=a-9) associated with [municipal securities brokers](/usc/15/78c.md?p=a-31), [municipal securities dealers](/usc/15/78c.md?p=a-30), and [municipal advisors](#e-4); - (ii) specify that all or any portion of such standards shall be applicable to any such class; and - (iii) require [persons](/usc/15/78c.md?p=a-9) in any such class to pass tests administered in accordance with [subsection (c)(7)](#c-7) of this section. - (B) establish fair procedures for the nomination and election of [members](/usc/15/78c.md?p=a-3-A) of the [Board](#e-1) and assure fair representation in such nominations and elections of public representatives, [broker](/usc/15/78c.md?p=a-4-A) [dealer](/usc/15/78c.md?p=a-5-A) representatives, bank representatives, and advisor representatives. Such rules— - (i) shall provide that the number of public representatives of the [Board](#e-1) 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 representatives; - (ii) shall specify the length or lengths of terms [members](/usc/15/78c.md?p=a-3-A) shall serve; - (iii) may increase the number of [members](/usc/15/78c.md?p=a-3-A) which shall constitute the whole [Board](#e-1), provided that such number is an odd number; and - (iv) shall establish requirements regarding the independence of public representatives. - (C) be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with [persons](/usc/15/78c.md?p=a-9) engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in [municipal securities](/usc/15/78c.md?p=a-29) and [municipal financial products](#e-5), to remove impediments to and perfect the mechanism of a free and open market in [municipal securities](/usc/15/78c.md?p=a-29) and [municipal financial products](#e-5), and, in general, to protect investors, [municipal entities](#e-8), [obligated persons](#e-10), and the public interest; and not be designed to permit unfair discrimination among [customers](/usc/15/78c–5.md?p=g), [municipal entities](#e-8), [obligated persons](#e-10), [municipal securities brokers](/usc/15/78c.md?p=a-31), [municipal securities dealers](/usc/15/78c.md?p=a-30), or [municipal advisors](#e-4), to fix minimum profits, to impose any schedule or fix rates of [commissions](/usc/15/78c.md?p=a-15), allowances, [discounts](/usc/15/1602.md?p=q), or other fees to be charged by [municipal securities brokers](/usc/15/78c.md?p=a-31), [municipal securities dealers](/usc/15/78c.md?p=a-30), or [municipal advisors](#e-4), to regulate by virtue of any [authority](/usc/15/3051.md?p=1) conferred by this chapter matters not related to the purposes of this chapter or the [administration](/usc/15/2203.md?p=2) of the [Board](#e-1), or to impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. - (D) if the [Board](#e-1) deems appropriate, provide for the arbitration of claims, disputes, and controversies relating to transactions in [municipal securities](/usc/15/78c.md?p=a-29) and advice concerning [municipal financial products](#e-5): Provided, however, that no [person](/usc/15/78c.md?p=a-9) other than a [municipal securities broker](/usc/15/78c.md?p=a-31), [municipal securities dealer](/usc/15/78c.md?p=a-30), [municipal advisor](#e-4), or [person associated with](/usc/15/78c.md?p=a-63) such a [municipal securities broker](/usc/15/78c.md?p=a-31), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4) may be compelled to submit to such arbitration except at his instance and in accordance with [section 78cc of this title](/usc/15/78cc.md). - (E) provide for the periodic examination in accordance with [subsection (c)(7)](#c-7) of this section of [municipal securities brokers](/usc/15/78c.md?p=a-31), [municipal securities dealers](/usc/15/78c.md?p=a-30), and [municipal advisors](#e-4) to determine compliance with applicable provisions of this chapter, the rules and regulations thereunder, and the [rules of the Board](#e-6). Such rules shall specify the minimum scope and frequency of such examinations and shall be designed to avoid unnecessary regulatory duplication or undue regulatory burdens for any such [municipal securities broker](/usc/15/78c.md?p=a-31), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4). - (F) include provisions governing the form and content of quotations relating to [municipal securities](/usc/15/78c.md?p=a-29) which may be distributed or published by any [municipal securities broker](/usc/15/78c.md?p=a-31), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [person associated with](/usc/15/78c.md?p=a-63) such a [municipal securities broker](/usc/15/78c.md?p=a-31) or [municipal securities dealer](/usc/15/78c.md?p=a-30), and the [persons](/usc/15/78c.md?p=a-9) to whom such quotations may be supplied. Such rules relating to quotations shall be designed to produce fair and informative quotations, to prevent fictitious or misleading quotations, and to promote orderly procedures for collecting, distributing, and publishing quotations. - (G) prescribe [records](/usc/15/78c.md?p=a-37) to be made and kept by [municipal securities brokers](/usc/15/78c.md?p=a-31), [municipal securities dealers](/usc/15/78c.md?p=a-30), and [municipal advisors](#e-4) and the periods for which such [records](/usc/15/78c.md?p=a-37) shall be preserved. - (H) define the term “separately identifiable department or division”, as that term is used in [section 78c(a)(30) of this title](/usc/15/78c.md?p=a-30), in accordance with specified and appropriate standards to assure that a bank is not deemed to be engaged in the business of buying and selling [municipal securities](/usc/15/78c.md?p=a-29) through a separately identifiable department or division unless such department or division is organized and administered so as to permit independent examination and enforcement of applicable provisions of this chapter, the rules and regulations thereunder, and the [rules of the Board](#e-6). A separately identifiable department or division of a bank may be engaged in activities other than those relating to [municipal securities](/usc/15/78c.md?p=a-29). - (I) provide for the operation and [administration](/usc/15/2203.md?p=2) of the [Board](#e-1), including the selection of a Chairman from among the [members](/usc/15/78c.md?p=a-3-A) of the [Board](#e-1), the compensation of the [members](/usc/15/78c.md?p=a-3-A) of the [Board](#e-1), and the appointment and compensation of such employees, attorneys, and consultants as may be necessary or appropriate to carry out the [Board](#e-1)’s functions under this section. - (J) provide that each [municipal securities broker](/usc/15/78c.md?p=a-31), [municipal securities dealer](/usc/15/78c.md?p=a-30), and [municipal advisor](#e-4) shall pay to the [Board](#e-1) such reasonable fees and charges as may be necessary or appropriate to defray the costs and expenses of operating and administering the [Board](#e-1). Such rules shall specify the amount of such fees and charges, which may include charges for failure to submit to the [Board](#e-1), or to any information system operated by the [Board](#e-1), within the prescribed timeframes, any items of information or documents required to be submitted under any rule issued by the [Board](#e-1). - (K) establish the terms and conditions under which any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) may [sell](/usc/15/78c.md?p=a-14), or prohibit any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) from selling, any part of a new issue of [municipal securities](/usc/15/78c.md?p=a-29) to a related [account](/usc/15/1681a.md?p=r-4) of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) during the underwriting period. - (L) with respect to [municipal advisors](#e-4)— - (i) prescribe means reasonably designed to prevent acts, practices, and courses of business as are not consistent with a [municipal advisor](#e-4)’s fiduciary duty to its clients; - (ii) provide continuing education requirements for [municipal advisors](#e-4); - (iii) provide professional standards; and - (iv) not impose a regulatory burden on small [municipal advisors](#e-4) that is not necessary or appropriate in the public interest and for the protection of investors, [municipal entities](#e-8), and [obligated persons](#e-10), provided that there is robust protection of investors against fraud. - (3) The [Board](#e-1), in conjunction with or on behalf of any Federal financial regulator or [self-regulatory organization](/usc/15/78c.md?p=a-26), 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](/usc/15/78c.md?p=a-9) which systems may be developed for the purposes of serving as a repository of information from municipal market [participants](/usc/15/78c.md?p=a-24) or otherwise in furtherance of the purposes of the [Board](#e-1), a Federal financial regulator, or a [self-regulatory organization](/usc/15/78c.md?p=a-26), except that the [Board](#e-1)— - (i) may not charge a fee to [municipal entities](#e-8) or [obligated persons](#e-10) to submit documents or other information to the [Board](#e-1) or charge a fee to any [person](/usc/15/78c.md?p=a-9) to obtain, directly from the Internet site of the [Board](#e-1), documents or information submitted by [municipal entities](#e-8), [obligated persons](#e-10), [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), [municipal securities dealers](/usc/15/78c.md?p=a-30), or [municipal advisors](#e-4), including documents submitted under the [rules of the Board](#e-6) or the [Commission](/usc/15/78c.md?p=a-15); and - (ii) shall not be prohibited from charging commercially 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](/usc/15/78c.md?p=a-9), made available to commercial enterprises, [municipal securities](/usc/15/78c.md?p=a-29) 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](/usc/15/78c.md?p=a-15) under [section 78s(b) of this title](/usc/15/78s.md?p=b). - (4) The [Board](#e-1) may provide guidance and assistance in the enforcement of, and examination for, compliance with the [rules of the Board](#e-6) to the [Commission](/usc/15/78c.md?p=a-15), a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) under [section 78o–3](/usc/15/78o–3.md) of this title, or any other [appropriate regulatory agency](/usc/15/78c.md?p=a-34), as applicable. - (5) The [Board](#e-1), the [Commission](/usc/15/78c.md?p=a-15), and a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) under [section 78o–3](/usc/15/78o–3.md) of this title, or the designees of the [Board](#e-1), the [Commission](/usc/15/78c.md?p=a-15), or such [association](/usc/15/657h.md?p=a-2), shall meet not less frequently than 2 times a year— - (A) to describe the work of the [Board](#e-1), the [Commission](/usc/15/78c.md?p=a-15), and the registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) involving the regulation of [municipal securities](/usc/15/78c.md?p=a-29); and - (B) to share information about— - (i) the interpretation of the [Board](#e-1), the [Commission](/usc/15/78c.md?p=a-15), and the registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) of [Board](#e-1) rules; and - (ii) examination and enforcement of compliance with [Board](#e-1) rules. - (7) [^2] Nothing in this section shall be construed to impair or limit the power of the [Commission](/usc/15/78c.md?p=a-15) under this chapter. - (8) - (A) The [Commission](/usc/15/78c.md?p=a-15) shall adopt data standards for information submitted to the [Board](#e-1). - (B) Any data standards adopted under [subparagraph (A)](#b-8-A) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). - (C) The [Commission](/usc/15/78c.md?p=a-15) shall consult market [participants](/usc/15/78c.md?p=a-24) in establishing data standards under [subparagraph (A)](#b-8-A). - (D) Nothing in this paragraph may be construed to affect the operation of paragraph [(1)](#d-1) or [(2)](#d-2) of subsection (d). - (c) **Discipline of municipal securities dealers; censure; suspension or revocation of registration; other sanctions; investigations—** - (1) No [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any municipal [security](/usc/15/78c.md?p=a-10), and no [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to provide advice to or on behalf of a [municipal entity](#e-8) or [obligated person](#e-10) with respect to [municipal financial products](#e-5), the issuance of [municipal securities](/usc/15/78c.md?p=a-29), or to undertake a [solicitation of a municipal entity or obligated person](#e-9), in contravention of any rule of the [Board](#e-1). A [municipal advisor](#e-4) and any [person associated with](/usc/15/78c.md?p=a-63) such [municipal advisor](#e-4) shall be deemed to have a fiduciary duty to any [municipal entity](#e-8) for whom such [municipal advisor](#e-4) acts as a [municipal advisor](#e-4), and no [municipal advisor](#e-4) may engage in any act, practice, or course of business which is not consistent with a [municipal advisor](#e-4)’s fiduciary duty or that is in contravention of any rule of the [Board](#e-1). - (2) The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities, functions, or operations, suspend for a period not exceeding twelve months, or revoke the registration of any [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4), if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, denial, suspension, or revocation, is in the public interest and that such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph (A), (D), (E), (H), or (G) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title, has been convicted of any offense specified in subparagraph (B) of such [paragraph (4)](#c-4) within ten years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in subparagraph (C) of such [paragraph (4)](#c-4). - (3) Pending final determination whether any registration under this section shall be revoked, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), may suspend such registration, if such suspension appears to the [Commission](/usc/15/78c.md?p=a-15), after notice and opportunity for hearing, to be necessary or appropriate in the public interest or for the protection of investors or [municipal entities](#e-8) or [obligated person](#e-10).[^3] Any registered [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) may, upon such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) may deem necessary in the public interest or for the protection of investors or [municipal entities](#e-8) or [obligated person](#e-10),[^3] withdraw from registration by filing a written notice of withdrawal with the [Commission](/usc/15/78c.md?p=a-15). If the [Commission](/usc/15/78c.md?p=a-15) finds that any registered [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4) is no longer in existence or has ceased to do business as a [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4), the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall cancel the registration of such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal advisor](#e-4). - (4) The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure or place limitations on the activities or functions of any [person](/usc/15/78c.md?p=a-9) associated, seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with a [municipal securities dealer](/usc/15/78c.md?p=a-30), or suspend for a period not exceeding 12 months or bar any such [person](/usc/15/78c.md?p=a-9) from being associated with a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [investment adviser](/usc/15/78c.md?p=a-20), [municipal securities dealer](/usc/15/78c.md?p=a-30), [municipal advisor](#e-4), [transfer agent](/usc/15/78c.md?p=a-25), or [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such [person](/usc/15/78c.md?p=a-9) has committed any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph (A), (D), (E), (H), or (G) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title, has been convicted of any offense specified in subparagraph (B) of such [paragraph (4)](#c-4) within 10 years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in subparagraph (C) of such [paragraph (4)](#c-4). It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) as to whom an [order](/usc/15/8702.md?p=14) entered pursuant to this paragraph or paragraph (5) of this subsection suspending or barring him from being associated with a [municipal securities dealer](/usc/15/78c.md?p=a-30) is in effect willfully to become, or to be, associated with a [municipal securities dealer](/usc/15/78c.md?p=a-30) without the consent of the [Commission](/usc/15/78c.md?p=a-15), and it shall be unlawful for any [municipal securities dealer](/usc/15/78c.md?p=a-30) to permit such a [person](/usc/15/78c.md?p=a-9) to become, or remain, a [person associated with](/usc/15/78c.md?p=a-63) him without the consent of the [Commission](/usc/15/78c.md?p=a-15), if such [municipal securities dealer](/usc/15/78c.md?p=a-30) knew, or, in the exercise of reasonable care should have known, of such [order](/usc/15/8702.md?p=14). - (5) With respect to any [municipal securities dealer](/usc/15/78c.md?p=a-30) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [municipal securities dealer](/usc/15/78c.md?p=a-30) may sanction any such [municipal securities dealer](/usc/15/78c.md?p=a-30) in the manner and for the reasons specified in paragraph (2) of this subsection and any [person associated with](/usc/15/78c.md?p=a-63) such [municipal securities dealer](/usc/15/78c.md?p=a-30) in the manner and for the reasons specified in paragraph (4) of this subsection. In addition, such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may, in accordance with [section 1818 of title 12](/usc/12/1818.md), enforce compliance by such [municipal securities dealer](/usc/15/78c.md?p=a-30) or any [person associated with](/usc/15/78c.md?p=a-63) such [municipal securities dealer](/usc/15/78c.md?p=a-30) with the provisions of this section, [section 78q of this title](/usc/15/78q.md), the [rules of the Board](#e-6), and the rules of the [Commission](/usc/15/78c.md?p=a-15) pertaining to [municipal securities dealers](/usc/15/78c.md?p=a-30), [persons](/usc/15/78c.md?p=a-9) associated with [municipal securities dealers](/usc/15/78c.md?p=a-30), and transactions in [municipal securities](/usc/15/78c.md?p=a-29). For purposes of the preceding sentence, any [violation](/usc/15/57b–1.md?p=a-7) of any such provision shall constitute adequate basis for the issuance of any [order](/usc/15/8702.md?p=14) under section [1818(b)](/usc/12/1818.md?p=b) or [1818(c)](/usc/12/1818.md?p=c) of title 12, and the [customers](/usc/15/78c–5.md?p=g) of any such [municipal securities dealer](/usc/15/78c.md?p=a-30) shall be deemed to be “depositors” as that term is used in [section 1818(c) of title 12](/usc/12/1818.md?p=c). Nothing in this paragraph shall be construed to affect in any way the powers of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to proceed against such [municipal securities dealer](/usc/15/78c.md?p=a-30) under any other provision of law. - (6) - (A) The [Commission](/usc/15/78c.md?p=a-15), prior to the entry of an [order](/usc/15/8702.md?p=14) of investigation, or commencement of any proceedings, against any [municipal securities dealer](/usc/15/78c.md?p=a-30), or [person associated with](/usc/15/78c.md?p=a-63) any [municipal securities dealer](/usc/15/78c.md?p=a-30), for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), for [violation](/usc/15/57b–1.md?p=a-7) of any provision of this section, section [78o(c)(1)](/usc/15/78o.md?p=c-1) or [78o(c)(2)](/usc/15/78o.md?p=c-2) of this title, any rule or regulation under any such section, or any rule of the [Board](#e-1), shall (i) give notice to the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [municipal securities dealer](/usc/15/78c.md?p=a-30) of the identity of such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [person associated with](/usc/15/78c.md?p=a-63) such [municipal securities dealer](/usc/15/78c.md?p=a-30), the nature of and basis for such proposed action, and whether the [Commission](/usc/15/78c.md?p=a-15) is seeking a monetary penalty against such [municipal securities dealer](/usc/15/78c.md?p=a-30) or such associated [person](/usc/15/78c.md?p=a-9) pursuant to [section 78u–2 of this title](/usc/15/78u–2.md); and (ii) consult with such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) concerning the effect of such proposed action on sound banking practices and the feasibility and desirability of coordinating such action with any proceeding or proposed proceeding by such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) against such [municipal securities dealer](/usc/15/78c.md?p=a-30) or associated [person](/usc/15/78c.md?p=a-9). - (B) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [municipal securities dealer](/usc/15/78c.md?p=a-30) (if other than the [Commission](/usc/15/78c.md?p=a-15)), prior to the entry of an [order](/usc/15/8702.md?p=14) of investigation, or commencement of any proceedings, against such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [person associated with](/usc/15/78c.md?p=a-63) such [municipal securities dealer](/usc/15/78c.md?p=a-30), for [violation](/usc/15/57b–1.md?p=a-7) of any provision of this section, the [rules of the Board](#e-6), or the rules or regulations of the [Commission](/usc/15/78c.md?p=a-15) pertaining to [municipal securities dealers](/usc/15/78c.md?p=a-30), [persons](/usc/15/78c.md?p=a-9) associated with [municipal securities dealers](/usc/15/78c.md?p=a-30), or transactions in [municipal securities](/usc/15/78c.md?p=a-29) shall (i) give notice to the [Commission](/usc/15/78c.md?p=a-15) of the identity of such [municipal securities dealer](/usc/15/78c.md?p=a-30) or [person associated with](/usc/15/78c.md?p=a-63) such [municipal securities dealer](/usc/15/78c.md?p=a-30) and the nature of and basis for such proposed action and (ii) consult with the [Commission](/usc/15/78c.md?p=a-15) concerning the effect of such proposed action on the protection of investors or [municipal entities](#e-8) or [obligated person](#e-10)[^3] and the feasibility and desirability of coordinating such action with any proceeding or proposed proceeding by the [Commission](/usc/15/78c.md?p=a-15) against such [municipal securities dealer](/usc/15/78c.md?p=a-30) or associated [person](/usc/15/78c.md?p=a-9). - (C) Nothing in this paragraph shall be construed to impair or limit (other than by the requirement of prior consultation) the power of the [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [municipal securities dealer](/usc/15/78c.md?p=a-30) to initiate any action of a class described in this paragraph or to affect in any way the power of the [Commission](/usc/15/78c.md?p=a-15) or such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to initiate any other action pursuant to this chapter or any other provision of law. - (7) - (A) Tests required pursuant to [subsection (b)(2)(A)(iii)](#b-2-A-iii) of this section shall be administered by or on behalf of and periodic examinations pursuant to [subsection (b)(2)(E)](#b-2-E) of this section shall be conducted by— - (i) a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), in the case of [municipal securities brokers](/usc/15/78c.md?p=a-31) and [municipal securities dealers](/usc/15/78c.md?p=a-30) who are [members](/usc/15/78c.md?p=a-3-A) of such [association](/usc/15/657h.md?p=a-2); - (ii) the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for any [municipal securities broker](/usc/15/78c.md?p=a-31) or [municipal securities dealer](/usc/15/78c.md?p=a-30), in the case of all other [municipal securities brokers](/usc/15/78c.md?p=a-31) and [municipal securities dealers](/usc/15/78c.md?p=a-30); and - (iii) the [Commission](/usc/15/78c.md?p=a-15), or its designee, in the case of [municipal advisors](#e-4). - (B) A registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall make a report of any examination conducted pursuant to [subsection (b)(2)(E)](#b-2-E) of this section and promptly furnish the [Commission](/usc/15/78c.md?p=a-15) a copy thereof and any data supplied to it in connection with such examination. Subject to such limitations as the [Commission](/usc/15/78c.md?p=a-15), by rule, determines to be necessary or appropriate in the public interest or for the protection of investors or [municipal entities](#e-8) or [obligated person](#e-10),[^3] the [Commission](/usc/15/78c.md?p=a-15) shall, on request, make available to the [Board](#e-1) a copy of any report of an examination of a [municipal securities broker](/usc/15/78c.md?p=a-31) or [municipal securities dealer](/usc/15/78c.md?p=a-30) made by or furnished to the [Commission](/usc/15/78c.md?p=a-15) pursuant to this paragraph or [section 78q(c)(3) of this title](/usc/15/78q.md?p=c-3). - (8) The [Commission](/usc/15/78c.md?p=a-15) is authorized, by [order](/usc/15/8702.md?p=14), if in its opinion such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise, in furtherance of the purposes of this chapter, to remove from office or censure any [person](/usc/15/78c.md?p=a-9) who is, or at the time of the alleged [violation](/usc/15/57b–1.md?p=a-7) or abuse was, a [member](/usc/15/78c.md?p=a-3-A) or employee of the [Board](#e-1), who, the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, has willfully (A) violated any provision of this chapter, the rules and regulations thereunder, or the [rules of the Board](#e-6) or (B) abused his [authority](/usc/15/3051.md?p=1). - (9) - (A) Fines collected by the [Commission](/usc/15/78c.md?p=a-15) for [violations](/usc/15/57b–1.md?p=a-7) of the [rules of the Board](#e-6) shall be equally divided between the [Commission](/usc/15/78c.md?p=a-15) and the [Board](#e-1). - (B) Fines collected by a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) under [section 78o–3(b)(7)](/usc/15/78o–3.md?p=b-7)[^4] of this title with respect to [violations](/usc/15/57b–1.md?p=a-7) of the [rules of the Board](#e-6) shall be accounted for by such registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) separately from other fines collected under [section 78o–3(b)(7)](/usc/15/78o–3.md?p=b-7)[^4] of this title and shall be allocated between such registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) and the [Board](#e-1), and such allocation shall require the registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to pay to the [Board](#e-1) ⅓ of all fines collected by the registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) reasonably allocable to [violations](/usc/15/57b–1.md?p=a-7) of the [rules of the Board](#e-6), or such other portion of such fines as may be directed by the [Commission](/usc/15/78c.md?p=a-15) upon [agreement](/usc/15/7a.md?p=2) between the registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) and the [Board](#e-1). - (d) **Issuance of municipal securities—** - (1) Neither the [Commission](/usc/15/78c.md?p=a-15) nor the [Board](#e-1) is authorized under this chapter, by rule or regulation, to require any [issuer](/usc/15/78c.md?p=a-8) of [municipal securities](/usc/15/78c.md?p=a-29), directly or indirectly through a purchaser or prospective purchaser of [securities](/usc/15/78c.md?p=a-10) from the [issuer](/usc/15/78c.md?p=a-8), to file with the [Commission](/usc/15/78c.md?p=a-15) or the [Board](#e-1) prior to the sale of such [securities](/usc/15/78c.md?p=a-10) by the [issuer](/usc/15/78c.md?p=a-8) any [application](/usc/15/77ccc.md?p=8), report, or document in connection with the issuance, sale, or distribution of such [securities](/usc/15/78c.md?p=a-10). - (2) The [Board](#e-1) is not authorized under this chapter to require any [issuer](/usc/15/78c.md?p=a-8) of [municipal securities](/usc/15/78c.md?p=a-29), directly or indirectly through a [municipal securities broker](/usc/15/78c.md?p=a-31), [municipal securities dealer](/usc/15/78c.md?p=a-30), [municipal advisor](#e-4), or otherwise, to furnish to the [Board](#e-1) or to a purchaser or a prospective purchaser of such [securities](/usc/15/78c.md?p=a-10) any [application](/usc/15/77ccc.md?p=8), report, document, or information with respect to such [issuer](/usc/15/78c.md?p=a-8): Provided, however, That the [Board](#e-1) may require [municipal securities brokers](/usc/15/78c.md?p=a-31) and [municipal securities dealers](/usc/15/78c.md?p=a-30) or [municipal advisors](#e-4) to furnish to the [Board](#e-1) or purchasers or prospective purchasers of [municipal securities](/usc/15/78c.md?p=a-29) [applications](/usc/15/77ccc.md?p=8), reports, documents, and information with respect to the [issuer](/usc/15/78c.md?p=a-8) thereof which is generally available from a source other than such [issuer](/usc/15/78c.md?p=a-8). Nothing in this paragraph shall be construed to impair or limit the power of the [Commission](/usc/15/78c.md?p=a-15) under any provision of this chapter. - (e) **Definitions—** For purposes of this section— - (1) the term “Board” means the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking Board established under [subsection (b)(1)](#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](/usc/15/7a.md?p=2) to supply investments on 2 or more future dates, such as a forward supply contract; - (3) the term “investment strategies” includes plans or [programs](/usc/15/2921.md?p=6) for the investment of the proceeds of [municipal securities](/usc/15/78c.md?p=a-29) that are not municipal derivatives, [guaranteed investment contracts](#e-2), and the recommendation of and brokerage of municipal escrow investments; - (4) the term “municipal advisor”— - (A) means a [person](/usc/15/78c.md?p=a-9) (who is not a [municipal entity](#e-8) or an employee of a [municipal entity](#e-8)) that— - (i) provides advice to or on behalf of a [municipal entity](#e-8) or [obligated person](#e-10) with respect to [municipal financial products](#e-5) or the issuance of [municipal securities](/usc/15/78c.md?p=a-29), 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](#e-8); - (B) includes financial advisors, [guaranteed investment contract](#e-2) [brokers](/usc/15/78c.md?p=a-4-A), third-party marketers, placement agents, solicitors, finders, and [swap](/usc/15/78c.md?p=a-69) advisors, if such [persons](/usc/15/78c.md?p=a-9) are described in any of [clauses (i) through (iii)](#e-4-B-i..e-4-B-iii)[^5] of [subparagraph (A)](#e-4-A); and - (C) does not include a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) serving as an [underwriter](/usc/15/78c.md?p=a-20) (as defined in [section 77b(a)(11) of this title](/usc/15/77b.md?p=a-11)), any [investment adviser](/usc/15/78c.md?p=a-20) registered under the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.], or [persons](/usc/15/78c.md?p=a-9) associated with such [investment advisers](/usc/15/78c.md?p=a-20) who are providing investment advice, any commodity trading advisor registered under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.] or [persons](/usc/15/78c.md?p=a-9) associated with a commodity trading advisor who are providing advice related to [swaps](/usc/15/78c.md?p=a-69), attorneys offering legal advice or providing 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](#e-2), and [investment strategies](#e-3); - (6) the term “rules of the Board” means the rules proposed and adopted by the [Board](#e-1) under [subsection (b)(2)](#b-2); - (7) the term “person associated with a municipal advisor” or “associated person of an advisor” means— - (A) any partner, officer, [director](/usc/15/78c.md?p=a-7), or branch manager of such [municipal advisor](#e-4) (or any [person](/usc/15/78c.md?p=a-9) occupying a similar status or performing similar functions); - (B) any other employee of such [municipal advisor](#e-4) 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](#e-8) or [obligated person](#e-10) with respect to [municipal financial products](#e-5) or the issuance of [municipal securities](/usc/15/78c.md?p=a-29); and - (C) any [person](/usc/15/78c.md?p=a-9) directly or indirectly controlling, controlled by, or under common control with such [municipal advisor](#e-4); - (8) the term “municipal entity” means any [State](/usc/15/78c.md?p=a-16), political subdivision of a [State](/usc/15/78c.md?p=a-16), or municipal corporate instrumentality of a [State](/usc/15/78c.md?p=a-16), including— - (A) any agency, [authority](/usc/15/3051.md?p=1), or instrumentality of the [State](/usc/15/78c.md?p=a-16), political subdivision, or municipal corporate instrumentality; - (B) any plan, [program](/usc/15/2921.md?p=6), or pool of assets sponsored or established by the [State](/usc/15/78c.md?p=a-16), political subdivision, or municipal corporate instrumentality or any agency, [authority](/usc/15/3051.md?p=1), or instrumentality thereof; and - (C) any other [issuer](/usc/15/78c.md?p=a-8) of [municipal securities](/usc/15/78c.md?p=a-29); - (9) the term “solicitation of a municipal entity or obligated person” means a direct or indirect communication with a [municipal entity](#e-8) or [obligated person](#e-10) made by a [person](/usc/15/78c.md?p=a-9), for direct or indirect compensation, on behalf of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), [municipal advisor](#e-4), or [investment adviser](/usc/15/78c.md?p=a-20) (as defined in section 202 of the Investment Advisers Act of 1940 [[15 U.S.C. 80b–2](/usc/15/80b–2.md)]) that does not control, is not controlled by, or is not under common control with the [person](/usc/15/78c.md?p=a-9) undertaking such solicitation for the purpose of obtaining or retaining an engagement by a [municipal entity](#e-8) or [obligated person](#e-10) of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [municipal advisor](#e-4) for or in connection with [municipal financial products](#e-5), the issuance of [municipal securities](/usc/15/78c.md?p=a-29), or of an [investment adviser](/usc/15/78c.md?p=a-20) to provide investment advisory services to or on behalf of a [municipal entity](#e-8); and - (10) the term “obligated person” means any [person](/usc/15/78c.md?p=a-9), including an [issuer](/usc/15/78c.md?p=a-8) of [municipal securities](/usc/15/78c.md?p=a-29), who is either generally or through an enterprise, fund, or [account](/usc/15/1681a.md?p=r-4) of such [person](/usc/15/78c.md?p=a-9), committed by contract or other arrangement to support the payment of all or part of the obligations on the [municipal securities](/usc/15/78c.md?p=a-29) to be sold in an offering of [municipal securities](/usc/15/78c.md?p=a-29). # §78o–4a. Commission Office of Municipal Securities - (a) **In general—** There shall be in the [Commission](/usc/15/78c.md?p=a-15) an Office of [Municipal Securities](/usc/15/78c.md?p=a-29), which shall— - (1) administer the rules of the [Commission](/usc/15/78c.md?p=a-15) with respect to the practices of [municipal securities brokers](/usc/15/78c.md?p=a-31) and [dealers](/usc/15/78c.md?p=a-5-A), [municipal securities](/usc/15/78c.md?p=a-29) advisors, [municipal securities](/usc/15/78c.md?p=a-29) investors, and [municipal securities](/usc/15/78c.md?p=a-29) [issuers](/usc/15/78c.md?p=a-8); and - (2) coordinate with the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) for rulemaking and enforcement actions as required by law. - (b) **Director of the Office—** The head of the Office of [Municipal Securities](/usc/15/78c.md?p=a-29) shall be the [Director](/usc/15/78c.md?p=a-7), who shall report to the Chairman. - (c) **Staffing—** - (1) **In general—** The Office of [Municipal Securities](/usc/15/78c.md?p=a-29) shall be staffed sufficiently to carry out the requirements of this section. - (2) **Requirement—** The staff of the Office of [Municipal Securities](/usc/15/78c.md?p=a-29) shall include individuals with knowledge of and expertise in municipal finance. # §78o–5. Government securities brokers and dealers - (a) **Registration requirements; notice to regulatory agencies; manner of registration; exemption from registration requirements—** - (1) - (A) It shall be unlawful for any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) (other than a [registered broker or dealer](/usc/15/78c.md?p=h-2) or a [financial institution](/usc/15/78c.md?p=a-46)) to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any government [security](/usc/15/78c.md?p=a-10) unless such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) is registered in accordance with paragraph (2) of this subsection. - (B) - (i) It shall be unlawful for any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) that is a [registered broker or dealer](/usc/15/78c.md?p=h-2) or a [financial institution](/usc/15/78c.md?p=a-46) to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any government [security](/usc/15/78c.md?p=a-10) unless such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) has filed with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) written notice that it is a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44). When such a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) ceases to act as such it shall file with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) a written notice that it is no longer acting as a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44). - (ii) Such notices shall be in such form and contain such information concerning a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) that is a [financial institution](/usc/15/78c.md?p=a-46) and any [persons](/usc/15/78c.md?p=a-9) associated with such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) as the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System shall, by rule, after consultation with each [appropriate regulatory agency](/usc/15/78c.md?p=a-34) (including the [Commission](/usc/15/78c.md?p=a-15)), prescribe as necessary or appropriate in the public interest or for the protection of investors. Such notices shall be in such form and contain such information concerning a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) that is a [registered broker or dealer](/usc/15/78c.md?p=h-2) and any [persons](/usc/15/78c.md?p=a-9) associated with such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) as the [Commission](/usc/15/78c.md?p=a-15) shall, by rule, prescribe as necessary or appropriate in the public interest or for the protection of investors. - (iii) Each [appropriate regulatory agency](/usc/15/78c.md?p=a-34) (other than the [Commission](/usc/15/78c.md?p=a-15)) shall make available to the [Commission](/usc/15/78c.md?p=a-15) the notices which have been filed with it under this subparagraph, and the [Commission](/usc/15/78c.md?p=a-15) shall maintain and make available to the public such notices and the notices it receives under this subparagraph. - (2) A [government securities broker](/usc/15/78c.md?p=a-43) or a [government securities dealer](/usc/15/78c.md?p=a-44) subject to the registration requirement of paragraph (1)(A) of this subsection may be registered by filing with the [Commission](/usc/15/78c.md?p=a-15) an [application](/usc/15/77ccc.md?p=8) for registration in such form and containing such information and documents concerning such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) and any [persons](/usc/15/78c.md?p=a-9) associated with such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Within 45 days of the date of filing of such [application](/usc/15/77ccc.md?p=8) (or within such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents), the [Commission](/usc/15/78c.md?p=a-15) shall— - (A) by [order](/usc/15/8702.md?p=14) grant registration, or - (B) [institute](/usc/15/9401.md?p=7) proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within 120 days of the date of the filing of the [application](/usc/15/77ccc.md?p=8) for registration. At the conclusion of such proceedings, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall grant or deny such registration. The [Commission](/usc/15/78c.md?p=a-15) may extend the time for the conclusion of such proceedings for up to 90 days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents. The [Commission](/usc/15/78c.md?p=a-15) shall grant the registration of a [government securities broker](/usc/15/78c.md?p=a-43) or a [government securities dealer](/usc/15/78c.md?p=a-44) if the [Commission](/usc/15/78c.md?p=a-15) finds that the requirements of this section are satisfied. The [order](/usc/15/8702.md?p=14) granting registration shall not be effective until such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) has become a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) registered under [section 78f of this title](/usc/15/78f.md), or a [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered under [section 78o–3](/usc/15/78o–3.md) of this title, unless the [Commission](/usc/15/78c.md?p=a-15) has exempted such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), by rule or [order](/usc/15/8702.md?p=14), from such membership. The [Commission](/usc/15/78c.md?p=a-15) shall deny such registration if it does not make such a finding or if it finds that if the [applicant](/usc/15/7a.md?p=3) were so registered, its registration would be subject to suspension or revocation under [subsection (c)](#c) of this section. - (3) Any provision of this chapter (other than [section 78e of this title](/usc/15/78e.md) or paragraph (1) of this subsection) which prohibits any act, practice, or course of business if the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) is used in connection therewith shall also prohibit any such act, practice, or course of business by any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) registered or having filed notice under paragraph (1) of this subsection or any [person](/usc/15/78c.md?p=a-9) acting on behalf of such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), irrespective of any use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) in connection therewith. - (4) No [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) that is required to register under [paragraph (1)(A)](#a-1-A) and that is not a [member](/usc/15/78c.md?p=a-3-A) of the [Securities](/usc/15/78c.md?p=a-10) Investor Protection Corporation shall effect any transaction in any [security](/usc/15/78c.md?p=a-10) in contravention of such rules as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe pursuant to this subsection to assure that its [customers](/usc/15/78c–5.md?p=g) receive complete, accurate, and timely disclosure of the inapplicability of [Securities](/usc/15/78c.md?p=a-10) Investor Protection Corporation coverage to their [accounts](/usc/15/1681a.md?p=r-4). - (5) The Secretary of the Treasury (hereinafter in this section referred to as the “Secretary”), by rule or [order](/usc/15/8702.md?p=14), upon the Secretary’s own motion or upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), or class of [government securities brokers](/usc/15/78c.md?p=a-43) or [government securities dealers](/usc/15/78c.md?p=a-44), from any provision of subsection [(a)](#a), [(b)](#b), or [(d)](#d) of this section, other than [subsection (d)(3)](#d-3), or the rules thereunder, if the Secretary finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of this chapter. - (b) **Rules with respect to transactions in government securities—** - (1) The Secretary shall propose and adopt rules to effect the purposes of this chapter with respect to transactions in [government securities](/usc/15/78c.md?p=a-42) effected by [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44) as follows: - (A) Such rules shall provide safeguards with respect to the financial responsibility and related practices of [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44) including, but not limited to, capital adequacy standards, the acceptance of custody and use of [customers](/usc/15/78c–5.md?p=g)’ [securities](/usc/15/78c.md?p=a-10), the carrying and use of [customers](/usc/15/78c–5.md?p=g)’ deposits or [credit](/usc/15/1679a.md?p=4) balances, and the transfer and control of [government securities](/usc/15/78c.md?p=a-42) subject to repurchase [agreements](/usc/15/7a.md?p=2) and in similar transactions. - (B) Such rules shall require every [government securities broker](/usc/15/78c.md?p=a-43) and [government securities dealer](/usc/15/78c.md?p=a-44) to make reports to and furnish copies of [records](/usc/15/78c.md?p=a-37) to the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), and to file with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), annually or more frequently, a balance sheet and income statement certified by an independent public accountant, prepared on a calendar or fiscal year basis, and such other financial statements (which shall, as the Secretary specifies, be certified) and information concerning its financial condition as required by such rules. - (C) Such rules shall require [records](/usc/15/78c.md?p=a-37) to be made and kept by [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44) and shall specify the periods for which such [records](/usc/15/78c.md?p=a-37) shall be preserved. - (2) **Risk Assessment for Holding Company Systems.—** - (A) **Obligations to obtain, maintain, and report information.—** Every [person](/usc/15/78c.md?p=a-9) who is registered as a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) under this section shall obtain such information and make and keep such [records](/usc/15/78c.md?p=a-37) as the Secretary by rule prescribes concerning the registered [person](/usc/15/78c.md?p=a-9)’s policies, procedures, or systems for monitoring and controlling financial and operational risks to it resulting from the activities of any of its associated [persons](/usc/15/78c.md?p=a-9), other than a natural [person](/usc/15/78c.md?p=a-9). Such [records](/usc/15/78c.md?p=a-37) shall describe, in the aggregate, each of the financial and [securities](/usc/15/78c.md?p=a-10) activities conducted by, and customary sources of capital and funding of, those of its associated [persons](/usc/15/78c.md?p=a-9) whose business activities are reasonably likely to have a material impact on the financial or operational condition of such registered [person](/usc/15/78c.md?p=a-9), including its capital, its liquidity, or its ability to conduct or finance its operations. The Secretary, by rule, may require summary reports of such information to be filed with the registered [person](/usc/15/78c.md?p=a-9)’s [appropriate regulatory agency](/usc/15/78c.md?p=a-34) no more frequently than quarterly. - (B) **Authority to require additional information.—** If, as a result of adverse market conditions or based on reports provided pursuant to subparagraph (A) of this paragraph or other available information, the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) reasonably concludes that it has concerns regarding the financial or operational condition of any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) registered under this section, such agency may require the registered [person](/usc/15/78c.md?p=a-9) to make reports concerning the financial and [securities](/usc/15/78c.md?p=a-10) activities of any of such [person](/usc/15/78c.md?p=a-9)’s associated [persons](/usc/15/78c.md?p=a-9), other than a natural [person](/usc/15/78c.md?p=a-9), whose business activities are reasonably likely to have a material impact on the financial or operational condition of such registered [person](/usc/15/78c.md?p=a-9). The [appropriate regulatory agency](/usc/15/78c.md?p=a-34), in requiring reports pursuant to this subparagraph, shall specify the information required, the period for which it is required, the time and date on which the information must be furnished, and whether the information is to be furnished directly to the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) or to a [self-regulatory organization](/usc/15/78c.md?p=a-26) with primary responsibility for examining the registered [person](/usc/15/78c.md?p=a-9)’s financial and operational condition. - (C) **Special provisions with respect to associated persons subject to federal banking agency regulation.—** - (i) **Cooperation in implementation.—** In developing and implementing reporting requirements pursuant to subparagraph (A) of this paragraph with respect to associated [persons](/usc/15/78c.md?p=a-9) subject to examination by or reporting requirements of a [Federal banking agency](#b-2-C-vii), the Secretary shall consult with and consider the views of each such [Federal banking agency](#b-2-C-vii). If a [Federal banking agency](#b-2-C-vii) comments in writing on a proposed rule of the Secretary under this paragraph that has been published for comment, the Secretary shall respond in writing to such written comment before adopting the proposed rule. The Secretary shall, at the request of a [Federal banking agency](#b-2-C-vii), publish such comment and response in the Federal Register at the time of publishing the adopted rule. - (ii) **Use of banking agency reports.—** A registered [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) shall be in compliance with any recordkeeping or reporting requirement adopted pursuant to subparagraph (A) of this paragraph concerning an associated [person](/usc/15/78c.md?p=a-9) that is subject to examination by or reporting requirements of a [Federal banking agency](#b-2-C-vii) if such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) utilizes for such recordkeeping or reporting requirement copies of reports filed by the associated [person](/usc/15/78c.md?p=a-9) with the [Federal banking agency](#b-2-C-vii) pursuant to [section 161 of title 12](/usc/12/161.md), subchapter VIII of [chapter 3](/usc/12/ch3.md) of title 12, [section 1817(a) of title 12](/usc/12/1817.md?p=a), [section 1467a(b) of title 12](/usc/12/1467a.md?p=b), or [section 1847 of title 12](/usc/12/1847.md). The Secretary may, however, by rule adopted pursuant to [subparagraph (A)](#b-2-A), require any registered [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) filing such reports with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to obtain, maintain, or report supplemental information if the Secretary makes an explicit finding, based on information provided by the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), that such supplemental information is necessary to inform the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) regarding potential risks to such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44). Prior to requiring any such supplemental information, the Secretary shall first request the [Federal banking agency](#b-2-C-vii) to expand its reporting requirements to include such information. - (iii) **Procedure for requiring additional information.—** Prior to making a request pursuant to subparagraph (B) of this paragraph for information with respect to an associated [person](/usc/15/78c.md?p=a-9) that is subject to examination by or reporting requirements of a [Federal banking agency](#b-2-C-vii), the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall— - (I) notify such banking agency of the information required with respect to such associated [person](/usc/15/78c.md?p=a-9); and - (II) consult with such agency to determine whether the information required is available from such agency and for other purposes, unless the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) determines that any delay resulting from such consultation would be inconsistent with ensuring the financial and operational condition of the [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) or the stability or integrity of the [securities](/usc/15/78c.md?p=a-10) markets. - (iv) **Exclusion for examination reports.—** Nothing in this subparagraph shall be construed to permit the Secretary or an [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to require any registered [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) to obtain, maintain, or furnish any examination report of any [Federal banking agency](#b-2-C-vii) or any supervisory recommendations or analysis contained therein. - (v) **Confidentiality of information provided.—** No information provided to or obtained by an [appropriate regulatory agency](/usc/15/78c.md?p=a-34) from any [Federal banking agency](#b-2-C-vii) pursuant to a request under clause (iii) of this subparagraph regarding any associated [person](/usc/15/78c.md?p=a-9) which is subject to examination by or reporting requirements of a [Federal banking agency](#b-2-C-vii) may be disclosed to any other [person](/usc/15/78c.md?p=a-9) (other than a [self-regulatory organization](/usc/15/78c.md?p=a-26)), without the prior written approval of the [Federal banking agency](#b-2-C-vii). Nothing in this clause shall authorize the Secretary or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to withhold information from Congress, or prevent the Secretary or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) from complying with a request for information from any other Federal department or agency requesting the information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/78c.md?p=a-15). - (vi) **Notice to banking agencies concerning financial and operational condition concerns.—** The Secretary or [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall notify the [Federal banking agency](#b-2-C-vii) of any concerns of the Secretary or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) regarding significant financial or operational risks resulting from the activities of any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) to any associated [person](/usc/15/78c.md?p=a-9) thereof which is subject to examination by or reporting requirements of the [Federal banking agency](#b-2-C-vii). - (vii) **Definition.—** For purposes of this subparagraph, the term “Federal banking agency” shall have the same meaning as the term “appropriate Federal banking agency” in [section 1813(q) of title 12](/usc/12/1813.md?p=q). - (D) **Exemptions.—** The Secretary by rule or [order](/usc/15/8702.md?p=14) may exempt any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), under such terms and conditions and for such periods as the Secretary shall provide in such rule or [order](/usc/15/8702.md?p=14), from the provisions of this paragraph, and the rules thereunder. In granting such exemptions, the Secretary shall consider, among other factors— - (i) whether information of the type required under this paragraph is available from a supervisory agency (as defined in section 3401(6)[^1] of [title 12](/usc/12.md)), a [State](/usc/15/78c.md?p=a-16) insurance [commission](/usc/15/78c.md?p=a-15) or similar [State](/usc/15/78c.md?p=a-16) agency, the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), or a similar foreign regulator; - (ii) the primary business of any associated [person](/usc/15/78c.md?p=a-9); - (iii) the nature and extent of domestic or foreign regulation of the associated [person](/usc/15/78c.md?p=a-9)’s activities; - (iv) the nature and extent of the registered [person](/usc/15/78c.md?p=a-9)’s [securities](/usc/15/78c.md?p=a-10) transactions; and - (v) with respect to the registered [person](/usc/15/78c.md?p=a-9) and its associated [persons](/usc/15/78c.md?p=a-9), on a consolidated basis, the amount and proportion of assets devoted to, and revenues derived from, activities in the United States [securities](/usc/15/78c.md?p=a-10) markets. - (E) **Conformity with requirements under section 78q(h).—** In exercising [authority](/usc/15/3051.md?p=1) pursuant to subparagraph (A) of this paragraph concerning information with respect to associated [persons](/usc/15/78c.md?p=a-9) of [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44) who are also associated [persons](/usc/15/78c.md?p=a-9) of registered [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A) reporting to the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78q(h) of this title](/usc/15/78q.md?p=h), the requirements relating to such associated [persons](/usc/15/78c.md?p=a-9) shall conform, to the greatest extent practicable, to the requirements under [section 78q(h) of this title](/usc/15/78q.md?p=h). - (F) **Authority to limit disclosure of information.—** Notwithstanding any other provision of law, the Secretary and any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall not be compelled to disclose any information required to be reported under this paragraph, or any information supplied to the Secretary or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) by any domestic or foreign regulatory agency that relates to the financial or operational condition of any associated [person](/usc/15/78c.md?p=a-9) of a registered [government securities broker](/usc/15/78c.md?p=a-43) or a [government securities dealer](/usc/15/78c.md?p=a-44). Nothing in this paragraph shall authorize the Secretary or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to withhold information from Congress, or prevent the Secretary or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) from complying with a request for information from any other Federal department or agency requesting the information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/78c.md?p=a-15). For purposes of [section 552 of title 5](/usc/5/552.md), this paragraph shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. - (3) - (A) With respect to any [financial institution](/usc/15/78c.md?p=a-46) that has filed notice as a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) or that is required to file notice under [subsection (a)(1)(B)](#a-1-B), the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) may issue such rules and regulations with respect to transactions in [government securities](/usc/15/78c.md?p=a-42) as may be necessary to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade. If the Secretary of the Treasury determines, and notifies the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), that such rule or regulation, if implemented, would, or as applied does (i) adversely affect the liquidity or efficiency of the market for [government securities](/usc/15/78c.md?p=a-42); or (ii) impose any burden on competition not necessary or appropriate in furtherance of the purposes of this section, the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall, prior to adopting the proposed rule or regulation, find that such rule or regulation is necessary and appropriate in furtherance of the purposes of this section notwithstanding the Secretary’s determination. - (B) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall consult with and consider the views of the Secretary prior to approving or amending a rule or regulation under this paragraph, except where the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) determines that an emergency exists requiring expeditious and summary action and publishes its reasons therefor. If the Secretary comments in writing to the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) on a proposed rule or regulation that has been published for comment, the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall respond in writing to such written comment before approving the proposed rule or regulation. - (C) In promulgating rules under this section, the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall consider the sufficiency and appropriateness of then existing laws and rules applicable to [government securities brokers](/usc/15/78c.md?p=a-43), [government securities dealers](/usc/15/78c.md?p=a-44), and [persons](/usc/15/78c.md?p=a-9) associated with [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44). - (4) Rules promulgated and [orders](/usc/15/8702.md?p=14) issued under this section shall— - (A) be designed to prevent fraudulent and manipulative acts and practices and to protect the integrity, liquidity, and efficiency of the market for [government securities](/usc/15/78c.md?p=a-42), investors, and the public interest; and - (B) not be designed to permit unfair discrimination between [customers](/usc/15/78c–5.md?p=g), [issuers](/usc/15/78c.md?p=a-8), [government securities brokers](/usc/15/78c.md?p=a-43), or [government securities dealers](/usc/15/78c.md?p=a-44), or to impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. - (5) In promulgating rules and issuing [orders](/usc/15/8702.md?p=14) under this section, the Secretary— - (A) may appropriately classify [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44) (taking into [account](/usc/15/1681a.md?p=r-4) relevant matters, including types of business done, nature of [securities](/usc/15/78c.md?p=a-10) other than [government securities](/usc/15/78c.md?p=a-42) purchased or sold, and character of business organization) and [persons](/usc/15/78c.md?p=a-9) associated with [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44); - (B) may determine, to the extent consistent with paragraph (2) of this subsection and with the public interest, the protection of investors, and the purposes of this chapter, not to apply, in whole or in part, certain rules under this section, or to apply greater, lesser, or different standards, to certain classes of [government securities brokers](/usc/15/78c.md?p=a-43), [government securities dealers](/usc/15/78c.md?p=a-44), or [persons](/usc/15/78c.md?p=a-9) associated with [government securities brokers](/usc/15/78c.md?p=a-43) or [government securities dealers](/usc/15/78c.md?p=a-44); - (C) shall consider the sufficiency and appropriateness of then existing laws and rules applicable to [government securities brokers](/usc/15/78c.md?p=a-43), [government securities dealers](/usc/15/78c.md?p=a-44), and [persons](/usc/15/78c.md?p=a-9) associated with [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44); and - (D) shall consult with and consider the views of the [Commission](/usc/15/78c.md?p=a-15) and the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, except where the Secretary determines that an emergency exists requiring expeditious or summary action and publishes its reasons for such determination. - (6) If the [Commission](/usc/15/78c.md?p=a-15) or the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System comments in writing on a proposed rule of the Secretary that has been published for comment, the Secretary shall respond in writing to such written comment before approving the proposed rule. - (7) No [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) shall make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to effect any transaction in, or to induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any government [security](/usc/15/78c.md?p=a-10) in contravention of any rule under this section. - (c) **Sanctions for violations—** - (1) With respect to any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) registered or required to register under [subsection (a)(1)(A)](#a-1-A) of this section— - (A) The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is in the public interest and that such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), or any [person associated with](/usc/15/78c.md?p=a-63) such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) (whether prior or subsequent to becoming so associated), has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph (A), (D), (E), (H), or (G) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title, has been convicted of any offense specified in [subparagraph (B)](#c-1-B) of such paragraph (4) within 10 years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#c-1-C) of such paragraph (4). - (B) Pending final determination whether registration of any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) shall be revoked, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), may suspend such registration, if such suspension appears to the [Commission](/usc/15/78c.md?p=a-15), after notice and opportunity for hearing, to be necessary or appropriate in the public interest or for the protection of investors. Any registered [government securities broker](/usc/15/78c.md?p=a-43) or registered [government securities dealer](/usc/15/78c.md?p=a-44) may, upon such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) may deem necessary in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the [Commission](/usc/15/78c.md?p=a-15). If the [Commission](/usc/15/78c.md?p=a-15) finds that any registered [government securities broker](/usc/15/78c.md?p=a-43) or registered [government securities dealer](/usc/15/78c.md?p=a-44) is no longer in existence or has ceased to do business as a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall cancel the registration of such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44). - (C) The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure or place limitations on the activities or functions of any [person](/usc/15/78c.md?p=a-9) who is, or at the time of the alleged misconduct was, associated or seeking to become associated with a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) registered or required to register under [subsection (a)(1)(A)](#a-1-A) of this section or suspend for a period not exceeding 12 months or bar any such [person](/usc/15/78c.md?p=a-9) from being associated with such a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such [person](/usc/15/78c.md?p=a-9) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph (A), (D), (E), (H), or (G) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title, has been convicted of any offense specified in [subparagraph (B)](#c-1-B) of such paragraph (4) within 10 years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#c-1-C) of such paragraph (4). - (2) - (A) With respect to any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) which is not registered or required to register under [subsection (a)(1)(A)](#a-1-A) of this section, the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) may, in the manner and for the reasons specified in paragraph (1)(A) of this subsection, censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or bar from acting as a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) any such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), and may sanction any [person](/usc/15/78c.md?p=a-9) associated, seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) in the manner and for the reasons specified in paragraph (1)(C) of this subsection. - (B) In addition, where applicable, such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may, in accordance with [section 1818 of title 12](/usc/12/1818.md), [section 1464 of title 12](/usc/12/1464.md), or section 1730[^1] of [title 12](/usc/12.md), enforce compliance by such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) or any [person](/usc/15/78c.md?p=a-9) associated, seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) with the provisions of this section and the rules thereunder. - (C) For purposes of subparagraph (B) of this paragraph, any [violation](/usc/15/57b–1.md?p=a-7) of any such provision shall constitute adequate basis for the issuance of any [order](/usc/15/8702.md?p=14) under section [1818(b)](/usc/12/1818.md?p=b) or [(c)](/usc/12/1818.md?p=c) of title 12, section [1464(d)(2)](/usc/12/1464.md?p=d-2) or [(d)(3)](/usc/12/1464.md?p=d-3)[^1] of title 12, or section 1730(e) or (f)[^1] of title 12, and the [customers](/usc/15/78c–5.md?p=g) of any such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) shall be deemed, respectively, “depositors” as that term is used in [section 1818(c) of title 12](/usc/12/1818.md?p=c), “savings [account](/usc/15/1681a.md?p=r-4) holders” as that term is used in [section 1464(d)(3)](/usc/12/1464.md?p=d-3)[^1] of [title 12](/usc/12.md), or “insured [members](/usc/15/78c.md?p=a-3-A)” as that term is used in section 1730(f)[^1] of [title 12](/usc/12.md). - (D) Nothing in this paragraph shall be construed to affect in any way the powers of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to proceed against such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) under any other provision of law. - (E) Each [appropriate regulatory agency](/usc/15/78c.md?p=a-34) (other than the [Commission](/usc/15/78c.md?p=a-15)) shall promptly notify the [Commission](/usc/15/78c.md?p=a-15) after it has imposed any sanction under this paragraph on a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), or a [person associated with a government securities broker or government securities dealer](/usc/15/78c.md?p=a-45), and the [Commission](/usc/15/78c.md?p=a-15) shall maintain, and make available to the public, a record of such sanctions and any sanctions imposed by it under this subsection. - (3) It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) as to whom an [order](/usc/15/8702.md?p=14) entered pursuant to paragraph (1) or (2) of this subsection suspending or barring him from being associated with a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) is in effect willfully to become, or to be, associated with a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) without the consent of the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), and it shall be unlawful for any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) to permit such a [person](/usc/15/78c.md?p=a-9) to become, or remain, a [person associated with](/usc/15/78c.md?p=a-63) it without the consent of the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), if such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) knew, or, in the exercise of reasonable care should have known, of such [order](/usc/15/8702.md?p=14). - (d) **Records of brokers and dealers subject to examination—** - (1) All [records](/usc/15/78c.md?p=a-37) of a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) as such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. - (2) Information received by an [appropriate regulatory agency](/usc/15/78c.md?p=a-34), the Secretary, or the [Commission](/usc/15/78c.md?p=a-15) from or with respect to any [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), any [person associated with a government securities broker or government securities dealer](/usc/15/78c.md?p=a-45), or any other [person](/usc/15/78c.md?p=a-9) subject to this section or rules promulgated thereunder, may be made available by the Secretary or the recipient agency to the [Commission](/usc/15/78c.md?p=a-15), the Secretary, the Department of Justice, the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), any [appropriate regulatory agency](/usc/15/78c.md?p=a-34), any [self-regulatory organization](/usc/15/78c.md?p=a-26), or any Federal Reserve Bank. - (3) **Government Securities Trade Reconstruction.—** - (A) **Furnishing records.—** Every [government securities broker](/usc/15/78c.md?p=a-43) and [government securities dealer](/usc/15/78c.md?p=a-44) shall furnish to the [Commission](/usc/15/78c.md?p=a-15) on request such [records](/usc/15/78c.md?p=a-37) of [government securities](/usc/15/78c.md?p=a-42) transactions, including [records](/usc/15/78c.md?p=a-37) of the date and time of execution of trades, as the [Commission](/usc/15/78c.md?p=a-15) may require to reconstruct trading in the course of a particular inquiry or investigation being conducted by the [Commission](/usc/15/78c.md?p=a-15) for enforcement or surveillance purposes. In requiring information pursuant to this paragraph, the [Commission](/usc/15/78c.md?p=a-15) shall specify the information required, the period for which it is required, the time and date on which the information must be furnished, and whether the information is to be furnished directly to the [Commission](/usc/15/78c.md?p=a-15), to the Federal Reserve Bank of New York, or to an [appropriate regulatory agency](/usc/15/78c.md?p=a-34) or [self-regulatory organization](/usc/15/78c.md?p=a-26) with responsibility for examining the [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44). The [Commission](/usc/15/78c.md?p=a-15) may require that such information be furnished in machine readable form notwithstanding any limitation in [subparagraph (B)](#d-3-B). In utilizing its [authority](/usc/15/3051.md?p=1) to require information in machine readable form, the [Commission](/usc/15/78c.md?p=a-15) shall minimize the burden such requirement may place on small [government securities brokers](/usc/15/78c.md?p=a-43) and [dealers](/usc/15/78c.md?p=a-5-A). - (B) **Limitation; construction.—** The [Commission](/usc/15/78c.md?p=a-15) shall not utilize its [authority](/usc/15/3051.md?p=1) under this paragraph to develop regular reporting requirements, except that the [Commission](/usc/15/78c.md?p=a-15) may require information to be furnished under this paragraph as frequently as necessary for particular inquiries or investigations for enforcement or surveillance purposes. This paragraph shall not be construed as requiring, or as authorizing the [Commission](/usc/15/78c.md?p=a-15) to require, any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) to obtain or maintain any information for purposes of this paragraph which is not otherwise maintained by such [broker or dealer](/usc/15/78c.md?p=h-2) in accordance with any other provision of law or usual and customary business practice. The [Commission](/usc/15/78c.md?p=a-15) shall, where feasible, avoid requiring any information to be furnished under this paragraph that the [Commission](/usc/15/78c.md?p=a-15) may obtain from the Federal Reserve Bank of New York. - (C) **Procedures for requiring information.—** At the time the [Commission](/usc/15/78c.md?p=a-15) requests any information pursuant to [subparagraph (A)](#d-3-A) with respect to any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), the [Commission](/usc/15/78c.md?p=a-15) shall notify the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) and, upon request, furnish to the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) any information supplied to the [Commission](/usc/15/78c.md?p=a-15). - (D) **Consultation.—** Within 90 days after December 17, 1993, and annually thereafter, or upon the request of any other [appropriate regulatory agency](/usc/15/78c.md?p=a-34), the [Commission](/usc/15/78c.md?p=a-15) shall consult with the other [appropriate regulatory agencies](/usc/15/78c.md?p=a-34) to determine the availability of [records](/usc/15/78c.md?p=a-37) that may be required to be furnished under this paragraph and, for those [records](/usc/15/78c.md?p=a-37) available directly from the other [appropriate regulatory agencies](/usc/15/78c.md?p=a-34), to develop a procedure for furnishing such [records](/usc/15/78c.md?p=a-37) expeditiously upon the [Commission](/usc/15/78c.md?p=a-15)’s request. - (E) **Exclusion for examination reports.—** Nothing in this paragraph shall be construed so as to permit the [Commission](/usc/15/78c.md?p=a-15) to require any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) to obtain, maintain, or furnish any examination report of any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) other than the [Commission](/usc/15/78c.md?p=a-15) or any supervisory recommendations or analysis contained in any such examination report. - (F) **Authority to limit disclosure of information.—** Notwithstanding any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) and the [appropriate regulatory agencies](/usc/15/78c.md?p=a-34) shall not be compelled to disclose any information required or obtained under this paragraph. Nothing in this paragraph shall authorize the [Commission](/usc/15/78c.md?p=a-15) or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to withhold information from Congress, or prevent the [Commission](/usc/15/78c.md?p=a-15) or any [appropriate regulatory agency](/usc/15/78c.md?p=a-34) from complying with a request for information from any other Federal department or agency requesting information for purposes within the scope of its jurisdiction, or from complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States, the [Commission](/usc/15/78c.md?p=a-15), or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34). For purposes of [section 552 of title 5](/usc/5/552.md), this subparagraph shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. - (e) **Membership in national securities exchange; exemptions—** - (1) It shall be unlawful for any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) registered or required to register with the [Commission](/usc/15/78c.md?p=a-15) under [subsection (a)(1)(A)](#a-1-A) to effect any transaction in, or induce or attempt to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any government [security](/usc/15/78c.md?p=a-10), unless such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) is a [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5) registered under [section 78f of this title](/usc/15/78f.md) or a [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered under [section 78o–3](/usc/15/78o–3.md) of this title. - (2) The [Commission](/usc/15/78c.md?p=a-15), after consultation with the Secretary, by rule or [order](/usc/15/8702.md?p=14), as it deems consistent with the public interest and the protection of investors, may conditionally or unconditionally exempt from paragraph (1) of this subsection any [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44) or class of [government securities brokers](/usc/15/78c.md?p=a-43) or [government securities dealers](/usc/15/78c.md?p=a-44) specified in such rule or [order](/usc/15/8702.md?p=14). - (f) **Large position reporting—** - (1) **Reporting requirements—** The Secretary may adopt rules to require specified [persons](/usc/15/78c.md?p=a-9) holding, maintaining, or controlling large positions in to-be-issued or recently issued Treasury [securities](/usc/15/78c.md?p=a-10) to file such reports regarding such positions as the Secretary determines to be necessary and appropriate for the purpose of monitoring the impact in the Treasury [securities](/usc/15/78c.md?p=a-10) market of concentrations of positions in Treasury [securities](/usc/15/78c.md?p=a-10) and for the purpose of otherwise assisting the [Commission](/usc/15/78c.md?p=a-15) in the enforcement of this chapter, taking into [account](/usc/15/1681a.md?p=r-4) any impact of such rules on the efficiency and liquidity of the Treasury [securities](/usc/15/78c.md?p=a-10) market and the cost to taxpayers of funding the Federal debt. Unless otherwise specified by the Secretary, reports required under this subsection shall be filed with the Federal Reserve Bank of New York, acting as agent for the Secretary. Such reports shall, on a timely basis, be provided directly to the [Commission](/usc/15/78c.md?p=a-15) by the [person](/usc/15/78c.md?p=a-9) with whom they are filed. - (2) **Recordkeeping requirements—** Rules under this subsection may require [persons](/usc/15/78c.md?p=a-9) holding, maintaining, or controlling large positions in Treasury [securities](/usc/15/78c.md?p=a-10) to make and keep for prescribed periods such [records](/usc/15/78c.md?p=a-37) as the Secretary determines are necessary or appropriate to ensure that such [persons](/usc/15/78c.md?p=a-9) can comply with reporting requirements under this subsection. - (3) **Aggregation rules—** Rules under this subsection— - (A) may prescribe the manner in which positions and [accounts](/usc/15/1681a.md?p=r-4) shall be aggregated for the purpose of this subsection, including aggregation on the basis of common ownership or control; and - (B) may define which [persons](/usc/15/78c.md?p=a-9) (individually or as a group) hold, maintain, or control large positions. - (4) **Definitional authority; determination of reporting threshold—** - (A) In prescribing rules under this subsection, the Secretary may, consistent with the purpose of this subsection, define terms used in this subsection that are not otherwise defined in [section 78c of this title](/usc/15/78c.md). - (B) Rules under this subsection shall specify— - (i) the minimum size of positions subject to reporting under this subsection, which shall be no less than the size that provides the potential for manipulation or control of the supply or price, or the cost of financing arrangements, of an issue or the portion thereof that is available for trading; - (ii) the types of positions (which may include financing arrangements) to be reported; - (iii) the [securities](/usc/15/78c.md?p=a-10) to be covered; and - (iv) the form and manner in which reports shall be transmitted, which may include transmission in machine readable form. - (5) **Exemptions—** Consistent with the public interest and the protection of investors, the Secretary by rule or [order](/usc/15/8702.md?p=14) may exempt in whole or in part, conditionally or unconditionally, any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), or any transaction or class of transactions, from the requirements of this subsection. - (6) **Limitation on disclosure of information—** Notwithstanding any other provision of law, the Secretary and the [Commission](/usc/15/78c.md?p=a-15) shall not be compelled to disclose any information required to be kept or reported under this subsection. Nothing in this subsection shall authorize the Secretary or the [Commission](/usc/15/78c.md?p=a-15) to withhold information from Congress, or prevent the Secretary or the [Commission](/usc/15/78c.md?p=a-15) from complying with a request for information from any other Federal department or agency requesting information for purposes within the scope of its jurisdiction, or from complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States, the Secretary, or the [Commission](/usc/15/78c.md?p=a-15). For purposes of [section 552 of title 5](/usc/5/552.md), this paragraph shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. - (g) **Effect on other laws; authority of Commission—** - (1) Nothing in this section except paragraph (2) of this subsection shall be construed to impair or limit the [authority](/usc/15/3051.md?p=1) under any other provision of law of the [Commission](/usc/15/78c.md?p=a-15), the Secretary of the Treasury, the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Secretary of Housing and Urban Development, and the Government National Mortgage [Association](/usc/15/657h.md?p=a-2). - (2) Notwithstanding any other provision of this chapter, the [Commission](/usc/15/78c.md?p=a-15) shall not have any [authority](/usc/15/3051.md?p=1) to make investigations of, require the filing of a statement by, or take any other action under this chapter against a [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44), or any [person associated with a government securities broker or government securities dealer](/usc/15/78c.md?p=a-45), for any [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) of the provisions of this section, other than [subsection (d)(3)](#d-3)[^2] or the rules or regulations thereunder, unless the [Commission](/usc/15/78c.md?p=a-15) is the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [government securities broker](/usc/15/78c.md?p=a-43) or [government securities dealer](/usc/15/78c.md?p=a-44). Nothing in the preceding sentence shall be construed to limit the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) with respect to [violations](/usc/15/57b–1.md?p=a-7) or threatened [violations](/usc/15/57b–1.md?p=a-7) of any provision of this chapter other than this section (except [subsection (d)(3)](#d-3)), the rules or regulations under any such other provision, or investigations pursuant to [section 78u(a)(2) of this title](/usc/15/78u.md?p=a-2) to assist a [foreign securities authority](/usc/15/78c.md?p=a-50). - (h) **Emergency authority—** The Secretary may, by [order](/usc/15/8702.md?p=14), take any action with respect to a matter or action subject to regulation by the Secretary under this section, or the rules of the Secretary under this section, involving a government [security](/usc/15/78c.md?p=a-10) or a market therein (or significant portion or segment of that market), that the [Commission](/usc/15/78c.md?p=a-15) may take under [section 78l(k)(2)](/usc/15/78l.md?p=k-2) of this title with respect to transactions in [securities](/usc/15/78c.md?p=a-10) (other than [exempted securities](/usc/15/78c.md?p=a-12-A)) or a market therein (or significant portion or segment of that market). # §78o–6. Securities analysts and research reports - (a) **Analyst protections—** The [Commission](/usc/15/78c.md?p=a-15), or upon the authorization and direction of the [Commission](/usc/15/78c.md?p=a-15), a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) or [national securities exchange](/usc/15/9009a.md?p=a-5), shall have adopted, not later than 1 year after July 30, 2002, rules reasonably designed to address conflicts of interest that can arise when [securities analysts](#d-1) recommend [equity securities](/usc/15/78c.md?p=a-11) in [research reports](#d-2) and public appearances, in [order](/usc/15/8702.md?p=14) to improve the objectivity of research and provide investors with more useful and reliable information, including rules designed— - (1) to foster greater public confidence in [securities](/usc/15/78c.md?p=a-10) research, and to protect the objectivity and independence of [securities analysts](#d-1), by— - (A) restricting the prepublication clearance or approval of [research reports](#d-2) by [persons](/usc/15/78c.md?p=a-9) employed by the [broker or dealer](/usc/15/78c.md?p=h-2) who are engaged in investment banking activities, or [persons](/usc/15/78c.md?p=a-9) not directly responsible for investment research, other than legal or compliance staff; - (B) limiting the supervision and compensatory evaluation of [securities analysts](#d-1) to officials employed by the [broker or dealer](/usc/15/78c.md?p=h-2) who are not engaged in investment banking activities; and - (C) requiring that a [broker or dealer](/usc/15/78c.md?p=h-2) and [persons](/usc/15/78c.md?p=a-9) employed by a [broker or dealer](/usc/15/78c.md?p=h-2) who are involved with investment banking activities may not, directly or indirectly, retaliate against or threaten to retaliate against any [securities analyst](#d-1) employed by that [broker or dealer](/usc/15/78c.md?p=h-2) or its affiliates as a result of an adverse, negative, or otherwise unfavorable [research report](#d-2) that may adversely affect the present or prospective investment banking relationship of the [broker or dealer](/usc/15/78c.md?p=h-2) with the [issuer](/usc/15/78c.md?p=a-8) that is the subject of the [research report](#d-2), except that such rules may not limit the [authority](/usc/15/3051.md?p=1) of a [broker or dealer](/usc/15/78c.md?p=h-2) to discipline a [securities analyst](#d-1) for causes other than such [research report](#d-2) in accordance with the policies and procedures of the firm; - (2) to define periods during which [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A) who have participated, or are to participate, in a public offering of [securities](/usc/15/78c.md?p=a-10) as [underwriters](/usc/15/78c.md?p=a-20) or [dealers](/usc/15/78c.md?p=a-5-A) should not publish or otherwise distribute [research reports](#d-2) relating to such [securities](/usc/15/78c.md?p=a-10) or to the [issuer](/usc/15/78c.md?p=a-8) of such [securities](/usc/15/78c.md?p=a-10); - (3) to establish structural and institutional safeguards within registered [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A) to assure that [securities analysts](#d-1) are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of those whose involvement in investment banking activities might potentially bias their judgment or supervision; and - (4) to address such other issues as the [Commission](/usc/15/78c.md?p=a-15), or such [association](/usc/15/657h.md?p=a-2) or [exchange](/usc/15/78c.md?p=a-1), determines appropriate. - (b) **Disclosure—** The [Commission](/usc/15/78c.md?p=a-15), or upon the authorization and direction of the [Commission](/usc/15/78c.md?p=a-15), a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) or [national securities exchange](/usc/15/9009a.md?p=a-5), shall have adopted, not later than 1 year after July 30, 2002, rules reasonably designed to require each [securities analyst](#d-1) to disclose in public appearances, and each [registered broker or dealer](/usc/15/78c.md?p=h-2) to disclose in each [research report](#d-2), as applicable, conflicts of interest that are known or should have been known by the [securities analyst](#d-1) or the [broker or dealer](/usc/15/78c.md?p=h-2), to exist at the time of the appearance or the date of distribution of the report, including— - (1) the extent to which the [securities analyst](#d-1) has debt or equity investments in the [issuer](/usc/15/78c.md?p=a-8) that is the subject of the appearance or [research report](#d-2); - (2) whether any compensation has been received by the [registered broker or dealer](/usc/15/78c.md?p=h-2), or any affiliate thereof, including the [securities analyst](#d-1), from the [issuer](/usc/15/78c.md?p=a-8) that is the subject of the appearance or [research report](#d-2), subject to such exemptions as the [Commission](/usc/15/78c.md?p=a-15) may determine appropriate and necessary to prevent disclosure by virtue of this paragraph of material non-public information regarding specific potential future investment banking transactions of such [issuer](/usc/15/78c.md?p=a-8), as is appropriate in the public interest and consistent with the protection of investors; - (3) whether an [issuer](/usc/15/78c.md?p=a-8), the [securities](/usc/15/78c.md?p=a-10) of which are recommended in the appearance or [research report](#d-2), currently is, or during the 1-year period preceding the date of the appearance or date of distribution of the report has been, a client of the [registered broker or dealer](/usc/15/78c.md?p=h-2), and if so, stating the types of services provided to the [issuer](/usc/15/78c.md?p=a-8); - (4) whether the [securities analyst](#d-1) received compensation with respect to a [research report](#d-2), based upon (among any other factors) the investment banking revenues (either generally or specifically earned from the [issuer](/usc/15/78c.md?p=a-8) being analyzed) of the [registered broker or dealer](/usc/15/78c.md?p=h-2); and - (5) such other disclosures of conflicts of interest that are material to investors, research analysts, or the [broker or dealer](/usc/15/78c.md?p=h-2) as the [Commission](/usc/15/78c.md?p=a-15), or such [association](/usc/15/657h.md?p=a-2) or [exchange](/usc/15/78c.md?p=a-1), determines appropriate. - (c) **Limitation—** Notwithstanding [subsection (a)](#a) or any other provision of law, neither the [Commission](/usc/15/78c.md?p=a-15) nor any national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered under [section 78o–3](/usc/15/78o–3.md) of this title may adopt or maintain any rule or regulation in connection with an initial public offering of the common equity of an [emerging growth company](/usc/15/78c.md?p=a-80)— - (1) restricting, based on functional role, which associated [persons](/usc/15/78c.md?p=a-9) of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [member](/usc/15/78c.md?p=a-3-A) of a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), may arrange for communications between a [securities analyst](#d-1) and a potential investor; or - (2) restricting a [securities analyst](#d-1) from participating in any communications with the management of an [emerging growth company](/usc/15/78c.md?p=a-80) that is also attended by any other associated [person](/usc/15/78c.md?p=a-9) of a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [member](/usc/15/78c.md?p=a-3-A) of a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) whose functional role is other than as a [securities analyst](#d-1). - (d) **Definitions—** In this section— - (1) the term “securities analyst” means any associated [person](/usc/15/78c.md?p=a-9) of a [registered broker or dealer](/usc/15/78c.md?p=h-2) that is principally responsible for, and any associated [person](/usc/15/78c.md?p=a-9) who reports directly or indirectly to a securities analyst in connection with, the preparation of the substance of a [research report](#d-2), whether or not any such [person](/usc/15/78c.md?p=a-9) has the job title of “securities analyst”; and - (2) the term “research report” means a written or electronic communication that includes an analysis of [equity securities](/usc/15/78c.md?p=a-11) of individual [companies](/usc/15/78c.md?p=a-19) or industries, and that provides information reasonably sufficient upon which to base an investment decision. # §78o–7. Registration of nationally recognized statistical rating organizations - (a) **Registration procedures—** - (1) **Application for registration—** - (A) **In general—** A [credit rating agency](/usc/15/78c.md?p=a-61) that elects to be treated as a [nationally recognized statistical rating organization](#l-3) for purposes of this chapter (in this section referred to as the “[applicant](/usc/15/7a.md?p=3)”), shall furnish to the [Commission](/usc/15/78c.md?p=a-15) an [application](/usc/15/77ccc.md?p=8) for registration, in such form as the [Commission](/usc/15/78c.md?p=a-15) shall require, by rule or regulation issued in accordance with [subsection (n)](#n), and containing the information described in [subparagraph (B)](#a-1-B). - (B) **Required information—** An [application](/usc/15/77ccc.md?p=8) for registration under this section shall contain information regarding— - (i) [credit ratings](/usc/15/78c.md?p=a-60) performance measurement statistics over short-term, mid-term, and long-term periods (as applicable) of the [applicant](/usc/15/7a.md?p=3); - (ii) the procedures and methodologies that the [applicant](/usc/15/7a.md?p=3) uses in determining [credit ratings](/usc/15/78c.md?p=a-60); - (iii) policies or procedures adopted and implemented by the [applicant](/usc/15/7a.md?p=3) to prevent the misuse, in [violation](/usc/15/57b–1.md?p=a-7) of this chapter (or the rules and regulations hereunder), of material, nonpublic information; - (iv) the organizational structure of the [applicant](/usc/15/7a.md?p=3); - (v) whether or not the [applicant](/usc/15/7a.md?p=3) has in effect a code of ethics, and if not, the reasons therefor; - (vi) any conflict of interest relating to the issuance of [credit ratings](/usc/15/78c.md?p=a-60) by the [applicant](/usc/15/7a.md?p=3); - (vii) the categories described in any of clauses (i) through (v) of [section 78c(a)(62)(B) of this title](/usc/15/78c.md?p=a-62-B) with respect to which the [applicant](/usc/15/7a.md?p=3) intends to apply for registration under this section; - (viii) on a confidential basis, a list of the 20 largest [issuers](/usc/15/78c.md?p=a-8) and subscribers that use the [credit rating](/usc/15/78c.md?p=a-60) services of the [applicant](/usc/15/7a.md?p=3), by amount of net revenues received therefrom in the fiscal year immediately preceding the date of submission of the [application](/usc/15/77ccc.md?p=8); - (ix) on a confidential basis, as to each applicable category of obligor described in any of clauses (i) through (v) of [section 78c(a)(62)(B) of this title](/usc/15/78c.md?p=a-62-B), written certifications described in [subparagraph (C)](#a-1-C), except as provided in [subparagraph (D)](#a-1-D); and - (x) any other information and documents concerning the [applicant](/usc/15/7a.md?p=3) and any [person associated with](/usc/15/78c.md?p=a-63) such [applicant](/usc/15/7a.md?p=3) as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (C) **Written certifications—** Written certifications required by [subparagraph (B)(ix)](#a-1-B-ix)— - (i) shall be provided from not fewer than 10 [qualified institutional buyers](/usc/15/78c.md?p=a-64), none of which is affiliated with the [applicant](/usc/15/7a.md?p=3); - (ii) may address more than one category of obligors described in any of clauses (i) through (v) of [section 78c(a)(62)(B) of this title](/usc/15/78c.md?p=a-62-B); - (iii) shall include not fewer than 2 certifications for each such category of obligor; and - (iv) shall [state](/usc/15/78c.md?p=a-16) that the [qualified institutional buyer](/usc/15/78c.md?p=a-64)— - (I) meets the definition of a [qualified institutional buyer](/usc/15/78c.md?p=a-64) under [section 78c(a)(64) of this title](/usc/15/78c.md?p=a-64); and - (II) has used the [credit ratings](/usc/15/78c.md?p=a-60) of the [applicant](/usc/15/7a.md?p=3) for at least the 3 years immediately preceding the date of the certification in the subject category or categories of obligors. - (D) **Exemption from certification requirement—** A written certification under [subparagraph (B)(ix)](#a-1-B-ix) is not required with respect to any [credit rating agency](/usc/15/78c.md?p=a-61) which has received, or been the subject of, a no-action letter from the staff of the [Commission](/usc/15/78c.md?p=a-15) prior to August 2, 2006, stating that such staff would not recommend enforcement action against any [broker or dealer](/usc/15/78c.md?p=h-2) that considers [credit ratings](/usc/15/78c.md?p=a-60) issued by such [credit rating agency](/usc/15/78c.md?p=a-61) to be ratings from a [nationally recognized statistical rating organization](#l-3). - (E) **Limitation on liability of qualified institutional buyers—** No [qualified institutional buyer](/usc/15/78c.md?p=a-64) shall be liable in any private right of action for any opinion or statement expressed in a certification made pursuant to [subparagraph (B)(ix)](#a-1-B-ix). - (2) **Review of application—** - (A) **Initial determination—** Not later than 90 days after the date on which the [application](/usc/15/77ccc.md?p=8) for registration is furnished to the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) (or within such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents) the [Commission](/usc/15/78c.md?p=a-15) shall— - (i) by [order](/usc/15/8702.md?p=14), grant such registration for ratings in the subject category or categories of obligors, as described in clauses (i) through (v) of [section 78c(a)(62)(B) of this title](/usc/15/78c.md?p=a-62-B); or - (ii) [institute](/usc/15/9401.md?p=7) proceedings to determine whether registration should be denied. - (B) **Conduct of proceedings—** - (i) **Content—** Proceedings referred to in [subparagraph (A)(ii)](#a-2-A-ii) shall— - (I) include notice of the grounds for denial under consideration and an opportunity for hearing; and - (II) be concluded not later than 120 days after the date on which the [application](/usc/15/77ccc.md?p=8) for registration is furnished to the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1). - (ii) **Determination—** At the conclusion of such proceedings, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall grant or deny such [application](/usc/15/77ccc.md?p=8) for registration. - (iii) **Extension authorized—** The [Commission](/usc/15/78c.md?p=a-15) may extend the time for conclusion of such proceedings for not longer than 90 days, if it finds good cause for such extension and publishes its reasons for so finding, or for such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents. - (C) **Grounds for decision—** The [Commission](/usc/15/78c.md?p=a-15) shall grant registration under this subsection— - (i) if the [Commission](/usc/15/78c.md?p=a-15) finds that the requirements of this section are satisfied; and - (ii) unless the [Commission](/usc/15/78c.md?p=a-15) finds (in which case the [Commission](/usc/15/78c.md?p=a-15) shall deny such registration) that— - (I) the [applicant](/usc/15/7a.md?p=3) does not have adequate financial and managerial resources to consistently produce [credit ratings](/usc/15/78c.md?p=a-60) with integrity and to materially comply with the procedures and methodologies disclosed under [paragraph (1)(B)](#a-1-B) and with subsections [(g)](#g), [(h)](#h), [(i)](#i), and [(j)](#j); or - (II) if the [applicant](/usc/15/7a.md?p=3) were so registered, its registration would be subject to suspension or revocation under [subsection (d)](#d). - (3) **Public availability of information—** Subject to [section 78x of this title](/usc/15/78x.md), the [Commission](/usc/15/78c.md?p=a-15) shall, by rule, require a [nationally recognized statistical rating organization](#l-3), upon the granting of registration under this section, to make the information and documents submitted to the [Commission](/usc/15/78c.md?p=a-15) in its completed [application](/usc/15/77ccc.md?p=8) for registration, or in any amendment submitted under paragraph [(1)](#b-1) or [(2)](#b-2) of subsection (b), publicly available on its website, or through another comparable, readily accessible means, except as provided in clauses [(viii)](#a-1-B-viii) and [(ix)](#a-1-B-ix) of paragraph (1)(B). - (b) **Update of registration—** - (1) **Update—** Each [nationally recognized statistical rating organization](#l-3) shall promptly amend its [application](/usc/15/77ccc.md?p=8) for registration under this section if any information or document provided therein becomes materially inaccurate, except that a [nationally recognized statistical rating organization](#l-3) is not required to amend— - (A) the information required to be filed under [subsection (a)(1)(B)(i)](#a-1-B-i) by filing information under this paragraph, but shall amend such information in the annual submission of the organization under paragraph (2) of this subsection; or - (B) the certifications required to be provided under [subsection (a)(1)(B)(ix)](#a-1-B-ix) by filing information under this paragraph. - (2) **Certification—** Not later than 90 days after the end of each calendar year, each [nationally recognized statistical rating organization](#l-3) shall file with the [Commission](/usc/15/78c.md?p=a-15) an amendment to its registration, in such form as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors— - (A) certifying that the information and documents in the [application](/usc/15/77ccc.md?p=8) for registration of such [nationally recognized statistical rating organization](#l-3) (other than the certifications required under [subsection (a)(1)(B)(ix)](#a-1-B-ix)) continue to be accurate; and - (B) listing any material change that occurred to such information or documents during the previous calendar year. - (c) **Accountability for ratings procedures—** - (1) **Authority—** The [Commission](/usc/15/78c.md?p=a-15) shall have exclusive [authority](/usc/15/3051.md?p=1) to enforce the provisions of this section in accordance with this chapter with respect to any [nationally recognized statistical rating organization](#l-3), if such [nationally recognized statistical rating organization](#l-3) issues [credit ratings](/usc/15/78c.md?p=a-60) in material contravention of those procedures relating to such [nationally recognized statistical rating organization](#l-3), including procedures relating to the prevention of misuse of nonpublic information and conflicts of interest, that such [nationally recognized statistical rating organization](#l-3)— - (A) includes in its [application](/usc/15/77ccc.md?p=8) for registration under [subsection (a)(1)(B)(ii)](#a-1-B-ii); or - (B) makes and disseminates in reports pursuant to [section 78q(a) of this title](/usc/15/78q.md?p=a) or the rules and regulations thereunder. - (2) **Limitation—** The rules and regulations that the [Commission](/usc/15/78c.md?p=a-15) may prescribe pursuant to this chapter, as they apply to [nationally recognized statistical rating organizations](#l-3), shall be narrowly tailored to meet the requirements of this chapter applicable to [nationally recognized statistical rating organizations](#l-3). Notwithstanding any other provision of this section, or any other provision of law, neither the [Commission](/usc/15/78c.md?p=a-15) nor any [State](/usc/15/78c.md?p=a-16) (or political subdivision thereof) may regulate the substance of [credit ratings](/usc/15/78c.md?p=a-60) or the procedures and methodologies by which any [nationally recognized statistical rating organization](#l-3) determines [credit ratings](/usc/15/78c.md?p=a-60). Nothing in this paragraph may be construed to afford a defense against any action or proceeding brought by the [Commission](/usc/15/78c.md?p=a-15) to enforce the antifraud provisions of the [securities laws](/usc/15/78c.md?p=a-47). - (3) **Internal controls over processes for determining credit ratings—** - (A) **In general—** Each [nationally recognized statistical rating organization](#l-3) shall establish, maintain, enforce, and document an effective internal control structure governing the implementation of and adherence to policies, procedures, and methodologies for determining [credit ratings](/usc/15/78c.md?p=a-60), taking into consideration such factors as the [Commission](/usc/15/78c.md?p=a-15) may prescribe, by rule. - (B) **Attestation requirement—** The [Commission](/usc/15/78c.md?p=a-15) shall prescribe rules requiring each [nationally recognized statistical rating organization](#l-3) to submit to the [Commission](/usc/15/78c.md?p=a-15) an annual internal controls report, which shall contain— - (i) a description of the responsibility of the management of the [nationally recognized statistical rating organization](#l-3) in establishing and maintaining an effective internal control structure under [subparagraph (A)](#c-3-A); - (ii) an assessment of the effectiveness of the internal control structure of the [nationally recognized statistical rating organization](#l-3); and - (iii) the attestation of the chief executive officer, or equivalent individual, of the [nationally recognized statistical rating organization](#l-3). - (d) **Censure, denial, or suspension of registration; notice and hearing—** - (1) **In general—** The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any [nationally recognized statistical rating organization](#l-3), or with respect to any [person](/usc/15/78c.md?p=a-9) who is associated with, who is seeking to become associated with, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a [nationally recognized statistical rating organization](#l-3), the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities or functions of such [person](/usc/15/78c.md?p=a-9), suspend for a period not exceeding 1 year, or bar such [person](/usc/15/78c.md?p=a-9) from being associated with a [nationally recognized statistical rating organization](#l-3), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, bar or revocation is necessary for the protection of investors and in the public interest and that such [nationally recognized statistical rating organization](#l-3), or any [person associated with](/usc/15/78c.md?p=a-63) such an organization, whether prior to or subsequent to becoming so associated— - (A) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph [(A)](/usc/15/78o.md?p=b-4-A), [(D)](/usc/15/78o.md?p=b-4-D), [(E)](/usc/15/78o.md?p=b-4-E), [(H)](/usc/15/78o.md?p=b-4-H), or [(G)](/usc/15/78o.md?p=b-4-G) of section 78o(b)(4) of this title, has been convicted of any offense specified in [section 78o(b)(4)(B)](/usc/15/78o.md?p=b-4-B) of this title, or is enjoined from any action, conduct, or practice specified in [subparagraph (C)](/usc/15/78o.md?p=b-4-C) of section 78o(b)(4) of this title, during the 10-year period preceding the date of commencement of the proceedings under this subsection, or at any time thereafter; - (B) has been convicted during the 10-year period preceding the date on which an [application](/usc/15/77ccc.md?p=8) for registration is filed with the [Commission](/usc/15/78c.md?p=a-15) under this section, or at any time thereafter, of— - (i) any crime that is punishable by imprisonment for 1 or more years, and that is not described in [section 78o(b)(4)(B)](/usc/15/78o.md?p=b-4-B) of this title; or - (ii) a substantially equivalent crime by a foreign court of competent jurisdiction; - (C) is subject to any [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) barring or suspending the right of the [person](/usc/15/78c.md?p=a-9) to be associated with a [nationally recognized statistical rating organization](#l-3); - (D) fails to file the certifications required under [subsection (b)(2)](#b-2); - (E) fails to maintain adequate financial and managerial resources to consistently produce [credit ratings](/usc/15/78c.md?p=a-60) with integrity;[^1] - (F) has failed reasonably to supervise, with a view to preventing a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47), an individual who commits such a [violation](/usc/15/57b–1.md?p=a-7), if the individual is subject to the supervision of that [person](/usc/15/78c.md?p=a-9). - (2) **Suspension or revocation for particular class of securities—** - (A) **In general—** The [Commission](/usc/15/78c.md?p=a-15) may temporarily suspend or permanently revoke the registration of a [nationally recognized statistical rating organization](#l-3) with respect to a particular class or subclass of [securities](/usc/15/78c.md?p=a-10), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that the [nationally recognized statistical rating organization](#l-3) does not have adequate financial and managerial resources to consistently produce [credit ratings](/usc/15/78c.md?p=a-60) with integrity. - (B) **Considerations—** In making any determination under [subparagraph (A)](#d-2-A), the [Commission](/usc/15/78c.md?p=a-15) shall consider— - (i) whether the [nationally recognized statistical rating organization](#l-3) has failed over a sustained period of time, as determined by the [Commission](/usc/15/78c.md?p=a-15), to produce ratings that are accurate for that class or subclass of [securities](/usc/15/78c.md?p=a-10); and - (ii) such other factors as the [Commission](/usc/15/78c.md?p=a-15) may determine. - (e) **Termination of registration—** - (1) **Voluntary withdrawal—** A [nationally recognized statistical rating organization](#l-3) may, upon such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15) may establish as necessary in the public interest or for the protection of investors, withdraw from registration by furnishing a written notice of withdrawal to the [Commission](/usc/15/78c.md?p=a-15). - (2) **Commission authority—** In addition to any other [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this chapter, if the [Commission](/usc/15/78c.md?p=a-15) finds that a [nationally recognized statistical rating organization](#l-3) is no longer in existence or has ceased to do business as a [credit rating agency](/usc/15/78c.md?p=a-61), the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall cancel the registration under this section of such [nationally recognized statistical rating organization](#l-3). - (f) **Representations—** - (1) **Ban on representations of sponsorship by United States or agency thereof—** It shall be unlawful for any [nationally recognized statistical rating organization](#l-3) to represent or imply in any manner whatsoever that such [nationally recognized statistical rating organization](#l-3) has been designated, sponsored, recommended, or approved, or that the abilities or qualifications thereof have in any respect been passed upon, by the United States or any agency, officer, or employee thereof. - (2) **Ban on representation as NRSRO of unregistered credit rating agencies—** It shall be unlawful for any [credit rating agency](/usc/15/78c.md?p=a-61) that is not registered under this section as a [nationally recognized statistical rating organization](#l-3) to [state](/usc/15/78c.md?p=a-16) that such [credit rating agency](/usc/15/78c.md?p=a-61) is a [nationally recognized statistical rating organization](#l-3) registered under this chapter. - (3) **Statement of registration under Securities Exchange Act of 1934 provisions—** No provision of [paragraph (1)](#f-1) shall be construed to prohibit a statement that a [nationally recognized statistical rating organization](#l-3) is a [nationally recognized statistical rating organization](#l-3) under this chapter, if such statement is true in fact and if the effect of such registration is not misrepresented. - (g) **Prevention of misuse of nonpublic information—** - (1) **Organization policies and procedures—** Each [nationally recognized statistical rating organization](#l-3) shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of such [nationally recognized statistical rating organization](#l-3), to prevent the misuse in [violation](/usc/15/57b–1.md?p=a-7) of this chapter, or the rules or regulations hereunder, of material, nonpublic information by such [nationally recognized statistical rating organization](#l-3) or any [person associated with](/usc/15/78c.md?p=a-63) such [nationally recognized statistical rating organization](#l-3). - (2) **Commission authority—** The [Commission](/usc/15/78c.md?p=a-15) shall issue final rules in accordance with [subsection (n)](#n) to require specific policies or procedures that are reasonably designed to prevent misuse in [violation](/usc/15/57b–1.md?p=a-7) of this chapter (or the rules or regulations hereunder) of material, nonpublic information. - (h) **Management of conflicts of interest—** - (1) **Organization policies and procedures—** Each [nationally recognized statistical rating organization](#l-3) shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of such [nationally recognized statistical rating organization](#l-3) and [affiliated persons](/usc/15/78c.md?p=a-19) and affiliated [companies](/usc/15/78c.md?p=a-19) thereof, to address and manage any conflicts of interest that can arise from such business. - (2) **Commission authority—** The [Commission](/usc/15/78c.md?p=a-15) shall issue final rules in accordance with [subsection (n)](#n) to prohibit, or require the management and disclosure of, any conflicts of interest relating to the issuance of [credit ratings](/usc/15/78c.md?p=a-60) by a [nationally recognized statistical rating organization](#l-3), including, without limitation, conflicts of interest relating to— - (A) the manner in which a [nationally recognized statistical rating organization](#l-3) is compensated by the obligor, or any affiliate of the obligor, for issuing [credit ratings](/usc/15/78c.md?p=a-60) or providing related services; - (B) the provision of consulting, advisory, or other services by a [nationally recognized statistical rating organization](#l-3), or any [person associated with](/usc/15/78c.md?p=a-63) such [nationally recognized statistical rating organization](#l-3), to the obligor, or any affiliate of the obligor; - (C) business relationships, ownership interests, or any other financial or personal interests between a [nationally recognized statistical rating organization](#l-3), or any [person associated with](/usc/15/78c.md?p=a-63) such [nationally recognized statistical rating organization](#l-3), and the obligor, or any affiliate of the obligor; - (D) any affiliation of a [nationally recognized statistical rating organization](#l-3), or any [person associated with](/usc/15/78c.md?p=a-63) such [nationally recognized statistical rating organization](#l-3), with any [person](/usc/15/78c.md?p=a-9) that underwrites the [securities](/usc/15/78c.md?p=a-10) or money market instruments that are the subject of a [credit rating](/usc/15/78c.md?p=a-60); and - (E) any other potential conflict of interest, as the [Commission](/usc/15/78c.md?p=a-15) deems necessary or appropriate in the public interest or for the protection of investors. - (3) **Separation of ratings from sales and marketing—** - (A) **Rules required—** The [Commission](/usc/15/78c.md?p=a-15) shall issue rules to prevent the sales and marketing considerations of a [nationally recognized statistical rating organization](#l-3) from influencing the production of ratings by the [nationally recognized statistical rating organization](#l-3). - (B) **Contents of rules—** The rules issued under [subparagraph (A)](#h-3-A) shall provide for— - (i) exceptions for small [nationally recognized statistical rating organizations](#l-3) with respect to which the [Commission](/usc/15/78c.md?p=a-15) determines that the separation of the production of ratings and sales and marketing activities is not appropriate; and - (ii) suspension or revocation of the registration of a [nationally recognized statistical rating organization](#l-3), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record, after notice and opportunity for a hearing, that— - (I) the [nationally recognized statistical rating organization](#l-3) has committed a [violation](/usc/15/57b–1.md?p=a-7) of a rule issued under this subsection; and - (II) the [violation](/usc/15/57b–1.md?p=a-7) of a rule issued under this subsection affected a rating. - (4) **Look-back requirement—** - (A) **Review by the nationally recognized statistical rating organization—** Each [nationally recognized statistical rating organization](#l-3) shall establish, maintain, and enforce policies and procedures reasonably designed to ensure that, in any case in which an employee of a [person](/usc/15/78c.md?p=a-9) subject to a [credit rating](/usc/15/78c.md?p=a-60) of the [nationally recognized statistical rating organization](#l-3) or the [issuer](/usc/15/78c.md?p=a-8), [underwriter](/usc/15/78c.md?p=a-20), or sponsor of a [security](/usc/15/78c.md?p=a-10) or money market instrument subject to a [credit rating](/usc/15/78c.md?p=a-60) of the [nationally recognized statistical rating organization](#l-3) was employed by the [nationally recognized statistical rating organization](#l-3) and participated in any capacity in determining [credit ratings](/usc/15/78c.md?p=a-60) for the [person](/usc/15/78c.md?p=a-9) or the [securities](/usc/15/78c.md?p=a-10) or money market instruments during the 1-year period preceding the date an action was taken with respect to the [credit rating](/usc/15/78c.md?p=a-60), the [nationally recognized statistical rating organization](#l-3) shall— - (i) conduct a review to determine whether any conflicts of interest of the employee influenced the [credit rating](/usc/15/78c.md?p=a-60); and - (ii) take action to revise the rating if appropriate, in accordance with such rules as the [Commission](/usc/15/78c.md?p=a-15) shall prescribe. - (B) **Review by Commission—** - (i) **In general—** The [Commission](/usc/15/78c.md?p=a-15) shall conduct periodic reviews of the policies described in [subparagraph (A)](#h-4-A) and the implementation of the policies at each [nationally recognized statistical rating organization](#l-3) to ensure they are reasonably designed and implemented to most effectively eliminate conflicts of interest. - (ii) **Timing of reviews—** The [Commission](/usc/15/78c.md?p=a-15) shall review the code of ethics and conflict of interest policy of each [nationally recognized statistical rating organization](#l-3)— - (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](#l-3) shall report to the [Commission](/usc/15/78c.md?p=a-15) any case such organization knows or can reasonably be expected to know where a [person associated with](/usc/15/78c.md?p=a-63) such organization within the previous 5 years obtains employment with any obligor, [issuer](/usc/15/78c.md?p=a-8), [underwriter](/usc/15/78c.md?p=a-20), or sponsor of a [security](/usc/15/78c.md?p=a-10) or money market instrument for which the organization issued a [credit rating](/usc/15/78c.md?p=a-60) 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](/usc/15/78c.md?p=a-60) for such obligor, [issuer](/usc/15/78c.md?p=a-8), [underwriter](/usc/15/78c.md?p=a-20), or sponsor; or - (iii) supervised an employee described in [clause (ii)](#h-5-A-ii). - (B) **Public disclosure—** Upon receiving such a report, the [Commission](/usc/15/78c.md?p=a-15) shall make such information publicly available. - (i) **Prohibited conduct—** - (1) **Prohibited acts and practices—** The [Commission](/usc/15/78c.md?p=a-15) shall issue final rules in accordance with [subsection (n)](#n) to prohibit any act or practice relating to the issuance of [credit ratings](/usc/15/78c.md?p=a-60) by a [nationally recognized statistical rating organization](#l-3) that the [Commission](/usc/15/78c.md?p=a-15) determines to be unfair, coercive, or abusive, including any act or practice relating to— - (A) conditioning or threatening to condition the issuance of a [credit rating](/usc/15/78c.md?p=a-60) on the [purchase](/usc/15/78c.md?p=a-13) by the obligor or an affiliate thereof of other services or products, including pre-[credit rating](/usc/15/78c.md?p=a-60) assessment products, of the [nationally recognized statistical rating organization](#l-3) or any [person associated with](/usc/15/78c.md?p=a-63) such [nationally recognized statistical rating organization](#l-3); - (B) lowering or threatening to lower a [credit rating](/usc/15/78c.md?p=a-60) on, or refusing to rate, [securities](/usc/15/78c.md?p=a-10) or money market instruments issued by an asset pool or as part of any asset-backed or mortgage-backed [securities](/usc/15/78c.md?p=a-10) transaction, unless a portion of the assets within such pool or part of such transaction, as applicable, also is rated by the [nationally recognized statistical rating organization](#l-3); or - (C) modifying or threatening to modify a [credit rating](/usc/15/78c.md?p=a-60) or otherwise departing from its adopted systematic procedures and methodologies in determining [credit ratings](/usc/15/78c.md?p=a-60), based on whether the obligor, or an affiliate of the obligor, [purchases](/usc/15/78c.md?p=a-13) or will [purchase](/usc/15/78c.md?p=a-13) the [credit rating](/usc/15/78c.md?p=a-60) or any other service or product of the [nationally recognized statistical rating organization](#l-3) or any [person associated with](/usc/15/78c.md?p=a-63) such organization. - (2) **Rule of construction—** Nothing in [paragraph (1)](#i-1), or in any rules or regulations adopted thereunder, may be construed to modify, impair, or supersede the operation of any of the [antitrust laws](/usc/15/7a–3.md?p=a-3-A) (as defined in [section 12 of this title](/usc/15/12.md), except that such term includes [section 45 of this title](/usc/15/45.md), to the extent that such [section 45](/usc/15/45.md) applies to unfair methods of competition). - (j) **Designation of compliance officer—** - (1) **In general—** Each [nationally recognized statistical rating organization](#l-3) shall designate an individual responsible for administering the policies and procedures that are required to be established pursuant to subsections [(g)](#g) and [(h)](#h), and for ensuring compliance with the [securities laws](/usc/15/78c.md?p=a-47) and the rules and regulations thereunder, including those promulgated by the [Commission](/usc/15/78c.md?p=a-15) pursuant to this section. - (2) **Limitations—** - (A) **In general—** Except as provided in [subparagraph (B)](#j-2-B), an individual designated under [paragraph (1)](#j-1) may not, while serving in the designated capacity— - (i) perform [credit ratings](/usc/15/78c.md?p=a-60); - (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 individual. - (B) **Exception—** The [Commission](/usc/15/78c.md?p=a-15) may exempt a small [nationally recognized statistical rating organization](#l-3) from the limitations under this paragraph, if the [Commission](/usc/15/78c.md?p=a-15) finds that compliance with such limitations would impose an unreasonable burden on the [nationally recognized statistical rating organization](#l-3). - (3) **Other duties—** Each individual designated under [paragraph (1)](#j-1) shall establish procedures for the receipt, retention, and treatment of— - (A) complaints regarding [credit ratings](/usc/15/78c.md?p=a-60), models, methodologies, and compliance with the [securities laws](/usc/15/78c.md?p=a-47) and the policies and procedures developed under this section; and - (B) confidential, anonymous complaints by employees or users of [credit ratings](/usc/15/78c.md?p=a-60). - (4) **Compensation—** The compensation of each compliance officer appointed under [paragraph (1)](#j-1) shall not be linked to the financial performance of the [nationally recognized statistical rating organization](#l-3) 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 designated under [paragraph (1)](#j-1) shall submit to the [nationally recognized statistical rating organization](#l-3) an annual report on the compliance of the [nationally recognized statistical rating organization](#l-3) with the [securities laws](/usc/15/78c.md?p=a-47) and the policies and procedures of the [nationally recognized statistical rating organization](#l-3) 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](#l-3); and - (ii) a certification that the report is accurate and complete. - (B) **Submission of reports to the Commission—** Each [nationally recognized statistical rating organization](#l-3) shall file the reports required under [subparagraph (A)](#j-5-A) together with the financial report that is required to be submitted to the [Commission](/usc/15/78c.md?p=a-15) under this section. - (k) **Statements of financial condition—** Each [nationally recognized statistical rating organization](#l-3) shall, on a confidential basis, file with the [Commission](/usc/15/78c.md?p=a-15), at intervals determined by the [Commission](/usc/15/78c.md?p=a-15), such financial statements, certified (if required by the rules or regulations of the [Commission](/usc/15/78c.md?p=a-15)) by an independent public accountant, and information concerning its financial condition, as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (l) **Sole method of registration—** - (1) **In general—** On and after the effective date of this section, a [credit rating agency](/usc/15/78c.md?p=a-61) may only be registered as a [nationally recognized statistical rating organization](#l-3) for any purpose in accordance with this section. - (2) **Prohibition on reliance on no-action relief—** On and after the effective date of this section— - (A) an entity that, before that date, received advice, approval, or a no-action letter from the [Commission](/usc/15/78c.md?p=a-15) or staff thereof to be treated as a [nationally recognized statistical rating organization](#l-3) pursuant to the [Commission](/usc/15/78c.md?p=a-15) rule at [section 240.15c3–1 of title 17, Code of Federal Regulations](/cfr/17/240.15c3–1.md), may represent itself or act as a [nationally recognized statistical rating organization](#l-3) only— - (i) during [Commission](/usc/15/78c.md?p=a-15) consideration of the [application](/usc/15/77ccc.md?p=8), if such entity has filed an [application](/usc/15/77ccc.md?p=8) for registration under this section; and - (ii) on and after the date of approval of its [application](/usc/15/77ccc.md?p=8) for registration under this section; and - (B) the advice, approval, or no-action letter described in [subparagraph (A)](#l-2-A) shall be void. - (3) **Notice to other agencies—** Not later than 30 days after September 29, 2006, the [Commission](/usc/15/78c.md?p=a-15) shall give notice of the actions undertaken pursuant to this section to each [Federal agency](/usc/15/3719.md?p=a-3) which employs in its rules and regulations the term “nationally recognized statistical rating organization” (as that term is used under [Commission](/usc/15/78c.md?p=a-15) rule 15c3–1 ([17 C.F.R. 240.15c3–1](/cfr/17/240.15c3–1.md)), as in effect on September 29, 2006). - (m) **Accountability—** - (1) **In general—** The enforcement and penalty provisions of this chapter shall apply to statements made by a [credit rating agency](/usc/15/78c.md?p=a-61) in the same manner and to the same extent as such provisions apply to statements made by a [registered public accounting firm](/usc/15/78c.md?p=a-59) or a [securities](/usc/15/78c.md?p=a-10) analyst under the [securities laws](/usc/15/78c.md?p=a-47), and such statements shall not be deemed forward-looking statements for the purposes of [section 78u–5 of this title](/usc/15/78u–5.md). - (2) **Rulemaking—** The [Commission](/usc/15/78c.md?p=a-15) shall issue such rules as may be necessary to carry out this subsection. - (n) **Regulations—** - (1) **New provisions—** Such rules and regulations as are required by this section or are otherwise necessary to carry out this section, including the [application](/usc/15/77ccc.md?p=8) form required under [subsection (a)](#a)— - (A) shall be issued by the [Commission](/usc/15/78c.md?p=a-15) in final form, not later than 270 days after September 29, 2006; and - (B) shall become effective not later than 270 days after September 29, 2006. - (2) **Review of existing regulations—** Not later than 270 days after September 29, 2006, the [Commission](/usc/15/78c.md?p=a-15) shall— - (A) review its existing rules and regulations which employ the term “[nationally recognized statistical rating organization](#l-3)” or “NRSRO”; and - (B) amend or revise such rules and regulations in accordance with the purposes of this section, as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (o) **NRSROs subject to Commission authority—** - (1) **In general—** No provision of the laws of any [State](/usc/15/78c.md?p=a-16) or political subdivision thereof requiring the registration, licensing, or qualification as a [credit rating agency](/usc/15/78c.md?p=a-61) or a [nationally recognized statistical rating organization](#l-3) shall apply to any [nationally recognized statistical rating organization](#l-3) or [person](/usc/15/78c.md?p=a-9) employed by or working under the control of a [nationally recognized statistical rating organization](#l-3). - (2) **Limitation—** Nothing in this subsection prohibits the [securities](/usc/15/78c.md?p=a-10) [commission](/usc/15/78c.md?p=a-15) (or any agency or office performing like functions) of any [State](/usc/15/78c.md?p=a-16) from investigating and bringing an enforcement action with respect to fraud or deceit against any [nationally recognized statistical rating organization](#l-3) or [person associated with](/usc/15/78c.md?p=a-63) a [nationally recognized statistical rating organization](#l-3). - (p) **Regulation of nationally recognized statistical rating organizations—** - (1) **Establishment of Office of Credit Ratings—** - (A) **Office established—** The [Commission](/usc/15/78c.md?p=a-15) shall establish within the [Commission](/usc/15/78c.md?p=a-15) an Office of [Credit Ratings](/usc/15/78c.md?p=a-60) (referred to in this subsection as the “Office”) to administer the rules of the [Commission](/usc/15/78c.md?p=a-15)— - (i) with respect to the practices of [nationally recognized statistical rating organizations](#l-3) in determining ratings, for the protection of users of [credit ratings](/usc/15/78c.md?p=a-60) and in the public interest; - (ii) to promote accuracy in [credit ratings](/usc/15/78c.md?p=a-60) issued by [nationally recognized statistical rating organizations](#l-3); 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](/usc/15/78c.md?p=a-7), who shall report to the Chairman. - (2) **Staffing—** The Office established under this subsection shall be staffed sufficiently to carry out fully the requirements of this section. The staff shall include [persons](/usc/15/78c.md?p=a-9) with knowledge of and expertise in corporate, municipal, and structured debt finance. - (3) **Commission examinations—** - (A) **Annual examinations required—** The Office shall conduct an examination of each [nationally recognized statistical rating organization](#l-3) at least annually. - (B) **Conduct of examinations—** Each examination under [subparagraph (A)](#p-3-A) shall include a review of— - (i) whether the [nationally recognized statistical rating organization](#l-3) conducts business in accordance with the policies, procedures, and rating methodologies of the [nationally recognized statistical rating organization](#l-3); - (ii) the management of conflicts of interest by the [nationally recognized statistical rating organization](#l-3); - (iii) implementation of ethics policies by the [nationally recognized statistical rating organization](#l-3); - (iv) the internal supervisory controls of the [nationally recognized statistical rating organization](#l-3); - (v) the governance of the [nationally recognized statistical rating organization](#l-3); - (vi) the activities of the individual designated by the [nationally recognized statistical rating organization](#l-3) under [subsection (j)(1)](#j-1); - (vii) the processing of complaints by the [nationally recognized statistical rating organization](#l-3); and - (viii) the policies of the [nationally recognized statistical rating organization](#l-3) governing the post-employment activities of former staff of the [nationally recognized statistical rating organization](#l-3). - (C) **Inspection reports—** The [Commission](/usc/15/78c.md?p=a-15) shall make available to the public, in an easily understandable format, an annual report summarizing— - (i) the essential findings of all examinations conducted under [subparagraph (A)](#p-3-A), as deemed appropriate by the [Commission](/usc/15/78c.md?p=a-15); - (ii) the responses by the [nationally recognized statistical rating organizations](#l-3) to any material regulatory deficiencies identified by the [Commission](/usc/15/78c.md?p=a-15) under [clause (i)](#p-3-C-i); and - (iii) whether the [nationally recognized statistical rating organizations](#l-3) have appropriately addressed the recommendations of the [Commission](/usc/15/78c.md?p=a-15) contained in previous reports under this subparagraph. - (4) **Rulemaking authority—** The [Commission](/usc/15/78c.md?p=a-15) shall— - (A) establish, by rule, fines, and other penalties applicable to any [nationally recognized statistical rating organization](#l-3) 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](/usc/15/78c.md?p=a-15) shall, by rule, require that each [nationally recognized statistical rating organization](#l-3) publicly disclose information on the initial [credit ratings](/usc/15/78c.md?p=a-60) determined by the [nationally recognized statistical rating organization](#l-3) for each type of obligor, [security](/usc/15/78c.md?p=a-10), and money market instrument, and any subsequent changes to such [credit ratings](/usc/15/78c.md?p=a-60), for the purpose of allowing users of [credit ratings](/usc/15/78c.md?p=a-60) to evaluate the accuracy of ratings and compare the performance of ratings by different [nationally recognized statistical rating organizations](#l-3). - (2) **Content—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under this subsection shall require, at a minimum, disclosures that— - (A) are comparable among [nationally recognized statistical rating organizations](#l-3), to allow users of [credit ratings](/usc/15/78c.md?p=a-60) to compare the performance of [credit ratings](/usc/15/78c.md?p=a-60) across [nationally recognized statistical rating organizations](#l-3); - (B) are clear and informative for investors having a wide range of sophistication who use or might use [credit ratings](/usc/15/78c.md?p=a-60); - (C) include performance information over a range of years and for a variety of types of [credit ratings](/usc/15/78c.md?p=a-60), including for [credit ratings](/usc/15/78c.md?p=a-60) withdrawn by the [nationally recognized statistical rating organization](#l-3); - (D) are published and made freely available by the [nationally recognized statistical rating organization](#l-3), on an easily accessible portion of its website, and in writing, when requested; - (E) are appropriate to the business model of a [nationally recognized statistical rating organization](#l-3); and - (F) each [nationally recognized statistical rating organization](#l-3) include an attestation with any [credit rating](/usc/15/78c.md?p=a-60) 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 that such rating was an independent evaluation of the risks and merits of the instrument. - (r) **Credit ratings methodologies—** The [Commission](/usc/15/78c.md?p=a-15) 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](#l-3) that require each [nationally recognized statistical rating organization](#l-3)— - (1) to ensure that [credit ratings](/usc/15/78c.md?p=a-60) are determined using procedures and methodologies, including qualitative and quantitative data and models, that are— - (A) approved by the [board](/usc/15/78c.md?p=a-73) of the [nationally recognized statistical rating organization](#l-3), a body performing a function similar to that of a [board](/usc/15/78c.md?p=a-73); and - (B) in accordance with the policies and procedures of the [nationally recognized statistical rating organization](#l-3) for the development and modification of [credit rating](/usc/15/78c.md?p=a-60) procedures and methodologies; - (2) to ensure that when material changes to [credit rating](/usc/15/78c.md?p=a-60) 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](/usc/15/78c.md?p=a-60) to which the changed procedures and methodologies apply; - (B) to the extent that changes are made to [credit rating](/usc/15/78c.md?p=a-60) surveillance procedures and methodologies, the changes are applied to then-current [credit ratings](/usc/15/78c.md?p=a-60) by the [nationally recognized statistical rating organization](#l-3) within a reasonable time period determined by the [Commission](/usc/15/78c.md?p=a-15), by rule; and - (C) the [nationally recognized statistical rating organization](#l-3) publicly discloses the reason for the change; and - (3) to notify users of [credit ratings](/usc/15/78c.md?p=a-60)— - (A) of the version of a procedure or methodology, including the qualitative methodology or quantitative inputs, used with respect to a particular [credit rating](/usc/15/78c.md?p=a-60); - (B) when a material change is made to a procedure or methodology, including to a qualitative model or quantitative inputs; - (C) when a significant error is identified in a procedure or methodology, including a qualitative or quantitative model, that may result in [credit rating](/usc/15/78c.md?p=a-60) actions; and - (D) of the likelihood of a material change described in [subparagraph (B)](#r-3-B) resulting in a change in current [credit ratings](/usc/15/78c.md?p=a-60). - (s) **Transparency of credit rating methodologies and information reviewed—** - (1) **Form for disclosures—** The [Commission](/usc/15/78c.md?p=a-15) shall require, by rule, each [nationally recognized statistical rating organization](#l-3) to prescribe a form to accompany the publication of each [credit rating](/usc/15/78c.md?p=a-60) that discloses— - (A) information relating to— - (i) the assumptions underlying the [credit rating](/usc/15/78c.md?p=a-60) procedures and methodologies; - (ii) the data that was relied on to determine the [credit rating](/usc/15/78c.md?p=a-60); and - (iii) if applicable, how the [nationally recognized statistical rating organization](#l-3) used servicer or remittance reports, and with what frequency, to conduct surveillance of the [credit rating](/usc/15/78c.md?p=a-60); and - (B) information that can be used by investors and other users of [credit ratings](/usc/15/78c.md?p=a-60) to better understand [credit ratings](/usc/15/78c.md?p=a-60) in each class of [credit rating](/usc/15/78c.md?p=a-60) issued by the [nationally recognized statistical rating organization](#l-3). - (2) **Format—** The form developed under [paragraph (1)](#s-1) shall— - (A) be easy to use and helpful for users of [credit ratings](/usc/15/78c.md?p=a-60) to understand the information contained in the report; - (B) require the [nationally recognized statistical rating organization](#l-3) to provide the content described in [paragraph (3)(B)](#s-3-B) in a manner that is directly comparable across types of [securities](/usc/15/78c.md?p=a-10); and - (C) be made readily available to users of [credit ratings](/usc/15/78c.md?p=a-60), in electronic or paper form, as the [Commission](/usc/15/78c.md?p=a-15) may, by rule, determine. - (3) **Content of form—** - (A) **Qualitative content—** Each [nationally recognized statistical rating organization](#l-3) shall disclose on the form developed under [paragraph (1)](#s-1)— - (i) the [credit ratings](/usc/15/78c.md?p=a-60) produced by the [nationally recognized statistical rating organization](#l-3); - (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 structured products; - (iii) the potential limitations of the [credit ratings](/usc/15/78c.md?p=a-60), and the types of risks excluded from the [credit ratings](/usc/15/78c.md?p=a-60) that the [nationally recognized statistical rating organization](#l-3) does not comment on, including liquidity, market, and other risks; - (iv) information on the uncertainty of the [credit rating](/usc/15/78c.md?p=a-60), including— - (I) information on the reliability, accuracy, and quality of the data relied on in determining the [credit rating](/usc/15/78c.md?p=a-60); and - (II) a statement relating to the extent to which data essential to the determination of the [credit rating](/usc/15/78c.md?p=a-60) 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](/usc/15/78c.md?p=a-60); - (v) whether and to what extent third party due diligence services have been used by the [nationally recognized statistical rating organization](#l-3), 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; - (vi) a description of the data about any obligor, [issuer](/usc/15/78c.md?p=a-8), [security](/usc/15/78c.md?p=a-10), or money market instrument that were relied upon for the purpose of determining the [credit rating](/usc/15/78c.md?p=a-60); - (vii) a statement containing an overall assessment of the quality of information available and considered in producing a rating for an obligor, [security](/usc/15/78c.md?p=a-10), or money market instrument, in relation to the quality of information available to the [nationally recognized statistical rating organization](#l-3) in rating similar issuances; - (viii) information relating to conflicts of interest of the [nationally recognized statistical rating organization](#l-3); and - (ix) such additional information as the [Commission](/usc/15/78c.md?p=a-15) may require. - (B) **Quantitative content—** Each [nationally recognized statistical rating organization](#l-3) shall disclose on the form developed under this subsection— - (i) an explanation or measure of the potential volatility of the [credit rating](/usc/15/78c.md?p=a-60), including— - (I) any factors that might lead to a change in the [credit ratings](/usc/15/78c.md?p=a-60); 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](#l-3), 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)](#s-3-B-iii-I) impacts a rating;[^2] - (iv) such additional information as may be required by the [Commission](/usc/15/78c.md?p=a-15). - (4) **Due diligence services for asset-backed securities—** - (A) **Findings—** The [issuer](/usc/15/78c.md?p=a-8) or [underwriter](/usc/15/78c.md?p=a-20) of any [asset-backed security](/usc/15/78c.md?p=a-79) shall make publicly available the findings and conclusions of any third-party due diligence report obtained by the [issuer](/usc/15/78c.md?p=a-8) or [underwriter](/usc/15/78c.md?p=a-20). - (B) **Certification required—** In any case in which third-party due diligence services are employed by a [nationally recognized statistical rating organization](#l-3), an [issuer](/usc/15/78c.md?p=a-8), or an [underwriter](/usc/15/78c.md?p=a-20), the [person](/usc/15/78c.md?p=a-9) providing the due diligence services shall provide to any [nationally recognized statistical rating organization](#l-3) that produces a rating to which such services relate, written certification, as provided in [subparagraph (C)](#s-4-C). - (C) **Format and content—** The [Commission](/usc/15/78c.md?p=a-15) shall establish the appropriate format and content for the written certifications required under [subparagraph (B)](#s-4-B), to ensure that providers of due diligence services have conducted a thorough review of data, documentation, and other relevant information necessary for a [nationally recognized statistical rating organization](#l-3) to provide an accurate rating. - (D) **Disclosure of certification—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules requiring a [nationally recognized statistical rating organization](#l-3), at the time at which the [nationally recognized statistical rating organization](#l-3) produces a rating, to disclose the certification described in [subparagraph (B)](#s-4-B) to the public in a manner that allows the public to determine the adequacy and level of due diligence services provided by a third party. - (t) **Corporate governance, organization, and management of conflicts of interest—** - (1) **Board of directors—** Each [nationally recognized statistical rating organization](#l-3) shall have a [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7). - (2) **Independent directors—** - (A) **In general—** At least ½ of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), but not fewer than 2 of the [members](/usc/15/78c.md?p=a-3-A) thereof, shall be independent of the nationally recognized statistical rating agency. A portion of the independent [directors](/usc/15/78c.md?p=a-7) shall include users of ratings from a [nationally recognized statistical rating organization](#l-3). - (B) **Independence determination—** In [order](/usc/15/8702.md?p=14) to be considered independent for purposes of this subsection, a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of a [nationally recognized statistical rating organization](#l-3)— - (i) may not, other than in his or her capacity as a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) or any [committee](/usc/15/2921.md?p=1) thereof— - (I) accept any consulting, advisory, or other compensatory fee from the [nationally recognized statistical rating organization](#l-3); or - (II) be a [person associated with](/usc/15/78c.md?p=a-63) the [nationally recognized statistical rating organization](#l-3) or with any affiliated [company](/usc/15/78c.md?p=a-19) thereof; and - (ii) shall be disqualified from any deliberation involving a specific rating in which the independent [board](/usc/15/78c.md?p=a-73) [member](/usc/15/78c.md?p=a-3-A) has a financial interest in the outcome of the rating. - (C) **Compensation and term—** The compensation of the independent [members](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of a [nationally recognized statistical rating organization](#l-3) shall not be linked to the business performance of the [nationally recognized statistical rating organization](#l-3), and shall be arranged so as to ensure the independence of their judgment. The term of office of the independent [directors](/usc/15/78c.md?p=a-7) 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](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), the [board](/usc/15/78c.md?p=a-73) shall oversee— - (A) the establishment, maintenance, and enforcement of policies and procedures for determining [credit ratings](/usc/15/78c.md?p=a-60); - (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](/usc/15/78c.md?p=a-60); and - (D) the compensation and promotion policies and practices of the [nationally recognized statistical rating organization](#l-3). - (4) **Treatment of NRSRO subsidiaries—** If a [nationally recognized statistical rating organization](#l-3) is a subsidiary of a parent entity, the [board](/usc/15/78c.md?p=a-73) of the [directors](/usc/15/78c.md?p=a-7) of the parent entity may satisfy the requirements of this subsection by assigning to a [committee](/usc/15/2921.md?p=1) of such [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) the duties under [paragraph (3)](#t-3), if— - (A) at least ½ of the [members](/usc/15/78c.md?p=a-3-A) of the [committee](/usc/15/2921.md?p=1) (including the chairperson of the [committee](/usc/15/2921.md?p=1)) are independent, as defined in this section; and - (B) at least 1 [member](/usc/15/78c.md?p=a-3-A) of the [committee](/usc/15/2921.md?p=1) is a user of ratings from a [nationally recognized statistical rating organization](#l-3). - (5) **Exception authority—** If the [Commission](/usc/15/78c.md?p=a-15) finds that compliance with the provisions of this subsection present an unreasonable burden on a small [nationally recognized statistical rating organization](#l-3), the [Commission](/usc/15/78c.md?p=a-15) may permit the [nationally recognized statistical rating organization](#l-3) to delegate such responsibilities to a [committee](/usc/15/2921.md?p=1) that includes at least one individual who is a user of ratings of a [nationally recognized statistical rating organization](#l-3). - (u) **Duty to report tips alleging material violations of law—** - (1) **Duty to report—** Each [nationally recognized statistical rating organization](#l-3) shall refer to the appropriate law enforcement or regulatory [authorities](/usc/15/3051.md?p=1) any information that the [nationally recognized statistical rating organization](#l-3) receives from a third party and finds credible that alleges that an [issuer](/usc/15/78c.md?p=a-8) of [securities](/usc/15/78c.md?p=a-10) rated by the [nationally recognized statistical rating organization](#l-3) has committed or is committing a material [violation](/usc/15/57b–1.md?p=a-7) of law that has not been adjudicated by a Federal or [State](/usc/15/78c.md?p=a-16) court. - (2) **Rule of construction—** Nothing in [paragraph (1)](#u-1) may be construed to require a [nationally recognized statistical rating organization](#l-3) to verify the accuracy of the information described in [paragraph (1)](#u-1). - (v) **Information from sources other than the issuer—** In producing a [credit rating](/usc/15/78c.md?p=a-60), a [nationally recognized statistical rating organization](#l-3) shall consider information about an [issuer](/usc/15/78c.md?p=a-8) that the [nationally recognized statistical rating organization](#l-3) has, or receives from a source other than the [issuer](/usc/15/78c.md?p=a-8) or [underwriter](/usc/15/78c.md?p=a-20), that the [nationally recognized statistical rating organization](#l-3) finds credible and potentially significant to a rating decision. - (w) **Data standards for information required to be submitted or published under this section—** - (1) **Requirement—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, adopt data standards for all collections of information required to be submitted or published by a [nationally recognized statistical rating organization](#l-3) under this section. - (2) **Consistency—** The data standards required under [paragraph (1)](#w-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §78o–8. Universal ratings symbols - (a) **Rulemaking—** The [Commission](/usc/15/78c.md?p=a-15) shall require, by rule, each [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62) to establish, maintain, and enforce written policies and procedures that— - (1) assess the probability that an [issuer](/usc/15/78c.md?p=a-8) of a [security](/usc/15/78c.md?p=a-10) 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](/usc/15/78c.md?p=a-10) or money market instrument; - (2) clearly define and disclose the meaning of any symbol used by the [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62) to denote a [credit rating](/usc/15/78c.md?p=a-60); and - (3) apply any symbol described in [paragraph (2)](#a-2) in a manner that is consistent for all types of [securities](/usc/15/78c.md?p=a-10) and money market instruments for which the symbol is used. - (b) **Rule of construction—** Nothing in this section shall prohibit a [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62) from using distinct sets of symbols to denote [credit ratings](/usc/15/78c.md?p=a-60) for different types of [securities](/usc/15/78c.md?p=a-10) or money market instruments. # §78o–9. Study and rulemaking on assigned credit ratings - (a) **Definition—** In this section, the term “structured finance product” means an [asset-backed security](/usc/15/78c.md?p=a-79), as defined in [section 3(a)(77)](/usc/15/3.md)[^1] of the [Securities](/usc/15/78c.md?p=a-10) Exchange Act of 1934 [[15 U.S.C. 78c(a)(79)](/usc/15/78c.md?p=a-79)], as added by section 941,[^1] and any structured product based on an [asset-backed security](/usc/15/78c.md?p=a-79), as determined by the [Commission](/usc/15/78c.md?p=a-15), by rule. - (b) **Study—** The [Commission](/usc/15/78c.md?p=a-15) shall carry out a study of— - (1) the [credit rating](/usc/15/78c.md?p=a-60) process for [structured finance products](#a) and the conflicts of interest associated with the [issuer](/usc/15/78c.md?p=a-8)-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](/usc/15/78c.md?p=a-26) assigns [nationally recognized statistical rating organizations](/usc/15/78c.md?p=a-62) to determine the [credit ratings](/usc/15/78c.md?p=a-60) of [structured finance products](#a), including— - (A) an assessment of potential mechanisms for determining fees for the [nationally recognized statistical rating organizations](/usc/15/78c.md?p=a-62); - (B) appropriate methods for paying fees to the [nationally recognized statistical rating organizations](/usc/15/78c.md?p=a-62); - (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](/usc/15/78c.md?p=a-60); and - (4) alternative means for compensating [nationally recognized statistical rating organizations](/usc/15/78c.md?p=a-62) that would create incentives for accurate [credit ratings](/usc/15/78c.md?p=a-60). - (c) **Report and recommendation—** Not later than 24 months after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives a report that contains— - (1) the findings of the study required under [subsection (b)](#b); and - (2) any recommendations for regulatory or statutory changes that the [Commission](/usc/15/78c.md?p=a-15) determines should be made to implement the findings of the study required under [subsection (b)](#b). - (d) **Rulemaking—** - (1) **Rulemaking—** After submission of the report under [subsection (c)](#c), the [Commission](/usc/15/78c.md?p=a-15) shall, by rule, as the [Commission](/usc/15/78c.md?p=a-15) determines is necessary or appropriate in the public interest or for the protection of investors, establish a system for the assignment of [nationally recognized statistical rating organizations](/usc/15/78c.md?p=a-62) to determine the initial [credit ratings](/usc/15/78c.md?p=a-60) of [structured finance products](#a), in a manner that prevents the [issuer](/usc/15/78c.md?p=a-8), sponsor, or [underwriter](/usc/15/78c.md?p=a-20) of the [structured finance product](#a) from selecting the [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62) that will determine the initial [credit ratings](/usc/15/78c.md?p=a-60) and monitor such [credit ratings](/usc/15/78c.md?p=a-60). In issuing any rule under this paragraph, the [Commission](/usc/15/78c.md?p=a-15) shall give thorough consideration to the provisions of section 15E(w) of the [Securities](/usc/15/78c.md?p=a-10) 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](/usc/15/78c.md?p=a-15) 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](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15). # §78o–10. Registration and regulation of security-based swap dealers and major security-based swap participants - (a) **Registration—** - (1) **Security-based swap dealers—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to act as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) unless the [person](/usc/15/78c.md?p=a-9) is registered as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) with the [Commission](/usc/15/78c.md?p=a-15). - (2) **Major security-based swap participants—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) to act as a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) unless the [person](/usc/15/78c.md?p=a-9) is registered as a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) with the [Commission](/usc/15/78c.md?p=a-15). - (b) **Requirements—** - (1) **In general—** A [person](/usc/15/78c.md?p=a-9) shall register as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) by filing a registration [application](/usc/15/77ccc.md?p=8) with the [Commission](/usc/15/78c.md?p=a-15). - (2) **Contents—** - (A) **In general—** The [application](/usc/15/77ccc.md?p=8) shall be made in such form and manner as prescribed by the [Commission](/usc/15/78c.md?p=a-15), and shall contain such information, as the [Commission](/usc/15/78c.md?p=a-15) considers necessary concerning the business in which the [applicant](/usc/15/7a.md?p=3) is or will be engaged. - (B) **Continual reporting—** A [person](/usc/15/78c.md?p=a-9) that is registered as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall continue to submit to the [Commission](/usc/15/78c.md?p=a-15) reports that contain such information pertaining to the business of the [person](/usc/15/78c.md?p=a-9) as the [Commission](/usc/15/78c.md?p=a-15) may require. - (3) **Expiration—** Each registration under this section shall expire at such time as the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule or regulation. - (4) **Rules—** Except as provided in subsections [(d)](#d) and [(e)](#e), the [Commission](/usc/15/78c.md?p=a-15) may prescribe rules applicable to [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A), including rules that limit the activities of non-bank [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (5) **Transition—** Not later than 1 year after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall issue rules under this section to provide for the registration of [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (6) **Statutory disqualification—** Except to the extent otherwise specifically provided by rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15), it shall be unlawful for a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) to permit any [person associated with](/usc/15/78c.md?p=a-63) a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) who is subject to a statutory disqualification to effect or be involved in effecting [security-based swaps](/usc/15/78c.md?p=a-68-A) on behalf of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), if the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) knew, or in the exercise of reasonable care should have known, of the statutory disqualification. - (c) **Dual registration—** - (1) **Security-based swap dealer—** Any [person](/usc/15/78c.md?p=a-9) that is required to be registered as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) under this section shall register with the [Commission](/usc/15/78c.md?p=a-15), regardless of whether the [person](/usc/15/78c.md?p=a-9) also is registered with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) as a [swap dealer](/usc/15/78c.md?p=a-76). - (2) **Major security-based swap participant—** Any [person](/usc/15/78c.md?p=a-9) that is required to be registered as a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) under this section shall register with the [Commission](/usc/15/78c.md?p=a-15), regardless of whether the [person](/usc/15/78c.md?p=a-9) also is registered with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) as a [major swap participant](/usc/15/78c.md?p=a-66). - (d) **Rulemaking—** - (1) **In general—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules for [persons](/usc/15/78c.md?p=a-9) that are registered as [security-based swap dealers](/usc/15/78c.md?p=a-71-A) or [major security-based swap participants](/usc/15/78c.md?p=a-67-A) under this section. - (2) **Exception for prudential requirements—** - (A) **In general—** The [Commission](/usc/15/78c.md?p=a-15) may not prescribe rules imposing prudential requirements on [security-based swap dealers](/usc/15/78c.md?p=a-71-A) or [major security-based swap participants](/usc/15/78c.md?p=a-67-A) for which there is a [prudential regulator](/usc/15/78c.md?p=a-74). - (B) **Applicability—** [Subparagraph (A)](#d-2-A) does not limit the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) to prescribe rules as directed under this section. - (e) **Capital and margin requirements—** - (1) **In general—** - (A) **Security-based swap dealers and major security-based swap participants that are banks—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) for which there is not a [prudential regulator](/usc/15/78c.md?p=a-74) shall meet such minimum capital requirements and minimum initial and variation [margin](/usc/15/78c.md?p=a-57-A) requirements as the [prudential regulator](/usc/15/78c.md?p=a-74) shall by rule or regulation prescribe under [paragraph (2)(A)](#e-2-A). - (B) **Security-based swap dealers and major security-based swap participants that are not banks—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) for which there is not a [prudential regulator](/usc/15/78c.md?p=a-74) shall meet such minimum capital requirements and minimum initial and variation [margin](/usc/15/78c.md?p=a-57-A) requirements as the [Commission](/usc/15/78c.md?p=a-15) shall by rule or regulation prescribe under [paragraph (2)(B)](#e-2-B). - (2) **Rules—** - (A) **Security-based swap dealers and major security-based swap participants that are banks—** The [prudential regulators](/usc/15/78c.md?p=a-74), in consultation with the [Commission](/usc/15/78c.md?p=a-15) and the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), shall adopt rules for [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A), with respect to their activities as a [swap dealer](/usc/15/78c.md?p=a-76) or [major swap participant](/usc/15/78c.md?p=a-66), for which there is a [prudential regulator](/usc/15/78c.md?p=a-74) imposing— - (i) capital requirements; and - (ii) both initial and variation [margin](/usc/15/78c.md?p=a-57-A) requirements on all [security-based swaps](/usc/15/78c.md?p=a-68-A) that are not cleared by a registered [clearing agency](/usc/15/78c.md?p=a-23-A). - (B) **Security-based swap dealers and major security-based swap participants that are not banks—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules for [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A), with respect to their activities as a [swap dealer](/usc/15/78c.md?p=a-76) or [major swap participant](/usc/15/78c.md?p=a-66), for which there is not a [prudential regulator](/usc/15/78c.md?p=a-74) imposing— - (i) capital requirements; and - (ii) both initial and variation [margin](/usc/15/78c.md?p=a-57-A) requirements on all [swaps](/usc/15/78c.md?p=a-69) that are not cleared by a registered [clearing agency](/usc/15/78c.md?p=a-23-A). - (C) **Capital—** In setting capital requirements for a [person](/usc/15/78c.md?p=a-9) that is designated as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or a [major security-based swap participant](/usc/15/78c.md?p=a-67-A) for a single type or single class or category of [security-based swap](/usc/15/78c.md?p=a-68-A) or activities, the [prudential regulator](/usc/15/78c.md?p=a-74) and the [Commission](/usc/15/78c.md?p=a-15) shall take into [account](/usc/15/1681a.md?p=r-4) the risks associated with other types of [security-based swaps](/usc/15/78c.md?p=a-68-A) or classes of [security-based swaps](/usc/15/78c.md?p=a-68-A) or categories of [security-based swaps](/usc/15/78c.md?p=a-68-A) engaged in and the other activities conducted by that [person](/usc/15/78c.md?p=a-9) that are not otherwise subject to regulation applicable to that [person](/usc/15/78c.md?p=a-9) by virtue of the status of the [person](/usc/15/78c.md?p=a-9). - (3) **Standards for capital and margin—** - (A) **In general—** To offset the greater risk to the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) and the financial system arising from the use of [security-based swaps](/usc/15/78c.md?p=a-68-A) that are not cleared, the requirements imposed under [paragraph (2)](#e-2) shall— - (i) help ensure the safety and soundness of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A); and - (ii) be appropriate for the risk associated with the non-cleared [security-based swaps](/usc/15/78c.md?p=a-68-A) held as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A). - (B) **Rule of construction—** - (i) **In general—** Nothing in this section shall limit, or be construed to limit, the [authority](/usc/15/3051.md?p=1)— - (I) of the [Commission](/usc/15/78c.md?p=a-15) to set [financial responsibility rules](/usc/15/78c.md?p=a-40) for a [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [section 78o(b)](/usc/15/78o.md?p=b) of this title (except for [section 78o(b)(11)](/usc/15/78o.md?p=b-11) thereof) in accordance with [section 78o(c)(3)](/usc/15/78o.md?p=c-3) of this title; or - (II) of the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) to set [financial responsibility rules](/usc/15/78c.md?p=a-40) for a futures [commission](/usc/15/78c.md?p=a-15) merchant or introducing [broker](/usc/15/78c.md?p=a-4-A) registered pursuant to section 4f(a) of the Commodity Exchange Act [[7 U.S.C. 6f(a)](/usc/7/6f.md?p=a)] (except for section 4f(a)(3) [[7 U.S.C. 6f(a)(3)](/usc/7/6f.md?p=a-3)] thereof) in accordance with section 4f(b) of the Commodity Exchange Act [[7 U.S.C. 6f(b)](/usc/7/6f.md?p=b)]. - (ii) **Futures commission merchants and other dealers—** A futures [commission](/usc/15/78c.md?p=a-15) merchant, introducing [broker](/usc/15/78c.md?p=a-4-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) shall maintain sufficient capital to comply with the stricter of any applicable capital requirements to which such futures [commission](/usc/15/78c.md?p=a-15) merchant, introducing [broker](/usc/15/78c.md?p=a-4-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) is subject to under this chapter or the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.]. - (C) **Margin requirements—** In prescribing [margin](/usc/15/78c.md?p=a-57-A) requirements under this subsection, the [prudential regulator](/usc/15/78c.md?p=a-74) with respect to [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A) that are depository institutions, and the [Commission](/usc/15/78c.md?p=a-15) with respect to [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A) that are not depository institutions shall permit the use of noncash collateral, as the regulator or the [Commission](/usc/15/78c.md?p=a-15) determines to be consistent with— - (i) preserving the financial integrity of markets trading [security-based swaps](/usc/15/78c.md?p=a-68-A); and - (ii) preserving the stability of the United States financial system. - (D) **Comparability of capital and margin requirements—** - (i) **In general—** The [prudential regulators](/usc/15/78c.md?p=a-74), the [Commission](/usc/15/78c.md?p=a-15), and the [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) shall periodically (but not less frequently than annually) consult on minimum capital requirements and minimum initial and variation [margin](/usc/15/78c.md?p=a-57-A) requirements. - (ii) **Comparability—** The entities described in [clause (i)](#e-3-D-i) shall, to the maximum extent practicable, establish and maintain comparable minimum capital requirements and minimum initial and variation [margin](/usc/15/78c.md?p=a-57-A) requirements, including the use of noncash collateral, for— - (I) [security-based swap dealers](/usc/15/78c.md?p=a-71-A); and - (II) [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (4) **Applicability with respect to counterparties—** The requirements of paragraphs [(2)(A)(ii)](#e-2-A-ii) and [(2)(B)(ii)](#e-2-B-ii) shall not apply to a [security-based swap](/usc/15/78c.md?p=a-68-A) in which a counterparty qualifies for an exception under [section 78c–3(g)(1) of this title](/usc/15/78c–3.md?p=g-1) or satisfies the criteria in [section 78c–3(g)(4) of this title](/usc/15/78c–3.md?p=g-4). - (f) **Reporting and recordkeeping—** - (1) **In general—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A)— - (A) shall make such reports as are required by the [Commission](/usc/15/78c.md?p=a-15), by rule or regulation, regarding the transactions and positions and financial condition of the registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (B) - (i) for which there is a [prudential regulator](/usc/15/78c.md?p=a-74), shall keep books and [records](/usc/15/78c.md?p=a-37) of all activities related to the business as a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) in such form and manner and for such period as may be prescribed by the [Commission](/usc/15/78c.md?p=a-15) by rule or regulation; and - (ii) for which there is no [prudential regulator](/usc/15/78c.md?p=a-74), shall keep books and [records](/usc/15/78c.md?p=a-37) in such form and manner and for such period as may be prescribed by the [Commission](/usc/15/78c.md?p=a-15) by rule or regulation; and - (C) shall keep books and [records](/usc/15/78c.md?p=a-37) described in [subparagraph (B)](#f-1-B) open to inspection and examination by any representative of the [Commission](/usc/15/78c.md?p=a-15). - (2) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules governing reporting and recordkeeping for [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (g) **Daily trading records—** - (1) **In general—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall maintain daily trading [records](/usc/15/78c.md?p=a-37) of the [security-based swaps](/usc/15/78c.md?p=a-68-A) of the registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) and all related [records](/usc/15/78c.md?p=a-37) (including related cash or forward transactions) and recorded communications, including electronic mail, instant messages, and recordings of telephone calls, for such period as may be required by the [Commission](/usc/15/78c.md?p=a-15) by rule or regulation. - (2) **Information requirements—** The daily trading [records](/usc/15/78c.md?p=a-37) shall include such information as the [Commission](/usc/15/78c.md?p=a-15) shall require by rule or regulation. - (3) **Counterparty records—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall maintain daily trading [records](/usc/15/78c.md?p=a-37) for each counterparty in a manner and form that is identifiable with each [security-based swap](/usc/15/78c.md?p=a-68-A) transaction. - (4) **Audit trail—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall maintain a complete [audit](/usc/15/7201.md?p=2) trail for conducting comprehensive and accurate trade reconstructions. - (5) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules governing daily trading [records](/usc/15/78c.md?p=a-37) for [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (h) **Business conduct standards—** - (1) **In general—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall conform with such business conduct standards as prescribed in [paragraph (3)](#h-3) and as may be prescribed by the [Commission](/usc/15/78c.md?p=a-15) by rule or regulation that relate to— - (A) fraud, manipulation, and other abusive practices involving [security-based swaps](/usc/15/78c.md?p=a-68-A) (including [security-based swaps](/usc/15/78c.md?p=a-68-A) that are offered but not entered into); - (B) diligent supervision of the business of the registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (C) adherence to all applicable position limits; and - (D) such other matters as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate. - (2) **Responsibilities with respect to special entities—** - (A) **Advising special entities—** A [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) that acts as an advisor to[^1] [special entity](#h-2-C) regarding a [security-based swap](/usc/15/78c.md?p=a-68-A) shall comply with the requirements of [paragraph (4)](#h-4) with respect to such [special entity](#h-2-C). - (B) **Entering of security-based swaps with respect to special entities—** A [security-based swap dealer](/usc/15/78c.md?p=a-71-A) that enters into or offers to enter into[^1] [security-based swap](/usc/15/78c.md?p=a-68-A) with a [special entity](#h-2-C) shall comply with the requirements of [paragraph (5)](#h-5) with respect to such [special entity](#h-2-C). - (C) **Special entity defined—** For purposes of this subsection, the term “special entity” means— - (i) a [Federal agency](/usc/15/3719.md?p=a-3); - (ii) a [State](/usc/15/78c.md?p=a-16), [State](/usc/15/78c.md?p=a-16) agency, city, county, municipality, or other political subdivision of a [State](/usc/15/78c.md?p=a-16) or; - (iii) any employee benefit plan, as defined in section 3 of the Employee Retirement Income Security Act of 1974 ([29 U.S.C. 1002](/usc/29/1002.md)); - (iv) any governmental plan, as defined in section 3 of the Employee Retirement Income Security Act of 1974 ([29 U.S.C. 1002](/usc/29/1002.md)); or - (v) any endowment, including an endowment that is an organization described in [section 501(c)(3) of title 26](/usc/26/501.md?p=c-3). - (3) **Business conduct requirements—** Business conduct requirements adopted by the [Commission](/usc/15/78c.md?p=a-15) shall— - (A) establish a duty for a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) to verify that any counterparty meets the eligibility standards for an [eligible contract participant](/usc/15/78c.md?p=a-65); - (B) require disclosure by the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) to any counterparty to the transaction (other than a [security-based swap dealer](/usc/15/78c.md?p=a-71-A), [major security-based swap participant](/usc/15/78c.md?p=a-67-A), [security-based swap dealer](/usc/15/78c.md?p=a-71-A), or [major security-based swap participant](/usc/15/78c.md?p=a-67-A)) of— - (i) information about the material risks and characteristics of the [security-based swap](/usc/15/78c.md?p=a-68-A); - (ii) any material incentives or conflicts of interest that the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) may have in connection with the [security-based swap](/usc/15/78c.md?p=a-68-A); and - (iii) - (I) for cleared [security-based swaps](/usc/15/78c.md?p=a-68-A), upon the request of the counterparty, receipt of the daily mark of the transaction from the appropriate derivatives clearing organization; and - (II) for uncleared [security-based swaps](/usc/15/78c.md?p=a-68-A), receipt of the daily mark of the transaction from the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or the [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (C) establish a duty for a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) to communicate in a fair and balanced manner based on principles of fair dealing and good faith; and - (D) establish such other standards and requirements as the [Commission](/usc/15/78c.md?p=a-15) may determine are appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. - (4) **Special requirements for security-based swap dealers acting as advisors—** - (A) **In general—** It shall be unlawful for a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A)— - (i) to employ any device, scheme, or artifice to defraud any [special entity](#h-2-C) or prospective [customer](/usc/15/78c–5.md?p=g) who is a [special entity](#h-2-C); - (ii) to engage in any transaction, practice, or course of business that operates as a fraud or deceit on any [special entity](#h-2-C) or prospective [customer](/usc/15/78c–5.md?p=g) who is a [special entity](#h-2-C); or - (iii) to engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative. - (B) **Duty—** Any [security-based swap dealer](/usc/15/78c.md?p=a-71-A) that acts as an advisor to a [special entity](#h-2-C) shall have a duty to act in the best interests of the [special entity](#h-2-C). - (C) **Reasonable efforts—** Any [security-based swap dealer](/usc/15/78c.md?p=a-71-A) that acts as an advisor to a [special entity](#h-2-C) shall make reasonable efforts to obtain such information as is necessary to make a reasonable determination that any [security-based swap](/usc/15/78c.md?p=a-68-A) recommended by the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) is in the best interests of the [special entity](#h-2-C), including information relating to— - (i) the financial status of the [special entity](#h-2-C); - (ii) the tax status of the [special entity](#h-2-C); - (iii) the investment or financing objectives of the [special entity](#h-2-C); and - (iv) any other information that the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule or regulation. - (5) **Special requirements for security-based swap dealers as counterparties to special entities—** - (A) **In general—** Any [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) that offers to or enters into a [security-based swap](/usc/15/78c.md?p=a-68-A) with a [special entity](#h-2-C) shall— - (i) comply with any duty established by the [Commission](/usc/15/78c.md?p=a-15) for a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), with respect to a counterparty that is an [eligible contract participant](/usc/15/78c.md?p=a-65) within the meaning of subclause (I) or (II) of clause (vii) of section 1a(18) of the Commodity Exchange Act [[7 U.S.C. 1a(18)](/usc/7/1a.md?p=18)], that requires the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) to have a reasonable basis to believe that the counterparty that is a [special entity](#h-2-C) has an independent representative that— - (I) has sufficient knowledge to evaluate the transaction and risks; - (II) is not subject to a statutory disqualification; - (III) is independent of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (IV) undertakes a duty to act in the best interests of the counterparty it represents; - (V) makes appropriate disclosures; - (VI) will provide written representations to the [special entity](#h-2-C) regarding fair pricing and the appropriateness of the transaction; and - (VII) in the case of employee benefit plans subject to the Employee Retirement Income Security act[^2] of 1974 [[29 U.S.C. 1001](/usc/29/1001.md) et seq.], is a fiduciary as defined in [section 3](/usc/15/3.md) of that Act ([29 U.S.C. 1002](/usc/29/1002.md)); and - (ii) before the initiation of the transaction, disclose to the [special entity](#h-2-C) in writing the capacity in which the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) is acting. - (B) **Commission authority—** The [Commission](/usc/15/78c.md?p=a-15) may establish such other standards and requirements under this paragraph as the [Commission](/usc/15/78c.md?p=a-15) may determine are appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. - (6) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall prescribe rules under this subsection governing business conduct standards for [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (7) **Applicability—** This subsection shall not apply with respect to a transaction that is— - (A) initiated by a [special entity](#h-2-C) on an [exchange](/usc/15/78c.md?p=a-1) or [security-based swaps](/usc/15/78c.md?p=a-68-A) execution [facility](/usc/15/78c.md?p=a-2); and - (B) the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) does not know the identity of the counterparty to the transaction. - (i) **Documentation standards—** - (1) **In general—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall conform with such standards as may be prescribed by the [Commission](/usc/15/78c.md?p=a-15), by rule or regulation, that relate to timely and accurate confirmation, processing, netting, documentation, and valuation of all [security-based swaps](/usc/15/78c.md?p=a-68-A). - (2) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules governing documentation standards for [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (j) **Duties—** Each registered [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall, at all times, comply with the following requirements: - (1) **Monitoring of trading—** The [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall monitor its trading in [security-based swaps](/usc/15/78c.md?p=a-68-A) to prevent [violations](/usc/15/57b–1.md?p=a-7) of applicable position limits. - (2) **Risk management procedures—** The [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall establish robust and professional risk management systems adequate for managing the day-to-day business of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A). - (3) **Disclosure of general information—** The [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall disclose to the [Commission](/usc/15/78c.md?p=a-15) and to the [prudential regulator](/usc/15/78c.md?p=a-74) for the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), as applicable, information concerning— - (A) terms and conditions of its [security-based swaps](/usc/15/78c.md?p=a-68-A); - (B) [security-based swap](/usc/15/78c.md?p=a-68-A) trading operations, mechanisms, and practices; - (C) financial integrity protections relating to [security-based swaps](/usc/15/78c.md?p=a-68-A); and - (D) other information relevant to its trading in [security-based swaps](/usc/15/78c.md?p=a-68-A). - (4) **Ability to obtain information—** The [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall— - (A) establish and enforce internal systems and procedures to obtain any necessary information to perform any of the functions described in this section; and - (B) provide the information to the [Commission](/usc/15/78c.md?p=a-15) and to the [prudential regulator](/usc/15/78c.md?p=a-74) for the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), as applicable, on request. - (5) **Conflicts of interest—** The [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall implement conflict-of-interest systems and procedures that— - (A) establish structural and institutional safeguards to ensure that the activities of any [person](/usc/15/78c.md?p=a-9) within the firm relating to research or analysis of the price or market for any [security-based swap](/usc/15/78c.md?p=a-68-A) or acting in a role of providing clearing activities or making determinations as to accepting clearing [customers](/usc/15/78c–5.md?p=g) are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of [persons](/usc/15/78c.md?p=a-9) whose involvement in pricing, trading, or clearing activities might potentially bias their judgment or supervision and contravene the core principles of open access and the business conduct standards described in this chapter; and - (B) address such other issues as the [Commission](/usc/15/78c.md?p=a-15) determines to be appropriate. - (6) **Antitrust considerations—** Unless necessary or appropriate to achieve the purposes of this chapter, the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall not— - (A) adopt any process or take any action that results in any unreasonable restraint of trade; or - (B) impose any material anticompetitive burden on trading or clearing. - (7) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall prescribe rules under this subsection governing duties of [security-based swap dealers](/usc/15/78c.md?p=a-71-A) and [major security-based swap participants](/usc/15/78c.md?p=a-67-A). - (k) **Designation of chief compliance officer—** - (1) **In general—** Each [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) shall designate an individual to serve as a chief compliance officer. - (2) **Duties—** The chief compliance officer shall— - (A) report directly to the [board](/usc/15/78c.md?p=a-73) or to the senior officer of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A); - (B) review the compliance of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) with respect to the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) and [major security-based swap participant](/usc/15/78c.md?p=a-67-A) requirements described in this section; - (C) in consultation with the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), a body performing a function similar to the [board](/usc/15/78c.md?p=a-73), or the senior officer of the organization, resolve any conflicts of interest that may arise; - (D) be responsible for administering each policy and procedure that is required to be established pursuant to this section; - (E) ensure compliance with this chapter (including regulations) relating to [security-based swaps](/usc/15/78c.md?p=a-68-A), including each rule prescribed by the [Commission](/usc/15/78c.md?p=a-15) under this section; - (F) establish procedures for the remediation of noncompliance issues identified by the chief compliance officer through any— - (i) compliance office review; - (ii) look-back; - (iii) internal or external [audit](/usc/15/7201.md?p=2) finding; - (iv) self-reported error; or - (v) validated complaint; and - (G) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues. - (3) **Annual reports—** - (A) **In general—** In accordance with rules prescribed by the [Commission](/usc/15/78c.md?p=a-15), the chief compliance officer shall annually prepare and sign a report that contains a description of— - (i) the compliance of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major swap participant](/usc/15/78c.md?p=a-66) with respect to this chapter (including regulations); and - (ii) each policy and procedure of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) of the chief compliance officer (including the code of ethics and conflict of interest policies). - (B) **Requirements—** A compliance report under [subparagraph (A)](#k-3-A) shall— - (i) accompany each appropriate financial report of the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) that is required to be furnished to the [Commission](/usc/15/78c.md?p=a-15) pursuant to this section; and - (ii) include a certification that, under penalty of law, the compliance report is accurate and complete. - (l) **Enforcement and administrative proceeding authority—** - (1) **Primary enforcement authority—** - (A) **Securities and Exchange Commission—** Except as provided in subparagraph [(B)](#l-1-B), [(C)](#l-1-C), or [(D)](#l-1-D), the [Commission](/usc/15/78c.md?p=a-15) shall have primary [authority](/usc/15/3051.md?p=1) to enforce subtitle B, and the amendments made by subtitle B of the Wall Street Transparency and Accountability Act of 2010, with respect to any [person](/usc/15/78c.md?p=a-9). - (B) **Prudential regulators—** The [prudential regulators](/usc/15/78c.md?p=a-74) shall have exclusive [authority](/usc/15/3051.md?p=1) to enforce the provisions of [subsection (e)](#e) and other prudential requirements of this chapter (including risk management standards), with respect to [security-based swap dealers](/usc/15/78c.md?p=a-71-A) or [major security-based swap participants](/usc/15/78c.md?p=a-67-A) for which they are the [prudential regulator](/usc/15/78c.md?p=a-74). - (C) **Referral—** - (i) **Violations of nonprudential requirements—** If the [appropriate Federal banking agency](/usc/15/78c.md?p=a-72) for [security-based swap dealers](/usc/15/78c.md?p=a-71-A) or [major security-based swap participants](/usc/15/78c.md?p=a-67-A) that are depository institutions has cause to believe that such [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) may have engaged in conduct that constitutes a [violation](/usc/15/57b–1.md?p=a-7) of the nonprudential requirements of this section or rules adopted by the [Commission](/usc/15/78c.md?p=a-15) thereunder, the agency may recommend in writing to the [Commission](/usc/15/78c.md?p=a-15) that the [Commission](/usc/15/78c.md?p=a-15) initiate an enforcement proceeding as authorized under this chapter. The recommendation shall be accompanied by a written explanation of the concerns giving rise to the recommendation. - (ii) **Violations of prudential requirements—** If the [Commission](/usc/15/78c.md?p=a-15) has cause to believe that a [securities](/usc/15/78c.md?p=a-10)-based [swap dealer](/usc/15/78c.md?p=a-76) or major [securities](/usc/15/78c.md?p=a-10)-based [swap](/usc/15/78c.md?p=a-69) [participant](/usc/15/78c.md?p=a-24) that has a [prudential regulator](/usc/15/78c.md?p=a-74) may have engaged in conduct that constitute[^3] a [violation](/usc/15/57b–1.md?p=a-7) of the prudential requirements of [subsection (e)](#e) or rules adopted thereunder, the [Commission](/usc/15/78c.md?p=a-15) may recommend in writing to the [prudential regulator](/usc/15/78c.md?p=a-74) that the [prudential regulator](/usc/15/78c.md?p=a-74) initiate an enforcement proceeding as authorized under this chapter. The recommendation shall be accompanied by a written explanation of the concerns giving rise to the recommendation. - (D) **Backstop enforcement authority—** - (i) **Initiation of enforcement proceeding by prudential regulator—** If the [Commission](/usc/15/78c.md?p=a-15) does not initiate an enforcement proceeding before the end of the 90-day period beginning on the date on which the [Commission](/usc/15/78c.md?p=a-15) receives a written report under subsection[^4] (C)(i), the [prudential regulator](/usc/15/78c.md?p=a-74) may initiate an enforcement proceeding. - (ii) **Initiation of enforcement proceeding by Commission—** If the [prudential regulator](/usc/15/78c.md?p=a-74) does not initiate an enforcement proceeding before the end of the 90-day period beginning on the date on which the [prudential regulator](/usc/15/78c.md?p=a-74) receives a written report under subsection[^4] (C)(ii), the [Commission](/usc/15/78c.md?p=a-15) may initiate an enforcement proceeding. - (2) **Censure, denial, suspension; notice and hearing—** The [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities, functions, or operations of, or revoke the registration of any [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) that has registered with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [subsection (b)](#b) if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, or revocation is in the public interest and that such [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), or any [person associated with](/usc/15/78c.md?p=a-63) such [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) effecting or involved in effecting transactions in [security-based swaps](/usc/15/78c.md?p=a-68-A) on behalf of such [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), whether prior or subsequent to becoming so associated— - (A) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph [(A)](#l-4-A), (D), or (E) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title; - (B) has been convicted of any offense specified in [subparagraph (B)](#l-2-B) of such [paragraph (4)](#l-4) within 10 years of the commencement of the proceedings under this subsection; - (C) is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#l-2-C) of such [paragraph (4)](#l-4); - (D) is subject to an [order](/usc/15/8702.md?p=14) or a final [order](/usc/15/8702.md?p=14) specified in subparagraph (F) or (H), respectively, of such [paragraph (4)](#l-4); or - (E) has been found by a [foreign financial regulatory authority](/usc/15/78c.md?p=a-52) to have committed or omitted any act, or violated any foreign statute or regulation, enumerated in subparagraph (G) of such [paragraph (4)](#l-4). - (3) **Associated persons—** With respect to any [person](/usc/15/78c.md?p=a-9) who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) for the purpose of effecting or being involved in effecting [security-based swaps](/usc/15/78c.md?p=a-68-A) on behalf of such [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities or functions of such [person](/usc/15/78c.md?p=a-9), or suspend for a period not exceeding 12 months, or bar such [person](/usc/15/78c.md?p=a-9) from being associated with a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A), if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for a hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such [person](/usc/15/78c.md?p=a-9)— - (A) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph [(A)](#l-4-A), (D), or (E) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title; - (B) has been convicted of any offense specified in [subparagraph (B)](#l-3-B) of such [paragraph (4)](#l-4) within 10 years of the commencement of the proceedings under this subsection; - (C) is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#l-3-C) of such [paragraph (4)](#l-4); - (D) is subject to an [order](/usc/15/8702.md?p=14) or a final [order](/usc/15/8702.md?p=14) specified in subparagraph (F) or (H), respectively, of such [paragraph (4)](#l-4); or - (E) has been found by a [foreign financial regulatory authority](/usc/15/78c.md?p=a-52) to have committed or omitted any act, or violated any foreign statute or regulation, enumerated in subparagraph (G) of such [paragraph (4)](#l-4). - (4) **Unlawful conduct—** It shall be unlawful— - (A) for any [person](/usc/15/78c.md?p=a-9) as to whom an [order](/usc/15/8702.md?p=14) under [paragraph (3)](#l-3) is in effect, without the consent of the [Commission](/usc/15/78c.md?p=a-15), willfully to become, or to be, associated with a [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) in contravention of such [order](/usc/15/8702.md?p=14); or - (B) for any [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) to permit such a [person](/usc/15/78c.md?p=a-9), without the consent of the [Commission](/usc/15/78c.md?p=a-15), to become or remain a [person associated with](/usc/15/78c.md?p=a-63) the [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) in contravention of such [order](/usc/15/8702.md?p=14), if such [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) knew, or in the exercise of reasonable care should have known, of such [order](/usc/15/8702.md?p=14). # §78o–11. 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](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation; - (2) the term “insured depository institution” has the same meaning as in [section 1813(c) of title 12](/usc/12/1813.md?p=c); - (3) the term “securitizer” means— - (A) an [issuer](/usc/15/78c.md?p=a-8) of an [asset-backed security](/usc/15/78c.md?p=a-79); or - (B) a [person](/usc/15/78c.md?p=a-9) who organizes and initiates an [asset-backed securities](/usc/15/78c.md?p=a-79) transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the [issuer](/usc/15/78c.md?p=a-8); and - (4) the term “originator” means a [person](/usc/15/78c.md?p=a-9) who— - (A) through the extension of [credit](/usc/15/1679a.md?p=4) or otherwise, creates a financial asset that collateralizes an [asset-backed security](/usc/15/78c.md?p=a-79); and - (B) [sells](/usc/15/78c.md?p=a-14) an asset directly or indirectly to a [securitizer](#a-3). - (b) **Regulations required—** - (1) **In general—** Not later than 270 days after July 21, 2010, the [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) shall jointly prescribe regulations to require any [securitizer](#a-3) to retain an economic interest in a portion of the [credit](/usc/15/1679a.md?p=4) risk for any asset that the [securitizer](#a-3), through the issuance of an [asset-backed security](/usc/15/78c.md?p=a-79), transfers, [sells](/usc/15/78c.md?p=a-14), or conveys to a third party. - (2) **Residential mortgages—** Not later than 270 days after July 21, 2010, the [Federal banking agencies](#a-1), the [Commission](/usc/15/78c.md?p=a-15), the Secretary of Housing and Urban Development, and the Federal Housing Finance Agency, shall jointly prescribe regulations to require any [securitizer](#a-3) to retain an economic interest in a portion of the [credit](/usc/15/1679a.md?p=4) risk for any residential mortgage asset that the [securitizer](#a-3), through the issuance of an [asset-backed security](/usc/15/78c.md?p=a-79), transfers, [sells](/usc/15/78c.md?p=a-14), or conveys to a third party. - (c) **Standards for regulations—** - (1) **Standards—** The regulations prescribed under [subsection (b)](#b) shall— - (A) prohibit a [securitizer](#a-3) from directly or indirectly hedging or otherwise transferring the [credit](/usc/15/1679a.md?p=4) risk that the [securitizer](#a-3) is required to retain with respect to an asset; - (B) require a [securitizer](#a-3) to retain— - (i) not less than 5 percent of the [credit](/usc/15/1679a.md?p=4) risk for any asset— - (I) that is not a [qualified residential mortgage](#e-4-C) that is transferred, sold, or conveyed through the issuance of an [asset-backed security](/usc/15/78c.md?p=a-79) by the [securitizer](#a-3); or - (II) that is a [qualified residential mortgage](#e-4-C) that is transferred, sold, or conveyed through the issuance of an [asset-backed security](/usc/15/78c.md?p=a-79) by the [securitizer](#a-3), if 1 or more of the assets that collateralize the [asset-backed security](/usc/15/78c.md?p=a-79) are not [qualified residential mortgages](#e-4-C); or - (ii) less than 5 percent of the [credit](/usc/15/1679a.md?p=4) risk for an asset that is not a [qualified residential mortgage](#e-4-C) that is transferred, sold, or conveyed through the issuance of an [asset-backed security](/usc/15/78c.md?p=a-79) by the [securitizer](#a-3), if the [originator](#a-4) of the asset meets the underwriting standards prescribed under [paragraph (2)(B)](#c-2-B); - (C) specify— - (i) the permissible forms of risk retention for purposes of this section; - (ii) the minimum duration of the risk retention required under this section; and - (iii) that a [securitizer](#a-3) is not required to retain any part of the [credit](/usc/15/1679a.md?p=4) risk for an asset that is transferred, sold or conveyed through the issuance of an [asset-backed security](/usc/15/78c.md?p=a-79) by the [securitizer](#a-3), if all of the assets that collateralize the [asset-backed security](/usc/15/78c.md?p=a-79) are [qualified residential mortgages](#e-4-C); - (D) apply, regardless of whether the [securitizer](#a-3) is an [insured depository institution](#a-2); - (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)](#c-1-B), which in the determination of the [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) may include— - (i) retention of a specified amount or percentage of the total [credit](/usc/15/1679a.md?p=4) risk of the asset; - (ii) retention of the first-loss position by a third-party purchaser that specifically negotiates for the [purchase](/usc/15/78c.md?p=a-13) of such first loss position, holds adequate financial resources to back losses, provides due diligence on all individual assets in the pool before the issuance of the [asset-backed securities](/usc/15/78c.md?p=a-79), and meets the same standards for risk retention as the [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) require of the [securitizer](#a-3); - (iii) a determination by the [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) that the underwriting standards and controls for the asset are adequate; and - (iv) provision of adequate representations and warranties and related enforcement mechanisms; and[^1] - (F) establish appropriate standards for retention of an economic interest with respect to collateralized debt obligations, [securities](/usc/15/78c.md?p=a-10) collateralized by collateralized debt obligations, and similar instruments collateralized by other [asset-backed securities](/usc/15/78c.md?p=a-79); and - (G) provide for— - (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](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) 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](/usc/15/657h.md?p=a-2) and the Federal Home Loan Mortgage Corporation are not agencies of the United States; - (iii) a total or partial exemption for any [asset-backed security](/usc/15/78c.md?p=a-79) that is a [security](/usc/15/78c.md?p=a-10) issued or guaranteed by any [State](/usc/15/78c.md?p=a-16) of the United States, or by any political subdivision of a [State](/usc/15/78c.md?p=a-16) or territory, or by any public instrumentality of a [State](/usc/15/78c.md?p=a-16) or territory that is exempt from the registration requirements of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] by reason of [section 3(a)(2)](/usc/15/3.md) of that Act ([15 U.S.C. 77c(a)(2)](/usc/15/77c.md?p=a-2)), or a [security](/usc/15/78c.md?p=a-10) defined as a qualified scholarship funding bond in [section 150(d)(2) of title 26](/usc/26/150.md?p=d-2), as may be appropriate in the public interest and for the protection of investors; and - (iv) the allocation of risk retention obligations between a [securitizer](#a-3) and an [originator](#a-4) in the case of a [securitizer](#a-3) that [purchases](/usc/15/78c.md?p=a-13) assets from an [originator](#a-4), as the [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) jointly determine appropriate. - (2) **Asset classes—** - (A) **Asset classes—** The regulations prescribed under [subsection (b)](#b) shall establish asset classes with separate rules for [securitizers](#a-3) 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](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) deem appropriate. - (B) **Contents—** For each asset class established under [subparagraph (A)](#c-2-A), the regulations prescribed under [subsection (b)](#b) shall include underwriting standards established by the [Federal banking agencies](#a-1) that specify the terms, conditions, and characteristics of a loan within the asset class that indicate a low [credit](/usc/15/1679a.md?p=4) risk with respect to the loan. - (d) **Originators—** In determining how to allocate risk retention obligations between a [securitizer](#a-3) and an [originator](#a-4) under [subsection (c)(1)(E)(iv)](#c-1-E-iv), the [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) shall— - (1) reduce the percentage of risk retention obligations required of the [securitizer](#a-3) by the percentage of risk retention obligations required of the [originator](#a-4); and - (2) consider— - (A) whether the assets sold to the [securitizer](#a-3) have terms, conditions, and characteristics that reflect low [credit](/usc/15/1679a.md?p=4) risk; - (B) whether the form or volume of transactions in securitization markets creates incentives for imprudent origination of the type of loan or asset to be sold to the [securitizer](#a-3); and - (C) the potential impact of the risk retention obligations on the access of [consumers](/usc/15/1615.md?p=d-2) and businesses to [credit](/usc/15/1679a.md?p=4) on reasonable terms, which may not include the transfer of [credit](/usc/15/1679a.md?p=4) risk to a third party. - (e) **Exemptions, exceptions, and adjustments—** - (1) **In general—** The [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) may jointly adopt or issue exemptions, exceptions, or adjustments to the rules issued under this section, including exemptions, exceptions, or adjustments for classes of institutions or assets relating to the risk retention requirement and the prohibition on hedging under [subsection (c)(1)](#c-1). - (2) **Applicable standards—** Any exemption, exception, or adjustment adopted or issued by the [Federal banking agencies](#a-1) and the [Commission](/usc/15/78c.md?p=a-15) under this paragraph shall— - (A) help ensure high quality underwriting standards for the [securitizers](#a-3) and [originators](#a-4) of assets that are securitized or available for securitization; and - (B) encourage appropriate risk management practices by the [securitizers](#a-3) and [originators](#a-4) of assets, improve the access of [consumers](/usc/15/1615.md?p=d-2) and businesses to [credit](/usc/15/1679a.md?p=4) 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—** Notwithstanding any other provision of this section, the requirements 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](/usc/15/1679a.md?p=4) [Administration](/usc/15/2203.md?p=2), including the Federal Agricultural Mortgage Corporation. - (B) **Other Federal programs—** This section shall not apply to any residential, multifamily, or health care [facility](/usc/15/78c.md?p=a-2) mortgage loan asset, or securitization based directly or indirectly on such an asset, which is insured or guaranteed by the United States or an agency of the United States. For purposes of this subsection, the Federal National Mortgage [Association](/usc/15/657h.md?p=a-2), 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](#a-1), the [Commission](/usc/15/78c.md?p=a-15), the Secretary of Housing and Urban Development, and the [Director](/usc/15/78c.md?p=a-7) of the Federal Housing Finance Agency shall jointly issue regulations to exempt [qualified residential mortgages](#e-4-B) from the risk retention requirements of this subsection. - (B) **Qualified residential mortgage—** The [Federal banking agencies](#a-1), the [Commission](/usc/15/78c.md?p=a-15), the Secretary of Housing and Urban Development, and the [Director](/usc/15/78c.md?p=a-7) 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— - (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](/usc/15/1679a.md?p=4) enhancement obtained at the time of origination, to the extent such insurance or [credit](/usc/15/1679a.md?p=4) enhancement reduces the risk of default; and - (v) prohibiting or restricting the use of balloon payments, negative amortization, prepayment penalties, interest-only payments, and other features that have been demonstrated to exhibit a higher risk of [borrower](/usc/15/697f.md?p=e-2) default. - (C) **Limitation on definition—** The [Federal banking agencies](#a-1), the [Commission](/usc/15/78c.md?p=a-15), the Secretary of Housing and Urban Development, and the [Director](/usc/15/78c.md?p=a-7) of the Federal Housing Finance Agency in defining the term “[qualified residential mortgage](#e-4-B)”, as required by [subparagraph (B)](#e-4-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](/usc/15/1615.md?p=d-2) Financial Protection Act of 2010,[^2] and regulations adopted thereunder. - (5) **Condition for qualified residential mortgage exemption—** The regulations issued under [paragraph (4)](#e-4) shall provide that an [asset-backed security](/usc/15/78c.md?p=a-79) that is collateralized by tranches of other [asset-backed securities](/usc/15/78c.md?p=a-79) shall not be exempt from the risk retention requirements of this subsection. - (6) **Certification—** The [Commission](/usc/15/78c.md?p=a-15) shall require an [issuer](/usc/15/78c.md?p=a-8) to certify, for each issuance of an [asset-backed security](/usc/15/78c.md?p=a-79) collateralized exclusively by [qualified residential mortgages](#e-4-B), that the [issuer](/usc/15/78c.md?p=a-8) has evaluated the effectiveness of the internal supervisory controls of the [issuer](/usc/15/78c.md?p=a-8) with respect to the process for ensuring that all assets that collateralize the [asset-backed security](/usc/15/78c.md?p=a-79) are [qualified residential mortgages](#e-4-B). - (f) **Enforcement—** The regulations issued under this section shall be enforced by— - (1) the [appropriate Federal banking agency](/usc/15/78c.md?p=a-72), with respect to any [securitizer](#a-3) that is an [insured depository institution](#a-2); and - (2) the [Commission](/usc/15/78c.md?p=a-15), with respect to any [securitizer](#a-3) that is not an [insured depository institution](#a-2). - (g) **Authority of Commission—** The [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this section shall be in addition to the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) to otherwise enforce the [securities laws](/usc/15/78c.md?p=a-47). - (h) **Authority to coordinate on rulemaking—** The Chairperson of the Financial Stability Oversight [Council](/usc/15/4601.md?p=c-1) shall coordinate all joint rulemaking required under this section. - (i) **Effective date of regulations—** The regulations issued under this section shall become effective— - (1) with respect to [securitizers](#a-3) and [originators](#a-4) of [asset-backed securities](/usc/15/78c.md?p=a-79) 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](#a-3) and [originators](#a-4) of all other classes of [asset-backed securities](/usc/15/78c.md?p=a-79), 2 years after the date on which final rules under this section are published in the Federal Register. # §78p. Directors, officers, and principal stockholders - (a) **Disclosures required—** - (1) **Directors, officers, and principal stockholders required to file—** Every [person](/usc/15/78c.md?p=a-9) who is directly or indirectly the beneficial owner of more than 10 percent of any class of any [equity security](/usc/15/78c.md?p=a-11) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) which is registered pursuant to [section 78l](/usc/15/78l.md) of this title, or who is a [director](/usc/15/78c.md?p=a-7) or an officer of the [issuer](/usc/15/78c.md?p=a-8) of such [security](/usc/15/78c.md?p=a-10) (including, solely for the purposes of this subsection, every [person](/usc/15/78c.md?p=a-9) who is a [director](/usc/15/78c.md?p=a-7) or an officer of a foreign private [issuer](/usc/15/78c.md?p=a-8), as that term is defined in [section 240.3b–4 of title 17, Code of Federal Regulations](/cfr/17/240.3b–4.md), or any successor regulation), shall file the statements required by this subsection with the [Commission](/usc/15/78c.md?p=a-15). - (2) **Time of filing—** The statements required by this subsection shall be filed— - (A) at the time of the registration of such [security](/usc/15/78c.md?p=a-10) on a [national securities exchange](/usc/15/9009a.md?p=a-5) or by the effective date of a [registration statement](/usc/15/77b.md?p=a-8) filed pursuant to [section 78l(g)](/usc/15/78l.md?p=g) of this title; - (B) within 10 days after he or she becomes such beneficial owner, [director](/usc/15/78c.md?p=a-7), or officer, or within such shorter time as the [Commission](/usc/15/78c.md?p=a-15) may establish by rule; - (C) if there has been a change in such ownership, or if such [person](/usc/15/78c.md?p=a-9) shall have purchased or sold a [security-based swap agreement](/usc/15/78c.md?p=a-78-B) involving such [equity security](/usc/15/78c.md?p=a-11), before the end of the second business day following the day on which the subject transaction has been executed, or at such other time as the [Commission](/usc/15/78c.md?p=a-15) shall establish, by rule, in any case in which the [Commission](/usc/15/78c.md?p=a-15) determines that such 2-day period is not feasible; or - (D) with respect to a foreign private [issuer](/usc/15/78c.md?p=a-8), the [securities](/usc/15/78c.md?p=a-10) of which are, as of December 18, 2025, registered pursuant to subsection [(b)](/usc/15/78l.md?p=b) or [(g)](/usc/15/78l.md?p=g) of section 78l of this title, on the date that is 90 days after December 18, 2025. - (3) **Contents of statements—** A statement filed— - (A) under subparagraph [(A)](#a-2-A) or [(B)](#a-2-B) of paragraph (2) shall contain a statement of the amount of all [equity securities](/usc/15/78c.md?p=a-11) of such [issuer](/usc/15/78c.md?p=a-8) of which the filing [person](/usc/15/78c.md?p=a-9) is the beneficial owner; and - (B) under subparagraph (C) of such paragraph shall indicate ownership by the filing [person](/usc/15/78c.md?p=a-9) at the date of filing, any such changes in such ownership, and such [purchases](/usc/15/78c.md?p=a-13) and sales of the [security-based swap agreements](/usc/15/78c.md?p=a-78-B) or [security-based swaps](/usc/15/78c.md?p=a-68-A) as have occurred since the most recent such filing under such subparagraph. - (4) **Electronic filing and availability—** Beginning not later than 1 year after July 30, 2002— - (A) a statement filed under [subparagraph (C)](#a-2-C) of paragraph (2) shall be filed electronically and in English; - (B) the [Commission](/usc/15/78c.md?p=a-15) shall provide each such statement on a publicly accessible Internet site not later than the end of the business day following that filing; and - (C) the [issuer](/usc/15/78c.md?p=a-8) (if the [issuer](/usc/15/78c.md?p=a-8) maintains a corporate website) shall provide that statement on that corporate website, not later than the end of the business day following that filing. - (5) **Authority to exempt—** The [Commission](/usc/15/78c.md?p=a-15) by rule, regulation, or [order](/usc/15/8702.md?p=14), may conditionally or unconditionally exempt any [person](/usc/15/78c.md?p=a-9), [security](/usc/15/78c.md?p=a-10), or transaction, or any class or classes of [persons](/usc/15/78c.md?p=a-9), [securities](/usc/15/78c.md?p=a-10), or transactions, from the requirements of this section if the [Commission](/usc/15/78c.md?p=a-15) determines that the laws of a foreign jurisdiction apply substantially similar requirements to such [person](/usc/15/78c.md?p=a-9), [security](/usc/15/78c.md?p=a-10), or transaction. - (b) **Profits from purchase and sale of security within six months—** For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, [director](/usc/15/78c.md?p=a-7), or officer by reason of his relationship to the [issuer](/usc/15/78c.md?p=a-8), any profit realized by him from any [purchase](/usc/15/78c.md?p=a-13) and sale, or any sale and [purchase](/usc/15/78c.md?p=a-13), of any [equity security](/usc/15/78c.md?p=a-11) of such [issuer](/usc/15/78c.md?p=a-8) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) or a [security-based swap agreement](/usc/15/78c.md?p=a-78-B) involving any such [equity security](/usc/15/78c.md?p=a-11) within any period of less than six months, unless such [security](/usc/15/78c.md?p=a-10) or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the [issuer](/usc/15/78c.md?p=a-8), irrespective of any intention on the part of such beneficial owner, [director](/usc/15/78c.md?p=a-7), or officer in entering into such transaction of holding the [security](/usc/15/78c.md?p=a-10) or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) purchased or of not repurchasing the [security](/usc/15/78c.md?p=a-10) or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the [issuer](/usc/15/78c.md?p=a-8), or by the owner of any [security](/usc/15/78c.md?p=a-10) of the [issuer](/usc/15/78c.md?p=a-8) in the name and in behalf of the [issuer](/usc/15/78c.md?p=a-8) if the [issuer](/usc/15/78c.md?p=a-8) shall fail or refuse to bring such suit within sixty days after request or shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than two years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the [purchase](/usc/15/78c.md?p=a-13) and sale, or the sale and [purchase](/usc/15/78c.md?p=a-13), of the [security](/usc/15/78c.md?p=a-10) or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) or a [security-based swap](/usc/15/78c.md?p=a-68-A) involved, or any transaction or transactions which the [Commission](/usc/15/78c.md?p=a-15) by rules and regulations may exempt as not comprehended within the purpose of this subsection. - (c) **Conditions for sale of security by beneficial owner, director, or officer—** It shall be unlawful for any such beneficial owner, [director](/usc/15/78c.md?p=a-7), or officer, directly or indirectly, to [sell](/usc/15/78c.md?p=a-14) any [equity security](/usc/15/78c.md?p=a-11) of such [issuer](/usc/15/78c.md?p=a-8) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)), if the [person](/usc/15/78c.md?p=a-9) selling the [security](/usc/15/78c.md?p=a-10) or his principal (1) does not own the [security](/usc/15/78c.md?p=a-10) sold, or (2) if owning the [security](/usc/15/78c.md?p=a-10), does not deliver it against such sale within twenty days thereafter, or does not within five days after such sale deposit it in the mails or other usual channels of transportation; but no [person](/usc/15/78c.md?p=a-9) shall be deemed to have violated this subsection if he proves that notwithstanding the exercise of good faith he was unable to make such delivery or deposit within such time, or that to do so would cause undue inconven­ience or expense. - (d) **Securities held in investment account, transactions in ordinary course of business, and establishment of primary or secondary market—** The provisions of [subsection (b)](#b) of this section shall not apply to any [purchase](/usc/15/78c.md?p=a-13) and sale, or sale and [purchase](/usc/15/78c.md?p=a-13), and the provisions of [subsection (c)](#c) of this section shall not apply to any sale, of an [equity security](/usc/15/78c.md?p=a-11) not then or theretofore held by him in an investment [account](/usc/15/1681a.md?p=r-4), by a [dealer](/usc/15/78c.md?p=a-5-A) in the ordinary course of his business and incident to the establishment or maintenance by him of a primary or secondary market (otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5) or an [exchange](/usc/15/78c.md?p=a-1) exempted from registration under [section 78e of this title](/usc/15/78e.md)) for such [security](/usc/15/78c.md?p=a-10). The [Commission](/usc/15/78c.md?p=a-15) may, by such rules and regulations as it deems necessary or appropriate in the public interest, define and prescribe terms and conditions with respect to [securities](/usc/15/78c.md?p=a-10) held in an investment [account](/usc/15/1681a.md?p=r-4) and transactions made in the ordinary course of business and incident to the establishment or maintenance of a primary or secondary market. - (e) **Application of section to foreign or domestic arbitrage transactions—** The provisions of this section shall not apply to foreign or domestic arbitrage transactions unless made in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may adopt in [order](/usc/15/8702.md?p=14) to carry out the purposes of this section. - (f) **Treatment of transactions in security futures products—** The provisions of this section shall apply to ownership of and transactions in [security futures products](/usc/15/78c.md?p=a-56). - (g) **Limitation on Commission authority—** The [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this section with respect to [security-based swap agreements](/usc/15/78c.md?p=a-78-B) shall be subject to the restrictions and limitations of [section 78c–1(b) of this title](/usc/15/78c–1.md?p=b). # §78q. Records and reports - (a) **Rules and regulations—** - (1) Every [national securities exchange](/usc/15/9009a.md?p=a-5), [member](/usc/15/78c.md?p=a-3-A) thereof, [broker or dealer](/usc/15/78c.md?p=h-2) who transacts a business in [securities](/usc/15/78c.md?p=a-10) through the medium of any such [member](/usc/15/78c.md?p=a-3-A), registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), [registered broker or dealer](/usc/15/78c.md?p=h-2), registered [municipal securities dealer](/usc/15/78c.md?p=a-30) municipal advisor,,[^1] registered [securities information processor](/usc/15/78c.md?p=a-22-A), registered [transfer agent](/usc/15/78c.md?p=a-25), [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62), and registered [clearing agency](/usc/15/78c.md?p=a-23-A) and the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) shall make and keep for prescribed periods such [records](/usc/15/78c.md?p=a-37), furnish such copies thereof, and make and disseminate such reports as the [Commission](/usc/15/78c.md?p=a-15), by rule, prescribes as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. Any report that a [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62) is required by [Commission](/usc/15/78c.md?p=a-15) rules under this paragraph to make and disseminate to the [Commission](/usc/15/78c.md?p=a-15) shall be deemed furnished to the [Commission](/usc/15/78c.md?p=a-15). - (2) Every registered [clearing agency](/usc/15/78c.md?p=a-23-A) shall also make and keep for prescribed periods such [records](/usc/15/78c.md?p=a-37), furnish such copies thereof, and make and disseminate such reports, as the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A), by rule, prescribes as necessary or appropriate for the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds in the custody or control of such [clearing agency](/usc/15/78c.md?p=a-23-A) or for which it is responsible. - (3) Every registered [transfer agent](/usc/15/78c.md?p=a-25) shall also make and keep for prescribed periods such rec­ords, furnish such copies thereof, and make such reports as the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [transfer agent](/usc/15/78c.md?p=a-25), by rule, prescribes as necessary or appropriate in furtherance of the purposes of [section 78q–1 of this title](/usc/15/78q–1.md). - (b) **Records subject to examination—** - (1) **Procedures for cooperation with other agencies—** All [records](/usc/15/78c.md?p=a-37) of [persons](/usc/15/78c.md?p=a-9) described in [subsection (a)](#a) of this section are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the [Commission](/usc/15/78c.md?p=a-15) and the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [persons](/usc/15/78c.md?p=a-9) as the [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [persons](/usc/15/78c.md?p=a-9) deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter: Provided, however, That the [Commission](/usc/15/78c.md?p=a-15) shall, prior to conducting any such examination of a— - (A) registered [clearing agency](/usc/15/78c.md?p=a-23-A), registered [transfer agent](/usc/15/78c.md?p=a-25), or registered [municipal securities dealer](/usc/15/78c.md?p=a-30) for which it is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), give notice to the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30) of such proposed examination and consult with such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) concerning the feasibility and desirability of coordinating such examination with examinations conducted by such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) with a view to avoiding unnecessary regulatory duplication or undue regulatory burdens for such [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30); or - (B) [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [section 78o(b)(11)](/usc/15/78o.md?p=b-11) of this title, [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g), or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title, give notice to the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) of such proposed examination and consults[^2] with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) concerning the feasibility and desirability of coordinating such examination with examinations conducted by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) in [order](/usc/15/8702.md?p=14) to avoid unnecessary regulatory duplication or undue regulatory burdens for such [broker or dealer](/usc/15/78c.md?p=h-2) or [exchange](/usc/15/78c.md?p=a-1). - (2) **Furnishing data and reports to CFTC—** The [Commission](/usc/15/78c.md?p=a-15) shall notify the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) of any examination conducted of any [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [section 78o(b)(11)](/usc/15/78o.md?p=b-11) of this title, [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g), or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title and, upon request, furnish to the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) any examination report and data supplied to, or prepared by, the [Commission](/usc/15/78c.md?p=a-15) in connection with such examination. - (3) **Use of CFTC reports—** Prior to conducting an examination under [paragraph (1)](#b-1), the [Commission](/usc/15/78c.md?p=a-15) shall use the reports of examinations, if the information available therein is sufficient for the purposes of the examination, of— - (A) any [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [section 78o(b)(11)](/usc/15/78o.md?p=b-11) of this title; - (B) [exchange](/usc/15/78c.md?p=a-1)[^3] registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g); or - (C) national[^4] [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title; that is made by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title, or an [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g). - (4) **Rules of construction—** - (A) Notwithstanding any other provision of this subsection, the [records](/usc/15/78c.md?p=a-37) of a [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [section 78o(b)(11)](/usc/15/78o.md?p=b-11) of this title, an [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g), or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title described in this subparagraph shall not be subject to routine periodic examinations by the [Commission](/usc/15/78c.md?p=a-15). - (B) Any recordkeeping rules adopted under this subsection for a [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [section 78o(b)(11)](/usc/15/78o.md?p=b-11) of this title, an [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g), or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title shall be limited to [records](/usc/15/78c.md?p=a-37) with respect to [persons](/usc/15/78c.md?p=a-9), [accounts](/usc/15/1681a.md?p=r-4), [agreements](/usc/15/7a.md?p=2), contracts, and transactions involving [security futures products](/usc/15/78c.md?p=a-56). - (C) Nothing in the proviso in [paragraph (1)](#b-1) shall be construed to impair or limit (other than by the requirement of prior consultation) the power of the [Commission](/usc/15/78c.md?p=a-15) under this subsection to examine any [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30) or to affect in any way the power of the [Commission](/usc/15/78c.md?p=a-15) under any other provision of this chapter or otherwise to inspect, examine, or investigate any such [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30). - (c) **Copies of reports filed with other regulatory agencies—** - (1) Every [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), and [municipal securities dealer](/usc/15/78c.md?p=a-30) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall (A) file with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30) a copy of any [application](/usc/15/77ccc.md?p=8), notice, proposal, report, or document filed with the [Commission](/usc/15/78c.md?p=a-15) by reason of its being a [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30) and (B) file with the [Commission](/usc/15/78c.md?p=a-15) a copy of any [application](/usc/15/77ccc.md?p=8), notice, proposal, report, or document filed with such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) by reason of its being a [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30). The [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) shall file with each agency enumerated in [section 78c(a)(34)(A) of this title](/usc/15/78c.md?p=a-34-A) copies of every proposed rule change filed with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78s(b) of this title](/usc/15/78s.md?p=b). - (2) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall file with the [Commission](/usc/15/78c.md?p=a-15) notice of the commencement of any proceeding and a copy of any [order](/usc/15/8702.md?p=14) entered by such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) against any [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), [municipal securities dealer](/usc/15/78c.md?p=a-30), or [person associated with a transfer agent](/usc/15/78c.md?p=a-49) or [municipal securities dealer](/usc/15/78c.md?p=a-30), and the [Commission](/usc/15/78c.md?p=a-15) shall file with such [appropriate regulatory agency](/usc/15/78c.md?p=a-34), if any, notice of the commencement of any proceeding and a copy of any [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/78c.md?p=a-15) against the [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30), or against any [person associated with a transfer agent](/usc/15/78c.md?p=a-49) or [municipal securities dealer](/usc/15/78c.md?p=a-30) for which the agency is the [appropriate regulatory agency](/usc/15/78c.md?p=a-34). - (3) The [Commission](/usc/15/78c.md?p=a-15) and the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall each notify the other and make a report of any examination conducted by it of such [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30), and, upon request, furnish to the other a copy of such report and any data supplied to it in connection with such examination. - (4) The [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may specify that documents required to be filed pursuant to this subsection with the [Commission](/usc/15/78c.md?p=a-15) or such agency, respectively, may be retained by the originating [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [municipal securities dealer](/usc/15/78c.md?p=a-30), or filed with another [appropriate regulatory agency](/usc/15/78c.md?p=a-34). The [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) (as the case may be) making such a specification shall continue to have access to the document on request. - (d) **Self-regulatory organizations—** - (1) The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), as it deems necessary or appropriate in the public interest and for the protection of investors, to foster cooperation and coordination among [self-regulatory organizations](/usc/15/78c.md?p=a-26), or to remove impediments to and foster the development of a national market system and national system for the clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions, may— - (A) with respect to any [person](/usc/15/78c.md?p=a-9) who is a [member](/usc/15/78c.md?p=a-3-A) of or [participant](/usc/15/78c.md?p=a-24) in more than one [self-regulatory organization](/usc/15/78c.md?p=a-26), relieve any such [self-regulatory organization](/usc/15/78c.md?p=a-26) of any responsibility under this chapter (i) to receive regulatory reports from such [person](/usc/15/78c.md?p=a-9), (ii) to examine such [person](/usc/15/78c.md?p=a-9) for compliance, or to enforce compliance by such [person](/usc/15/78c.md?p=a-9), with specified provisions of this chapter, the rules and regulations thereunder, and its own rules, or (iii) to carry out other specified regulatory functions with respect to such [person](/usc/15/78c.md?p=a-9), and - (B) allocate among [self-regulatory organizations](/usc/15/78c.md?p=a-26) the [authority](/usc/15/3051.md?p=1) to adopt rules with respect to matters as to which, in the absence of such allocation, such [self-regulatory organizations](/usc/15/78c.md?p=a-26) share [authority](/usc/15/3051.md?p=1) under this chapter. In making any such rule or entering any such [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/78c.md?p=a-15) shall take into consideration the regulatory capabilities and procedures of the [self-regulatory organizations](/usc/15/78c.md?p=a-26), availability of staff, convenience of location, unnecessary regulatory duplication, and such other factors as the [Commission](/usc/15/78c.md?p=a-15) may consider germane to the protection of investors, cooperation and coordination among [self-regulatory organizations](/usc/15/78c.md?p=a-26), and the development of a national market system and a national system for the clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions. The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), as it deems necessary or appropriate in the public interest and for the protection of investors, may require any [self-regulatory organization](/usc/15/78c.md?p=a-26) relieved of any responsibility pursuant to this paragraph, and any [person](/usc/15/78c.md?p=a-9) with respect to whom such responsibility relates, to take such steps as are specified in any such rule or [order](/usc/15/8702.md?p=14) to notify [customers](/usc/15/78c–5.md?p=g) of, and [persons](/usc/15/78c.md?p=a-9) doing business with, such [person](/usc/15/78c.md?p=a-9) of the limited nature of such [self-regulatory organization](/usc/15/78c.md?p=a-26)’s responsibility for such [person](/usc/15/78c.md?p=a-9)’s acts, practices, and course of business. - (2) A [self-regulatory organization](/usc/15/78c.md?p=a-26) shall furnish copies of any report of examination of any [person](/usc/15/78c.md?p=a-9) who is a [member](/usc/15/78c.md?p=a-3-A) of or a [participant](/usc/15/78c.md?p=a-24) in such [self-regulatory organization](/usc/15/78c.md?p=a-26) to any other [self-regulatory organization](/usc/15/78c.md?p=a-26) of which such [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A) or in which such [person](/usc/15/78c.md?p=a-9) is a [participant](/usc/15/78c.md?p=a-24) upon the request of such [person](/usc/15/78c.md?p=a-9), such other [self-regulatory organization](/usc/15/78c.md?p=a-26), or the [Commission](/usc/15/78c.md?p=a-15). - (e) **Balance sheet and income statement; other financial statements and information—** - (1) - (A) Every [registered broker or dealer](/usc/15/78c.md?p=h-2) shall annually file with the [Commission](/usc/15/78c.md?p=a-15) a balance sheet and income statement certified by a[^5] independent public accounting firm, or by a [registered public accounting firm](/usc/15/78c.md?p=a-59) if the firm is required to be registered under the Sarbanes-Oxley Act of 2002,,[^1] prepared on a calendar or fiscal year basis, and such other financial statements (which shall, as the [Commission](/usc/15/78c.md?p=a-15) specifies, be certified) and information concerning its financial condition as the [Commission](/usc/15/78c.md?p=a-15), by rule may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (B) Every registered [broker](/usc/15/78c.md?p=a-4-A) and [dealer](/usc/15/78c.md?p=a-5-A) shall annually send to its [customers](/usc/15/78c–5.md?p=g) its certified balance sheet and such other financial statements and information concerning its financial condition as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe pursuant to [subsection (a)](#a) of this section. - (C) The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), may conditionally or unconditionally exempt any [registered broker or dealer](/usc/15/78c.md?p=h-2), or class of such [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A), from any provision of this paragraph if the [Commission](/usc/15/78c.md?p=a-15) determines that such exemption is consistent with the public interest and the protection of investors. - (2) The [Commission](/usc/15/78c.md?p=a-15), by rule, as it deems necessary or appropriate in the public interest or for the protection of investors, may prescribe the form and content of financial statements filed pursuant to this chapter and the accounting principles and accounting standards used in their preparation. - (f) **Missing, lost, counterfeit, and stolen securities—** - (1) Every [national securities exchange](/usc/15/9009a.md?p=a-5), [member](/usc/15/78c.md?p=a-3-A) thereof, registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), registered [transfer agent](/usc/15/78c.md?p=a-25), registered [clearing agency](/usc/15/78c.md?p=a-23-A), [participant](/usc/15/78c.md?p=a-24) therein, [member](/usc/15/78c.md?p=a-3-A) of the Federal Reserve System, and bank whose deposits are insured by the Federal Deposit Insurance Corporation shall— - (A) report to the [Commission](/usc/15/78c.md?p=a-15) or other [person](/usc/15/78c.md?p=a-9) designated by the [Commission](/usc/15/78c.md?p=a-15) and, in the case of [securities](/usc/15/78c.md?p=a-10) issued pursuant to [chapter 31](/usc/31/chstIII-ch31.md) of title 31, to the Secretary of the Treasury such information about [securities](/usc/15/78c.md?p=a-10) that are missing, lost, counterfeit, stolen, or cancelled, in such form and within such time as the [Commission](/usc/15/78c.md?p=a-15), by rule, determines is necessary or appropriate in the public interest or for the protection of investors; such information shall be available on request for a reasonable fee, to any such [exchange](/usc/15/78c.md?p=a-1), [member](/usc/15/78c.md?p=a-3-A), [association](/usc/15/657h.md?p=a-2), [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), [transfer agent](/usc/15/78c.md?p=a-25), [clearing agency](/usc/15/78c.md?p=a-23-A), [participant](/usc/15/78c.md?p=a-24), [member](/usc/15/78c.md?p=a-3-A) of the Federal Reserve System, or insured bank, and such other [persons](/usc/15/78c.md?p=a-9) as the [Commission](/usc/15/78c.md?p=a-15), by rule, designates; and - (B) make such inquiry with respect to information reported pursuant to this subsection as the [Commission](/usc/15/78c.md?p=a-15), by rule, prescribes as necessary or appropriate in the public interest or for the protection of investors, to determine whether [securities](/usc/15/78c.md?p=a-10) in their custody or control, for which they are responsible, or in which they are effecting, clearing, or settling a transaction have been reported as missing, lost, counterfeit, stolen, cancelled, or reported in such other manner as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe. - (2) Every [member](/usc/15/78c.md?p=a-3-A) of a [national securities exchange](/usc/15/9009a.md?p=a-5), [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), registered [transfer agent](/usc/15/78c.md?p=a-25), registered [clearing agency](/usc/15/78c.md?p=a-23-A), registered [securities information processor](/usc/15/78c.md?p=a-22-A), [national securities exchange](/usc/15/9009a.md?p=a-5), and national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall require that each of its partners, [directors](/usc/15/78c.md?p=a-7), officers, and employees be fingerprinted and shall submit such fingerprints, or cause the same to be submitted, to the Attorney General of the United States for identification and appropriate processing. The [Commission](/usc/15/78c.md?p=a-15), by rule, may exempt from the provisions of this paragraph upon specified terms, conditions, and periods, any class of partners, [directors](/usc/15/78c.md?p=a-7), officers, or employees of any such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [transfer agent](/usc/15/78c.md?p=a-25), [clearing agency](/usc/15/78c.md?p=a-23-A), [securities information processor](/usc/15/78c.md?p=a-22-A), [national securities exchange](/usc/15/9009a.md?p=a-5), or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), if the [Commission](/usc/15/78c.md?p=a-15) finds that such action is not inconsistent with the public interest or the protection of investors. Notwithstanding any other provision of law, in providing identification and processing functions, the Attorney General shall provide the [Commission](/usc/15/78c.md?p=a-15) and [self-regulatory organizations](/usc/15/78c.md?p=a-26) designated by the [Commission](/usc/15/78c.md?p=a-15) with access to all criminal history record information. - (3) - (A) In [order](/usc/15/8702.md?p=14) to carry out the [authority](/usc/15/3051.md?p=1) under [paragraph (1)](#f-1) above, the [Commission](/usc/15/78c.md?p=a-15) or its designee may enter into [agreement](/usc/15/7a.md?p=2) with the Attorney General to use the [facilities](/usc/15/78c.md?p=a-2) of the National Crime Information Center (“NCIC”) to receive, store, and disseminate information in regard to missing, lost, counterfeit, or stolen [securities](/usc/15/78c.md?p=a-10) and to permit direct inquiry access to NCIC’s file on such [securities](/usc/15/78c.md?p=a-10) for the financial community. - (B) In [order](/usc/15/8702.md?p=14) to carry out the [authority](/usc/15/3051.md?p=1) under paragraph (1) of this subsection, the [Commission](/usc/15/78c.md?p=a-15) or its designee and the Secretary of the Treasury shall enter into an [agreement](/usc/15/7a.md?p=2) whereby the [Commission](/usc/15/78c.md?p=a-15) or its designee will receive, store, and disseminate information in the possession, and which comes into the possession, of the Department of the Treasury in regard to missing, lost, counterfeit, or stolen [securities](/usc/15/78c.md?p=a-10). - (4) In regard to paragraphs [(1)](#f-1), [(2)](#f-2), and [(3)](#f-3), above insofar as such paragraphs apply to any bank or [member](/usc/15/78c.md?p=a-3-A) of the Federal Reserve System, the [Commission](/usc/15/78c.md?p=a-15) may delegate its [authority](/usc/15/3051.md?p=1) to: - (A) the Comptroller of the Currency as to national banks; - (B) the Federal Reserve [Board](/usc/15/78c.md?p=a-73) in regard to any [member](/usc/15/78c.md?p=a-3-A) of the Federal Reserve System which is not a national bank; and - (C) the Federal Deposit Insurance Corporation for any [State](/usc/15/78c.md?p=a-16) bank which is insured by the Federal Deposit Insurance Corporation but which is not a [member](/usc/15/78c.md?p=a-3-A) of the Federal Reserve System. - (5) The [Commission](/usc/15/78c.md?p=a-15) shall encourage the insurance industry to require their insured to report expeditiously instances of missing, lost, counterfeit, or stolen [securities](/usc/15/78c.md?p=a-10) to the [Commission](/usc/15/78c.md?p=a-15) or to such other [person](/usc/15/78c.md?p=a-9) as the [Commission](/usc/15/78c.md?p=a-15) may, by rule, designate to receive such information. - (g) **Persons extending credit—** Any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or other [person](/usc/15/78c.md?p=a-9) extending [credit](/usc/15/1679a.md?p=4) who is subject to the rules and regulations prescribed by the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System pursuant to this chapter shall make such reports to the [Board](/usc/15/78c.md?p=a-73) as it may require as necessary or appropriate to enable it to perform the functions conferred upon it by this chapter. If any such [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or other [person](/usc/15/78c.md?p=a-9) shall fail to make any such report or fail to furnish full information therein, or, if in the judgment of the [Board](/usc/15/78c.md?p=a-73) it is otherwise necessary, such [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or other [person](/usc/15/78c.md?p=a-9) shall permit such inspections to be made by the [Board](/usc/15/78c.md?p=a-73) with respect to the business operations of such [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or other [person](/usc/15/78c.md?p=a-9) as the [Board](/usc/15/78c.md?p=a-73) may deem necessary to enable it to obtain the required information. - (h) **Risk assessment for holding company systems—** - (1) **Obligations to obtain, maintain, and report information—** Every [person](/usc/15/78c.md?p=a-9) who is (A) a [registered broker or dealer](/usc/15/78c.md?p=h-2), or (B) a registered [municipal securities dealer](/usc/15/78c.md?p=a-30) for which the [Commission](/usc/15/78c.md?p=a-15) is the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), shall obtain such information and make and keep such [records](/usc/15/78c.md?p=a-37) as the [Commission](/usc/15/78c.md?p=a-15) by rule prescribes concerning the registered [person](/usc/15/78c.md?p=a-9)’s policies, procedures, or systems for monitoring and controlling financial and operational risks to it resulting from the activities of any of its associated [persons](/usc/15/78c.md?p=a-9), other than a natural [person](/usc/15/78c.md?p=a-9). Such [records](/usc/15/78c.md?p=a-37) shall describe, in the aggregate, each of the financial and [securities](/usc/15/78c.md?p=a-10) activities conducted by, and the customary sources of capital and funding of, those of its associated [persons](/usc/15/78c.md?p=a-9) whose business activities are reasonably likely to have a material impact on the financial or operational condition of such registered [person](/usc/15/78c.md?p=a-9), including its net capital, its liquidity, or its ability to conduct or finance its operations. The [Commission](/usc/15/78c.md?p=a-15), by rule, may require summary reports of such information to be filed with the [Commission](/usc/15/78c.md?p=a-15) no more frequently than quarterly. - (2) **Authority to require additional information—** If, as a result of adverse market conditions or based on reports provided to the [Commission](/usc/15/78c.md?p=a-15) pursuant to paragraph (1) of this subsection or other available information, the [Commission](/usc/15/78c.md?p=a-15) reasonably concludes that it has concerns regarding the financial or operational condition of (A) any [registered broker or dealer](/usc/15/78c.md?p=h-2), or (B) any registered [municipal securities dealer](/usc/15/78c.md?p=a-30), [government securities broker](/usc/15/78c.md?p=a-43), or [government securities dealer](/usc/15/78c.md?p=a-44) for which the [Commission](/usc/15/78c.md?p=a-15) is the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), the [Commission](/usc/15/78c.md?p=a-15) may require the registered [person](/usc/15/78c.md?p=a-9) to make reports concerning the financial and [securities](/usc/15/78c.md?p=a-10) activities of any of such [person](/usc/15/78c.md?p=a-9)’s associated [persons](/usc/15/78c.md?p=a-9), other than a natural [person](/usc/15/78c.md?p=a-9), whose business activities are reasonably likely to have a material impact on the financial or operational condition of such registered [person](/usc/15/78c.md?p=a-9). The [Commission](/usc/15/78c.md?p=a-15), in requiring reports pursuant to this paragraph, shall specify the information required, the period for which it is required, the time and date on which the information must be furnished, and whether the information is to be furnished directly to the [Commission](/usc/15/78c.md?p=a-15) or to a [self-regulatory organization](/usc/15/78c.md?p=a-26) with primary responsibility for examining the registered [person](/usc/15/78c.md?p=a-9)’s financial and operational condition. - (3) **Special provisions with respect to associated persons subject to Federal banking agency regulation—** - (A) **Cooperation in implementation—** In developing and implementing reporting requirements pursuant to paragraph (1) of this subsection with respect to associated [persons](/usc/15/78c.md?p=a-9) subject to examination by or reporting requirements of a [Federal banking agency](#h-3-G), the [Commission](/usc/15/78c.md?p=a-15) shall consult with and consider the views of each such [Federal banking agency](#h-3-G). If a [Federal banking agency](#h-3-G) comments in writing on a proposed rule of the [Commission](/usc/15/78c.md?p=a-15) under this subsection that has been published for comment, the [Commission](/usc/15/78c.md?p=a-15) shall respond in writing to such written comment before adopting the proposed rule. The [Commission](/usc/15/78c.md?p=a-15) shall, at the request of the [Federal banking agency](#h-3-G), publish such comment and response in the Federal Register at the time of publishing the adopted rule. - (B) **Use of banking agency reports—** A registered [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) shall be in compliance with any recordkeeping or reporting requirement adopted pursuant to paragraph (1) of this subsection concerning an associated [person](/usc/15/78c.md?p=a-9) that is subject to examination by or reporting requirements of a [Federal banking agency](#h-3-G) if such [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) utilizes for such recordkeeping or reporting requirement copies of reports filed by the associated [person](/usc/15/78c.md?p=a-9) with the [Federal banking agency](#h-3-G) pursuant to [section 161 of title 12](/usc/12/161.md), subchapter VIII of [chapter 3](/usc/12/ch3.md) of title 12, [section 1817(a) of title 12](/usc/12/1817.md?p=a), [section 1467a(b) of title 12](/usc/12/1467a.md?p=b), or [section 1847 of title 12](/usc/12/1847.md). The [Commission](/usc/15/78c.md?p=a-15) may, however, by rule adopted pursuant to [paragraph (1)](#h-1), require any [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30) filing such reports with the [Commission](/usc/15/78c.md?p=a-15) to obtain, maintain, or report supplemental information if the [Commission](/usc/15/78c.md?p=a-15) makes an explicit finding that such supplemental information is necessary to inform the [Commission](/usc/15/78c.md?p=a-15) regarding potential risks to such [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [municipal securities dealer](/usc/15/78c.md?p=a-30). Prior to requiring any such supplemental information, the [Commission](/usc/15/78c.md?p=a-15) shall first request the [Federal banking agency](#h-3-G) to expand its reporting requirements to include such information. - (C) **Procedure for requiring additional information—** Prior to making a request pursuant to paragraph (2) of this subsection for information with respect to an associated [person](/usc/15/78c.md?p=a-9) that is subject to examination by or reporting requirements of a [Federal banking agency](#h-3-G), the [Commission](/usc/15/78c.md?p=a-15) shall— - (i) notify such agency of the information required with respect to such associated [person](/usc/15/78c.md?p=a-9); and - (ii) consult with such agency to determine whether the information required is available from such agency and for other purposes, unless the [Commission](/usc/15/78c.md?p=a-15) determines that any delay resulting from such consultation would be inconsistent with ensuring the financial and operational condition of the [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [municipal securities dealer](/usc/15/78c.md?p=a-30), [government securities broker](/usc/15/78c.md?p=a-43), or [government securities dealer](/usc/15/78c.md?p=a-44) or the stability or integrity of the [securities](/usc/15/78c.md?p=a-10) markets. - (D) **Exclusion for examination reports—** Nothing in this subsection shall be construed to permit the [Commission](/usc/15/78c.md?p=a-15) to require any [registered broker or dealer](/usc/15/78c.md?p=h-2), or any registered [municipal securities dealer](/usc/15/78c.md?p=a-30), [government securities broker](/usc/15/78c.md?p=a-43), or [government securities dealer](/usc/15/78c.md?p=a-44) for which the [Commission](/usc/15/78c.md?p=a-15) is the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), to obtain, maintain, or furnish any examination report of any [Federal banking agency](#h-3-G) or any supervisory recommendations or analysis contained therein. - (E) **Confidentiality of information provided—** No information provided to or obtained by the [Commission](/usc/15/78c.md?p=a-15) from any [Federal banking agency](#h-3-G) pursuant to a request by the [Commission](/usc/15/78c.md?p=a-15) under subparagraph (C) of this paragraph regarding any associated [person](/usc/15/78c.md?p=a-9) which is subject to examination by or reporting requirements of a [Federal banking agency](#h-3-G) may be disclosed to any other [person](/usc/15/78c.md?p=a-9) (other than a [self-regulatory organization](/usc/15/78c.md?p=a-26)), without the prior written approval of the [Federal banking agency](#h-3-G). Nothing in this subsection shall authorize the [Commission](/usc/15/78c.md?p=a-15) to withhold information from Congress, or prevent the [Commission](/usc/15/78c.md?p=a-15) from complying with a request for information from any other Federal department or agency requesting the information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/78c.md?p=a-15). - (F) **Notice to banking agencies concerning financial and operational condition concerns—** The [Commission](/usc/15/78c.md?p=a-15) shall notify the [Federal banking agency](#h-3-G) of any concerns of the [Commission](/usc/15/78c.md?p=a-15) regarding significant financial or operational risks resulting from the activities of any [registered broker or dealer](/usc/15/78c.md?p=h-2), or any registered [municipal securities dealer](/usc/15/78c.md?p=a-30), [government securities broker](/usc/15/78c.md?p=a-43), or [government securities dealer](/usc/15/78c.md?p=a-44) for which the [Commission](/usc/15/78c.md?p=a-15) is the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), to any associated [person](/usc/15/78c.md?p=a-9) thereof which is subject to examination by or reporting requirements of the [Federal banking agency](#h-3-G). - (G) **“Federal banking agency” defined—** For purposes of this paragraph, the term “Federal banking agency” shall have the same meaning as the term “appropriate Federal bank agency” in [section 1813(q) of title 12](/usc/12/1813.md?p=q). - (4) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15) by rule or [order](/usc/15/8702.md?p=14) may exempt any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), under such terms and conditions and for such periods as the [Commission](/usc/15/78c.md?p=a-15) shall provide in such rule or [order](/usc/15/8702.md?p=14), from the provisions of this subsection, and the rules thereunder. In granting such exemptions, the [Commission](/usc/15/78c.md?p=a-15) shall consider, among other factors— - (A) whether information of the type required under this subsection is available from a supervisory agency (as defined in section 3401(6)[^6] of [title 12](/usc/12.md)), a [State](/usc/15/78c.md?p=a-16) insurance [commission](/usc/15/78c.md?p=a-15) or similar [State](/usc/15/78c.md?p=a-16) agency, the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), or a similar foreign regulator; - (B) the primary business of any associated [person](/usc/15/78c.md?p=a-9); - (C) the nature and extent of domestic or foreign regulation of the associated [person](/usc/15/78c.md?p=a-9)’s activities; - (D) the nature and extent of the registered [person](/usc/15/78c.md?p=a-9)’s [securities](/usc/15/78c.md?p=a-10) activities; and - (E) with respect to the registered [person](/usc/15/78c.md?p=a-9) and its associated [persons](/usc/15/78c.md?p=a-9), on a consolidated basis, the amount and proportion of assets devoted to, and revenues derived from, activities in the United States [securities](/usc/15/78c.md?p=a-10) markets. - (5) **Authority to limit disclosure of information—** Notwithstanding any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) shall not be compelled to disclose any information required to be reported under this subsection, or any information supplied to the [Commission](/usc/15/78c.md?p=a-15) by any domestic or foreign regulatory agency that relates to the financial or operational condition of any associated [person](/usc/15/78c.md?p=a-9) of a registered [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), or [municipal securities dealer](/usc/15/78c.md?p=a-30). Nothing in this subsection shall authorize the [Commission](/usc/15/78c.md?p=a-15) to withhold information from Congress, or prevent the [Commission](/usc/15/78c.md?p=a-15) from complying with a request for information from any other Federal department or agency requesting the information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/78c.md?p=a-15). For purposes of [section 552 of title 5](/usc/5/552.md), this subsection shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. In prescribing regulations to carry out the requirements of this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall designate information described in or obtained pursuant to subparagraph [(B)](#h-3-B) or [(C)](#h-3-C) of paragraph (3) of this subsection as confidential information for purposes of [section 78x(b)(2) of this title](/usc/15/78x.md). - (i) **Authority to limit disclosure of information—** Notwithstanding any other provision of law, the [Commission](/usc/15/78c.md?p=a-15) shall not be compelled to disclose any information required to be reported under subsection [(h)](#h) or [(i)](#i)[^6] or any information supplied to the [Commission](/usc/15/78c.md?p=a-15) by any domestic or foreign regulatory agency that relates to the financial or operational condition of any [associated person of a broker or dealer](/usc/15/78c.md?p=a-18), investment [bank holding company](/usc/15/78c.md?p=a-34), or any affiliate of an investment [bank holding company](/usc/15/78c.md?p=a-34). Nothing in this subsection shall authorize the [Commission](/usc/15/78c.md?p=a-15) to withhold information from Congress, or prevent the [Commission](/usc/15/78c.md?p=a-15) from complying with a request for information from any other Federal department or agency or any [self-regulatory organization](/usc/15/78c.md?p=a-26) requesting the information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/78c.md?p=a-15). For purposes of [section 552 of title 5](/usc/5/552.md), this subsection shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. In prescribing regulations to carry out the requirements of this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall designate information described in or obtained pursuant to subparagraphs (A), (B), and (C) of subsection (i)(5)[^6] as confidential information for purposes of [section 78x(b)(2) of this title](/usc/15/78x.md). - (j) **Coordination of examining authorities—** - (1) **Elimination of duplication—** The [Commission](/usc/15/78c.md?p=a-15) and the [examining authorities](#j-5), through cooperation and coordination of examination and oversight activities, shall eliminate any unnecessary and burdensome duplication in the examination process. - (2) **Coordination of examinations—** The [Commission](/usc/15/78c.md?p=a-15) and the [examining authorities](#j-5) shall share such information, including reports of examinations, [customer](/usc/15/78c–5.md?p=g) complaint information, and other nonpublic regulatory information, as appropriate to foster a coordinated approach to regulatory oversight of [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) that are subject to examination by more than one [examining authority](#j-5). - (3) **Examinations for cause—** At any time, any [examining authority](#j-5) may conduct an examination for cause of any [broker or dealer](/usc/15/78c.md?p=h-2) subject to its jurisdiction. - (4) **Confidentiality—** - (A) **In general—** [Section 78x of this title](/usc/15/78x.md) shall apply to the sharing of information in accordance with this subsection. The [Commission](/usc/15/78c.md?p=a-15) shall take appropriate action under [section 78x(c) of this title](/usc/15/78x.md?p=c) to ensure that such information is not inappropriately disclosed. - (B) **Appropriate disclosure not prohibited—** Nothing in this paragraph authorizes the [Commission](/usc/15/78c.md?p=a-15) or any [examining authority](#j-5) to withhold information from the Congress, or prevent the [Commission](/usc/15/78c.md?p=a-15) or any [examining authority](#j-5) from complying with a request for information from any other Federal department or agency requesting the information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/78c.md?p=a-15). - (5) **“Examining authority” defined—** For purposes of this subsection, the term “examining authority” means a [self-regulatory organization](/usc/15/78c.md?p=a-26) registered with the [Commission](/usc/15/78c.md?p=a-15) under this chapter (other than a registered [clearing agency](/usc/15/78c.md?p=a-23-A)) with the [authority](/usc/15/3051.md?p=1) to examine, inspect, and otherwise oversee the activities of a [registered broker or dealer](/usc/15/78c.md?p=h-2). # §78q–1. National system for clearance and settlement of securities transactions - (a) **Congressional findings; facilitating establishment of system—** - (1) The Congress finds that— - (A) The prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions, including the transfer of record ownership and the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds related thereto, are necessary for the protection of investors and [persons](/usc/15/78c.md?p=a-9) facilitating transactions by and acting on behalf of investors. - (B) Inefficient procedures for clearance and settlement impose unnecessary costs on investors and [persons](/usc/15/78c.md?p=a-9) facilitating transactions by and acting on behalf of investors. - (C) New data processing and communications techniques create the opportunity for more efficient, effective, and safe procedures for clearance and settlement. - (D) The linking of all clearance and settlement [facilities](/usc/15/78c.md?p=a-2) and the development of uniform standards and procedures for clearance and settlement will reduce unnecessary costs and increase the protection of investors and [persons](/usc/15/78c.md?p=a-9) facilitating transactions by and acting on behalf of investors. - (2) - (A) The [Commission](/usc/15/78c.md?p=a-15) is directed, therefore, having due regard for the public interest, the protection of investors, the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds, and maintenance of fair competition among [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A), [clearing agencies](/usc/15/78c.md?p=a-23-A), and [transfer agents](/usc/15/78c.md?p=a-25), to use its [authority](/usc/15/3051.md?p=1) under this chapter— - (i) to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of transactions in [securities](/usc/15/78c.md?p=a-10) (other than exempt [securities](/usc/15/78c.md?p=a-10)); and - (ii) to facilitate the establishment of linked or coordinated [facilities](/usc/15/78c.md?p=a-2) for clearance and settlement of transactions in [securities](/usc/15/78c.md?p=a-10), [securities](/usc/15/78c.md?p=a-10) options, contracts of sale for future delivery and options thereon, and commodity options; in accordance with the findings and to carry out the objectives set forth in paragraph (1) of this subsection. - (B) The [Commission](/usc/15/78c.md?p=a-15) shall use its [authority](/usc/15/3051.md?p=1) under this chapter to assure equal regulation under this chapter of registered [clearing agencies](/usc/15/78c.md?p=a-23-A) and registered [transfer agents](/usc/15/78c.md?p=a-25). In carrying out its responsibilities set forth in subparagraph (A)(ii) of this paragraph, the [Commission](/usc/15/78c.md?p=a-15) shall coordinate with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) and consult with the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System. - (b) **Registration of clearing agencies; application; determinations by Commission requisite to registration of applicant as clearing agency; denial of participation; discipline; summary proceedings; exemption; facilities for handling derivatives—** - (1) Except as otherwise provided in this section, it shall be unlawful for any [clearing agency](/usc/15/78c.md?p=a-23-A), unless registered in accordance with this subsection, directly or indirectly, to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to perform the functions of a [clearing agency](/usc/15/78c.md?p=a-23-A) with respect to any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)). The [Commission](/usc/15/78c.md?p=a-15), by rule or [order](/usc/15/8702.md?p=14), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [clearing agency](/usc/15/78c.md?p=a-23-A) or [security](/usc/15/78c.md?p=a-10) or any class of [clearing agencies](/usc/15/78c.md?p=a-23-A) or [securities](/usc/15/78c.md?p=a-10) from any provisions of this section or the rules or regulations thereunder, if the [Commission](/usc/15/78c.md?p=a-15) finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of this section, including the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions and the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds. A [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) shall not perform the functions of both a [clearing agency](/usc/15/78c.md?p=a-23-A) and a [transfer agent](/usc/15/78c.md?p=a-25) unless such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) is registered in accordance with this subsection and [subsection (c)](#c) of this section. - (2) A [clearing agency](/usc/15/78c.md?p=a-23-A) may be registered under the terms and conditions hereinafter provided in this subsection and in accordance with the provisions of [section 78s(a) of this title](/usc/15/78s.md?p=a), by filing with the [Commission](/usc/15/78c.md?p=a-15) an [application](/usc/15/77ccc.md?p=8) for registration in such form as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe containing the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) and such other information and documents as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions. - (3) A [clearing agency](/usc/15/78c.md?p=a-23-A) shall not be registered unless the [Commission](/usc/15/78c.md?p=a-15) determines that— - (A) Such [clearing agency](/usc/15/78c.md?p=a-23-A) is so organized and has the capacity to be able to facilitate the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions and derivative [agreements](/usc/15/7a.md?p=2), contracts, and transactions for which it is responsible, to safeguard [securities](/usc/15/78c.md?p=a-10) and funds in its custody or control or for which it is responsible, to comply with the provisions of this chapter and the rules and regulations thereunder, to enforce (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to section [78q(d)](/usc/15/78q.md?p=d) or [78s(g)(2)](/usc/15/78s.md?p=g-2) of this title) compliance by its [participants](/usc/15/78c.md?p=a-24) with the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A), and to carry out the purposes of this section. - (B) Subject to the provisions of paragraph (4) of this subsection, the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) provide that any (i) [registered broker or dealer](/usc/15/78c.md?p=h-2), (ii) other registered [clearing agency](/usc/15/78c.md?p=a-23-A), (iii) registered [investment company](/usc/15/78c.md?p=a-12-A-iii), (iv) bank, (v) [insurance company](/usc/15/78c.md?p=a-19), or (vi) other [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9) as the [Commission](/usc/15/78c.md?p=a-15), by rule, may from time to time designate as appropriate to the development of a national system for the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions may become a [participant](/usc/15/78c.md?p=a-24) in such [clearing agency](/usc/15/78c.md?p=a-23-A). - (C) The rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) assure a fair representation of its shareholders (or [members](/usc/15/78c.md?p=a-3-A)) and [participants](/usc/15/78c.md?p=a-24) in the selection of its [directors](/usc/15/78c.md?p=a-7) and [administration](/usc/15/2203.md?p=2) of its affairs. (The [Commission](/usc/15/78c.md?p=a-15) may determine that the representation of [participants](/usc/15/78c.md?p=a-24) is fair if they are afforded a reasonable opportunity to acquire voting stock of the [clearing agency](/usc/15/78c.md?p=a-23-A), directly or indirectly, in reasonable proportion to their use of such [clearing agency](/usc/15/78c.md?p=a-23-A).) - (D) The rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) provide for the equitable allocation of reasonable dues, fees, and other charges among its [participants](/usc/15/78c.md?p=a-24). - (E) The rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) do not impose any schedule of prices, or fix rates or other fees, for services rendered by its [participants](/usc/15/78c.md?p=a-24). - (F) The rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) are designed to promote the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions and, to the extent applicable, derivative [agreements](/usc/15/7a.md?p=2), contracts, and transactions, to assure the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds which are in the custody or control of the [clearing agency](/usc/15/78c.md?p=a-23-A) or for which it is responsible, to foster cooperation and coordination with [persons](/usc/15/78c.md?p=a-9) engaged in the clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions, to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination in the admission of [participants](/usc/15/78c.md?p=a-24) or among [participants](/usc/15/78c.md?p=a-24) in the use of the [clearing agency](/usc/15/78c.md?p=a-23-A), or to regulate by virtue of any [authority](/usc/15/3051.md?p=1) conferred by this chapter matters not related to the purposes of this section or the [administration](/usc/15/2203.md?p=2) of the [clearing agency](/usc/15/78c.md?p=a-23-A). - (G) The rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) provide that (subject to any rule or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to section [78q(d)](/usc/15/78q.md?p=d) or [78s(g)(2)](/usc/15/78s.md?p=g-2) of this title) its [participants](/usc/15/78c.md?p=a-24) shall be appropriately disciplined for [violation](/usc/15/57b–1.md?p=a-7) of any provision of the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, or any other fitting sanction. - (H) The rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) are in accordance with the provisions of paragraph (5) of this subsection, and, in general, provide a fair procedure with respect to the disciplining of [participants](/usc/15/78c.md?p=a-24), the denial of participation to any [person](/usc/15/78c.md?p=a-9) seeking participation therein, and the prohibition or limitation by the [clearing agency](/usc/15/78c.md?p=a-23-A) of any [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [clearing agency](/usc/15/78c.md?p=a-23-A). - (I) The rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. - (4) - (A) A registered [clearing agency](/usc/15/78c.md?p=a-23-A) may, and in cases in which the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), directs as appropriate in the public interest shall, deny participation to any [person](/usc/15/78c.md?p=a-9) subject to a statutory disqualification. A registered [clearing agency](/usc/15/78c.md?p=a-23-A) shall file notice with the [Commission](/usc/15/78c.md?p=a-15) not less than thirty days prior to admitting any [person](/usc/15/78c.md?p=a-9) to participation, if the [clearing agency](/usc/15/78c.md?p=a-23-A) knew, or in the exercise of reasonable care should have known, that such [person](/usc/15/78c.md?p=a-9) was subject to a statutory disqualification. The notice shall be in such form and contain such information as the [Commission](/usc/15/78c.md?p=a-15), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (B) A registered [clearing agency](/usc/15/78c.md?p=a-23-A) may deny participation to, or condition the participation of, any [person](/usc/15/78c.md?p=a-9) if such [person](/usc/15/78c.md?p=a-9) does not meet such standards of financial responsibility, operational capability, experience, and competence as are prescribed by the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A). A registered [clearing agency](/usc/15/78c.md?p=a-23-A) may examine and verify the qualifications of an [applicant](/usc/15/7a.md?p=3) to be a [participant](/usc/15/78c.md?p=a-24) in accordance with procedures established by the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A). - (5) - (A) In any proceeding by a registered [clearing agency](/usc/15/78c.md?p=a-23-A) to determine whether a [participant](/usc/15/78c.md?p=a-24) should be disciplined (other than a summary proceeding pursuant to subparagraph (C) of this paragraph), the [clearing agency](/usc/15/78c.md?p=a-23-A) shall bring specific charges, notify such [participant](/usc/15/78c.md?p=a-24) of, and give him an opportunity to defend against such charges, and keep a record. A determination by the [clearing agency](/usc/15/78c.md?p=a-23-A) to impose a disciplinary sanction shall be supported by a statement setting forth— - (i) any act or practice in which such [participant](/usc/15/78c.md?p=a-24) has been found to have engaged, or which such [participant](/usc/15/78c.md?p=a-24) has been found to have omitted; - (ii) the specific provisions of the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) which any such act or practice, or omission to act, is deemed to violate; and - (iii) the sanction imposed and the reasons therefor. - (B) In any proceeding by a registered [clearing agency](/usc/15/78c.md?p=a-23-A) to determine whether a [person](/usc/15/78c.md?p=a-9) shall be denied participation or prohibited or limited with respect to access to services offered by the [clearing agency](/usc/15/78c.md?p=a-23-A), the [clearing agency](/usc/15/78c.md?p=a-23-A) shall notify such [person](/usc/15/78c.md?p=a-9) of, and give him an opportunity to be heard upon, the specific grounds for denial or prohibition or limitation under consideration and keep a record. A determination by the [clearing agency](/usc/15/78c.md?p=a-23-A) to deny participation or prohibit or limit a [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [clearing agency](/usc/15/78c.md?p=a-23-A) shall be supported by a statement setting forth the specific grounds on which the denial or prohibition or limitation is based. - (C) A registered [clearing agency](/usc/15/78c.md?p=a-23-A) may summarily suspend and close the [accounts](/usc/15/1681a.md?p=r-4) of a [participant](/usc/15/78c.md?p=a-24) who (i) has been and is expelled or suspended from any [self-regulatory organization](/usc/15/78c.md?p=a-26), (ii) is in default of any delivery of funds or [securities](/usc/15/78c.md?p=a-10) to the [clearing agency](/usc/15/78c.md?p=a-23-A), or (iii) is in such financial or operating difficulty that the [clearing agency](/usc/15/78c.md?p=a-23-A) determines and so notifies the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [participant](/usc/15/78c.md?p=a-24) that such suspension and closing of [accounts](/usc/15/1681a.md?p=r-4) are necessary for the protection of the [clearing agency](/usc/15/78c.md?p=a-23-A), its [participants](/usc/15/78c.md?p=a-24), [creditors](/usc/15/1615.md?p=d-2), or investors. A [participant](/usc/15/78c.md?p=a-24) so summarily suspended shall be promptly afforded an opportunity for a hearing by the [clearing agency](/usc/15/78c.md?p=a-23-A) in accordance with the provisions of subparagraph (A) of this paragraph. The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [participant](/usc/15/78c.md?p=a-24), by [order](/usc/15/8702.md?p=14), may stay any such summary suspension on its own motion or upon [application](/usc/15/77ccc.md?p=8) by any [person](/usc/15/78c.md?p=a-9) aggrieved thereby, if such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) determines summarily or after notice and opportunity for hearing (which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that such stay is consistent with the public interest and protection of investors. - (6) No registered [clearing agency](/usc/15/78c.md?p=a-23-A) shall prohibit or limit access by any [person](/usc/15/78c.md?p=a-9) to services offered by any [participant](/usc/15/78c.md?p=a-24) therein. - (7) - (A) A [clearing agency](/usc/15/78c.md?p=a-23-A) that is regulated directly or indirectly by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) through its [association](/usc/15/657h.md?p=a-2) with a designated contract market for [security futures products](/usc/15/78c.md?p=a-56) that is a [national securities exchange](/usc/15/9009a.md?p=a-5) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g), and that would be required to register pursuant to paragraph (1) of this subsection only because it performs the functions of a [clearing agency](/usc/15/78c.md?p=a-23-A) with respect to [security futures products](/usc/15/78c.md?p=a-56) effected pursuant to the rules of the designated contract market with which such agency is associated, is exempted from the provisions of this section and the rules and regulations thereunder, except that if such a [clearing agency](/usc/15/78c.md?p=a-23-A) performs the functions of a [clearing agency](/usc/15/78c.md?p=a-23-A) with respect to a [security futures product](/usc/15/78c.md?p=a-56) that is not cash settled, it must have arrangements in place with a registered [clearing agency](/usc/15/78c.md?p=a-23-A) to effect the payment and delivery of the [securities](/usc/15/78c.md?p=a-10) underlying the [security futures product](/usc/15/78c.md?p=a-56). - (B) Any [clearing agency](/usc/15/78c.md?p=a-23-A) that performs the functions of a [clearing agency](/usc/15/78c.md?p=a-23-A) with respect to [security futures products](/usc/15/78c.md?p=a-56) must coordinate with and develop fair and reasonable links with any and all other [clearing agencies](/usc/15/78c.md?p=a-23-A) that perform the functions of a [clearing agency](/usc/15/78c.md?p=a-23-A) with respect to [security futures products](/usc/15/78c.md?p=a-56), in [order](/usc/15/8702.md?p=14) to permit, as of the compliance date (as defined in [section 78f(h)(6)(C)](/usc/15/78f.md)[^1] of this title), [security futures products](/usc/15/78c.md?p=a-56) to be purchased on one market and offset on another market that trades such products. - (8) A registered [clearing agency](/usc/15/78c.md?p=a-23-A) shall be permitted to provide [facilities](/usc/15/78c.md?p=a-2) for the clearance and settlement of any derivative [agreements](/usc/15/7a.md?p=2), contracts, or transactions that are excluded from the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], subject to the requirements of this section and to such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. - (c) **Registration of transfer agents—** - (1) Except as otherwise provided in this section, it shall be unlawful for any [transfer agent](/usc/15/78c.md?p=a-25), unless registered in accordance with this section, directly or indirectly, to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to perform the function of a [transfer agent](/usc/15/78c.md?p=a-25) with respect to any [security](/usc/15/78c.md?p=a-10) registered under [section 78l](/usc/15/78l.md) of this title or which would be required to be registered except for the exemption from registration provided by subsection [(g)(2)(B)](/usc/15/78l.md?p=g-2-B) or [(g)(2)(G)](/usc/15/78l.md?p=g-2-G) of that section. The [appropriate regulatory agency](/usc/15/78c.md?p=a-34), by rule or [order](/usc/15/8702.md?p=14), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [person](/usc/15/78c.md?p=a-9) or [security](/usc/15/78c.md?p=a-10) or class of [persons](/usc/15/78c.md?p=a-9) or [securities](/usc/15/78c.md?p=a-10) from any provision of this section or any rule or regulation prescribed under this section, if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds (A) that such exemption is in the public interest and consistent with the protection of investors and the purposes of this section, including the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions and the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds, and (B) the [Commission](/usc/15/78c.md?p=a-15) does not object to such exemption. - (2) A [transfer agent](/usc/15/78c.md?p=a-25) may be registered by filing with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [transfer agent](/usc/15/78c.md?p=a-25) an [application](/usc/15/77ccc.md?p=8) for registration in such form and containing such information and documents concerning such [transfer agent](/usc/15/78c.md?p=a-25) and any [persons](/usc/15/78c.md?p=a-9) associated with the [transfer agent](/usc/15/78c.md?p=a-25) as such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may prescribe as necessary or appropriate in furtherance of the purposes of this section. Except as hereinafter provided, such registration shall become effective 45 days after receipt of such [application](/usc/15/77ccc.md?p=8) by such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) or within such shorter period of time as such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may determine. - (3) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [transfer agent](/usc/15/78c.md?p=a-25), by [order](/usc/15/8702.md?p=14), shall deny registration to, censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of such [transfer agent](/usc/15/78c.md?p=a-25), if such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds, on the record after notice and opportunity for hearing, that such denial, censure, placing of limitations, suspension, or revocation is in the public interest and that such [transfer agent](/usc/15/78c.md?p=a-25), whether prior or subsequent to becoming such, or any [person associated with](/usc/15/78c.md?p=a-63) such [transfer agent](/usc/15/78c.md?p=a-25), whether prior or subsequent to becoming so associated— - (A) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph [(A)](#c-4-A), (D), (E), (H), or (G) of paragraph (4) of [section 78o(b)](/usc/15/78o.md?p=b) of this title, has been convicted of any offense specified in [subparagraph (B)](#c-3-B) of such [paragraph (4)](#c-4) within ten years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#c-4-C) of such [paragraph (4)](#c-4); or - (B) is subject to an [order](/usc/15/8702.md?p=14) entered pursuant to [subparagraph (C)](#c-4-C) of paragraph (4) of this subsection barring or suspending the right of such [person](/usc/15/78c.md?p=a-9) to be associated with a [transfer agent](/usc/15/78c.md?p=a-25). - (4) - (A) Pending final determination whether any registration by a [transfer agent](/usc/15/78c.md?p=a-25) under this subsection shall be denied, the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [transfer agent](/usc/15/78c.md?p=a-25), by [order](/usc/15/8702.md?p=14), may postpone the effective date of such registration for a period not to exceed fifteen days, but if, after notice and opportunity for hearing (which may consist solely of affidavits and oral arguments), it shall appear to such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) to be necessary or appropriate in the public interest or for the protection of investors to postpone the effective date of such registration until final determination, such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall so [order](/usc/15/8702.md?p=14). Pending final determination whether any registration under this subsection shall be revoked, such [appropriate regulatory agency](/usc/15/78c.md?p=a-34), by [order](/usc/15/8702.md?p=14), may suspend such registration, if such suspension appears to such [appropriate regulatory agency](/usc/15/78c.md?p=a-34), after notice and opportunity for hearing, to be necessary or appropriate in the public interest or for the protection of investors. - (B) A registered [transfer agent](/usc/15/78c.md?p=a-25) may, upon such terms and conditions as the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [transfer agent](/usc/15/78c.md?p=a-25) deems necessary or appropriate in the public interest, for the protection of investors, or in furtherance of the purposes of this section, withdraw from registration by filing a written notice of withdrawal with such [appropriate regulatory agency](/usc/15/78c.md?p=a-34). If such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds that any [transfer agent](/usc/15/78c.md?p=a-25) for which it is the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), is no longer in existence or has ceased to do business as a [transfer agent](/usc/15/78c.md?p=a-25), such [appropriate regulatory agency](/usc/15/78c.md?p=a-34), by [order](/usc/15/8702.md?p=14), shall cancel or deny the registration. - (C) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [transfer agent](/usc/15/78c.md?p=a-25), by [order](/usc/15/8702.md?p=14), shall censure or place limitations on the activities or functions of any [person](/usc/15/78c.md?p=a-9) associated, seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with the [transfer agent](/usc/15/78c.md?p=a-25), or suspend for a period not exceeding 12 months or bar any such [person](/usc/15/78c.md?p=a-9) from being associated with any [transfer agent](/usc/15/78c.md?p=a-25), [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [investment adviser](/usc/15/78c.md?p=a-20), [municipal securities dealer](/usc/15/78c.md?p=a-30), municipal advisor, or [nationally recognized statistical rating organization](/usc/15/78c.md?p=a-62), if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such [person](/usc/15/78c.md?p=a-9) has committed or omitted any act, or is subject to an [order](/usc/15/8702.md?p=14) or finding, enumerated in subparagraph [(A)](#c-4-A), (D), (E), (H), or (G) or[^2] [paragraph (4)](/usc/15/78o.md?p=b-4) of section 78o(b) of this title, has been convicted of any offense specified in [subparagraph (B)](#c-4-B) of such [paragraph (4)](#c-4) within ten years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in [subparagraph (C)](#c-4-C) of such [paragraph (4)](#c-4). It shall be unlawful for any [person](/usc/15/78c.md?p=a-9) as to whom such an [order](/usc/15/8702.md?p=14) suspending or barring him from being associated with a [transfer agent](/usc/15/78c.md?p=a-25) is in effect willfully to become, or to be, associated with a [transfer agent](/usc/15/78c.md?p=a-25) without the consent of the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) that entered the [order](/usc/15/8702.md?p=14) and the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for that [transfer agent](/usc/15/78c.md?p=a-25). It shall be unlawful for any [transfer agent](/usc/15/78c.md?p=a-25) to permit such a [person](/usc/15/78c.md?p=a-9) to become, or remain, a [person associated with](/usc/15/78c.md?p=a-63) it without the consent of such [appropriate regulatory agencies](/usc/15/78c.md?p=a-34), if the [transfer agent](/usc/15/78c.md?p=a-25) knew, or in the exercise of reasonable care should have known, of such [order](/usc/15/8702.md?p=14). The [Commission](/usc/15/78c.md?p=a-15) may establish, by rule, procedures by which a [transfer agent](/usc/15/78c.md?p=a-25) reasonably can determine whether a [person](/usc/15/78c.md?p=a-9) associated or seeking to become associated with it is subject to any such [order](/usc/15/8702.md?p=14), and may require, by rule, that any [transfer agent](/usc/15/78c.md?p=a-25) comply with such procedures. - (d) **Activities of clearing agencies and transfer agents; enforcement by appropriate regulatory agencies—** - (1) No registered [clearing agency](/usc/15/78c.md?p=a-23-A) or registered [transfer agent](/usc/15/78c.md?p=a-25) shall, directly or indirectly, engage in any activity as [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) in contravention of such rules and regulations (A) as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, or (B) as the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) may prescribe as necessary or appropriate for the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds. - (2) With respect to any [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) may, in accordance with [section 1818 of title 12](/usc/12/1818.md), enforce compliance by such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) with the provisions of this section, sections [78q](/usc/15/78q.md) and [78s](/usc/15/78s.md) of this title, and the rules and regulations thereunder. For purposes of the preceding sentence, any [violation](/usc/15/57b–1.md?p=a-7) of any such provision shall constitute adequate basis for the issuance of an [order](/usc/15/8702.md?p=14) under section [1818(b)](/usc/12/1818.md?p=b) or [1818(c)](/usc/12/1818.md?p=c) of title 12, and the [participants](/usc/15/78c.md?p=a-24) in any such [clearing agency](/usc/15/78c.md?p=a-23-A) and the [persons](/usc/15/78c.md?p=a-9) doing business with any such [transfer agent](/usc/15/78c.md?p=a-25) shall be deemed to be “depositors” as that term is used in [section 1818(c) of title 12](/usc/12/1818.md?p=c). - (3) - (A) With respect to any [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), the [Commission](/usc/15/78c.md?p=a-15) and the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) shall consult and cooperate with each other, and, as may be appropriate, with [State](/usc/15/78c.md?p=a-16) banking [authorities](/usc/15/3051.md?p=1) having supervision over such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) toward the end that, to the maximum extent practicable, their respective regulatory responsibilities may be fulfilled and the rules and regulations applicable to such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) may be in accord with both sound banking practices and a national system for the prompt and accurate clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions. In accordance with this objective— - (i) the [Commission](/usc/15/78c.md?p=a-15) and such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall, at least fifteen days prior to the issuance for public comment of any proposed rule or regulation or adoption of any rule or regulation concerning such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25), consult and request the views of the other; and - (ii) such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall assume primary responsibility to examine and enforce compliance by such [clearing agency](/usc/15/78c.md?p=a-23-A) or [transfer agent](/usc/15/78c.md?p=a-25) with the provisions of this section and sections [78q](/usc/15/78q.md) and [78s](/usc/15/78s.md) of this title. - (B) Nothing in the preceding subparagraph or elsewhere in this chapter shall be construed to impair or limit (other than by the requirement of notification) the [Commission](/usc/15/78c.md?p=a-15)’s [authority](/usc/15/3051.md?p=1) to make rules under any provision of this chapter or to enforce compliance pursuant to any provision of this chapter by any [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [person associated with a transfer agent](/usc/15/78c.md?p=a-49) with the provisions of this chapter and the rules and regulations thereunder. - (4) Nothing in this section shall be construed to impair the [authority](/usc/15/3051.md?p=1) of any [State](/usc/15/78c.md?p=a-16) banking [authority](/usc/15/3051.md?p=1) or other [State](/usc/15/78c.md?p=a-16) or Federal regulatory [authority](/usc/15/3051.md?p=1) having jurisdiction over a [person](/usc/15/78c.md?p=a-9) registered as a [clearing agency](/usc/15/78c.md?p=a-23-A), [transfer agent](/usc/15/78c.md?p=a-25), or [person associated with a transfer agent](/usc/15/78c.md?p=a-49), to make and enforce rules governing such [person](/usc/15/78c.md?p=a-9) which are not inconsistent with this chapter and the rules and regulations thereunder. - (5) A registered [transfer agent](/usc/15/78c.md?p=a-25) may not, directly or indirectly, engage in any activity in connection with the guarantee of a signature of an endorser of a [security](/usc/15/78c.md?p=a-10), including the acceptance or rejection of such guarantee, in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest, for the protection of investors, to facilitate the equitable treatment of [financial institutions](/usc/15/78c.md?p=a-46) which issue such guarantees, or otherwise in furtherance of the purposes of this chapter. - (e) **Physical movement of securities certificates—** The [Commission](/usc/15/78c.md?p=a-15) shall use its [authority](/usc/15/3051.md?p=1) under this chapter to end the physical movement of [securities](/usc/15/78c.md?p=a-10) certificates in connection with the settlement among [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) of transactions in [securities](/usc/15/78c.md?p=a-10) consummated by means of the mails or any means or instrumentalities of [interstate commerce](/usc/15/78c.md?p=a-17). - (f) **Rules concerning transfer of securities and rights and obligations of involved or affected parties—** - (1) Notwithstanding any provision of [State](/usc/15/78c.md?p=a-16) law, except as provided in [paragraph (3)](#f-3), if the [Commission](/usc/15/78c.md?p=a-15) makes each of the findings described in [paragraph (2)(A)](#f-2-A), the [Commission](/usc/15/78c.md?p=a-15) may adopt rules concerning— - (A) the transfer of certificated or uncertificated [securities](/usc/15/78c.md?p=a-10) (other than [government securities](/usc/15/78c.md?p=a-42) issued pursuant to [chapter 31](/usc/31/chstIII-ch31.md) of title 31 or [securities](/usc/15/78c.md?p=a-10) otherwise processed within a book-entry system operated by the Federal Reserve banks pursuant to a Federal book-entry regulation) or limited interests (including [security](/usc/15/78c.md?p=a-10) interests) therein; and - (B) rights and obligations of purchasers, sellers, owners, lenders, [borrowers](/usc/15/697f.md?p=e-2), and financial [intermediaries](/usc/15/6901.md?p=7) (including [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), banks, and [clearing agencies](/usc/15/78c.md?p=a-23-A)) involved in or affected by such transfers, and the rights of third parties whose interests in such [securities](/usc/15/78c.md?p=a-10) devolve from such transfers. - (2) - (A) The findings described in this paragraph are findings by the [Commission](/usc/15/78c.md?p=a-15) that— - (i) such rule is necessary or appropriate for the protection of investors or in the public interest and is reasonably designed to promote the prompt, accurate, and safe clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions; - (ii) in the absence of a uniform rule, the safe and efficient operation of the national system for clearance and settlement of [securities](/usc/15/78c.md?p=a-10) transactions will be, or is, substantially impeded; and - (iii) to the extent such rule will impair or diminish, directly or indirectly, rights of [persons](/usc/15/78c.md?p=a-9) specified in [paragraph (1)(B)](#f-1-B) under [State](/usc/15/78c.md?p=a-16) law concerning transfers of [securities](/usc/15/78c.md?p=a-10) (or limited interests therein), the benefits of such rule outweigh such impairment or diminution of rights. - (B) In making the findings described in [subparagraph (A)](#f-2-A), the [Commission](/usc/15/78c.md?p=a-15) shall give consideration to the recommendations of the [Advisory Committee](/usc/15/8801.md?p=1) established under [paragraph (4)](#f-4), and it shall consult with and consider the views of the Secretary of the Treasury and the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System. If the Secretary of the Treasury objects, in writing, to any proposed rule of the [Commission](/usc/15/78c.md?p=a-15) on the basis of the Secretary’s view on the issues described in clauses [(i)](#f-2-A-i), [(ii)](#f-2-A-ii), and [(iii)](#f-2-A-iii) of subparagraph (A), the [Commission](/usc/15/78c.md?p=a-15) shall consider all feasible alternatives to the proposed rule, and it shall not adopt any such rule unless the [Commission](/usc/15/78c.md?p=a-15) makes an explicit finding that the rule is the most practicable method for achieving safe and efficient operation of the national clearance and settlement system. - (3) Any [State](/usc/15/78c.md?p=a-16) may, prior to the expiration of 2 years after the [Commission](/usc/15/78c.md?p=a-15) adopts a rule under this subsection, enact a statute that specifically refers to this subsection and the specific rule thereunder and establishes, prospectively from the date of enactment of the [State](/usc/15/78c.md?p=a-16) statute, a provision that differs from that applicable under the [Commission](/usc/15/78c.md?p=a-15)’s rule. - (4) - (A) Within 90 days after October 16, 1990, the [Commission](/usc/15/78c.md?p=a-15) shall (and at such times thereafter as the [Commission](/usc/15/78c.md?p=a-15) may determine, the [Commission](/usc/15/78c.md?p=a-15) may), after consultation with the Secretary of the Treasury and the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, establish an [advisory committee](/usc/15/8801.md?p=1) under [chapter 10](/usc/5/chptI-ch10.md) of title 5. The [Advisory Committee](/usc/15/8801.md?p=1) shall be directed to consider and report to the [Commission](/usc/15/78c.md?p=a-15) on such matters as the [Commission](/usc/15/78c.md?p=a-15), after consultation with the Secretary of the Treasury and the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, determines, including the areas, if any, in which [State](/usc/15/78c.md?p=a-16) commercial laws and related Federal laws concerning the transfer of certificated or uncertificated [securities](/usc/15/78c.md?p=a-10), limited interests (including [security](/usc/15/78c.md?p=a-10) interests) in such [securities](/usc/15/78c.md?p=a-10), or the creation or perfection of [security](/usc/15/78c.md?p=a-10) interests in such [securities](/usc/15/78c.md?p=a-10) do not provide the necessary certainty, uniformity, and clarity for purchasers, sellers, owners, lenders, [borrowers](/usc/15/697f.md?p=e-2), and financial [intermediaries](/usc/15/6901.md?p=7) concerning their respective rights and obligations. - (B) The [Advisory Committee](/usc/15/8801.md?p=1) shall consist of 15 [members](/usc/15/78c.md?p=a-3-A), of which— - (i) 11 shall be designated by the [Commission](/usc/15/78c.md?p=a-15) in accordance with [chapter 10](/usc/5/chptI-ch10.md) of title 5; and - (ii) 2 each shall be designated by the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System and the Secretary of the Treasury. - (C) The [Advisory Committee](/usc/15/8801.md?p=1) shall conduct its activities in accordance with [chapter 10](/usc/5/chptI-ch10.md) of title 5. Within 6 months of its designation, or such longer time as the [Commission](/usc/15/78c.md?p=a-15) may designate, the [Advisory Committee](/usc/15/8801.md?p=1) shall issue a report to the [Commission](/usc/15/78c.md?p=a-15), and shall cause copies of that report to be delivered to the Secretary of the Treasury and the Chairman of the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System. - (g) **[^3] Due diligence for the delivery of dividends, interest, and other valuable property rights—** - (1) **Revision of rules required—** The [Commission](/usc/15/78c.md?p=a-15) shall revise its regulations in [section 240.17Ad–17 of title 17, Code of Federal Regulations](/cfr/17/240.17Ad–17.md), as in effect on December 8, 1997, to extend the [application](/usc/15/77ccc.md?p=8) of such section to [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) and to provide for the following: - (A) A requirement that the [paying agent](#g-1-D-ii) provide a single written notification to each missing [security](/usc/15/78c.md?p=a-10) holder that the missing [security](/usc/15/78c.md?p=a-10) 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 subsequently sent to the missing [security](/usc/15/78c.md?p=a-10) 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](#g-1-D-ii) from the notification 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)](#g-1-A) shall have no effect on [State](/usc/15/78c.md?p=a-16) escheatment laws. - (D) For purposes of such revised regulations— - (i) a [security](/usc/15/78c.md?p=a-10) holder shall be considered a “missing [security](/usc/15/78c.md?p=a-10) holder” if a check is sent to the [security](/usc/15/78c.md?p=a-10) holder and the check is not negotiated before the earlier of the [paying agent](#g-1-D-ii) 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](/usc/15/78c.md?p=a-8), [transfer agent](/usc/15/78c.md?p=a-25), [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [investment adviser](/usc/15/78c.md?p=a-20), indenture trustee, [custodian](/usc/15/57b–1.md?p=a-4), or any other [person](/usc/15/78c.md?p=a-9) that accepts payments from the [issuer](/usc/15/78c.md?p=a-8) of a [security](/usc/15/78c.md?p=a-10) and distributes the payments to the holders of the [security](/usc/15/78c.md?p=a-10). - (2) **Rulemaking—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt such rules, regulations, and [orders](/usc/15/8702.md?p=14) necessary to implement this subsection no later than 1 year after July 21, 2010. In proposing such rules, the [Commission](/usc/15/78c.md?p=a-15) shall seek to minimize disruptions to current systems used by or on behalf of [paying agents](#g-1-D-ii) to process payment to [account](/usc/15/1681a.md?p=r-4) holders and avoid requiring multiple [paying agents](#g-1-D-ii) to send written notification to a missing [security](/usc/15/78c.md?p=a-10) holder regarding the same not yet negotiated check. - (g) **[^3] Registration requirement—** It shall be unlawful for a [clearing agency](/usc/15/78c.md?p=a-23-A), unless registered with the [Commission](/usc/15/78c.md?p=a-15), directly or indirectly to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) to perform the functions of a [clearing agency](/usc/15/78c.md?p=a-23-A) with respect to a [security-based swap](/usc/15/78c.md?p=a-68-A). - (h) **Voluntary registration—** A [person](/usc/15/78c.md?p=a-9) that clears [agreements](/usc/15/7a.md?p=2), contracts, or transactions that are not required to be cleared under this chapter may register with the [Commission](/usc/15/78c.md?p=a-15) as a [clearing agency](/usc/15/78c.md?p=a-23-A). - (i) **Standards for clearing agencies clearing security-based swap transactions—** To be registered and to maintain registration as a [clearing agency](/usc/15/78c.md?p=a-23-A) that clears [security-based swap](/usc/15/78c.md?p=a-68-A) transactions, a [clearing agency](/usc/15/78c.md?p=a-23-A) shall comply with such standards as the [Commission](/usc/15/78c.md?p=a-15) may establish by rule. In establishing any such standards, and in the exercise of its oversight of such a [clearing agency](/usc/15/78c.md?p=a-23-A) pursuant to this chapter, the [Commission](/usc/15/78c.md?p=a-15) may conform such standards or oversight to reflect evolving United States and international standards. Except where the [Commission](/usc/15/78c.md?p=a-15) determines otherwise by rule or regulation, a [clearing agency](/usc/15/78c.md?p=a-23-A) shall have reasonable discretion in establishing the manner in which it complies with any such standards. - (j) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall adopt rules governing [persons](/usc/15/78c.md?p=a-9) that are registered as [clearing agencies](/usc/15/78c.md?p=a-23-A) for [security-based swaps](/usc/15/78c.md?p=a-68-A) under this chapter. - (k) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15) may exempt, conditionally or unconditionally, a [clearing agency](/usc/15/78c.md?p=a-23-A) from registration under this section for the clearing of [security-based swaps](/usc/15/78c.md?p=a-68-A) if the [Commission](/usc/15/78c.md?p=a-15) determines that the [clearing agency](/usc/15/78c.md?p=a-23-A) is subject to comparable, comprehensive supervision and regulation by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) or the appropriate government [authorities](/usc/15/3051.md?p=1) in the home country of the agency. Such conditions may include, but are not limited to, requiring that the [clearing agency](/usc/15/78c.md?p=a-23-A) be available for inspection by the [Commission](/usc/15/78c.md?p=a-15) and make available all information requested by the [Commission](/usc/15/78c.md?p=a-15). - (l) **Existing depository institutions and derivative clearing organizations—** - (1) **In general—** A depository institution or derivative clearing organization registered with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.] that is required to be registered as a [clearing agency](/usc/15/78c.md?p=a-23-A) under this section is deemed to be registered under this section solely for the purpose of clearing [security-based swaps](/usc/15/78c.md?p=a-68-A) to the extent that, before July 21, 2010— - (A) the depository institution cleared [swaps](/usc/15/78c.md?p=a-69) as a multilateral clearing organization; or - (B) the derivative clearing organization cleared [swaps](/usc/15/78c.md?p=a-69) pursuant to an exemption from registration as a [clearing agency](/usc/15/78c.md?p=a-23-A). - (2) **Conversion of depository institutions—** A depository institution to which this subsection applies may, by the vote of the shareholders owning not less than 51 percent of the voting interests of the depository institution, be converted into a [State](/usc/15/78c.md?p=a-16) corporation, partnership, limited liability [company](/usc/15/78c.md?p=a-19), or similar legal form pursuant to a plan of conversion, if the conversion is not in contravention of applicable [State](/usc/15/78c.md?p=a-16) law. - (3) **Sharing of information—** The Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) shall make available to the [Commission](/usc/15/78c.md?p=a-15), upon request, all information determined to be relevant by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) regarding a derivatives clearing organization deemed to be registered with the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#l-1). - (m) **Modification of core principles—** The [Commission](/usc/15/78c.md?p=a-15) may conform the core principles established in this section to reflect evolving United States and international standards. # §78q–2. Automated quotation systems for penny stocks - (a) **Findings—** The Congress finds that— - (1) the market for [penny stocks](/usc/15/78c.md?p=a-51-A) suffers from a lack of reliable and accurate quotation and last sale information available to investors and regulators; - (2) it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to improve significantly the information available to [brokers](/usc/15/78c.md?p=a-4-A), [dealers](/usc/15/78c.md?p=a-5-A), investors, and regulators with respect to quotations for and transactions in [penny stocks](/usc/15/78c.md?p=a-51-A); and - (3) a fully implemented automated quotation system for [penny stocks](/usc/15/78c.md?p=a-51-A) would meet the information needs of investors and market [participants](/usc/15/78c.md?p=a-24) and would add visibility and regulatory and surveillance data to that market. - (b) **Mandate to facilitate establishment of automated quotation systems—** - (1) **In general—** The [Commission](/usc/15/78c.md?p=a-15) shall facilitate the widespread dissemination of reliable and accurate last sale and quotation information with respect to [penny stocks](/usc/15/78c.md?p=a-51-A) in accordance with the findings set forth in [subsection (a)](#a), with a view toward establishing, at the earliest feasible time, one or more automated quotation systems that will collect and disseminate information regarding all [penny stocks](/usc/15/78c.md?p=a-51-A). - (2) **Characteristics of systems—** Each such automated quotation system shall— - (A) be operated by a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) or a [national securities exchange](/usc/15/9009a.md?p=a-5) in accordance with such rules as the [Commission](/usc/15/78c.md?p=a-15) and these entities shall prescribe; - (B) collect and disseminate quotation and transaction information; - (C) except as provided in [subsection (c)](#c), provide bid and ask quotations of participating [brokers](/usc/15/78c.md?p=a-4-A) or [dealers](/usc/15/78c.md?p=a-5-A), or comparably accurate and reliable pricing information, which shall constitute firm bids or offers for at least such minimum numbers of shares or minimum dollar amounts as the [Commission](/usc/15/78c.md?p=a-15) and the registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) or [national securities exchange](/usc/15/9009a.md?p=a-5) shall require; and - (D) provide for the reporting of the volume of [penny stock](/usc/15/78c.md?p=a-51-A) transactions, including last sale reporting, when the volume reaches appropriate levels that the [Commission](/usc/15/78c.md?p=a-15) shall specify by rule or [order](/usc/15/8702.md?p=14). - (c) **Exemptive authority—** The [Commission](/usc/15/78c.md?p=a-15) may, by rule or [order](/usc/15/8702.md?p=14), grant such exemptions, in whole or in part, conditionally or unconditionally, to any [penny stock](/usc/15/78c.md?p=a-51-A) or class of [penny stocks](/usc/15/78c.md?p=a-51-A) from the requirements of [subsection (b)](#b) as the [Commission](/usc/15/78c.md?p=a-15) determines to be consistent with the public interest, the protection of investors, and the maintenance of fair and orderly markets. - (d) **Commission reporting requirements—** The [Commission](/usc/15/78c.md?p=a-15) shall, in each of the first 5 annual reports (under [section 78w(b)(1) of this title](/usc/15/78w.md?p=b-1)) submitted more than 12 months after October 15, 1990, include a description of the status of the [penny stock](/usc/15/78c.md?p=a-51-A) automated quotation system or systems required by [subsection (b)](#b). Such description shall include— - (1) a review of the development, implementation, and progress of the [project](/usc/15/2502.md?p=6), including achievement of significant milestones and current [project](/usc/15/2502.md?p=6) schedule; and - (2) a review of the activities of registered [securities](/usc/15/78c.md?p=a-10) [associations](/usc/15/657h.md?p=a-2) and [national securities exchanges](/usc/15/9009a.md?p=a-5) in the development of the system. # §78r. Liability for misleading statements - (a) **Persons liable; persons entitled to recover; defense of good faith; suit at law or in equity; costs, etc.** Any [person](/usc/15/78c.md?p=a-9) who shall make or cause to be made any statement in any [application](/usc/15/77ccc.md?p=8), report, or document filed pursuant to this chapter or any rule or regulation thereunder or any undertaking contained in a [registration statement](/usc/15/77b.md?p=a-8) as provided in [subsection (d)](/usc/15/78o.md?p=d) of section 78o of this title, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any [person](/usc/15/78c.md?p=a-9) (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a [security](/usc/15/78c.md?p=a-10) at a price which was affected by such statement, for damages caused by such reliance, unless the [person](/usc/15/78c.md?p=a-9) sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. A [person](/usc/15/78c.md?p=a-9) seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against either party litigant. - (b) **Contribution—** Every [person](/usc/15/78c.md?p=a-9) who becomes liable to make payment under this section may recover contribution as in cases of contract from any [person](/usc/15/78c.md?p=a-9) who, if joined in the original suit, would have been liable to make the same payment. - (c) **Period of limitations—** No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued. # §78s. Registration, responsibilities, and oversight of self-regulatory organizations - (a) **Registration procedures; notice of filing; other regulatory agencies—** - (1) The [Commission](/usc/15/78c.md?p=a-15) shall, upon the filing of an [application](/usc/15/77ccc.md?p=8) for registration as a [national securities exchange](/usc/15/9009a.md?p=a-5), registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), or registered [clearing agency](/usc/15/78c.md?p=a-23-A), pursuant to section [78f](/usc/15/78f.md), [78o–3](/usc/15/78o–3.md), or [78q–1](/usc/15/78q–1.md) of this title, respectively, publish notice of such filing and afford interested [persons](/usc/15/78c.md?p=a-9) an opportunity to submit written data, views, and arguments concerning such [application](/usc/15/77ccc.md?p=8). Within ninety days of the date of publication of such notice (or within such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents), the [Commission](/usc/15/78c.md?p=a-15) shall— - (A) by [order](/usc/15/8702.md?p=14) grant such registration, or - (B) [institute](/usc/15/9401.md?p=7) proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred eighty days of the date of a publication of notice of the filing of the [application](/usc/15/77ccc.md?p=8) for registration. At the conclusion of such proceedings the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall grant or deny such registration. The [Commission](/usc/15/78c.md?p=a-15) may extend the time for conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents. The [Commission](/usc/15/78c.md?p=a-15) shall grant such registration if it finds that the requirements of this chapter and the rules and regulations thereunder with respect to the [applicant](/usc/15/7a.md?p=3) are satisfied. The [Commission](/usc/15/78c.md?p=a-15) shall deny such registration if it does not make such finding. - (2) With respect to an [application](/usc/15/77ccc.md?p=8) for registration filed by a [clearing agency](/usc/15/78c.md?p=a-23-A) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34)— - (A) The [Commission](/usc/15/78c.md?p=a-15) shall not grant registration prior to the sixtieth day after the date of publication of notice of the filing of such [application](/usc/15/77ccc.md?p=8) unless the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) has notified the [Commission](/usc/15/78c.md?p=a-15) of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34)’s determination that such [clearing agency](/usc/15/78c.md?p=a-23-A) is so organized and has the capacity to be able to safeguard [securities](/usc/15/78c.md?p=a-10) and funds in its custody or control or for which it is responsible and that the rules of such [clearing agency](/usc/15/78c.md?p=a-23-A) are designed to assure the safeguarding of such [securities](/usc/15/78c.md?p=a-10) and funds. - (B) The [Commission](/usc/15/78c.md?p=a-15) shall [institute](/usc/15/9401.md?p=7) proceedings in accordance with paragraph (1)(B) of this subsection to determine whether registration should be denied if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) notifies the [Commission](/usc/15/78c.md?p=a-15) within sixty days of the date of publication of notice of the filing of such [application](/usc/15/77ccc.md?p=8) of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34)’s (i) determination that such [clearing agency](/usc/15/78c.md?p=a-23-A) may not be so organized or have the capacity to be able to safeguard [securities](/usc/15/78c.md?p=a-10) or funds in its custody or control or for which it is responsible or that the rules of such [clearing agency](/usc/15/78c.md?p=a-23-A) may not be designed to assure the safeguarding of such [securities](/usc/15/78c.md?p=a-10) and funds and (ii) reasons for such determination. - (C) The [Commission](/usc/15/78c.md?p=a-15) shall deny registration if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) notifies the [Commission](/usc/15/78c.md?p=a-15) prior to the conclusion of proceedings instituted in accordance with paragraph (1)(B) of this subsection of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34)’s (i) determination that such [clearing agency](/usc/15/78c.md?p=a-23-A) is not so organized or does not have the capacity to be able to safeguard [securities](/usc/15/78c.md?p=a-10) or funds in its custody or control or for which it is responsible or that the rules of such [clearing agency](/usc/15/78c.md?p=a-23-A) are not designed to assure the safeguarding of such [securities](/usc/15/78c.md?p=a-10) or funds and (ii) reasons for such determination. - (3) A [self-regulatory organization](/usc/15/78c.md?p=a-26) may, upon such terms and conditions as the [Commission](/usc/15/78c.md?p=a-15), by rule, deems necessary or appropriate in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the [Commission](/usc/15/78c.md?p=a-15). If the [Commission](/usc/15/78c.md?p=a-15) finds that any [self-regulatory organization](/usc/15/78c.md?p=a-26) is no longer in existence or has ceased to do business in the capacity specified in its [application](/usc/15/77ccc.md?p=8) for registration, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall cancel its registration. Upon the withdrawal of a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) from registration or the cancellation, suspension, or revocation of the registration of a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), the registration of any [association](/usc/15/657h.md?p=a-2) affiliated therewith shall automatically terminate. - (b) **Proposed rule changes; notice; proceedings—** - (1) Each [self-regulatory organization](/usc/15/78c.md?p=a-26) shall file with the [Commission](/usc/15/78c.md?p=a-15), in accordance with such rules as the [Commission](/usc/15/78c.md?p=a-15) may prescribe, copies of any proposed rule or any proposed change in, addition to, or deletion from the rules of such [self-regulatory organization](/usc/15/78c.md?p=a-26) (hereinafter in this subsection collectively referred to as a “proposed rule change”) accompanied by a concise general statement of the basis and purpose of such proposed rule change. The [Commission](/usc/15/78c.md?p=a-15) shall, as soon as practicable after the date of the filing of any proposed rule change, publish notice thereof together with the terms of substance of the proposed rule change or a description of the subjects and issues involved. The [Commission](/usc/15/78c.md?p=a-15) shall give interested [persons](/usc/15/78c.md?p=a-9) an opportunity to submit written data, views, and arguments concerning such proposed rule change. No proposed rule change shall take effect unless approved by the [Commission](/usc/15/78c.md?p=a-15) or otherwise permitted in accordance with the provisions of this subsection. - (2) **Approval process.—** - (A) **Approval process established.—** - (i) **In general.—** Except as provided in [clause (ii)](#b-2-A-ii), not later than 45 days after the date of publication of a proposed rule change under [paragraph (1)](#b-1), the [Commission](/usc/15/78c.md?p=a-15) shall— - (I) by [order](/usc/15/8702.md?p=14), approve or disapprove the proposed rule change; or - (II) [institute](/usc/15/9401.md?p=7) proceedings under [subparagraph (B)](#b-2-B) to determine whether the proposed rule change should be disapproved. - (ii) **Extension of time period.—** The [Commission](/usc/15/78c.md?p=a-15) may extend the period established under [clause (i)](#b-2-A-i) by not more than an additional 45 days, if— - (I) the [Commission](/usc/15/78c.md?p=a-15) determines that a longer period is appropriate and publishes the reasons for such determination; or - (II) the [self-regulatory organization](/usc/15/78c.md?p=a-26) that filed the proposed rule change consents to the longer period. - (B) **Proceedings.—** - (i) **Notice and hearing.—** If the [Commission](/usc/15/78c.md?p=a-15) does not approve or disapprove a proposed rule change under [subparagraph (A)](#b-2-A), the [Commission](/usc/15/78c.md?p=a-15) shall provide to the [self-regulatory organization](/usc/15/78c.md?p=a-26) that filed the proposed rule change— - (I) notice of the grounds for disapproval under consideration; and - (II) opportunity for hearing, to be concluded not later than 180 days after the date of publication of notice of the filing of the proposed rule change. - (ii) **Order of approval or disapproval.—** - (I) **In general.—** Except as provided in [subclause (II)](#b-2-B-ii-II), not later than 180 days after the date of publication under [paragraph (1)](#b-1), the [Commission](/usc/15/78c.md?p=a-15) shall issue an [order](/usc/15/8702.md?p=14) approving or disapproving the proposed rule change. - (II) **Extension of time period.—** The [Commission](/usc/15/78c.md?p=a-15) may extend the period for issuance under clause (I) by not more than 60 days, if— - (aa) the [Commission](/usc/15/78c.md?p=a-15) determines that a longer period is appropriate and publishes the reasons for such determination; or - (bb) the [self-regulatory organization](/usc/15/78c.md?p=a-26) that filed the proposed rule change consents to the longer period. - (C) **Standards for approval and disapproval.—** - (i) **Approval.—** The [Commission](/usc/15/78c.md?p=a-15) shall approve a proposed rule change of a [self-regulatory organization](/usc/15/78c.md?p=a-26) if it finds that such proposed rule change is consistent with the requirements of this chapter and the rules and regulations issued under this chapter that are applicable to such organization. - (ii) **Disapproval.—** The [Commission](/usc/15/78c.md?p=a-15) shall disapprove a proposed rule change of a [self-regulatory organization](/usc/15/78c.md?p=a-26) if it does not make a finding described in [clause (i)](#b-2-C-i). - (iii) **Time for approval.—** The [Commission](/usc/15/78c.md?p=a-15) may not approve a proposed rule change earlier than 30 days after the date of publication under [paragraph (1)](#b-1), unless the [Commission](/usc/15/78c.md?p=a-15) finds good cause for so doing and publishes the reason for the finding. - (D) **Result of failure to institute or conclude proceedings.—** A proposed rule change shall be deemed to have been approved by the [Commission](/usc/15/78c.md?p=a-15), if— - (i) the [Commission](/usc/15/78c.md?p=a-15) does not approve or disapprove the proposed rule change or begin proceedings under [subparagraph (B)](#b-2-B) within the period described in [subparagraph (A)](#b-2-A); or - (ii) the [Commission](/usc/15/78c.md?p=a-15) does not issue an [order](/usc/15/8702.md?p=14) approving or disapproving the proposed rule change under [subparagraph (B)](#b-2-B) within the period described in [subparagraph (B)(ii)](#b-2-B-ii). - (E) **Publication date based on federal register publishing.—** For purposes of this paragraph, if, after filing a proposed rule change with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [paragraph (1)](#b-1), a [self-regulatory organization](/usc/15/78c.md?p=a-26) publishes a notice of the filing of such proposed rule change, together with the substantive terms of such proposed rule change, on a publicly accessible website, the [Commission](/usc/15/78c.md?p=a-15) shall thereafter send the notice to the Federal Register for publication thereof under [paragraph (1)](#b-1) within 15 days of the date on which such website publication is made. If the [Commission](/usc/15/78c.md?p=a-15) fails to send the notice for publication thereof within such 15 day period, then the date of publication shall be deemed to be the date on which such website publication was made. - (F) **Rulemaking.—** - (i) **In general.—** Not later than 180 days after July 21, 2010, after consultation with other regulatory agencies, the [Commission](/usc/15/78c.md?p=a-15) shall promulgate rules setting forth the procedural requirements of the proceedings required under this paragraph. - (ii) **Notice and comment not required.—** The rules promulgated by the [Commission](/usc/15/78c.md?p=a-15) under [clause (i)](#b-2-F-i) are not required to include republication of proposed rule changes or solicitation of public comment. - (3) - (A) Notwithstanding the provisions of paragraph (2) of this subsection, a proposed rule change shall take effect upon filing with the [Commission](/usc/15/78c.md?p=a-15) if designated by the [self-regulatory organization](/usc/15/78c.md?p=a-26) as (i) constituting a stated policy, practice, or interpretation with respect to the meaning, [administration](/usc/15/2203.md?p=2), or enforcement of an existing rule of the [self-regulatory organization](/usc/15/78c.md?p=a-26), (ii) establishing or changing a due, fee, or other charge imposed by the [self-regulatory organization](/usc/15/78c.md?p=a-26) on any [person](/usc/15/78c.md?p=a-9), whether or not the [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A) of the [self-regulatory organization](/usc/15/78c.md?p=a-26), or (iii) concerned solely with the [administration](/usc/15/2203.md?p=2) of the [self-regulatory organization](/usc/15/78c.md?p=a-26) or other matters which the [Commission](/usc/15/78c.md?p=a-15), by rule, consistent with the public interest and the purposes of this subsection, may specify as without the provisions of such [paragraph (2)](#b-2). - (B) Notwithstanding any other provision of this subsection, a proposed rule change may be put into effect summarily if it appears to the [Commission](/usc/15/78c.md?p=a-15) that such action is necessary for the protection of investors, the maintenance of fair and orderly markets, or the safeguarding of [securities](/usc/15/78c.md?p=a-10) or funds. Any proposed rule change so put into effect shall be filed promptly thereafter in accordance with the provisions of paragraph (1) of this subsection. - (C) Any proposed rule change of a [self-regulatory organization](/usc/15/78c.md?p=a-26) which has taken effect pursuant to subparagraph (A) or (B) of this paragraph may be enforced by such organization to the extent it is not inconsistent with the provisions of this chapter, the rules and regulations thereunder, and applicable Federal and [State](/usc/15/78c.md?p=a-16) law. At any time within the 60-day period beginning on the date of filing of such a proposed rule change in accordance with the provisions of [paragraph (1)](#b-1), the [Commission](/usc/15/78c.md?p=a-15) summarily may temporarily suspend the change in the rules of the [self-regulatory organization](/usc/15/78c.md?p=a-26) made thereby, if it appears to the [Commission](/usc/15/78c.md?p=a-15) that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. If the [Commission](/usc/15/78c.md?p=a-15) takes such action, the [Commission](/usc/15/78c.md?p=a-15) shall [institute](/usc/15/9401.md?p=7) proceedings under [paragraph (2)(B)](#b-2-B) to determine whether the proposed rule should be approved or disapproved. [Commission](/usc/15/78c.md?p=a-15) action pursuant to this subparagraph shall not affect the validity or force of the rule change during the period it was in effect and shall not be reviewable under [section 78y of this title](/usc/15/78y.md) nor deemed to be “final agency action” for purposes of [section 704 of title 5](/usc/5/704.md). - (4) With respect to a proposed rule change filed by a registered [clearing agency](/usc/15/78c.md?p=a-23-A) for which the [Commission](/usc/15/78c.md?p=a-15) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34)— - (A) The [Commission](/usc/15/78c.md?p=a-15) shall not approve any such proposed rule change prior to the thirtieth day after the date of publication of notice of the filing whereof unless the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) has notified the [Commission](/usc/15/78c.md?p=a-15) of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34)’s determination that the proposed rule change is consistent with the safeguarding of [securities](/usc/15/78c.md?p=a-10) and funds in the custody or control of such [clearing agency](/usc/15/78c.md?p=a-23-A) or for which it is responsible. - (B) The [Commission](/usc/15/78c.md?p=a-15) shall [institute](/usc/15/9401.md?p=7) proceedings in accordance with paragraph (2)(B) of this subsection to determine whether any such proposed rule change should be disapproved, if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) notifies the [Commission](/usc/15/78c.md?p=a-15) within thirty days of the date of publication of notice of the filing of the proposed rule change of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34)’s (i) determination that the proposed rule change may be inconsistent with the safeguarding of [securities](/usc/15/78c.md?p=a-10) or funds in the custody or control of such [clearing agency](/usc/15/78c.md?p=a-23-A) or for which it is responsible and (ii) reasons for such determination. - (C) The [Commission](/usc/15/78c.md?p=a-15) shall disapprove any such proposed rule change if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) notifies the [Commission](/usc/15/78c.md?p=a-15) prior to the conclusion of proceedings instituted in accordance with paragraph (2)(B) of this subsection of such [appropriate regulatory agency](/usc/15/78c.md?p=a-34)’s (i) determination that the proposed rule change is inconsistent with the safeguarding of [securities](/usc/15/78c.md?p=a-10) or funds in the custody or control of such [clearing agency](/usc/15/78c.md?p=a-23-A) or for which it is responsible and (ii) reasons for such determination. - (D) - (i) The [Commission](/usc/15/78c.md?p=a-15) shall [order](/usc/15/8702.md?p=14) the temporary suspension of any change in the [rules of a clearing agency](/usc/15/78c.md?p=a-27) made by a proposed rule change that has taken effect under [paragraph (3)](#b-3), if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for the [clearing agency](/usc/15/78c.md?p=a-23-A) notifies the [Commission](/usc/15/78c.md?p=a-15) not later than 30 days after the date on which the proposed rule change was filed of— - (I) the determination by the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) that the rules of such [clearing agency](/usc/15/78c.md?p=a-23-A), as so changed, may be inconsistent with the safeguarding of [securities](/usc/15/78c.md?p=a-10) or funds in the custody or control of such [clearing agency](/usc/15/78c.md?p=a-23-A) or for which it is responsible; and - (II) the reasons for the determination described in [subclause (I)](#b-4-D-i-I). - (ii) If the [Commission](/usc/15/78c.md?p=a-15) takes action under [clause (i)](#b-4-D-i), the [Commission](/usc/15/78c.md?p=a-15) shall [institute](/usc/15/9401.md?p=7) proceedings under [paragraph (2)(B)](#b-2-B) to determine if the proposed rule change should be approved or disapproved. - (5) The [Commission](/usc/15/78c.md?p=a-15) shall consult with and consider the views of the Secretary of the Treasury prior to approving a proposed rule filed by a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) that primarily concerns conduct related to transactions in [government securities](/usc/15/78c.md?p=a-42), except where the [Commission](/usc/15/78c.md?p=a-15) determines that an emergency exists requiring expeditious or summary action and publishes its reasons therefor. If the Secretary of the Treasury comments in writing to the [Commission](/usc/15/78c.md?p=a-15) on a proposed rule that has been published for comment, the [Commission](/usc/15/78c.md?p=a-15) shall respond in writing to such written comment before approving the proposed rule. If the Secretary of the Treasury determines, and notifies the [Commission](/usc/15/78c.md?p=a-15), that such rule, if implemented, would, or as applied does (i) adversely affect the liquidity or efficiency of the market for [government securities](/usc/15/78c.md?p=a-42); or (ii) impose any burden on competition not necessary or appropriate in furtherance of the purposes of this section, the [Commission](/usc/15/78c.md?p=a-15) shall, prior to adopting the proposed rule, find that such rule is necessary and appropriate in furtherance of the purposes of this section notwithstanding the Secretary’s determination. - (6) In approving rules described in [paragraph (5)](#b-5), the [Commission](/usc/15/78c.md?p=a-15) shall consider the sufficiency and appropriateness of then existing laws and rules applicable to [government securities brokers](/usc/15/78c.md?p=a-43), [government securities dealers](/usc/15/78c.md?p=a-44), and [persons](/usc/15/78c.md?p=a-9) associated with [government securities brokers](/usc/15/78c.md?p=a-43) and [government securities dealers](/usc/15/78c.md?p=a-44). - (7) **Security futures product rule changes.—** - (A) **Filing required.—** A [self-regulatory organization](/usc/15/78c.md?p=a-26) that is an [exchange](/usc/15/78c.md?p=a-1) registered with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g) or that is a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title shall file with the [Commission](/usc/15/78c.md?p=a-15), in accordance with such rules as the [Commission](/usc/15/78c.md?p=a-15) may prescribe, copies of any proposed rule change or any proposed change in, addition to, or deletion from the rules of such [self-regulatory organization](/usc/15/78c.md?p=a-26) (hereinafter in this paragraph collectively referred to as a “proposed rule change”) that relates to [higher margin levels](/usc/15/78c.md?p=a-57-C), fraud or manipulation, recordkeeping, reporting, listing standards, or decimal pricing for [security futures products](/usc/15/78c.md?p=a-56), sales practices for [security futures products](/usc/15/78c.md?p=a-56) for [persons](/usc/15/78c.md?p=a-9) who effect transactions in [security futures products](/usc/15/78c.md?p=a-56), or rules effectuating such [self-regulatory organization](/usc/15/78c.md?p=a-26)’s obligation to enforce the [securities laws](/usc/15/78c.md?p=a-47). Such proposed rule change shall be accompanied by a concise general statement of the basis and purpose of such proposed rule change. The [Commission](/usc/15/78c.md?p=a-15) shall, upon the filing of any proposed rule change, promptly publish notice thereof together with the terms of substance of the proposed rule change or a description of the subjects and issues involved. The [Commission](/usc/15/78c.md?p=a-15) shall give interested [persons](/usc/15/78c.md?p=a-9) an opportunity to submit data, views, and arguments concerning such proposed rule change. - (B) **Filing with cftc.—** A proposed rule change filed with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [subparagraph (A)](#b-7-A) shall be filed concurrently with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15). Such proposed rule change may take effect upon filing of a written certification with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) under [section 7a–2(c) of title 7](/usc/7/7a–2.md?p=c), upon a determination by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) that review of the proposed rule change is not necessary, or upon approval of the proposed rule change by the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15). - (C) **Abrogation of rule changes.—** Any proposed rule change of a [self-regulatory organization](/usc/15/78c.md?p=a-26) that has taken effect pursuant to [subparagraph (B)](#b-7-B) may be enforced by such [self-regulatory organization](/usc/15/78c.md?p=a-26) to the extent such rule is not inconsistent with the provisions of this chapter, the rules and regulations thereunder, and applicable Federal law. At any time within 60 days of the date of the filing of a written certification with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) under [section 7a–2(c) of title 7](/usc/7/7a–2.md?p=c), the date the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) determines that review of such proposed rule change is not necessary, or the date the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) approves such proposed rule change, the [Commission](/usc/15/78c.md?p=a-15), after consultation with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), may summarily abrogate the proposed rule change and require that the proposed rule change be refiled in accordance with the provisions of [paragraph (1)](#b-1), if it appears to the [Commission](/usc/15/78c.md?p=a-15) that such proposed rule change unduly burdens competition or efficiency, conflicts with the [securities laws](/usc/15/78c.md?p=a-47), or is inconsistent with the public interest and the protection of investors. [Commission](/usc/15/78c.md?p=a-15) action pursuant to the preceding sentence shall not affect the validity or force of the rule change during the period it was in effect and shall not be reviewable under [section 78y of this title](/usc/15/78y.md) nor deemed to be a final agency action for purposes of [section 704 of title 5](/usc/5/704.md). - (D) **Review of resubmitted abrogated rules.—** - (i) **Proceedings.—** Within 35 days of the date of publication of notice of the filing of a proposed rule change that is abrogated in accordance with [subparagraph (C)](#b-7-C) and refiled in accordance with [paragraph (1)](#b-1), or within such longer period as the [Commission](/usc/15/78c.md?p=a-15) may designate up to 90 days after such date if the [Commission](/usc/15/78c.md?p=a-15) finds such longer period to be appropriate and publishes its reasons for so finding or as to which the [self-regulatory organization](/usc/15/78c.md?p=a-26) consents, the [Commission](/usc/15/78c.md?p=a-15) shall— - (I) by [order](/usc/15/8702.md?p=14) approve such proposed rule change; or - (II) after consultation with the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15), [institute](/usc/15/9401.md?p=7) proceedings to determine whether the proposed rule change should be disapproved. Proceedings under [subclause (II)](#b-7-D-i-II) shall include notice of the grounds for disapproval under consideration and opportunity for hearing and be concluded within 180 days after the date of publication of notice of the filing of the proposed rule change. At the conclusion of such proceedings, the [Commission](/usc/15/78c.md?p=a-15), by [order](/usc/15/8702.md?p=14), shall approve or disapprove such proposed rule change. The [Commission](/usc/15/78c.md?p=a-15) may extend the time for conclusion of such proceedings for up to 60 days if the [Commission](/usc/15/78c.md?p=a-15) finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the [self-regulatory organization](/usc/15/78c.md?p=a-26) consents. - (ii) **Grounds for approval.—** The [Commission](/usc/15/78c.md?p=a-15) shall approve a proposed rule change of a [self-regulatory organization](/usc/15/78c.md?p=a-26) under this subparagraph if the [Commission](/usc/15/78c.md?p=a-15) finds that such proposed rule change does not unduly burden competition or efficiency, does not conflict with the [securities laws](/usc/15/78c.md?p=a-47), and is not inconsistent with the public interest or the protection of investors. The [Commission](/usc/15/78c.md?p=a-15) shall disapprove such a proposed rule change of a [self-regulatory organization](/usc/15/78c.md?p=a-26) if it does not make such finding. The [Commission](/usc/15/78c.md?p=a-15) shall not approve any proposed rule change prior to the 30th day after the date of publication of notice of the filing thereof, unless the [Commission](/usc/15/78c.md?p=a-15) finds good cause for so doing and publishes its reasons for so finding. - (8) **Decimal pricing.—** Not later than 9 months after the date on which trading in any [security futures product](/usc/15/78c.md?p=a-56) commences under this chapter, all [self-regulatory organizations](/usc/15/78c.md?p=a-26) listing or trading [security futures products](/usc/15/78c.md?p=a-56) shall file proposed rule changes necessary to implement decimal pricing of [security futures products](/usc/15/78c.md?p=a-56). The [Commission](/usc/15/78c.md?p=a-15) may not require such rules to contain equal minimum increments in such decimal pricing. - (9) **Consultation with cftc.—** - (A) **Consultation required.—** The [Commission](/usc/15/78c.md?p=a-15) shall consult with and consider the views of the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) prior to approving or disapproving a proposed rule change filed by a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(a)](/usc/15/78o–3.md?p=a) of this title or a [national securities exchange](/usc/15/9009a.md?p=a-5) subject to the provisions of [subsection (a)](#a) that primarily concerns conduct related to transactions in [security futures products](/usc/15/78c.md?p=a-56), except where the [Commission](/usc/15/78c.md?p=a-15) determines that an emergency exists requiring expeditious or summary action and publishes its reasons therefor. - (B) **Responses to cftc comments and findings.—** If the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) comments in writing to the [Commission](/usc/15/78c.md?p=a-15) on a proposed rule that has been published for comment, the [Commission](/usc/15/78c.md?p=a-15) shall respond in writing to such written comment before approving or disapproving the proposed rule. If the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) determines, and notifies the [Commission](/usc/15/78c.md?p=a-15), that such rule, if implemented or as applied, would— - (i) adversely affect the liquidity or efficiency of the market for [security futures products](/usc/15/78c.md?p=a-56); or - (ii) impose any burden on competition not necessary or appropriate in furtherance of the purposes of this section, the [Commission](/usc/15/78c.md?p=a-15) shall, prior to approving or disapproving the proposed rule, find that such rule is necessary and appropriate in furtherance of the purposes of this section notwithstanding the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15)’s determination. - (10) **[^1]Rule of construction relating to filing date of proposed rule changes.—** - (A) **In general.—** For purposes of this subsection, the date of filing of a proposed rule change shall be deemed to be the date on which the [Commission](/usc/15/78c.md?p=a-15) receives the proposed rule change. - (B) **Exception.—** A proposed rule change has not been received by the [Commission](/usc/15/78c.md?p=a-15) for purposes of [subparagraph (A)](#b-10-A) if, not later than 7 business days after the date of receipt by the [Commission](/usc/15/78c.md?p=a-15), the [Commission](/usc/15/78c.md?p=a-15) notifies the [self-regulatory organization](/usc/15/78c.md?p=a-26) that such proposed rule change does not comply with the rules of the [Commission](/usc/15/78c.md?p=a-15) relating to the required form of a proposed rule change, except that if the [Commission](/usc/15/78c.md?p=a-15) determines that the proposed rule change is unusually lengthy and is complex or raises novel regulatory issues, the [Commission](/usc/15/78c.md?p=a-15) shall inform the [self-regulatory organization](/usc/15/78c.md?p=a-26) of such determination not later than 7 business days after the date of receipt by the [Commission](/usc/15/78c.md?p=a-15) and, for the purposes of [subparagraph (A)](#b-10-A), a proposed rule change has not been received by the [Commission](/usc/15/78c.md?p=a-15), if, not later than 21 days after the date of receipt by the [Commission](/usc/15/78c.md?p=a-15), the [Commission](/usc/15/78c.md?p=a-15) notifies the [self-regulatory organization](/usc/15/78c.md?p=a-26) that such proposed rule change does not comply with the rules of the [Commission](/usc/15/78c.md?p=a-15) relating to the required form of a proposed rule change. - (10) [^1] Notwithstanding [paragraph (2)](#b-2), the time period within which the [Commission](/usc/15/78c.md?p=a-15) is required by [order](/usc/15/8702.md?p=14) to approve a proposed rule change or [institute](/usc/15/9401.md?p=7) proceedings to determine whether the proposed rule change should be disapproved is stayed pending a determination by the [Commission](/usc/15/78c.md?p=a-15) upon the request of the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) or its Chairman that the [Commission](/usc/15/78c.md?p=a-15) issue a determination as to whether a product that is the subject of such proposed rule change is a [security](/usc/15/78c.md?p=a-10) pursuant to [section 8306 of this title](/usc/15/8306.md). - (c) **Amendment by Commission of rules of self-regulatory organizations—** The [Commission](/usc/15/78c.md?p=a-15), by rule, may abrogate, add to, and delete from (hereinafter in this subsection collectively referred to as “amend”) the [rules of a self-regulatory organization](/usc/15/78c.md?p=a-28) (other than a registered [clearing agency](/usc/15/78c.md?p=a-23-A)) as the [Commission](/usc/15/78c.md?p=a-15) deems necessary or appropriate to insure the fair [administration](/usc/15/2203.md?p=2) of the [self-regulatory organization](/usc/15/78c.md?p=a-26), to conform its rules to requirements of this chapter and the rules and regulations thereunder applicable to such organization, or otherwise in furtherance of the purposes of this chapter, in the following manner: - (1) The [Commission](/usc/15/78c.md?p=a-15) shall notify the [self-regulatory organization](/usc/15/78c.md?p=a-26) and publish notice of the proposed rulemaking in the Federal Register. The notice shall include the text of the proposed amendment to the rules of the [self-regulatory organization](/usc/15/78c.md?p=a-26) and a statement of the [Commission](/usc/15/78c.md?p=a-15)’s reasons, including any pertinent facts, for commencing such proposed rulemaking. - (2) The [Commission](/usc/15/78c.md?p=a-15) shall give interested [persons](/usc/15/78c.md?p=a-9) an opportunity for the oral presentation of data, views, and arguments, in addition to an opportunity to make written submissions. A transcript shall be kept of any oral presentation. - (3) A rule adopted pursuant to this subsection shall incorporate the text of the amendment to the rules of the [self-regulatory organization](/usc/15/78c.md?p=a-26) and a statement of the [Commission](/usc/15/78c.md?p=a-15)’s basis for and purpose in so amending such rules. This statement shall include an identification of any facts on which the [Commission](/usc/15/78c.md?p=a-15) considers its determination so to amend the rules of the self-regulatory agency to be based, including the reasons for the [Commission](/usc/15/78c.md?p=a-15)’s conclusions as to any of such facts which were disputed in the rulemaking. - (4) - (A) Except as provided in [paragraphs (1) through (3)](#1..3) of this subsection, rulemaking under this subsection shall be in accordance with the procedures specified in [section 553 of title 5](/usc/5/553.md) for rulemaking not on the record. - (B) Nothing in this subsection shall be construed to impair or limit the [Commission](/usc/15/78c.md?p=a-15)’s power to make, or to modify or alter the procedures the [Commission](/usc/15/78c.md?p=a-15) may follow in making, rules and regulations pursuant to any other [authority](/usc/15/3051.md?p=1) under this chapter. - (C) Any amendment to the [rules of a self-regulatory organization](/usc/15/78c.md?p=a-28) made by the [Commission](/usc/15/78c.md?p=a-15) pursuant to this subsection shall be considered for all purposes of this chapter to be part of the rules of such [self-regulatory organization](/usc/15/78c.md?p=a-26) and shall not be considered to be a rule of the [Commission](/usc/15/78c.md?p=a-15). - (5) With respect to rules described in [subsection (b)(5)](#b-5), the [Commission](/usc/15/78c.md?p=a-15) shall consult with and consider the views of the Secretary of the Treasury before abrogating, adding to, and deleting from such rules, except where the [Commission](/usc/15/78c.md?p=a-15) determines that an emergency exists requiring expeditious or summary action and publishes its reasons therefor. - (d) **Notice of disciplinary action taken by self-regulatory organization against a member or participant; review of action by appropriate regulatory agency; procedure—** - (1) If any [self-regulatory organization](/usc/15/78c.md?p=a-26) imposes any final disciplinary sanction on any [member](/usc/15/78c.md?p=a-3-A) thereof or [participant](/usc/15/78c.md?p=a-24) therein, denies membership or participation to any [applicant](/usc/15/7a.md?p=3), or prohibits or limits any [person](/usc/15/78c.md?p=a-9) in respect to access to services offered by such organization or [member](/usc/15/78c.md?p=a-3-A) thereof or if any [self-regulatory organization](/usc/15/78c.md?p=a-26) (other than a registered [clearing agency](/usc/15/78c.md?p=a-23-A)) imposes any final disciplinary sanction on any [person associated with a member](/usc/15/78c.md?p=a-21) or bars any [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A), the [self-regulatory organization](/usc/15/78c.md?p=a-26) shall promptly file notice thereof with the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for the [self-regulatory organization](/usc/15/78c.md?p=a-26) and (if other than the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for the [self-regulatory organization](/usc/15/78c.md?p=a-26)) the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [member](/usc/15/78c.md?p=a-3-A), [participant](/usc/15/78c.md?p=a-24), [applicant](/usc/15/7a.md?p=3), or other [person](/usc/15/78c.md?p=a-9). The notice shall be in such form and contain such information as the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for the [self-regulatory organization](/usc/15/78c.md?p=a-26), by rule, may prescribe as necessary or appropriate in furtherance of the purposes of this chapter. - (2) Any action with respect to which a [self-regulatory organization](/usc/15/78c.md?p=a-26) is required by paragraph (1) of this subsection to file notice shall be subject to review by the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [member](/usc/15/78c.md?p=a-3-A), [participant](/usc/15/78c.md?p=a-24), [applicant](/usc/15/7a.md?p=3), or other [person](/usc/15/78c.md?p=a-9), on its own motion, or upon [application](/usc/15/77ccc.md?p=8) by any [person](/usc/15/78c.md?p=a-9) aggrieved thereby filed within thirty days after the date such notice was filed with such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) and received by such aggrieved [person](/usc/15/78c.md?p=a-9), or within such longer period as such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may determine. [Application](/usc/15/77ccc.md?p=8) to such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for review, or the institution of review by such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) on its own motion, shall not operate as a stay of such action unless such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) otherwise [orders](/usc/15/8702.md?p=14), summarily or after notice and opportunity for hearing on the question of a stay (which hearing may consist solely of the submission of affidavits or presentation of oral arguments). Each [appropriate regulatory agency](/usc/15/78c.md?p=a-34) shall establish for appropriate cases an expedited procedure for consideration and determination of the question of a stay. - (3) The provisions of this subsection shall apply to an [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g) or a national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title only to the extent that such [exchange](/usc/15/78c.md?p=a-1) or [association](/usc/15/657h.md?p=a-2) imposes any final disciplinary sanction for— - (A) a [violation](/usc/15/57b–1.md?p=a-7) of the Federal [securities laws](/usc/15/78c.md?p=a-47) or the rules and regulations thereunder; or - (B) a [violation](/usc/15/57b–1.md?p=a-7) of a rule of such [exchange](/usc/15/78c.md?p=a-1) or [association](/usc/15/657h.md?p=a-2), as to which a proposed change would be required to be filed under this section, except that, to the extent that the [exchange](/usc/15/78c.md?p=a-1) or [association](/usc/15/657h.md?p=a-2) rule [violation](/usc/15/57b–1.md?p=a-7) relates to any [account](/usc/15/1681a.md?p=r-4), [agreement](/usc/15/7a.md?p=2), contract, or transaction, this subsection shall apply only to the extent such [violation](/usc/15/57b–1.md?p=a-7) involves a [security futures product](/usc/15/78c.md?p=a-56). - (e) **Disposition of review; cancellation, reduction, or remission of sanction—** - (1) In any proceeding to review a final disciplinary sanction imposed by a [self-regulatory organization](/usc/15/78c.md?p=a-26) on a [member](/usc/15/78c.md?p=a-3-A) thereof or [participant](/usc/15/78c.md?p=a-24) therein or a [person associated with](/usc/15/78c.md?p=a-63) such a [member](/usc/15/78c.md?p=a-3-A), after notice and opportunity for hearing (which hearing may consist solely of consideration of the record before the [self-regulatory organization](/usc/15/78c.md?p=a-26) and opportunity for the presentation of supporting reasons to affirm, modify, or set aside the sanction)— - (A) if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [member](/usc/15/78c.md?p=a-3-A), [participant](/usc/15/78c.md?p=a-24), or [person associated with a member](/usc/15/78c.md?p=a-21) finds that such [member](/usc/15/78c.md?p=a-3-A), [participant](/usc/15/78c.md?p=a-24), or [person associated with a member](/usc/15/78c.md?p=a-21) has engaged in such acts or practices, or has omitted such acts, as the [self-regulatory organization](/usc/15/78c.md?p=a-26) has found him to have engaged in or omitted, that such acts or practices, or omissions to act, are in [violation](/usc/15/57b–1.md?p=a-7) of such provisions of this chapter, the rules or regulations thereunder, the rules of the [self-regulatory organization](/usc/15/78c.md?p=a-26), or, in the case of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) as have been specified in the determination of the [self-regulatory organization](/usc/15/78c.md?p=a-26), and that such provisions are, and were applied in a manner, consistent with the purposes of this chapter, such [appropriate regulatory agency](/usc/15/78c.md?p=a-34), by [order](/usc/15/8702.md?p=14), shall so declare and, as appropriate, affirm the sanction imposed by the [self-regulatory organization](/usc/15/78c.md?p=a-26), modify the sanction in accordance with paragraph (2) of this subsection, or remand to the [self-regulatory organization](/usc/15/78c.md?p=a-26) for further proceedings; or - (B) if such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) does not make any such finding it shall, by [order](/usc/15/8702.md?p=14), set aside the sanction imposed by the [self-regulatory organization](/usc/15/78c.md?p=a-26) and, if appropriate, remand to the [self-regulatory organization](/usc/15/78c.md?p=a-26) for further proceedings. - (2) If the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [member](/usc/15/78c.md?p=a-3-A), [participant](/usc/15/78c.md?p=a-24), or [person associated with a member](/usc/15/78c.md?p=a-21), having due regard for the public interest and the protection of investors, finds after a proceeding in accordance with paragraph (1) of this subsection that a sanction imposed by a [self-regulatory organization](/usc/15/78c.md?p=a-26) upon such [member](/usc/15/78c.md?p=a-3-A), [participant](/usc/15/78c.md?p=a-24), or [person associated with a member](/usc/15/78c.md?p=a-21) imposes any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter or is excessive or oppressive, the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may cancel, reduce, or require the remission of such sanction. - (f) **Dismissal of review proceeding—** In any proceeding to review the denial of membership or participation in a [self-regulatory organization](/usc/15/78c.md?p=a-26) to any [applicant](/usc/15/7a.md?p=3), the barring of any [person](/usc/15/78c.md?p=a-9) from becoming associated with a [member](/usc/15/78c.md?p=a-3-A) of a [self-regulatory organization](/usc/15/78c.md?p=a-26), or the prohibition or limitation by a [self-regulatory organization](/usc/15/78c.md?p=a-26) of any [person](/usc/15/78c.md?p=a-9) with respect to access to services offered by the [self-regulatory organization](/usc/15/78c.md?p=a-26) or any [member](/usc/15/78c.md?p=a-3-A) thereof, if the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [applicant](/usc/15/7a.md?p=3) or [person](/usc/15/78c.md?p=a-9), after notice and opportunity for hearing (which hearing may consist solely of consideration of the record before the [self-regulatory organization](/usc/15/78c.md?p=a-26) and opportunity for the presentation of supporting reasons to dismiss the proceeding or set aside the action of the [self-regulatory organization](/usc/15/78c.md?p=a-26)) finds that the specific grounds on which such denial, bar, or prohibition or limitation is based exist in fact, that such denial, bar, or prohibition or limitation is in accordance with the rules of the [self-regulatory organization](/usc/15/78c.md?p=a-26), and that such rules are, and were applied in a manner, consistent with the purposes of this chapter, such [appropriate regulatory agency](/usc/15/78c.md?p=a-34), by [order](/usc/15/8702.md?p=14), shall dismiss the proceeding. If such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) does not make any such finding or if it finds that such denial, bar, or prohibition or limitation imposes any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter, such [appropriate regulatory agency](/usc/15/78c.md?p=a-34), by [order](/usc/15/8702.md?p=14), shall set aside the action of the [self-regulatory organization](/usc/15/78c.md?p=a-26) and require it to admit such [applicant](/usc/15/7a.md?p=3) to membership or participation, permit such [person](/usc/15/78c.md?p=a-9) to become associated with a [member](/usc/15/78c.md?p=a-3-A), or grant such [person](/usc/15/78c.md?p=a-9) access to services offered by the [self-regulatory organization](/usc/15/78c.md?p=a-26) or [member](/usc/15/78c.md?p=a-3-A) thereof. - (g) **Compliance with rules and regulations—** - (1) Every [self-regulatory organization](/usc/15/78c.md?p=a-26) shall comply with the provisions of this chapter, the rules and regulations thereunder, and its own rules, and (subject to the provisions of [section 78q(d) of this title](/usc/15/78q.md?p=d), paragraph (2) of this subsection, and the rules thereunder) absent reasonable justification or excuse enforce compliance— - (A) in the case of a [national securities exchange](/usc/15/9009a.md?p=a-5), with such provisions by its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A); - (B) in the case of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), with such provisions and the provisions of the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) by its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A); and - (C) in the case of a registered [clearing agency](/usc/15/78c.md?p=a-23-A), with its own rules by its [participants](/usc/15/78c.md?p=a-24). - (2) The [Commission](/usc/15/78c.md?p=a-15), by rule, consistent with the public interest, the protection of investors, and the other purposes of this chapter, may relieve any [self-regulatory organization](/usc/15/78c.md?p=a-26) of any responsibility under this chapter to enforce compliance with any specified provision of this chapter or the rules or regulations thereunder by any [member](/usc/15/78c.md?p=a-3-A) of such organization or [person associated with](/usc/15/78c.md?p=a-63) such a [member](/usc/15/78c.md?p=a-3-A), or any class of such [members](/usc/15/78c.md?p=a-3-A) or [persons](/usc/15/78c.md?p=a-9) associated with a [member](/usc/15/78c.md?p=a-3-A). - (h) **Suspension or revocation of self-regulatory organization’s registration; censure; other sanctions—** - (1) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [self-regulatory organization](/usc/15/78c.md?p=a-26) is authorized, by [order](/usc/15/8702.md?p=14), if in its opinion such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, to suspend for a period not exceeding twelve months or revoke the registration of such [self-regulatory organization](/usc/15/78c.md?p=a-26), or to censure or impose limitations upon the activities, functions, and operations of such [self-regulatory organization](/usc/15/78c.md?p=a-26), if such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds, on the record after notice and opportunity for hearing, that such [self-regulatory organization](/usc/15/78c.md?p=a-26) has violated or is unable to comply with any provision of this chapter, the rules or regulations thereunder, or its own rules or without reasonable justification or excuse has failed to enforce compliance— - (A) in the case of a [national securities exchange](/usc/15/9009a.md?p=a-5), with any such provision by a [member](/usc/15/78c.md?p=a-3-A) thereof or a [person associated with a member](/usc/15/78c.md?p=a-21) thereof; - (B) in the case of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), with any such provision or any provision of the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) by a [member](/usc/15/78c.md?p=a-3-A) thereof or a [person associated with a member](/usc/15/78c.md?p=a-21) thereof; or - (C) in the case of a registered [clearing agency](/usc/15/78c.md?p=a-23-A), with any provision of its own rules by a [participant](/usc/15/78c.md?p=a-24) therein. - (2) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [self-regulatory organization](/usc/15/78c.md?p=a-26) is authorized, by [order](/usc/15/8702.md?p=14), if in its opinion such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, to suspend for a period not exceeding twelve months or expel from such [self-regulatory organization](/usc/15/78c.md?p=a-26) any [member](/usc/15/78c.md?p=a-3-A) thereof or [participant](/usc/15/78c.md?p=a-24) therein, if such [member](/usc/15/78c.md?p=a-3-A) or [participant](/usc/15/78c.md?p=a-24) is subject to an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78o(b)(4)](/usc/15/78o.md?p=b-4) of this title or if such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds, on the record after notice and opportunity for hearing, that such [member](/usc/15/78c.md?p=a-3-A) or [participant](/usc/15/78c.md?p=a-24) has willfully violated or has effected any transaction for any other [person](/usc/15/78c.md?p=a-9) who, such [member](/usc/15/78c.md?p=a-3-A) or [participant](/usc/15/78c.md?p=a-24) had reason to believe, was violating with respect to such transaction— - (A) in the case of a [national securities exchange](/usc/15/9009a.md?p=a-5), any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.], the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], this chapter, or the rules or regulations under any of such statutes; - (B) in the case of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, this chapter, the rules or regulations under any of such statutes, or the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73); or - (C) in the case of a registered [clearing agency](/usc/15/78c.md?p=a-23-A), any provision of the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A). - (3) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) is authorized, by [order](/usc/15/8702.md?p=14), if in its opinion such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, to suspend for a period not exceeding twelve months or to bar any [person](/usc/15/78c.md?p=a-9) from being associated with a [member](/usc/15/78c.md?p=a-3-A) of such [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), if such [person](/usc/15/78c.md?p=a-9) is subject to an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78o(b)(6)](/usc/15/78o.md?p=b-6) of this title or if such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds, on the record after notice and opportunity for hearing, that such [person](/usc/15/78c.md?p=a-9) has willfully violated or has effected any transaction for any other [person](/usc/15/78c.md?p=a-9) who, such [person associated with a member](/usc/15/78c.md?p=a-21) had reason to believe, was violating with respect to such transaction— - (A) in the case of a [national securities exchange](/usc/15/9009a.md?p=a-5), any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, this chapter, or the rules or regulations under any of such statutes; or - (B) in the case of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), any provision of the Securities Act of 1933, the Investment Advisers Act of 1940, the Investment Company Act of 1940, this chapter, the rules or regulations under any of the statutes, or the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73). - (4) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [self-regulatory organization](/usc/15/78c.md?p=a-26) is authorized, by [order](/usc/15/8702.md?p=14), if in its opinion such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, to remove from office or censure any [person](/usc/15/78c.md?p=a-9) who is, or at the time of the alleged misconduct was, an officer or [director](/usc/15/78c.md?p=a-7) of such [self-regulatory organization](/usc/15/78c.md?p=a-26), if such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) finds, on the record after notice and opportunity for hearing, that such [person](/usc/15/78c.md?p=a-9) has willfully violated any provision of this chapter, the rules or regulations thereunder, or the rules of such [self-regulatory organization](/usc/15/78c.md?p=a-26), willfully abused his [authority](/usc/15/3051.md?p=1), or without reasonable justification or excuse has failed to enforce compliance— - (A) in the case of a [national securities exchange](/usc/15/9009a.md?p=a-5), with any such provision by any [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21); - (B) in the case of a registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2), with any such provision or any provision of the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) by any [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21); or - (C) in the case of a registered [clearing agency](/usc/15/78c.md?p=a-23-A), with any provision of the rules of the [clearing agency](/usc/15/78c.md?p=a-23-A) by any [participant](/usc/15/78c.md?p=a-24). - (i) **Appointment of trustee—** If a proceeding under [subsection (h)(1)](#h-1) of this section results in the suspension or revocation of the registration of a [clearing agency](/usc/15/78c.md?p=a-23-A), the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) may, upon notice to such [clearing agency](/usc/15/78c.md?p=a-23-A), apply to any court of competent jurisdiction specified in section [78u(d)](/usc/15/78u.md?p=d) or [78aa](/usc/15/78aa.md) of this title for the appointment of a trustee. In the event of such an [application](/usc/15/77ccc.md?p=8), the court may, to the extent it deems necessary or appropriate, take exclusive jurisdiction of such [clearing agency](/usc/15/78c.md?p=a-23-A) and the [records](/usc/15/78c.md?p=a-37) and assets thereof, wherever located; and the court shall appoint the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) or a [person](/usc/15/78c.md?p=a-9) designated by such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) as trustee with power to take possession and continue to operate or terminate the operations of such [clearing agency](/usc/15/78c.md?p=a-23-A) in an orderly manner for the protection of [participants](/usc/15/78c.md?p=a-24) and investors, subject to such terms and conditions as the court may prescribe. # §78t. Liability of controlling persons and persons who aid and abet violations - (a) **Joint and several liability; good faith defense—** Every [person](/usc/15/78c.md?p=a-9) who, directly or indirectly, controls any [person](/usc/15/78c.md?p=a-9) liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled [person](/usc/15/78c.md?p=a-9) to any [person](/usc/15/78c.md?p=a-9) to whom such controlled [person](/usc/15/78c.md?p=a-9) is liable (including to the [Commission](/usc/15/78c.md?p=a-15) in any action brought under paragraph (1) or (3) of [section 78u(d) of this title](/usc/15/78u.md?p=d)), unless the controlling [person](/usc/15/78c.md?p=a-9) acted in good faith and did not directly or indirectly induce the act or acts constituting the [violation](/usc/15/57b–1.md?p=a-7) or cause of action. - (b) **Unlawful activity through or by means of any other person—** It shall be unlawful for any [person](/usc/15/78c.md?p=a-9), directly or indirectly, to do any act or thing which it would be unlawful for such [person](/usc/15/78c.md?p=a-9) to do under the provisions of this chapter or any rule or regulation thereunder through or by means of any other [person](/usc/15/78c.md?p=a-9). - (c) **Hindering, delaying, or obstructing the making or filing of any document, report, or information—** It shall be unlawful for any [director](/usc/15/78c.md?p=a-7) or officer of, or any owner of any [securities](/usc/15/78c.md?p=a-10) issued by, any [issuer](/usc/15/78c.md?p=a-8) required to file any document, report, or information under this chapter or any rule or regulation thereunder without just cause to hinder, delay, or obstruct the making or filing of any such document, report, or information. - (d) **Liability for trading in securities while in possession of material nonpublic information—** Wherever communicating, or purchasing or selling a [security](/usc/15/78c.md?p=a-10) while in possession of, material nonpublic information would violate, or result in liability to any purchaser or seller of the [security](/usc/15/78c.md?p=a-10) under any provisions of this chapter, or any rule or regulation thereunder, such conduct in connection with a [purchase](/usc/15/78c.md?p=a-13) or sale of a put, call, straddle, option, privilege or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) with respect to such [security](/usc/15/78c.md?p=a-10) or with respect to a group or [index](/usc/15/78c.md?p=a-68-E) of [securities](/usc/15/78c.md?p=a-10) including such [security](/usc/15/78c.md?p=a-10), shall also violate and result in comparable liability to any purchaser or seller of that [security](/usc/15/78c.md?p=a-10) under such provision, rule, or regulation. - (e) **Prosecution of persons who aid and abet violations—** For purposes of any action brought by the [Commission](/usc/15/78c.md?p=a-15) under paragraph (1) or (3) of [section 78u(d) of this title](/usc/15/78u.md?p=d), any [person](/usc/15/78c.md?p=a-9) that knowingly or recklessly provides substantial assistance to another [person](/usc/15/78c.md?p=a-9) in [violation](/usc/15/57b–1.md?p=a-7) of a provision of this chapter, or of any rule or regulation issued under this chapter, shall be deemed to be in [violation](/usc/15/57b–1.md?p=a-7) of such provision to the same extent as the [person](/usc/15/78c.md?p=a-9) to whom such assistance is provided. - (f) **Limitation on Commission authority—** The [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this section with respect to [security-based swap agreements](/usc/15/78c.md?p=a-78-B) shall be subject to the restrictions and limitations of [section 78c–1(b) of this title](/usc/15/78c–1.md?p=b). # §78t–1. Liability to contemporaneous traders for insider trading - (a) **Private rights of action based on contemporaneous trading—** Any [person](/usc/15/78c.md?p=a-9) who violates any provision of this chapter or the rules or regulations thereunder by purchasing or selling a [security](/usc/15/78c.md?p=a-10) while in possession of material, nonpublic information shall be liable in an action in any court of competent jurisdiction to any [person](/usc/15/78c.md?p=a-9) who, contemporaneously with the [purchase](/usc/15/78c.md?p=a-13) or sale of [securities](/usc/15/78c.md?p=a-10) that is the subject of such [violation](/usc/15/57b–1.md?p=a-7), has purchased (where such [violation](/usc/15/57b–1.md?p=a-7) is based on a sale of [securities](/usc/15/78c.md?p=a-10)) or sold (where such [violation](/usc/15/57b–1.md?p=a-7) is based on a [purchase](/usc/15/78c.md?p=a-13) of [securities](/usc/15/78c.md?p=a-10)) [securities](/usc/15/78c.md?p=a-10) of the same class. - (b) **Limitations on liability—** - (1) **Contemporaneous trading actions limited to profit gained or loss avoided—** The total amount of damages imposed under [subsection (a)](#a) shall not exceed the profit gained or loss avoided in the transaction or transactions that are the subject of the [violation](/usc/15/57b–1.md?p=a-7). - (2) **Offsetting disgorgements against liability—** The total amount of damages imposed against any [person](/usc/15/78c.md?p=a-9) under [subsection (a)](#a) shall be diminished by the amounts, if any, that such [person](/usc/15/78c.md?p=a-9) may be required to disgorge, pursuant to a court [order](/usc/15/8702.md?p=14) obtained at the instance of the [Commission](/usc/15/78c.md?p=a-15), in a proceeding brought under [section 78u(d) of this title](/usc/15/78u.md?p=d) relating to the same transaction or transactions. - (3) **Controlling person liability—** No [person](/usc/15/78c.md?p=a-9) shall be liable under this section solely by reason of employing another [person](/usc/15/78c.md?p=a-9) who is liable under this section, but the liability of a controlling [person](/usc/15/78c.md?p=a-9) under this section shall be subject to [section 78t(a) of this title](/usc/15/78t.md?p=a). - (4) **Statute of limitations—** No action may be brought under this section more than 5 years after the date of the last transaction that is the subject of the [violation](/usc/15/57b–1.md?p=a-7). - (c) **Joint and several liability for communicating—** Any [person](/usc/15/78c.md?p=a-9) who violates any provision of this chapter or the rules or regulations thereunder by communicating material, nonpublic information shall be jointly and severally liable under [subsection (a)](#a) with, and to the same extent as, any [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) liable under [subsection (a)](#a) to whom the communication was directed. - (d) **Authority not to restrict other express or implied rights of action—** Nothing in this section shall be construed to limit or condition the right of any [person](/usc/15/78c.md?p=a-9) to bring an action to enforce a requirement of this chapter or the availability of any cause of action implied from a provision of this chapter. - (e) **Provisions not to affect public prosecutions—** This section shall not be construed to bar or limit in any manner any action by the [Commission](/usc/15/78c.md?p=a-15) or the Attorney General under any other provision of this chapter, nor shall it bar or limit in any manner any action to recover penalties, or to seek any other [order](/usc/15/8702.md?p=14) regarding penalties. # §78u. Investigations and actions - (a) **Authority and discretion of Commission to investigate violations—** - (1) The [Commission](/usc/15/78c.md?p=a-15) may, in its discretion, make such investigations as it deems necessary to determine whether any [person](/usc/15/78c.md?p=a-9) has violated, is violating, or is about to violate any provision of this chapter, the rules or regulations thereunder, the rules of a [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) of which such [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A) or a [person](/usc/15/78c.md?p=a-9) associated, or, as to any act or practice, or omission to act, while associated with a [member](/usc/15/78c.md?p=a-3-A), formerly associated with a [member](/usc/15/78c.md?p=a-3-A), the rules of a registered [clearing agency](/usc/15/78c.md?p=a-23-A) in which such [person](/usc/15/78c.md?p=a-9) is a [participant](/usc/15/78c.md?p=a-24), or, as to any act or practice, or omission to act, while a [participant](/usc/15/78c.md?p=a-24), was a [participant](/usc/15/78c.md?p=a-24), the rules of the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73), of which such [person](/usc/15/78c.md?p=a-9) is a [registered public accounting firm](/usc/15/78c.md?p=a-59), a [person associated with](/usc/15/78c.md?p=a-63) such a firm, or, as to any act, practice, or omission to act, while associated with such firm, a [person](/usc/15/78c.md?p=a-9) formerly associated with such a firm, or the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), and may require or permit any [person](/usc/15/78c.md?p=a-9) to file with it a statement in writing, under oath or otherwise as the [Commission](/usc/15/78c.md?p=a-15) shall determine, as to all the facts and circumstances concerning the matter to be investigated. The [Commission](/usc/15/78c.md?p=a-15) is authorized in its discretion, to publish information concerning any such [violations](/usc/15/57b–1.md?p=a-7), and to investigate any facts, conditions, practices, or matters which it may deem necessary or proper to aid in the enforcement of such provisions, in the prescribing of rules and regulations under this chapter, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this chapter relates. - (2) On request from a [foreign securities authority](/usc/15/78c.md?p=a-50), the [Commission](/usc/15/78c.md?p=a-15) may provide assistance in accordance with this paragraph if the requesting [authority](/usc/15/3051.md?p=1) [states](/usc/15/78c.md?p=a-16) that the requesting [authority](/usc/15/3051.md?p=1) is conducting an investigation which it deems necessary to determine whether any [person](/usc/15/78c.md?p=a-9) has violated, is violating, or is about to violate any laws or rules relating to [securities](/usc/15/78c.md?p=a-10) matters that the requesting [authority](/usc/15/3051.md?p=1) administers or enforces. The [Commission](/usc/15/78c.md?p=a-15) may, in its discretion, conduct such investigation as the [Commission](/usc/15/78c.md?p=a-15) deems necessary to collect information and evidence pertinent to the request for assistance. Such assistance may be provided without regard to whether the facts stated in the request would also constitute a [violation](/usc/15/57b–1.md?p=a-7) of the laws of the United States. In deciding whether to provide such assistance, the [Commission](/usc/15/78c.md?p=a-15) shall consider whether (A) the requesting [authority](/usc/15/3051.md?p=1) has agreed to provide reciprocal assistance in [securities](/usc/15/78c.md?p=a-10) matters to the [Commission](/usc/15/78c.md?p=a-15); and (B) compliance with the request would prejudice the public interest of the United States. - (b) **Attendance of witnesses; production of records—** For the purpose of any such investigation, or any other proceeding under this chapter, any [member](/usc/15/78c.md?p=a-3-A) of the [Commission](/usc/15/78c.md?p=a-15) or any officer designated by it is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, or other [records](/usc/15/78c.md?p=a-37) which the [Commission](/usc/15/78c.md?p=a-15) deems relevant or material to the inquiry. Such attendance of witnesses and the production of any such [records](/usc/15/78c.md?p=a-37) may be required from any place in the United States or any [State](/usc/15/78c.md?p=a-16) at any designated place of hearing. - (c) **Judicial enforcement of investigative power of Commission; refusal to obey subpena; criminal sanctions—** In case of contumacy by, or refusal to obey a subpena issued to, any [person](/usc/15/78c.md?p=a-9), the [Commission](/usc/15/78c.md?p=a-15) may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such [person](/usc/15/78c.md?p=a-9) resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, correspondence, memoranda, and other [records](/usc/15/78c.md?p=a-37). And such court may issue an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/78c.md?p=a-9) to appear before the [Commission](/usc/15/78c.md?p=a-15) or [member](/usc/15/78c.md?p=a-3-A) or officer designated by the [Commission](/usc/15/78c.md?p=a-15), there to produce [records](/usc/15/78c.md?p=a-37), if so ordered, or to give testimony touching the matter under investigation or in question; and any failure to obey such [order](/usc/15/8702.md?p=14) of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district whereof such [person](/usc/15/78c.md?p=a-9) is an inhabitant or wherever he may be found. Any [person](/usc/15/78c.md?p=a-9) who shall, without just cause, fail or refuse to attend and testify or to answer any lawful inquiry or to produce books, papers, correspondence, memoranda, and other [records](/usc/15/78c.md?p=a-37), if in his power so to do, in obedience to the subpena of the [Commission](/usc/15/78c.md?p=a-15), shall be guilty of a misdemeanor and, upon conviction, shall be subject to a fine of not more than $1,000 or to imprisonment for a term of not more than one year, or both. - (d) **Injunction proceedings; authority of court to prohibit persons from serving as officers and directors; money penalties in civil actions; disgorgement—** - (1) Whenever it shall appear to the [Commission](/usc/15/78c.md?p=a-15) that any [person](/usc/15/78c.md?p=a-9) is engaged or is about to engage in acts or practices constituting a [violation](/usc/15/57b–1.md?p=a-7) of any provision of this chapter, the rules or regulations thereunder, the rules of a [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) of which such [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A) or a [person associated with a member](/usc/15/78c.md?p=a-21), the rules of a registered [clearing agency](/usc/15/78c.md?p=a-23-A) in which such [person](/usc/15/78c.md?p=a-9) is a [participant](/usc/15/78c.md?p=a-24), the rules of the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73), of which such [person](/usc/15/78c.md?p=a-9) is a [registered public accounting firm](/usc/15/78c.md?p=a-59) or a [person associated with](/usc/15/78c.md?p=a-63) such a firm, or the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), it may in its discretion bring an action in the proper district court of the United States, the United States District Court for the District of Columbia, or the United States courts of any territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining [order](/usc/15/8702.md?p=14) shall be granted without bond. The [Commission](/usc/15/78c.md?p=a-15) may transmit such evidence as may be available concerning such acts or practices as may constitute a [violation](/usc/15/57b–1.md?p=a-7) of any provision of this chapter or the rules or regulations thereunder to the Attorney General, who may, in his discretion, [institute](/usc/15/9401.md?p=7) the necessary criminal proceedings under this chapter. - (2) **Authority of Court To Prohibit Persons From Serving as Officers and Directors.—** In any proceeding under paragraph (1) of this subsection, the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any [person](/usc/15/78c.md?p=a-9) who violated [section 78j(b) of this title](/usc/15/78j.md?p=b) or the rules or regulations thereunder from acting as an officer or [director](/usc/15/78c.md?p=a-7) of any [issuer](/usc/15/78c.md?p=a-8) that has a class of [securities](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title or that is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title if the [person](/usc/15/78c.md?p=a-9)’s conduct demonstrates unfitness to serve as an officer or [director](/usc/15/78c.md?p=a-7) of any such [issuer](/usc/15/78c.md?p=a-8). - (3) **Civil money penalties and authority to seek disgorgement.—** - (A) **Authority of commission.—** Whenever it shall appear to the [Commission](/usc/15/78c.md?p=a-15) that any [person](/usc/15/78c.md?p=a-9) has violated any provision of this chapter, the rules or regulations thereunder, or a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78u–3 of this title](/usc/15/78u–3.md), other than by committing a [violation](/usc/15/57b–1.md?p=a-7) subject to a penalty pursuant to [section 78u–1 of this title](/usc/15/78u–1.md), the [Commission](/usc/15/78c.md?p=a-15) may bring an action in a United States district court to seek, and the court shall have jurisdiction to— - (i) impose, upon a proper showing, a civil penalty to be paid by the [person](/usc/15/78c.md?p=a-9) who committed such [violation](/usc/15/57b–1.md?p=a-7); and - (ii) require disgorgement under [paragraph (7)](#d-7) of any unjust enrichment by the [person](/usc/15/78c.md?p=a-9) who received such unjust enrichment as a result of such [violation](/usc/15/57b–1.md?p=a-7). - (B) **Amount of penalty.—** - (i) **First tier.—** The amount of a civil penalty imposed under [subparagraph (A)(i)](#d-3-A-i) shall be determined by the court in light of the facts and circumstances. For each [violation](/usc/15/57b–1.md?p=a-7), the amount of the penalty shall not exceed the greater of (I) $5,000 for a natural [person](/usc/15/78c.md?p=a-9) or $50,000 for any other [person](/usc/15/78c.md?p=a-9), or (II) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7). - (ii) **Second tier.—** Notwithstanding [clause (i)](#d-3-B-i), the amount of a civil penalty imposed under [subparagraph (A)(i)](#d-3-A-i) for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (I) $50,000 for a natural [person](/usc/15/78c.md?p=a-9) or $250,000 for any other [person](/usc/15/78c.md?p=a-9), or (II) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if the [violation](/usc/15/57b–1.md?p=a-7) described in [subparagraph (A)](#d-3-A) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (iii) **Third tier.—** Notwithstanding clauses [(i)](#d-3-B-i) and [(ii)](#d-3-B-ii), the amount of a civil penalty imposed under [subparagraph (A)(i)](#d-3-A-i) for each [violation](/usc/15/57b–1.md?p=a-7) described in that subparagraph shall not exceed the greater of (I) $100,000 for a natural [person](/usc/15/78c.md?p=a-9) or $500,000 for any other [person](/usc/15/78c.md?p=a-9), or (II) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if— - (aa) the [violation](/usc/15/57b–1.md?p=a-7) described in [subparagraph (A)](#d-3-A) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (bb) such [violation](/usc/15/57b–1.md?p=a-7) directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/78c.md?p=a-9). - (C) **Procedures for collection.—** - (i) **Payment of penalty to treasury.—** A penalty imposed under this section shall be payable into the Treasury of the United States, except as otherwise provided in [section 7246 of this title](/usc/15/7246.md) and [section 78u–6 of this title](/usc/15/78u–6.md). - (ii) **Collection of penalties.—** If a [person](/usc/15/78c.md?p=a-9) upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/78c.md?p=a-15) may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court. - (iii) **Remedy not exclusive.—** The actions authorized by this paragraph may be brought in addition to any other action that the [Commission](/usc/15/78c.md?p=a-15) or the Attorney General is entitled to bring. - (iv) **Jurisdiction and venue.—** For purposes of [section 78aa of this title](/usc/15/78aa.md), actions under this paragraph shall be actions to enforce a liability or a duty created by this chapter. - (D) **Special provisions relating to a violation of a cease-and-desist order.—** In an action to enforce a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78u–3 of this title](/usc/15/78u–3.md), each separate [violation](/usc/15/57b–1.md?p=a-7) of such [order](/usc/15/8702.md?p=14) shall be a separate offense, except that in the case of a [violation](/usc/15/57b–1.md?p=a-7) through a continuing failure to comply with the [order](/usc/15/8702.md?p=14), each day of the failure to comply shall be deemed a separate offense. - (4) **Prohibition of attorneys’ fees paid from commission disgorgement funds.—** Except as otherwise ordered by the court upon motion by the [Commission](/usc/15/78c.md?p=a-15), or, in the case of an administrative action, as otherwise ordered by the [Commission](/usc/15/78c.md?p=a-15), funds disgorged under [paragraph (7)](#d-7) as the result of an action brought by the [Commission](/usc/15/78c.md?p=a-15) in Federal court, or as a result of any [Commission](/usc/15/78c.md?p=a-15) administrative action, shall not be distributed as payment for attorneys’ fees or expenses incurred by private parties seeking distribution of the disgorged funds. - (5) **Equitable Relief.—** In any action or proceeding brought or instituted by the [Commission](/usc/15/78c.md?p=a-15) under any provision of the [securities laws](/usc/15/78c.md?p=a-47), the [Commission](/usc/15/78c.md?p=a-15) may seek, and any Federal court may grant, any equitable relief that may be appropriate or necessary for the benefit of investors. - (6) **Authority of a court to prohibit persons from participating in an offering of penny stock.—** - (A) **In general.—** In any proceeding under [paragraph (1)](#d-1) against any [person](/usc/15/78c.md?p=a-9) participating in, or, at the time of the alleged misconduct who was participating in, an offering of [penny stock](/usc/15/78c.md?p=a-51-A), the court may prohibit that [person](/usc/15/78c.md?p=a-9) from participating in an offering of [penny stock](/usc/15/78c.md?p=a-51-A), conditionally or unconditionally, and permanently or for such period of time as the court shall determine. - (B) **Definition.—** For purposes of this paragraph, the term “person participating in an offering of penny stock” includes any [person](/usc/15/78c.md?p=a-9) engaging in activities with a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), or [issuer](/usc/15/78c.md?p=a-8) for purposes of issuing, trading, or inducing or attempting to induce the [purchase](/usc/15/78c.md?p=a-13) or sale of, any [penny stock](/usc/15/78c.md?p=a-51-A). The [Commission](/usc/15/78c.md?p=a-15) may, by rule or regulation, define such term to include other activities, and may, by rule, regulation, or [order](/usc/15/8702.md?p=14), exempt any [person](/usc/15/78c.md?p=a-9) or class of [persons](/usc/15/78c.md?p=a-9), in whole or in part, conditionally or unconditionally, from inclusion in such term. - (7) **Disgorgement.—** In any action or proceeding brought by the [Commission](/usc/15/78c.md?p=a-15) under any provision of the [securities laws](/usc/15/78c.md?p=a-47), the [Commission](/usc/15/78c.md?p=a-15) may seek, and any Federal court may [order](/usc/15/8702.md?p=14), disgorgement. - (8) **Limitations periods.—** - (A) **Disgorgement.—** The [Commission](/usc/15/78c.md?p=a-15) may bring a claim for disgorgement under [paragraph (7)](#d-7)— - (i) not later than 5 years after the latest date of the [violation](/usc/15/57b–1.md?p=a-7) that gives rise to the action or proceeding in which the [Commission](/usc/15/78c.md?p=a-15) seeks the claim occurs; or - (ii) not later than 10 years after the latest date of the [violation](/usc/15/57b–1.md?p=a-7) that gives rise to the action or proceeding in which the [Commission](/usc/15/78c.md?p=a-15) seeks the claim if the [violation](/usc/15/57b–1.md?p=a-7) involves conduct that violates— - (I) [section 78j(b) of this title](/usc/15/78j.md?p=b); - (II) [section 77q(a)(1) of this title](/usc/15/77q.md?p=a-1); - (III) [section 80b–6(1) of this title](/usc/15/80b–6.md?p=1); or - (IV) any other provision of the [securities laws](/usc/15/78c.md?p=a-47) for which scienter must be established. - (B) **Equitable remedies.—** The [Commission](/usc/15/78c.md?p=a-15) may seek a claim for any equitable remedy, including for an injunction or for a bar, suspension, or cease and desist [order](/usc/15/8702.md?p=14), not later than 10 years after the latest date on which a [violation](/usc/15/57b–1.md?p=a-7) that gives rise to the claim occurs. - (C) **Calculation.—** For the purposes of calculating any limitations period under this paragraph with respect to an action or claim, any time in which the [person](/usc/15/78c.md?p=a-9) against which the action or claim, as applicable, is brought is outside of the United States shall not count towards the accrual of that period. - (9) **Rule of construction.—** Nothing in [paragraph (7)](#d-7) may be construed as altering any right that any private party may have to maintain a suit for a [violation](/usc/15/57b–1.md?p=a-7) of this chapter. - (e) **Mandamus—** Upon [application](/usc/15/77ccc.md?p=8) of the [Commission](/usc/15/78c.md?p=a-15) the district courts of the United States and the United States courts of any territory or other place subject to the jurisdiction of the United States shall have jurisdiction to issue writs of mandamus, injunctions, and [orders](/usc/15/8702.md?p=14) commanding (1) any [person](/usc/15/78c.md?p=a-9) to comply with the provisions of this chapter, the rules, regulations, and [orders](/usc/15/8702.md?p=14) thereunder, the rules of a [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) of which such [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21), the rules of a registered [clearing agency](/usc/15/78c.md?p=a-23-A) in which such [person](/usc/15/78c.md?p=a-9) is a [participant](/usc/15/78c.md?p=a-24), the rules of the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73), of which such [person](/usc/15/78c.md?p=a-9) is a [registered public accounting firm](/usc/15/78c.md?p=a-59) or a [person associated with](/usc/15/78c.md?p=a-63) such a firm, the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73), or any undertaking contained in a [registration statement](/usc/15/77b.md?p=a-8) as provided in [subsection (d)](/usc/15/78o.md?p=d) of section 78o of this title, (2) any [national securities exchange](/usc/15/9009a.md?p=a-5) or registered [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) to enforce compliance by its [members](/usc/15/78c.md?p=a-3-A) and [persons](/usc/15/78c.md?p=a-9) associated with its [members](/usc/15/78c.md?p=a-3-A) with the provisions of this chapter, the rules, regulations, and [orders](/usc/15/8702.md?p=14) thereunder, and the rules of such [exchange](/usc/15/78c.md?p=a-1) or [association](/usc/15/657h.md?p=a-2), or (3) any registered [clearing agency](/usc/15/78c.md?p=a-23-A) to enforce compliance by its [participants](/usc/15/78c.md?p=a-24) with the provisions of the rules of such [clearing agency](/usc/15/78c.md?p=a-23-A). - (f) **Rules of self-regulatory organizations or Board—** Notwithstanding any other provision of this chapter, the [Commission](/usc/15/78c.md?p=a-15) shall not bring any action pursuant to subsection [(d)](#d) or [(e)](#e) of this section against any [person](/usc/15/78c.md?p=a-9) for [violation](/usc/15/57b–1.md?p=a-7) of, or to command compliance with, the [rules of a self-regulatory organization](/usc/15/78c.md?p=a-28) or the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73) unless it appears to the [Commission](/usc/15/78c.md?p=a-15) that (1) such [self-regulatory organization](/usc/15/78c.md?p=a-26) or the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73) is unable or unwilling to take appropriate action against such [person](/usc/15/78c.md?p=a-9) in the public interest and for the protection of investors, or (2) such action is otherwise necessary or appropriate in the public interest or for the protection of investors. - (g) **Consolidation of actions; consent of Commission—** Notwithstanding the provisions of [section 1407(a) of title 28](/usc/28/1407.md?p=a), or any other provision of law, no action for equitable relief instituted by the [Commission](/usc/15/78c.md?p=a-15) pursuant to the [securities laws](/usc/15/78c.md?p=a-47) shall be consolidated or coordinated with other actions not brought by the [Commission](/usc/15/78c.md?p=a-15), even though such other actions may involve common questions of fact, unless such consolidation is consented to by the [Commission](/usc/15/78c.md?p=a-15). - (h) **Access to records—** - (1) The Right to Financial Privacy Act of 1978 [[12 U.S.C. 3401](/usc/12/3401.md) et seq.] shall apply with respect to the [Commission](/usc/15/78c.md?p=a-15), except as otherwise provided in this subsection. - (2) Notwithstanding section 1105 or 1107 of the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3405](/usc/12/3405.md) or 3407], the [Commission](/usc/15/78c.md?p=a-15) may have access to and obtain copies of, or the information contained in financial [records](/usc/15/78c.md?p=a-37) of a [customer](/usc/15/78c–5.md?p=g) from a [financial institution](/usc/15/78c.md?p=a-46) without prior notice to the [customer](/usc/15/78c–5.md?p=g) upon an ex parte showing to an appropriate United States district court that the [Commission](/usc/15/78c.md?p=a-15) seeks such financial [records](/usc/15/78c.md?p=a-37) pursuant to a subpena issued in conformity with the requirements of [section 19(b)](/usc/15/19.md?p=b)[^1] of the Securities Act of 1933, section 21(b) of the [Securities](/usc/15/78c.md?p=a-10) Exchange Act of 1934 [[15 U.S.C. 78u(b)](#b)], section 42(b) of the Investment Company Act of 1940 [[15 U.S.C. 80a–41(b)](/usc/15/80a–41.md?p=b)], or section 209(b) of the Investment Advisers Act of 1940 [[15 U.S.C. 80b–9(b)](/usc/15/80b–9.md?p=b)], and that the [Commission](/usc/15/78c.md?p=a-15) has reason to believe that— - (A) delay in obtaining access to such financial [records](/usc/15/78c.md?p=a-37), or the required notice, will result in— - (i) flight from prosecution; - (ii) destruction of or tampering with evidence; - (iii) transfer of assets or [records](/usc/15/78c.md?p=a-37) outside the territorial limits of the United States; - (iv) improper conversion of investor assets; or - (v) impeding the ability of the [Commission](/usc/15/78c.md?p=a-15) to identify or trace the source or disposition of funds involved in any [securities](/usc/15/78c.md?p=a-10) transaction; - (B) such financial [records](/usc/15/78c.md?p=a-37) are necessary to identify or trace the record or beneficial ownership interest in any [security](/usc/15/78c.md?p=a-10); - (C) the acts, practices or course of conduct under investigation involve— - (i) the dissemination of materially false or misleading information concerning any [security](/usc/15/78c.md?p=a-10), [issuer](/usc/15/78c.md?p=a-8), or market, or the failure to make disclosures required under the [securities laws](/usc/15/78c.md?p=a-47), which remain uncorrected; or - (ii) a financial loss to investors or other [persons](/usc/15/78c.md?p=a-9) protected under the [securities laws](/usc/15/78c.md?p=a-47) which remains substantially uncompensated; or - (D) the acts, practices or course of conduct under investigation— - (i) involve significant financial speculation in [securities](/usc/15/78c.md?p=a-10); or - (ii) endanger the stability of any financial or investment [intermediary](/usc/15/6901.md?p=7). - (3) Any [application](/usc/15/77ccc.md?p=8) under [paragraph (2)](#h-2) for a delay in notice shall be made with reasonable specificity. - (4) - (A) Upon a showing described in [paragraph (2)](#h-2), the presiding judge or magistrate judge shall enter an ex parte [order](/usc/15/8702.md?p=14) granting the requested delay for a period not to exceed ninety days and an [order](/usc/15/8702.md?p=14) prohibiting the [financial institution](/usc/15/78c.md?p=a-46) involved from disclosing that [records](/usc/15/78c.md?p=a-37) have been obtained or that a request for [records](/usc/15/78c.md?p=a-37) has been made. - (B) Extensions of the period of delay of notice provided in [subparagraph (A)](#h-4-A) of up to ninety days each may be granted by the court upon [application](/usc/15/77ccc.md?p=8), but only in accordance with this subsection or section 1109(a), (b)(1), or (b)(2) of the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3409(a)](/usc/12/3409.md?p=a), (b)(1), or (b)(2)]. - (C) Upon expiration of the period of delay of notification ordered under subparagraph [(A)](#h-4-A) or [(B)](#h-4-B), the [customer](/usc/15/78c–5.md?p=g) shall be served with or mailed a copy of the subpena insofar as it applies to the [customer](/usc/15/78c–5.md?p=g) together with the following notice which shall describe with reasonable specificity the nature of the investigation for which the [Commission](/usc/15/78c.md?p=a-15) sought the financial [records](/usc/15/78c.md?p=a-37): “[Records](/usc/15/78c.md?p=a-37) or information concerning your transactions which are held by the [financial institution](/usc/15/78c.md?p=a-46) named in the attached subpena were supplied to the [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) on (date). Notification was withheld pursuant to a determination by the (title of court so ordering) under section 21(h) of the [Securities](/usc/15/78c.md?p=a-10) Exchange Act of 1934 that ([state](/usc/15/78c.md?p=a-16) reason). The purpose of the investigation or official proceeding was ([state](/usc/15/78c.md?p=a-16) purpose).” - (5) Upon [application](/usc/15/77ccc.md?p=8) by the [Commission](/usc/15/78c.md?p=a-15), all proceedings pursuant to paragraphs [(2)](#h-2) and [(4)](#h-4) shall be held in camera and the [records](/usc/15/78c.md?p=a-37) thereof sealed until expiration of the period of delay or such other date as the presiding judge or magistrate judge may permit. - (6) Repealed. Pub. L. 114–113, div. O, title VII, § 708, Dec. 18, 2015, 129 Stat. 3030. - (7) - (A) Following the expiration of the period of delay of notification ordered by the court pursuant to paragraph (4) of this subsection, the [customer](/usc/15/78c–5.md?p=g) may, upon motion, reopen the proceeding in the district court which issued the [order](/usc/15/8702.md?p=14). If the presiding judge or magistrate judge finds that the movant is the [customer](/usc/15/78c–5.md?p=g) to whom the [records](/usc/15/78c.md?p=a-37) obtained by the [Commission](/usc/15/78c.md?p=a-15) pertain, and that the [Commission](/usc/15/78c.md?p=a-15) has obtained financial [records](/usc/15/78c.md?p=a-37) or information contained therein in [violation](/usc/15/57b–1.md?p=a-7) of this subsection, other than [paragraph (1)](#h-1), it may [order](/usc/15/8702.md?p=14) that the [customer](/usc/15/78c–5.md?p=g) be granted civil penalties against the [Commission](/usc/15/78c.md?p=a-15) in an amount equal to the sum of— - (i) $100 without regard to the volume of rec­ords involved; - (ii) any out-of-pocket damages sustained by the [customer](/usc/15/78c–5.md?p=g) as a direct result of the disclosure; and - (iii) if the [violation](/usc/15/57b–1.md?p=a-7) is found to have been willful, intentional, and without good faith, such punitive damages as the court may allow, together with the costs of the action and reasonable attorney’s fees as determined by the court. - (B) Upon a finding that the [Commission](/usc/15/78c.md?p=a-15) has obtained financial [records](/usc/15/78c.md?p=a-37) or information contained therein in [violation](/usc/15/57b–1.md?p=a-7) of this subsection, other than [paragraph (1)](#h-1), the court, in its discretion, may also or in the alternative issue injunctive relief to require the [Commission](/usc/15/78c.md?p=a-15) to comply with this subsection with respect to any subpena which the [Commission](/usc/15/78c.md?p=a-15) issues in the future for financial [records](/usc/15/78c.md?p=a-37) of such [customer](/usc/15/78c–5.md?p=g) for purposes of the same investigation. - (C) Whenever the court determines that the [Commission](/usc/15/78c.md?p=a-15) has failed to comply with this subsection, other than [paragraph (1)](#h-1), and the court finds that the circumstances raise questions of whether an officer or employee of the [Commission](/usc/15/78c.md?p=a-15) acted in a willful and intentional manner and without good faith with respect to the [violation](/usc/15/57b–1.md?p=a-7), the Office of Personnel Management shall promptly initiate a proceeding to determine whether disciplinary action is warranted against the agent or employee who was primarily responsible for the [violation](/usc/15/57b–1.md?p=a-7). After investigating and considering the evidence submitted, the Office of Personnel Management shall submit its findings and recommendations to the [Commission](/usc/15/78c.md?p=a-15) and shall send copies of the findings and recommendations to the officer or employee or his representative. The [Commission](/usc/15/78c.md?p=a-15) shall take the corrective action that the Office of Personnel Management recommends. - (8) The relief described in paragraphs [(7)](#h-7) and [(10)](#h-10) shall be the only remedies or sanctions available to a [customer](/usc/15/78c–5.md?p=g) for a [violation](/usc/15/57b–1.md?p=a-7) of this subsection, other than [paragraph (1)](#h-1), and nothing herein or in the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3401](/usc/12/3401.md) et seq.] shall be deemed to prohibit the use in any investigation or proceeding of financial [records](/usc/15/78c.md?p=a-37), or the information contained therein, obtained by a subpena issued by the [Commission](/usc/15/78c.md?p=a-15). In the case of an unsuccessful action under [paragraph (7)](#h-7), the court shall award the costs of the action and attorney’s fees to the [Commission](/usc/15/78c.md?p=a-15) if the presiding judge or magistrate judge finds that the [customer](/usc/15/78c–5.md?p=g)’s claims were made in bad faith. - (9) - (A) The [Commission](/usc/15/78c.md?p=a-15) may transfer financial [records](/usc/15/78c.md?p=a-37) or the information contained therein to any government [authority](/usc/15/3051.md?p=1) if the [Commission](/usc/15/78c.md?p=a-15) proceeds as a transferring agency in accordance with [section 1112](/usc/15/1112.md) of the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3412](/usc/12/3412.md)], except that the [customer](/usc/15/78c–5.md?p=g) notice required under section [1112(b)](/usc/15/1112.md) or [(c)](/usc/15/1112.md) of such Act [[12 U.S.C. 3412(b)](/usc/12/3412.md?p=b) or (c)] may be delayed upon a showing by the [Commission](/usc/15/78c.md?p=a-15), in accordance with the procedure set forth in paragraphs [(4)](#h-4) and [(5)](#h-5), that one or more of [subparagraphs (A) through (D)](#h-2-A..h-2-D) of paragraph (2) apply. - (B) The [Commission](/usc/15/78c.md?p=a-15) may, without notice to the [customer](/usc/15/78c–5.md?p=g) pursuant to [section 1112](/usc/15/1112.md) or the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3412](/usc/12/3412.md)], transfer financial [records](/usc/15/78c.md?p=a-37) or the information contained therein to a [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) agency or to the Department of Justice. Financial [records](/usc/15/78c.md?p=a-37) or information transferred by the [Commission](/usc/15/78c.md?p=a-15) to the Department of Justice or to a [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) agency pursuant to the provisions of this subparagraph may be disclosed or used only in an administrative, civil, or criminal action or investigation by the Department of Justice or the [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) agency which arises out of or relates to the acts, practices, or courses of conduct investigated by the [Commission](/usc/15/78c.md?p=a-15), except that if the Department of Justice or the [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) agency determines that the information should be disclosed or used for any other purpose, it may do so if it notifies the [customer](/usc/15/78c–5.md?p=g), except as otherwise provided in the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3401](/usc/12/3401.md) et seq.], within 30 days of its determination, or complies with the requirements of section 1109 of such Act [[12 U.S.C. 3409](/usc/12/3409.md)] regarding delay of notice. - (10) Any government [authority](/usc/15/3051.md?p=1) violating [paragraph (9)](#h-9) shall be subject to the procedures and penalties applicable to the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (7)(A)](#h-7-A) with respect to a [violation](/usc/15/57b–1.md?p=a-7) by the [Commission](/usc/15/78c.md?p=a-15) in obtaining financial [records](/usc/15/78c.md?p=a-37). - (11) Notwithstanding the provisions of this subsection, the [Commission](/usc/15/78c.md?p=a-15) may obtain financial [records](/usc/15/78c.md?p=a-37) from a [financial institution](/usc/15/78c.md?p=a-46) or transfer such [records](/usc/15/78c.md?p=a-37) in accordance with provisions of the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3401](/usc/12/3401.md) et seq.]. - (12) Nothing in this subsection shall enlarge or restrict any rights of a [financial institution](/usc/15/78c.md?p=a-46) to challenge requests for [records](/usc/15/78c.md?p=a-37) made by the [Commission](/usc/15/78c.md?p=a-15) under existing law. Nothing in this subsection shall entitle a [customer](/usc/15/78c–5.md?p=g) to assert any rights of a [financial institution](/usc/15/78c.md?p=a-46). - (13) Unless the context otherwise requires, all terms defined in the Right to Financial Privacy Act of 1978 [[12 U.S.C. 3401](/usc/12/3401.md) et seq.] which are common to this subsection shall have the same meaning as in such Act. - (i) **Information to CFTC—** The [Commission](/usc/15/78c.md?p=a-15) shall provide the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) with notice of the commencement of any proceeding and a copy of any [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/78c.md?p=a-15) against any [broker or dealer](/usc/15/78c.md?p=h-2) registered pursuant to [section 78o(b)(11)](/usc/15/78o.md?p=b-11) of this title, any [exchange](/usc/15/78c.md?p=a-1) registered pursuant to [section 78f(g) of this title](/usc/15/78f.md?p=g), or any national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) registered pursuant to [section 78o–3(k)](/usc/15/78o–3.md?p=k) of this title. # §78u–1. Civil penalties for insider trading - (a) **Authority to impose civil penalties—** - (1) **Judicial actions by Commission authorized—** Whenever it shall appear to the [Commission](/usc/15/78c.md?p=a-15) that any [person](/usc/15/78c.md?p=a-9) has violated any provision of this chapter or the rules or regulations thereunder by purchasing or selling a [security](/usc/15/78c.md?p=a-10) or [security-based swap agreement](/usc/15/78c.md?p=a-78-B) while in possession of material, nonpublic information in, or has violated any such provision by communicating such information in connection with, a transaction on or through the [facilities](/usc/15/78c.md?p=a-2) of a [national securities exchange](/usc/15/9009a.md?p=a-5) or from or through a [broker or dealer](/usc/15/78c.md?p=h-2), and which is not part of a public offering by an [issuer](/usc/15/78c.md?p=a-8) of [securities](/usc/15/78c.md?p=a-10) other than standardized options or [security futures products](/usc/15/78c.md?p=a-56), the [Commission](/usc/15/78c.md?p=a-15)— - (A) may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by the [person](/usc/15/78c.md?p=a-9) who committed such [violation](/usc/15/57b–1.md?p=a-7); and - (B) may, subject to [subsection (b)(1)](#b-1), bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by a [person](/usc/15/78c.md?p=a-9) who, at the time of the [violation](/usc/15/57b–1.md?p=a-7), directly or indirectly controlled the [person](/usc/15/78c.md?p=a-9) who committed such [violation](/usc/15/57b–1.md?p=a-7). - (2) **Amount of penalty for person who committed violation—** The amount of the penalty which may be imposed on the [person](/usc/15/78c.md?p=a-9) who committed such [violation](/usc/15/57b–1.md?p=a-7) shall be determined by the court in light of the facts and circumstances, but shall not exceed three times the profit gained or loss avoided as a result of such unlawful [purchase](/usc/15/78c.md?p=a-13), sale, or communication. - (3) **Amount of penalty for controlling person—** The amount of the penalty which may be imposed on any [person](/usc/15/78c.md?p=a-9) who, at the time of the [violation](/usc/15/57b–1.md?p=a-7), directly or indirectly controlled the [person](/usc/15/78c.md?p=a-9) who committed such [violation](/usc/15/57b–1.md?p=a-7), shall be determined by the court in light of the facts and circumstances, but shall not exceed the greater of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of such controlled [person](/usc/15/78c.md?p=a-9)’s [violation](/usc/15/57b–1.md?p=a-7). If such controlled [person](/usc/15/78c.md?p=a-9)’s [violation](/usc/15/57b–1.md?p=a-7) was a [violation](/usc/15/57b–1.md?p=a-7) by communication, the profit gained or loss avoided as a result of the [violation](/usc/15/57b–1.md?p=a-7) shall, for purposes of this paragraph only, be deemed to be limited to the profit gained or loss avoided by the [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) to whom the controlled [person](/usc/15/78c.md?p=a-9) directed such communication. - (b) **Limitations on liability—** - (1) **Liability of controlling persons—** No controlling [person](/usc/15/78c.md?p=a-9) shall be subject to a penalty under [subsection (a)(1)(B)](#a-1-B) unless the [Commission](/usc/15/78c.md?p=a-15) establishes that— - (A) such controlling [person](/usc/15/78c.md?p=a-9) knew or recklessly disregarded the fact that such controlled [person](/usc/15/78c.md?p=a-9) was likely to engage in the act or acts constituting the [violation](/usc/15/57b–1.md?p=a-7) and failed to take appropriate steps to prevent such act or acts before they occurred; or - (B) such controlling [person](/usc/15/78c.md?p=a-9) knowingly or recklessly failed to establish, maintain, or enforce any policy or procedure required under [section 78o(f)](/usc/15/78o.md?p=f)[^1] of this title or [section 80b–4a of this title](/usc/15/80b–4a.md) and such failure substantially contributed to or permitted the occurrence of the act or acts constituting the [violation](/usc/15/57b–1.md?p=a-7). - (2) **Additional restrictions on liability—** No [person](/usc/15/78c.md?p=a-9) shall be subject to a penalty under [subsection (a)](#a) solely by reason of employing another [person](/usc/15/78c.md?p=a-9) who is subject to a penalty under such subsection, unless such employing [person](/usc/15/78c.md?p=a-9) is liable as a controlling [person](/usc/15/78c.md?p=a-9) under paragraph (1) of this subsection. [Section 78t(a) of this title](/usc/15/78t.md?p=a) shall not apply to actions under [subsection (a)](#a) of this section. - (c) **Authority of Commission—** The [Commission](/usc/15/78c.md?p=a-15), by such rules, regulations, and [orders](/usc/15/8702.md?p=14) as it considers necessary or appropriate in the public interest or for the protection of investors, may exempt, in whole or in part, either unconditionally or upon specific terms and conditions, any [person](/usc/15/78c.md?p=a-9) or transaction or class of [persons](/usc/15/78c.md?p=a-9) or transactions from this section. - (d) **Procedures for collection—** - (1) **Payment of penalty to Treasury—** A penalty imposed under this section shall be payable into the Treasury of the United States, except as otherwise provided in [section 7246 of this title](/usc/15/7246.md) and [section 78u–6 of this title](/usc/15/78u–6.md). - (2) **Collection of penalties—** If a [person](/usc/15/78c.md?p=a-9) upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/78c.md?p=a-15) may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court. - (3) **Remedy not exclusive—** The actions authorized by this section may be brought in addition to any other actions that the [Commission](/usc/15/78c.md?p=a-15) or the Attorney General are entitled to bring. - (4) **Jurisdiction and venue—** For purposes of [section 78aa of this title](/usc/15/78aa.md), actions under this section shall be actions to enforce a liability or a duty created by this chapter. - (5) **Statute of limitations—** No action may be brought under this section more than 5 years after the date of the [purchase](/usc/15/78c.md?p=a-13) or sale. This section shall not be construed to bar or limit in any manner any action by the [Commission](/usc/15/78c.md?p=a-15) or the Attorney General under any other provision of this chapter, nor shall it bar or limit in any manner any action to recover penalties, or to seek any other [order](/usc/15/8702.md?p=14) regarding penalties, imposed in an action commenced within 5 years of such transaction. - (e) **Definition—** For purposes of this section, “profit gained” or “loss avoided” is the difference between the [purchase](/usc/15/78c.md?p=a-13) or sale price of the [security](/usc/15/78c.md?p=a-10) and the value of that [security](/usc/15/78c.md?p=a-10) as measured by the trading price of the [security](/usc/15/78c.md?p=a-10) a reasonable period after public dissemination of the nonpublic information. - (f) **Limitation on Commission authority—** The [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under this section with respect to [security-based swap agreements](/usc/15/78c.md?p=a-78-B) shall be subject to the restrictions and limitations of [section 78c–1(b) of this title](/usc/15/78c–1.md?p=b). - (g) **Duty of Members and employees of Congress—** - (1) **In general—** Subject to the rule of construction under section 10 of the STOCK Act and solely for purposes of the insider trading prohibitions arising under this chapter, including [section 78j(b) of this title](/usc/15/78j.md?p=b) and Rule 10b–5 thereunder, each [Member of Congress](#g-2-A) or [employee of Congress](#g-2-B) owes a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States with respect to material, nonpublic information derived from such [person](/usc/15/78c.md?p=a-9)’s position as a [Member of Congress](#g-2-A) or [employee of Congress](#g-2-B) or gained from the performance of such [person](/usc/15/78c.md?p=a-9)’s official responsibilities. - (2) **Definitions—** In this subsection— - (A) the term “Member of Congress” means a [member](/usc/15/78c.md?p=a-3-A) of the Senate or House of Representatives, a Delegate to the House of Representatives, and the Resident Commissioner from Puerto Rico; and - (B) the term “employee of Congress” means— - (i) any individual (other than a [Member of Congress](#g-2-A)), whose compensation is disbursed by the Secretary of the Senate or the Chief Administrative Officer of the House of Representatives; and - (ii) any other officer or employee of the legislative branch (as defined in [section 13101(11) of title 5](/usc/5/13101.md?p=11)). - (3) **Rule of construction—** Nothing in this subsection shall be construed to impair or limit the construction of the existing antifraud provisions of the [securities laws](/usc/15/78c.md?p=a-47) or the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under those provisions. - (h) **Duty of other Federal officials—** - (1) **In general—** Subject to the rule of construction under section 10 of the STOCK Act and solely for purposes of the insider trading prohibitions arising under this chapter, including [section 78j(b) of this title](/usc/15/78j.md?p=b), and Rule 10b–5 thereunder, each [executive branch employee](#h-2-A), each [judicial officer](#h-2-C), and each [judicial employee](#h-2-B) owes a duty arising from a relationship of trust and confidence to the United States Government and the citizens of the United States with respect to material, nonpublic information derived from such [person](/usc/15/78c.md?p=a-9)’s position as an [executive branch employee](#h-2-A), [judicial officer](#h-2-C), or [judicial employee](#h-2-B) or gained from the performance of such [person](/usc/15/78c.md?p=a-9)’s official responsibilities. - (2) **Definitions—** In this subsection— - (A) the term “executive branch employee”— - (i) has the meaning given the term “employee” under [section 2105 of title 5](/usc/5/2105.md); - (ii) includes— - (I) the President; - (II) the Vice President; and - (III) an [employee](#h-2-A-i) of the United States Postal Service or the Postal Regulatory [Commission](/usc/15/78c.md?p=a-15); - (B) the term “judicial employee” has the meaning given that term in [section 13101(9) of title 5](/usc/5/13101.md?p=9); and - (C) the term “judicial officer” has the meaning given that term under [section 13101(10) of title 5](/usc/5/13101.md?p=10). - (3) **Rule of construction—** Nothing in this subsection shall be construed to impair or limit the construction of the existing antifraud provisions of the [securities laws](/usc/15/78c.md?p=a-47) or the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) under those provisions. - (i) **Participation in initial public offerings—** An individual described in [section 13103(f) of title 5](/usc/5/13103.md?p=f) may not [purchase](/usc/15/78c.md?p=a-13) [securities](/usc/15/78c.md?p=a-10) that are the subject of an initial public offering (within the meaning given such term in [section 78l(f)(1)(G)(i)](/usc/15/78l.md?p=f-1-G-i) of this title) in any manner other than is available to [members](/usc/15/78c.md?p=a-3-A) of the public generally. # §78u–2. Civil remedies in administrative proceedings - (a) **Commission authority to assess money penalties—** - (1) **In general—** In any proceeding instituted pursuant to sections [78o(b)(4)](/usc/15/78o.md?p=b-4), [78o(b)(6)](/usc/15/78o.md?p=b-6), [78o–6](/usc/15/78o–6.md), [78o–4](/usc/15/78o–4.md), [78o–5](/usc/15/78o–5.md), [78o–7](/usc/15/78o–7.md), or [78q–1](/usc/15/78q–1.md) of this title against any [person](/usc/15/78c.md?p=a-9), the [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such penalty is in the public interest and that such [person](/usc/15/78c.md?p=a-9)— - (A) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], the Investment Advisers Act of 1940 [[15 U.S.C. 80b–1](/usc/15/80b–1.md) et seq.], or this chapter, or the rules or regulations thereunder, or the rules of the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73); - (B) has willfully aided, abetted, counseled, commanded, induced, or procured such a [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/78c.md?p=a-9); - (C) has willfully made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with the [Commission](/usc/15/78c.md?p=a-15) or with any other [appropriate regulatory agency](/usc/15/78c.md?p=a-34) under this chapter, or in any proceeding before the [Commission](/usc/15/78c.md?p=a-15) with respect to registration, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to [state](/usc/15/78c.md?p=a-16) in any such [application](/usc/15/77ccc.md?p=8) or report any material fact which is required to be stated therein; or - (D) has failed reasonably to supervise, within the meaning of [section 78o(b)(4)(E)](/usc/15/78o.md?p=b-4-E) of this title, with a view to preventing [violations](/usc/15/57b–1.md?p=a-7) of the provisions of such statutes, rules and regulations, another [person](/usc/15/78c.md?p=a-9) who commits such a [violation](/usc/15/57b–1.md?p=a-7), if such other [person](/usc/15/78c.md?p=a-9) is subject to his supervision;[^1] - (2) **Cease-and-desist proceedings—** In any proceeding instituted under [section 78u–3 of this title](/usc/15/78u–3.md) against any [person](/usc/15/78c.md?p=a-9), the [Commission](/usc/15/78c.md?p=a-15) may impose a civil penalty, if the [Commission](/usc/15/78c.md?p=a-15) finds, on the record after notice and opportunity for hearing, that such [person](/usc/15/78c.md?p=a-9)— - (A) is violating or has violated any provision of this chapter, or any rule or regulation issued under this chapter; or - (B) is or was a cause of the [violation](/usc/15/57b–1.md?p=a-7) of any provision of this chapter, or any rule or regulation issued under this chapter. - (b) **Maximum amount of penalty—** - (1) **First tier—** The maximum amount of penalty for each act or omission described in [subsection (a)](#a) shall be $5,000 for a natural [person](/usc/15/78c.md?p=a-9) or $50,000 for any other [person](/usc/15/78c.md?p=a-9). - (2) **Second tier—** Notwithstanding [paragraph (1)](#b-1), the maximum amount of penalty for each such act or omission shall be $50,000 for a natural [person](/usc/15/78c.md?p=a-9) or $250,000 for any other [person](/usc/15/78c.md?p=a-9) if the act or omission described in [subsection (a)](#a) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (3) **Third tier—** Notwithstanding paragraphs [(1)](#b-1) and [(2)](#b-2), the maximum amount of penalty for each such act or omission shall be $100,000 for a natural [person](/usc/15/78c.md?p=a-9) or $500,000 for any other [person](/usc/15/78c.md?p=a-9) if— - (A) the act or omission described in [subsection (a)](#a) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (B) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/78c.md?p=a-9) or resulted in substantial pecuniary gain to the [person](/usc/15/78c.md?p=a-9) who committed the act or omission. - (c) **Determination of public interest—** In considering under this section whether a penalty is in the public interest, the [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may consider— - (1) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; - (2) the harm to other [persons](/usc/15/78c.md?p=a-9) resulting either directly or indirectly from such act or omission; - (3) the extent to which any [person](/usc/15/78c.md?p=a-9) was unjustly enriched, taking into [account](/usc/15/1681a.md?p=r-4) any restitution made to [persons](/usc/15/78c.md?p=a-9) injured by such behavior; - (4) whether such [person](/usc/15/78c.md?p=a-9) previously has been found by the [Commission](/usc/15/78c.md?p=a-15), another [appropriate regulatory agency](/usc/15/78c.md?p=a-34), or a [self-regulatory organization](/usc/15/78c.md?p=a-26) to have violated the Federal [securities laws](/usc/15/78c.md?p=a-47), [State](/usc/15/78c.md?p=a-16) [securities laws](/usc/15/78c.md?p=a-47), or the [rules of a self-regulatory organization](/usc/15/78c.md?p=a-28), has been enjoined by a court of competent jurisdiction from [violations](/usc/15/57b–1.md?p=a-7) of such laws or rules, or has been convicted by a court of competent jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of such laws or of any felony or misdemeanor described in [section 78o(b)(4)(B)](/usc/15/78o.md?p=b-4-B) of this title; - (5) the need to deter such [person](/usc/15/78c.md?p=a-9) and other [persons](/usc/15/78c.md?p=a-9) from committing such acts or omissions; and - (6) such other matters as justice may require. - (d) **Evidence concerning ability to pay—** In any proceeding in which the [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may impose a penalty under this section, a respondent may present evidence of the respondent’s ability to pay such penalty. The [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such [person](/usc/15/78c.md?p=a-9)’s ability to continue in business and the collectability of a penalty, taking into [account](/usc/15/1681a.md?p=r-4) any other claims of the United States or third parties upon such [person](/usc/15/78c.md?p=a-9)’s assets and the amount of such [person](/usc/15/78c.md?p=a-9)’s assets. - (e) **Authority to enter order requiring accounting and disgorgement—** In any proceeding in which the [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may impose a penalty under this section, the [Commission](/usc/15/78c.md?p=a-15) or the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/78c.md?p=a-15) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (f) **Security-based swaps—** - (1) **Clearing agency—** Any [clearing agency](/usc/15/78c.md?p=a-23-A) that knowingly or recklessly evades or participates in or facilitates an evasion of the requirements of [section 78c–3 of this title](/usc/15/78c–3.md) shall be liable for a civil money penalty in twice the amount otherwise available for a [violation](/usc/15/57b–1.md?p=a-7) of [section 78c–3 of this title](/usc/15/78c–3.md). - (2) **Security-based swap dealer or major security-based swap participant—** Any [security-based swap dealer](/usc/15/78c.md?p=a-71-A) or [major security-based swap participant](/usc/15/78c.md?p=a-67-A) that knowingly or recklessly evades or participates in or facilitates an evasion of the requirements of [section 78c–3 of this title](/usc/15/78c–3.md) shall be liable for a civil money penalty in twice the amount otherwise available for a [violation](/usc/15/57b–1.md?p=a-7) of [section 78c–3 of this title](/usc/15/78c–3.md). # §78u–3. Cease-and-desist proceedings - (a) **Authority of Commission—** If the [Commission](/usc/15/78c.md?p=a-15) finds, after notice and opportunity for hearing, that any [person](/usc/15/78c.md?p=a-9) is violating, has violated, or is about to violate any provision of this chapter, or any rule or regulation thereunder, the [Commission](/usc/15/78c.md?p=a-15) may publish its findings and enter an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/78c.md?p=a-9), and any other [person](/usc/15/78c.md?p=a-9) that is, was, or would be a cause of the [violation](/usc/15/57b–1.md?p=a-7), due to an act or omission the [person](/usc/15/78c.md?p=a-9) knew or should have known would contribute to such [violation](/usc/15/57b–1.md?p=a-7), to cease and desist from committing or causing such [violation](/usc/15/57b–1.md?p=a-7) and any future [violation](/usc/15/57b–1.md?p=a-7) of the same provision, rule, or regulation. Such [order](/usc/15/8702.md?p=14) may, in addition to requiring a [person](/usc/15/78c.md?p=a-9) to cease and desist from committing or causing a [violation](/usc/15/57b–1.md?p=a-7), require such [person](/usc/15/78c.md?p=a-9) to comply, or to take steps to effect compliance, with such provision, rule, or regulation, upon such terms and conditions and within such time as the [Commission](/usc/15/78c.md?p=a-15) may specify in such [order](/usc/15/8702.md?p=14). Any such [order](/usc/15/8702.md?p=14) may, as the [Commission](/usc/15/78c.md?p=a-15) deems appropriate, require future compliance or steps to effect future compliance, either permanently or for such period of time as the [Commission](/usc/15/78c.md?p=a-15) may specify, with such provision, rule, or regulation with respect to any [security](/usc/15/78c.md?p=a-10), any [issuer](/usc/15/78c.md?p=a-8), or any other [person](/usc/15/78c.md?p=a-9). - (b) **Hearing—** The notice instituting proceedings pursuant to [subsection (a)](#a) shall fix a hearing date not earlier than 30 days nor later than 60 days after service of the notice unless an earlier or a later date is set by the [Commission](/usc/15/78c.md?p=a-15) with the consent of any respondent so served. - (c) **Temporary order—** - (1) **In general—** Whenever the [Commission](/usc/15/78c.md?p=a-15) determines that the alleged [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) specified in the notice instituting proceedings pursuant to [subsection (a)](#a), or the continuation thereof, is likely to result in significant dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the [Securities](/usc/15/78c.md?p=a-10) Investor Protection Corporation, prior to the completion of the proceedings, the [Commission](/usc/15/78c.md?p=a-15) may enter a temporary [order](/usc/15/8702.md?p=14) requiring the respondent to cease and desist from the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to take such action to prevent the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to prevent dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest as the [Commission](/usc/15/78c.md?p=a-15) deems appropriate pending completion of such proceedings. Such an [order](/usc/15/8702.md?p=14) shall be entered only after notice and opportunity for a hearing, unless the [Commission](/usc/15/78c.md?p=a-15) determines that notice and hearing prior to entry would be impracticable or contrary to the public interest. A temporary [order](/usc/15/8702.md?p=14) shall become effective upon service upon the respondent and, unless set aside, limited, or suspended by the [Commission](/usc/15/78c.md?p=a-15) or a court of competent jurisdiction, shall remain effective and enforceable pending the completion of the proceedings. - (2) **Applicability—** [Paragraph (1)](#c-1) shall apply only to a respondent that acts, or, at the time of the alleged misconduct acted, as a [broker](/usc/15/78c.md?p=a-4-A), [dealer](/usc/15/78c.md?p=a-5-A), [investment adviser](/usc/15/78c.md?p=a-20), [investment company](/usc/15/78c.md?p=a-12-A-iii), [municipal securities dealer](/usc/15/78c.md?p=a-30), [government securities broker](/usc/15/78c.md?p=a-43), [government securities dealer](/usc/15/78c.md?p=a-44), [registered public accounting firm](/usc/15/78c.md?p=a-59) (as defined in [section 7201 of this title](/usc/15/7201.md)), or [transfer agent](/usc/15/78c.md?p=a-25), or is, or was at the time of the alleged misconduct, an associated [person](/usc/15/78c.md?p=a-9) of, or a [person](/usc/15/78c.md?p=a-9) seeking to become associated with, any of the foregoing. - (3) **Temporary freeze—** - (A) **In general—** - (i) **Issuance of temporary order—** Whenever, during the course of a lawful investigation involving possible [violations](/usc/15/57b–1.md?p=a-7) of the Federal [securities laws](/usc/15/78c.md?p=a-47) by an [issuer](/usc/15/78c.md?p=a-8) of publicly traded [securities](/usc/15/78c.md?p=a-10) or any of its [directors](/usc/15/78c.md?p=a-7), officers, partners, controlling [persons](/usc/15/78c.md?p=a-9), agents, or employees, it shall appear to the [Commission](/usc/15/78c.md?p=a-15) that it is likely that the [issuer](/usc/15/78c.md?p=a-8) will make extraordinary payments (whether compensation or otherwise) to any of the foregoing [persons](/usc/15/78c.md?p=a-9), the [Commission](/usc/15/78c.md?p=a-15) may petition a Federal district court for a temporary [order](/usc/15/8702.md?p=14) requiring the [issuer](/usc/15/78c.md?p=a-8) to escrow, subject to court supervision, those payments in an interest-bearing [account](/usc/15/1681a.md?p=r-4) for 45 days. - (ii) **Standard—** A temporary [order](/usc/15/8702.md?p=14) shall be entered under [clause (i)](#c-3-A-i), only after notice and opportunity for a hearing, unless the court determines that notice and hearing prior to entry of the [order](/usc/15/8702.md?p=14) would be impracticable or contrary to the public interest. - (iii) **Effective period—** A temporary [order](/usc/15/8702.md?p=14) issued under [clause (i)](#c-3-A-i) shall— - (I) become effective immediately; - (II) be served upon the parties subject to it; and - (III) unless set aside, limited or suspended by a court of competent jurisdiction, shall remain effective and enforceable for 45 days. - (iv) **Extensions authorized—** The effective period of an [order](/usc/15/8702.md?p=14) under this subparagraph may be extended by the court upon good cause shown for not longer than 45 additional days, provided that the combined period of the [order](/usc/15/8702.md?p=14) shall not exceed 90 days. - (B) **Process on determination of violations—** - (i) **Violations charged—** If the [issuer](/usc/15/78c.md?p=a-8) or other [person](/usc/15/78c.md?p=a-9) described in [subparagraph (A)](#c-3-A) is charged with any [violation](/usc/15/57b–1.md?p=a-7) of the Federal [securities laws](/usc/15/78c.md?p=a-47) before the expiration of the effective period of a temporary [order](/usc/15/8702.md?p=14) under [subparagraph (A)](#c-3-A) (including any applicable extension period), the [order](/usc/15/8702.md?p=14) shall remain in effect, subject to court approval, until the conclusion of any legal proceedings related thereto, and the affected [issuer](/usc/15/78c.md?p=a-8) or other [person](/usc/15/78c.md?p=a-9), shall have the right to petition the court for review of the [order](/usc/15/8702.md?p=14). - (ii) **Violations not charged—** If the [issuer](/usc/15/78c.md?p=a-8) or other [person](/usc/15/78c.md?p=a-9) described in [subparagraph (A)](#c-3-A) is not charged with any [violation](/usc/15/57b–1.md?p=a-7) of the Federal [securities laws](/usc/15/78c.md?p=a-47) before the expiration of the effective period of a temporary [order](/usc/15/8702.md?p=14) under [subparagraph (A)](#c-3-A) (including any applicable extension period), the escrow shall terminate at the expiration of the 45-day effective period (or the expiration of any extension period, as applicable), and the disputed payments (with accrued interest) shall be returned to the [issuer](/usc/15/78c.md?p=a-8) or other affected [person](/usc/15/78c.md?p=a-9). - (d) **Review of temporary orders—** - (1) **Commission review—** At any time after the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) pursuant to [subsection (c)](#c), the respondent may apply to the [Commission](/usc/15/78c.md?p=a-15) to have the [order](/usc/15/8702.md?p=14) set aside, limited, or suspended. If the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/78c.md?p=a-15) hearing, the respondent may, within 10 days after the date on which the [order](/usc/15/8702.md?p=14) was served, request a hearing on such [application](/usc/15/77ccc.md?p=8) and the [Commission](/usc/15/78c.md?p=a-15) shall hold a hearing and render a decision on such [application](/usc/15/77ccc.md?p=8) at the earliest possible time. - (2) **Judicial review—** Within— - (A) 10 days after the date the respondent was served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered with a prior [Commission](/usc/15/78c.md?p=a-15) hearing, or - (B) 10 days after the [Commission](/usc/15/78c.md?p=a-15) renders a decision on an [application](/usc/15/77ccc.md?p=8) and hearing under [paragraph (1)](#d-1), with respect to any temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/78c.md?p=a-15) hearing, the respondent may apply to the United States district court for the district in which the respondent resides or has its principal place of business, or for the District of Columbia, for an [order](/usc/15/8702.md?p=14) setting aside, limiting, or suspending the effectiveness or enforcement of the [order](/usc/15/8702.md?p=14), and the court shall have jurisdiction to enter such an [order](/usc/15/8702.md?p=14). A respondent served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/78c.md?p=a-15) hearing may not apply to the court except after hearing and decision by the [Commission](/usc/15/78c.md?p=a-15) on the respondent’s [application](/usc/15/77ccc.md?p=8) under paragraph (1) of this subsection. - (3) **No automatic stay of temporary order—** The commencement of proceedings under paragraph (2) of this subsection shall not, unless specifically ordered by the court, operate as a stay of the [Commission](/usc/15/78c.md?p=a-15)’s [order](/usc/15/8702.md?p=14). - (4) **Exclusive review—** [Section 78y of this title](/usc/15/78y.md) shall not apply to a temporary [order](/usc/15/8702.md?p=14) entered pursuant to this section. - (e) **Authority to enter order requiring accounting and disgorgement—** In any cease-and-desist proceeding under [subsection (a)](#a), the [Commission](/usc/15/78c.md?p=a-15) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and dis­gorgement, including reasonable interest. The [Commission](/usc/15/78c.md?p=a-15) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (f) **Authority of the Commission to prohibit persons from serving as officers or directors—** In any cease-and-desist proceeding under [subsection (a)](#a), the [Commission](/usc/15/78c.md?p=a-15) may issue an [order](/usc/15/8702.md?p=14) to prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any [person](/usc/15/78c.md?p=a-9) who has violated [section 78j(b) of this title](/usc/15/78j.md?p=b) or the rules or regulations thereunder, from acting as an officer or [director](/usc/15/78c.md?p=a-7) of any [issuer](/usc/15/78c.md?p=a-8) that has a class of [securities](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title, or that is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title, if the conduct of that [person](/usc/15/78c.md?p=a-9) demonstrates unfitness to serve as an officer or [director](/usc/15/78c.md?p=a-7) of any such [issuer](/usc/15/78c.md?p=a-8). # §78u–4. Private securities litigation - (a) **Private class actions—** - (1) **In general—** The provisions of this subsection shall apply in each private action arising under this chapter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure. - (2) **Certification filed with complaint—** - (A) **In general—** Each plaintiff seeking to serve as a representative party on behalf of a class shall provide a sworn certification, which shall be personally signed by such plaintiff and filed with the complaint, that— - (i) [states](/usc/15/78c.md?p=a-16) that the plaintiff has reviewed the complaint and authorized its filing; - (ii) [states](/usc/15/78c.md?p=a-16) that the plaintiff did not [purchase](/usc/15/78c.md?p=a-13) the [security](/usc/15/78c.md?p=a-10) that is the subject of the complaint at the direction of plaintiff’s counsel or in [order](/usc/15/8702.md?p=14) to participate in any private action arising under this chapter; - (iii) [states](/usc/15/78c.md?p=a-16) that the plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary; - (iv) sets forth all of the transactions of the plaintiff in the [security](/usc/15/78c.md?p=a-10) that is the subject of the complaint during the class period specified in the complaint; - (v) identifies any other action under this chapter, filed during the 3-year period preceding the date on which the certification is signed by the plaintiff, in which the plaintiff has sought to serve as a representative party on behalf of a class; and - (vi) [states](/usc/15/78c.md?p=a-16) that the plaintiff will not accept any payment for serving as a representative party on behalf of a class beyond the plaintiff’s pro rata share of any recovery, except as ordered or approved by the court in accordance with [paragraph (4)](#a-4). - (B) **Nonwaiver of attorney-client privilege—** The certification filed pursuant to [subparagraph (A)](#a-2-A) shall not be construed to be a waiver of the attorney-client privilege. - (3) **Appointment of lead plaintiff—** - (A) **Early notice to class members—** - (i) **In general—** Not later than 20 days after the date on which the complaint is filed, the plaintiff or plaintiffs shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising [members](/usc/15/78c.md?p=a-3-A) of the purported plaintiff class— - (I) of the pendency of the action, the claims asserted therein, and the purported class period; and - (II) that, not later than 60 days after the date on which the notice is published, any [member](/usc/15/78c.md?p=a-3-A) of the purported class may move the court to serve as lead plaintiff of the purported class. - (ii) **Multiple actions—** If more than one action on behalf of a class asserting substantially the same claim or claims arising under this chapter is filed, only the plaintiff or plaintiffs in the first filed action shall be required to cause notice to be published in accordance with [clause (i)](#a-3-A-i). - (iii) **Additional notices may be required under Federal rules—** Notice required under [clause (i)](#a-3-A-i) shall be in addition to any notice required pursuant to the Federal Rules of Civil Procedure. - (B) **Appointment of lead plaintiff—** - (i) **In general—** Not later than 90 days after the date on which a notice is published under [subparagraph (A)(i)](#a-3-A-i), the court shall consider any motion made by a purported class [member](/usc/15/78c.md?p=a-3-A) in response to the notice, including any motion by a class [member](/usc/15/78c.md?p=a-3-A) who is not individually named as a plaintiff in the complaint or complaints, and shall appoint as lead plaintiff the [member](/usc/15/78c.md?p=a-3-A) or [members](/usc/15/78c.md?p=a-3-A) of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class [members](/usc/15/78c.md?p=a-3-A) (hereafter in this paragraph referred to as the “most adequate plaintiff”) in accordance with this subparagraph. - (ii) **Consolidated actions—** If more than one action on behalf of a class asserting substantially the same claim or claims arising under this chapter has been filed, and any party has sought to consolidate those actions for pretrial purposes or for trial, the court shall not make the determination required by [clause (i)](#a-3-B-i) until after the decision on the motion to consolidate is rendered. As soon as practicable after such decision is rendered, the court shall appoint the most adequate plaintiff as lead plaintiff for the consolidated actions in accordance with this paragraph. - (iii) **Rebuttable presumption—** - (I) **In general—** Subject to [subclause (II)](#a-3-B-iii-II), for purposes of [clause (i)](#a-3-B-i), the court shall adopt a presumption that the most adequate plaintiff in any private action arising under this chapter is the [person](/usc/15/78c.md?p=a-9) or group of [persons](/usc/15/78c.md?p=a-9) that— - (aa) has either filed the complaint or made a motion in response to a notice under [subparagraph (A)(i)](#a-3-A-i); - (bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and - (cc) otherwise satisfies the requirements of [Rule 23](/usc/28a/civil-23.md) of the Federal Rules of Civil Procedure. - (II) **Rebuttal evidence—** The presumption described in [subclause (I)](#a-3-B-iii-I) may be rebutted only upon proof by a [member](/usc/15/78c.md?p=a-3-A) of the purported plaintiff class that the presumptively most adequate plaintiff— - (aa) will not fairly and adequately protect the interests of the class; or - (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class. - (iv) **Discovery—** For purposes of this subparagraph, discovery relating to whether a [member](/usc/15/78c.md?p=a-3-A) or [members](/usc/15/78c.md?p=a-3-A) of the purported plaintiff class is the most adequate plaintiff may be conducted by a plaintiff only if the plaintiff first demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class. - (v) **Selection of lead counsel—** The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class. - (vi) **Restrictions on professional plaintiffs—** Except as the court may otherwise permit, consistent with the purposes of this section, a [person](/usc/15/78c.md?p=a-9) may be a lead plaintiff, or an officer, [director](/usc/15/78c.md?p=a-7), or fiduciary of a lead plaintiff, in no more than 5 [securities](/usc/15/78c.md?p=a-10) class actions brought as plaintiff class actions pursuant to the Federal Rules of Civil Procedure during any 3-year period. - (4) **Recovery by plaintiffs—** The share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other [members](/usc/15/78c.md?p=a-3-A) of the class. Nothing in this paragraph shall be construed to limit the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of a class. - (5) **Restrictions on settlements under seal—** The terms and provisions of any settlement [agreement](/usc/15/7a.md?p=2) of a class action shall not be filed under seal, except that on motion of any party to the settlement, the court may [order](/usc/15/8702.md?p=14) filing under seal for those portions of a settlement [agreement](/usc/15/7a.md?p=2) as to which good cause is shown for such filing under seal. For purposes of this paragraph, good cause shall exist only if publication of a term or provision of a settlement [agreement](/usc/15/7a.md?p=2) would cause direct and substantial harm to any party. - (6) **Restrictions on payment of attorneys’ fees and expenses—** Total attorneys’ fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class. - (7) **Disclosure of settlement terms to class members—** Any proposed or final settlement [agreement](/usc/15/7a.md?p=2) that is published or otherwise disseminated to the class shall include each of the following statements, along with a cover page summarizing the information contained in such statements: - (A) **Statement of plaintiff recovery—** The amount of the settlement proposed to be distributed to the parties to the action, determined in the aggregate and on an average per share basis. - (B) **Statement of potential outcome of case—** - (i) **Agreement on amount of damages—** If the settling parties agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this chapter, a statement concerning the average amount of such potential damages per share. - (ii) **Disagreement on amount of damages—** If the parties do not agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this chapter, a statement from each settling party concerning the issue or issues on which the parties disagree. - (iii) **Inadmissibility for certain purposes—** A statement made in accordance with clause [(i)](#a-7-B-i) or [(ii)](#a-7-B-ii) concerning the amount of damages shall not be admissible in any Federal or [State](/usc/15/78c.md?p=a-16) judicial action or administrative proceeding, other than an action or proceeding arising out of such statement. - (C) **Statement of attorneys’ fees or costs sought—** If any of the settling parties or their counsel intend to apply to the court for an award of attorneys’ fees or costs from any fund established as part of the settlement, a statement indicating which parties or counsel intend to make such an [application](/usc/15/77ccc.md?p=8), the amount of fees and costs that will be sought (including the amount of such fees and costs determined on an average per share basis), and a brief explanation supporting the fees and costs sought. Such information shall be clearly summarized on the cover page of any notice to a party of any proposed or final settlement [agreement](/usc/15/7a.md?p=2). - (D) **Identification of lawyers’ representatives—** The name, telephone number, and address of one or more representatives of counsel for the plaintiff class who will be reasonably available to answer questions from class [members](/usc/15/78c.md?p=a-3-A) concerning any matter contained in any notice of settlement published or otherwise disseminated to the class. - (E) **Reasons for settlement—** A brief statement explaining the reasons why the parties are proposing the settlement. - (F) **Other information—** Such other information as may be required by the court. - (8) **Security for payment of costs in class actions—** In any private action arising under this chapter that is certified as a class action pursuant to the Federal Rules of Civil Procedure, the court may require an undertaking from the attorneys for the plaintiff class, the plaintiff class, or both, or from the attorneys for the defendant, the defendant, or both, in such proportions and at such times as the court determines are just and equitable, for the payment of fees and expenses that may be awarded under this subsection. - (9) **Attorney conflict of interest—** If a plaintiff class is represented by an attorney who directly owns or otherwise has a beneficial interest in the [securities](/usc/15/78c.md?p=a-10) that are the subject of the litigation, the court shall make a determination of whether such ownership or other interest constitutes a conflict of interest sufficient to disqualify the attorney from representing the plaintiff class. - (b) **Requirements for securities fraud actions—** - (1) **Misleading statements and omissions—** In any private action arising under this chapter in which the plaintiff alleges that the defendant— - (A) made an untrue statement of a material fact; or - (B) omitted to [state](/usc/15/78c.md?p=a-16) a material fact necessary in [order](/usc/15/8702.md?p=14) to make the statements made, in the light of the circumstances in which they were made, not misleading; the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall [state](/usc/15/78c.md?p=a-16) with particularity all facts on which that belief is formed. - (2) **Required state of mind—** - (A) **In general—** Except as provided in [subparagraph (B)](#b-2-B), in any private action arising under this chapter in which the plaintiff may recover money damages only on proof that the defendant acted with a particular [state](/usc/15/78c.md?p=a-16) of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, [state](/usc/15/78c.md?p=a-16) with particularity facts giving rise to a strong inference that the defendant acted with the required [state](/usc/15/78c.md?p=a-16) of mind. - (B) **Exception—** In the case of an action for money damages brought against a [credit rating agency](/usc/15/78c.md?p=a-61) or a controlling [person](/usc/15/78c.md?p=a-9) under this chapter, it shall be sufficient, for purposes of pleading any required [state](/usc/15/78c.md?p=a-16) of mind in relation to such action, that the complaint [state](/usc/15/78c.md?p=a-16) with particularity facts giving rise to a strong inference that the [credit rating agency](/usc/15/78c.md?p=a-61) knowingly or recklessly failed— - (i) to conduct a reasonable investigation of the rated [security](/usc/15/78c.md?p=a-10) with respect to the factual elements relied upon by its own methodology for evaluating [credit](/usc/15/1679a.md?p=4) risk; or - (ii) to obtain reasonable verification of such factual elements (which verification may be based on a sampling technique that does not amount to an [audit](/usc/15/7201.md?p=2)) from other sources that the [credit rating agency](/usc/15/78c.md?p=a-61) considered to be competent and that were independent of the [issuer](/usc/15/78c.md?p=a-8) and [underwriter](/usc/15/78c.md?p=a-20). - (3) **Motion to dismiss; stay of discovery—** - (A) **Dismissal for failure to meet pleading requirements—** In any private action arising under this chapter, the court shall, on the motion of any defendant, dismiss the complaint if the requirements of paragraphs [(1)](#b-1) and [(2)](#b-2) are not met. - (B) **Stay of discovery—** In any private action arising under this chapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party. - (C) **Preservation of evidence—** - (i) **In general—** During the pendency of any stay of discovery pursuant to this paragraph, unless otherwise ordered by the court, any party to the action with actual notice of the allegations contained in the complaint shall treat all documents, data compilations (including electronically recorded or stored data), and tangible objects that are in the custody or control of such [person](/usc/15/78c.md?p=a-9) and that are relevant to the allegations, as if they were the subject of a continuing request for production of documents from an opposing party under the Federal Rules of Civil Procedure. - (ii) **Sanction for willful violation—** A party aggrieved by the willful failure of an opposing party to comply with [clause (i)](#b-3-C-i) may apply to the court for an [order](/usc/15/8702.md?p=14) awarding appropriate sanctions. - (D) **Circumvention of stay of discovery—** Upon a proper showing, a court may stay discovery proceedings in any private action in a [State](/usc/15/78c.md?p=a-16) court, as necessary in aid of its jurisdiction, or to protect or effectuate its judgments, in an action subject to a stay of discovery pursuant to this paragraph. - (4) **Loss causation—** In any private action arising under this chapter, the plaintiff shall have the burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages. - (c) **Sanctions for abusive litigation—** - (1) **Mandatory review by court—** In any private action arising under this chapter, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion. - (2) **Mandatory sanctions—** If the court makes a finding under [paragraph (1)](#c-1) that a party or attorney violated any requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on such party or attorney in accordance with [Rule 11](/usc/28a/civil-11.md) of the Federal Rules of Civil Procedure. Prior to making a finding that any party or attorney has violated [Rule 11](/usc/28a/civil-11.md) of the Federal Rules of Civil Procedure, the court shall give such party or attorney notice and an opportunity to respond. - (3) **Presumption in favor of attorneys’ fees and costs—** - (A) **In general—** Subject to subparagraphs [(B)](#c-3-B) and [(C)](#c-3-C), for purposes of [paragraph (2)](#c-2), the court shall adopt a presumption that the appropriate sanction— - (i) for failure of any responsive pleading or dispositive motion to comply with any requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys’ fees and other expenses incurred as a direct result of the [violation](/usc/15/57b–1.md?p=a-7); and - (ii) for substantial failure of any complaint to comply with any requirement of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys’ fees and other expenses incurred in the action. - (B) **Rebuttal evidence—** The presumption described in [subparagraph (A)](#c-3-A) may be rebutted only upon proof by the party or attorney against whom sanctions are to be imposed that— - (i) the award of attorneys’ fees and other expenses will impose an unreasonable burden on that party or attorney and would be unjust, and the failure to make such an award would not impose a greater burden on the party in whose favor sanctions are to be imposed; or - (ii) the [violation](/usc/15/57b–1.md?p=a-7) of [Rule 11(b)](/usc/28a/civil-11.md?p=b) of the Federal Rules of Civil Procedure was de minimis. - (C) **Sanctions—** If the party or attorney against whom sanctions are to be imposed meets its burden under [subparagraph (B)](#c-3-B), the court shall award the sanctions that the court deems appropriate pursuant to [Rule 11](/usc/28a/civil-11.md) of the Federal Rules of Civil Procedure. - (d) **Defendant’s right to written interrogatories—** In any private action arising under this chapter in which the plaintiff may recover money damages, the court shall, when requested by a defendant, submit to the jury a written interrogatory on the issue of each such defendant’s [state](/usc/15/78c.md?p=a-16) of mind at the time the alleged [violation](/usc/15/57b–1.md?p=a-7) occurred. - (e) **Limitation on damages—** - (1) **In general—** Except as provided in [paragraph (2)](#e-2), in any private action arising under this chapter in which the plaintiff seeks to establish damages by reference to the market price of a [security](/usc/15/78c.md?p=a-10), the award of damages to the plaintiff shall not exceed the difference between the [purchase](/usc/15/78c.md?p=a-13) or sale price paid or received, as appropriate, by the plaintiff for the subject [security](/usc/15/78c.md?p=a-10) and the mean trading price of that [security](/usc/15/78c.md?p=a-10) during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market. - (2) **Exception—** In any private action arising under this chapter in which the plaintiff seeks to establish damages by reference to the market price of a [security](/usc/15/78c.md?p=a-10), if the plaintiff [sells](/usc/15/78c.md?p=a-14) or repurchases the subject [security](/usc/15/78c.md?p=a-10) prior to the expiration of the 90-day period described in [paragraph (1)](#e-1), the plaintiff’s damages shall not exceed the difference between the [purchase](/usc/15/78c.md?p=a-13) or sale price paid or received, as appropriate, by the plaintiff for the [security](/usc/15/78c.md?p=a-10) and the mean trading price of the [security](/usc/15/78c.md?p=a-10) during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff [sells](/usc/15/78c.md?p=a-14) or repurchases the [security](/usc/15/78c.md?p=a-10). - (3) **“Mean trading price” defined—** For purposes of this subsection, the “mean trading price” of a [security](/usc/15/78c.md?p=a-10) shall be an average of the daily trading price of that [security](/usc/15/78c.md?p=a-10), determined as of the close of the market each day during the 90-day period referred to in [paragraph (1)](#e-1). - (f) **Proportionate liability—** - (1) **Applicability—** Nothing in this subsection shall be construed to create, affect, or in any manner modify, the standard for liability associated with any action arising under the [securities laws](/usc/15/78c.md?p=a-47). - (2) **Liability for damages—** - (A) **Joint and several liability—** Any [covered person](#f-10-C) against whom a final judgment is entered in a private action shall be liable for damages jointly and severally only if the trier of fact specifically determines that such [covered person](#f-10-C) knowingly committed a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47). - (B) **Proportionate liability—** - (i) **In general—** Except as provided in [subparagraph (A)](#f-2-A), a [covered person](#f-10-C) against whom a final judgment is entered in a private action shall be liable solely for the portion of the judgment that corresponds to the percentage of responsibility of that [covered person](#f-10-C), as determined under [paragraph (3)](#f-3). - (ii) **Recovery by and costs of covered person—** In any case in which a contractual relationship permits, a [covered person](#f-10-C) that prevails in any private action may recover the attorney’s fees and costs of that [covered person](#f-10-C) in connection with the action. - (3) **Determination of responsibility—** - (A) **In general—** In any private action, the court shall instruct the jury to answer special interrogatories, or if there is no jury, shall make findings, with respect to each [covered person](#f-10-C) and each of the other [persons](/usc/15/78c.md?p=a-9) claimed by any of the parties to have caused or contributed to the loss incurred by the plaintiff, including [persons](/usc/15/78c.md?p=a-9) who have entered into settlements with the plaintiff or plaintiffs, concerning— - (i) whether such [person](/usc/15/78c.md?p=a-9) violated the [securities laws](/usc/15/78c.md?p=a-47); - (ii) the percentage of responsibility of such [person](/usc/15/78c.md?p=a-9), measured as a percentage of the total fault of all [persons](/usc/15/78c.md?p=a-9) who caused or contributed to the loss incurred by the plaintiff; and - (iii) whether such [person](/usc/15/78c.md?p=a-9) knowingly committed a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47). - (B) **Contents of special interrogatories or findings—** The responses to interrogatories, or findings, as appropriate, under [subparagraph (A)](#f-3-A) shall specify the total amount of damages that the plaintiff is entitled to recover and the percentage of responsibility of each [covered person](#f-10-C) found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs. - (C) **Factors for consideration—** In determining the percentage of responsibility under this paragraph, the trier of fact shall consider— - (i) the nature of the conduct of each [covered person](#f-10-C) found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs; and - (ii) the nature and extent of the causal relationship between the conduct of each such [person](/usc/15/78c.md?p=a-9) and the damages incurred by the plaintiff or plaintiffs. - (4) **Uncollectible share—** - (A) **In general—** Notwithstanding [paragraph (2)(B)](#f-2-B), upon[^1] motion made not later than 6 months after a final judgment is entered in any private action, the court determines that all or part of the share of the judgment of the [covered person](#f-10-C) is not collectible against that [covered person](#f-10-C), and is also not collectible against a [covered person](#f-10-C) described in [paragraph (2)(A)](#f-2-A), each [covered person](#f-10-C) described in [paragraph (2)(B)](#f-2-B) shall be liable for the uncollectible share as follows: - (i) **Percentage of net worth—** Each [covered person](#f-10-C) shall be jointly and severally liable for the uncollectible share if the plaintiff establishes that— - (I) the plaintiff is an individual whose recoverable damages under the final judgment are equal to more than 10 percent of the net worth of the plaintiff; and - (II) the net worth of the plaintiff is equal to less than $200,000. - (ii) **Other plaintiffs—** With respect to any plaintiff not described in subclauses [(I)](#f-4-A-i-I) and [(II)](#f-4-A-i-II) of clause (i), each [covered person](#f-10-C) shall be liable for the uncollectible share in proportion to the percentage of responsibility of that [covered person](#f-10-C), except that the total liability of a [covered person](#f-10-C) under this clause may not exceed 50 percent of the proportionate share of that [covered person](#f-10-C), as determined under [paragraph (3)(B)](#f-3-B). - (iii) **Net worth—** For purposes of this subparagraph, net worth shall be determined as of the date immediately preceding the date of the [purchase](/usc/15/78c.md?p=a-13) or sale (as applicable) by the plaintiff of the [security](/usc/15/78c.md?p=a-10) that is the subject of the action, and shall be equal to the fair market value of assets, minus liabilities, including the net value of the investments of the plaintiff in real and personal property (including personal residences). - (B) **Overall limit—** In no case shall the total payments required pursuant to [subparagraph (A)](#f-4-A) exceed the amount of the uncollectible share. - (C) **Covered persons subject to contribution—** A [covered person](#f-10-C) against whom judgment is not collectible shall be subject to contribution and to any continuing liability to the plaintiff on the judgment. - (5) **Right of contribution—** To the extent that a [covered person](#f-10-C) is required to make an additional payment pursuant to [paragraph (4)](#f-4), that [covered person](#f-10-C) may recover contribution— - (A) from the [covered person](#f-10-C) originally liable to make the payment; - (B) from any [covered person](#f-10-C) liable jointly and severally pursuant to [paragraph (2)(A)](#f-2-A); - (C) from any [covered person](#f-10-C) held proportionately liable pursuant to this paragraph who is liable to make the same payment and has paid less than his or her proportionate share of that payment; or - (D) from any other [person](/usc/15/78c.md?p=a-9) responsible for the conduct giving rise to the payment that would have been liable to make the same payment. - (6) **Nondisclosure to jury—** The standard for allocation of damages under paragraphs [(2)](#f-2) and [(3)](#f-3) and the procedure for reallocation of uncollectible shares under [paragraph (4)](#f-4) shall not be disclosed to [members](/usc/15/78c.md?p=a-3-A) of the jury. - (7) **Settlement discharge—** - (A) **In general—** A [covered person](#f-10-C) who settles any private action at any time before final verdict or judgment shall be discharged from all claims for contribution brought by other [persons](/usc/15/78c.md?p=a-9). Upon entry of the settlement by the court, the court shall enter a bar [order](/usc/15/8702.md?p=14) constituting the final discharge of all obligations to the plaintiff of the settling [covered person](#f-10-C) arising out of the action. The [order](/usc/15/8702.md?p=14) shall bar all future claims for contribution arising out of the action— - (i) by any [person](/usc/15/78c.md?p=a-9) against the settling [covered person](#f-10-C); and - (ii) by the settling [covered person](#f-10-C) against any [person](/usc/15/78c.md?p=a-9), other than a [person](/usc/15/78c.md?p=a-9) whose liability has been extinguished by the settlement of the settling [covered person](#f-10-C). - (B) **Reduction—** If a [covered person](#f-10-C) enters into a settlement with the plaintiff prior to final verdict or judgment, the verdict or judgment shall be reduced by the greater of— - (i) an amount that corresponds to the percentage of responsibility of that [covered person](#f-10-C); or - (ii) the amount paid to the plaintiff by that [covered person](#f-10-C). - (8) **Contribution—** A [covered person](#f-10-C) who becomes jointly and severally liable for damages in any private action may recover contribution from any other [person](/usc/15/78c.md?p=a-9) who, if joined in the original action, would have been liable for the same damages. A claim for contribution shall be determined based on the percentage of responsibility of the [claimant](/usc/15/7a.md?p=4) and of each [person](/usc/15/78c.md?p=a-9) against whom a claim for contribution is made. - (9) **Statute of limitations for contribution—** In any private action determining liability, an action for contribution shall be brought not later than 6 months after the entry of a final, nonappealable judgment in the action, except that an action for contribution brought by a [covered person](#f-10-C) who was required to make an additional payment pursuant to [paragraph (4)](#f-4) may be brought not later than 6 months after the date on which such payment was made. - (10) **Definitions—** For purposes of this subsection— - (A) a [covered person](#f-10-C) “knowingly commits a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47)”— - (i) with respect to an action that is based on an untrue statement of material fact or omission of a material fact necessary to make the statement not misleading, if— - (I) that [covered person](#f-10-C) makes an untrue statement of a material fact, with actual knowledge that the representation is false, or omits to [state](/usc/15/78c.md?p=a-16) a fact necessary in [order](/usc/15/8702.md?p=14) to make the statement made not misleading, with actual knowledge that, as a result of the omission, one of the material representations of the [covered person](#f-10-C) is false; and - (II) [persons](/usc/15/78c.md?p=a-9) are likely to reasonably rely on that misrepresentation or omission; and - (ii) with respect to an action that is based on any conduct that is not described in [clause (i)](#f-10-A-i), if that [covered person](#f-10-C) engages in that conduct with actual knowledge of the facts and circumstances that make the conduct of that [covered person](#f-10-C) a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47); - (B) reckless conduct by a [covered person](#f-10-C) shall not be construed to constitute a knowing [commission](/usc/15/78c.md?p=a-15) of a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47) by that [covered person](#f-10-C); - (C) the term “covered person” means— - (i) a defendant in any private action arising under this chapter; or - (ii) a defendant in any private action arising under [section 77k of this title](/usc/15/77k.md), who is an [outside director](#f-10-D) of the [issuer](/usc/15/78c.md?p=a-8) of the [securities](/usc/15/78c.md?p=a-10) that are the subject of the action; and - (D) the term “outside director” shall have the meaning given such term by rule or regulation of the [Commission](/usc/15/78c.md?p=a-15). # §78u–5. Application of safe harbor for forward-looking statements - (a) **Applicability—** This section shall apply only to a [forward-looking statement](#i-1) made by— - (1) an [issuer](/usc/15/78c.md?p=a-8) that, at the time that the statement is made, is subject to the reporting requirements of [section 78m(a) of this title](/usc/15/78m.md?p=a) or [section 78o(d)](/usc/15/78o.md?p=d) of this title; - (2) a [person](/usc/15/78c.md?p=a-9) acting on behalf of such [issuer](/usc/15/78c.md?p=a-8); - (3) an outside reviewer retained by such [issuer](/usc/15/78c.md?p=a-8) making a statement on behalf of such [issuer](/usc/15/78c.md?p=a-8); or - (4) an [underwriter](/usc/15/78c.md?p=a-20), with respect to information provided by such [issuer](/usc/15/78c.md?p=a-8) or information derived from information provided by such [issuer](/usc/15/78c.md?p=a-8). - (b) **Exclusions—** Except to the extent otherwise specifically provided by rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15), this section shall not apply to a [forward-looking statement](#i-1)— - (1) that is made with respect to the business or operations of the [issuer](/usc/15/78c.md?p=a-8), if the [issuer](/usc/15/78c.md?p=a-8)— - (A) during the 3-year period preceding the date on which the statement was first made— - (i) was convicted of any felony or misdemeanor described in [clauses (i) through (iv)](/usc/15/78o.md?p=b-4-B-i..b-4-B-iv) of section 78o(b)(4)(B) of this title; or - (ii) has been made the subject of a judicial or administrative decree or [order](/usc/15/8702.md?p=14) arising out of a governmental action that— - (I) prohibits future [violations](/usc/15/57b–1.md?p=a-7) of the antifraud provisions of the [securities laws](/usc/15/78c.md?p=a-47); - (II) requires that the [issuer](/usc/15/78c.md?p=a-8) cease and desist from violating the antifraud provisions of the [securities laws](/usc/15/78c.md?p=a-47); or - (III) determines that the [issuer](/usc/15/78c.md?p=a-8) violated the antifraud provisions of the [securities laws](/usc/15/78c.md?p=a-47); - (B) makes the [forward-looking statement](#i-1) in connection with an offering of [securities](/usc/15/78c.md?p=a-10) by a [blank check company](#i-5); - (C) issues [penny stock](/usc/15/78c.md?p=a-51-A); - (D) makes the [forward-looking statement](#i-1) in connection with a [rollup transaction](#i-5); or - (E) makes the [forward-looking statement](#i-1) in connection with a [going private transaction](/usc/15/77z–2.md?p=i-4); or - (2) that is— - (A) included in a financial statement prepared in accordance with generally accepted accounting principles; - (B) contained in a [registration statement](/usc/15/77b.md?p=a-8) of, or otherwise issued by, an [investment company](/usc/15/78c.md?p=a-12-A-iii); - (C) made in connection with a tender offer; - (D) made in connection with an initial public offering; - (E) made in connection with an offering by, or relating to the operations of, a [partnership](#i-5), [limited liability company](#i-5), or a [direct participation investment program](#i-5); or - (F) made in a disclosure of beneficial ownership in a report required to be filed with the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78m(d) of this title](/usc/15/78m.md?p=d). - (c) **Safe harbor—** - (1) **In general—** Except as provided in [subsection (b)](#b), in any private action arising under this chapter that is based on an untrue statement of a material fact or omission of a material fact necessary to make the statement not misleading, a [person](/usc/15/78c.md?p=a-9) referred to in [subsection (a)](#a) shall not be liable with respect to any [forward-looking statement](#i-1), whether written or oral, if and to the extent that— - (A) the [forward-looking statement](#i-1) is— - (i) identified as a [forward-looking statement](#i-1), and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the [forward-looking statement](#i-1); or - (ii) immaterial; or - (B) the plaintiff fails to prove that the [forward-looking statement](#i-1)— - (i) if made by a natural [person](/usc/15/78c.md?p=a-9), was made with actual knowledge by that [person](/usc/15/78c.md?p=a-9) that the statement was false or misleading; or - (ii) if made by a business entity;[^1] was— - (I) made by or with the approval of an executive officer of that entity; and - (II) made or approved by such officer with actual knowledge by that officer that the statement was false or misleading. - (2) **Oral forward-looking statements—** In the case of an oral [forward-looking statement](#i-1) made by an [issuer](/usc/15/78c.md?p=a-8) that is subject to the reporting requirements of [section 78m(a) of this title](/usc/15/78m.md?p=a) or [section 78o(d)](/usc/15/78o.md?p=d) of this title, or by a [person](/usc/15/78c.md?p=a-9) acting on behalf of such [issuer](/usc/15/78c.md?p=a-8), the requirement set forth in [paragraph (1)(A)](#c-1-A) shall be deemed to be satisfied— - (A) if the oral [forward-looking statement](#i-1) is accompanied by a cautionary statement— - (i) that the particular oral statement is a [forward-looking statement](#i-1); and - (ii) that the actual results might differ materially from those projected in the [forward-looking statement](#i-1); and - (B) if— - (i) the oral [forward-looking statement](#i-1) is accompanied by an oral statement that additional information concerning factors that could cause actual results to materially differ from those in the [forward-looking statement](#i-1) is contained in a readily available written document, or portion thereof; - (ii) the accompanying oral statement referred to in [clause (i)](#c-2-B-i) identifies the document, or portion thereof, that contains the additional information about those factors relating to the [forward-looking statement](#i-1); and - (iii) the information contained in that written document is a cautionary statement that satisfies the standard established in [paragraph (1)(A)](#c-1-A). - (3) **Availability—** Any document filed with the [Commission](/usc/15/78c.md?p=a-15) or generally disseminated shall be deemed to be readily available for purposes of [paragraph (2)](#c-2). - (4) **Effect on other safe harbors—** The exemption provided for in [paragraph (1)](#c-1) shall be in addition to any exemption that the [Commission](/usc/15/78c.md?p=a-15) may establish by rule or regulation under [subsection (g)](#g). - (d) **Duty to update—** Nothing in this section shall impose upon any [person](/usc/15/78c.md?p=a-9) a duty to update a [forward-looking statement](#i-1). - (e) **Dispositive motion—** On any motion to dismiss based upon [subsection (c)(1)](#c-1), the court shall consider any statement cited in the complaint and any cautionary statement accompanying the [forward-looking statement](#i-1), which are not subject to material dispute, cited by the defendant. - (f) **Stay pending decision on motion—** In any private action arising under this chapter, the court shall stay discovery (other than discovery that is specifically directed to the applicability of the exemption provided for in this section) during the pendency of any motion by a defendant for summary judgment that is based on the grounds that— - (1) the statement or omission upon which the complaint is based is a [forward-looking statement](#i-1) within the meaning of this section; and - (2) the exemption provided for in this section precludes a claim for relief. - (g) **Exemption authority—** In addition to the exemptions provided for in this section, the [Commission](/usc/15/78c.md?p=a-15) may, by rule or regulation, provide exemptions from or under any provision of this chapter, including with respect to liability that is based on a statement or that is based on projections or other forward-looking information, if and to the extent that any such exemption is consistent with the public interest and the protection of investors, as determined by the [Commission](/usc/15/78c.md?p=a-15). - (h) **Effect on other authority of Commission—** Nothing in this section limits, either expressly or by implication, the [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/78c.md?p=a-15) to exercise similar [authority](/usc/15/3051.md?p=1) or to adopt similar rules and regulations with respect to [forward-looking statements](#i-1) under any other statute under which the [Commission](/usc/15/78c.md?p=a-15) exercises rulemaking [authority](/usc/15/3051.md?p=1). - (i) **Definitions—** For purposes of this section, the following definitions shall apply: - (1) **Forward-looking statement—** The term “forward-looking statement” means— - (A) a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, capital expenditures, dividends, capital structure, or other financial items; - (B) a statement of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the [issuer](/usc/15/78c.md?p=a-8); - (C) a statement of future economic performance, including any such statement contained in a discussion and analysis of financial condition by the management or in the results of operations included pursuant to the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15); - (D) any statement of the assumptions underlying or relating to any statement described in subparagraph [(A)](#i-1-A), [(B)](#i-1-B), or [(C)](#i-1-C); - (E) any report issued by an outside reviewer retained by an [issuer](/usc/15/78c.md?p=a-8), to the extent that the report assesses a [forward-looking statement](#i-1) made by the [issuer](/usc/15/78c.md?p=a-8); or - (F) a statement containing a projection or estimate of such other items as may be specified by rule or regulation of the [Commission](/usc/15/78c.md?p=a-15). - (2) **Investment company—** The term “[investment company](/usc/15/78c.md?p=a-12-A-iii)” has the same meaning as in [section 80a–3(a) of this title](/usc/15/80a–3.md?p=a). - (3) **Going private transaction—** The term “[going private transaction](/usc/15/77z–2.md?p=i-4)” has the meaning given that term under the rules or regulations of the [Commission](/usc/15/78c.md?p=a-15) issued pursuant to [section 78m(e) of this title](/usc/15/78m.md?p=e). - (4) **Person acting on behalf of an issuer—** The term “person acting on behalf of an issuer” means any officer, [director](/usc/15/78c.md?p=a-7), or employee of such [issuer](/usc/15/78c.md?p=a-8). - (5) **Other terms—** The terms “blank check company”, “rollup transaction”, “partnership”, “limited liability company”, “executive officer of an entity” and “direct participation investment program”, have the meanings given those terms by rule or regulation of the [Commission](/usc/15/78c.md?p=a-15). # §78u–6. Securities whistleblower incentives and protection - (a) **Definitions—** In this section the following definitions shall apply: - (1) **Covered judicial or administrative action—** The term “covered judicial or administrative action” means any judicial or administrative action brought by the [Commission](/usc/15/78c.md?p=a-15) under the [securities laws](/usc/15/78c.md?p=a-47) that results in [monetary sanctions](#a-4) exceeding $1,000,000. - (2) **Fund—** The term “Fund” means the [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) Investor Protection Fund. - (3) **Original information—** The term “original information” means information that— - (A) is derived from the independent knowledge or analysis of a [whistleblower](#a-6); - (B) is not known to the [Commission](/usc/15/78c.md?p=a-15) from any other source, unless the [whistleblower](#a-6) is the original source of the information; and - (C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, [audit](/usc/15/7201.md?p=2), or investigation, or from the news media, unless the [whistleblower](#a-6) is a source of the information. - (4) **Monetary sanctions—** The term “monetary sanctions”, when used with respect to any judicial or administrative action, means— - (A) any monies, including penalties, disgorgement, and interest, ordered to be paid; and - (B) any monies deposited into a disgorgement [fund](#a-2) or other [fund](#a-2) pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 ([15 U.S.C. 7246(b)](/usc/15/7246.md?p=b)), as a result of such action or any settlement of such action. - (5) **Related action—** The term “related action”, when used with respect to any judicial or administrative action brought by the [Commission](/usc/15/78c.md?p=a-15) under the [securities laws](/usc/15/78c.md?p=a-47), means any judicial or administrative action brought by an entity described in [subclauses (I) through (IV)](#h-2-D-i-I..h-2-D-i-IV) of subsection (h)(2)(D)(i) that is based upon the [original information](#a-3) provided by a [whistleblower](#a-6) pursuant to [subsection (a)](#a) that led to the successful enforcement of the [Commission](/usc/15/78c.md?p=a-15) action. - (6) **Whistleblower—** The term “whistleblower” means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47) to the [Commission](/usc/15/78c.md?p=a-15), in a manner established, by rule or regulation, by the [Commission](/usc/15/78c.md?p=a-15). - (b) **Awards—** - (1) **In general—** In any [covered judicial or administrative action](#a-1), or [related action](#a-5), the [Commission](/usc/15/78c.md?p=a-15), under regulations prescribed by the [Commission](/usc/15/78c.md?p=a-15) and subject to [subsection (c)](#c), shall pay an award or awards to 1 or more [whistleblowers](#a-6) who voluntarily provided [original information](#a-3) to the [Commission](/usc/15/78c.md?p=a-15) that led to the successful enforcement of the [covered judicial or administrative action](#a-1), or [related action](#a-5), in an aggregate amount equal to— - (A) not less than 10 percent, in total, of what has been collected of the [monetary sanctions](#a-4) imposed in the action or [related actions](#a-5); and - (B) not more than 30 percent, in total, of what has been collected of the [monetary sanctions](#a-4) imposed in the action or [related actions](#a-5). - (2) **Payment of awards—** Any amount paid under [paragraph (1)](#b-1) shall be paid from the [Fund](#a-2). - (c) **Determination of amount of award; denial of award—** - (1) **Determination of amount of award—** - (A) **Discretion—** The determination of the amount of an award made under [subsection (b)](#b) shall be in the discretion of the [Commission](/usc/15/78c.md?p=a-15). - (B) **Criteria—** In determining the amount of an award made under [subsection (b)](#b), the [Commission](/usc/15/78c.md?p=a-15)— - (i) shall take into consideration— - (I) the significance of the information provided by the [whistleblower](#a-6) to the success of the [covered judicial or administrative action](#a-1); - (II) the degree of assistance provided by the [whistleblower](#a-6) and any legal representative of the [whistleblower](#a-6) in a [covered judicial or administrative action](#a-1); - (III) the programmatic interest of the [Commission](/usc/15/78c.md?p=a-15) in deterring [violations](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47) by making awards to [whistleblowers](#a-6) who provide information that lead to the successful enforcement of such laws; and - (IV) such additional relevant factors as the [Commission](/usc/15/78c.md?p=a-15) may establish by rule or regulation; and - (ii) shall not take into consideration the balance of the [Fund](#a-2). - (2) **Denial of award—** No award under [subsection (b)](#b) shall be made— - (A) to any [whistleblower](#a-6) who is, or was at the time the [whistleblower](#a-6) acquired the [original information](#a-3) submitted to the [Commission](/usc/15/78c.md?p=a-15), a [member](/usc/15/78c.md?p=a-3-A), officer, or employee of— - (i) an [appropriate regulatory agency](/usc/15/78c.md?p=a-34); - (ii) the Department of Justice; - (iii) a [self-regulatory organization](/usc/15/78c.md?p=a-26); - (iv) the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73); or - (v) a law enforcement organization; - (B) to any [whistleblower](#a-6) who is convicted of a criminal [violation](/usc/15/57b–1.md?p=a-7) related to the judicial or administrative action for which the [whistleblower](#a-6) otherwise could receive an award under this section; - (C) to any [whistleblower](#a-6) who gains the information through the performance of an [audit](/usc/15/7201.md?p=2) of financial statements required under the [securities laws](/usc/15/78c.md?p=a-47) and for whom such submission would be contrary to the requirements of [section 78j–1 of this title](/usc/15/78j–1.md); or - (D) to any [whistleblower](#a-6) who fails to submit information to the [Commission](/usc/15/78c.md?p=a-15) in such form as the [Commission](/usc/15/78c.md?p=a-15) may, by rule, require. - (d) **Representation—** - (1) **Permitted representation—** Any [whistleblower](#a-6) who makes a claim for an award under [subsection (b)](#b) may be represented by counsel. - (2) **Required representation—** - (A) **In general—** Any [whistleblower](#a-6) who anonymously makes a claim for an award under [subsection (b)](#b) shall be represented by counsel if the [whistleblower](#a-6) anonymously submits the information upon which the claim is based. - (B) **Disclosure of identity—** Prior to the payment of an award, a [whistleblower](#a-6) shall disclose the identity of the [whistleblower](#a-6) and provide such other information as the [Commission](/usc/15/78c.md?p=a-15) may require, directly or through counsel for the [whistleblower](#a-6). - (e) **No contract necessary—** No contract with the [Commission](/usc/15/78c.md?p=a-15) is necessary for any [whistleblower](#a-6) to receive an award under [subsection (b)](#b), unless otherwise required by the [Commission](/usc/15/78c.md?p=a-15) by rule or regulation. - (f) **Appeals—** Any determination made under this section, including whether, to whom, or in what amount to make awards, shall be in the discretion of the [Commission](/usc/15/78c.md?p=a-15). Any such determination, except the determination of the amount of an award if the award was made in accordance with [subsection (b)](#b), may be appealed to the appropriate court of appeals of the United States not more than 30 days after the determination is issued by the [Commission](/usc/15/78c.md?p=a-15). The court shall review the determination made by the [Commission](/usc/15/78c.md?p=a-15) in accordance with [section 706 of title 5](/usc/5/706.md). - (g) **Investor Protection Fund—** - (1) **Fund established—** There is established in the Treasury of the United States a [fund](#a-2) to be known as the “[Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) Investor Protection [Fund](#a-2)”. - (a) **Use of Fund[^1]—** The [Fund](#a-2) shall be available to the [Commission](/usc/15/78c.md?p=a-15), without further appropriation or fiscal year limitation, for paying awards to [whistleblowers](#a-6) as provided in [subsection (b)](#b). - (3) **Deposits and credits—** - (A) **In general—** There shall be deposited into or credited to the [Fund](#a-2) an amount equal to— - (i) any monetary sanction collected by the [Commission](/usc/15/78c.md?p=a-15) in any judicial or administrative action brought by the [Commission](/usc/15/78c.md?p=a-15) under the [securities laws](/usc/15/78c.md?p=a-47) that is not added to a disgorgement [fund](#a-2) or other [fund](#a-2) under section 308 of the Sarbanes-Oxley Act of 2002 ([15 U.S.C. 7246](/usc/15/7246.md)) or otherwise distributed to victims of a [violation](/usc/15/57b–1.md?p=a-7) of the [securities laws](/usc/15/78c.md?p=a-47), or the rules and regulations thereunder, underlying such action, unless the balance of the [Fund](#a-2) at the time the monetary sanction is collected exceeds $300,000,000; - (ii) any monetary sanction added to a disgorgement [fund](#a-2) or other [fund](#a-2) under section 308 of the Sarbanes-Oxley Act of 2002 ([15 U.S.C. 7246](/usc/15/7246.md)) that is not distributed to the victims for whom the [Fund](#a-2) was established, unless the balance of the disgorgement [fund](#a-2) at the time the determination is made not to distribute the monetary sanction to such victims exceeds $200,000,000; and - (iii) all income from investments made under [paragraph (4)](#a-4). - (B) **Additional amounts—** If the amounts deposited into or credited to the [Fund](#a-2) under [subparagraph (A)](#a-3-A) are not sufficient to satisfy an award made under [subsection (b)](#b), there shall be deposited into or credited to the [Fund](#a-2) an amount equal to the unsatisfied portion of the award from any monetary sanction collected by the [Commission](/usc/15/78c.md?p=a-15) in the [covered judicial or administrative action](#a-1) on which the award is based. - (4) **Investments—** - (A) **Amounts in Fund may be invested—** The [Commission](/usc/15/78c.md?p=a-15) may request the Secretary of the Treasury to invest the portion of the [Fund](#a-2) that is not, in the discretion of the [Commission](/usc/15/78c.md?p=a-15), required to meet the current needs of the [Fund](#a-2). - (B) **Eligible investments—** Investments shall be made by the Secretary of the Treasury in obligations of the United States or obligations that are guaranteed as to principal and interest by the United States, with maturities suitable to the needs of the [Fund](#a-2) as determined by the [Commission](/usc/15/78c.md?p=a-15) on the record. - (C) **Interest and proceeds credited—** The interest on, and the proceeds from the sale or redemption of, any obligations held in the [Fund](#a-2) shall be credited to the [Fund](#a-2). - (5) **Reports to Congress—** Not later than October 30 of each fiscal year beginning after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall submit to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate, and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives a report on— - (A) the [whistleblower](#a-6) award [program](/usc/15/2921.md?p=6), established under this section, including— - (i) a description of the number of awards granted; and - (ii) the types of cases in which awards were granted during the preceding fiscal year; - (B) the balance of the [Fund](#a-2) at the beginning of the preceding fiscal year; - (C) the amounts deposited into or credited to the [Fund](#a-2) during the preceding fiscal year; - (D) the amount of earnings on investments made under [paragraph (4)](#a-4) during the preceding fiscal year; - (E) the amount paid from the [Fund](#a-2) during the preceding fiscal year to [whistleblowers](#a-6) pursuant to [subsection (b)](#b); - (F) the balance of the [Fund](#a-2) at the end of the preceding fiscal year; and - (G) a complete set of audited financial statements, including— - (i) a balance sheet; - (ii) income statement; and - (iii) cash flow analysis. - (h) **Protection of whistleblowers—** - (1) **Prohibition against retaliation—** - (A) **In general—** No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a [whistleblower](#a-6) in the terms and conditions of employment because of any lawful act done by the [whistleblower](#a-6)— - (i) in providing information to the [Commission](/usc/15/78c.md?p=a-15) in accordance with this section; - (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the [Commission](/usc/15/78c.md?p=a-15) based upon or related to such information; or - (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 ([15 U.S.C. 7201](/usc/15/7201.md) et seq.), this chapter, including [section 78j–1(m) of this title](/usc/15/78j–1.md?p=m), [section 1513(e) of title 18](/usc/18/1513.md?p=e), and any other law, rule, or regulation subject to the jurisdiction of the [Commission](/usc/15/78c.md?p=a-15). - (B) **Enforcement—** - (i) **Cause of action—** An individual who alleges discharge or other discrimination in [violation](/usc/15/57b–1.md?p=a-7) of [subparagraph (A)](#h-1-A) may bring an action under this subsection in the appropriate district court of the United States for the relief provided in [subparagraph (C)](#h-1-C). - (ii) **Subpoenas—** A subpoena requiring the attendance of a witness at a trial or hearing conducted under this section may be served at any place in the United States. - (iii) **Statute of limitations—** - (I) **In general—** An action under this subsection may not be brought— - (aa) more than 6 years after the date on which the [violation](/usc/15/57b–1.md?p=a-7) of [subparagraph (A)](#h-1-A) occurred; or - (bb) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the employee alleging a [violation](/usc/15/57b–1.md?p=a-7) of [subparagraph (A)](#h-1-A). - (II) **Required action within 10 years—** Notwithstanding [subclause (I)](#h-1-B-iii-I), an action under this subsection may not in any circumstance be brought more than 10 years after the date on which the [violation](/usc/15/57b–1.md?p=a-7) occurs. - (C) **Relief—** Relief for an individual prevailing in an action brought under [subparagraph (B)](#h-1-B) shall include— - (i) reinstatement with the same seniority status that the individual would have had, but for the discrimination; - (ii) 2 times the amount of back pay otherwise owed to the individual, with interest; and - (iii) compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees. - (2) **Confidentiality—** - (A) **In general—** Except as provided in subparagraphs [(B)](#h-2-B) and [(C)](#h-2-C), the [Commission](/usc/15/78c.md?p=a-15) and any officer or employee of the [Commission](/usc/15/78c.md?p=a-15) shall not disclose any information, including information provided by a [whistleblower](#a-6) to the [Commission](/usc/15/78c.md?p=a-15), which could reasonably be expected to reveal the identity of a [whistleblower](#a-6), except in accordance with the provisions of [section 552a of title 5](/usc/5/552a.md), unless and until required to be disclosed to a defendant or respondent in connection with a public proceeding instituted by the [Commission](/usc/15/78c.md?p=a-15) or any entity described in [subparagraph (C)](#h-2-C). For purposes of [section 552 of title 5](/usc/5/552.md), this paragraph shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section. - (B) **Exempted statute—** For purposes of [section 552 of title 5](/usc/5/552.md), this paragraph shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. - (C) **Rule of construction—** Nothing in this section is intended to limit, or shall be construed to limit, the ability of the Attorney General to present such evidence to a grand jury or to share such evidence with potential witnesses or defendants in the course of an ongoing criminal investigation. - (D) **Availability to government agencies—** - (i) **In general—** Without the loss of its status as confidential in the hands of the [Commission](/usc/15/78c.md?p=a-15), all information referred to in [subparagraph (A)](#h-2-A) may, in the discretion of the [Commission](/usc/15/78c.md?p=a-15), when determined by the [Commission](/usc/15/78c.md?p=a-15) to be necessary to accomplish the purposes of this chapter and to protect investors, be made available to— - (I) the Attorney General of the United States; - (II) an appropriate regulatory [authority](/usc/15/3051.md?p=1); - (III) a [self-regulatory organization](/usc/15/78c.md?p=a-26); - (IV) a [State attorney general](/usc/15/15g.md?p=1) in connection with any criminal investigation; - (V) any appropriate [State](/usc/15/78c.md?p=a-16) regulatory [authority](/usc/15/3051.md?p=1); - (VI) the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73); - (VII) a [foreign securities authority](/usc/15/78c.md?p=a-50); and - (VIII) a foreign law enforcement [authority](/usc/15/3051.md?p=1). - (ii) **Confidentiality—** - (I) **In general—** Each of the entities described in [subclauses (I) through (VI)](#h-2-D-i-I..h-2-D-i-VI) of clause (i) shall maintain such information as confidential in accordance with the requirements established under [subparagraph (A)](#h-2-A). - (II) **Foreign authorities—** Each of the entities described in subclauses [(VII)](#h-2-D-i-VII) and [(VIII)](#h-2-D-i-VIII) of clause (i) shall maintain such information in accordance with such assurances of confidentiality as the [Commission](/usc/15/78c.md?p=a-15) determines appropriate. - (3) **Rights retained—** Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any [whistleblower](#a-6) under any Federal or [State](/usc/15/78c.md?p=a-16) law, or under any collective bargaining [agreement](/usc/15/7a.md?p=2). - (i) **Provision of false information—** A [whistleblower](#a-6) shall not be entitled to an award under this section if the [whistleblower](#a-6)— - (1) knowingly and willfully makes any false, fictitious, or fraudulent statement or representation; or - (2) uses any false writing or document knowing the writing or document contains any false, fictitious, or fraudulent statement or entry. - (j) **Rulemaking authority—** The [Commission](/usc/15/78c.md?p=a-15) shall have the [authority](/usc/15/3051.md?p=1) to issue such rules and regulations as may be necessary or appropriate to implement the provisions of this section consistent with the purposes of this section. # §78u–7. Implementation and transition provisions for whistleblower protection - (a) **Implementing rules—** The [Commission](/usc/15/78c.md?p=a-15) shall issue final regulations implementing the provisions of [section 78u–6 of this title](/usc/15/78u–6.md), as added by this subtitle, not later than 270 days after July 21, 2010. - (b) **Original information—** Information provided to the [Commission](/usc/15/78c.md?p=a-15) in writing by a whistleblower shall not lose the status of original information (as defined in [section 78u–6(a)(3) of this title](/usc/15/78u–6.md?p=a-3), as added by this subtitle) solely because the whistleblower provided the information prior to the effective date of the regulations, if the information is provided by the whistleblower after July 21, 2010. - (c) **Awards—** A whistleblower may receive an award pursuant to [section 78u–6 of this title](/usc/15/78u–6.md), as added by this subtitle, regardless of whether any [violation](/usc/15/57b–1.md?p=a-7) of a provision of the [securities laws](/usc/15/78c.md?p=a-47), or a rule or regulation thereunder, underlying the judicial or administrative action upon which the award is based, occurred prior to July 21, 2010. - (d) **Administration and enforcement—** The [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15) shall establish a separate office within the [Commission](/usc/15/78c.md?p=a-15) to administer and enforce the provisions of [section 78u–6 of this title](/usc/15/78u–6.md) (as add[^1] by section 922(a)).[^2] Such office shall report annually to the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives on its activities, whistleblower complaints, and the response of the [Commission](/usc/15/78c.md?p=a-15) to such complaints. # §78v. Hearings by Commission Hearings may be public and may be held before the [Commission](/usc/15/78c.md?p=a-15), any [member](/usc/15/78c.md?p=a-3-A) or [members](/usc/15/78c.md?p=a-3-A) thereof, or any officer or officers of the [Commission](/usc/15/78c.md?p=a-15) designated by it, and appropriate [records](/usc/15/78c.md?p=a-37) thereof shall be kept. # §78w. Rules, regulations, and orders; annual reports - (a) **Power to make rules and regulations; considerations; public disclosure—** - (1) The [Commission](/usc/15/78c.md?p=a-15), the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, and the other agencies enumerated in [section 78c(a)(34) of this title](/usc/15/78c.md?p=a-34) shall each have power to make such rules and regulations as may be necessary or appropriate to implement the provisions of this chapter for which they are responsible or for the execution of the functions vested in them by this chapter, and may for such purposes classify [persons](/usc/15/78c.md?p=a-9), [securities](/usc/15/78c.md?p=a-10), transactions, statements, [applications](/usc/15/77ccc.md?p=8), reports, and other matters within their respective jurisdictions, and prescribe greater, lesser, or different requirements for different classes thereof. No provision of this chapter imposing any liability shall apply to any act done or omitted in good faith in conformity with a rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/78c.md?p=a-15), the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, other agency enumerated in [section 78c(a)(34) of this title](/usc/15/78c.md?p=a-34), or any [self-regulatory organization](/usc/15/78c.md?p=a-26), notwithstanding that such rule, regulation, or [order](/usc/15/8702.md?p=14) may thereafter be amended or rescinded or determined by judicial or other [authority](/usc/15/3051.md?p=1) to be invalid for any reason. - (2) The [Commission](/usc/15/78c.md?p=a-15) and the Secretary of the Treasury, in making rules and regulations pursuant to any provisions of this chapter, shall consider among other matters the impact any such rule or regulation would have on competition. The [Commission](/usc/15/78c.md?p=a-15) and the Secretary of the Treasury shall not adopt any such rule or regulation which would impose a burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. The [Commission](/usc/15/78c.md?p=a-15) and the Secretary of the Treasury shall include in the statement of basis and purpose incorporated in any rule or regulation adopted under this chapter, the reasons for the [Commission](/usc/15/78c.md?p=a-15)’s or the Secretary’s determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of this chapter. - (3) The [Commission](/usc/15/78c.md?p=a-15) and the Secretary, in making rules and regulations pursuant to any provision of this chapter, considering any [application](/usc/15/77ccc.md?p=8) for registration in accordance with [section 78s(a) of this title](/usc/15/78s.md?p=a), or reviewing any proposed rule change of a [self-regulatory organization](/usc/15/78c.md?p=a-26) in accordance with [section 78s(b) of this title](/usc/15/78s.md?p=b), shall keep in a public file and make available for copying all written statements filed with the [Commission](/usc/15/78c.md?p=a-15) and the Secretary and all written communications between the [Commission](/usc/15/78c.md?p=a-15) or the Secretary and any [person](/usc/15/78c.md?p=a-9) relating to the proposed rule, regulation, [application](/usc/15/77ccc.md?p=8), or proposed rule change: Provided, however, That the [Commission](/usc/15/78c.md?p=a-15) and the Secretary shall not be required to keep in a public file or make available for copying any such statement or communication which it may withhold from the public in accordance with the provisions of [section 552 of title 5](/usc/5/552.md). - (b) **Annual report to Congress—** - (1) The [Commission](/usc/15/78c.md?p=a-15), the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, and the other agencies enumerated in [section 78c(a)(34) of this title](/usc/15/78c.md?p=a-34) shall each make an annual report to the Congress on its work for the preceding year, and shall include in each such report whatever information, data, and recommendations for further legislation it considers advisable with regard to matters within its respective jurisdiction under this chapter. - (2) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for a [self-regulatory organization](/usc/15/78c.md?p=a-26) shall include in its annual report to the Congress for each fiscal year, a summary of its oversight activities under this chapter with respect to such [self-regulatory organization](/usc/15/78c.md?p=a-26), including a description of any examination conducted as part of such activities of any such organization, any material recommendation presented as part of such activities to such organization for changes in its organization or rules, and any action by such organization in response to any such recommendation. - (3) The [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for any class of [municipal securities dealers](/usc/15/78c.md?p=a-30) shall include in its annual report to the Congress for each fiscal year a summary of its regulatory activities pursuant to this chapter with respect to such [municipal securities dealers](/usc/15/78c.md?p=a-30), including the nature of and reason for any sanction imposed pursuant to this chapter against any such [municipal securities dealer](/usc/15/78c.md?p=a-30). - (4) The [Commission](/usc/15/78c.md?p=a-15) shall also include in its annual report to the Congress for each fiscal year— - (A) a summary of the [Commission](/usc/15/78c.md?p=a-15)’s oversight activities with respect to [self-regulatory organizations](/usc/15/78c.md?p=a-26) for which it is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), including a description of any examination of any such organization, any material recommendation presented to any such organization for changes in its organization or rules, and any action by any such organization in response to any such recommendations; - (B) a statement and analysis of the expenses and operations of each [self-regulatory organization](/usc/15/78c.md?p=a-26) in connection with the performance of its responsibilities under this chapter, for which purpose data pertaining to such expenses and operations shall be made available by such organization to the [Commission](/usc/15/78c.md?p=a-15) at its request; - (C) the steps the [Commission](/usc/15/78c.md?p=a-15) has taken and the progress it has made toward ending the physical movement of the [securities](/usc/15/78c.md?p=a-10) certificate in connection with the settlement of [securities](/usc/15/78c.md?p=a-10) transactions, and its recommendations, if any, for legislation to eliminate the [securities](/usc/15/78c.md?p=a-10) certificate; - (D) the number of requests for exemptions from provisions of this chapter received, the number granted, and the basis upon which any such exemption was granted; - (E) a summary of the [Commission](/usc/15/78c.md?p=a-15)’s regulatory activities with respect to [municipal securities dealers](/usc/15/78c.md?p=a-30) for which it is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), including the nature of, and reason for, any sanction imposed in proceedings against such [municipal securities dealers](/usc/15/78c.md?p=a-30); - (F) a statement of the time elapsed between the filing of reports pursuant to [section 78m(f) of this title](/usc/15/78m.md?p=f) and the public availability of the information contained therein, the costs involved in the [Commission](/usc/15/78c.md?p=a-15)’s processing of such reports and tabulating such information, the manner in which the [Commission](/usc/15/78c.md?p=a-15) uses such information, and the steps the [Commission](/usc/15/78c.md?p=a-15) has taken and the progress it has made toward requiring such reports to be filed and such information to be made available to the public in machine language; - (G) information concerning (i) the effects its rules and regulations are having on the viability of small [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A); (ii) its attempts to reduce any unnecessary reporting burden on such [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A); and (iii) its efforts to help to assure the continued participation of small [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A) in the United States [securities](/usc/15/78c.md?p=a-10) markets; - (H) a statement detailing its [administration](/usc/15/2203.md?p=2) of the Freedom of Information Act, [section 552 of title 5](/usc/5/552.md), including a copy of the report filed pursuant to [subsection (d)](/usc/5/552.md?p=d) of such section; and - (I) the steps that have been taken and the progress that has been made in promoting the timely public dissemination and availability for analytical purposes (on a fair, reasonable, and nondiscriminatory basis) of information concerning [government securities](/usc/15/78c.md?p=a-42) transactions and quotations, and its recommendations, if any, for legislation to assure timely dissemination of (i) information on transactions in regularly traded [government securities](/usc/15/78c.md?p=a-42) sufficient to permit the determination of the prevailing market price for such [securities](/usc/15/78c.md?p=a-10), and (ii) reports of the highest published bids and lowest published offers for [government securities](/usc/15/78c.md?p=a-42) (including the size at which [persons](/usc/15/78c.md?p=a-9) are willing to trade with respect to such bids and offers). - (c) **Procedure for adjudication—** The [Commission](/usc/15/78c.md?p=a-15), by rule, shall prescribe the procedure applicable to every case pursuant to this chapter of adjudication (as defined in [section 551 of title 5](/usc/5/551.md)) not required to be determined on the record after notice and opportunity for hearing. Such rules shall, as a minimum, provide that prompt notice shall be given of any adverse action or final disposition and that such notice and the entry of any [order](/usc/15/8702.md?p=14) shall be accompanied by a statement of written reasons. - (d) **Cease-and-desist procedures—** Within 1 year after October 15, 1990, the [Commission](/usc/15/78c.md?p=a-15) shall establish regulations providing for the expeditious conduct of hearings and rendering of decisions under [section 78u–3 of this title](/usc/15/78u–3.md), [section 77h–1 of this title](/usc/15/77h–1.md), [section 80a–9(f) of this title](/usc/15/80a–9.md?p=f), and [section 80b–3(k) of this title](/usc/15/80b–3.md?p=k). # §78x. Public availability of information - (a) **“Records” defined—** For purposes of [section 552 of title 5](/usc/5/552.md) the term “[records](/usc/15/78c.md?p=a-37)” includes all [applications](/usc/15/77ccc.md?p=8), statements, reports, contracts, correspondence, notices, and other documents filed with or otherwise obtained by the [Commission](/usc/15/78c.md?p=a-15) pursuant to this chapter or otherwise. - (b) **Disclosure or personal use—** It shall be unlawful for any [member](/usc/15/78c.md?p=a-3-A), officer, or employee of the [Commission](/usc/15/78c.md?p=a-15) to disclose to any [person](/usc/15/78c.md?p=a-9) other than a [member](/usc/15/78c.md?p=a-3-A), officer, or employee of the [Commission](/usc/15/78c.md?p=a-15), or to use for personal benefit, any information contained in any [application](/usc/15/77ccc.md?p=8), statement, report, contract, correspondence, notice, or other document filed with or otherwise obtained by the [Commission](/usc/15/78c.md?p=a-15) (1) in contravention of the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) under [section 552 of title 5](/usc/5/552.md), or (2) in circumstances where the [Commission](/usc/15/78c.md?p=a-15) has determined pursuant to such rules to accord confidential treatment to such information. - (c) **Confidential disclosures—** The [Commission](/usc/15/78c.md?p=a-15) may, in its discretion and upon a showing that such information is needed, provide all “[records](/usc/15/78c.md?p=a-37)” (as defined in [subsection (a)](#a)) and other information in its possession to such [persons](/usc/15/78c.md?p=a-9), both domestic and foreign, as the [Commission](/usc/15/78c.md?p=a-15) by rule deems appropriate if the [person](/usc/15/78c.md?p=a-9) receiving such [records](/usc/15/78c.md?p=a-37) or information provides such assurances of confidentiality as the [Commission](/usc/15/78c.md?p=a-15) deems appropriate. - (d) **Records obtained from foreign securities authorities—** Except as provided in [subsection (g)](#g), the [Commission](/usc/15/78c.md?p=a-15) shall not be compelled to disclose [records](/usc/15/78c.md?p=a-37) obtained from a [foreign securities authority](/usc/15/78c.md?p=a-50) if (1) the [foreign securities authority](/usc/15/78c.md?p=a-50) has in good faith determined and represented to the [Commission](/usc/15/78c.md?p=a-15) that public disclosure of such [records](/usc/15/78c.md?p=a-37) would violate the laws applicable to that [foreign securities authority](/usc/15/78c.md?p=a-50), and (2) the [Commission](/usc/15/78c.md?p=a-15) obtains such [records](/usc/15/78c.md?p=a-37) pursuant to (A) such procedure as the [Commission](/usc/15/78c.md?p=a-15) may authorize for use in connection with the [administration](/usc/15/2203.md?p=2) or enforcement of the [securities laws](/usc/15/78c.md?p=a-47), or (B) a memorandum of understanding. For purposes of [section 552 of title 5](/usc/5/552.md), this subsection shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. - (e) **Freedom of Information Act—** For purposes of [section 552(b)(8) of title 5](/usc/5/552.md?p=b-8) (commonly referred to as the Freedom of Information Act)— - (1) the [Commission](/usc/15/78c.md?p=a-15) is an agency responsible for the regulation or supervision of [financial institutions](/usc/15/78c.md?p=a-46); and - (2) any entity for which the [Commission](/usc/15/78c.md?p=a-15) is responsible for regulating, supervising, or examining under this chapter is a [financial institution](/usc/15/78c.md?p=a-46). - (f) **Sharing privileged information with other authorities—** - (1) **Privileged information provided by the Commission—** The [Commission](/usc/15/78c.md?p=a-15) shall not be deemed to have waived any [privilege](#f-4-A) applicable to any information by transferring that information to or permitting that information to be used by— - (A) any agency (as defined in [section 6 of title 18](/usc/18/6.md)); - (B) the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73); - (C) any [self-regulatory organization](/usc/15/78c.md?p=a-26); - (D) any [foreign securities authority](/usc/15/78c.md?p=a-50); - (E) any [foreign law enforcement authority](#f-4-B); or - (F) any [State securities or law enforcement authority](#f-4-C). - (2) **Nondisclosure of privileged information provided to the Commission—** The [Commission](/usc/15/78c.md?p=a-15) shall not be compelled to disclose privileged information obtained from any [foreign securities authority](/usc/15/78c.md?p=a-50), or [foreign law enforcement authority](#f-4-B), if the [authority](/usc/15/3051.md?p=1) has in good faith determined and represented to the [Commission](/usc/15/78c.md?p=a-15) that the information is privileged. - (3) **Nonwaiver of privileged information provided to the Commission—** - (A) **In general—** [Federal agencies](/usc/15/3719.md?p=a-3), [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) and law enforcement [authorities](/usc/15/3051.md?p=1), [self-regulatory organizations](/usc/15/78c.md?p=a-26), and the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73) shall not be deemed to have waived any [privilege](#f-4-A) applicable to any information by transferring that information to or permitting that information to be used by the [Commission](/usc/15/78c.md?p=a-15). - (B) **Exception—** The provisions of [subparagraph (A)](#f-3-A) shall not apply to a [self-regulatory organization](/usc/15/78c.md?p=a-26) or the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73) with respect to information used by the [Commission](/usc/15/78c.md?p=a-15) in an action against such organization. - (4) **Definitions—** For purposes of this subsection— - (A) the term “privilege” includes any work-product privilege, attorney-client privilege, governmental privilege, or other privilege recognized under Federal, [State](/usc/15/78c.md?p=a-16), or foreign law; - (B) the term “foreign law enforcement authority” means any foreign [authority](/usc/15/3051.md?p=1) that is empowered under foreign law to detect, investigate or prosecute potential [violations](/usc/15/57b–1.md?p=a-7) of law; and - (C) the term “State securities or law enforcement authority” means the [authority](/usc/15/3051.md?p=1) of any [State](/usc/15/78c.md?p=a-16) or territory that is empowered under [State](/usc/15/78c.md?p=a-16) or territory law to detect, investigate, or prosecute potential [violations](/usc/15/57b–1.md?p=a-7) of law. - (g) **Savings provision—** Nothing in this section shall— - (1) alter the [Commission](/usc/15/78c.md?p=a-15)’s responsibilities under the Right to Financial Privacy Act ([12 U.S.C. 3401](/usc/12/3401.md) et seq.), as limited by [section 78u(h) of this title](/usc/15/78u.md?p=h), with respect to transfers of [records](/usc/15/78c.md?p=a-37) covered by such statutes, or - (2) authorize the [Commission](/usc/15/78c.md?p=a-15) to withhold information from the Congress or prevent the [Commission](/usc/15/78c.md?p=a-15) from complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action commenced by the United States or the [Commission](/usc/15/78c.md?p=a-15). # §78y. Court review of orders and rules - (a) **Final Commission orders; persons aggrieved; petition; record; findings; affirmance, modification, enforcement, or setting aside of orders; remand to adduce additional evidence—** - (1) A [person](/usc/15/78c.md?p=a-9) aggrieved by a final [order](/usc/15/8702.md?p=14) of the [Commission](#d-1) entered pursuant to this chapter may obtain review of the [order](/usc/15/8702.md?p=14) in the United States Court of Appeals for the circuit in which he resides or has his principal place of business, or for the District of Columbia Circuit, by filing in such court, within sixty days after the entry of the [order](/usc/15/8702.md?p=14), a written petition requesting that the [order](/usc/15/8702.md?p=14) be modified or set aside in whole or in part. - (2) A copy of the petition shall be transmitted forthwith by the clerk of the court to a [member](/usc/15/78c.md?p=a-3-A) of the [Commission](#d-1) or an officer designated by the [Commission](#d-1) for that purpose. Thereupon the [Commission](#d-1) shall file in the court the record on which the [order](/usc/15/8702.md?p=14) complained of is entered, as provided in [section 2112 of title 28](/usc/28/2112.md) and the Federal Rules of Appellate Procedure. - (3) On the filing of the petition, the court has jurisdiction, which becomes exclusive on the filing of the record, to affirm or modify and enforce or to set aside the [order](/usc/15/8702.md?p=14) in whole or in part. - (4) The findings of the [Commission](#d-1) as to the facts, if supported by substantial evidence, are conclusive. - (5) If either party applies to the court for leave to adduce additional evidence and shows to the satisfaction of the court that the additional evidence is material and that there was reasonable ground for failure to adduce it before the [Commission](#d-1), the court may remand the case to the [Commission](#d-1) for further proceedings, in whatever manner and on whatever conditions the court considers appropriate. If the case is remanded to the [Commission](#d-1), it shall file in the court a supplemental record containing any new evidence, any further or modified findings, and any new [order](/usc/15/8702.md?p=14). - (b) **Commission rules; persons adversely affected; petition; record; affirmance, enforcement, or setting aside of rules; findings; transfer of proceedings—** - (1) A [person](/usc/15/78c.md?p=a-9) adversely affected by a rule of the [Commission](#d-1) promulgated pursuant to section [78f](/usc/15/78f.md), [78i(h)(2)](/usc/15/78i.md?p=h-2), [78k](/usc/15/78k.md), [78k–1](/usc/15/78k–1.md), [78o(c)(5)](/usc/15/78o.md?p=c-5) or [(6)](/usc/15/78o.md?p=c-6), [78o–3](/usc/15/78o–3.md), [78q](/usc/15/78q.md), [78q–1](/usc/15/78q–1.md), or [78s](/usc/15/78s.md) of this title may obtain review of this rule in the United States Court of Appeals for the circuit in which he resides or has his principal place of business or for the District of Columbia Circuit, by filing in such court, within sixty days after the promulgation of the rule, a written petition requesting that the rule be set aside. - (2) A copy of the petition shall be transmitted forthwith by the clerk of the court to a [member](/usc/15/78c.md?p=a-3-A) of the [Commission](#d-1) or an officer designated for that purpose. Thereupon, the [Commission](#d-1) shall file in the court the rule under review and any documents referred to therein, the [Commission](#d-1)’s notice of proposed rulemaking and any documents referred to therein, all written submissions and the transcript of any oral presentations in the rulemaking, factual information not included in the foregoing that was considered by the [Commission](#d-1) in the promulgation of the rule or proffered by the [Commission](#d-1) as pertinent to the rule, the report of any [advisory committee](/usc/15/8801.md?p=1) received or considered by the [Commission](#d-1) in the rulemaking, and any other materials prescribed by the court. - (3) On the filing of the petition, the court has jurisdiction, which becomes exclusive on the filing of the materials set forth in paragraph (2) of this subsection, to affirm and enforce or to set aside the rule. - (4) The findings of the [Commission](#d-1) as to the facts identified by the [Commission](#d-1) as the basis, in whole or in part, of the rule, if supported by substantial evidence, are conclusive. The court shall affirm and enforce the rule unless the [Commission](#d-1)’s action in promulgating the rule is found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of statutory jurisdiction, [authority](/usc/15/3051.md?p=1), or limitations, or short of statutory right; or without observance of procedure required by law. - (5) If proceedings have been instituted under this subsection in two or more courts of appeals with respect to the same rule, the [Commission](#d-1) shall file the materials set forth in paragraph (2) of this subsection in that court in which a proceeding was first instituted. The other courts shall thereupon transfer all such proceedings to the court in which the materials have been filed. For the convenience of the parties in the interest of justice that court may thereafter transfer all the proceedings to any other court of appeals. - (c) **Objections not urged before Commission; stay of orders and rules; transfer of enforcement or review proceedings—** - (1) No objection to an [order](/usc/15/8702.md?p=14) or rule of the [Commission](#d-1), for which review is sought under this section, may be considered by the court unless it was urged before the [Commission](#d-1) or there was reasonable ground for failure to do so. - (2) The filing of a petition under this section does not operate as a stay of the [Commission](#d-1)’s [order](/usc/15/8702.md?p=14) or rule. Until the court’s jurisdiction becomes exclusive, the [Commission](#d-1) may stay its [order](/usc/15/8702.md?p=14) or rule pending judicial review if it finds that justice so requires. After the filing of a petition under this section, the court, on whatever conditions may be required and to the extent necessary to prevent irreparable injury, may issue all necessary and appropriate process to stay the [order](/usc/15/8702.md?p=14) or rule or to preserve status or rights pending its review; but (notwithstanding [section 705 of title 5](/usc/5/705.md)) no such process may be issued by the court before the filing of the record or the materials set forth in [subsection (b)(2)](#b-2) of this section unless: (A) the [Commission](#d-1) has denied a stay or failed to grant requested relief, (B) a reasonable period has expired since the filing of an [application](/usc/15/77ccc.md?p=8) for a stay without a decision by the [Commission](#d-1), or (C) there was reasonable ground for failure to apply to the [Commission](#d-1). - (3) When the same [order](/usc/15/8702.md?p=14) or rule is the subject of one or more petitions for review filed under this section and an action for enforcement filed in a district court of the United States under section [78u(d)](/usc/15/78u.md?p=d) or [(e)](/usc/15/78u.md?p=e) of this title, that court in which the petition or the action is first filed has jurisdiction with respect to the [order](/usc/15/8702.md?p=14) or rule to the exclusion of any other court, and thereupon all such proceedings shall be transferred to that court; but, for the convenience of the parties in the interest of justice, that court may thereafter transfer all the proceedings to any other court of appeals or district court of the United States, whether or not a petition for review or an action for enforcement was originally filed in the transferee court. The scope of review by a district court under section [78u(d)](/usc/15/78u.md?p=d) or [(e)](/usc/15/78u.md?p=e) of this title is in all cases the same as by a court of appeals under this section. - (d) **Other appropriate regulatory agencies—** - (1) For purposes of the preceding subsections of this section, the term “Commission” includes the agencies enumerated in [section 78c(a)(34) of this title](/usc/15/78c.md?p=a-34) insofar as such agencies are acting pursuant to this chapter and the Secretary of the Treasury insofar as he is acting pursuant to [section 78o–5](/usc/15/78o–5.md) of this title. - (2) For purposes of [subsection (a)(4)](#a-4) of this section and [section 706 of title 5](/usc/5/706.md), an [order](/usc/15/8702.md?p=14) of the [Commission](#d-1) pursuant to [section 78s(a) of this title](/usc/15/78s.md?p=a) denying registration to a [clearing agency](/usc/15/78c.md?p=a-23-A) for which the [Commission](#d-1) is not the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) or pursuant to [section 78s(b) of this title](/usc/15/78s.md?p=b) disapproving a proposed rule change by such a [clearing agency](/usc/15/78c.md?p=a-23-A) shall be deemed to be an [order](/usc/15/8702.md?p=14) of the [appropriate regulatory agency](/usc/15/78c.md?p=a-34) for such [clearing agency](/usc/15/78c.md?p=a-23-A) insofar as such [order](/usc/15/8702.md?p=14) was entered by reason of a determination by such [appropriate regulatory agency](/usc/15/78c.md?p=a-34) pursuant to section [78s(a)(2)(C)](/usc/15/78s.md?p=a-2-C) or [78s(b)(4)(C)](/usc/15/78s.md?p=b-4-C) of this title that such registration or proposed rule change would be inconsistent with the safeguarding of [securities](/usc/15/78c.md?p=a-10) or funds. # §78z. Unlawful representations No action or failure to act by the [Commission](/usc/15/78c.md?p=a-15) or the [Board](/usc/15/78c.md?p=a-73) of Governors of the Federal Reserve System, in the [administration](/usc/15/2203.md?p=2) of this chapter shall be construed to mean that the particular [authority](/usc/15/3051.md?p=1) has in any way passed upon the merits of, or given approval to, any [security](/usc/15/78c.md?p=a-10) or any transaction or transactions therein, nor shall such action or failure to act with regard to any statement or report filed with or examined by such [authority](/usc/15/3051.md?p=1) pursuant to this chapter or rules and regulations thereunder, be deemed a finding by such [authority](/usc/15/3051.md?p=1) that such statement or report is true and accurate on its face or that it is not false or misleading. It shall be unlawful to make, or cause to be made, to any prospective purchaser or seller of a [security](/usc/15/78c.md?p=a-10) any representation that any such action or failure to act by any such [authority](/usc/15/3051.md?p=1) is to be so construed or has such effect. # §78aa. Jurisdiction of offenses and suits - (a) **In general—** The district courts of the United States and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have exclusive jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the [violation](/usc/15/57b–1.md?p=a-7) occurred. Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any [violation](/usc/15/57b–1.md?p=a-7) of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. In any action or proceeding instituted by the [Commission](/usc/15/78c.md?p=a-15) under this chapter in a United States district court for any judicial district, a subpoena issued to compel the attendance of a witness or the production of documents or tangible things (or both) at a hearing or trial may be served at any place within the United States. [Rule 45(c)(3)(A)(ii)](/usc/28a/civil-45.md) of the Federal Rules of Civil Procedure shall not apply to a subpoena issued under the preceding sentence. Judgments and decrees so rendered shall be subject to review as provided in sections [1254](/usc/28/1254.md), [1291](/usc/28/1291.md), [1292](/usc/28/1292.md), and [1294](/usc/28/1294.md) of title 28. No costs shall be assessed for or against the [Commission](/usc/15/78c.md?p=a-15) in any proceeding under this chapter brought by or against it in the Supreme Court or such other courts. - (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](/usc/15/78c.md?p=a-15) or the United States alleging a [violation](/usc/15/57b–1.md?p=a-7) of the antifraud provisions of this chapter involving— - (1) conduct within the United States that constitutes significant steps in furtherance of the [violation](/usc/15/57b–1.md?p=a-7), even if the [securities](/usc/15/78c.md?p=a-10) 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. # §78aa–1. Special provision relating to statute of limitations on private causes of action - (a) **Effect on pending causes of action—** The limitation period for any private civil action implied under [section 78j(b) of this title](/usc/15/78j.md?p=b) that was commenced on or before June 19, 1991, shall be the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991. - (b) **Effect on dismissed causes of action—** Any private civil action implied under [section 78j(b) of this title](/usc/15/78j.md?p=b) that was commenced on or before June 19, 1991— - (1) which was dismissed as time barred subsequent to June 19, 1991, and - (2) which would have been timely filed under the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991, shall be reinstated on motion by the plaintiff not later than 60 days after December 19, 1991. # §78bb. Effect on existing law - (a) **Limitation on judgments—** - (1) **In general—** No [person](/usc/15/78c.md?p=a-9) permitted to maintain a suit for damages under the provisions of this chapter shall recover, through satisfaction of judgment in 1 or more actions, a total amount in excess of the actual damages to that [person](/usc/15/78c.md?p=a-9) on [account](/usc/15/1681a.md?p=r-4) of the act complained of. Except as otherwise specifically provided in this chapter, nothing in this chapter shall affect the jurisdiction of the [securities](/usc/15/78c.md?p=a-10) [commission](/usc/15/78c.md?p=a-15) (or any agency or officer performing like functions) of any [State](/usc/15/78c.md?p=a-16) over any [security](/usc/15/78c.md?p=a-10) or any [person](/usc/15/78c.md?p=a-9) insofar as it does not conflict with the provisions of this chapter or the rules and regulations under this chapter. - (2) **Rule of construction—** Except as provided in [subsection (f)](#f), the rights and remedies provided by this chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity. - (3) **State bucket shop laws—** No [State](/usc/15/78c.md?p=a-16) law which prohibits or regulates the making or promoting of wagering or gaming contracts, or the operation of “bucket shops” or other similar or related activities, shall invalidate— - (A) any put, call, straddle, option, privilege, or other [security](/usc/15/78c.md?p=a-10) subject to this chapter (except any [security](/usc/15/78c.md?p=a-10) that has a pari-mutuel payout or otherwise is determined by the [Commission](/usc/15/78c.md?p=a-15), acting by rule, regulation, or [order](/usc/15/8702.md?p=14), to be appropriately subject to such laws), or apply to any activity which is incidental or related to the offer, [purchase](/usc/15/78c.md?p=a-13), sale, exercise, settlement, or closeout of any such [security](/usc/15/78c.md?p=a-10); - (B) any [security-based swap](/usc/15/78c.md?p=a-68-A) between [eligible contract participants](/usc/15/78c.md?p=a-65); or - (C) any [security-based swap](/usc/15/78c.md?p=a-68-A) effected on a [national securities exchange](/usc/15/9009a.md?p=a-5) registered pursuant to [section 78f(b) of this title](/usc/15/78f.md?p=b). - (4) **Other State provisions—** No provision of [State](/usc/15/78c.md?p=a-16) law regarding the offer, sale, or distribution of [securities](/usc/15/78c.md?p=a-10) shall apply to any transaction in a [security-based swap](/usc/15/78c.md?p=a-68-A) or a [security futures product](/usc/15/78c.md?p=a-56), except that this paragraph may not be construed as limiting any [State](/usc/15/78c.md?p=a-16) antifraud law of general applicability. A [security-based swap](/usc/15/78c.md?p=a-68-A) may not be regulated as an insurance contract under any provision of [State](/usc/15/78c.md?p=a-16) law. - (b) **Modification of disciplinary procedures—** Nothing in this chapter shall be construed to modify existing law with regard to the binding effect (1) on any [member](/usc/15/78c.md?p=a-3-A) of or [participant](/usc/15/78c.md?p=a-24) in any [self-regulatory organization](/usc/15/78c.md?p=a-26) of any action taken by the [authorities](/usc/15/3051.md?p=1) of such organization to settle disputes between its [members](/usc/15/78c.md?p=a-3-A) or [participants](/usc/15/78c.md?p=a-24), (2) on any [municipal securities dealer](/usc/15/78c.md?p=a-30) or [municipal securities broker](/usc/15/78c.md?p=a-31) of any action taken pursuant to a procedure established by the [Municipal Securities](/usc/15/78c.md?p=a-29) Rulemaking [Board](/usc/15/78c.md?p=a-73) to settle disputes between [municipal securities dealers](/usc/15/78c.md?p=a-30) and [municipal securities brokers](/usc/15/78c.md?p=a-31), or (3) of any action described in paragraph (1) or (2) on any [person](/usc/15/78c.md?p=a-9) who has agreed to be bound thereby. - (c) **Continuing validity of disciplinary sanctions—** The stay, setting aside, or modification pursuant to [section 78s(e) of this title](/usc/15/78s.md?p=e) of any disciplinary sanction imposed by a [self-regulatory organization](/usc/15/78c.md?p=a-26) on a [member](/usc/15/78c.md?p=a-3-A) thereof, [person associated with a member](/usc/15/78c.md?p=a-21), or [participant](/usc/15/78c.md?p=a-24) therein, shall not affect the validity or force of any action taken as a result of such sanction by the [self-regulatory organization](/usc/15/78c.md?p=a-26) prior to such stay, setting aside, or modification: Provided, That such action is not inconsistent with the provisions of this chapter or the rules or regulations thereunder. The rights of any [person](/usc/15/78c.md?p=a-9) acting in good faith which arise out of any such action shall not be affected in any way by such stay, setting aside, or modification. - (d) **Physical location of facilities of registered clearing agencies or registered transfer agents not to subject changes in beneficial or record ownership of securities to State or local taxes—** No [State](/usc/15/78c.md?p=a-16) or political subdivision thereof shall impose any tax on any change in beneficial or record ownership of [securities](/usc/15/78c.md?p=a-10) effected through the [facilities](/usc/15/78c.md?p=a-2) of a registered [clearing agency](/usc/15/78c.md?p=a-23-A) or registered [transfer agent](/usc/15/78c.md?p=a-25) or any nominee thereof or [custodian](/usc/15/57b–1.md?p=a-4) therefor or upon the delivery or transfer of [securities](/usc/15/78c.md?p=a-10) to or through or receipt from such agency or agent or any nominee thereof or [custodian](/usc/15/57b–1.md?p=a-4) therefor, unless such change in beneficial or record ownership or such transfer or delivery or receipt would otherwise be taxable by such [State](/usc/15/78c.md?p=a-16) or political subdivision if the [facilities](/usc/15/78c.md?p=a-2) of such registered [clearing agency](/usc/15/78c.md?p=a-23-A), registered [transfer agent](/usc/15/78c.md?p=a-25), or any nominee thereof or [custodian](/usc/15/57b–1.md?p=a-4) therefor were not physically located in the taxing [State](/usc/15/78c.md?p=a-16) or political subdivision. No [State](/usc/15/78c.md?p=a-16) or political subdivision thereof shall impose any tax on [securities](/usc/15/78c.md?p=a-10) which are deposited in or retained by a registered [clearing agency](/usc/15/78c.md?p=a-23-A), registered [transfer agent](/usc/15/78c.md?p=a-25), or any nominee thereof or [custodian](/usc/15/57b–1.md?p=a-4) therefor, unless such [securities](/usc/15/78c.md?p=a-10) would otherwise be taxable by such [State](/usc/15/78c.md?p=a-16) or political subdivision if the [facilities](/usc/15/78c.md?p=a-2) of such registered [clearing agency](/usc/15/78c.md?p=a-23-A), registered [transfer agent](/usc/15/78c.md?p=a-25), or any nominee thereof or [custodian](/usc/15/57b–1.md?p=a-4) therefor were not physically located in the taxing [State](/usc/15/78c.md?p=a-16) or political subdivision. - (e) **Exchange, broker, and dealer commissions; brokerage and research services—** - (1) No [person](/usc/15/78c.md?p=a-9) using the mails, or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17), in the exercise of investment discretion with respect to an [account](/usc/15/1681a.md?p=r-4) shall be deemed to have acted unlawfully or to have breached a fiduciary duty under [State](/usc/15/78c.md?p=a-16) or Federal law unless expressly provided to the contrary by a law enacted by the Congress or any [State](/usc/15/78c.md?p=a-16) subsequent to June 4, 1975, solely by reason of his having caused the [account](/usc/15/1681a.md?p=r-4) to pay a [member](/usc/15/78c.md?p=a-3-A) of an [exchange](/usc/15/78c.md?p=a-1), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) an amount of [commission](/usc/15/78c.md?p=a-15) for effecting a [securities](/usc/15/78c.md?p=a-10) transaction in excess of the amount of [commission](/usc/15/78c.md?p=a-15) another [member](/usc/15/78c.md?p=a-3-A) of an [exchange](/usc/15/78c.md?p=a-1), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) would have charged for effecting that transaction, if such [person](/usc/15/78c.md?p=a-9) determined in good faith that such amount of [commission](/usc/15/78c.md?p=a-15) was reasonable in relation to the value of the brokerage and research services provided by such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A), viewed in terms of either that particular transaction or his overall responsibilities with respect to the [accounts](/usc/15/1681a.md?p=r-4) as to which he exercises investment discretion. This subsection is exclusive and plenary insofar as conduct is covered by the foregoing, unless otherwise expressly provided by contract: Provided, however, That nothing in this subsection shall be construed to impair or limit the power of the [Commission](/usc/15/78c.md?p=a-15) under any other provision of this chapter or otherwise. - (2) A [person](/usc/15/78c.md?p=a-9) exercising investment discretion with respect to an [account](/usc/15/1681a.md?p=r-4) shall make such disclosure of his policies and practices with respect to [commissions](/usc/15/78c.md?p=a-15) that will be paid for effecting [securities](/usc/15/78c.md?p=a-10) transactions, at such times and in such manner, as the [appropriate regulatory agency](/usc/15/78c.md?p=a-34), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (3) For purposes of this subsection a [person](/usc/15/78c.md?p=a-9) provides brokerage and research services insofar as he— - (A) furnishes advice, either directly or through publications or writings, as to the value of [securities](/usc/15/78c.md?p=a-10), the advisability of investing in, purchasing, or selling [securities](/usc/15/78c.md?p=a-10), and the availability of [securities](/usc/15/78c.md?p=a-10) or purchasers or sellers of [securities](/usc/15/78c.md?p=a-10); - (B) furnishes analyses and reports concerning [issuers](/usc/15/78c.md?p=a-8), industries, [securities](/usc/15/78c.md?p=a-10), economic factors and trends, portfolio strategy, and the performance of [accounts](/usc/15/1681a.md?p=r-4); or - (C) effects [securities](/usc/15/78c.md?p=a-10) transactions and performs functions incidental thereto (such as clearance, settlement, and custody) or required in connection therewith by rules of the [Commission](/usc/15/78c.md?p=a-15) or a [self-regulatory organization](/usc/15/78c.md?p=a-26) of which such [person](/usc/15/78c.md?p=a-9) is a [member](/usc/15/78c.md?p=a-3-A) or [person associated with a member](/usc/15/78c.md?p=a-21) or in which such [person](/usc/15/78c.md?p=a-9) is a [participant](/usc/15/78c.md?p=a-24). - (4) The provisions of this subsection shall not apply with regard to [securities](/usc/15/78c.md?p=a-10) that are [security futures products](/usc/15/78c.md?p=a-56). - (f) **Limitations on remedies—** - (1) **Class action limitations—** No [covered class action](#f-5-B) based upon the statutory or common law of any [State](/usc/15/78c.md?p=a-16) or subdivision thereof may be maintained in any [State](/usc/15/78c.md?p=a-16) or Federal court by any private party alleging— - (A) a misrepresentation or omission of a material fact in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of a [covered security](#f-5-E); or - (B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the [purchase](/usc/15/78c.md?p=a-13) or sale of a [covered security](#f-5-E). - (2) **Removal of covered class actions—** Any [covered class action](#f-5-B) brought in any [State](/usc/15/78c.md?p=a-16) court involving a [covered security](#f-5-E), as set forth in [paragraph (1)](#f-1), shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to [paragraph (1)](#f-1). - (3) **Preservation of certain actions—** - (A) **Actions under State law of State of incorporation—** - (i) **Actions preserved—** Notwithstanding paragraph [(1)](#f-1) or [(2)](#f-2), a [covered class action](#f-5-B) described in clause (ii) of this subparagraph that is based upon the statutory or common law of the [State](/usc/15/78c.md?p=a-16) in which the [issuer](/usc/15/78c.md?p=a-8) is incorporated (in the case of a corporation) or organized (in the case of any other entity) may be maintained in a [State](/usc/15/78c.md?p=a-16) or Federal court by a private party. - (ii) **Permissible actions—** A [covered class action](#f-5-B) is described in this clause if it involves— - (I) the [purchase](/usc/15/78c.md?p=a-13) or sale of [securities](/usc/15/78c.md?p=a-10) by the [issuer](/usc/15/78c.md?p=a-8) or an [affiliate of the issuer](#f-5-A) exclusively from or to holders of [equity securities](/usc/15/78c.md?p=a-11) of the [issuer](/usc/15/78c.md?p=a-8); or - (II) any recommendation, position, or other communication with respect to the sale of [securities](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) that— - (aa) is made by or on behalf of the [issuer](/usc/15/78c.md?p=a-8) or an [affiliate of the issuer](#f-5-A) to holders of [equity securities](/usc/15/78c.md?p=a-11) of the [issuer](/usc/15/78c.md?p=a-8); and - (bb) concerns decisions of such equity holders with respect to voting their [securities](/usc/15/78c.md?p=a-10), acting in response to a tender or [exchange](/usc/15/78c.md?p=a-1) offer, or exercising dissenters’ or appraisal rights. - (B) **State actions—** - (i) **In general—** Notwithstanding any other provision of this subsection, nothing in this subsection may be construed to preclude a [State](/usc/15/78c.md?p=a-16) or political subdivision thereof or a [State pension plan](#f-3-B-ii) from bringing an action involving a [covered security](#f-5-E) on its own behalf, or as a [member](/usc/15/78c.md?p=a-3-A) of a class comprised solely of other [States](/usc/15/78c.md?p=a-16), political subdivisions, or [State pension plans](#f-3-B-ii) that are named plaintiffs, and that have authorized participation, in such action. - (ii) **State pension plan defined—** For purposes of this subparagraph, the term “State pension plan” means a pension plan established and maintained for its employees by the government of a [State](/usc/15/78c.md?p=a-16) or political subdivision thereof, or by any agency or instrumentality thereof. - (C) **Actions under contractual agreements between issuers and indenture trustees—** Notwithstanding paragraph [(1)](#f-1) or [(2)](#f-2), a [covered class action](#f-5-B) that seeks to enforce a contractual [agreement](/usc/15/7a.md?p=2) between an [issuer](/usc/15/78c.md?p=a-8) and an indenture trustee may be maintained in a [State](/usc/15/78c.md?p=a-16) or Federal court by a party to the [agreement](/usc/15/7a.md?p=2) or a successor to such party. - (D) **Remand of removed actions—** In an action that has been removed from a [State](/usc/15/78c.md?p=a-16) court pursuant to [paragraph (2)](#f-2), if the Federal court determines that the action may be maintained in [State](/usc/15/78c.md?p=a-16) court pursuant to this subsection, the Federal court shall remand such action to such [State](/usc/15/78c.md?p=a-16) court. - (4) **Preservation of State jurisdiction—** The [securities](/usc/15/78c.md?p=a-10) [commission](/usc/15/78c.md?p=a-15) (or any agency or office performing like functions) of any [State](/usc/15/78c.md?p=a-16) shall retain jurisdiction under the laws of such [State](/usc/15/78c.md?p=a-16) to investigate and bring enforcement actions. - (5) **Definitions—** For purposes of this subsection, the following definitions shall apply: - (A) **Affiliate of the issuer—** The term “affiliate of the issuer” means a [person](/usc/15/78c.md?p=a-9) that directly or indirectly, through one or more [intermediaries](/usc/15/6901.md?p=7), controls or is controlled by or is under common control with, the [issuer](/usc/15/78c.md?p=a-8). - (B) **Covered class action—** The term “covered class action” means— - (i) any single lawsuit in which— - (I) damages are sought on behalf of more than 50 [persons](/usc/15/78c.md?p=a-9) or prospective class [members](/usc/15/78c.md?p=a-3-A), and questions of law or fact common to those [persons](/usc/15/78c.md?p=a-9) or [members](/usc/15/78c.md?p=a-3-A) of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any questions affecting only individual [persons](/usc/15/78c.md?p=a-9) or [members](/usc/15/78c.md?p=a-3-A); or - (II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those [persons](/usc/15/78c.md?p=a-9) or [members](/usc/15/78c.md?p=a-3-A) of the prospective class predominate over any questions affecting only individual [persons](/usc/15/78c.md?p=a-9) or [members](/usc/15/78c.md?p=a-3-A); or - (ii) any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which— - (I) damages are sought on behalf of more than 50 [persons](/usc/15/78c.md?p=a-9); and - (II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose. - (C) **Exception for derivative actions—** Notwithstanding [subparagraph (B)](#f-5-B), the term “[covered class action](#f-5-B)” does not include an exclusively derivative action brought by one or more shareholders on behalf of a corporation. - (D) **Counting of certain class members—** For purposes of this paragraph, a corporation, [investment company](/usc/15/78c.md?p=a-12-A-iii), pension plan, partnership, or other entity, shall be treated as one [person](/usc/15/78c.md?p=a-9) or prospective class [member](/usc/15/78c.md?p=a-3-A), but only if the entity is not established for the purpose of participating in the action. - (E) **Covered security—** The term “covered security” means a [security](/usc/15/78c.md?p=a-10) that satisfies the standards for a covered security specified in paragraph [(1)](/usc/15/18.md) or [(2)](/usc/15/18.md) of section 18(b) of the Securities Act of 1933 [[15 U.S.C. 77r(b)](/usc/15/77r.md?p=b)], at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred, except that such term shall not include any debt [security](/usc/15/78c.md?p=a-10) that is exempt from registration under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] pursuant to rules issued by the [Commission](/usc/15/78c.md?p=a-15) under [section 4(2)](/usc/15/4.md)[^1] of that Act [[15 U.S.C. 77d(a)(2)](/usc/15/77d.md?p=a-2)]. - (F) **Rule of construction—** Nothing in this paragraph shall be construed to affect the discretion of a [State](/usc/15/78c.md?p=a-16) court in determining whether actions filed in such court should be joined, consolidated, or otherwise allowed to proceed as a single action. # §78cc. Validity of contracts - (a) **Waiver provisions—** Any condition, stipulation, or provision binding any [person](/usc/15/78c.md?p=a-9) to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of a [self-regulatory organization](/usc/15/78c.md?p=a-26), shall be void. - (b) **Contract provisions in violation of chapter—** Every contract made in [violation](/usc/15/57b–1.md?p=a-7) of any provision of this chapter or of any rule or regulation thereunder, and every contract (including any contract for listing a [security](/usc/15/78c.md?p=a-10) on an [exchange](/usc/15/78c.md?p=a-1)) heretofore or hereafter made, the performance of which involves the [violation](/usc/15/57b–1.md?p=a-7) of, or the continuance of any relationship or practice in [violation](/usc/15/57b–1.md?p=a-7) of, any provision of this chapter or any rule or regulation thereunder, shall be void (1) as regards the rights of any [person](/usc/15/78c.md?p=a-9) who, in [violation](/usc/15/57b–1.md?p=a-7) of any such provision, rule, or regulation, shall have made or engaged in the performance of any such contract, and (2) as regards the rights of any [person](/usc/15/78c.md?p=a-9) who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in [violation](/usc/15/57b–1.md?p=a-7) of any such provision, rule, or regulation: Provided, (A) That no contract shall be void by reason of this subsection because of any [violation](/usc/15/57b–1.md?p=a-7) of any rule or regulation prescribed pursuant to paragraph (3) of subsection (c) of [section 78o](/usc/15/78o.md) of this title, and (B) that no contract shall be deemed to be void by reason of this subsection in any action maintained in reliance upon this subsection, by any [person](/usc/15/78c.md?p=a-9) to or for whom any [broker or dealer](/usc/15/78c.md?p=h-2) [sells](/usc/15/78c.md?p=a-14), or from or for whom any [broker or dealer](/usc/15/78c.md?p=h-2) [purchases](/usc/15/78c.md?p=a-13), a [security](/usc/15/78c.md?p=a-10) in [violation](/usc/15/57b–1.md?p=a-7) of any rule or regulation prescribed pursuant to paragraph (1) or (2) of subsection (c) of [section 78o](/usc/15/78o.md) of this title, unless such action is brought within one year after the discovery that such sale or [purchase](/usc/15/78c.md?p=a-13) involves such [violation](/usc/15/57b–1.md?p=a-7) and within three years after such [violation](/usc/15/57b–1.md?p=a-7). The [Commission](/usc/15/78c.md?p=a-15) may, in a rule or regulation prescribed pursuant to such [paragraph (2)](/usc/15/78o.md) of such section 78o(c) of this title, designate such rule or regulation, or portion thereof, as a rule or regulation, or portion thereof, a contract in [violation](/usc/15/57b–1.md?p=a-7) of which shall not be void by reason of this subsection. - (c) **Validity of loans, extensions of credit, and creation of liens; actual knowledge of violation—** Nothing in this chapter shall be construed (1) to affect the validity of any loan or extension of [credit](/usc/15/1679a.md?p=4) (or any extension or renewal thereof) made or of any lien created prior or subsequent to the enactment of this chapter, unless at the time of the making of such loan or extension of [credit](/usc/15/1679a.md?p=4) (or extension or renewal thereof) or the creating of such lien, the [person](/usc/15/78c.md?p=a-9) making such loan or extension of [credit](/usc/15/1679a.md?p=4) (or extension or renewal thereof) or acquiring such lien shall have actual knowledge of facts by reason of which the making of such loan or extension of [credit](/usc/15/1679a.md?p=4) (or extension or renewal thereof) or the acquisition of such lien is a [violation](/usc/15/57b–1.md?p=a-7) of the provisions of this chapter or any rule or regulation thereunder, or (2) to afford a defense to the collection of any debt or obligation or the enforcement of any lien by any [person](/usc/15/78c.md?p=a-9) who shall have acquired such debt, obligation, or lien in good faith for value and without actual knowledge of the [violation](/usc/15/57b–1.md?p=a-7) of any provision of this chapter or any rule or regulation thereunder affecting the legality of such debt, obligation, or lien. # §78dd. Foreign securities exchanges - (a) **Unlawful transactions on foreign securities exchanges—** It shall be unlawful for any [broker or dealer](/usc/15/78c.md?p=h-2), directly or indirectly, to make use of the mails or of any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) for the purpose of effecting on an [exchange](/usc/15/78c.md?p=a-1) not within or subject to the jurisdiction of the United States, any transaction in any [security](/usc/15/78c.md?p=a-10) the [issuer](/usc/15/78c.md?p=a-8) of which is a resident of, or is organized under the laws of, or has its principal place of business in, a place within or subject to the jurisdiction of the United States, in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors or to prevent the evasion of this chapter. - (b) **Business without the jurisdiction of the United States—** The provisions of this chapter or of any rule or regulation thereunder shall not apply to any [person](/usc/15/78c.md?p=a-9) insofar as he transacts a business in [securities](/usc/15/78c.md?p=a-10) without the jurisdiction of the United States, unless he transacts such business in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate to prevent the evasion of this chapter. - (c) **Rule of construction—** No provision of this chapter that was added by the Wall Street Transparency and Accountability Act of 2010, or any rule or regulation thereunder, shall apply to any [person](/usc/15/78c.md?p=a-9) insofar as such [person](/usc/15/78c.md?p=a-9) transacts a business in [security-based swaps](/usc/15/78c.md?p=a-68-A) without the jurisdiction of the United States, unless such [person](/usc/15/78c.md?p=a-9) transacts such business in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate to prevent the evasion of any provision of this chapter that was added by the Wall Street Transparency and Accountability Act of 2010. This subsection shall not be construed to limit the jurisdiction of the [Commission](/usc/15/78c.md?p=a-15) under any provision of this chapter, as in effect prior to July 21, 2010. # §78dd–1. Prohibited foreign trade practices by issuers - (a) **Prohibition—** It shall be unlawful for any [issuer](/usc/15/78c.md?p=a-8) which has a class of [securities](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title or which is required to file reports under [section 78o(d)](/usc/15/78o.md?p=d) of this title, or for any officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of such [issuer](/usc/15/78c.md?p=a-8) or any stockholder thereof acting on behalf of such [issuer](/usc/15/78c.md?p=a-8), to make use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to— - (1) any [foreign official](#f-1-A) for purposes of— - (A) - (i) influencing any act or decision of such [foreign official](#f-1-A) in his official capacity, (ii) inducing such [foreign official](#f-1-A) to do or omit to do any act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such official, or (iii) securing any improper advantage; or - (B) inducing such [foreign official](#f-1-A) to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [issuer](/usc/15/78c.md?p=a-8) in obtaining or retaining business for or with, or directing business to, any [person](/usc/15/78c.md?p=a-9); - (2) any foreign political party or official thereof or any candidate for foreign political office for purposes of— - (A) - (i) influencing any act or decision of such party, official, or candidate in its or his official capacity, (ii) inducing such party, official, or candidate to do or omit to do an act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such party, official, or candidate, or (iii) securing any improper advantage; or - (B) inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [issuer](/usc/15/78c.md?p=a-8) in obtaining or retaining business for or with, or directing business to, any [person](/usc/15/78c.md?p=a-9); or - (3) any [person](/usc/15/78c.md?p=a-9), while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any [foreign official](#f-1-A), to any foreign political party or official thereof, or to any candidate for foreign political office, for purposes of— - (A) - (i) influencing any act or decision of such [foreign official](#f-1-A), political party, party official, or candidate in his or its official capacity, (ii) inducing such [foreign official](#f-1-A), political party, party official, or candidate to do or omit to do any act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such [foreign official](#f-1-A), political party, party official, or candidate, or (iii) securing any improper advantage; or - (B) inducing such [foreign official](#f-1-A), political party, party official, or candidate to use his or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [issuer](/usc/15/78c.md?p=a-8) in obtaining or retaining business for or with, or directing business to, any [person](/usc/15/78c.md?p=a-9). - (b) **Exception for routine governmental action—** Subsections [(a)](#a) and [(g)](#g) shall not apply to any facilitating or expediting payment to a [foreign official](#f-1-A), political party, or party official the purpose of which is to expedite or to secure the performance of a [routine governmental action](#f-3-A) by a [foreign official](#f-1-A), political party, or party official. - (c) **Affirmative defenses—** It shall be an affirmative defense to actions under subsection [(a)](#a) or [(g)](#g) that— - (1) the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the [foreign official](#f-1-A)’s, political party’s, party official’s, or candidate’s country; or - (2) the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a [foreign official](#f-1-A), party, party official, or candidate and was directly related to— - (A) the promotion, demonstration, or explanation of products or services; or - (B) the execution or performance of a contract with a foreign government or agency thereof. - (d) **Guidelines by Attorney General—** Not later than one year after August 23, 1988, the Attorney General, after consultation with the [Commission](/usc/15/78c.md?p=a-15), the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested [persons](/usc/15/78c.md?p=a-9) through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue— - (1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and - (2) general precautionary procedures which [issuers](/usc/15/78c.md?p=a-8) may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section. The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of [chapter 5](/usc/5/chptI-ch5.md) of title 5 and those guidelines and procedures shall be subject to the provisions of [chapter 7](/usc/15/ch7.md) of that title. - (e) **Opinions of Attorney General—** - (1) The Attorney General, after consultation with appropriate departments and agencies of the United States and after obtaining the views of all interested [persons](/usc/15/78c.md?p=a-9) through public notice and comment procedures, shall establish a procedure to provide responses to specific inquiries by [issuers](/usc/15/78c.md?p=a-8) concerning conformance of their conduct with the Department of Justice’s present enforcement policy regarding the preceding provisions of this section. The Attorney General shall, within 30 days after receiving such a request, issue an opinion in response to that request. The opinion shall [state](/usc/15/78c.md?p=a-16) whether or not certain specified prospective conduct would, for purposes of the Department of Justice’s present enforcement policy, violate the preceding provisions of this section. Additional requests for opinions may be filed with the Attorney General regarding other specified prospective conduct that is beyond the scope of conduct specified in previous requests. In any action brought under the applicable provisions of this section, there shall be a rebuttable presumption that conduct, which is specified in a request by an [issuer](/usc/15/78c.md?p=a-8) and for which the Attorney General has issued an opinion that such conduct is in conformity with the Department of Justice’s present enforcement policy, is in compliance with the preceding provisions of this section. Such a presumption may be rebutted by a preponderance of the evidence. In considering the presumption for purposes of this paragraph, a court shall weigh all relevant factors, including but not limited to whether the information submitted to the Attorney General was accurate and complete and whether it was within the scope of the conduct specified in any request received by the Attorney General. The Attorney General shall establish the procedure required by this paragraph in accordance with the provisions of subchapter II of [chapter 5](/usc/5/chptI-ch5.md) of title 5 and that procedure shall be subject to the provisions of [chapter 7](/usc/15/ch7.md) of that title. - (2) Any document or other material which is provided to, received by, or prepared in the Department of Justice or any other department or agency of the United States in connection with a request by an [issuer](/usc/15/78c.md?p=a-8) under the procedure established under [paragraph (1)](#e-1), shall be exempt from disclosure under [section 552 of title 5](/usc/5/552.md) and shall not, except with the consent of the [issuer](/usc/15/78c.md?p=a-8), be made publicly available, regardless of whether the Attorney General responds to such a request or the [issuer](/usc/15/78c.md?p=a-8) withdraws such request before receiving a response. - (3) Any [issuer](/usc/15/78c.md?p=a-8) who has made a request to the Attorney General under [paragraph (1)](#e-1) may withdraw such request prior to the time the Attorney General issues an opinion in response to such request. Any request so withdrawn shall have no force or effect. - (4) The Attorney General shall, to the maximum extent practicable, provide timely guidance concerning the Department of Justice’s present enforcement policy with respect to the preceding provisions of this section to potential exporters and [small businesses](/usc/15/1691c–2.md?p=h-2) that are unable to obtain specialized counsel on issues pertaining to such provisions. Such guidance shall be limited to responses to requests under [paragraph (1)](#e-1) concerning conformity of specified prospective conduct with the Department of Justice’s present enforcement policy regarding the preceding provisions of this section and general explanations of compliance responsibilities and of potential liabilities under the preceding provisions of this section. - (f) **Definitions—** For purposes of this section: - (1) - (A) The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a [public international organization](#f-1-B), or any [person](/usc/15/78c.md?p=a-9) acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such [public international organization](#f-1-B). - (B) For purposes of [subparagraph (A)](#f-1-A), the term “public international organization” means— - (i) an organization that is designated by Executive [order](/usc/15/8702.md?p=14) pursuant to [section 288 of title 22](/usc/22/288.md); or - (ii) any other international organization that is designated by the President by Executive [order](/usc/15/8702.md?p=14) for the purposes of this section, effective as of the date of publication of such [order](/usc/15/8702.md?p=14) in the Federal Register. - (2) - (A) A [person](/usc/15/78c.md?p=a-9)’s [state](/usc/15/78c.md?p=a-16) of mind is “knowing” with respect to conduct, a circumstance, or a result if— - (i) such [person](/usc/15/78c.md?p=a-9) is aware that such [person](/usc/15/78c.md?p=a-9) is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or - (ii) such [person](/usc/15/78c.md?p=a-9) has a firm belief that such circumstance exists or that such result is substantially certain to occur. - (B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a [person](/usc/15/78c.md?p=a-9) is aware of a high probability of the existence of such circumstance, unless the [person](/usc/15/78c.md?p=a-9) actually believes that such circumstance does not exist. - (3) - (A) The term “routine governmental action” means only an action which is ordinarily and commonly performed by a [foreign official](#f-1-A) in— - (i) obtaining permits, [licenses](/usc/15/662.md?p=7), or other official documents to qualify a [person](/usc/15/78c.md?p=a-9) to do business in a foreign country; - (ii) processing governmental papers, such as visas and work [orders](/usc/15/8702.md?p=14); - (iii) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country; - (iv) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or - (v) actions of a similar nature. - (B) The term “[routine governmental action](#f-3-A)” does not include any decision by a [foreign official](#f-1-A) whether, or on what terms, to award new business to or to continue business with a particular party, or any action taken by a [foreign official](#f-1-A) involved in the decisionmaking process to encourage a decision to award new business to or continue business with a particular party. - (g) **Alternative jurisdiction—** - (1) It shall also be unlawful for any [issuer](/usc/15/78c.md?p=a-8) organized under the laws of the United States, or a [State](/usc/15/78c.md?p=a-16), territory, possession, or commonwealth of the United States or a political subdivision thereof and which has a class of [securities](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title or which is required to file reports under [section 78o(d)](/usc/15/78o.md?p=d) of this title, or for any [United States person](#g-2) that is an officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of such [issuer](/usc/15/78c.md?p=a-8) or a stockholder thereof acting on behalf of such [issuer](/usc/15/78c.md?p=a-8), to corruptly do any act outside the United States in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to any of the [persons](/usc/15/78c.md?p=a-9) or entities set forth in paragraphs [(1)](#a-1), [(2)](#a-2), and [(3)](#a-3) of subsection (a) of this section for the purposes set forth therein, irrespective of whether such [issuer](/usc/15/78c.md?p=a-8) or such officer, [director](/usc/15/78c.md?p=a-7), employee, agent, or stockholder makes use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) in furtherance of such offer, gift, payment, promise, or authorization. - (2) As used in this subsection, the term “United States person” means a national of the United States (as defined in [section 1101 of title 8](/usc/8/1101.md)) or any corporation, partnership, [association](/usc/15/657h.md?p=a-2), joint-stock [company](/usc/15/78c.md?p=a-19), business trust, unincorporated organization, or sole proprietorship organized under the laws of the United States or any [State](/usc/15/78c.md?p=a-16), territory, possession, or commonwealth of the United States, or any political subdivision thereof. # §78dd–2. Prohibited foreign trade practices by domestic concerns - (a) **Prohibition—** It shall be unlawful for any [domestic concern](#h-1), other than an [issuer](/usc/15/78c.md?p=a-8) which is subject to [section 78dd–1 of this title](/usc/15/78dd–1.md), or for any officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of such [domestic concern](#h-1) or any stockholder thereof acting on behalf of such [domestic concern](#h-1), to make use of the mails or any means or instrumentality of [interstate commerce](#h-5) corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to— - (1) any [foreign official](#h-2-A) for purposes of— - (A) - (i) influencing any act or decision of such [foreign official](#h-2-A) in his official capacity, (ii) inducing such [foreign official](#h-2-A) to do or omit to do any act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such official, or (iii) securing any improper advantage; or - (B) inducing such [foreign official](#h-2-A) to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [domestic concern](#h-1) in obtaining or retaining business for or with, or directing business to, any [person](/usc/15/78c.md?p=a-9); - (2) any foreign political party or official thereof or any candidate for foreign political office for purposes of— - (A) - (i) influencing any act or decision of such party, official, or candidate in its or his official capacity, (ii) inducing such party, official, or candidate to do or omit to do an act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such party, official, or candidate, or (iii) securing any improper advantage; or - (B) inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [domestic concern](#h-1) in obtaining or retaining business for or with, or directing business to, any [person](/usc/15/78c.md?p=a-9); or - (3) any [person](/usc/15/78c.md?p=a-9), while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any [foreign official](#h-2-A), to any foreign political party or official thereof, or to any candidate for foreign political office, for purposes of— - (A) - (i) influencing any act or decision of such [foreign official](#h-2-A), political party, party official, or candidate in his or its official capacity, (ii) inducing such [foreign official](#h-2-A), political party, party official, or candidate to do or omit to do any act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such [foreign official](#h-2-A), political party, party official, or candidate, or (iii) securing any improper advantage; or - (B) inducing such [foreign official](#h-2-A), political party, party official, or candidate to use his or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [domestic concern](#h-1) in obtaining or retaining business for or with, or directing business to, any [person](/usc/15/78c.md?p=a-9). - (b) **Exception for routine governmental action—** Subsections [(a)](#a) and [(i)](#i) shall not apply to any facilitating or expediting payment to a [foreign official](#h-2-A), political party, or party official the purpose of which is to expedite or to secure the performance of a [routine governmental action](#h-4-A) by a [foreign official](#h-2-A), political party, or party official. - (c) **Affirmative defenses—** It shall be an affirmative defense to actions under subsection [(a)](#a) or [(i)](#i) that— - (1) the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the [foreign official](#h-2-A)’s, political party’s, party official’s, or candidate’s country; or - (2) the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a [foreign official](#h-2-A), party, party official, or candidate and was directly related to— - (A) the promotion, demonstration, or explanation of products or services; or - (B) the execution or performance of a contract with a foreign government or agency thereof. - (d) **Injunctive relief—** - (1) When it appears to the Attorney General that any [domestic concern](#h-1) to which this section applies, or officer, [director](/usc/15/78c.md?p=a-7), employee, agent, or stockholder thereof, is engaged, or about to engage, in any act or practice constituting a [violation](/usc/15/57b–1.md?p=a-7) of subsection [(a)](#a) or [(i)](#i) of this section, the Attorney General may, in his discretion, bring a civil action in an appropriate district court of the United States to enjoin such act or practice, and upon a proper showing, a permanent injunction or a temporary restraining [order](/usc/15/8702.md?p=14) shall be granted without bond. - (2) For the purpose of any civil investigation which, in the opinion of the Attorney General, is necessary and proper to enforce this section, the Attorney General or his designee are empowered to administer oaths and affirmations, subpoena witnesses, take evidence, and require the production of any books, papers, or other documents which the Attorney General deems relevant or material to such investigation. The attendance of witnesses and the production of documentary evidence may be required from any place in the United States, or any territory, possession, or commonwealth of the United States, at any designated place of hearing. - (3) In case of contumacy by, or refusal to obey a subpoena issued to, any [person](/usc/15/78c.md?p=a-9), the Attorney General may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such [person](/usc/15/78c.md?p=a-9) resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, or other documents. Any such court may issue an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/78c.md?p=a-9) to appear before the Attorney General or his designee, there to produce [records](/usc/15/78c.md?p=a-37), if so ordered, or to give testimony touching the matter under investigation. Any failure to obey such [order](/usc/15/8702.md?p=14) of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district in which such [person](/usc/15/78c.md?p=a-9) resides or may be found. The Attorney General may make such rules relating to civil investigations as may be necessary or appropriate to implement the provisions of this subsection. - (e) **Guidelines by Attorney General—** Not later than 6 months after August 23, 1988, the Attorney General, after consultation with the [Securities](/usc/15/78c.md?p=a-10) and [Exchange](/usc/15/78c.md?p=a-1) [Commission](/usc/15/78c.md?p=a-15), the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested [persons](/usc/15/78c.md?p=a-9) through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue— - (1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and - (2) general precautionary procedures which [domestic concerns](#h-1) may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section. The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of [chapter 5](/usc/5/chptI-ch5.md) of title 5 and those guidelines and procedures shall be subject to the provisions of [chapter 7](/usc/15/ch7.md) of that title. - (f) **Opinions of Attorney General—** - (1) The Attorney General, after consultation with appropriate departments and agencies of the United States and after obtaining the views of all interested [persons](/usc/15/78c.md?p=a-9) through public notice and comment procedures, shall establish a procedure to provide responses to specific inquiries by [domestic concerns](#h-1) concerning conformance of their conduct with the Department of Justice’s present enforcement policy regarding the preceding provisions of this section. The Attorney General shall, within 30 days after receiving such a request, issue an opinion in response to that request. The opinion shall [state](/usc/15/78c.md?p=a-16) whether or not certain specified prospective conduct would, for purposes of the Department of Justice’s present enforcement policy, violate the preceding provisions of this section. Additional requests for opinions may be filed with the Attorney General regarding other specified prospective conduct that is beyond the scope of conduct specified in previous requests. In any action brought under the applicable provisions of this section, there shall be a rebuttable presumption that conduct, which is specified in a request by a [domestic concern](#h-1) and for which the Attorney General has issued an opinion that such conduct is in conformity with the Department of Justice’s present enforcement policy, is in compliance with the preceding provisions of this section. Such a presumption may be rebutted by a preponderance of the evidence. In considering the presumption for purposes of this paragraph, a court shall weigh all relevant factors, including but not limited to whether the information submitted to the Attorney General was accurate and complete and whether it was within the scope of the conduct specified in any request received by the Attorney General. The Attorney General shall establish the procedure required by this paragraph in accordance with the provisions of subchapter II of [chapter 5](/usc/5/chptI-ch5.md) of title 5 and that procedure shall be subject to the provisions of [chapter 7](/usc/15/ch7.md) of that title. - (2) Any document or other material which is provided to, received by, or prepared in the Department of Justice or any other department or agency of the United States in connection with a request by a [domestic concern](#h-1) under the procedure established under [paragraph (1)](#f-1), shall be exempt from disclosure under [section 552 of title 5](/usc/5/552.md) and shall not, except with the consent of the [domestic concern](#h-1), be made publicly available, regardless of whether the Attorney General responds to such a request or the [domestic concern](#h-1) withdraws such request before receiving a response. - (3) Any [domestic concern](#h-1) who has made a request to the Attorney General under [paragraph (1)](#f-1) may withdraw such request prior to the time the Attorney General issues an opinion in response to such request. Any request so withdrawn shall have no force or effect. - (4) The Attorney General shall, to the maximum extent practicable, provide timely guidance concerning the Department of Justice’s present enforcement policy with respect to the preceding provisions of this section to potential exporters and [small businesses](/usc/15/1691c–2.md?p=h-2) that are unable to obtain specialized counsel on issues pertaining to such provisions. Such guidance shall be limited to responses to requests under [paragraph (1)](#f-1) concerning conformity of specified prospective conduct with the Department of Justice’s present enforcement policy regarding the preceding provisions of this section and general explanations of compliance responsibilities and of potential liabilities under the preceding provisions of this section. - (g) **Penalties—** - (1) - (A) Any [domestic concern](#h-1) that is not a natural [person](/usc/15/78c.md?p=a-9) and that violates subsection [(a)](#a) or [(i)](#i) of this section shall be fined not more than $2,000,000. - (B) Any [domestic concern](#h-1) that is not a natural [person](/usc/15/78c.md?p=a-9) and that violates subsection [(a)](#a) or [(i)](#i) of this section shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Attorney General. - (2) - (A) Any natural [person](/usc/15/78c.md?p=a-9) that is an officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of a [domestic concern](#h-1), or stockholder acting on behalf of such [domestic concern](#h-1), who willfully violates subsection [(a)](#a) or [(i)](#i) of this section shall be fined not more than $100,000 or imprisoned not more than 5 years, or both. - (B) Any natural [person](/usc/15/78c.md?p=a-9) that is an officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of a [domestic concern](#h-1), or stockholder acting on behalf of such [domestic concern](#h-1), who violates subsection [(a)](#a) or [(i)](#i) of this section shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Attorney General. - (3) Whenever a fine is imposed under [paragraph (2)](#g-2) upon any officer, [director](/usc/15/78c.md?p=a-7), employee, agent, or stockholder of a [domestic concern](#h-1), such fine may not be paid, directly or indirectly, by such [domestic concern](#h-1). - (h) **Definitions—** For purposes of this section: - (1) The term “domestic concern” means— - (A) any individual who is a citizen, national, or resident of the United States; and - (B) any corporation, partnership, [association](/usc/15/657h.md?p=a-2), joint-stock [company](/usc/15/78c.md?p=a-19), business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a [State](/usc/15/78c.md?p=a-16) of the United States or a territory, possession, or commonwealth of the United States. - (2) - (A) The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a [public international organization](#h-2-B), or any [person](/usc/15/78c.md?p=a-9) acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such [public international organization](#h-2-B). - (B) For purposes of [subparagraph (A)](#h-2-A), the term “public international organization” means— - (i) an organization that is designated by Executive [order](/usc/15/8702.md?p=14) pursuant to [section 288 of title 22](/usc/22/288.md); or - (ii) any other international organization that is designated by the President by Executive [order](/usc/15/8702.md?p=14) for the purposes of this section, effective as of the date of publication of such [order](/usc/15/8702.md?p=14) in the Federal Register. - (3) - (A) A [person](/usc/15/78c.md?p=a-9)’s [state](/usc/15/78c.md?p=a-16) of mind is “knowing” with respect to conduct, a circumstance, or a result if— - (i) such [person](/usc/15/78c.md?p=a-9) is aware that such [person](/usc/15/78c.md?p=a-9) is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or - (ii) such [person](/usc/15/78c.md?p=a-9) has a firm belief that such circumstance exists or that such result is substantially certain to occur. - (B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a [person](/usc/15/78c.md?p=a-9) is aware of a high probability of the existence of such circumstance, unless the [person](/usc/15/78c.md?p=a-9) actually believes that such circumstance does not exist. - (4) - (A) The term “routine governmental action” means only an action which is ordinarily and commonly performed by a [foreign official](#h-2-A) in— - (i) obtaining permits, [licenses](/usc/15/662.md?p=7), or other official documents to qualify a [person](/usc/15/78c.md?p=a-9) to do business in a foreign country; - (ii) processing governmental papers, such as visas and work [orders](/usc/15/8702.md?p=14); - (iii) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country; - (iv) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or - (v) actions of a similar nature. - (B) The term “[routine governmental action](#h-4-A)” does not include any decision by a [foreign official](#h-2-A) whether, or on what terms, to award new business to or to continue business with a particular party, or any action taken by a [foreign official](#h-2-A) involved in the decision-making process to encourage a decision to award new business to or continue business with a particular party. - (5) The term “interstate commerce” means trade, commerce, transportation, or communication among the several [States](/usc/15/78c.md?p=a-16), or between any foreign country and any [State](/usc/15/78c.md?p=a-16) or between any [State](/usc/15/78c.md?p=a-16) and any place or ship outside thereof, and such term includes the intrastate use of— - (A) a telephone or other interstate means of communication, or - (B) any other interstate instrumentality. - (i) **Alternative jurisdiction—** - (1) It shall also be unlawful for any [United States person](#i-2) to corruptly do any act outside the United States in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to any of the [persons](/usc/15/78c.md?p=a-9) or entities set forth in paragraphs [(1)](#a-1), [(2)](#a-2), and [(3)](#a-3) of subsection (a), for the purposes set forth therein, irrespective of whether such [United States person](#i-2) makes use of the mails or any means or instrumentality of [interstate commerce](#h-5) in furtherance of such offer, gift, payment, promise, or authorization. - (2) As used in this subsection, the term “United States person” means a national of the United States (as defined in [section 1101 of title 8](/usc/8/1101.md)) or any corporation, partnership, [association](/usc/15/657h.md?p=a-2), joint-stock [company](/usc/15/78c.md?p=a-19), business trust, unincorporated organization, or sole proprietorship organized under the laws of the United States or any [State](/usc/15/78c.md?p=a-16), territory, possession, or commonwealth of the United States, or any political subdivision thereof. # §78dd–3. Prohibited foreign trade practices by persons other than issuers or domestic concerns - (a) **Prohibition—** It shall be unlawful for any [person](#f-1) other than an [issuer](/usc/15/78c.md?p=a-8) that is subject to [section 78dd–1 of this title](/usc/15/78dd–1.md) or a domestic concern (as defined in [section 78dd–2 of this title](/usc/15/78dd–2.md)), or for any officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of such [person](#f-1) or any stockholder thereof acting on behalf of such [person](#f-1), while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of [interstate commerce](#f-5) or to do any other act in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to— - (1) any [foreign official](#f-2-A) for purposes of— - (A) - (i) influencing any act or decision of such [foreign official](#f-2-A) in his official capacity, (ii) inducing such [foreign official](#f-2-A) to do or omit to do any act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such official, or (iii) securing any improper advantage; or - (B) inducing such [foreign official](#f-2-A) to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [person](#f-1) in obtaining or retaining business for or with, or directing business to, any [person](#f-1); - (2) any foreign political party or official thereof or any candidate for foreign political office for purposes of— - (A) - (i) influencing any act or decision of such party, official, or candidate in its or his official capacity, (ii) inducing such party, official, or candidate to do or omit to do an act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such party, official, or candidate, or (iii) securing any improper advantage; or - (B) inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [person](#f-1) in obtaining or retaining business for or with, or directing business to, any [person](#f-1); or - (3) any [person](#f-1), while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any [foreign official](#f-2-A), to any foreign political party or official thereof, or to any candidate for foreign political office, for purposes of— - (A) - (i) influencing any act or decision of such [foreign official](#f-2-A), political party, party official, or candidate in his or its official capacity, (ii) inducing such [foreign official](#f-2-A), political party, party official, or candidate to do or omit to do any act in [violation](/usc/15/57b–1.md?p=a-7) of the lawful duty of such [foreign official](#f-2-A), political party, party official, or candidate, or (iii) securing any improper advantage; or - (B) inducing such [foreign official](#f-2-A), political party, party official, or candidate to use his or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in [order](/usc/15/8702.md?p=14) to assist such [person](#f-1) in obtaining or retaining business for or with, or directing business to, any [person](#f-1). - (b) **Exception for routine governmental action—** [Subsection (a)](#a) of this section shall not apply to any facilitating or expediting payment to a [foreign official](#f-2-A), political party, or party official the purpose of which is to expedite or to secure the performance of a [routine governmental action](#f-4-A) by a [foreign official](#f-2-A), political party, or party official. - (c) **Affirmative defenses—** It shall be an affirmative defense to actions under [subsection (a)](#a) of this section that— - (1) the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the [foreign official](#f-2-A)’s, political party’s, party official’s, or candidate’s country; or - (2) the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a [foreign official](#f-2-A), party, party official, or candidate and was directly related to— - (A) the promotion, demonstration, or explanation of products or services; or - (B) the execution or performance of a contract with a foreign government or agency thereof. - (d) **Injunctive relief—** - (1) When it appears to the Attorney General that any [person](#f-1) to which this section applies, or officer, [director](/usc/15/78c.md?p=a-7), employee, agent, or stockholder thereof, is engaged, or about to engage, in any act or practice constituting a [violation](/usc/15/57b–1.md?p=a-7) of [subsection (a)](#a) of this section, the Attorney General may, in his discretion, bring a civil action in an appropriate district court of the United States to enjoin such act or practice, and upon a proper showing, a permanent injunction or a temporary restraining [order](/usc/15/8702.md?p=14) shall be granted without bond. - (2) For the purpose of any civil investigation which, in the opinion of the Attorney General, is necessary and proper to enforce this section, the Attorney General or his designee are empowered to administer oaths and affirmations, subpoena witnesses, take evidence, and require the production of any books, papers, or other documents which the Attorney General deems relevant or material to such investigation. The attendance of witnesses and the production of documentary evidence may be required from any place in the United States, or any territory, possession, or commonwealth of the United States, at any designated place of hearing. - (3) In case of contumacy by, or refusal to obey a subpoena issued to, any [person](#f-1), the Attorney General may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such [person](#f-1) resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, or other documents. Any such court may issue an [order](/usc/15/8702.md?p=14) requiring such [person](#f-1) to appear before the Attorney General or his designee, there to produce [records](/usc/15/78c.md?p=a-37), if so ordered, or to give testimony touching the matter under investigation. Any failure to obey such [order](/usc/15/8702.md?p=14) of the court may be punished by such court as a contempt thereof. - (4) All process in any such case may be served in the judicial district in which such [person](#f-1) resides or may be found. The Attorney General may make such rules relating to civil investigations as may be necessary or appropriate to implement the provisions of this subsection. - (e) **Penalties—** - (1) - (A) Any juridical [person](#f-1) that violates [subsection (a)](#a) of this section shall be fined not more than $2,000,000. - (B) Any juridical [person](#f-1) that violates [subsection (a)](#a) of this section shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Attorney General. - (2) - (A) Any natural [person](#f-1) who willfully violates [subsection (a)](#a) of this section shall be fined not more than $100,000 or imprisoned not more than 5 years, or both. - (B) Any natural [person](#f-1) who violates [subsection (a)](#a) of this section shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Attorney General. - (3) Whenever a fine is imposed under [paragraph (2)](#e-2) upon any officer, [director](/usc/15/78c.md?p=a-7), employee, agent, or stockholder of a [person](#f-1), such fine may not be paid, directly or indirectly, by such [person](#f-1). - (f) **Definitions—** For purposes of this section: - (1) The term “person”, when referring to an offender, means any natural person other than a national of the United States (as defined in [section 1101 of title 8](/usc/8/1101.md)[^1] or any corporation, partnership, [association](/usc/15/657h.md?p=a-2), joint-stock [company](/usc/15/78c.md?p=a-19), business trust, unincorporated organization, or sole proprietorship organized under the law of a foreign nation or a political subdivision thereof. - (2) - (A) The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a [public international organization](#f-2-B), or any [person](#f-1) acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such [public international organization](#f-2-B). - (B) For purposes of [subparagraph (A)](#f-2-A), the term “public international organization” means— - (i) an organization that is designated by Executive [order](/usc/15/8702.md?p=14) pursuant to [section 288 of title 22](/usc/22/288.md); or - (ii) any other international organization that is designated by the President by Executive [order](/usc/15/8702.md?p=14) for the purposes of this section, effective as of the date of publication of such [order](/usc/15/8702.md?p=14) in the Federal Register. - (3) - (A) A [person](#f-1)’s [state](/usc/15/78c.md?p=a-16) of mind is knowing, with respect to conduct, a circumstance or a result if— - (i) such [person](#f-1) is aware that such [person](#f-1) is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or - (ii) such [person](#f-1) has a firm belief that such circumstance exists or that such result is substantially certain to occur. - (B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a [person](#f-1) is aware of a high probability of the existence of such circumstance, unless the [person](#f-1) actually believes that such circumstance does not exist. - (4) - (A) The term “routine governmental action” means only an action which is ordinarily and commonly performed by a [foreign official](#f-2-A) in— - (i) obtaining permits, [licenses](/usc/15/662.md?p=7), or other official documents to qualify a [person](#f-1) to do business in a foreign country; - (ii) processing governmental papers, such as visas and work [orders](/usc/15/8702.md?p=14); - (iii) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country; - (iv) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or - (v) actions of a similar nature. - (B) The term “[routine governmental action](#f-4-A)” does not include any decision by a [foreign official](#f-2-A) whether, or on what terms, to award new business to or to continue business with a particular party, or any action taken by a [foreign official](#f-2-A) involved in the decision-making process to encourage a decision to award new business to or continue business with a particular party. - (5) The term “interstate commerce” means trade, commerce, transportation, or communication among the several [States](/usc/15/78c.md?p=a-16), or between any foreign country and any [State](/usc/15/78c.md?p=a-16) or between any [State](/usc/15/78c.md?p=a-16) and any place or ship outside thereof, and such term includes the intrastate use of— - (A) a telephone or other interstate means of communication, or - (B) any other interstate instrumentality. # §78ee. Transaction fees - (a) **Recovery of costs of annual appropriation—** The [Commission](/usc/15/78c.md?p=a-15) shall, in accordance with this section, collect transaction fees and assessments that are designed to recover the costs to the Government of the annual appropriation to the [Commission](/usc/15/78c.md?p=a-15) by Congress. - (b) **Exchange-traded securities—** Subject to [subsection (j)](#j), each [national securities exchange](/usc/15/9009a.md?p=a-5) shall pay to the [Commission](/usc/15/78c.md?p=a-15) a fee at a rate equal to $15[^1] per $1,000,000 of the aggregate dollar amount of sales of [securities](/usc/15/78c.md?p=a-10) (other than bonds, debentures, other evidences of indebtedness, [security futures products](/usc/15/78c.md?p=a-56), and options on [securities](/usc/15/78c.md?p=a-10) [indexes](/usc/15/78c.md?p=a-68-E) (excluding a [narrow-based security index](/usc/15/78c.md?p=a-55-B))) transacted on such [national securities exchange](/usc/15/9009a.md?p=a-5). - (c) **Off-exchange trades of exchange registered and last-sale-reported securities—** Subject to [subsection (j)](#j), each national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall pay to the [Commission](/usc/15/78c.md?p=a-15) a fee at a rate equal to $15[^1] per $1,000,000 of the aggregate dollar amount of sales transacted by or through any [member](/usc/15/78c.md?p=a-3-A) of such [association](/usc/15/657h.md?p=a-2) otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5) of [securities](/usc/15/78c.md?p=a-10) (other than bonds, debentures, other evidences of indebtedness, [security futures products](/usc/15/78c.md?p=a-56), and options on [securities](/usc/15/78c.md?p=a-10) [indexes](/usc/15/78c.md?p=a-68-E) (excluding a [narrow-based security index](/usc/15/78c.md?p=a-55-B))) registered on a [national securities exchange](/usc/15/9009a.md?p=a-5) or subject to prompt last sale reporting pursuant to the rules of the [Commission](/usc/15/78c.md?p=a-15) or a registered national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2). - (d) **Assessments on security futures transactions—** Each [national securities exchange](/usc/15/9009a.md?p=a-5) and national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) shall pay to the [Commission](/usc/15/78c.md?p=a-15) an assessment equal to $0.009 for each round turn transaction (treated as including one [purchase](/usc/15/78c.md?p=a-13) and one sale of a contract of sale for future delivery) on a [security future](/usc/15/77b.md?p=a-16) traded on such [national securities exchange](/usc/15/9009a.md?p=a-5) or by or through any [member](/usc/15/78c.md?p=a-3-A) of such [association](/usc/15/657h.md?p=a-2) otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5), except that for fiscal year 2007 and each succeeding fiscal year such assessment shall be equal to $0.0042 for each such transaction. - (e) **Dates for payments—** The fees and assessments required by subsections [(b)](#b), [(c)](#c), and [(d)](#d) of this section shall be paid— - (1) on or before March 15, with respect to transactions and sales occurring during the period beginning on the preceding September 1 and ending at the close of the preceding December 31; and - (2) on or before September 25, with respect to transactions and sales occurring during the period beginning on the preceding January 1 and ending at the close of the preceding August 31. - (f) **Exemptions—** The [Commission](/usc/15/78c.md?p=a-15), by rule, may exempt any sale of [securities](/usc/15/78c.md?p=a-10) or any class of sales of [securities](/usc/15/78c.md?p=a-10) from any fee or assessment imposed by this section, if the [Commission](/usc/15/78c.md?p=a-15) finds that such exemption is consistent with the public interest, the equal regulation of markets and [brokers](/usc/15/78c.md?p=a-4-A) and [dealers](/usc/15/78c.md?p=a-5-A), and the development of a national market system. - (g) **Publication—** The [Commission](/usc/15/78c.md?p=a-15) shall publish in the Federal Register notices of the fee and assessment rates applicable under this section for each fiscal year not later than 30 days after the date on which an Act making a regular appropriation to the [Commission](/usc/15/78c.md?p=a-15) for such fiscal year is enacted, together with any estimates or projections on which such fees are based. - (h) **Pro rata application—** The rates per $1,000,000 required by this section shall be applied pro rata to amounts and balances of less than $1,000,000. - (i) **Deposit of fees—** - (1) **Offsetting collections—** Fees collected pursuant to subsections [(b)](#b), [(c)](#c), and [(d)](#d) for any fiscal year— - (A) shall be deposited and credited as offsetting collections to the [account](/usc/15/1681a.md?p=r-4) providing appropriations to the [Commission](/usc/15/78c.md?p=a-15); and - (B) except as provided in [subsection (k)](#k), shall not be collected for any fiscal year except to the extent provided in advance in appropriation Acts. - (2) **General revenues prohibited—** No fees collected pursuant to subsections [(b)](#b), [(c)](#c), and [(d)](#d) for fiscal year 2002 or any succeeding fiscal year shall be deposited and credited as general revenue of the Treasury. - (j) **Adjustments to fee rates—** - (1) **Annual adjustment—** Subject to subsections [(i)(1)(B)](#i-1-B) and (k), for each fiscal year, the [Commission](/usc/15/78c.md?p=a-15) shall by [order](/usc/15/8702.md?p=14) adjust each of the rates applicable under subsections [(b)](#b) and [(c)](#c) for such fiscal year to a uniform adjusted rate that, when applied to the baseline estimate of the aggregate dollar amount of sales for such fiscal year, is reasonably likely to produce aggregate fee collections under this section (including assessments collected under [subsection (d)](#d) of this section) that are equal to the regular appropriation to the [Commission](/usc/15/78c.md?p=a-15) by Congress for such fiscal year. - (2) **Mid-year adjustment—** Subject to subsections [(i)(1)(B)](#i-1-B) and (k), for each fiscal year, the [Commission](/usc/15/78c.md?p=a-15) shall determine, by March 1 of such fiscal year, whether, based on the actual aggregate dollar volume of sales during the first 5 months of such fiscal year, the baseline estimate of the aggregate dollar volume of sales used under [paragraph (1)](#j-1) for such fiscal year is reasonably likely to be 10 percent (or more) greater or less than the actual aggregate dollar volume of sales for such fiscal year. If the [Commission](/usc/15/78c.md?p=a-15) so determines, the [Commission](/usc/15/78c.md?p=a-15) shall by [order](/usc/15/8702.md?p=14), no later than March 1, adjust each of the rates applicable under subsections [(b)](#b) and [(c)](#c) for such fiscal year to a uniform adjusted rate that, when applied to the revised estimate of the aggregate dollar amount of sales for the remainder of such fiscal year, is reasonably likely to produce aggregate fee collections under this section (including fees collected during such five-month period and assessments collected under [subsection (d)](#d) of this section) that are equal to the regular appropriation to the [Commission](/usc/15/78c.md?p=a-15) by Congress for such fiscal year. In making such revised estimate, the [Commission](/usc/15/78c.md?p=a-15) shall, after consultation with the Congressional Budget Office and the Office of Management and Budget, use the same methodology required by [subsection (l)](#l). - (3) **Review—** In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/78c.md?p=a-15) shall not be required to comply with the provisions of [section 553 of title 5](/usc/5/553.md). An adjusted rate prescribed under paragraph [(1)](#j-1) or [(2)](#j-2) and published under [subsection (g)](#g) shall not be subject to judicial review. - (4) **Effective date—** - (A) **Annual adjustment—** Subject to subsections [(i)(1)(B)](#i-1-B) and (k), an adjusted rate prescribed under [paragraph (1)](#j-1) shall take effect on the later of— - (i) the first day of the fiscal year to which such rate applies; or - (ii) 60 days after the date on which an Act making a regular appropriation to the [Commission](/usc/15/78c.md?p=a-15) for such fiscal year is enacted. - (B) **Mid-year adjustment—** An adjusted rate prescribed under [paragraph (2)](#j-2) shall take effect on April 1 of the fiscal year to which such rate applies. - (k) **Lapse of appropriation—** If on the first day of a fiscal year a regular appropriation to the [Commission](/usc/15/78c.md?p=a-15) has not been enacted, the [Commission](/usc/15/78c.md?p=a-15) shall continue to collect (as offsetting collections) the fees and assessments under subsections [(b)](#b), [(c)](#c), and [(d)](#d) at the rate in effect during the preceding fiscal year, until 60 days after the date such a regular appropriation is enacted. - (l) **Baseline estimate of the aggregate dollar amount of sales—** The baseline estimate of the aggregate dollar amount of sales for any fiscal year is the baseline estimate of the aggregate dollar amount of sales of [securities](/usc/15/78c.md?p=a-10) (other than bonds, debentures, other evidences of indebtedness, [security futures products](/usc/15/78c.md?p=a-56), and options on [securities](/usc/15/78c.md?p=a-10) [indexes](/usc/15/78c.md?p=a-68-E) (excluding a [narrow-based security index](/usc/15/78c.md?p=a-55-B))) to be transacted on each [national securities exchange](/usc/15/9009a.md?p=a-5) and by or through any [member](/usc/15/78c.md?p=a-3-A) of each national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) (otherwise than on a [national securities exchange](/usc/15/9009a.md?p=a-5)) during such fiscal year as determined by the [Commission](/usc/15/78c.md?p=a-15), after consultation with the Congressional Budget Office and the Office of Management and Budget, using the methodology required for making projections pursuant to [section 907 of title 2](/usc/2/907.md). - (m) **Transmittal of Commission budget requests—** - (1) **Budget required—** For fiscal year 2012, and each fiscal year thereafter, the [Commission](/usc/15/78c.md?p=a-15) shall prepare and submit a budget to the President. Whenever the [Commission](/usc/15/78c.md?p=a-15) submits a budget estimate or request to the President or the Office of Management and Budget, the [Commission](/usc/15/78c.md?p=a-15) shall concurrently transmit copies of the estimate or request to the [Committee](/usc/15/2921.md?p=1) on Appropriations of the Senate, the [Committee](/usc/15/2921.md?p=1) on Appropriations of the House of Representatives, the [Committee](/usc/15/2921.md?p=1) on Banking, Housing, and Urban Affairs of the Senate, and the [Committee](/usc/15/2921.md?p=1) on Financial Services of the House of Representatives. - (2) **Submission to Congress—** The President shall submit each budget submitted under [paragraph (1)](#m-1) to Congress, in unaltered form, together with the annual budget for the [Administration](/usc/15/2203.md?p=2) submitted by the President. - (3) **Contents—** The [Commission](/usc/15/78c.md?p=a-15) shall include in each budget submitted under [paragraph (1)](#m-1)— - (A) an itemization of the amount of funds necessary to carry out the functions of the [Commission](/usc/15/78c.md?p=a-15). - (B) an amount to be designated as contingency funding to be used by the [Commission](/usc/15/78c.md?p=a-15) to address unanticipated needs; and - (C) a designation of any activities of the [Commission](/usc/15/78c.md?p=a-15) for which multi-year budget [authority](/usc/15/3051.md?p=1) would be suitable. # §78ff. Penalties - (a) **Willful violations; false and misleading statements—** Any [person](/usc/15/78c.md?p=a-9) who willfully violates any provision of this chapter (other than [section 78dd–1 of this title](/usc/15/78dd–1.md)), or any rule or regulation thereunder the [violation](/usc/15/57b–1.md?p=a-7) of which is made unlawful or the observance of which is required under the terms of this chapter, or any [person](/usc/15/78c.md?p=a-9) who willfully and knowingly makes, or causes to be made, any statement in any [application](/usc/15/77ccc.md?p=8), report, or document required to be filed under this chapter or any rule or regulation thereunder or any undertaking contained in a [registration statement](/usc/15/77b.md?p=a-8) as provided in [subsection (d)](/usc/15/78o.md?p=d) of section 78o of this title, or by any [self-regulatory organization](/usc/15/78c.md?p=a-26) in connection with an [application](/usc/15/77ccc.md?p=8) for membership or participation therein or to become associated with a [member](/usc/15/78c.md?p=a-3-A) thereof which statement was false or misleading with respect to any material fact, shall upon conviction be fined not more than $5,000,000, or imprisoned not more than 20 years, or both, except that when such [person](/usc/15/78c.md?p=a-9) is a [person](/usc/15/78c.md?p=a-9) other than a natural [person](/usc/15/78c.md?p=a-9), a fine not exceeding $25,000,000 may be imposed; but no [person](/usc/15/78c.md?p=a-9) shall be subject to imprisonment under this section for the [violation](/usc/15/57b–1.md?p=a-7) of any rule or regulation if he proves that he had no knowledge of such rule or regulation. - (b) **Failure to file information, documents, or reports—** Any [issuer](/usc/15/78c.md?p=a-8) which fails to file information, documents, or reports required to be filed under [subsection (d)](/usc/15/78o.md?p=d) of section 78o of this title or any rule or regulation thereunder shall forfeit to the United States the sum of $100 for each and every day such failure to file shall continue. Such forfeiture, which shall be in lieu of any criminal penalty for such failure to file which might be deemed to arise under [subsection (a)](#a) of this section, shall be payable into the Treasury of the United States and shall be recoverable in a civil suit in the name of the United States. - (c) **Violations by issuers, officers, directors, stockholders, employees, or agents of issuers—** - (1) - (A) Any [issuer](/usc/15/78c.md?p=a-8) that violates subsection (a) or (g) of [section 78dd–1 of this title](/usc/15/78dd–1.md) shall be fined not more than $2,000,000. - (B) Any [issuer](/usc/15/78c.md?p=a-8) that violates subsection (a) or (g) of [section 78dd–1 of this title](/usc/15/78dd–1.md) shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the [Commission](/usc/15/78c.md?p=a-15). - (2) - (A) Any officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of an [issuer](/usc/15/78c.md?p=a-8), or stockholder acting on behalf of such [issuer](/usc/15/78c.md?p=a-8), who willfully violates subsection (a) or (g) of [section 78dd–1 of this title](/usc/15/78dd–1.md) shall be fined not more than $100,000, or imprisoned not more than 5 years, or both. - (B) Any officer, [director](/usc/15/78c.md?p=a-7), employee, or agent of an [issuer](/usc/15/78c.md?p=a-8), or stockholder acting on behalf of such [issuer](/usc/15/78c.md?p=a-8), who violates subsection (a) or (g) of [section 78dd–1 of this title](/usc/15/78dd–1.md) shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the [Commission](/usc/15/78c.md?p=a-15). - (3) Whenever a fine is imposed under [paragraph (2)](#c-2) upon any officer, [director](/usc/15/78c.md?p=a-7), employee, agent, or stockholder of an [issuer](/usc/15/78c.md?p=a-8), such fine may not be paid, directly or indirectly, by such [issuer](/usc/15/78c.md?p=a-8). # §78gg. Separability If any provision of this chapter, or the [application](/usc/15/77ccc.md?p=8) of such provision to any [person](/usc/15/78c.md?p=a-9) or circumstances, shall be held invalid, the remainder of the chapter and the [application](/usc/15/77ccc.md?p=8) of such provision to [persons](/usc/15/78c.md?p=a-9) or circumstances other than those as to which it is held invalid, shall not be affected thereby. # §78hh. Effective date This chapter shall become effective on July 1, 1934, except that sections [78f](/usc/15/78f.md) and [78l](/usc/15/78l.md)(b to e) of this title shall become effective on September 1, 1934; and sections [78e](/usc/15/78e.md), [78g](/usc/15/78g.md), [78h](/usc/15/78h.md), [78i(a)(6)](/usc/15/78i.md?p=a-6), [78j](/usc/15/78j.md), [78k](/usc/15/78k.md), [78l(a)](/usc/15/78l.md?p=a), [78m](/usc/15/78m.md), [78n](/usc/15/78n.md), [78o](/usc/15/78o.md), [78p](/usc/15/78p.md), [78q](/usc/15/78q.md), [78r](/usc/15/78r.md), [78s](/usc/15/78s.md), and [78dd](/usc/15/78dd.md) of this title shall become effective on October 1, 1934. # §78hh–1. Effective date of certain sections This Act shall become effective on May 27, 1936; except that clause (2) of subsection (f) of [section 78l](/usc/15/78l.md) of this title, and subsections [(a)](/usc/15/78o.md?p=a) and [(d)](/usc/15/78o.md?p=d) of section 78o of this title, shall become effective ninety days after May 27, 1936, and that clause (3) of subsection (f) of [section 78l](/usc/15/78l.md) of this title shall become effective six months after May 27, 1936. # [§78ii. Omitted — omitted] # [§78jj. Repealed. Pub. L. 100–181, title III, § 330, Dec. 4, 1987, 101 Stat. 1259 — repealed] # §78kk. Authorization of appropriations In addition to any other funds authorized to be appropriated to the [Commission](/usc/15/78c.md?p=a-15), there are authorized to be appropriated to carry out the functions, powers, and duties of the [Commission](/usc/15/78c.md?p=a-15)— - (1) for fiscal year 2011, $1,300,000,000; - (2) for fiscal year 2012, $1,500,000,000; - (3) for fiscal year 2013, $1,750,000,000; - (4) for fiscal year 2014, $2,000,000,000; and - (5) for fiscal year 2015, $2,250,000,000. # §78ll. Requirements for the EDGAR system The [Commission](/usc/15/78c.md?p=a-15), by rule or regulation— - (1) shall provide that any information in the EDGAR system that is required to be disseminated by the contractor— - (A) may be sold or disseminated by the contractor only pursuant to a uniform schedule of fees prescribed by the [Commission](/usc/15/78c.md?p=a-15); - (B) may be obtained by a purchaser by direct interconnection with the EDGAR system; - (C) shall be equally available on equal terms to all [persons](/usc/15/78c.md?p=a-9); and - (D) may be used, resold, or redisseminated by any [person](/usc/15/78c.md?p=a-9) who has lawfully obtained such information without restriction and without payment of additional fees or royalties; and - (2) shall require that [persons](/usc/15/78c.md?p=a-9), or classes of [persons](/usc/15/78c.md?p=a-9), required to make filings with the [Commission](/usc/15/78c.md?p=a-15) submit such filings in a form and manner suitable for entry into the EDGAR system and shall specify the date that such requirement is effective with respect to that [person](/usc/15/78c.md?p=a-9) or class; except that the [Commission](/usc/15/78c.md?p=a-15) may exempt [persons](/usc/15/78c.md?p=a-9) or classes of [persons](/usc/15/78c.md?p=a-9), or filings or classes of filings, from such rules or regulations in [order](/usc/15/8702.md?p=14) to prevent hardships or to avoid imposing unreasonable burdens or as otherwise may be necessary or appropriate. # §78mm. General exemptive authority - (a) **Authority—** - (1) **In general—** Except as provided in [subsection (b)](#b), but notwithstanding any other provision of this chapter, the [Commission](/usc/15/78c.md?p=a-15), by rule, regulation, or [order](/usc/15/8702.md?p=14), may conditionally or unconditionally exempt any [person](/usc/15/78c.md?p=a-9), [security](/usc/15/78c.md?p=a-10), or transaction, or any class or classes of [persons](/usc/15/78c.md?p=a-9), [securities](/usc/15/78c.md?p=a-10), or transactions, from any provision or provisions of this chapter 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. - (2) **Procedures—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule or regulation, determine the procedures under which an exemptive [order](/usc/15/8702.md?p=14) under this section shall be granted and may, in its sole discretion, decline to entertain any [application](/usc/15/77ccc.md?p=8) for an [order](/usc/15/8702.md?p=14) of exemption under this section. - (b) **Limitation—** The [Commission](/usc/15/78c.md?p=a-15) may not, under this section, exempt any [person](/usc/15/78c.md?p=a-9), [security](/usc/15/78c.md?p=a-10), or transaction, or any class or classes of [persons](/usc/15/78c.md?p=a-9), [securities](/usc/15/78c.md?p=a-10), or transactions from [section 78o–5](/usc/15/78o–5.md) of this title or the rules or regulations issued thereunder or (for purposes of [section 78o–5](/usc/15/78o–5.md) of this title and the rules and regulations issued thereunder) from any definition in paragraph (42), (43), (44), or (45) of [section 78c(a) of this title](/usc/15/78c.md?p=a). - (c) **Derivatives—** Unless the [Commission](/usc/15/78c.md?p=a-15) is expressly authorized by any provision described in this subsection to grant exemptions, the [Commission](/usc/15/78c.md?p=a-15) shall not grant exemptions, with respect to amendments made by subtitle B of the Wall Street Transparency and Accountability Act of 2010, with respect to paragraphs (65), (66), (68), (69), (70), (71), (72), (73), (74), (75), (76), and (79) of [section 78c(a) of this title](/usc/15/78c.md?p=a), and sections [78j–2(a)](/usc/15/78j–2.md?p=a), [78j–2(b)](/usc/15/78j–2.md?p=b), [78j–2(c)](/usc/15/78j–2.md?p=c), [78m–1](/usc/15/78m–1.md), [78o–10](/usc/15/78o–10.md), [78q–1(g)](/usc/15/78q–1.md?p=g), [78q–1(h)](/usc/15/78q–1.md?p=h), [78q–1(i)](/usc/15/78q–1.md?p=i), [78q–1(j)](/usc/15/78q–1.md?p=j), [78q–1(k)](/usc/15/78q–1.md?p=k), and [78q–1(l)](/usc/15/78q–1.md?p=l) of this title; provided that the [Commission](/usc/15/78c.md?p=a-15) shall have exemptive [authority](/usc/15/3051.md?p=1) under this chapter with respect to [security-based swaps](/usc/15/78c.md?p=a-68-A) as to the same matters that the Commodity Futures Trading [Commission](/usc/15/78c.md?p=a-15) has under the Wall Street Transparency and Accountability Act of 2010 with respect to [swaps](/usc/15/78c.md?p=a-69), including under [section 6(c) of title 7](/usc/7/6.md?p=c). # §78nn. Tennessee Valley Authority - (a) **In general—** Commencing with the issuance by the Tennessee Valley [Authority](/usc/15/3051.md?p=1) of an annual report on [Commission](/usc/15/78c.md?p=a-15) Form 10–K (or any successor thereto) for fiscal year 2006 and thereafter, the Tennessee Valley [Authority](/usc/15/3051.md?p=1) shall file with the [Commission](/usc/15/78c.md?p=a-15), in accordance with such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) has prescribed or may prescribe, such periodic, current, and supplementary information, documents, and reports as would be required pursuant to [section 78m of this title](/usc/15/78m.md) if the Tennessee Valley [Authority](/usc/15/3051.md?p=1) were an [issuer](/usc/15/78c.md?p=a-8) of a [security](/usc/15/78c.md?p=a-10) registered pursuant to [section 78l](/usc/15/78l.md) of this title. Notwithstanding the preceding sentence, the Tennessee Valley [Authority](/usc/15/3051.md?p=1) shall not be required to register any [securities](/usc/15/78c.md?p=a-10) under this chapter, and shall not be deemed to have registered any [securities](/usc/15/78c.md?p=a-10) under this chapter. - (b) **Limited treatment as issuer—** Commencing with the issuance by the Tennessee Valley [Authority](/usc/15/3051.md?p=1) of an annual report on [Commission](/usc/15/78c.md?p=a-15) Form 10–K (or any successor thereto) for fiscal year 2006 and thereafter, the Tennessee Valley [Authority](/usc/15/3051.md?p=1) shall be deemed to be an [issuer](/usc/15/78c.md?p=a-8) for purposes of [section 78j–1 of this title](/usc/15/78j–1.md), other than for subsection (m)(1) or (m)(3) of [section 78j–1 of this title](/usc/15/78j–1.md). The Tennessee Valley [Authority](/usc/15/3051.md?p=1) shall not be required by this subsection to comply with the rules issued by any [national securities exchange](/usc/15/9009a.md?p=a-5) or national [securities](/usc/15/78c.md?p=a-10) [association](/usc/15/657h.md?p=a-2) in response to rules issued by the [Commission](/usc/15/78c.md?p=a-15) pursuant to [section 78j–1(m)(1) of this title](/usc/15/78j–1.md?p=m-1). - (c) **No effect on TVA authority—** Nothing in this section shall be construed to diminish, impair, or otherwise affect the [authority](/usc/15/3051.md?p=1) of the [Board](/usc/15/78c.md?p=a-73) of [Directors](/usc/15/78c.md?p=a-7) of the Tennessee Valley [Authority](/usc/15/3051.md?p=1) to carry out its statutory functions under the Tennessee Valley Authority Act of 1933 [[16 U.S.C. 831](/usc/16/831.md) et seq.]. # §78oo. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks - (a) **Federal National Mortgage Association and Federal Home Loan Mortgage Corporation—** No class of [equity securities](/usc/15/78c.md?p=a-11) of the [Federal National Mortgage Association](#c-2) or the [Federal Home Loan Mortgage Corporation](#c-3) shall be treated as an [exempted security](/usc/15/78c.md?p=a-12-A) for purposes of section [78l](/usc/15/78l.md), [78m](/usc/15/78m.md), [78n](/usc/15/78n.md), or [78p](/usc/15/78p.md) of this title. - (b) **Federal Home Loan Banks—** - (1) **Registration—** Each [Federal Home Loan Bank](#c-1) shall register a class of its common stock under [section 78l(g)](/usc/15/78l.md?p=g) of this title, not later than 120 days after July 30, 2008, and shall thereafter maintain such registration and be treated for purposes of this chapter as an “[issuer](/usc/15/78c.md?p=a-8)”, the [securities](/usc/15/78c.md?p=a-10) of which are required to be registered under [section 78l](/usc/15/78l.md) of this title, regardless of the number of [members](#c-1) holding such stock at any given time. - (2) **Standards relating to audit committees—** Each [Federal Home Loan Bank](#c-1) shall comply with the rules issued by the [Commission](/usc/15/78c.md?p=a-15) under [section 78j–1(m) of this title](/usc/15/78j–1.md?p=m). - (c) **Definitions—** For purposes of this section, the following definitions shall apply: - (1) **Federal Home Loan Bank; member—** The terms “Federal Home Loan Bank” and “member”, have the same meanings as in [section 1422 of title 12](/usc/12/1422.md). - (2) **Federal National Mortgage Association—** The term “Federal National Mortgage Association” means the corporation created by the Federal National Mortgage Association Charter Act [[12 U.S.C. 1716](/usc/12/1716.md) et seq.]. - (3) **Federal Home Loan Mortgage Corporation—** The term “Federal Home Loan Mortgage Corporation” means the corporation created by the Federal Home Loan Mortgage Corporation Act [[12 U.S.C. 1451](/usc/12/1451.md) et seq.]. # §78pp. Investor Advisory Committee - (a) **Establishment and purpose—** - (1) **Establishment—** There is established within the [Commission](/usc/15/78c.md?p=a-15) the Investor [Advisory Committee](/usc/15/8801.md?p=1) (referred to in this section as the “[Committee](/usc/15/2921.md?p=1)”). - (2) **Purpose—** The [Committee](/usc/15/2921.md?p=1) shall— - (A) advise and consult with the [Commission](/usc/15/78c.md?p=a-15) on— - (i) regulatory priorities of the [Commission](/usc/15/78c.md?p=a-15); - (ii) issues relating to the regulation of [securities](/usc/15/78c.md?p=a-10) products, trading strategies, and fee structures, and the effectiveness of disclosure; - (iii) [initiatives](/usc/15/9401.md?p=5) to protect investor interest; and - (iv) [initiatives](/usc/15/9401.md?p=5) to promote investor confidence and the integrity of the [securities](/usc/15/78c.md?p=a-10) marketplace; and - (B) submit to the [Commission](/usc/15/78c.md?p=a-15) such findings and recommendations as the [Committee](/usc/15/2921.md?p=1) determines are appropriate, including recommendations for proposed legislative changes. - (b) **Membership—** - (1) **In general—** The [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) shall be— - (A) the Investor Advocate; - (B) a representative of [State](/usc/15/78c.md?p=a-16) [securities](/usc/15/78c.md?p=a-10) [commissions](/usc/15/78c.md?p=a-15); - (C) a representative of the interests of senior citizens; and - (D) not fewer than 10, and not more than 20, [members](/usc/15/78c.md?p=a-3-A) appointed by the [Commission](/usc/15/78c.md?p=a-15), from among individuals who— - (i) represent the interests of individual equity and debt investors, including investors in mutual funds; - (ii) represent the interests of institutional investors, including the interests of pension funds and registered [investment companies](/usc/15/78c.md?p=a-12-A-iii); - (iii) are knowledgeable about investment issues and decisions; and - (iv) have reputations of integrity. - (2) **Term—** Each [member](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) appointed under [paragraph (1)(B)](#b-1-B) shall serve for a term of 4 years. - (3) **Members not Commission employees—** [Members](/usc/15/78c.md?p=a-3-A) appointed under [paragraph (1)(B)](#b-1-B) shall not be deemed to be employees or agents of the [Commission](/usc/15/78c.md?p=a-15) solely because of membership on the [Committee](/usc/15/2921.md?p=1). - (c) **Chairman; vice chairman; secretary; assistant secretary—** - (1) **In general—** The [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) shall elect, from among the [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1)— - (A) a chairman, who may not be employed by an [issuer](/usc/15/78c.md?p=a-8); - (B) a vice chairman, who may not be employed by an [issuer](/usc/15/78c.md?p=a-8); - (C) a secretary; and - (D) an assistant secretary. - (2) **Term—** Each [member](/usc/15/78c.md?p=a-3-A) elected under [paragraph (1)](#c-1) shall serve for a term of 3 years in the capacity for which the [member](/usc/15/78c.md?p=a-3-A) was elected under [paragraph (1)](#c-1). - (d) **Meetings—** - (1) **Frequency of meetings—** The [Committee](/usc/15/2921.md?p=1) shall meet— - (A) not less frequently than twice annually, at the call of the chairman of the [Committee](/usc/15/2921.md?p=1); and - (B) from time to time, at the call of the [Commission](/usc/15/78c.md?p=a-15). - (2) **Notice—** The chairman of the [Committee](/usc/15/2921.md?p=1) shall give the [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) written notice of each meeting, not later than 2 weeks before the date of the meeting. - (e) **Compensation and travel expenses—** Each [member](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) who is not a full-time employee of the United States shall— - (1) be entitled to receive compensation at a rate not to exceed the daily equivalent of the annual rate of basic pay in effect for a position at level V of the Executive Schedule under [section 5316 of title 5](/usc/5/5316.md) for each day during which the [member](/usc/15/78c.md?p=a-3-A) is engaged in the actual performance of the duties of the [Committee](/usc/15/2921.md?p=1); and - (2) while away from the home or regular place of business of the [member](/usc/15/78c.md?p=a-3-A) in the performance of services for the [Committee](/usc/15/2921.md?p=1), be allowed travel expenses, including per diem in lieu of subsistence, in the same manner as [persons](/usc/15/78c.md?p=a-9) employed intermittently in the Government service are allowed expenses under section 5703(b)[^1] of [title 5](/usc/5.md). - (f) **Staff—** The [Commission](/usc/15/78c.md?p=a-15) shall make available to the [Committee](/usc/15/2921.md?p=1) such staff as the chairman of the [Committee](/usc/15/2921.md?p=1) determines are necessary to carry out this section. - (g) **Review by Commission—** The [Commission](/usc/15/78c.md?p=a-15) shall— - (1) review the findings and recommendations of the [Committee](/usc/15/2921.md?p=1); and - (2) each time the [Committee](/usc/15/2921.md?p=1) submits a finding or recommendation to the [Commission](/usc/15/78c.md?p=a-15), promptly issue a public statement— - (A) assessing the finding or recommendation of the [Committee](/usc/15/2921.md?p=1); and - (B) disclosing the action, if any, the [Commission](/usc/15/78c.md?p=a-15) intends to take with respect to the finding or recommendation. - (h) **Committee findings—** Nothing in this section shall require the [Commission](/usc/15/78c.md?p=a-15) to agree to or act upon any finding or recommendation of the [Committee](/usc/15/2921.md?p=1). - (i) **Chapter 10 of title 5—** [Chapter 10](/usc/5/chptI-ch10.md) of title 5 shall not apply with respect to the [Committee](/usc/15/2921.md?p=1) and its activities. - (j) **Authorization of appropriations—** There is authorized to be appropriated to the [Commission](/usc/15/78c.md?p=a-15) such sums as are necessary to carry out this section. # §78qq. Small Business Capital Formation Advisory Committee - (a) **Establishment and purpose—** - (1) **Establishment—** There is established within the [Commission](/usc/15/78c.md?p=a-15) the [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation [Advisory Committee](/usc/15/8801.md?p=1) (hereafter in this section referred to as the “[Committee](/usc/15/2921.md?p=1)”). - (2) **Functions—** - (A) **In general—** The [Committee](/usc/15/2921.md?p=1) shall provide the [Commission](/usc/15/78c.md?p=a-15) with advice on the [Commission](/usc/15/78c.md?p=a-15)’s rules, regulations, and policies with regard to the [Commission](/usc/15/78c.md?p=a-15)’s mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation, as such rules, regulations, and policies relate to— - (i) capital raising by emerging, privately held [small businesses](/usc/15/1691c–2.md?p=h-2) (“emerging [companies](/usc/15/78c.md?p=a-19)”) and publicly traded [companies](/usc/15/78c.md?p=a-19) with less than $250,000,000 in public market capitalization (“smaller public [companies](/usc/15/78c.md?p=a-19)”) through [securities](/usc/15/78c.md?p=a-10) offerings, including private and limited offerings and initial and other public offerings; - (ii) trading in the [securities](/usc/15/78c.md?p=a-10) of emerging [companies](/usc/15/78c.md?p=a-19) and smaller public [companies](/usc/15/78c.md?p=a-19); and - (iii) public reporting and corporate governance requirements of emerging [companies](/usc/15/78c.md?p=a-19) and smaller public [companies](/usc/15/78c.md?p=a-19). - (B) **Limitation—** The [Committee](/usc/15/2921.md?p=1) shall not provide any advice with respect to any policies, practices, actions, or decisions concerning the [Commission](/usc/15/78c.md?p=a-15)’s enforcement [program](/usc/15/2921.md?p=6). - (b) **Membership—** - (1) **In general—** The [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) shall be— - (A) the Advocate for [Small Business](/usc/15/1691c–2.md?p=h-2) Capital Formation; - (B) not fewer than 10, and not more than 20, [members](/usc/15/78c.md?p=a-3-A) appointed by the [Commission](/usc/15/78c.md?p=a-15), from among individuals— - (i) who represent— - (I) emerging [companies](/usc/15/78c.md?p=a-19) engaging in private and limited [securities](/usc/15/78c.md?p=a-10) offerings or considering initial public offerings (“IPO”) (including the [companies](/usc/15/78c.md?p=a-19)’ officers and [directors](/usc/15/78c.md?p=a-7)); - (II) the professional advisors of such [companies](/usc/15/78c.md?p=a-19) (including attorneys, accountants, investment bankers, and financial advisors); and - (III) the investors in such [companies](/usc/15/78c.md?p=a-19) (including angel investors, [venture capital](/usc/15/690.md?p=6) funds, and family offices); - (ii) who are officers or [directors](/usc/15/78c.md?p=a-7) of minority-owned [small businesses](/usc/15/1691c–2.md?p=h-2) or [women](/usc/15/657p.md?p=a-10)-owned [small businesses](/usc/15/1691c–2.md?p=h-2); - (iii) who represent— - (I) smaller public [companies](/usc/15/78c.md?p=a-19) (including the [companies](/usc/15/78c.md?p=a-19)’ officers and [directors](/usc/15/78c.md?p=a-7)); - (II) the professional advisors of such [companies](/usc/15/78c.md?p=a-19) (including attorneys, auditors, [underwriters](/usc/15/78c.md?p=a-20), and financial advisors); and - (III) the pre-IPO and post-IPO investors in such [companies](/usc/15/78c.md?p=a-19) (both institutional, such as [venture capital](/usc/15/690.md?p=6) funds, and individual, such as angel investors); and - (iv) who represent [participants](/usc/15/78c.md?p=a-24) in the marketplace for the [securities](/usc/15/78c.md?p=a-10) of emerging [companies](/usc/15/78c.md?p=a-19) and smaller public [companies](/usc/15/78c.md?p=a-19), such as [securities](/usc/15/78c.md?p=a-10) [exchanges](/usc/15/78c.md?p=a-1), alternative trading systems, analysts, information processors, and [transfer agents](/usc/15/78c.md?p=a-25); and - (C) three non-voting [members](/usc/15/78c.md?p=a-3-A)— - (i) one of whom shall be appointed by the Investor Advocate; - (ii) one of whom shall be appointed by the North American [Securities](/usc/15/78c.md?p=a-10) [Administrators](/usc/15/9001.md?p=1) [Association](/usc/15/657h.md?p=a-2); and - (iii) one of whom shall be appointed by the [Administrator](/usc/15/9001.md?p=1) of the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2). - (2) **Term—** Each [member](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) appointed under subparagraph [(B)](#b-1-B), [(C)(ii)](#b-1-C-ii), or [(C)(iii)](#b-1-C-iii) of paragraph (1) shall serve for a term of 4 years. - (3) **Members not Commission employees—** [Members](/usc/15/78c.md?p=a-3-A) appointed under subparagraph [(B)](#b-1-B), [(C)(ii)](#b-1-C-ii), or [(C)(iii)](#b-1-C-iii) of paragraph (1) shall not be treated as employees or agents of the [Commission](/usc/15/78c.md?p=a-15) solely because of membership on the [Committee](/usc/15/2921.md?p=1). - (c) **Chairman; vice chairman; secretary; assistant secretary—** - (1) **In general—** The [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) shall elect, from among the [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1)— - (A) a chairman; - (B) a vice chairman; - (C) a secretary; and - (D) an assistant secretary. - (2) **Term—** Each [member](/usc/15/78c.md?p=a-3-A) elected under [paragraph (1)](#c-1) shall serve for a term of 3 years in the capacity for which the [member](/usc/15/78c.md?p=a-3-A) was elected under [paragraph (1)](#c-1). - (d) **Meetings—** - (1) **Frequency of meetings—** The [Committee](/usc/15/2921.md?p=1) shall meet— - (A) not less frequently than four times annually, at the call of the chairman of the [Committee](/usc/15/2921.md?p=1); and - (B) from time to time, at the call of the [Commission](/usc/15/78c.md?p=a-15). - (2) **Notice—** The chairman of the [Committee](/usc/15/2921.md?p=1) shall give the [members](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) written notice of each meeting, not later than 2 weeks before the date of the meeting. - (e) **Compensation and travel expenses—** Each [member](/usc/15/78c.md?p=a-3-A) of the [Committee](/usc/15/2921.md?p=1) who is not a full-time employee of the United States shall— - (1) be entitled to receive compensation at a rate not to exceed the daily equivalent of the annual rate of basic pay in effect for a position at level V of the Executive Schedule under [section 5316 of title 5](/usc/5/5316.md) for each day during which the [member](/usc/15/78c.md?p=a-3-A) is engaged in the actual performance of the duties of the [Committee](/usc/15/2921.md?p=1); and - (2) while away from the home or regular place of business of the [member](/usc/15/78c.md?p=a-3-A) in the performance of services for the [Committee](/usc/15/2921.md?p=1), be allowed travel expenses, including per diem in lieu of subsistence, in the same manner as [persons](/usc/15/78c.md?p=a-9) employed intermittently in the Government service are allowed expenses under [section 5703 of title 5](/usc/5/5703.md). - (f) **Staff—** The [Commission](/usc/15/78c.md?p=a-15) shall make available to the [Committee](/usc/15/2921.md?p=1) such staff as the chairman of the [Committee](/usc/15/2921.md?p=1) determines are necessary to carry out this section. - (g) **Review by Commission—** The [Commission](/usc/15/78c.md?p=a-15) shall— - (1) review the findings and recommendations of the [Committee](/usc/15/2921.md?p=1); and - (2) each time the [Committee](/usc/15/2921.md?p=1) submits a finding or recommendation to the [Commission](/usc/15/78c.md?p=a-15), promptly issue a public statement— - (A) assessing the finding or recommendation of the [Committee](/usc/15/2921.md?p=1); and - (B) disclosing the action, if any, the [Commission](/usc/15/78c.md?p=a-15) intends to take with respect to the finding or recommendation. - (h) **Federal Advisory Committee Act—** The Federal Advisory Committee Act (5 U.S.C. App.)[^1] shall not apply with respect to the [Committee](/usc/15/2921.md?p=1) and its activities. # §78rr. Data standards for security-based swap reporting - (a) **Requirement—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, adopt data standards for all reports related to [security-based swaps](/usc/15/78c.md?p=a-68-A) that are required under this chapter. - (b) **Consistency—** The data standards required under [subsection (a)](#a) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §78aaa. Short title This chapter may be cited as the “[Securities](/usc/15/78lll.md?p=14) Investor Protection Act of 1970”. # §78bbb. Application of Securities Exchange Act of 1934 Except as otherwise provided in this chapter, the provisions of the [Securities](/usc/15/78lll.md?p=14) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.] (hereinafter referred to as the “1934 Act”) apply as if this chapter constituted an amendment to, and was included as a section of, such Act. # §78ccc. Securities Investor Protection Corporation - (a) **Creation and membership—** - (1) **Creation—** There is hereby established a body corporate to be known as the “[Securities](/usc/15/78lll.md?p=14) Investor Protection Corporation” (hereafter in this chapter referred to as “SIPC”). SIPC shall be a nonprofit corporation and shall have succession until dissolved by Act of the Congress. SIPC shall— - (A) not be an agency or establishment of the United States Government; and - (B) except as otherwise provided in this chapter, be subject to, and have all the powers conferred upon a nonprofit corporation by, the District of Columbia Nonprofit Corporation Act. - (2) **Membership—** - (A) **Members of SIPC—** SIPC shall be a membership corporation the members of which shall be all [persons registered as brokers or dealers](/usc/15/78lll.md?p=12) under [section 78o(b)](/usc/15/78o.md?p=b) of this title, other than— - (i) [persons](/usc/15/78m.md?p=h-8-E) whose principal business, in the determination of SIPC, taking into [account](/usc/15/1681a.md?p=r-4) business of affiliated entities, is conducted outside the United States and its territories and possessions; - (ii) [persons](/usc/15/78m.md?p=h-8-E) whose business as a [broker or dealer](/usc/15/78c.md?p=h-2) consists exclusively of (I) the distribution of shares of registered open end [investment companies](/usc/15/77z–2.md?p=i-2) or unit investment trusts, (II) the sale of variable annuities, (III) the business of insurance, or (IV) the business of rendering investment advisory services to one or more registered [investment companies](/usc/15/77z–2.md?p=i-2) or insurance company separate [accounts](/usc/15/1681a.md?p=r-4); and - (iii) [persons](/usc/15/78m.md?p=h-8-E) who are registered as a [broker or dealer](/usc/15/78c.md?p=h-2) pursuant to [section 78o(b)(11)(A)](/usc/15/78o.md?p=b-11-A) of this title. - (B) **Commission review—** SIPC shall file with the [Commission](/usc/15/78lll.md?p=1) a copy of any determination made pursuant to [subparagraph (A)(i)](#a-2-A-i). Within thirty days after the date of such filing, or within such longer period as the [Commission](/usc/15/78lll.md?p=1) may designate of not more than ninety days after such date if it finds such longer period to be appropriate and publishes its reasons for so finding, the [Commission](/usc/15/78lll.md?p=1) shall, consistent with the public interest and the purposes of this chapter, affirm, reverse, or amend any such determination of SIPC. - (C) **Additional members—** SIPC shall provide by rule that [persons](/usc/15/78m.md?p=h-8-E) excluded from membership in SIPC under [subparagraph (A)(i)](#a-2-A-i) may become members of SIPC under such conditions and upon such terms as SIPC shall require by rule, taking into [account](/usc/15/1681a.md?p=r-4) such matters as the availability of assets and the ability to conduct a liquidation if necessary. - (D) **Disclosure—** Any [broker or dealer](/usc/15/78c.md?p=h-2) excluded from membership in SIPC under [subparagraph (A)(i)](#a-2-A-i) shall, as required by the [Commission](/usc/15/78lll.md?p=1) by rule, make disclosures of its exclusion and other relevant information to the [customers](/usc/15/78lll.md?p=2-A) of such [broker or dealer](/usc/15/78c.md?p=h-2) who are living in the United States or its territories and possessions. - (b) **Powers—** In addition to the powers granted to SIPC elsewhere in this chapter, SIPC shall have the power— - (1) to sue and be sued, complain and defend, in its corporate name and through its own counsel, in any [State](/usc/15/15g.md?p=2), Federal, or other court; - (2) to adopt, alter, and use a corporate seal, which shall be judicially noticed; - (3) to adopt, amend, and repeal, by its [Board](/usc/15/205c.md?p=1) of Directors, such bylaws as may be necessary or appropriate to carry out the purposes of this chapter, including bylaws relating to— - (A) the conduct of its business; and - (B) the indemnity of its directors, officers, and employees (including any such [person](/usc/15/78m.md?p=h-8-E) acting as trustee or otherwise in connection with a [liquidation proceeding](/usc/15/78lll.md?p=10)) for liabilities and expenses actually and reasonably incurred by any such [person](/usc/15/78m.md?p=h-8-E) in connection with the defense or settlement of an action or suit if such [person](/usc/15/78m.md?p=h-8-E) acted in good faith and in a manner reasonably believed to be consistent with the purposes of this chapter. - (4) to adopt, amend, and repeal, by its [Board](/usc/15/205c.md?p=1) of Directors, such rules as may be necessary or appropriate to carry out the purposes of this chapter, including rules relating to— - (A) the definition of terms used in this chapter, other than those terms for which a definition is provided in [section 78lll](/usc/15/78lll.md) of this title; - (B) the procedures for the liquidation of members and direct payment procedures, including the transfer of [customer](/usc/15/78lll.md?p=2-A) [accounts](/usc/15/1681a.md?p=r-4), the distribution of [customer property](/usc/15/78lll.md?p=4), and the advance and payment of SIPC funds; and - (C) the exercise of all other rights and powers granted to it by this chapter; - (5) to conduct its business (including the carrying on of operations and the maintenance of offices) and to exercise all other rights and powers granted to it by this chapter in any [State](/usc/15/15g.md?p=2) or other jurisdiction without regard to any qualification, licensing, or other statute in such [State](/usc/15/15g.md?p=2) or other jurisdiction; - (6) to lease, [purchase](/usc/15/78c–5.md?p=g), accept gifts or donations of or otherwise acquire, to own, hold, improve, use, or otherwise deal in or with, and to sell, convey, mortgage, pledge, lease, [exchange](/usc/15/636.md?p=a-36-A-xvi) or otherwise dispose of, any property, real, personal or mixed, or any interest therein, wherever situated; - (7) subject to the provisions of [subsection (c)](#c), to elect or appoint such officers, attorneys, employees, and agents as may be required, to determine their qualifications, to define their duties, to fix their salaries, require bonds for them and fix the penalty thereof; - (8) to enter into contracts, to execute instruments, to incur liabilities, and to do any and all other acts and things as may be necessary or incidental to the conduct of its business and the exercise of all other rights and powers granted to SIPC by this chapter; and - (9) by bylaw, to establish its fiscal year. - (c) **Board of Directors—** - (1) **Functions—** SIPC shall have a [Board](/usc/15/205c.md?p=1) of Directors which, subject to the provisions of this chapter, shall determine the policies which shall govern the operations of SIPC. - (2) **Number and appointment—** The [Board](/usc/15/205c.md?p=1) of Directors shall consist of seven [persons](/usc/15/78m.md?p=h-8-E) as follows: - (A) One director shall be appointed by the Secretary of the Treasury from among the officers and employees of the Department of the Treasury. - (B) One director shall be appointed by the Federal Reserve [Board](/usc/15/205c.md?p=1) from among the officers and employees of the Federal Reserve [Board](/usc/15/205c.md?p=1). - (C) Five directors shall be appointed by the President, by and with the advice and consent of the Senate, as follows— - (i) three such directors shall be selected from among [persons](/usc/15/78m.md?p=h-8-E) who are associated with, and representative of different aspects of, the [securities](/usc/15/78lll.md?p=14) industry, not all of whom shall be from the same geographical area of the United States, and - (ii) two such directors shall be selected from the general public from among [persons](/usc/15/78m.md?p=h-8-E) who are not associated with a [broker or dealer](/usc/15/78c.md?p=h-2) or associated with a member of a [national securities exchange](/usc/15/9009a.md?p=a-5), within the meaning of [section 78c(a)(18)](/usc/15/78c.md?p=a-18) or [section 78c(a)(21)](/usc/15/78c.md?p=a-21), respectively, of this title, or similarly associated with any [self-regulatory organization](/usc/15/78c.md?p=a-26) or other [securities](/usc/15/78lll.md?p=14) industry group, and who have not had any such [association](/usc/15/657h.md?p=a-2) during the two years preceding appointment. - (3) **Chairman and Vice Chairman—** The President shall designate a Chairman and Vice Chairman from among those directors appointed under paragraph (2)(C)(ii) of this subsection. - (4) **Terms—** - (A) Except as provided in subparagraphs [(B)](#c-4-B) and [(C)](#c-4-C), each director shall be appointed for a term of three years. - (B) Of the directors first appointed under [paragraph (2)](#c-2)— - (i) two shall hold office for a term expiring on December 31, 1971, - (ii) two shall hold office for a term expiring on December 31, 1972, and - (iii) three shall hold office for a term expiring on December 31, 1973, as designated by the President at the time they take office. Such designation shall be made in a manner which will assure that no two [persons](/usc/15/78m.md?p=h-8-E) appointed under the [authority](/usc/15/3051.md?p=1) of the same clause of [paragraph (2)(C)](#c-2-C) shall have terms which expire simultaneously. - (C) A vacancy in the [Board](/usc/15/205c.md?p=1) shall be filled in the same manner as the original appointment was made. Any director appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed shall be appointed only for the remainder of such term. A director may serve after the expiration of his term until his successor has taken office. - (5) **Compensation—** All matters relating to compensation of directors shall be as provided in the bylaws of SIPC. - (d) **Meetings of Board—** The [Board](/usc/15/205c.md?p=1) of Directors shall meet at the call of its Chairman, or as otherwise provided by the bylaws of SIPC. - (e) **Bylaws and rules—** - (1) **Proposed bylaw changes—** The [Board](/usc/15/205c.md?p=1) of Directors of SIPC shall file with the [Commission](/usc/15/78lll.md?p=1) a copy of any proposed bylaw or any proposed amendment to or repeal of any bylaw of SIPC (hereinafter in this paragraph collectively referred to as a “proposed bylaw change”), accompanied by a concise general statement of the basis and purpose of such proposed bylaw change. Each such proposed bylaw change shall take effect thirty days after the date of the filing of a copy thereof with the [Commission](/usc/15/78lll.md?p=1), or upon such later date as SIPC may designate or such earlier date as the [Commission](/usc/15/78lll.md?p=1) may determine, unless— - (A) the [Commission](/usc/15/78lll.md?p=1), by notice to SIPC setting forth the reasons therefor, disapproves such proposed bylaw change as being contrary to the public interest or contrary to the purposes of this chapter; or - (B) the [Commission](/usc/15/78lll.md?p=1) finds that such proposed bylaw change involves a matter of such significant public interest that public comment should be obtained, in which case it may, after notifying SIPC in writing of such finding, require that the procedures set forth in [paragraph (2)](#e-2) be followed with respect to such proposed bylaw change, in the same manner as if such proposed bylaw change were a proposed rule change within the meaning of such paragraph. - (2) **Proposed rule changes—** - (A) **Filing of proposed rule changes—** The [Board](/usc/15/205c.md?p=1) of Directors of SIPC shall file with the [Commission](/usc/15/78lll.md?p=1), in accordance with such rules as the [Commission](/usc/15/78lll.md?p=1) may prescribe, a copy of any proposed rule or any proposed amendment to or repeal of any rule of SIPC (hereinafter in this subsection collectively referred to as a “proposed rule change”), accompanied by a concise general statement of the basis and purpose of such proposed rule change. The [Commission](/usc/15/78lll.md?p=1) shall, upon the filing of any proposed rule change, publish notice thereof, together with the terms of substance of such proposed rule change or a description of the subjects and issues involved. The [Commission](/usc/15/78lll.md?p=1) shall give interested [persons](/usc/15/78m.md?p=h-8-E) an opportunity to submit written data, views, and arguments with respect to such proposed rule change. No proposed rule change shall take effect unless approved by the [Commission](/usc/15/78lll.md?p=1) or otherwise permitted in accordance with the provisions of this paragraph. - (B) **Action by the Commission—** Within thirty-five days after the date of publication of notice of the filing of a proposed rule change, or within such longer period as the [Commission](/usc/15/78lll.md?p=1) may designate of not more than ninety days after such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which SIPC consents, the [Commission](/usc/15/78lll.md?p=1) shall— - (i) by [order](/usc/15/8702.md?p=14) approve such proposed rule change; or - (ii) [institute](/usc/15/9401.md?p=7) proceedings to determine whether such proposed rule change should be disapproved. - (C) **Proceedings—** Proceedings instituted with respect to a proposed rule change pursuant to [subparagraph (B)(ii)](#e-2-B-ii) shall include notice of the grounds for disapproval under consideration and opportunity for hearing, and shall be concluded within one hundred eighty days after the date of publication of notice of the filing of such proposed rule change. At the conclusion of such proceedings, the [Commission](/usc/15/78lll.md?p=1) shall, by [order](/usc/15/8702.md?p=14), approve or disapprove such proposed rule change. The [Commission](/usc/15/78lll.md?p=1) may extend the time for conclusion of such proceedings for not more than sixty days if it finds good cause for such extension and publishes its reasons for so finding, or for such longer period as to which SIPC consents. - (D) **Grounds for approval or disapproval—** The [Commission](/usc/15/78lll.md?p=1) shall approve a proposed rule change if it finds that such proposed rule change is in the public interest and is consistent with the purposes of this chapter, and any proposed rule change so approved shall be given force and effect as if promulgated by the [Commission](/usc/15/78lll.md?p=1). The [Commission](/usc/15/78lll.md?p=1) shall disapprove a proposed rule change if it does not make the finding referred to in the preceding sentence. The [Commission](/usc/15/78lll.md?p=1) shall not approve any proposed rule change prior to thirty days after the date of publication of notice of the filing thereof, unless the [Commission](/usc/15/78lll.md?p=1) finds good cause for so doing and publishes its reasons for so finding. - (E) **Exception—** Notwithstanding any other provision of this paragraph, a proposed rule change may take effect— - (i) upon the date of filing with the [Commission](/usc/15/78lll.md?p=1), if such proposed rule change is designated by SIPC as relating solely to matters which the [Commission](/usc/15/78lll.md?p=1), consistent with the public interest and the purposes of this subsection, determines by rule do not require the procedures set forth in this paragraph; or - (ii) upon such date as the [Commission](/usc/15/78lll.md?p=1) shall for good cause determine. Any proposed rule change which takes effect under this clause shall be filed promptly thereafter and reviewed in accordance with the provisions of [subparagraph (A)](#e-2-A). At any time within sixty days after the date of filing of any rule change which has taken effect pursuant to this subparagraph, the [Commission](/usc/15/78lll.md?p=1) may summarily abrogate such rule change and require that it be refiled and reviewed in accordance with the provisions of this paragraph, if the [Commission](/usc/15/78lll.md?p=1) finds that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter. Any action of the [Commission](/usc/15/78lll.md?p=1) pursuant to the preceding sentence shall not affect the validity or force of a rule change during the period it was in effect and shall not be reviewable under [section 78y of this title](/usc/15/78y.md) or deemed to be final agency action for purposes of [section 704 of title 5](/usc/5/704.md). - (3) **Action required by Commission—** The [Commission](/usc/15/78lll.md?p=1) may, by such rules as it determines to be necessary or appropriate in the public interest or to carry out the purposes of this chapter, require SIPC to adopt, amend, or repeal any SIPC bylaw or rule, whenever adopted. # §78ddd. SIPC Fund - (a) **In general—** - (1) **Establishment of fund—** SIPC shall establish a “SIPC Fund” (hereinafter in this chapter referred to as the “fund”). All amounts received by SIPC (other than amounts paid directly to any lender pursuant to any pledge securing a borrowing by SIPC) shall be deposited in the fund, and all expenditures made by SIPC shall be made out of the fund. - (2) **Balance of the fund—** Except as otherwise provided in this section, the balance of the fund at any time shall consist of the aggregate at such time of the following items: - (A) Cash on hand or on deposit. - (B) Amounts invested in United States Government or agency [securities](/usc/15/78lll.md?p=14). - (C) Such confirmed lines of [credit](/usc/15/1679a.md?p=4) as SIPC may from time to time maintain, other than those maintained pursuant to [paragraph (4)](#a-4). - (3) **Confirmed lines of credit—** For purposes of this section, the amount of confirmed lines of [credit](/usc/15/1679a.md?p=4) as of any time is the aggregate amount which SIPC at such time has the right to borrow from banks and other [financial institutions](/usc/15/1681s–2.md?p=a-7-G-ii) under confirmed lines of [credit](/usc/15/1679a.md?p=4) or other written [agreements](/usc/15/7a.md?p=2) which provide that moneys so borrowed are to be repayable by SIPC not less than one year from the time of such borrowings (including, for purposes of determining when such moneys are repayable, all rights of extension, refunding, or renewal at the election of SIPC). - (4) **Other lines—** SIPC may maintain such other confirmed lines of [credit](/usc/15/1679a.md?p=4) as it considers necessary or appropriate, and such other confirmed lines of [credit](/usc/15/1679a.md?p=4) shall not be included in the balance of the fund, but amounts received from such lines of [credit](/usc/15/1679a.md?p=4) may be disbursed by SIPC under this chapter as though such amounts were part of the fund. - (b) **Initial required balance for fund—** Within one hundred and twenty days from December 30, 1970, the balance of the fund shall aggregate not less than $75,000,000, less any amounts expended from the fund within that period. - (c) **Assessments—** - (1) **Initial assessments—** Each member of SIPC shall pay to SIPC, or the collection agent for SIPC specified in [section 78iii(a) of this title](/usc/15/78iii.md?p=a), on or before the one hundred and twentieth day following December 30, 1970, an assessment equal to one-eighth of 1 per centum of the [gross revenues from the securities business](/usc/15/78lll.md?p=9) of such member during the calendar year 1969, or if the [Commission](/usc/15/78lll.md?p=1) shall determine that, for purposes of assessment pursuant to this paragraph, a lesser percentage of [gross revenues from the securities business](/usc/15/78lll.md?p=9) is appropriate for any class or classes of members (taking into [account](/usc/15/1681a.md?p=r-4) relevant factors, including but not limited to types of business done and nature of [securities](/usc/15/78lll.md?p=14) sold), such lesser percentages as the [Commission](/usc/15/78lll.md?p=1), by rule or regulation, shall establish for such class or classes, but in no event less than one sixteenth of 1 per centum for any such class. In no event shall any assessment upon a member pursuant to this paragraph be less than $150. - (2) **General assessment authority—** SIPC shall, by bylaw, impose upon its members such assessments as, after consultation with [self-regulatory organizations](/usc/15/78c.md?p=a-26), SIPC may deem necessary and appropriate to establish and maintain the fund and to repay any borrowings by SIPC. Any assessments so made shall be in conformity with contractual obligations made by SIPC in connection with any borrowing incurred by SIPC. Subject to [paragraph (3)](#c-3) and [subsection (d)(1)(A)](#d-1-A), any such assessment upon the members, or any one or more classes thereof, may, in whole or in part, be based upon or measured by (A) the amount of their [gross revenues from the securities business](/usc/15/78lll.md?p=9), or (B) all or any of the following factors: the amount or composition of their [gross revenues from the securities business](/usc/15/78lll.md?p=9), the number or dollar volume of transactions effected by them, the number of [customer](/usc/15/78lll.md?p=2-A) [accounts](/usc/15/1681a.md?p=r-4) maintained by them or the amounts of cash and [securities](/usc/15/78lll.md?p=14) in such [accounts](/usc/15/1681a.md?p=r-4), their net capital, the nature of their activities (whether in the [securities](/usc/15/78lll.md?p=14) business or otherwise) and the consequent risks, or other relevant factors. - (3) **Limitations—** Notwithstanding any other provision of this chapter— - (A) no assessment shall be made upon a member otherwise than pursuant to paragraph (1) or (2) of this subsection, - (B) an assessment may be made under paragraph (2) of this subsection at a rate in excess of one-half of one per centum during any twelve-month period if SIPC determines, in accordance with a bylaw, that such rate of assessment during such period will not have a material adverse effect on the financial condition of its members or their [customers](/usc/15/78lll.md?p=2-A), except that no assessments shall be made pursuant to such paragraph upon a member which require payments during any such period which exceed in the aggregate one per centum of such member’s [gross revenues from the securities business](/usc/15/78lll.md?p=9) for such period, and - (C) no assessment shall include any charge based upon the member’s activities (i) in the distribution of shares of registered open end [investment companies](/usc/15/77z–2.md?p=i-2) or unit investment trusts, (ii) in the sale of variable annuities, (iii) in the business of insurance, or (iv) in the business of rendering investment advisory services to one or more registered [investment companies](/usc/15/77z–2.md?p=i-2) or insurance company separate [accounts](/usc/15/1681a.md?p=r-4). - (d) **Requirements respecting assessments and lines of credit—** - (1) **Assessments—** - (A) **½ of 1 percent assessment—** Subject to [subsection (c)(3)](#c-3), SIPC shall impose upon each of its members an assessment at a rate of not less than one-half of 1 per centum per annum of the [gross revenues from the securities business](/usc/15/78lll.md?p=9) of such member— - (i) until the balance of the fund aggregates not less than $150,000,000 (or such other amount as the [Commission](/usc/15/78lll.md?p=1) may determine in the public interest), - (ii) during any period when there is outstanding borrowing by SIPC pursuant to [subsection (f)](#f) or [subsection (g)](#g) of this section, and - (iii) whenever the balance of the fund (exclusive of confirmed lines of [credit](/usc/15/1679a.md?p=4)) is below $100,000,000 (or such other amount as the [Commission](/usc/15/78lll.md?p=1) may determine in the public interest). - (B) **¼ of 1 percent assessment—** During any period during which— - (i) the balance of the fund (exclusive of confirmed lines of [credit](/usc/15/1679a.md?p=4)) aggregates less than $150,000,000 (or such other amount as the [Commission](/usc/15/78lll.md?p=1) has determined under [paragraph (2)(B)](#d-2-B)), or - (ii) SIPC is required under [paragraph (2)(B)](#d-2-B) to phase out of the fund all confirmed lines of [credit](/usc/15/1679a.md?p=4), SIPC shall endeavor to make assessments in such a manner that the aggregate assessments payable by its members during such period shall not be less than one-fourth of 1 per centum per annum of the aggregate [gross revenues from the securities business](/usc/15/78lll.md?p=9) for such members during such period. - (C) **Minimum assessment—** The minimum assessment imposed upon each member of SIPC shall be $25 per annum through the year ending December 31, 1979, and thereafter shall be the amount from time to time set by SIPC bylaw, but in no event shall the minimum assessment be greater than 0.02 percent of the [gross revenues from the securities business](/usc/15/78lll.md?p=9) of such member of SIPC. - (2) **Lines of credit—** - (A) **$50,000,000 limit after 1973—** After December 31, 1973, confirmed lines of [credit](/usc/15/1679a.md?p=4) shall not constitute more than $50,000,000 of the balance of the fund. - (B) **Phaseout requirement—** When the balance of the fund aggregates $150,000,000 (or such other amount as the [Commission](/usc/15/78lll.md?p=1) may determine in the public interest) SIPC shall phase out of the fund all confirmed lines of [credit](/usc/15/1679a.md?p=4). - (e) **Prior trusts; overpayments and underpayments—** - (1) **Prior trusts—** There may be contributed and transferred at any time to SIPC any funds held by any trust established by a [self-regulatory organization](/usc/15/78c.md?p=a-26) prior to January 1, 1970, and the amounts so contributed and transferred shall be applied, as may be determined by SIPC with approval of the [Commission](/usc/15/78lll.md?p=1), as a reduction in the amounts payable pursuant to assessments made or to be made by SIPC upon members of such [self-regulatory organization](/usc/15/78c.md?p=a-26) pursuant to [subsection (c)(2)](#c-2). No such reduction shall be made at any time when there is outstanding any borrowing by SIPC pursuant to [subsection (g)](#g) of this section or any borrowings under confirmed lines of [credit](/usc/15/1679a.md?p=4). - (2) **Overpayments—** To the extent that any payment by a member exceeds the maximum rate permitted by [subsection (c)](#c) of this section, the excess shall be recoverable only against future payments by such member, except as otherwise provided by SIPC bylaw. - (3) **Underpayments—** If a member fails to pay when due all or any part of an assessment made upon such member, the unpaid portion thereof shall bear interest at such rate as may be determined by SIPC bylaw and, in addition to such interest, SIPC may impose such penalty charge as may be determined by SIPC bylaw. Any such penalty charge imposed upon a SIPC member shall not exceed 25 per centum of any unpaid portion of the assessment. SIPC may waive such penalty charge in whole or in part in circumstances where it considers such waiver appropriate. - (f) **Borrowing authority—** SIPC shall have the power to borrow moneys and to evidence such borrowed moneys by the issuance of bonds, notes, or other evidences of indebtedness, all upon such terms and conditions as the [Board](/usc/15/205c.md?p=1) of Directors may determine in the case of a borrowing other than pursuant to [subsection (g)](#g) of this section, or as may be prescribed by the [Commission](/usc/15/78lll.md?p=1) in the case of a borrowing pursuant to [subsection (g)](#g). The interest payable on a borrowing pursuant to [subsection (g)](#g) shall be equal to the interest payable on the related notes or other obligations issued by the [Commission](/usc/15/78lll.md?p=1) to the Secretary of the Treasury. To secure the payment of the principal of, and interest and premium, if any, on, all bonds, notes, or other evidences of indebtedness so issued, SIPC may make [agreements](/usc/15/7a.md?p=2) with respect to the amount of future assessments to be made upon members and may pledge all or any part of the assets of SIPC and of the assessments made or to be made upon members. Any such pledge of future assessments shall (subject to any prior pledge) be valid and binding from the time that it is made, and the assessments so pledged and thereafter received by SIPC, or any collection agent for SIPC, shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and binding against all parties having claims of any kind against SIPC or such collection agent whether pursuant to this chapter, in tort, contract or otherwise, irrespective of whether such parties have notice thereof. During any period when a borrowing by SIPC pursuant to [subsection (g)](#g) of this section is outstanding, no pledge of any assessment upon a member to secure any bonds, notes, or other evidences of indebtedness issued other than pursuant to [subsection (g)](#g) of this section shall be effective as to the excess of the payments under the assessment on such member during any twelve-month period over one-fourth of 1 per centum of such member’s [gross revenues from the securities business](/usc/15/78lll.md?p=9) for such period. Neither the instrument by which a pledge is authorized or created, nor any statement or other document relative thereto, need be filed or recorded in any [State](/usc/15/15g.md?p=2) or other jurisdiction. The [Commission](/usc/15/78lll.md?p=1) may by rule or regulation provide for the filing of any instrument by which a pledge or borrowing is authorized or created, but the failure to make or any defect in any such filing shall not affect the validity of such pledge or borrowing. - (g) **SEC loans to SIPC—** In the event that the fund is or may reasonably appear to be insufficient for the purposes of this chapter, the [Commission](/usc/15/78lll.md?p=1) is authorized to make loans to SIPC. At the time of [application](/usc/15/77ccc.md?p=8) for, and as a condition to, any such loan, SIPC shall file with the [Commission](/usc/15/78lll.md?p=1) a statement with respect to the anticipated use of the proceeds of the loan. If the [Commission](/usc/15/78lll.md?p=1) determines that such loan is necessary for the protection of [customers](/usc/15/78lll.md?p=2-A) of [brokers](/usc/15/6102.md?p=d-2-B-i) or [dealers](/usc/15/6102.md?p=d-2-B-i) and the maintenance of confidence in the United States [securities](/usc/15/78lll.md?p=14) markets and the SIPC has submitted a plan which provides as reasonable an assurance of prompt repayment as may be feasible under the circumstances, then the [Commission](/usc/15/78lll.md?p=1) shall so certify to the Secretary of the Treasury, and issue notes or other obligations to the Secretary of the Treasury pursuant to [subsection (h)](#h). If the [Commission](/usc/15/78lll.md?p=1) determines that the amount or time for payment of the assessments pursuant to such plan would not satisfactorily provide for the repayment of such loan, it may, by rules and regulations, impose upon the purchasers of [equity securities](/usc/15/9041.md?p=6) in transactions on [national securities exchanges](/usc/15/9009a.md?p=a-5) and in the over-the-counter markets a transaction fee in such amount as at any time or from time to time it may determine to be appropriate, but not exceeding one-fiftieth of 1 per centum of the [purchase](/usc/15/78c–5.md?p=g) price of the [securities](/usc/15/78lll.md?p=14). No such fee shall be imposed on a transaction (as defined by rules or regulations of the [Commission](/usc/15/78lll.md?p=1)) of less than $5,000. For the purposes of the next preceding sentence, (1) the fee shall be based upon the total dollar amount of each [purchase](/usc/15/78c–5.md?p=g); (2) the fee shall not apply to any [purchase](/usc/15/78c–5.md?p=g) on a [national securities exchange](/usc/15/9009a.md?p=a-5) or in an over-the-counter market by or for the [account](/usc/15/1681a.md?p=r-4) of a [broker or dealer](/usc/15/78c.md?p=h-2) registered under [section 78o(b)](/usc/15/78o.md?p=b) of this title unless such [purchase](/usc/15/78c–5.md?p=g) is for an investment [account](/usc/15/1681a.md?p=r-4) of such [broker or dealer](/usc/15/78c.md?p=h-2) (and for this purpose any transfer from a trading [account](/usc/15/1681a.md?p=r-4) to an investment [account](/usc/15/1681a.md?p=r-4) shall be deemed a [purchase](/usc/15/78c–5.md?p=g) at fair market value); and (3) the [Commission](/usc/15/78lll.md?p=1) may, by rule, exempt any transaction in the over-the-counter markets or on any [national securities exchange](/usc/15/9009a.md?p=a-5) where necessary to provide for the assessment of fees on purchasers in transactions in such markets and [exchanges](/usc/15/636.md?p=a-36-A-xvi) on a comparable basis. Such fee shall be collected by the [broker or dealer](/usc/15/78c.md?p=h-2) effecting the transaction for or with the purchaser, or by such other [person](/usc/15/78m.md?p=h-8-E) as provided by the [Commission](/usc/15/78lll.md?p=1) by rule, and shall be paid to SIPC in the same manner as assessments imposed pursuant to [subsection (c)](#c) but without regard to the limits on such assessments, or in such other manner as the [Commission](/usc/15/78lll.md?p=1) may by rule provide. - (h) **SEC notes issued to Treasury—** To enable the [Commission](/usc/15/78lll.md?p=1) to make loans under [subsection (g)](#g), the [Commission](/usc/15/78lll.md?p=1) is authorized to issue to the Secretary of the Treasury notes or other obligations in an aggregate amount of not to exceed $2,500,000,000, in such forms and denominations, bearing such maturities, and subject to such terms and conditions, as may be prescribed by the Secretary of the Treasury. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States of comparable maturities during the month preceding the issuance of the notes or other obligations. The Secretary of the Treasury may reduce the interest rate if he determines such reduction to be in the national interest. The Secretary of the Treasury is authorized and directed to [purchase](/usc/15/78c–5.md?p=g) any notes and other obligations issued hereunder and for that purpose he is authorized to use as a public debt transaction the proceeds from the sale of any [securities](/usc/15/78lll.md?p=14) issued under [chapter 31](/usc/31/chstIII-ch31.md) of title 31, and the purposes for which [securities](/usc/15/78lll.md?p=14) may be issued under that chapter are extended to include any [purchase](/usc/15/78c–5.md?p=g) of such notes and obligations. The Secretary of the Treasury may at any time sell any of the notes or other obligations acquired by him under this subsection. All redemptions, [purchases](/usc/15/78c–5.md?p=g), and sales by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt transactions of the United States. - (i) **Consolidated group—** Except as otherwise provided by SIPC bylaw, [gross revenues from the securities business](/usc/15/78lll.md?p=9) of a member of SIPC shall be computed on a consolidated basis for such member and all its subsidiaries (other than the [foreign subsidiaries](/usc/15/78lll.md?p=8) of such member), and the operations of a member of SIPC shall include those of any business to which such member has succeeded. # §78eee. Protection of customers - (a) **Determination of need of protection—** - (1) **Notice to SIPC—** If the [Commission](/usc/15/78lll.md?p=1) or any [self-regulatory organization](/usc/15/78c.md?p=a-26) is aware of facts which lead it to believe that any [broker or dealer](/usc/15/78c.md?p=h-2) subject to its regulation is in or is approaching financial difficulty, it shall immediately notify SIPC, and, if such notification is by a [self-regulatory organization](/usc/15/78c.md?p=a-26), the [Commission](/usc/15/78lll.md?p=1). - (2) **Action by self-regulatory organization—** If a [self-regulatory organization](/usc/15/78c.md?p=a-26) has given notice to SIPC pursuant to [subsection (a)(1)](#a-1) with respect to a [broker or dealer](/usc/15/78c.md?p=h-2), and such [broker or dealer](/usc/15/78c.md?p=h-2) undertakes to liquidate or reduce its business either pursuant to the direction of a [self-regulatory organization](/usc/15/78c.md?p=a-26) or voluntarily, such [self-regulatory organization](/usc/15/78c.md?p=a-26) may render such assistance or oversight to such [broker or dealer](/usc/15/78c.md?p=h-2) as it considers appropriate to protect the interests of [customers](/usc/15/78lll.md?p=2-A) of such [broker or dealer](/usc/15/78c.md?p=h-2). The assistance or oversight by a [self-regulatory organization](/usc/15/78c.md?p=a-26) shall not be deemed the assumption or adoption by such [self-regulatory organization](/usc/15/78c.md?p=a-26) of any obligation or liability to [customers](/usc/15/78lll.md?p=2-A), other [creditors](/usc/15/1615.md?p=d-2), shareholders, or partners of the [broker or dealer](/usc/15/78c.md?p=h-2), and shall not prevent or act as a bar to any action by SIPC. - (3) **Action by SIPC—** - (A) **In general—** SIPC may, upon notice to a member of SIPC, file an [application](/usc/15/77ccc.md?p=8) for a [protective decree](/usc/15/78lll.md?p=13) with any court of competent jurisdiction specified in section [78u(e)](/usc/15/78u.md?p=e) or [78aa](/usc/15/78aa.md) of this title, except that no such [application](/usc/15/77ccc.md?p=8) shall be filed with respect to a member, the only [customers](/usc/15/78lll.md?p=2-A) of which are [persons](/usc/15/78m.md?p=h-8-E) whose claims could not be satisfied by SIPC advances pursuant to [section 78fff–3 of this title](/usc/15/78fff–3.md), if SIPC determines that— - (A) [^1] the member (including any [person](/usc/15/78m.md?p=h-8-E) who was a member within one hundred eighty days prior to such determination) has failed or is in danger of failing to meet its obligations to [customers](/usc/15/78lll.md?p=2-A); and - (B) [^2] one or more of the conditions specified in [subsection (b)(1)](#b-1) exist with respect to such member. - (B) **Consent required—** No member of SIPC that has a [customer](/usc/15/78lll.md?p=2-A) may enter into an insolvency, receivership, or bankruptcy proceeding, under Federal or [State](/usc/15/15g.md?p=2) law, without the specific consent of SIPC, except as provided in title II of the Dodd-Frank Wall Street Reform and [Consumer](/usc/15/1615.md?p=d-2) Protection Act [[12 U.S.C. 5381](/usc/12/5381.md) et seq.]. - (4) **Effect of other pending actions—** An [application](/usc/15/77ccc.md?p=8) with respect to a member of SIPC filed with a court under [paragraph (3)](#a-3)— - (A) may, with the consent of the [Commission](/usc/15/78lll.md?p=1), be combined with any action brought by the [Commission](/usc/15/78lll.md?p=1), including an action by the [Commission](/usc/15/78lll.md?p=1) for a temporary receiver pending an appointment of a trustee under [subsection (b)(3)](#b-3); and - (B) may be filed notwithstanding the pendency in the same or any other court of any bankruptcy, mortgage foreclosure, or equity receivership proceeding or any proceeding to reorganize, conserve, or liquidate such member or its property, or any proceeding to enforce a lien against property of such member. - (b) **Court action—** - (1) **Issuance of protective decree—** Upon receipt of an [application](/usc/15/77ccc.md?p=8) by SIPC under [subsection (a)(3)](#a-3), the court shall forthwith issue a [protective decree](/usc/15/78lll.md?p=13) if the [debtor](/usc/15/78lll.md?p=5) consents thereto, if the [debtor](/usc/15/78lll.md?p=5) fails to contest such [application](/usc/15/77ccc.md?p=8), or if the court finds that such [debtor](/usc/15/78lll.md?p=5)— - (A) is insolvent within the meaning of [section 101 of title 11](/usc/11/101.md), or is unable to meet its obligations as they mature; - (B) is the subject of a proceeding pending in any court or before any agency of the United States or any [State](/usc/15/15g.md?p=2) in which a receiver, trustee, or liquidator for such [debtor](/usc/15/78lll.md?p=5) has been appointed; - (C) is not in compliance with applicable requirements under the 1934 Act [[15 U.S.C. 78a](/usc/15/78a.md) et seq.] or rules of the [Commission](/usc/15/78lll.md?p=1) or any [self-regulatory organization](/usc/15/78c.md?p=a-26) with respect to financial responsibility or hypothecation of [customers](/usc/15/78lll.md?p=2-A)’ [securities](/usc/15/78lll.md?p=14); or - (D) is unable to make such computations as may be necessary to establish compliance with such financial responsibility or hypothecation rules. Unless the [debtor](/usc/15/78lll.md?p=5) consents to the issuance of a [protective decree](/usc/15/78lll.md?p=13), the [application](/usc/15/77ccc.md?p=8) shall be heard three business days after the date on which it is filed, or at such other time as the court shall determine, taking into consideration the urgency which the circumstances require. - (2) **Jurisdiction and powers of court—** - (A) **Exclusive jurisdiction—** Upon the filing of an [application](/usc/15/77ccc.md?p=8) with a court for a [protective decree](/usc/15/78lll.md?p=13) with respect to a [debtor](/usc/15/78lll.md?p=5), such court— - (i) shall have exclusive jurisdiction of such [debtor](/usc/15/78lll.md?p=5) and its property wherever located (including property located outside the territorial limits of such court and property held by any other [person](/usc/15/78m.md?p=h-8-E) as [security](/usc/15/78lll.md?p=14) for a debt or subject to a lien); - (ii) shall have exclusive jurisdiction of any suit against the trustee with respect to a [liquidation proceeding](/usc/15/78lll.md?p=10); and - (iii) except as inconsistent with the provisions of this chapter, shall have the jurisdiction, powers, and duties conferred upon a court of the United States having jurisdiction over cases under [title 11](/usc/11.md), together with such other jurisdiction, powers, and duties as are prescribed by this chapter. - (B) **Stay of pending actions—** Pending the issuance of a [protective decree](/usc/15/78lll.md?p=13) under [paragraph (1)](#b-1), the court with which an [application](/usc/15/77ccc.md?p=8) has been filed— - (i) shall stay any pending bankruptcy, mortgage foreclosure, equity receivership, or other proceeding to reorganize, conserve, or liquidate the [debtor](/usc/15/78lll.md?p=5) or its property and any other suit against any receiver, conservator, or trustee of the [debtor](/usc/15/78lll.md?p=5) or its property, and shall continue such stay upon appointment of a trustee pursuant to [paragraph (3)](#b-3); - (ii) may stay any proceeding to enforce a lien against property of the [debtor](/usc/15/78lll.md?p=5) or any other suit against the [debtor](/usc/15/78lll.md?p=5), including a suit by stockholders of the [debtor](/usc/15/78lll.md?p=5) which interferes with prosecution by the trustee of claims against former directors, officers, or employees of the [debtor](/usc/15/78lll.md?p=5), and may continue such stay upon appointment of a trustee pursuant to [paragraph (3)](#b-3); - (iii) may stay enforcement of, and upon appointment of a trustee pursuant to [paragraph (3)](#b-3), may continue the stay for such period of time as may be appropriate, but shall not abrogate any right of setoff, except to the extent such right may be affected under [section 553 of title 11](/usc/11/553.md), and shall not abrogate the right to enforce a valid, nonpreferential lien or pledge against the property of the [debtor](/usc/15/78lll.md?p=5); and - (iv) may appoint a temporary receiver. - (C) **Exception from stay—** - (i) Notwithstanding [section 362 of title 11](/usc/11/362.md), neither the filing of an [application](/usc/15/77ccc.md?p=8) under [subsection (a)(3)](#a-3) nor any [order](/usc/15/8702.md?p=14) or decree obtained by SIPC from the court shall operate as a stay of any [contractual rights](#b-2-C-iii) of a [creditor](/usc/15/1615.md?p=d-2) to liquidate, terminate, or accelerate a [securities](/usc/15/78lll.md?p=14) contract, commodity contract, forward contract, repurchase [agreement](/usc/15/7a.md?p=2), [swap](/usc/15/8302.md?p=d-1) [agreement](/usc/15/7a.md?p=2), or master netting [agreement](/usc/15/7a.md?p=2), as those terms are defined in sections [101](/usc/11/101.md), [741](/usc/11/741.md), and [761](/usc/11/761.md) of title 11, to offset or net termination values, payment amounts, or other transfer obligations arising under or in connection with one or more of such contracts or [agreements](/usc/15/7a.md?p=2), or to foreclose on any cash collateral pledged by the [debtor](/usc/15/78lll.md?p=5), whether or not with respect to one or more of such contracts or [agreements](/usc/15/7a.md?p=2). - (ii) Notwithstanding [clause (i)](#b-2-C-i), such [application](/usc/15/77ccc.md?p=8), [order](/usc/15/8702.md?p=14), or decree may operate as a stay of the foreclosure on, or disposition of, [securities](/usc/15/78lll.md?p=14) collateral pledged by the [debtor](/usc/15/78lll.md?p=5), whether or not with respect to one or more of such contracts or [agreements](/usc/15/7a.md?p=2), [securities](/usc/15/78lll.md?p=14) sold by the [debtor](/usc/15/78lll.md?p=5) under a repurchase [agreement](/usc/15/7a.md?p=2), or [securities](/usc/15/78lll.md?p=14) lent under a [securities](/usc/15/78lll.md?p=14) lending [agreement](/usc/15/7a.md?p=2). - (iii) As used in this subparagraph, the term “contractual right” includes a right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.]), a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a [national securities exchange](/usc/15/9009a.md?p=a-5), a national [securities](/usc/15/78lll.md?p=14) [association](/usc/15/657h.md?p=a-2), a [securities](/usc/15/78lll.md?p=14) clearing agency, a contract market designated under the Commodity Exchange Act, a derivatives transaction execution facility registered under the Commodity Exchange Act, or a [board](/usc/15/205c.md?p=1) of trade (as defined in the Commodity Exchange Act), or in a resolution of the governing [board](/usc/15/205c.md?p=1) thereof, and a right, whether or not in writing, arising under common law, under law merchant, or by reason of normal business practice. - (3) **Appointment of trustee and attorney—** If the court issues a [protective decree](/usc/15/78lll.md?p=13) under [paragraph (1)](#b-1), such court shall forthwith appoint, as trustee for the liquidation of the business of the [debtor](/usc/15/78lll.md?p=5) and as attorney for the trustee, such [persons](/usc/15/78m.md?p=h-8-E) as SIPC, in its sole discretion, specifies. The [persons](/usc/15/78m.md?p=h-8-E) appointed as trustee and as attorney for the trustee may be associated with the same firm. SIPC may, in its sole discretion, specify itself or one of its employees as trustee in any case in which SIPC has determined that the liabilities of the [debtor](/usc/15/78lll.md?p=5) to unsecured general [creditors](/usc/15/1615.md?p=d-2) and to subordinated lenders appear to aggregate less than $750,000 and that there appear to be fewer than five hundred [customers](/usc/15/78lll.md?p=2-A) of such [debtor](/usc/15/78lll.md?p=5). No [person](/usc/15/78m.md?p=h-8-E) may be appointed to serve as trustee or attorney for the trustee if such [person](/usc/15/78m.md?p=h-8-E) is not disinterested within the meaning of [paragraph (6)](#b-6), except that for any specified purpose other than to represent a trustee in conducting a [liquidation proceeding](/usc/15/78lll.md?p=10), the trustee may, with the approval of SIPC and the court, employ an attorney who is not disinterested. A trustee appointed under this paragraph shall qualify by filing a bond in the manner prescribed by [section 322 of title 11](/usc/11/322.md), except that neither SIPC nor any employee of SIPC shall be required to file a bond when appointed as trustee. - (4) **Removal to bankruptcy court—** Upon the issuance of a [protective decree](/usc/15/78lll.md?p=13) and appointment of a trustee, or a trustee and counsel, under this section, the court shall forthwith [order](/usc/15/8702.md?p=14) the removal of the entire [liquidation proceeding](/usc/15/78lll.md?p=10) to the court of the United States in the same judicial district having jurisdiction over cases under [title 11](/usc/11.md). The latter court shall thereupon have all of the jurisdiction, powers, and duties conferred by this chapter upon the court to which [application](/usc/15/77ccc.md?p=8) for the issuance of the [protective decree](/usc/15/78lll.md?p=13) was made. - (5) **Compensation for services and reimbursement of expenses—** - (A) **Allowances in general—** The court shall grant reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred (hereinafter in this paragraph referred to as “allowances”) by a trustee, and by the attorney for such a trustee, in connection with a [liquidation proceeding](/usc/15/78lll.md?p=10). No allowances (other than reimbursement for proper costs and expenses incurred) shall be granted to SIPC or any employee of SIPC for serving as trustee. Allowances may be granted on an interim basis during the course of the [liquidation proceeding](/usc/15/78lll.md?p=10) at such times and in such amounts as the court considers appropriate. - (B) **Application for allowances—** Any [person](/usc/15/78m.md?p=h-8-E) seeking allowances shall file with the court an [application](/usc/15/77ccc.md?p=8) which complies in form and content with the provisions of [title 11](/usc/11.md) governing [applications](/usc/15/77ccc.md?p=8) for allowances under such title. A copy of such [application](/usc/15/77ccc.md?p=8) shall be served upon SIPC when filed. The court shall fix a time for a hearing on such [application](/usc/15/77ccc.md?p=8), and notice of such hearing shall be given to the [applicant](/usc/15/7a.md?p=3), the trustee, the [debtor](/usc/15/78lll.md?p=5), the [creditors](/usc/15/1615.md?p=d-2), SIPC, and such other [persons](/usc/15/78m.md?p=h-8-E) as the court may designate, except that notice need not be given to [customers](/usc/15/78lll.md?p=2-A) whose claims have been or will be satisfied in full or to [creditors](/usc/15/1615.md?p=d-2) who cannot reasonably be expected to receive any distribution during the course of the [liquidation proceeding](/usc/15/78lll.md?p=10). - (C) **Recommendations of SIPC and awarding of allowances—** Whenever an [application](/usc/15/77ccc.md?p=8) for allowances is filed pursuant to [subparagraph (B)](#b-5-B), SIPC shall file its recommendation with respect to such allowances with the court prior to the hearing on such [application](/usc/15/77ccc.md?p=8) and shall, if it so requests, be allowed a reasonable time after such hearing within which to file a further recommendation. In any case in which such allowances are to be paid by SIPC without reasonable expectation of recoupment thereof as provided in this chapter and there is no difference between the amounts requested and the amounts recommended by SIPC, the court shall award the amounts recommended by SIPC. In determining the amount of allowances in all other cases, the court shall give due consideration to the nature, extent, and value of the services rendered, and shall place considerable reliance on the recommendation of SIPC. - (D) **Applicable restrictions—** The restrictions on sharing of compensation set forth in [section 504 of title 11](/usc/11/504.md) shall apply to allowances. - (E) **Charge against estate—** Allowances granted by the court, including interim allowances, shall be charged against the general estate of the [debtor](/usc/15/78lll.md?p=5) as a cost and expense of [administration](/usc/15/2203.md?p=2). If the general estate is insufficient to pay allowances in whole or in part, SIPC shall advance such funds as are necessary for such payment. - (6) **Disinterestedness—** - (A) **Standards—** For purposes of [paragraph (3)](#b-3), a [person](/usc/15/78m.md?p=h-8-E) shall not be deemed disinterested if— - (i) such [person](/usc/15/78m.md?p=h-8-E) is a [creditor](/usc/15/1615.md?p=d-2) (including a [customer](/usc/15/78lll.md?p=2-A)), stockholder, or partner of the [debtor](/usc/15/78lll.md?p=5); - (ii) such [person](/usc/15/78m.md?p=h-8-E) is or was an underwriter of any of the outstanding [securities](/usc/15/78lll.md?p=14) of the [debtor](/usc/15/78lll.md?p=5) or within five years prior to the [filing date](/usc/15/78lll.md?p=7) was the underwriter of any [securities](/usc/15/78lll.md?p=14) of the [debtor](/usc/15/78lll.md?p=5); - (iii) such [person](/usc/15/78m.md?p=h-8-E) is, or was within two years prior to the [filing date](/usc/15/78lll.md?p=7), a director, partner, officer, or employee of the [debtor](/usc/15/78lll.md?p=5) or such an underwriter, or an attorney for the [debtor](/usc/15/78lll.md?p=5) or such an underwriter; or - (iv) it appears that such [person](/usc/15/78m.md?p=h-8-E) has, by reason of any other direct or indirect relationship to, connection with, or interest in the [debtor](/usc/15/78lll.md?p=5) or such an underwriter, or for any other reason, an interest materially adverse to the interests of any class of [creditors](/usc/15/1615.md?p=d-2) (including [customers](/usc/15/78lll.md?p=2-A)) or stockholders, except that SIPC shall in all cases be deemed disinterested, and an employee of SIPC shall be deemed disinterested if such employee would, except for his [association](/usc/15/657h.md?p=a-2) with SIPC, meet the standards set forth in this subparagraph. - (B) **Hearing—** The court shall fix a time for a hearing on disinterestedness, to be held promptly after the appointment of a trustee. Notice of such hearing shall be mailed at least ten days prior thereto to each [person](/usc/15/78m.md?p=h-8-E) who, from the books and records of the [debtor](/usc/15/78lll.md?p=5), appears to have been a [customer](/usc/15/78lll.md?p=2-A) of the [debtor](/usc/15/78lll.md?p=5) with an open [account](/usc/15/1681a.md?p=r-4) within the past twelve months, to the address of such [person](/usc/15/78m.md?p=h-8-E) as it appears from the books and records of the [debtor](/usc/15/78lll.md?p=5), and to the [creditors](/usc/15/1615.md?p=d-2) and stockholders of the [debtor](/usc/15/78lll.md?p=5), to SIPC, and to such other [persons](/usc/15/78m.md?p=h-8-E) as the court may designate. The court may, in its discretion, also require that notice be given by publication in such newspaper or newspapers of general circulation as it may designate. At such hearing, at any adjournment thereof, or upon [application](/usc/15/77ccc.md?p=8), the court shall hear objections to the retention in office of a trustee or attorney for a trustee on the grounds that such [person](/usc/15/78m.md?p=h-8-E) is not disinterested. - (c) **SEC participation in proceedings—** The [Commission](/usc/15/78lll.md?p=1) may, on its own motion, file notice of its appearance in any proceeding under this chapter and may thereafter participate as a party. - (d) **SIPC participation—** SIPC shall be deemed to be a party in interest as to all matters arising in a [liquidation proceeding](/usc/15/78lll.md?p=10), with the right to be heard on all such matters, and shall be deemed to have intervened with respect to all such matters with the same force and effect as if a petition for such purpose had been allowed by the court. # §78fff. General provisions of a liquidation proceeding - (a) **Purposes—** The purposes of a [liquidation proceeding](/usc/15/78lll.md?p=10) under this chapter shall be— - (1) as promptly as possible after the appointment of a trustee in such [liquidation proceeding](/usc/15/78lll.md?p=10), and in accordance with the provisions of this chapter— - (A) to deliver [customer name securities](/usc/15/78lll.md?p=3) to or on behalf of the [customers](/usc/15/78lll.md?p=2-A) of the [debtor](/usc/15/78lll.md?p=5) entitled thereto as provided in [section 78fff–2(c)(2) of this title](/usc/15/78fff–2.md?p=c-2); and - (B) to distribute [customer property](/usc/15/78lll.md?p=4) and (in advance thereof or concurrently therewith) otherwise satisfy [net equity](/usc/15/78lll.md?p=11) claims of [customers](/usc/15/78lll.md?p=2-A) to the extent provided in this section; - (2) to sell or transfer offices and other productive units of the business of the [debtor](/usc/15/78lll.md?p=5); - (3) to enforce rights of subrogation as provided in this chapter; and - (4) to liquidate the business of the [debtor](/usc/15/78lll.md?p=5). - (b) **Application of title 11—** To the extent consistent with the provisions of this chapter, a [liquidation proceeding](/usc/15/78lll.md?p=10) shall be conducted in accordance with, and as though it were being conducted under chapters [1](/usc/15/ch1.md), [3](/usc/15/ch3.md), and [5](/usc/15/ch5.md) and subchapters I and II of [chapter 7](/usc/11/ch7.md) of title 11. For the purposes of applying such title in carrying out this section, a reference in such title to the date of the filing of the petition shall be deemed to be a reference to the [filing date](/usc/15/78lll.md?p=7) under this chapter. - (c) **Determination of customer status—** In a [liquidation proceeding](/usc/15/78lll.md?p=10) under this chapter, whenever a [person](/usc/15/78m.md?p=h-8-E) has acted with respect to cash or [securities](/usc/15/78lll.md?p=14) with the [debtor](/usc/15/78lll.md?p=5) after the [filing date](/usc/15/78lll.md?p=7) and in a manner which would have given him the status of a [customer](/usc/15/78lll.md?p=2-A) with respect to such cash or [securities](/usc/15/78lll.md?p=14) had the action occurred prior to the [filing date](/usc/15/78lll.md?p=7), and the trustee is satisfied that such action was taken by the [customer](/usc/15/78lll.md?p=2-A) in good faith and prior to the appointment of the trustee, the date on which such action was taken shall be deemed to be the [filing date](/usc/15/78lll.md?p=7) for purposes of determining the [net equity](/usc/15/78lll.md?p=11) of such [customer](/usc/15/78lll.md?p=2-A) with respect to such cash or [securities](/usc/15/78lll.md?p=14). - (d) **Apportionment—** In a [liquidation proceeding](/usc/15/78lll.md?p=10) under this chapter, any cash or [securities](/usc/15/78lll.md?p=14) remaining after the liquidation of a lien or pledge made by a [debtor](/usc/15/78lll.md?p=5) shall be apportioned between his general estate and [customer property](/usc/15/78lll.md?p=4) in the proportion in which the general property of the [debtor](/usc/15/78lll.md?p=5) and the cash and [securities](/usc/15/78lll.md?p=14) of the [customers](/usc/15/78lll.md?p=2-A) of such [debtor](/usc/15/78lll.md?p=5) contributed to such lien or pledge. [Securities](/usc/15/78lll.md?p=14) apportioned to the general estate under this subsection shall be subject to the provisions of [section 78lll(5)(A)](/usc/15/78lll.md) of this title. - (e) **Costs and expenses of administration—** All costs and expenses of [administration](/usc/15/2203.md?p=2) of the estate of the [debtor](/usc/15/78lll.md?p=5) and of the [liquidation proceeding](/usc/15/78lll.md?p=10) shall be borne by the general estate of the [debtor](/usc/15/78lll.md?p=5) to the extent it is sufficient therefor, and the priorities of distribution from the general estate shall be as provided in [section 726 of title 11](/usc/11/726.md). Costs and expenses of [administration](/usc/15/2203.md?p=2) shall include payments pursuant to [section 78fff–2(e) of this title](/usc/15/78fff–2.md?p=e) and [section 78fff–3(c)(1) of this title](/usc/15/78fff–3.md?p=c-1) (to the extent such payments recovered [securities](/usc/15/78lll.md?p=14) which were apportioned to the general estate pursuant to [subsection (d)](#d)) and costs and expenses of SIPC employees utilized by the trustee pursuant to [section 78fff–1(a)(2) of this title](/usc/15/78fff–1.md?p=a-2). All funds advanced by SIPC to a trustee for such costs and expenses of [administration](/usc/15/2203.md?p=2) shall be recouped from the general estate under [section 507(a)(2) of title 11](/usc/11/507.md?p=a-2). # §78fff–1. Powers and duties of a trustee - (a) **Trustee powers—** A trustee shall be vested with the same powers and title with respect to the [debtor](/usc/15/78lll.md?p=5) and the property of the [debtor](/usc/15/78lll.md?p=5), including the same rights to avoid preferences, as a trustee in a case under [title 11](/usc/11.md). In addition, a trustee may, with the approval of SIPC but without any need for court approval— - (1) hire and fix the compensation of all personnel (including officers and employees of the [debtor](/usc/15/78lll.md?p=5) and of its [examining authority](/usc/15/78lll.md?p=6)) and other [persons](/usc/15/78m.md?p=h-8-E) (including accountants) that are deemed by the trustee necessary for all or any purposes of the [liquidation proceeding](/usc/15/78lll.md?p=10); - (2) utilize SIPC employees for all or any purposes of a [liquidation proceeding](/usc/15/78lll.md?p=10); and - (3) margin and maintain [customer](/usc/15/78lll.md?p=2-A) [accounts](/usc/15/1681a.md?p=r-4) of the [debtor](/usc/15/78lll.md?p=5) for the purposes of [section 78fff–2(f) of this title](/usc/15/78fff–2.md?p=f). - (b) **Trustee duties—** To the extent consistent with the provisions of this chapter or as otherwise ordered by the court, a trustee shall be subject to the same duties as a trustee in a case under [chapter 7](/usc/11/ch7.md) of title 11, including, if the [debtor](/usc/15/78lll.md?p=5) is a commodity [broker](/usc/15/6102.md?p=d-2-B-i), as defined under section 101 of such title, the duties specified in subchapter IV of such chapter 7, except that a trustee may, but shall have no duty to, reduce to money any [securities](/usc/15/78lll.md?p=14) constituting [customer property](/usc/15/78lll.md?p=4) or in the general estate of the [debtor](/usc/15/78lll.md?p=5). In addition, the trustee shall— - (1) deliver [securities](/usc/15/78lll.md?p=14) to or on behalf of [customers](/usc/15/78lll.md?p=2-A) to the maximum extent practicable in satisfaction of [customer](/usc/15/78lll.md?p=2-A) claims for [securities](/usc/15/78lll.md?p=14) of the same class and series of an [issuer](/usc/15/636.md?p=a-36-A-xvi); and - (2) subject to the prior approval of SIPC but without any need for court approval, pay or guarantee all or any part of the indebtedness of the [debtor](/usc/15/78lll.md?p=5) to a bank, lender, or other [person](/usc/15/78m.md?p=h-8-E) if the trustee determines that the aggregate market value of [securities](/usc/15/78lll.md?p=14) to be made available to the trustee upon the payment or guarantee of such indebtedness does not appear to be less than the total amount of such payment or guarantee. - (c) **Reports by trustee to court—** The trustee shall make to the court and to SIPC such written reports as may be required of a trustee in a case under [chapter 7](/usc/11/ch7.md) of title 11, and shall include in such reports information with respect to the progress made in distributing cash and [securities](/usc/15/78lll.md?p=14) to [customers](/usc/15/78lll.md?p=2-A). Such reports shall be in such form and detail as the [Commission](/usc/15/78lll.md?p=1) determines by rule to present fairly the results of the [liquidation proceeding](/usc/15/78lll.md?p=10) as of the date of or for the period covered by such reports, having due regard for the requirements of [section 78q of this title](/usc/15/78q.md) and the rules prescribed under such section and the magnitude of items and transactions involved in connection with the operations of a [broker or dealer](/usc/15/78c.md?p=h-2). - (d) **Investigations—** The trustee shall— - (1) as soon as practicable, investigate the acts, conduct, property, liabilities, and financial condition of the [debtor](/usc/15/78lll.md?p=5), the operation of its business, and any other matter, to the extent relevant to the [liquidation proceeding](/usc/15/78lll.md?p=10), and report thereon to the court; - (2) examine, by deposition or otherwise, the directors and officers of the [debtor](/usc/15/78lll.md?p=5) and any other witnesses concerning any of the matters referred to in [paragraph (1)](#d-1); - (3) report to the court any facts ascertained by the trustee with respect to fraud, misconduct, mismanagement, and irregularities, and to any causes of action available to the estate; and - (4) as soon as practicable, prepare and submit, to SIPC and such other [persons](/usc/15/78m.md?p=h-8-E) as the court designates and in such form and manner as the court directs, a statement of his investigation of matters referred to in [paragraph (1)](#d-1). # §78fff–2. Special provisions of a liquidation proceeding - (a) **Notice and claims—** - (1) **Notice of proceedings—** Promptly after the appointment of the trustee, such trustee shall cause notice of the commencement of proceedings under this section to be published in one or more newspapers of general circulation in the form and manner determined by the court, and at the same time shall cause a copy of such notice to be mailed to each [person](/usc/15/78m.md?p=h-8-E) who, from the books and records of the [debtor](/usc/15/78lll.md?p=5), appears to have been a [customer](/usc/15/78lll.md?p=2-A) of the [debtor](/usc/15/78lll.md?p=5) with an open [account](/usc/15/1681a.md?p=r-4) within the past twelve months, to the address of such [person](/usc/15/78m.md?p=h-8-E) as it appears from the books and records of the [debtor](/usc/15/78lll.md?p=5). Notice to [creditors](/usc/15/1615.md?p=d-2) other than [customers](/usc/15/78lll.md?p=2-A) shall be given in the manner prescribed by [title 11](/usc/11.md), except that such notice shall be given by the trustee. - (2) **Statement of claim—** A [customer](/usc/15/78lll.md?p=2-A) shall file with the trustee a written statement of claim but need not file a formal proof of claim, except that no obligation of the [debtor](/usc/15/78lll.md?p=5) to any [person](/usc/15/78m.md?p=h-8-E) associated with the [debtor](/usc/15/78lll.md?p=5) within the meaning of [section 78c(a)(18) of this title](/usc/15/78c.md?p=a-18) or [section 78c(a)(21) of this title](/usc/15/78c.md?p=a-21), any beneficial owner of 5 per centum or more of the voting stock of the [debtor](/usc/15/78lll.md?p=5), or any member of the immediate family of any such [person](/usc/15/78m.md?p=h-8-E) or owner may be satisfied without formal proof of claim. - (3) **Time limitations—** No claim of a [customer](/usc/15/78lll.md?p=2-A) or other [creditor](/usc/15/1615.md?p=d-2) of the [debtor](/usc/15/78lll.md?p=5) which is received by the trustee after the expiration of the six-month period beginning on the date of publication of notice under [paragraph (1)](#a-1) shall be allowed, except that the court may, upon [application](/usc/15/77ccc.md?p=8) within such period and for cause shown, grant a reasonable, fixed extension of time for the filing of a claim by the United States, by a [State](/usc/15/15g.md?p=2) or political subdivision thereof, or by an infant or incompetent [person](/usc/15/78m.md?p=h-8-E) without a guardian. Any claim of a [customer](/usc/15/78lll.md?p=2-A) for [net equity](/usc/15/78lll.md?p=11) which is received by the trustee after the expiration of such period of time as may be fixed by the court (not exceeding sixty days after the date of publication of notice under [paragraph (1)](#a-1)) need not be paid or satisfied in whole or in part out of [customer property](/usc/15/78lll.md?p=4), and, to the extent such claim is satisfied from moneys advanced by SIPC, it shall be satisfied in cash or [securities](/usc/15/78lll.md?p=14) (or both) as the trustee determines is most economical to the estate. - (4) **Effect on claims—** Except as otherwise provided in this section, and without limiting the powers and duties of the trustee to discharge obligations promptly as specified in this section, nothing in this section shall limit the right of any [person](/usc/15/78m.md?p=h-8-E), including any subrogee, to establish by formal proof or otherwise as the court may provide such claims as such [person](/usc/15/78m.md?p=h-8-E) may have against the [debtor](/usc/15/78lll.md?p=5), including claims for the payment of money and the delivery of specific [securities](/usc/15/78lll.md?p=14), without resort to moneys advanced by SIPC to the trustee. - (b) **Payments to customers—** After receipt of a written statement of claim pursuant to [subsection (a)(2)](#a-2), the trustee shall promptly discharge, in accordance with the provisions of this section, all obligations of the [debtor](/usc/15/78lll.md?p=5) to a [customer](/usc/15/78lll.md?p=2-A) relating to, or [net equity](/usc/15/78lll.md?p=11) claims based upon, [securities](/usc/15/78lll.md?p=14) or cash, by the delivery of [securities](/usc/15/78lll.md?p=14) or the making of payments to or for the [account](/usc/15/1681a.md?p=r-4) of such [customer](/usc/15/78lll.md?p=2-A) (subject to the provisions of [subsection (d)](#d) and [section 78fff–3(a) of this title](/usc/15/78fff–3.md?p=a)) insofar as such obligations are ascertainable from the books and records of the [debtor](/usc/15/78lll.md?p=5) or are otherwise established to the satisfaction of the trustee. For purposes of distributing [securities](/usc/15/78lll.md?p=14) to [customers](/usc/15/78lll.md?p=2-A), all [securities](/usc/15/78lll.md?p=14) shall be valued as of the close of business on the [filing date](/usc/15/78lll.md?p=7). For purposes of this subsection, the court shall, among other things— - (1) with respect to [net equity](/usc/15/78lll.md?p=11) claims, authorize the trustee to satisfy claims out of moneys made available to the trustee by SIPC notwithstanding the fact that there has not been any showing or determination that there are sufficient funds of the [debtor](/usc/15/78lll.md?p=5) available to satisfy such claims; and - (2) with respect to claims relating to, or [net equities](/usc/15/78lll.md?p=11) based upon, [securities](/usc/15/78lll.md?p=14) of a class and series of an [issuer](/usc/15/636.md?p=a-36-A-xvi) which are ascertainable from the books and records of the [debtor](/usc/15/78lll.md?p=5) or are otherwise established to the satisfaction of the trustee, authorize the trustee to deliver [securities](/usc/15/78lll.md?p=14) of such class and series if and to the extent available to satisfy such claims in whole or in part, with partial deliveries to be made pro rata to the greatest extent considered practicable by the trustee. Any payment or delivery of property pursuant to this subsection may be conditioned upon the trustee requiring [claimants](/usc/15/7a.md?p=4) to execute, in a form to be determined by the trustee, appropriate receipts, supporting affidavits, releases, and assignments, but shall be without prejudice to any right of a [claimant](/usc/15/7a.md?p=4) to file formal proof of claim within the period specified in [subsection (a)(3)](#a-3) for any balance of [securities](/usc/15/78lll.md?p=14) or cash to which such [claimant](/usc/15/7a.md?p=4) considers himself entitled. - (c) **Customer related property—** - (1) **Allocation of customer property—** The trustee shall allocate [customer property](/usc/15/78lll.md?p=4) of the [debtor](/usc/15/78lll.md?p=5) as follows: - (A) first, to SIPC in repayment of advances made by SIPC pursuant to [section 78fff–3(c)(1) of this title](/usc/15/78fff–3.md?p=c-1), to the extent such advances recovered [securities](/usc/15/78lll.md?p=14) which were apportioned to [customer property](/usc/15/78lll.md?p=4) pursuant to [section 78fff(d) of this title](/usc/15/78fff.md?p=d); - (B) second, to [customers](/usc/15/78lll.md?p=2-A) of such [debtor](/usc/15/78lll.md?p=5), who shall share ratably in such [customer property](/usc/15/78lll.md?p=4) on the basis and to the extent of their respective [net equities](/usc/15/78lll.md?p=11); - (C) third, to SIPC as subrogee for the claims of [customers](/usc/15/78lll.md?p=2-A); - (D) fourth, to SIPC in repayment of advances made by SIPC pursuant to [section 78fff–3(c)(2) of this title](/usc/15/78fff–3.md?p=c-2). Any [customer property](/usc/15/78lll.md?p=4) remaining after allocation in accordance with this paragraph shall become part of the general estate of the [debtor](/usc/15/78lll.md?p=5). To the extent [customer property](/usc/15/78lll.md?p=4) and SIPC advances pursuant to [section 78fff–3(a) of this title](/usc/15/78fff–3.md?p=a) are not sufficient to pay or otherwise satisfy in full the [net equity](/usc/15/78lll.md?p=11) claims of [customers](/usc/15/78lll.md?p=2-A), such [customers](/usc/15/78lll.md?p=2-A) shall be entitled, to the extent only of their respective unsatisfied [net equities](/usc/15/78lll.md?p=11), to participate in the general estate as unsecured [creditors](/usc/15/1615.md?p=d-2). For purposes of allocating [customer property](/usc/15/78lll.md?p=4) under this paragraph, [securities](/usc/15/78lll.md?p=14) to be delivered in payment of [net equity](/usc/15/78lll.md?p=11) claims for [securities](/usc/15/78lll.md?p=14) of the same class and series of an [issuer](/usc/15/636.md?p=a-36-A-xvi) shall be valued as of the close of business on the [filing date](/usc/15/78lll.md?p=7). - (2) **Delivery of customer name securities—** The trustee shall deliver [customer name securities](/usc/15/78lll.md?p=3) to or on behalf of a [customer](/usc/15/78lll.md?p=2-A) of the [debtor](/usc/15/78lll.md?p=5) entitled thereto if the [customer](/usc/15/78lll.md?p=2-A) is not indebted to the [debtor](/usc/15/78lll.md?p=5). If the [customer](/usc/15/78lll.md?p=2-A) is so indebted, such [customer](/usc/15/78lll.md?p=2-A) may, with the approval of the trustee, reclaim [customer name securities](/usc/15/78lll.md?p=3) upon payment to the trustee, within such period of time as the trustee determines, of all indebtedness of such [customer](/usc/15/78lll.md?p=2-A) to the [debtor](/usc/15/78lll.md?p=5). - (3) **Recovery of transfers—** Whenever [customer property](/usc/15/78lll.md?p=4) is not sufficient to pay in full the claims set forth in [subparagraphs (A) through (D)](#c-1-A..c-1-D) of paragraph (1), the trustee may recover any property transferred by the [debtor](/usc/15/78lll.md?p=5) which, except for such transfer, would have been [customer property](/usc/15/78lll.md?p=4) if and to the extent that such transfer is voidable or void under the provisions of [title 11](/usc/11.md). Such recovered property shall be treated as [customer property](/usc/15/78lll.md?p=4). For purposes of such recovery, the property so transferred shall be deemed to have been the property of the [debtor](/usc/15/78lll.md?p=5) and, if such transfer was made to a [customer](/usc/15/78lll.md?p=2-A) or for his benefit, such [customer](/usc/15/78lll.md?p=2-A) shall be deemed to have been a [creditor](/usc/15/1615.md?p=d-2), the laws of any [State](/usc/15/15g.md?p=2) to the contrary notwithstanding. - (d) **Purchase of securities—** The trustee shall, to the extent that [securities](/usc/15/78lll.md?p=14) can be purchased in a fair and orderly market, [purchase](/usc/15/78c–5.md?p=g) [securities](/usc/15/78lll.md?p=14) as necessary for the delivery of [securities](/usc/15/78lll.md?p=14) to [customers](/usc/15/78lll.md?p=2-A) in satisfaction of their claims for [net equities](/usc/15/78lll.md?p=11) based on [securities](/usc/15/78lll.md?p=14) under [section 78fff–1(b)(1) of this title](/usc/15/78fff–1.md?p=b-1) and for the transfer of [customer](/usc/15/78lll.md?p=2-A) [accounts](/usc/15/1681a.md?p=r-4) under [subsection (f)](#f), in [order](/usc/15/8702.md?p=14) to restore the [accounts](/usc/15/1681a.md?p=r-4) of such [customers](/usc/15/78lll.md?p=2-A) as of the [filing date](/usc/15/78lll.md?p=7). To the extent consistent with [subsection (c)](#c), [customer property](/usc/15/78lll.md?p=4) and moneys advanced by SIPC may be used by the trustee to pay for [securities](/usc/15/78lll.md?p=14) so purchased. Moneys advanced by SIPC for each [account](/usc/15/1681a.md?p=r-4) of a separate [customer](/usc/15/78lll.md?p=2-A) may not be used to [purchase](/usc/15/78c–5.md?p=g) [securities](/usc/15/78lll.md?p=14) to the extent that the aggregate value of such [securities](/usc/15/78lll.md?p=14) on the [filing date](/usc/15/78lll.md?p=7) exceeded the amount permitted to be advanced by SIPC under the provisions of [section 78fff–3(a) of this title](/usc/15/78fff–3.md?p=a). - (e) **Closeouts—** - (1) **In general—** Any contract of the [debtor](/usc/15/78lll.md?p=5) for the [purchase](/usc/15/78c–5.md?p=g) or sale of [securities](/usc/15/78lll.md?p=14) in the ordinary course of its business with other [brokers](/usc/15/6102.md?p=d-2-B-i) or [dealers](/usc/15/6102.md?p=d-2-B-i) which is wholly executory on the [filing date](/usc/15/78lll.md?p=7) shall not be completed by the trustee, except to the extent permitted by SIPC rule. Upon the adoption by SIPC of rules with respect to the closeout of such a contract but prior to the adoption of rules with respect to the completion of such a contract, the other [broker or dealer](/usc/15/78c.md?p=h-2) shall close out such contract, without unnecessary delay, in the best available market and pursuant to such SIPC rules. Until such time as SIPC adopts rules with respect to the completion or closeout of such a contract, such a contract shall be closed out in accordance with [Commission](/usc/15/78lll.md?p=1) Rule S6(d)–1 as in effect on May 21, 1978, or any comparable rule of the [Commission](/usc/15/78lll.md?p=1) subsequently adopted, to the extent not inconsistent with the provisions of this subsection. - (2) **Net profit or loss—** A [broker or dealer](/usc/15/78c.md?p=h-2) shall net all profits and losses on all contracts closed out under this subsection and— - (A) if such [broker or dealer](/usc/15/78c.md?p=h-2) shows a net profit on such contracts, he shall pay such net profit to the trustee; and - (B) if such [broker or dealer](/usc/15/78c.md?p=h-2) sustains a net loss on such contracts, he shall be entitled to file a claim against the [debtor](/usc/15/78lll.md?p=5) with the trustee in the amount of such net loss. To the extent that a net loss sustained by a [broker or dealer](/usc/15/78c.md?p=h-2) arises from contracts pursuant to which such [broker or dealer](/usc/15/78c.md?p=h-2) was acting for its own [customer](#e-4), such [broker or dealer](/usc/15/78c.md?p=h-2) shall be entitled to receive funds advanced by SIPC to the trustee in the amount of such loss, except that such [broker or dealer](/usc/15/78c.md?p=h-2) may not receive more than $40,000 for each separate [customer](#e-4) with respect to whom it sustained a loss. With respect to a net loss which is not payable under the preceding sentence from funds advanced by SIPC, the [broker or dealer](/usc/15/78c.md?p=h-2) shall be entitled to participate in the general estate as an unsecured [creditor](/usc/15/1615.md?p=d-2). - (3) **Registered clearing agencies—** Neither a registered clearing agency which by its rules has an established procedure for the closeout of open contracts between an insolvent [broker or dealer](/usc/15/78c.md?p=h-2) and its participants, nor its participants to the extent such participants’ claims are or may be processed within the registered clearing agency, shall be entitled to receive SIPC funds in payment of any losses on such contracts, except as SIPC may otherwise provide by rule. If such registered clearing agency or its participants sustain a net loss on the closeout of such contracts with the [debtor](/usc/15/78lll.md?p=5), they shall have the right to participate in the general estate as unsecured [creditors](/usc/15/1615.md?p=d-2) to the extent of such loss. Any funds or other property owed to the [debtor](/usc/15/78lll.md?p=5), after the closeout of such contracts, shall be promptly paid to the trustee. Rules adopted by SIPC under this paragraph shall provide that in no case may a registered clearing agency or its participants, to the extent such participants’ claims are or may be processed within the registered clearing agency, be entitled to receive funds advanced by SIPC in an amount greater, in the aggregate, than could be received by the participants if such participants proceeded individually under paragraph [(1)](#e-1) and [(2)](#e-2). - (4) **“Customer” defined—** For purposes of this subsection, the term “customer” does not include any [person](/usc/15/78m.md?p=h-8-E) who— - (A) is a [broker or dealer](/usc/15/78c.md?p=h-2); - (B) had a claim for cash or [securities](/usc/15/78lll.md?p=14) which by contract, [agreement](/usc/15/7a.md?p=2), or understanding, or by operation of law, was part of the capital of the claiming [broker or dealer](/usc/15/78c.md?p=h-2) or was subordinated to the claims of any or all [creditors](/usc/15/1615.md?p=d-2) of such [broker or dealer](/usc/15/78c.md?p=h-2); or - (C) had a relationship of the kind specified in [section 78fff–3(a)(5) of this title](/usc/15/78fff–3.md?p=a-5) with the [debtor](/usc/15/78lll.md?p=5). A claiming [broker or dealer](/usc/15/78c.md?p=h-2) shall be deemed to have been acting on behalf of its customer if it acted as agent for such customer or if it held such customer’s [order](/usc/15/8702.md?p=14) which was to be executed as a part of its contract with the [debtor](/usc/15/78lll.md?p=5). - (f) **Transfer of customer accounts—** In [order](/usc/15/8702.md?p=14) to facilitate the prompt satisfaction of [customer](/usc/15/78lll.md?p=2-A) claims and the orderly liquidation of the [debtor](/usc/15/78lll.md?p=5), the trustee may, pursuant to terms satisfactory to him and subject to the prior approval of SIPC, sell or otherwise transfer to another member of SIPC, without consent of any [customer](/usc/15/78lll.md?p=2-A), all or any part of the [account](/usc/15/1681a.md?p=r-4) of a [customer](/usc/15/78lll.md?p=2-A) of the [debtor](/usc/15/78lll.md?p=5). In connection with any such sale or transfer to another member of SIPC and subject to the prior approval of SIPC, the trustee may— - (1) waive or modify the need to file a written statement of claim pursuant to [subsection (a)(2)](#a-2); and - (2) enter into such [agreements](/usc/15/7a.md?p=2) as the trustee considers appropriate under the circumstances to indemnify any such member of SIPC against shortages of cash or [securities](/usc/15/78lll.md?p=14) in the [customer](/usc/15/78lll.md?p=2-A) [accounts](/usc/15/1681a.md?p=r-4) sold or transferred. The funds of SIPC may be made available to guarantee or secure any indemnification under [paragraph (2)](#f-2). The prior approval of SIPC to such indemnification shall be conditioned, among such other standards as SIPC may determine, upon a determination by SIPC that the probable cost of any such indemnification can reasonably be expected not to exceed the cost to SIPC of proceeding under [section 78fff–3(a) of this title](/usc/15/78fff–3.md?p=a) and [section 78fff–3(b) of this title](/usc/15/78fff–3.md?p=b). # §78fff–3. SIPC advances - (a) **Advances for customers’ claims—** In [order](/usc/15/8702.md?p=14) to provide for prompt payment and satisfaction of [net equity](/usc/15/78lll.md?p=11) claims of [customers](/usc/15/78lll.md?p=2-A) of the [debtor](/usc/15/78lll.md?p=5), SIPC shall advance to the trustee such moneys, not to exceed $500,000 for each [customer](/usc/15/78lll.md?p=2-A), as may be required to pay or otherwise satisfy claims for the amount by which the [net equity](/usc/15/78lll.md?p=11) of each [customer](/usc/15/78lll.md?p=2-A) exceeds his ratable share of [customer property](/usc/15/78lll.md?p=4), except that— - (1) if all or any portion of the [net equity](/usc/15/78lll.md?p=11) claim of a [customer](/usc/15/78lll.md?p=2-A) in excess of his ratable share of [customer property](/usc/15/78lll.md?p=4) is a claim for cash, as distinct from a claim for [securities](/usc/15/78lll.md?p=14) or options on commodity futures contracts, the amount advanced to satisfy such claim for cash shall not exceed the [standard maximum cash advance amount](#d) for each such [customer](/usc/15/78lll.md?p=2-A), as determined in accordance with [subsection (d)](#d); - (2) a [customer](/usc/15/78lll.md?p=2-A) who holds [accounts](/usc/15/1681a.md?p=r-4) with the [debtor](/usc/15/78lll.md?p=5) in separate capacities shall be deemed to be a different [customer](/usc/15/78lll.md?p=2-A) in each capacity; - (3) if all or any portion of the [net equity](/usc/15/78lll.md?p=11) claim of a [customer](/usc/15/78lll.md?p=2-A) in excess of his ratable share of [customer property](/usc/15/78lll.md?p=4) is satisfied by the delivery of [securities](/usc/15/78lll.md?p=14) purchased by the trustee pursuant to [section 78fff–2(d) of this title](/usc/15/78fff–2.md?p=d), the [securities](/usc/15/78lll.md?p=14) so purchased shall be valued as of the [filing date](/usc/15/78lll.md?p=7) for purposes of applying the dollar limitations of this subsection; - (4) no advance shall be made by SIPC to the trustee to pay or otherwise satisfy, directly or indirectly, any [net equity](/usc/15/78lll.md?p=11) claim of a [customer](/usc/15/78lll.md?p=2-A) who is a general partner, officer, or director of the [debtor](/usc/15/78lll.md?p=5), a beneficial owner of five per centum or more of any class of [equity security](/usc/15/9041.md?p=6) of the [debtor](/usc/15/78lll.md?p=5) (other than a nonconvertible stock having fixed preferential dividend and liquidation rights), a limited partner with a participation of five per centum or more in the net assets or net profits of the [debtor](/usc/15/78lll.md?p=5), or a [person](/usc/15/78m.md?p=h-8-E) who, directly or indirectly and through [agreement](/usc/15/7a.md?p=2) or otherwise, exercised or had the power to exercise a controlling influence over the management or policies of the [debtor](/usc/15/78lll.md?p=5); and - (5) no advance shall be made by SIPC to the trustee to pay or otherwise satisfy any [net equity](/usc/15/78lll.md?p=11) claim of any [customer](/usc/15/78lll.md?p=2-A) who is a [broker or dealer](/usc/15/78c.md?p=h-2) or bank, other than to the extent that it shall be established to the satisfaction of the trustee, from the books and rec­ords of the [debtor](/usc/15/78lll.md?p=5) or from the books and rec­ords of a [broker or dealer](/usc/15/78c.md?p=h-2) or bank, or otherwise, that the [net equity](/usc/15/78lll.md?p=11) claim of such [broker or dealer](/usc/15/78c.md?p=h-2) or bank against the [debtor](/usc/15/78lll.md?p=5) arose out of transactions for [customers](/usc/15/78lll.md?p=2-A) of such [broker or dealer](/usc/15/78c.md?p=h-2) or bank (which [customers](/usc/15/78lll.md?p=2-A) are not themselves a [broker or dealer](/usc/15/78c.md?p=h-2) or bank or a [person](/usc/15/78m.md?p=h-8-E) described in [paragraph (4)](#a-4)), in which event each such [customer](/usc/15/78lll.md?p=2-A) of such [broker or dealer](/usc/15/78c.md?p=h-2) or bank shall be deemed a separate [customer](/usc/15/78lll.md?p=2-A) of the [debtor](/usc/15/78lll.md?p=5). To the extent moneys are advanced by SIPC to the trustee to pay or otherwise satisfy the claims of [customers](/usc/15/78lll.md?p=2-A), in addition to all other rights it may have at law or in equity, SIPC shall be subrogated to the claims of such [customers](/usc/15/78lll.md?p=2-A) with the rights and priorities provided in this chapter, except that SIPC as subrogee may assert no claim against [customer property](/usc/15/78lll.md?p=4) until after the allocation thereof to [customers](/usc/15/78lll.md?p=2-A) as provided in [section 78fff–2(c) of this title](/usc/15/78fff–2.md?p=c). - (b) **Other advances—** SIPC shall advance to the trustee— - (1) such moneys as may be required to carry out [section 78fff–2(e) of this title](/usc/15/78fff–2.md?p=e); and - (2) to the extent the general estate of the [debtor](/usc/15/78lll.md?p=5) is not sufficient to pay any and all costs and expenses of [administration](/usc/15/2203.md?p=2) of the estate of the [debtor](/usc/15/78lll.md?p=5) and of the [liquidation proceeding](/usc/15/78lll.md?p=10), the amount of such costs and expenses. - (c) **Discretionary advances—** SIPC may advance to the trustee such moneys as may be required to— - (1) pay or guarantee indebtedness of the [debtor](/usc/15/78lll.md?p=5) to a bank, lender, or other [person](/usc/15/78m.md?p=h-8-E) under [section 78fff–1(b)(2) of this title](/usc/15/78fff–1.md?p=b-2); - (2) guarantee or secure any indemnity under [section 78fff–2(f) of this title](/usc/15/78fff–2.md?p=f); and - (3) [purchase](/usc/15/78c–5.md?p=g) [securities](/usc/15/78lll.md?p=14) under [section 78fff–2(d) of this title](/usc/15/78fff–2.md?p=d). - (d) **Standard maximum cash advance amount defined—** For purposes of this section, the term “standard maximum cash advance amount” means $250,000, as such amount may be adjusted after December 31, 2010, as provided under [subsection (e)](#e). - (e) **Inflation adjustment—** - (1) **In general—** Not later than January 1, 2011, and every 5 years thereafter, and subject to the approval of the [Commission](/usc/15/78lll.md?p=1) as provided under [section 78ccc(e)(2) of this title](/usc/15/78ccc.md?p=e-2), the [Board](/usc/15/205c.md?p=1) of Directors of SIPC shall determine whether an inflation adjustment to the [standard maximum cash advance amount](#d) is appropriate. If the [Board](/usc/15/205c.md?p=1) of Directors of SIPC determines such an adjustment is appropriate, then the [standard maximum cash advance amount](#d) shall be an amount equal to— - (A) $250,000 multiplied by— - (B) the ratio of the annual value of the Personal Consumption Expenditures Chain-Type Price Index (or any successor index thereto), published by the Department of Commerce, for the calendar year preceding the year in which such determination is made, to the published annual value of such index for the calendar year preceding 2010. The index values used in calculations under this paragraph shall be, as of the date of the calculation, the values most recently published by the Department of Commerce. - (2) **Rounding—** If the [standard maximum cash advance amount](#d) determined under [paragraph (1)](#e-1) for any period is not a multiple of $10,000, the amount so determined shall be rounded down to the nearest $10,000. - (3) **Publication and report to the Congress—** Not later than April 5 of any calendar year in which a determination is required to be made under [paragraph (1)](#e-1)— - (A) the [Commission](/usc/15/78lll.md?p=1) shall publish in the Federal Register the [standard maximum cash advance amount](#d); and - (B) the [Board](/usc/15/205c.md?p=1) of Directors of SIPC shall submit a report to the Congress stating the [standard maximum cash advance amount](#d). - (4) **Implementation period—** Any adjustment to the [standard maximum cash advance amount](#d) shall take effect on January 1 of the year immediately succeeding the calendar year in which such adjustment is made. - (5) **Inflation adjustment considerations—** In making any determination under [paragraph (1)](#e-1) to increase the [standard maximum cash advance amount](#d), the [Board](/usc/15/205c.md?p=1) of Directors of SIPC shall consider— - (A) the overall [state](/usc/15/15g.md?p=2) of the fund and the economic conditions affecting members of SIPC; - (B) the potential problems affecting members of SIPC; and - (C) such other factors as the [Board](/usc/15/205c.md?p=1) of Directors of SIPC may determine appropriate. # §78fff–4. Direct payment procedure - (a) **Determination regarding direct payments—** If SIPC determines that— - (1) any member of SIPC (including a [person](/usc/15/78m.md?p=h-8-E) who was a member within one hundred eighty days prior to such determination) has failed or is in danger of failing to meet its obligations to [customers](/usc/15/78lll.md?p=2-A); - (2) one or more of the conditions specified in [section 78eee(b)(1) of this title](/usc/15/78eee.md?p=b-1) exist with respect to such member; - (3) the claim of each [customer](/usc/15/78lll.md?p=2-A) of the member is within the limits of protection provided in [section 78fff–3(a) of this title](/usc/15/78fff–3.md?p=a); - (4) the claims of all [customers](/usc/15/78lll.md?p=2-A) of the member aggregate less than $250,000; - (5) the cost to SIPC of satisfying [customer](/usc/15/78lll.md?p=2-A) claims under this section will be less than the cost under a [liquidation proceeding](/usc/15/78lll.md?p=10); and - (6) such member’s registration as a [broker](/usc/15/6102.md?p=d-2-B-i)-[dealer](/usc/15/6102.md?p=d-2-B-i) under [section 78o(b)](/usc/15/78o.md?p=b) of this title has been terminated, or such member has consented to the use of the direct payment procedure set forth in this section, SIPC may, in its discretion, use the direct payment procedure set forth in this section in lieu of instituting a [liquidation proceeding](/usc/15/78lll.md?p=10) with respect to such member. - (b) **Notice—** Promptly after a determination under [subsection (a)](#a) that the direct payment procedure is to be used with respect to a member, SIPC shall cause notice of such direct payment procedure to be published in one or more newspapers of general circulation in a form and manner determined by SIPC, and at the same time shall cause to be mailed a copy of such notice to each [person](/usc/15/78m.md?p=h-8-E) who appears, from the books and records of such member, to have been a [customer](/usc/15/78lll.md?p=2-A) of the member with an open [account](/usc/15/1681a.md?p=r-4) within the past twelve months, to the address of such [person](/usc/15/78m.md?p=h-8-E) as it appears from the books and records of such member. Such notice shall [state](/usc/15/15g.md?p=2) that SIPC will satisfy [customer](/usc/15/78lll.md?p=2-A) claims directly, without a [liquidation proceeding](/usc/15/78lll.md?p=10), and shall set forth the form and manner in which claims may be presented. A direct payment procedure shall be deemed to commence on the date of first publication under this subsection and no claim by a [customer](/usc/15/78lll.md?p=2-A) shall be paid or otherwise satisfied by SIPC unless received within the six-month period beginning on such date, except that SIPC shall, upon [application](/usc/15/77ccc.md?p=8) within such period, and for cause shown, grant a reasonable, fixed extension of time for the filing of a claim by the United States, by a [State](/usc/15/15g.md?p=2) or political subdivision thereof, or by an infant or incompetent [person](/usc/15/78m.md?p=h-8-E) without a guardian. - (c) **Payments to customers—** SIPC shall promptly satisfy all obligations of the member to each of its [customers](/usc/15/78lll.md?p=2-A) relating to, or [net equity](/usc/15/78lll.md?p=11) claims based upon, [securities](/usc/15/78lll.md?p=14) or cash by the delivery of [securities](/usc/15/78lll.md?p=14) or the effecting of payments to such [customer](/usc/15/78lll.md?p=2-A) (subject to the provisions of [section 78fff–2(d) of this title](/usc/15/78fff–2.md?p=d) and [section 78fff–3(a) of this title](/usc/15/78fff–3.md?p=a) insofar as such obligations are ascertainable from the books and records of the member or are otherwise established to the satisfaction of SIPC. For purposes of distributing [securities](/usc/15/78lll.md?p=14) to [customers](/usc/15/78lll.md?p=2-A), all [securities](/usc/15/78lll.md?p=14) shall be valued as of the close of business on the date of publication under [subsection (b)](#b). Any payment or delivery of [securities](/usc/15/78lll.md?p=14) pursuant to this section may be conditioned upon the execution and delivery, in a form to be determined by SIPC, of appropriate receipts, supporting affidavits, releases, and assignments. To the extent moneys of SIPC are used to satisfy the claims of [customers](/usc/15/78lll.md?p=2-A), in addition to all other rights it may have at law or in equity, SIPC shall be subrogated to the claims of such [customers](/usc/15/78lll.md?p=2-A) against the member. - (d) **Effect on claims—** Except as otherwise provided in this section, nothing in this section shall limit the right of any [person](/usc/15/78m.md?p=h-8-E), including any subrogee, to establish by formal proof or otherwise such claims as such [person](/usc/15/78m.md?p=h-8-E) may have against the member, including claims for the payment of money and the delivery of specific [securities](/usc/15/78lll.md?p=14), without resort to moneys of SIPC. - (e) **Jurisdiction of Bankruptcy Courts—** After SIPC has published notice of the institution of a direct payment procedure under this section, any [person](/usc/15/78m.md?p=h-8-E) aggrieved by any determination of SIPC with respect to his claim under [subsection (c)](#c) may, within six months following mailing by SIPC of its determination with respect to such claim, seek a final adjudication of such claim. The courts of the United States having jurisdiction over cases under [title 11](/usc/11.md) shall have original and exclusive jurisdiction of any civil action for the adjudication of such claim. Any such action shall be brought in the judicial district where the head office of the [debtor](/usc/15/78lll.md?p=5) is located. Any determination of the rights of a [customer](/usc/15/78lll.md?p=2-A) under [subsection (c)](#c) shall not prejudice any other right or remedy of the [customer](/usc/15/78lll.md?p=2-A) against the member. - (f) **Discontinuance of direct payment procedures—** If, at any time after the institution of a direct payment procedure with respect to a member, SIPC determines, in its discretion, that continuation of such direct payment procedure is not appropriate, SIPC may cease such direct payment procedure and, upon so doing, may seek a [protective decree](/usc/15/78lll.md?p=13) pursuant to [section 78eee of this title](/usc/15/78eee.md). To the extent payments of cash, distributions of [securities](/usc/15/78lll.md?p=14), or determinations with respect to the validity of a [customer](/usc/15/78lll.md?p=2-A)’s claim are made under this section, such payments, distributions, and determinations shall be recognized and given full effect in the event of any subsequent [liquidation proceeding](/usc/15/78lll.md?p=10). Any action brought under [subsection (e)](#e) and pending at the time of the appointment of a trustee under [section 78eee(b)(3) of this title](/usc/15/78eee.md?p=b-3) shall be permanently stayed by the court at the time of such appointment, and the court shall enter an [order](/usc/15/8702.md?p=14) directing the transfer or removal to it of such suit. Upon such removal or transfer the complaint in such action shall constitute the plaintiff’s claim in the [liquidation proceeding](/usc/15/78lll.md?p=10), if appropriate, and shall be deemed received by the trustee on the date of his appointment regardless of the date of actual transfer or removal of such action. - (g) **References—** For purposes of this section, any reference to the trustee in sections [78fff–1(b)(1)](/usc/15/78fff–1.md?p=b-1), [78fff–2(d)](/usc/15/78fff–2.md?p=d), [78fff–2(f)](/usc/15/78fff–2.md?p=f), [78fff–3(a)](/usc/15/78fff–3.md?p=a), [78lll(5)](/usc/15/78lll.md?p=5) and [78lll(12)](/usc/15/78lll.md?p=12) of this title shall be deemed a reference to SIPC, and any reference to the date of publication of notice under [section 78fff–2(a) of this title](/usc/15/78fff–2.md?p=a) shall be deemed a reference to the publication of notice under this section. # §78ggg. SEC functions - (a) **Administrative procedure—** Determinations of the [Commission](/usc/15/78lll.md?p=1), for purposes of making rules pursuant to [section 78ccc(e)(3)](/usc/15/78ccc.md?p=e-3) and [section 78iii(f) of this title](/usc/15/78iii.md?p=f) shall be after appropriate notice and opportunity for a hearing, and for submission of views of interested [persons](/usc/15/78m.md?p=h-8-E) in accordance with the rulemaking procedures specified in [section 553 of title 5](/usc/5/553.md), but the holding of a hearing shall not prevent adoption of any such rule or regulation upon expiration of the notice period specified in [subsection (d)](/usc/5/553.md?p=d) of such section and shall not be required to be on a record within the meaning of subchapter II of [chapter 5](/usc/15/ch5.md) of such title. - (b) **Enforcement of actions—** In the event of the refusal of SIPC to commit its funds or otherwise to act for the protection of [customers](/usc/15/78lll.md?p=2-A) of any member of SIPC, the [Commission](/usc/15/78lll.md?p=1) may apply to the district court of the United States in which the principal office of SIPC is located for an [order](/usc/15/8702.md?p=14) requiring SIPC to discharge its obligations under this chapter and for such other relief as the court may deem appropriate to carry out the purposes of this chapter. - (c) **Examinations and reports—** - (1) **Examination of SIPC, etc.** The [Commission](/usc/15/78lll.md?p=1) may make such examinations and inspections of SIPC and require SIPC to furnish it with such reports and rec­ords or copies thereof as the [Commission](/usc/15/78lll.md?p=1) may consider necessary or appropriate in the public interest or to effectuate the purposes of this chapter. - (2) **Reports from SIPC—** As soon as practicable after the close of each fiscal year, SIPC shall submit to the [Commission](/usc/15/78lll.md?p=1) a written report relative to the conduct of its business, and the exercise of the other rights and powers granted by this chapter, during such fiscal year. Such report shall include financial statements setting forth the financial position of SIPC at the end of such fiscal year and the results of its operations (including the source and [application](/usc/15/77ccc.md?p=8) of its funds) for such fiscal year. The financial statements so included shall be examined by an independent public accountant or firm of independent public accountants, selected by SIPC and satisfactory to the [Commission](/usc/15/78lll.md?p=1), and shall be accompanied by the report thereon of such accountant or firm. The [Commission](/usc/15/78lll.md?p=1) shall transmit such report to the President and the Congress with such comment thereon as the [Commission](/usc/15/78lll.md?p=1) may deem appropriate. # §78hhh. Examining authority functions Each member of SIPC shall file with such member’s [examining authority](/usc/15/78lll.md?p=6), or collection agent if a collection agent has been designated pursuant to [section 78iii(a) of this title](/usc/15/78iii.md?p=a), such information (including reports of, and information with respect to, the [gross revenues from the securities business](/usc/15/78lll.md?p=9) of such member, including the composition thereof, transactions in [securities](/usc/15/78lll.md?p=14) effected by such member, and other information with respect to such member’s activities, whether in the [securities](/usc/15/78lll.md?p=14) business or otherwise, including [customer](/usc/15/78lll.md?p=2-A) [accounts](/usc/15/1681a.md?p=r-4) maintained, net capital employed, and activities conducted) as SIPC may determine to be necessary or appropriate for the purpose of making assessments under [section 78ddd of this title](/usc/15/78ddd.md). The [examining authority](/usc/15/78lll.md?p=6) or collection agent shall file with SIPC all or such part of such information (and such compilations and analyses thereof) as SIPC, by bylaw or rule, shall prescribe. No [application](/usc/15/77ccc.md?p=8), report, or document filed pursuant to this section shall be deemed to be filed pursuant to [section 78r of this title](/usc/15/78r.md). # §78iii. Functions of self-regulatory organizations - (a) **Collection agent—** Each [self-regulatory organization](/usc/15/78c.md?p=a-26) shall act as collection agent for SIPC to collect the assessments payable by all members of SIPC for whom such [self-regulatory organization](/usc/15/78c.md?p=a-26) is the [examining authority](/usc/15/78lll.md?p=6), unless SIPC designates a [self-regulatory organization](/usc/15/78c.md?p=a-26) other than the [examining authority](/usc/15/78lll.md?p=6) to act as collection agent for any member of SIPC who is a member of or participant in more than one [self-regulatory organization](/usc/15/78c.md?p=a-26). If the only [self-regulatory organization](/usc/15/78c.md?p=a-26) of which a member of SIPC is a member or in which it is a participant is a registered clearing agency that is not the [examining authority](/usc/15/78lll.md?p=6) for the member, SIPC may, nevertheless, designate such registered clearing agency as collection agent for the member or may require that payments be made directly to SIPC. The collection agent shall be obligated to remit to SIPC assessments made under [section 78ddd of this title](/usc/15/78ddd.md) only to the extent that payments of such assessment are received by such collection agent. Members of SIPC who are not members of or participants in a [self-regulatory organization](/usc/15/78c.md?p=a-26) shall make payments directly to SIPC. - (b) **Immunity—** No [self-regulatory organization](/usc/15/78c.md?p=a-26) shall have any liability to any [person](/usc/15/78m.md?p=h-8-E) for any action taken or omitted in good faith pursuant to [section 78eee(a)(1)](/usc/15/78eee.md?p=a-1) and [section 78eee(a)(2) of this title](/usc/15/78eee.md?p=a-2). - (c) **Inspections—** The [self-regulatory organization](/usc/15/78c.md?p=a-26) of which a member of SIPC is a member or in which it is a participant shall inspect or examine such member for compliance with applicable financial responsibility rules, except that— - (1) if the [self-regulatory organization](/usc/15/78c.md?p=a-26) is a registered clearing agency, the [Commission](/usc/15/78lll.md?p=1) may designate itself as responsible for the examination of such member for compliance with applicable financial responsibility rules; and - (2) if a member of SIPC is a member of or participant in more than one [self-regulatory organization](/usc/15/78c.md?p=a-26), the [Commission](/usc/15/78lll.md?p=1), pursuant to [section 78q(d) of this title](/usc/15/78q.md?p=d), shall designate one of such [self-regulatory organizations](/usc/15/78c.md?p=a-26) or itself as responsible for the examination of such member for compliance with applicable financial responsibility rules. - (d) **Reports—** There shall be filed with SIPC by the [self-regulatory organizations](/usc/15/78c.md?p=a-26) such reports of inspections or examinations of the members of SIPC (or copies thereof) as may be designated by SIPC by bylaw or rule. - (e) **Consultation—** SIPC shall consult and cooperate with the [self-regulatory organizations](/usc/15/78c.md?p=a-26) toward the end: - (1) that there may be developed and carried into effect procedures reasonably designed to detect approaching financial difficulty upon the part of any member of SIPC; - (2) that, as nearly as may be practicable, examinations to ascertain whether members of SIPC are in compliance with applicable financial responsibility rules will be conducted by the [self-regulatory organizations](/usc/15/78c.md?p=a-26) under appropriate standards (both as to method and scope) and reports of such examinations will, where appropriate, be standard in form; and - (3) that, as frequently as may be practicable under the circumstances, each member of SIPC will file financial information with, and be examined by, the [self-regulatory organization](/usc/15/78c.md?p=a-26) which is the [examining authority](/usc/15/78lll.md?p=6) for such member. - (f) **Financial condition of members—** The [Commission](/usc/15/78lll.md?p=1) may, by such rules as it determines necessary or appropriate in the public interest and to carry out the purposes of this chapter, require any [self-regulatory organization](/usc/15/78c.md?p=a-26) to furnish SIPC with reports and records (or copies thereof) relating to the financial condition of members of or participants in such [self-regulatory organization](/usc/15/78c.md?p=a-26). # §78jjj. Prohibited acts - (a) **Failure to pay assessment, etc.** If a member of SIPC shall fail to file any report or information required pursuant to this chapter, or shall fail to pay when due all or any part of an assessment made upon such member pursuant to this chapter, and such failure shall not have been cured, by the filing of such report or information or by the making of such payment, together with interest and penalty thereon, within five days after receipt by such member of written notice of such failure given by or on behalf of SIPC, it shall be unlawful for such member, unless specifically authorized by the [Commission](/usc/15/78lll.md?p=1), to engage in business as a [broker or dealer](/usc/15/78c.md?p=h-2). If such member denies that it owes all or any part of the amount specified in such notice, it may after payment of the full amount so specified commence an action against SIPC in the appropriate United States district court to recover the amount it denies owing. - (b) **Engaging in business after appointment of trustee or initiation of direct payment procedure—** It shall be unlawful for any [broker or dealer](/usc/15/78c.md?p=h-2) for whom a trustee has been appointed pursuant to this chapter or for whom a direct payment procedure has been initiated to engage thereafter in business as a [broker or dealer](/usc/15/78c.md?p=h-2), unless the [Commission](/usc/15/78lll.md?p=1) otherwise determines in the public interest. The [Commission](/usc/15/78lll.md?p=1) may by [order](/usc/15/8702.md?p=14) bar or suspend for any period, any officer, director, general partner, owner of 10 per centum or more of the voting [securities](/usc/15/78lll.md?p=14), or controlling [person](/usc/15/78m.md?p=h-8-E) of any [broker or dealer](/usc/15/78c.md?p=h-2) for whom a trustee has been appointed pursuant to this chapter or for whom a direct payment procedure has been initiated from being or becoming associated with a [broker or dealer](/usc/15/78c.md?p=h-2), if after appropriate notice and opportunity for hearing, the [Commission](/usc/15/78lll.md?p=1) shall determine such bar or suspension to be in the public interest. - (c) **Concealment of assets; false statements or claims—** - (1) **Specific prohibited acts—** Any [person](/usc/15/78m.md?p=h-8-E) who, directly or indirectly, in connection with or in contemplation of any [liquidation proceeding](/usc/15/78lll.md?p=10) or direct payment procedure— - (A) employs any device, scheme, or artifice to defraud; - (B) engages in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any [person](/usc/15/78m.md?p=h-8-E); or - (C) fraudulently or with intent to defeat this chapter— - (i) conceals or transfers any property belonging to the estate of a [debtor](/usc/15/78lll.md?p=5); - (ii) makes a false statement or [account](/usc/15/1681a.md?p=r-4); - (iii) presents or uses any false claim for proof against the estate of a [debtor](/usc/15/78lll.md?p=5); - (iv) receives any material amount of property from a [debtor](/usc/15/78lll.md?p=5); - (v) gives, offers, receives, transfers, or obtains any money or property, remuneration, compensation, reward, advantage, other consideration, or promise thereof, for acting or forebearing to act; - (vi) conceals, destroys, mutilates, falsifies, makes a false entry in, or otherwise falsifies any document affecting or relating to the property or affairs of a [debtor](/usc/15/78lll.md?p=5); or - (vii) withholds, from any [person](/usc/15/78m.md?p=h-8-E) entitled to its possession, any document affecting or relating to the property or affairs of a [debtor](/usc/15/78lll.md?p=5), shall be fined not more than $250,000 or imprisoned for not more than five years, or both. - (2) **Fraudulent conversion—** Any [person](/usc/15/78m.md?p=h-8-E) who, directly or indirectly steals, embezzles, or fraudulently, or with intent to defeat this chapter, abstracts or converts to his own use or to the use of another any of the moneys, [securities](/usc/15/78lll.md?p=14), or other assets of SIPC, or otherwise defrauds or attempts to defraud SIPC or a trustee by any means, shall be fined not more than $250,000 or imprisoned not more than five years, or both. - (d) **Misrepresentation of SIPC membership or protection—** - (1) **In general—** Any [person](/usc/15/78m.md?p=h-8-E) who falsely represents by any means (including, without limitation, through the Internet or any other medium of mass communication), with actual knowledge of the falsity of the representation and with an intent to deceive or cause injury to another, that such [person](/usc/15/78m.md?p=h-8-E), or another [person](/usc/15/78m.md?p=h-8-E), is a member of SIPC or that any [person](/usc/15/78m.md?p=h-8-E) or [account](/usc/15/1681a.md?p=r-4) is protected or is eligible for protection under this chapter 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 chapter may grant temporary injunctions and final injunctions on such terms as the court deems reasonable to prevent or restrain any [violation](/usc/15/57b–1.md?p=a-7) of [paragraph (1)](#d-1). Any such injunction may be served anywhere in the United States on the [person](/usc/15/78m.md?p=h-8-E) 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](/usc/15/78m.md?p=h-8-E). 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. # §78kkk. Miscellaneous provisions - (a) **Public inspection of reports—** Any notice, report, or other document filed with SIPC pursuant to this chapter shall be available for public inspection unless SIPC or the [Commission](/usc/15/78lll.md?p=1) shall determine that disclosure thereof is not in the public interest. Nothing herein shall act to deny documents or information to the Congress of the United States or the [committees](/usc/15/2921.md?p=1) of either House having jurisdiction over [financial institutions](/usc/15/1681s–2.md?p=a-7-G-ii), [securities](/usc/15/78lll.md?p=14) regulation, or related matters under the rules of each body. Nor shall the [Commission](/usc/15/78lll.md?p=1) be denied any document or information which the [Commission](/usc/15/78lll.md?p=1), in its judgment, needs. - (b) **Liability of members of SIPC—** Except for such assessments as may be made upon such member pursuant to the provisions of [section 78ddd of this title](/usc/15/78ddd.md), no member of SIPC shall have any liability under this chapter as a member of SIPC for, or in connection with, any act or omission of any other [broker or dealer](/usc/15/78c.md?p=h-2) whether in connection with the conduct of the business or affairs of such [broker or dealer](/usc/15/78c.md?p=h-2) or otherwise and, without limiting the generality of the foregoing, no member shall have any liability for or in respect of any indebtedness or other liability of SIPC. - (c) **Liability of SIPC and Directors, officers, or employees—** Neither SIPC nor any of its Directors, officers, or employees shall have any liability to any [person](/usc/15/78m.md?p=h-8-E) for any action taken or omitted in good faith under or in connection with any matter contemplated by this chapter. - (d) **Advertising—** SIPC shall by bylaw prescribe the manner in which a member of SIPC may display any sign or signs (or include in any advertisement a statement) relating to the protection to [customers](/usc/15/78lll.md?p=2-A) and their [accounts](/usc/15/1681a.md?p=r-4), or any other protections, afforded under this chapter. No member may display any such sign, or include in an advertisement any such statement, except in accordance with such bylaws. SIPC may also by bylaw prescribe such minimal requirements as it considers necessary and appropriate to require a member of SIPC to provide public notice of its membership in SIPC. - (e) **SIPC exempt from taxation—** SIPC, its property, its franchise, capital, reserves, surplus, and its income, shall be exempt from all taxation now or hereafter imposed by the United States or by any [State](/usc/15/15g.md?p=2) or local taxing [authority](/usc/15/3051.md?p=1), except that any real property and any tangible personal property (other than cash and [securities](/usc/15/78lll.md?p=14)) of SIPC shall be subject to [State](/usc/15/15g.md?p=2) and local taxation to the same extent according to its value as other real and tangible personal property is taxed. Assessments made upon a member of SIPC shall constitute ordinary and necessary expenses in carrying on the business of such member for the purpose of [section 162(a) of title 26](/usc/26/162.md?p=a). The contribution and transfer to SIPC of funds or [securities](/usc/15/78lll.md?p=14) held by any trust established by a [national securities exchange](/usc/15/9009a.md?p=a-5) prior to January 1, 1970, for the purpose of providing assistance to [customers](/usc/15/78lll.md?p=2-A) of members of such [exchange](/usc/15/636.md?p=a-36-A-xvi), shall not result in any taxable gain to such trust or give rise to any taxable income to any member of SIPC under any provision of [title 26](/usc/26.md), nor shall such contribution or transfer, or any reduction in assessments made pursuant to this chapter, in any way affect the status, as ordinary and necessary expenses under [section 162(a) of title 26](/usc/26/162.md?p=a), of any contributions made to such trust by such [exchange](/usc/15/636.md?p=a-36-A-xvi) at any time prior to such transfer. Upon dissolution of SIPC, none of its net assets shall inure to the benefit of any of its members. - (f) **Section 78t(a) of this title not to apply—** The provisions of subsection (a) of [section 78t of this title](/usc/15/78t.md) shall not apply to any liability under or in connection with this chapter. - (g) **SEC study of unsafe or unsound practices—** Not later than twelve months after December 30, 1970, the [Commission](/usc/15/78lll.md?p=1) shall compile a list of unsafe or unsound practices by members of SIPC in conducting their business and report to the Congress (1) the steps being taken under the [authority](/usc/15/3051.md?p=1) of existing law to eliminate those practices and (2) recommendations concerning additional legislation which may be needed to eliminate those unsafe or unsound practices. # §78lll. Definitions For purposes of this chapter, including the [application](/usc/15/77ccc.md?p=8) of the Bankruptcy Act to a [liquidation proceeding](#10): - (1) **Commission—** The term “Commission” means the [Securities](#14) and [Exchange](/usc/15/636.md?p=a-36-A-xvi) Commission. - (2) **Customer—** - (A) **In general—** The term “customer” of a [debtor](#5) means any [person](/usc/15/78m.md?p=h-8-E) (including any [person](/usc/15/78m.md?p=h-8-E) with whom the [debtor](#5) deals as principal or agent) who has a claim on [account](/usc/15/1681a.md?p=r-4) of [securities](#14) received, acquired, or held by the [debtor](#5) in the ordinary course of its business as a [broker or dealer](/usc/15/78c.md?p=h-2) from or for the [securities](#14) [accounts](/usc/15/1681a.md?p=r-4) of such [person](/usc/15/78m.md?p=h-8-E) for safekeeping, with a view to sale, to cover consummated sales, pursuant to [purchases](/usc/15/78c–5.md?p=g), as collateral, [security](#14), or for purposes of effecting transfer. - (B) **Included persons—** The term “[customer](#2-A)” includes— - (i) any [person](/usc/15/78m.md?p=h-8-E) who has deposited cash with the [debtor](#5) for the purpose of purchasing [securities](#14); - (ii) any [person](/usc/15/78m.md?p=h-8-E) who has a claim against the [debtor](#5) for cash, [securities](#14), futures contracts, or options on futures contracts received, acquired, or held in a portfolio margining [account](/usc/15/1681a.md?p=r-4) carried as a [securities](#14) [account](/usc/15/1681a.md?p=r-4) pursuant to a portfolio margining [program](/usc/15/2921.md?p=6) approved by the [Commission](#1); and - (iii) any [person](/usc/15/78m.md?p=h-8-E) who has a claim against the [debtor](#5) arising out of sales or conversions of such [securities](#14). - (C) **Excluded persons—** The term “[customer](#2-A)” does not include any [person](/usc/15/78m.md?p=h-8-E), to the extent that— - (i) the claim of such [person](/usc/15/78m.md?p=h-8-E) arises out of transactions with a [foreign subsidiary](#8) of a member of SIPC; or - (ii) such [person](/usc/15/78m.md?p=h-8-E) has a claim for cash or [securities](#14) which by contract, [agreement](/usc/15/7a.md?p=2), or understanding, or by operation of law, is part of the capital of the [debtor](#5), or is subordinated to the claims of any or all [creditors](/usc/15/1615.md?p=d-2) of the [debtor](#5), notwithstanding that some ground exists for declaring such contract, [agreement](/usc/15/7a.md?p=2), or understanding void or voidable in a suit between the [claimant](/usc/15/7a.md?p=4) and the [debtor](#5). - (3) **Customer name securities—** The term “customer name securities” means [securities](#14) which were held for the [account](/usc/15/1681a.md?p=r-4) of a [customer](#2-A) on the [filing date](#7) by or on behalf of the [debtor](#5) and which on the [filing date](#7) were registered in the name of the [customer](#2-A), or were in the process of being so registered pursuant to instructions from the [debtor](#5), but does not include [securities](#14) registered in the name of the [customer](#2-A) which, by endorsement or otherwise, were in negotiable form. - (4) **Customer property—** The term “customer property” means cash and [securities](#14) (except [customer name securities](#3) delivered to the [customer](#2-A)) at any time received, acquired, or held by or for the [account](/usc/15/1681a.md?p=r-4) of a [debtor](#5) from or for the [securities](#14) [accounts](/usc/15/1681a.md?p=r-4) of a [customer](#2-A), and the proceeds of any such property transferred by the [debtor](#5), including property unlawfully converted. The term “customer property” includes— - (A) [securities](#14) held as property of the [debtor](#5) to the extent that the inability of the [debtor](#5) to meet its obligations to [customers](#2-A) for their [net equity](#11) claims based on [securities](#14) of the same class and series of an [issuer](/usc/15/636.md?p=a-36-A-xvi) is attributable to the [debtor](#5)’s noncompliance with the requirements of [section 78o(c)(3)](/usc/15/78o.md?p=c-3) of this title and the rules prescribed under such section; - (B) resources provided through the use or realization of [customers](#2-A)’ debit cash balances and other [customer](#2-A)-related debit items as defined by the [Commission](#1) by rule; - (C) any cash or [securities](#14) apportioned to [customer property](#4) pursuant to [section 78fff(d) of this title](/usc/15/78fff.md?p=d); - (D) in the case of a portfolio margining [account](/usc/15/1681a.md?p=r-4) of a [customer](#2-A) that is carried as a [securities](#14) [account](/usc/15/1681a.md?p=r-4) pursuant to a portfolio margining [program](/usc/15/2921.md?p=6) approved by the [Commission](#1), a futures contract or an option on a futures contract received, acquired, or held by or for the [account](/usc/15/1681a.md?p=r-4) of a [debtor](#5) from or for such portfolio margining [account](/usc/15/1681a.md?p=r-4), and the proceeds thereof; and - (E) any other property of the [debtor](#5) which, upon compliance with applicable laws, rules, and regulations, would have been set aside or held for the benefit of [customers](#2-A), unless the trustee determines that including such property within the meaning of such term would not significantly increase [customer property](#4). - (5) **Debtor—** The term “debtor” means a member of SIPC with respect to whom an [application](/usc/15/77ccc.md?p=8) for a [protective decree](#13) has been filed under [section 78eee(a)(3) of this title](/usc/15/78eee.md?p=a-3) or a direct payment procedure has been instituted under [section 78fff–4(b) of this title](/usc/15/78fff–4.md?p=b). - (6) **Examining authority—** The term “examining authority” means, with respect to any member of SIPC (A) the [self-regulatory organization](/usc/15/78c.md?p=a-26) which inspects or examines such member of SIPC, or (B) the [Commission](#1) if such member of SIPC is not a member of or participant in any [self-regulatory organization](/usc/15/78c.md?p=a-26) or if the [Commission](#1) has designated itself examining authority for such member pursuant to [section 78iii(c) of this title](/usc/15/78iii.md?p=c). - (7) **Filing date—** The term “filing date” means the date on which an [application](/usc/15/77ccc.md?p=8) for a [protective decree](#13) is filed under [section 78eee(a)(3) of this title](/usc/15/78eee.md?p=a-3), except that— - (A) if a petition under [title 11](/usc/11.md) concerning the [debtor](#5) was filed before such date, the term “[filing date](#7)” means the date on which such petition was filed; - (B) if the [debtor](#5) is the subject of a proceeding pending in any court or before any agency of the United States or any [State](/usc/15/15g.md?p=2) in which a receiver, trustee, or liquidator for such [debtor](#5) has been appointed and such proceeding was commenced before the date on which such [application](/usc/15/77ccc.md?p=8) was filed, the term “[filing date](#7)” means the date on which such proceeding was commenced; or - (C) if the [debtor](#5) is the subject of a direct payment procedure or was the subject of a direct payment procedure discontinued by SIPC pursuant to [section 78fff–4(f) of this title](/usc/15/78fff–4.md?p=f), the term “[filing date](#7)” means the date on which notice of such direct payment procedure was published under [section 78fff–4(b) of this title](/usc/15/78fff–4.md?p=b). - (8) **Foreign subsidiary—** The term “foreign subsidiary” means any subsidiary of a member of SIPC which has its principal place of business in a foreign country or which is organized under the laws of a foreign country. - (9) **Gross revenues from the securities business—** The term “gross revenues from the securities business” means the sum of (but without duplication)— - (A) [commissions](#1) earned in connection with transactions in [securities](#14) effected for [customers](#2-A) as agent (net of [commissions](#1) paid to other [brokers](/usc/15/6102.md?p=d-2-B-i) and [dealers](/usc/15/6102.md?p=d-2-B-i) in connection with such transactions) and markups with respect to [purchases](/usc/15/78c–5.md?p=g) or sales of [securities](#14) as principal; - (B) charges for executing or clearing transactions in [securities](#14) for other [brokers](/usc/15/6102.md?p=d-2-B-i) and [dealers](/usc/15/6102.md?p=d-2-B-i); - (C) the net realized gain, if any, from principal transactions in [securities](#14) in trading [accounts](/usc/15/1681a.md?p=r-4); - (D) the net profit, if any, from the management of or participation in the underwriting or distribution of [securities](#14); - (E) interest earned on [customers](#2-A)’ [securities](#14) [accounts](/usc/15/1681a.md?p=r-4); - (F) fees for investment advisory services (except when rendered to one or more registered [investment companies](/usc/15/77z–2.md?p=i-2) or insurance company separate [accounts](/usc/15/1681a.md?p=r-4)) or [account](/usc/15/1681a.md?p=r-4) supervision with respect to [securities](#14); - (G) fees for the solicitation of proxies with respect to, or tenders or [exchanges](/usc/15/636.md?p=a-36-A-xvi) of, [securities](#14); - (H) income from service charges or other surcharges with respect to [securities](#14); - (I) except as otherwise provided by rule of the [Commission](#1), dividends and interest received on [securities](#14) in investment [accounts](/usc/15/1681a.md?p=r-4) of the [broker or dealer](/usc/15/78c.md?p=h-2); - (J) fees in connection with put, call, and other option transactions in [securities](#14); - (K) [commissions](#1) earned from transactions in (i) certificates of deposit, and (ii) Treasury bills, bankers acceptances, or commercial paper which have a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof, the maturity of which is likewise limited, except that SIPC shall by bylaw include in the aggregate of gross revenues only an appropriate percentage of such [commissions](#1) based on SIPC’s loss experience with respect to such instruments over at least the preceding five years; and - (L) fees and other income from such other categories of the [securities](#14) business as SIPC shall provide by bylaw. Such term includes revenues earned by a [broker or dealer](/usc/15/78c.md?p=h-2) in connection with a transaction in the portfolio margining [account](/usc/15/1681a.md?p=r-4) of a [customer](#2-A) carried as [securities](#14) [accounts](/usc/15/1681a.md?p=r-4) pursuant to a portfolio margining [program](/usc/15/2921.md?p=6) approved by the [Commission](#1). Such term does not include revenues received by a [broker or dealer](/usc/15/78c.md?p=h-2) in connection with the distribution of shares of a registered open end [investment company](/usc/15/77z–2.md?p=i-2) or unit investment trust or revenues derived by a [broker or dealer](/usc/15/78c.md?p=h-2) from the sale of variable annuities or from the conduct of the business of insurance. - (10) **Liquidation proceeding—** The term “liquidation proceeding” means any proceeding for the liquidation of a [debtor](#5) under this chapter in which a trustee has been appointed under [section 78eee(b)(3) of this title](/usc/15/78eee.md?p=b-3). - (11) **Net equity—** The term “net equity” means the dollar amount of the [account](/usc/15/1681a.md?p=r-4) or [accounts](/usc/15/1681a.md?p=r-4) of a [customer](#2-A), to be determined by— - (A) calculating the sum which would have been owed by the [debtor](#5) to such [customer](#2-A) if the [debtor](#5) had liquidated, by sale or [purchase](/usc/15/78c–5.md?p=g) on the [filing date](#7)— - (i) all [securities](#14) positions of such [customer](#2-A) (other than [customer name securities](#3) reclaimed by such [customer](#2-A)); and - (ii) all positions in futures contracts and options on futures contracts held in a portfolio margining [account](/usc/15/1681a.md?p=r-4) carried as a [securities](#14) [account](/usc/15/1681a.md?p=r-4) pursuant to a portfolio margining [program](/usc/15/2921.md?p=6) approved by the [Commission](#1), including all property collateralizing such positions, to the extent that such property is not otherwise included herein; minus - (B) any indebtedness of such [customer](#2-A) to the [debtor](#5) on the [filing date](#7); plus - (C) any payment by such [customer](#2-A) of such indebtedness to the [debtor](#5) which is made with the approval of the trustee and within such period as the trustee may determine (but in no event more than sixty days after the publication of notice under [section 78fff–2(a) of this title](/usc/15/78fff–2.md?p=a)). A claim for a commodity futures contract received, acquired, or held in a portfolio margining [account](/usc/15/1681a.md?p=r-4) pursuant to a portfolio margining [program](/usc/15/2921.md?p=6) approved by the [Commission](#1) or a claim for a [security futures](/usc/15/77b.md?p=a-16) contract, shall be deemed to be a claim with respect to such contract as of the [filing date](#7), and such claim shall be treated as a claim for cash. In determining net equity under this paragraph, [accounts](/usc/15/1681a.md?p=r-4) held by a [customer](#2-A) in separate capacities shall be deemed to be [accounts](/usc/15/1681a.md?p=r-4) of separate [customers](#2-A). - (12) **Persons registered as brokers or dealers—** The term “persons registered as brokers or dealers” includes any [person](/usc/15/78m.md?p=h-8-E) who is a member of a [national securities exchange](/usc/15/9009a.md?p=a-5) other than a [government securities broker](/usc/15/6102.md?p=d-2-B-i) or [government securities dealer](/usc/15/6102.md?p=d-2-B-i) registered under [section 78o–5(a)(1)(A)](/usc/15/78o–5.md?p=a-1-A) of this title. - (13) **Protective decree—** The term “protective decree” means a decree, issued by a court upon [application](/usc/15/77ccc.md?p=8) of SIPC under [section 78eee(a)(3) of this title](/usc/15/78eee.md?p=a-3), that the [customers](#2-A) of a member of SIPC are in need of the protection provided under this chapter. - (14) **Security—** The term “Security” means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, any collateral trust certificate, preorganization certificate or subscription, transferable share, voting trust certificate, certificate of deposit, certificate of deposit for a security, or any [security future](/usc/15/77b.md?p=a-16) as that term is defined in [section 78c(a)(55)(A) of this title](/usc/15/78c.md?p=a-55-A), any investment contract or certificate of interest or participation in any profit-sharing [agreement](/usc/15/7a.md?p=2) or in any oil, gas, or mineral royalty or lease (if such investment contract or interest is the subject of a [registration statement](/usc/15/77b.md?p=a-8) with the [Commission](#1) pursuant to the provisions of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]), any put, call, straddle, option, or privilege on any security, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a [national securities exchange](/usc/15/9009a.md?p=a-5) relating to foreign currency, any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or [purchase](/usc/15/78c–5.md?p=g) or sell any of the foregoing, and any other instrument commonly known as a security. Except as specifically provided above, the term “security” does not include any currency, or any commodity or related contract or futures contract, or any warrant or right to subscribe to or [purchase](/usc/15/78c–5.md?p=g) or sell any of the foregoing. # [§§79 to 79z–6. Repealed. Pub. L. 109–58, title XII, § 1263, Aug. 8, 2005, 119 Stat. 974 — repealed] # §80a–1. Findings and declaration of policy - (a) **Findings—** Upon the basis of facts disclosed by the record and reports of the [Securities](/usc/15/80a–2.md?p=a-36) and [Exchange](/usc/15/80a–2.md?p=a-14) [Commission](/usc/15/80a–2.md?p=a-7) made pursuant to section 79z–4[^1] of this title, and facts otherwise disclosed and ascertained, it is found that [investment companies](/usc/15/77z–2.md?p=i-2) are affected with a national public interest in that, among other things— - (1) the [securities](/usc/15/80a–2.md?p=a-36) issued by such [companies](/usc/15/80a–2.md?p=a-8), which constitute a substantial part of all [securities](/usc/15/80a–2.md?p=a-36) publicly offered, are distributed, purchased, paid for, exchanged, transferred, redeemed, and repurchased by use of the mails and means and instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), and in the case of the numerous [companies](/usc/15/80a–2.md?p=a-8) which issue [redeemable securities](/usc/15/80a–2.md?p=a-32) this process of distribution and redemption is continuous; - (2) the principal activities of such [companies](/usc/15/80a–2.md?p=a-8)—investing, reinvesting, and trading in [securities](/usc/15/80a–2.md?p=a-36)—are conducted by use of the mails and means and instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), including the facilities of [national securities exchanges](/usc/15/80a–2.md?p=a-26), and constitute a substantial part of all transactions effected in the [securities](/usc/15/80a–2.md?p=a-36) markets of the Nation; - (3) such [companies](/usc/15/80a–2.md?p=a-8) customarily invest and trade in [securities](/usc/15/80a–2.md?p=a-36) issued by, and may dominate and [control](/usc/15/80a–2.md?p=a-9) or otherwise affect the policies and management of, [companies](/usc/15/80a–2.md?p=a-8) engaged in business in [interstate commerce](/usc/15/80a–2.md?p=a-18); - (4) such [companies](/usc/15/80a–2.md?p=a-8) are media for the investment in the national economy of a substantial part of the national savings and may have a vital effect upon the flow of such savings into the capital markets; and - (5) the activities of such [companies](/usc/15/80a–2.md?p=a-8), extending over many [States](/usc/15/80a–2.md?p=a-39), their use of the instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18) and the wide geographic distribution of their [security](/usc/15/80a–2.md?p=a-36) holders, make difficult, if not impossible, effective [State](/usc/15/80a–2.md?p=a-39) regulation of such [companies](/usc/15/80a–2.md?p=a-8) in the interest of investors. - (b) **Policy—** Upon the basis of facts disclosed by the record and reports of the [Securities](/usc/15/80a–2.md?p=a-36) and [Exchange](/usc/15/80a–2.md?p=a-14) [Commission](/usc/15/80a–2.md?p=a-7) made pursuant to section 79z–4[^1] of this title, and facts otherwise disclosed and ascertained, it is declared that the national public interest and the interest of investors are adversely affected— - (1) when investors [purchase](/usc/15/78c–5.md?p=g), pay for, [exchange](/usc/15/80a–2.md?p=a-14), receive dividends upon, vote, refrain from voting, sell, or surrender [securities](/usc/15/80a–2.md?p=a-36) issued by [investment companies](/usc/15/77z–2.md?p=i-2) without adequate, accurate, and explicit information, fairly presented, concerning the character of such [securities](/usc/15/80a–2.md?p=a-36) and the circumstances, policies, and financial responsibility of such [companies](/usc/15/80a–2.md?p=a-8) and their management; - (2) when [investment companies](/usc/15/77z–2.md?p=i-2) are organized, operated, managed, or their portfolio [securities](/usc/15/80a–2.md?p=a-36) are selected, in the interest of [directors](/usc/15/80a–2.md?p=a-12), officers, [investment advisers](/usc/15/6102.md?p=d-2-B-ii), depositors, or other affiliated [persons](/usc/15/80a–2.md?p=a-28) thereof, in the interest of underwriters, [brokers](/usc/15/80a–2.md?p=a-6), or [dealers](/usc/15/80a–2.md?p=a-11), in the interest of special classes of their [security](/usc/15/80a–2.md?p=a-36) holders, or in the interest of other [investment companies](/usc/15/77z–2.md?p=i-2) or [persons](/usc/15/80a–2.md?p=a-28) engaged in other lines of business, rather than in the interest of all classes of such [companies](/usc/15/80a–2.md?p=a-8)’ [security](/usc/15/80a–2.md?p=a-36) holders; - (3) when [investment companies](/usc/15/77z–2.md?p=i-2) issue [securities](/usc/15/80a–2.md?p=a-36) containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding [securities](/usc/15/80a–2.md?p=a-36); - (4) when the [control](/usc/15/80a–2.md?p=a-9) of [investment companies](/usc/15/77z–2.md?p=i-2) is unduly concentrated through pyramiding or inequitable methods of [control](/usc/15/80a–2.md?p=a-9), or is inequitably distributed, or when [investment companies](/usc/15/77z–2.md?p=i-2) are managed by irresponsible [persons](/usc/15/80a–2.md?p=a-28); - (5) when [investment companies](/usc/15/77z–2.md?p=i-2), in keeping their [accounts](/usc/15/1681a.md?p=r-4), in maintaining reserves, and in computing their earnings and the asset value of their outstanding [securities](/usc/15/80a–2.md?p=a-36), employ unsound or misleading methods, or are not subjected to adequate independent scrutiny; - (6) when [investment companies](/usc/15/77z–2.md?p=i-2) are reorganized, become inactive, or change the character of their business, or when the [control](/usc/15/80a–2.md?p=a-9) or management thereof is transferred, without the consent of their [security](/usc/15/80a–2.md?p=a-36) holders; - (7) when [investment companies](/usc/15/77z–2.md?p=i-2) by excessive borrowing and the issuance of excessive amounts of senior [securities](/usc/15/80a–2.md?p=a-36) increase unduly the speculative character of their junior [securities](/usc/15/80a–2.md?p=a-36); or - (8) when [investment companies](/usc/15/77z–2.md?p=i-2) operate without adequate assets or reserves. It is declared that the policy and purposes of this subchapter, in accordance with which the provisions of this subchapter shall be interpreted, are to mitigate and, so far as is feasible, to eliminate the conditions enumerated in this section which adversely affect the national public interest and the interest of investors. # §80a–2. Definitions; applicability; rulemaking considerations - (a) **Definitions—** When used in this subchapter, unless the context otherwise requires— - (1) “Advisory board” means a [board](/usc/15/205c.md?p=1), whether elected or appointed, which is distinct from the [board](/usc/15/205c.md?p=1) of [directors](#a-12) or [board](/usc/15/205c.md?p=1) of trustees, of an [investment company](/usc/15/77z–2.md?p=i-2), and which is composed solely of [persons](#a-28) who do not serve such [company](#a-8) in any other capacity, whether or not the functions of such [board](/usc/15/205c.md?p=1) are such as to render its members “[directors](#a-12)” within the definition of that term, which [board](/usc/15/205c.md?p=1) has advisory functions as to investments but has no power to determine that any [security](#a-36) or other investment shall be purchased or sold by such [company](#a-8). - (2) “Affiliated company” means a [company](#a-8) which is an affiliated [person](#a-28). - (3) “Affiliated [person](#a-28)” of another [person](#a-28) means (A) any [person](#a-28) directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding [voting securities](#a-42) of such other [person](#a-28); (B) any [person](#a-28) 5 per centum or more of whose outstanding [voting securities](#a-42) are directly or indirectly owned, controlled, or held with power to vote, by such other [person](#a-28); (C) any [person](#a-28) directly or indirectly controlling, controlled by, or under common [control](#a-9) with, such other [person](#a-28); (D) any officer, [director](#a-12), partner, copartner, or employee of such other [person](#a-28); (E) if such other [person](#a-28) is an [investment company](/usc/15/77z–2.md?p=i-2), any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) thereof or any member of an [advisory board](#a-1) thereof; and (F) if such other [person](#a-28) is an unincorporated [investment company](/usc/15/77z–2.md?p=i-2) not having a [board](/usc/15/205c.md?p=1) of [directors](#a-12), the depositor thereof. - (4) “Assignment” includes any direct or indirect transfer or hypothecation of a contract or chose in action by the assignor, or of a controlling block of the assignor’s outstanding [voting securities](#a-42) by a [security](#a-36) holder of the assignor; but does not include an assignment of partnership interests incidental to the death or withdrawal of a minority of the members of the partnership having only a minority interest in the partnership business or to the admission to the partnership of one or more members who, after such admission, shall be only a minority of the members and shall have only a minority interest in the business. - (5) “Bank” means (A) a depository institution (as defined in [section 1813 of title 12](/usc/12/1813.md)) or a branch or agency of a foreign bank (as such terms are defined in [section 3101 of title 12](/usc/12/3101.md)), (B) a member bank of the Federal Reserve System, (C) any other banking institution or trust [company](#a-8), whether incorporated or not, doing business under the laws of any [State](#a-39) or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the [authority](/usc/15/3051.md?p=1) of the Comptroller of the Currency, and which is supervised and examined by [State](#a-39) or Federal [authority](/usc/15/3051.md?p=1) having supervision over banks, and which is not operated for the purpose of evading the provisions of this subchapter, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B), or (C) of this paragraph. - (6) The term “broker” has the same meaning as given in section 3 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78c](/usc/15/78c.md)], except that such term does not include any [person](#a-28) solely by reason of the fact that such [person](#a-28) is an underwriter for one or more [investment companies](/usc/15/77z–2.md?p=i-2). - (7) “Commission” means the [Securities](#a-36) and [Exchange](#a-14) Commission. - (8) “Company” means a corporation, a partnership, an [association](/usc/15/657h.md?p=a-2), a joint-stock company, a trust, a fund, or any organized group of [persons](#a-28) whether incorporated or not; or any receiver, trustee in a case under [title 11](/usc/11.md) or similar official or any liquidating agent for any of the foregoing, in his capacity as such. - (9) “Control” means the power to exercise a controlling influence over the management or policies of a [company](#a-8), unless such power is solely the result of an official position with such [company](#a-8). Any [person](#a-28) who owns beneficially, either directly or through one or more controlled [companies](#a-8), more than 25 per centum of the [voting securities](#a-42) of a [company](#a-8) shall be presumed to control such [company](#a-8). Any [person](#a-28) who does not so own more than 25 per centum of the [voting securities](#a-42) of any [company](#a-8) shall be presumed not to control such [company](#a-8). A natural [person](#a-28) shall be presumed not to be a controlled [person](#a-28) within the meaning of this subchapter. Any such presumption may be rebutted by evidence, but except as hereinafter provided, shall continue until a determination to the contrary made by the [Commission](#a-7) by [order](/usc/15/8702.md?p=14) either on its own motion or on [application](/usc/15/77ccc.md?p=8) by an interested [person](#a-28). If an [application](/usc/15/77ccc.md?p=8) filed hereunder is not granted or denied by the [Commission](#a-7) within sixty days after filing thereof, the determination sought by the [application](/usc/15/77ccc.md?p=8) shall be deemed to have been temporarily granted pending final determination of the [Commission](#a-7) thereon. The [Commission](#a-7), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), may by [order](/usc/15/8702.md?p=14) revoke or modify any [order](/usc/15/8702.md?p=14) issued under this paragraph whenever it shall find that the determination embraced in such original [order](/usc/15/8702.md?p=14) is no longer consistent with the facts. - (10) “Convicted” includes a verdict, judgment, or plea of guilty, or a finding of guilt on a plea of nolo contendere, if such verdict, judgment, plea, or finding has not been reversed, set aside, or withdrawn, whether or not sentence has been imposed. - (11) The term “dealer” has the same meaning as given in the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], but does not include an [insurance company](#a-17) or [investment company](/usc/15/77z–2.md?p=i-2). - (12) “Director” means any director of a corporation or any [person](#a-28) performing similar functions with respect to any organization, whether incorporated or unincorporated, including any natural [person](#a-28) who is a member of a [board](/usc/15/205c.md?p=1) of trustees of a [management company](/usc/15/80a–4.md?p=3) created as a common-law trust. - (13) “Employees’ [securities](#a-36) [company](#a-8)” means any [investment company](/usc/15/77z–2.md?p=i-2) or similar [issuer](#a-22) all of the outstanding [securities](#a-36) of which (other than [short-term paper](#a-38)) are beneficially owned (A) by the employees or [persons](#a-28) on retainer of a single employer or of two or more employers each of which is an [affiliated company](#a-2) of the other, (B) by former employees of such employer or employers, (C) by members of the immediate family of such employees, [persons](#a-28) on retainer, or former employees, (D) by any two or more of the foregoing classes of [persons](#a-28), or (E) by such employer or employers together with any one or more of the foregoing classes of [persons](#a-28). - (14) “Exchange” means any organization, [association](/usc/15/657h.md?p=a-2), or group of [persons](#a-28), whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of [securities](#a-36) or for otherwise performing with respect to [securities](#a-36) the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange. - (15) “Face-amount certificate” means any certificate, investment contract, or other [security](#a-36) which represents an obligation on the part of its [issuer](#a-22) to pay a stated or determinable sum or sums at a fixed or determinable date or dates more than twenty-four months after the date of issuance, in consideration of the payment of periodic installments of a stated or determinable amount (which [security](#a-36) shall be known as a face-amount certificate of the “installment type”); or any [security](#a-36) which represents a similar obligation on the part of a [face-amount certificate company](/usc/15/80a–4.md?p=1), the consideration for which is the payment of a single lump sum (which [security](#a-36) shall be known as a “fully paid” face-amount certificate). - (16) “Government security” means any [security](#a-36) issued or guaranteed as to principal or interest by the United States, or by a [person](#a-28) controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to [authority](/usc/15/3051.md?p=1) granted by the Congress of the United States; or any certificate of deposit for any of the foregoing. - (17) “Insurance company” means a [company](#a-8) which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a [State](#a-39); or any receiver or similar official or any liquidating agent for such a [company](#a-8), in his capacity as such. - (18) “Interstate commerce” means trade, commerce, transportation, or communication among the several [States](#a-39), or between any foreign country and any [State](#a-39), or between any [State](#a-39) and any place or ship outside thereof. - (19) “Interested [person](#a-28)” of another [person](#a-28) means— - (A) when used with respect to an [investment company](/usc/15/77z–2.md?p=i-2)— - (i) any affiliated [person](#a-28) of such [company](#a-8), - (ii) any member of the immediate family of any natural [person](#a-28) who is an affiliated [person](#a-28) of such [company](#a-8), - (iii) any interested [person](#a-28) of any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for such [company](#a-8), - (iv) any [person](#a-28) or partner or employee of any [person](#a-28) who at any time since the beginning of the last two completed fiscal years of such [company](#a-8) has acted as legal counsel for such [company](#a-8), - (v) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for— - (I) the [investment company](/usc/15/77z–2.md?p=i-2); - (II) any other [investment company](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii) as such [investment company](/usc/15/77z–2.md?p=i-2) or holding itself out to investors as a related [company](#a-8) for purposes of investment or investor services; or - (III) any [account](/usc/15/1681a.md?p=r-4) over which the [investment company](/usc/15/77z–2.md?p=i-2)’s [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has brokerage placement discretion, - (vi) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has loaned money or other property to— - (I) the [investment company](/usc/15/77z–2.md?p=i-2); - (II) any other [investment company](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii) as such [investment company](/usc/15/77z–2.md?p=i-2) or holding itself out to investors as a related [company](#a-8) for purposes of investment or investor services; or - (III) any [account](/usc/15/1681a.md?p=r-4) for which the [investment company](/usc/15/77z–2.md?p=i-2)’s [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has borrowing [authority](/usc/15/3051.md?p=1), and - (vii) any natural [person](#a-28) whom the [Commission](#a-7) by [order](/usc/15/8702.md?p=14) shall have determined to be an interested [person](#a-28) by reason of having had, at any time since the beginning of the last two completed fiscal years of such [company](#a-8), a material business or professional relationship with such [company](#a-8) or with the principal executive officer of such [company](#a-8) or with any other [investment company](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter or with the principal executive officer of such other [investment company](/usc/15/77z–2.md?p=i-2): - (B) when used with respect to an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for any [investment company](/usc/15/77z–2.md?p=i-2)— - (i) any affiliated [person](#a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (ii) any member of the immediate family of any natural [person](#a-28) who is an affiliated [person](#a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (iii) any [person](#a-28) who knowingly has any direct or indirect beneficial interest in, or who is designated as trustee, executor, or guardian of any legal interest in, any [security](#a-36) issued either by such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of principal underwriter or by a controlling [person](#a-28) or such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (iv) any [person](#a-28) or partner or employee of any [person](#a-28) who at any time since the beginning of the last two completed fiscal years of such [investment company](/usc/15/77z–2.md?p=i-2) has acted as legal counsel for such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (v) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for— - (I) any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; - (II) any [investment company](/usc/15/77z–2.md?p=i-2) holding itself out to investors, for purposes of investment or investor services, as a [company](#a-8) related to any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; or - (III) any [account](/usc/15/1681a.md?p=r-4) over which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has brokerage placement discretion, - (vi) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has loaned money or other property to— - (I) any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; - (II) any [investment company](/usc/15/77z–2.md?p=i-2) holding itself out to investors, for purposes of investment or investor services, as a [company](#a-8) related to any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; or - (III) any [account](/usc/15/1681a.md?p=r-4) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has borrowing [authority](/usc/15/3051.md?p=1), and - (vii) any natural [person](#a-28) whom the [Commission](#a-7) by [order](/usc/15/8702.md?p=14) shall have determined to be an interested [person](#a-28) by reason of having had at any time since the beginning of the last two completed fiscal years of such [investment company](/usc/15/77z–2.md?p=i-2) a material business or professional relationship with such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter or with the principal executive officer or any controlling [person](#a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter. For the purposes of this [paragraph (19)](#a-19), “member of the immediate family” means any parent, spouse of a parent, child, spouse of a child, spouse, brother, or sister, and includes step and adoptive relationships. The [Commission](#a-7) may modify or revoke any [order](/usc/15/8702.md?p=14) issued under [clause (vii)](#a-19-A-vii) of subparagraph (A) or (B) of this paragraph whenever it finds that such [order](/usc/15/8702.md?p=14) is no longer consistent with the facts. No [order](/usc/15/8702.md?p=14) issued pursuant to [clause (vii)](#a-19-A-vii) of subparagraph (A) or (B) of this paragraph shall become effective until at least sixty days after the entry thereof, and no such [order](/usc/15/8702.md?p=14) shall affect the status of any [person](#a-28) for the purposes of this subchapter or for any other purpose for any period prior to the effective date of such [order](/usc/15/8702.md?p=14). - (20) “[Investment adviser](/usc/15/6102.md?p=d-2-B-ii)” of an [investment company](/usc/15/77z–2.md?p=i-2) means (A) any [person](#a-28) (other than a bona fide officer, [director](#a-12), trustee, member of an [advisory board](#a-1), or employee of such [company](#a-8), as such) who pursuant to contract with such [company](#a-8) regularly furnishes advice to such [company](#a-8) with respect to the desirability of investing in, purchasing or selling [securities](#a-36) or other property, or is empowered to determine what [securities](#a-36) or other property shall be purchased or sold by such [company](#a-8), and (B) any other [person](#a-28) who pursuant to contract with a [person](#a-28) described in clause (A) of this paragraph regularly performs substantially all of the duties undertaken by such [person](#a-28) described in said clause (A); but does not include (i) a [person](#a-28) whose advice is furnished solely through uniform publications distributed to subscribers thereto, (ii) a [person](#a-28) who furnishes only statistical and other factual information, advice regarding economic factors and trends, or advice as to occasional transactions in specific [securities](#a-36), but without generally furnishing advice or making recommendations regarding the [purchase](/usc/15/78c–5.md?p=g) or sale of [securities](#a-36), (iii) a [company](#a-8) furnishing such services at cost to one or more [investment companies](/usc/15/77z–2.md?p=i-2), [insurance companies](#a-17), or other [financial institutions](/usc/15/1681s–2.md?p=a-7-G-ii), (iv) any [person](#a-28) the character and amount of whose compensation for such services must be approved by a court, or (v) such other [persons](#a-28) as the [Commission](#a-7) may by rules and regulations or [order](/usc/15/8702.md?p=14) determine not to be within the intent of this definition. - (21) “Investment banker” means any [person](#a-28) engaged in the business of underwriting [securities](#a-36) issued by other [persons](#a-28), but does not include an [investment company](/usc/15/77z–2.md?p=i-2), any [person](#a-28) who acts as an underwriter in isolated transactions but not as a part of a regular business, or any [person](#a-28) solely by reason of the fact that such [person](#a-28) is an underwriter for one or more [investment companies](/usc/15/77z–2.md?p=i-2). - (22) “Issuer” means every [person](#a-28) who issues or proposes to issue any [security](#a-36), or has outstanding any [security](#a-36) which it has issued. - (23) “Lend” includes a [purchase](/usc/15/78c–5.md?p=g) coupled with an [agreement](/usc/15/7a.md?p=2) by the vendor to repurchase; “borrow” includes a sale coupled with a similar [agreement](/usc/15/7a.md?p=2). - (24) “Majority-owned subsidiary” of a [person](#a-28) means a [company](#a-8) 50 per centum or more of the outstanding [voting securities](#a-42) of which are owned by such [person](#a-28), or by a [company](#a-8) which, within the meaning of this paragraph, is a majority-owned subsidiary of such [person](#a-28). - (25) “Means or instrumentality of interstate commerce” includes any facility of a [national securities exchange](#a-26). - (26) “National securities exchange” means an [exchange](#a-14) registered under section 6 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78f](/usc/15/78f.md)]. - (27) “Periodic payment plan certificate” means (A) any certificate, investment contract, or other [security](#a-36) providing for a series of periodic payments by the holder, and representing an undivided interest in certain specified [securities](#a-36) or in a unit or fund of [securities](#a-36) purchased wholly or partly with the proceeds of such payments, and (B) any [security](#a-36) the [issuer](#a-22) of which is also issuing [securities](#a-36) of the character described in clause (A) of this paragraph and the holder of which has substantially the same rights and privileges as those which holders of [securities](#a-36) of the character described in said clause (A) have upon completing the periodic payments for which such [securities](#a-36) provide. - (28) “Person” means a natural person or a [company](#a-8). - (29) “Principal underwriter” of or for any [investment company](/usc/15/77z–2.md?p=i-2) other than a [closed-end company](/usc/15/80a–5.md?p=a-2), or of any [security](#a-36) issued by such a [company](#a-8), means any underwriter who as principal [purchases](/usc/15/78c–5.md?p=g) from such [company](#a-8), or pursuant to contract has the right (whether absolute or conditional) from time to time to [purchase](/usc/15/78c–5.md?p=g) from such [company](#a-8), any such [security](#a-36) for distribution, or who as agent for such [company](#a-8) sells or has the right to sell any such [security](#a-36) to a [dealer](#a-11) or to the public or both, but does not include a [dealer](#a-11) who [purchases](/usc/15/78c–5.md?p=g) from such [company](#a-8) through a principal underwriter acting as agent for such [company](#a-8). “Principal underwriter” of or for a [closed-end company](/usc/15/80a–5.md?p=a-2) or any [issuer](#a-22) which is not an [investment company](/usc/15/77z–2.md?p=i-2), or of any [security](#a-36) issued by such a [company](#a-8) or [issuer](#a-22), means any underwriter who, in connection with a primary distribution of [securities](#a-36), (A) is in privity of contract with the [issuer](#a-22) or an affiliated [person](#a-28) of the [issuer](#a-22); (B) acting alone or in concert with one or more other [persons](#a-28), initiates or directs the formation of an underwriting syndicate; or (C) is allowed a rate of gross [commission](#a-7), spread, or other profit greater than the rate allowed another underwriter participating in the distribution. - (30) “Promoter” of a [company](#a-8) or a proposed [company](#a-8) means a [person](#a-28) who, acting alone or in concert with other [persons](#a-28), is initiating or directing, or has within one year initiated or directed, the organization of such [company](#a-8). - (31) “[Prospectus](/usc/15/77b.md?p=a-10)”, as used in [section 80a–22 of this title](/usc/15/80a–22.md), means a written [prospectus](/usc/15/77b.md?p=a-10) intended to meet the requirements of section 10(a) of the Securities Act of 1933 [[15 U.S.C. 77j(a)](/usc/15/77j.md?p=a)] and currently in use. As used elsewhere, “[prospectus](/usc/15/77b.md?p=a-10)” means a [prospectus](/usc/15/77b.md?p=a-10) as defined in the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]. - (32) “Redeemable security” means any [security](#a-36), other than [short-term paper](#a-38), under the terms of which the holder, upon its presentation to the [issuer](#a-22) or to a [person](#a-28) designated by the [issuer](#a-22), is entitled (whether absolutely or only out of surplus) to receive approximately his proportionate share of the [issuer](#a-22)’s current net assets, or the cash equivalent thereof. - (33) “Reorganization” means (A) a reorganization under the supervision of a court of competent jurisdiction; (B) a merger or consolidation; (C) a sale of 75 per centum or more in value of the assets of a [company](#a-8); (D) a restatement of the capital of a [company](#a-8), or an [exchange](#a-14) of [securities](#a-36) issued by a [company](#a-8) for any of its own outstanding [securities](#a-36); (E) a voluntary dissolution or liquidation of a [company](#a-8); (F) a recapitalization or other procedure or transaction which has for its purpose the alteration, modification, or elimination of any of the rights, preferences, or privileges of any class of [securities](#a-36) issued by a [company](#a-8), as provided in its charter or other instrument creating or defining such rights, preferences, and privileges; (G) an [exchange](#a-14) of [securities](#a-36) issued by a [company](#a-8) for outstanding [securities](#a-36) issued by another [company](#a-8) or [companies](#a-8), preliminary to and for the purpose of effecting or consummating any of the foregoing; or (H) any [exchange](#a-14) of [securities](#a-36) by a [company](#a-8) which is not an [investment company](/usc/15/77z–2.md?p=i-2) for [securities](#a-36) issued by a registered [investment company](/usc/15/77z–2.md?p=i-2). - (34) “Sale”, “sell”, “offer to sell”, or “offer for sale” includes every contract of sale or disposition of, attempt or offer to dispose of, or solicitation of an offer to buy, a [security](#a-36) or interest in a [security](#a-36), for value. Any [security](#a-36) given or delivered with, or as a bonus on [account](/usc/15/1681a.md?p=r-4) of, any [purchase](/usc/15/78c–5.md?p=g) of [securities](#a-36) or any other thing, shall be conclusively presumed to constitute a part of the subject of such [purchase](/usc/15/78c–5.md?p=g) and to have been sold for value. - (35) “Sales load” means the difference between the price of a [security](#a-36) to the public and that portion of the proceeds from its sale which is received and invested or held for investment by the [issuer](#a-22) (or in the case of a [unit investment trust](/usc/15/80a–4.md?p=2), by the depositor or trustee), less any portion of such difference deducted for trustee’s or [custodian](/usc/15/57b–1.md?p=a-4)’s fees, insurance premiums, issue taxes, or administrative expenses or fees which are not properly chargeable to sales or promotional activities. In the case of a periodic payment plan certificate, “sales load” includes the sales load on any [investment company](/usc/15/77z–2.md?p=i-2) [securities](#a-36) in which the payments made on such certificate are invested, as well as the sales load on the certificate itself. - (36) “Security” means any note, stock, treasury stock, [security future](#a-52), bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing [agreement](/usc/15/7a.md?p=2), collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a [national securities exchange](#a-26) relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or [purchase](/usc/15/78c–5.md?p=g), any of the foregoing. - (37) “Separate account” means an [account](/usc/15/1681a.md?p=r-4) established and maintained by an [insurance company](#a-17) pursuant to the laws of any [State](#a-39) or territory of the United States, or of Canada or any province thereof, under which income, gains and losses, whether or not realized, from assets allocated to such [account](/usc/15/1681a.md?p=r-4), are, in accordance with the applicable contract, credited to or charged against such [account](/usc/15/1681a.md?p=r-4) without regard to other income, gains, or losses of the [insurance company](#a-17). - (38) “Short-term paper” means any note, draft, bill of [exchange](#a-14), or banker’s acceptance payable on demand or having a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof payable on demand or having a maturity likewise limited; and such other classes of [securities](#a-36), of a commercial rather than an investment character, as the [Commission](#a-7) may designate by rules and regulations. - (39) “State” means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States. - (40) “Underwriter” means any [person](#a-28) who has purchased from an issuer with a view to, or sells for an issuer in connection with, the distribution of any [security](#a-36), or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a [person](#a-28) whose interest is limited to a [commission](#a-7) from an underwriter or [dealer](#a-11) not in excess of the usual and customary [distributor](/usc/15/1278.md?p=c-1-D-i)’s or seller’s [commission](#a-7). As used in this paragraph the term “issuer” shall include, in addition to an issuer, any [person](#a-28) directly or indirectly controlling or controlled by the issuer, or any [person](#a-28) under direct or indirect common [control](#a-9) with the issuer. When the distribution of the [securities](#a-36) in respect of which any [person](#a-28) is an underwriter is completed such [person](#a-28) shall cease to be an underwriter in respect of such [securities](#a-36) or the issuer thereof. - (41) “Value”, with respect to assets of registered [investment companies](/usc/15/77z–2.md?p=i-2), except as provided in subsection (b) of [section 80a–28 of this title](/usc/15/80a–28.md), means— - (A) as used in sections [80a–3](/usc/15/80a–3.md), [80a–5](/usc/15/80a–5.md), and [80a–12](/usc/15/80a–12.md) of this title, (i) with respect to [securities](#a-36) owned at the end of the last preceding fiscal quarter for which market quotations are readily available, the market value at the end of such quarter; (ii) with respect to other [securities](#a-36) and assets owned at the end of the last preceding fiscal quarter, fair value at the end of such quarter, as determined in good faith by the [board](/usc/15/205c.md?p=1) of [directors](#a-12); and (iii) with respect to [securities](#a-36) and other assets acquired after the end of the last preceding fiscal quarter, the cost thereof; and - (B) as used elsewhere in this subchapter, (i) with respect to [securities](#a-36) for which market quotations are readily available, the market value of such [securities](#a-36); and (ii) with respect to other [securities](#a-36) and assets, fair value as determined in good faith by the [board](/usc/15/205c.md?p=1) of [directors](#a-12); in each case as of such time or times as determined pursuant to this subchapter, and the rules and regulations issued by the [Commission](#a-7) hereunder. Notwithstanding the fact that market quotations for [securities](#a-36) issued by controlled [companies](#a-8) are available, the [board](/usc/15/205c.md?p=1) of [directors](#a-12) may in good faith determine the value of such [securities](#a-36): Provided, That the value so determined is not in excess of the higher of market value or asset value of such [securities](#a-36) in the case of majority-owned subsidiaries, and is not in excess of market value in the case of other controlled [companies](#a-8). For purposes of the valuation of those assets of a registered diversified [company](#a-8) which are not subject to the limitations provided for in [section 80a–5(b)(1) of this title](/usc/15/80a–5.md?p=b-1), the [Commission](#a-7) may, by rules and regulations or [orders](/usc/15/8702.md?p=14), permit any [security](#a-36) to be carried at cost, if it shall determine that such procedure is consistent with the general intent and purposes of this subchapter. For purposes of sections [80a–5](/usc/15/80a–5.md) and [80a–12](/usc/15/80a–12.md) of this title in lieu of values determined as provided in [clause (A)](#a-41-A) above, the [Commission](#a-7) shall by rules and regulations permit valuation of [securities](#a-36) at cost or other basis in cases where it may be more convenient for such [company](#a-8) to make its computations on such basis by reason of the necessity or desirability of complying with the provisions of any United States revenue laws or rules and regulations issued thereunder, or the laws or the rules and regulations issued thereunder of any [State](#a-39) in which the [securities](#a-36) of such [company](#a-8) may be qualified for sale. The foregoing definition shall not derogate from the [authority](/usc/15/3051.md?p=1) of the [Commission](#a-7) with respect to the reports, information, and documents to be filed with the [Commission](#a-7) by any registered [company](#a-8), or with respect to the accounting policies and principles to be followed by any such [company](#a-8), as provided in sections [80a–8](/usc/15/80a–8.md), [80a–29](/usc/15/80a–29.md), and [80a–30](/usc/15/80a–30.md) of this title. - (42) “Voting security” means any [security](#a-36) presently entitling the owner or holder thereof to vote for the election of [directors](#a-12) of a [company](#a-8). A specified percentage of the outstanding voting securities of a [company](#a-8) means such amount of its outstanding voting securities as entitles the holder or holders thereof to cast said specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such [company](#a-8) are entitled to cast. The vote of a majority of the outstanding voting securities of a [company](#a-8) means the vote, at the annual or a special meeting of the [security](#a-36) holders of such [company](#a-8) duly called, (A) of 67 per centum or more of the voting securities present at such meeting, if the holders of more than 50 per centum of the outstanding voting securities of such [company](#a-8) are present or represented by proxy; or (B) of more than 50 per centum of the outstanding voting securities of such [company](#a-8), whichever is the less. - (43) “Wholly-owned subsidiary” of a [person](#a-28) means a [company](#a-8) 95 per centum or more of the outstanding [voting securities](#a-42) of which are owned by such [person](#a-28), or by a [company](#a-8) which, within the meaning of this paragraph, is a wholly-owned subsidiary of such [person](#a-28). - (44) “Securities Act of 1933” [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], “[Securities](#a-36) Exchange Act of 1934” [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], and “Trust Indenture Act of 1939” [[15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.] mean those acts, respectively, as heretofore or hereafter amended. - (45) “Savings and loan association” means a savings and loan association, building and loan [association](/usc/15/657h.md?p=a-2), cooperative bank, homestead [association](/usc/15/657h.md?p=a-2), or similar institution, which is supervised and examined by [State](#a-39) or Federal [authority](/usc/15/3051.md?p=1) having supervision over any such institution, and a receiver, conservator, or other liquidating agent of any such institution. - (46) “Eligible portfolio company” means any [issuer](#a-22) which— - (A) is organized under the laws of, and has its principal place of business in, any [State](#a-39) or [States](#a-39); - (B) is neither an [investment company](/usc/15/77z–2.md?p=i-2) as defined in [section 80a–3 of this title](/usc/15/80a–3.md) (other than a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) which is licensed by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2) to operate under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.] and which is a wholly-owned subsidiary of the [business development company](#a-48)) nor a [company](#a-8) which would be an [investment company](/usc/15/77z–2.md?p=i-2) except for the exclusion from the definition of [investment company](/usc/15/77z–2.md?p=i-2) in [section 80a–3(c) of this title](/usc/15/80a–3.md?p=c); and - (C) satisfies one of the following: - (i) it does not have any class of [securities](#a-36) with respect to which a member of a [national securities exchange](#a-26), [broker](#a-6), or [dealer](#a-11) may extend or maintain [credit](/usc/15/1679a.md?p=4) to or for a [customer](/usc/15/78c–5.md?p=g) pursuant to rules or regulations adopted by the [Board](/usc/15/205c.md?p=1) of Governors of the Federal Reserve System under section 7 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78g](/usc/15/78g.md)]; - (ii) it is controlled by a [business development company](#a-48), either alone or as part of a group acting together, and such [business development company](#a-48) in fact exercises a controlling influence over the management or policies of such [eligible portfolio company](#a-46) and, as a result of such [control](#a-9), has an affiliated [person](#a-28) who is a [director](#a-12) of such [eligible portfolio company](#a-46); - (iii) it has total assets of not more than $4,000,000, and capital and surplus (shareholders’ equity less retained earnings) of not less than $2,000,000, except that the [Commission](#a-7) may adjust such amounts by rule, regulation, or [order](/usc/15/8702.md?p=14) to reflect changes in 1 or more generally accepted indices or other indicators for [small businesses](/usc/15/1691c–2.md?p=h-2); or - (iv) it meets such other criteria as the [Commission](#a-7) may, by rule, establish as consistent with the public interest, the protection of investors, and the purposes fairly intended by the policy and provisions of this subchapter. - (47) “Making available significant managerial assistance” by a [business development company](#a-48) means— - (A) any arrangement whereby a [business development company](#a-48), through its [directors](#a-12), officers, employees, or general partners, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio [company](#a-8); - (B) the exercise by a [business development company](#a-48) of a controlling influence over the management or policies of a portfolio [company](#a-8) by the [business development company](#a-48) acting individually or as part of a group acting together which [controls](#a-9) such portfolio [company](#a-8); or - (C) with respect to a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) licensed by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2) to operate under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.], the making of loans to a portfolio [company](#a-8). For purposes of [subparagraph (A)](#a-47-A), the requirement that a [business development company](#a-48) make available significant managerial assistance shall be deemed to be satisfied with respect to any particular portfolio [company](#a-8) where the [business development company](#a-48) [purchases](/usc/15/78c–5.md?p=g) [securities](#a-36) of such portfolio [company](#a-8) in conjunction with one or more other [persons](#a-28) acting together, and at least one of the [persons](#a-28) in the group makes available significant managerial assistance to such portfolio [company](#a-8), except that such requirement will not be deemed to be satisfied if the [business development company](#a-48), in all cases, makes available significant managerial assistance solely in the manner described in this sentence. - (48) “Business development company” means any [closed-end company](/usc/15/80a–5.md?p=a-2) which— - (A) is organized under the laws of, and has its principal place of business in, any [State](#a-39) or [States](#a-39); - (B) is operated for the purpose of making investments in [securities](#a-36) described in paragraphs (1) through (3) of [section 80a–54(a) of this title](/usc/15/80a–54.md?p=a), and makes available significant managerial assistance with respect to the [issuers](#a-22) of such [securities](#a-36), provided that a [business development company](#a-48) must make available significant managerial assistance only with respect to the [companies](#a-8) which are treated by such [business development company](#a-48) as satisfying the 70 per centum of the value of its total assets condition of [section 80a–54 of this title](/usc/15/80a–54.md); and provided further that a [business development company](#a-48) need not make available significant managerial assistance with respect to any [company](#a-8) described in [paragraph (46)(C)(iii)](#a-46-C-iii), or with respect to any other [company](#a-8) that meets such criteria as the [Commission](#a-7) may by rule, regulation, or [order](/usc/15/8702.md?p=14) permit, as consistent with the public interest, the protection of investors, and the purposes of this subchapter; and - (C) has elected pursuant to [section 80a–53(a) of this title](/usc/15/80a–53.md?p=a) to be subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title. - (49) “Foreign securities authority” means any foreign government or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate to [securities](#a-36) matters. - (50) “Foreign financial regulatory authority” means any (A) [foreign securities authority](#a-49), (B) other governmental body or foreign equivalent of a [self-regulatory organization](/usc/15/78c.md?p=a-26) empowered by a foreign government to administer or enforce its laws relating to the regulation of fiduciaries, trusts, commercial lending, insurance, trading in contracts of sale of a commodity for future delivery, or other instruments traded on or subject to the rules of a contract market, [board](/usc/15/205c.md?p=1) of trade or foreign equivalent, or other financial activities, or (C) membership organization a function of which is to regulate the participation of its members in activities listed above. - (51) - (A) “Qualified purchaser” means— - (i) any natural [person](#a-28) (including any [person](#a-28) who holds a joint, community property, or other similar shared ownership interest in an [issuer](#a-22) that is excepted under [section 80a–3(c)(7) of this title](/usc/15/80a–3.md?p=c-7) with that [person](#a-28)’s [qualified purchaser](#a-51-A) spouse) who owns not less than $5,000,000 in investments, as defined by the [Commission](#a-7); - (ii) any [company](#a-8) that owns not less than $5,000,000 in investments and that is owned directly or indirectly by or for 2 or more [natural persons](/usc/15/15g.md?p=3) who are related as siblings or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such [persons](#a-28), the estates of such [persons](#a-28), or foundations, charitable organizations, or trusts established by or for the benefit of such [persons](#a-28); - (iii) any trust that is not covered by [clause (ii)](#a-51-A-ii) and that was not formed for the specific purpose of acquiring the [securities](#a-36) offered, as to which the trustee or other [person](#a-28) authorized to make decisions with respect to the trust, and each settlor or other [person](#a-28) who has contributed assets to the trust, is a [person](#a-28) described in clause [(i)](#a-51-A-i), [(ii)](#a-51-A-ii), or [(iv)](#a-51-A-iv); or - (iv) any [person](#a-28), acting for its own [account](/usc/15/1681a.md?p=r-4) or the [accounts](/usc/15/1681a.md?p=r-4) of other [qualified purchasers](#a-51-A), who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments. - (B) The [Commission](#a-7) may adopt such rules and regulations applicable to the [persons](#a-28) and trusts specified in [clauses (i) through (iv)](#a-51-A-i..a-51-A-iv) of subparagraph (A) as it determines are necessary or appropriate in the public interest or for the protection of investors. - (C) The term “qualified purchaser” does not include a [company](#a-8) that, but for the exceptions provided for in paragraph (1) or (7) of [section 80a–3(c) of this title](/usc/15/80a–3.md?p=c), would be an [investment company](/usc/15/77z–2.md?p=i-2) (hereafter in this paragraph referred to as an “excepted [investment company](/usc/15/77z–2.md?p=i-2)”), unless all beneficial owners of its outstanding [securities](#a-36) (other than [short-term paper](#a-38)), determined in accordance with [section 80a–3(c)(1)(A) of this title](/usc/15/80a–3.md?p=c-1-A), that acquired such [securities](#a-36) on or before April 30, 1996 (hereafter in this paragraph referred to as “pre-amendment beneficial owners”), and all pre-amendment beneficial owners of the outstanding [securities](#a-36) (other than [short-term paper](#a-38)) of any excepted [investment company](/usc/15/77z–2.md?p=i-2) that, directly or indirectly, owns any outstanding [securities](#a-36) of such excepted [investment company](/usc/15/77z–2.md?p=i-2), have consented to its treatment as a qualified purchaser. Unanimous consent of all trustees, [directors](#a-12), or general partners of a [company](#a-8) or trust referred to in clause [(ii)](#a-51-A-ii) or [(iii)](#a-51-A-iii) of subparagraph (A) shall constitute consent for purposes of this subparagraph. - (52) The terms “security future” and “narrow-based security index” have the same meanings as provided in section 3(a)(55) of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78c(a)(55)](/usc/15/78c.md?p=a-55)]. - (53) The term “credit rating agency” has the same meaning as in section 3 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78c](/usc/15/78c.md)]. - (54) The terms “commodity pool”, “commodity pool operator”, “commodity trading advisor”, “major swap participant”, “swap”, “swap dealer”, and “swap execution facility” have the same meanings as in [section 1a of title 7](/usc/7/1a.md). - (b) **Applicability to government—** No provision in this subchapter shall apply to, or be deemed to include, the United States, a [State](#a-39), or any political subdivision of a [State](#a-39), or any agency, [authority](/usc/15/3051.md?p=1), or instrumentality of any one or more of the foregoing, or any corporation which is wholly owned directly or indirectly by any one or more of the foregoing, or any officer, agent, or employee of any of the foregoing acting as such in the course of his official duty, unless such provision makes specific reference thereto. - (c) **Consideration of promotion of efficiency, competition, and capital formation—** Whenever pursuant to this subchapter the [Commission](#a-7) is engaged in rulemaking and is required to consider or determine whether an action is consistent with the public interest, the [Commission](#a-7) shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. # §80a–3. Definition of investment company - (a) **Definitions—** - (1) When used in this subchapter, “[investment company](/usc/15/77z–2.md?p=i-2)” means any [issuer](/usc/15/80a–2.md?p=a-22) which— - (A) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in [securities](/usc/15/80a–2.md?p=a-36); - (B) is engaged or proposes to engage in the business of issuing [face-amount certificates](/usc/15/80a–2.md?p=a-15) of the installment type, or has been engaged in such business and has any such certificate outstanding; or - (C) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36), and owns or proposes to acquire investment [securities](/usc/15/80a–2.md?p=a-36) having a value exceeding 40 per centum of the value of such [issuer](/usc/15/80a–2.md?p=a-22)’s total assets (exclusive of [Government securities](/usc/15/80a–2.md?p=a-16) and cash items) on an unconsolidated basis. - (2) As used in this section, “investment [securities](/usc/15/80a–2.md?p=a-36)” includes all [securities](/usc/15/80a–2.md?p=a-36) except (A) [Government securities](/usc/15/80a–2.md?p=a-16), (B) [securities](/usc/15/80a–2.md?p=a-36) issued by employees’ [securities](/usc/15/80a–2.md?p=a-36) [companies](/usc/15/80a–2.md?p=a-8), and (C) [securities](/usc/15/80a–2.md?p=a-36) issued by majority-owned subsidiaries of the owner which (i) are not [investment companies](/usc/15/77z–2.md?p=i-2), and (ii) are not relying on the exception from the definition of [investment company](/usc/15/77z–2.md?p=i-2) in paragraph [(1)](#c-1) or [(7)](#c-7) of subsection (c). - (b) **Exemption from provisions—** Notwithstanding [paragraph (1)(C)](#a-1-C) of subsection (a), none of the following [persons](/usc/15/80a–2.md?p=a-28) is an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of this subchapter: - (1) Any [issuer](/usc/15/80a–2.md?p=a-22) primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36). - (2) Any [issuer](/usc/15/80a–2.md?p=a-22) which the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8) by such [issuer](/usc/15/80a–2.md?p=a-22), finds and by [order](/usc/15/8702.md?p=14) declares to be primarily engaged in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36) either directly or (A) through majority-owned subsidiaries or (B) through controlled [companies](/usc/15/80a–2.md?p=a-8) conducting similar types of businesses. The filing of an [application](/usc/15/77ccc.md?p=8) under this paragraph in good faith by an [issuer](/usc/15/80a–2.md?p=a-22) other than a registered [investment company](/usc/15/77z–2.md?p=i-2) shall exempt the [applicant](/usc/15/7a.md?p=3) for a period of sixty days from all provisions of this subchapter applicable to [investment companies](/usc/15/77z–2.md?p=i-2) as such. For cause shown, the [Commission](/usc/15/80a–2.md?p=a-7) by [order](/usc/15/8702.md?p=14) may extend such period of exemption for an additional period or periods. Whenever the [Commission](/usc/15/80a–2.md?p=a-7), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), finds that the circumstances which gave rise to the issuance of an [order](/usc/15/8702.md?p=14) granting an [application](/usc/15/77ccc.md?p=8) under this paragraph no longer exist, the [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) revoke such [order](/usc/15/8702.md?p=14). - (3) Any [issuer](/usc/15/80a–2.md?p=a-22) all the outstanding [securities](/usc/15/80a–2.md?p=a-36) of which (other than [short-term paper](/usc/15/80a–2.md?p=a-38) and [directors](/usc/15/80a–2.md?p=a-12)’ qualifying shares) are directly or indirectly owned by a [company](/usc/15/80a–2.md?p=a-8) excepted from the definition of [investment company](/usc/15/77z–2.md?p=i-2) by paragraph (1) or (2) of this subsection. - (c) **Further exemptions—** Notwithstanding [subsection (a)](#a), none of the following [persons](/usc/15/80a–2.md?p=a-28) is an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of this subchapter: - (1) Any [issuer](/usc/15/80a–2.md?p=a-22) whose outstanding [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) are beneficially owned by not more than one hundred [persons](/usc/15/80a–2.md?p=a-28) (or, in the case of a [qualifying venture capital fund](#c-1-C-i), 250 [persons](/usc/15/80a–2.md?p=a-28)) and which is not making and does not presently propose to make a public offering of its [securities](/usc/15/80a–2.md?p=a-36). Such [issuer](/usc/15/80a–2.md?p=a-22) shall be deemed to be an [investment company](/usc/15/77z–2.md?p=i-2) for purposes of the limitations set forth in subparagraphs (A)(i) and (B)(i) of [section 80a–12(d)(1) of this title](/usc/15/80a–12.md?p=d-1) governing the [purchase](/usc/15/78c–5.md?p=g) or other acquisition by such [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered [investment company](/usc/15/77z–2.md?p=i-2) and the sale of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered open-end [investment company](/usc/15/77z–2.md?p=i-2) to any such [issuer](/usc/15/80a–2.md?p=a-22). For purposes of this paragraph: - (A) Beneficial ownership by a [company](/usc/15/80a–2.md?p=a-8) shall be deemed to be beneficial ownership by one [person](/usc/15/80a–2.md?p=a-28), except that, if the [company](/usc/15/80a–2.md?p=a-8) owns 10 per centum or more of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the [issuer](/usc/15/80a–2.md?p=a-22), and is or, but for the exception provided for in this paragraph or [paragraph (7)](#c-7), would be an [investment company](/usc/15/77z–2.md?p=i-2), the beneficial ownership shall be deemed to be that of the holders of such [company](/usc/15/80a–2.md?p=a-8)’s outstanding [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)). - (B) Beneficial ownership by any [person](/usc/15/80a–2.md?p=a-28) who acquires [securities](/usc/15/80a–2.md?p=a-36) or interests in [securities](/usc/15/80a–2.md?p=a-36) of an [issuer](/usc/15/80a–2.md?p=a-22) described in the first sentence of this paragraph shall be deemed to be beneficial ownership by the [person](/usc/15/80a–2.md?p=a-28) from whom such transfer was made, pursuant to such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe as necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter, where the transfer was caused by legal separation, divorce, death, or other involuntary event. - (C) - (i) The term “qualifying venture capital fund” means a [venture capital fund](#c-1-C-ii) that has not more than $10,000,000 in aggregate capital contributions and uncalled committed capital, with such dollar amount to be indexed for inflation once every 5 years by the [Commission](/usc/15/80a–2.md?p=a-7), beginning from a measurement made by the [Commission](/usc/15/80a–2.md?p=a-7) on a date selected by the [Commission](/usc/15/80a–2.md?p=a-7), rounded to the nearest $1,000,000. - (ii) The term “venture capital fund” has the meaning given the term in [section 275.203(l)–1](/cfr/17/275.203..1.md) of title 17, Code of Federal Regulations, or any successor regulation. - (2) - (A) Any [person](/usc/15/80a–2.md?p=a-28) primarily engaged in the business of underwriting and distributing [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28), selling [securities](/usc/15/80a–2.md?p=a-36) to [customers](/usc/15/78c–5.md?p=g), acting as [broker](/usc/15/80a–2.md?p=a-6), and acting as [market intermediary](#c-2-B-i), or any one or more of such activities, whose gross income normally is derived principally from such business and related activities. - (B) For purposes of this paragraph— - (i) the term “market intermediary” means any [person](/usc/15/80a–2.md?p=a-28) that regularly holds itself out as being willing contemporaneously to engage in, and that is regularly engaged in, the business of entering into transactions on both sides of the market for a [financial contract](#c-2-B-ii) or one or more such [financial contracts](#c-2-B-ii); and - (ii) the term “financial contract” means any arrangement that— - (I) takes the form of an individually negotiated contract, [agreement](/usc/15/7a.md?p=2), or option to buy, sell, [lend](/usc/15/80a–2.md?p=a-23), [swap](/usc/15/80a–2.md?p=a-54), or repurchase, or other similar individually negotiated transaction commonly entered into by participants in the financial markets; - (II) is in respect of [securities](/usc/15/80a–2.md?p=a-36), commodities, currencies, interest or other rates, other measures of value, or any other financial or economic interest similar in purpose or function to any of the foregoing; and - (III) is entered into in response to a request from a counter party for a quotation, or is otherwise entered into and structured to accommodate the objectives of the counter party to such arrangement. - (3) Any bank or [insurance company](/usc/15/80a–2.md?p=a-17); any [savings and loan association](/usc/15/80a–2.md?p=a-45), building and loan [association](/usc/15/657h.md?p=a-2), cooperative bank, homestead [association](/usc/15/657h.md?p=a-2), or similar institution, or any receiver, conservator, liquidator, liquidating agent, or similar official or [person](/usc/15/80a–2.md?p=a-28) thereof or therefor; or any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee, executor, [administrator](/usc/15/9001.md?p=1), or guardian, if— - (A) such fund is employed by the bank solely as an aid to the [administration](/usc/15/2203.md?p=2) of trusts, estates, or other [accounts](/usc/15/1681a.md?p=r-4) created and maintained for a fiduciary purpose; - (B) except in connection with the ordinary advertising of the bank’s fiduciary services, interests in such fund are not— - (i) advertised; or - (ii) offered for sale to the general public; and - (C) fees and expenses charged by such fund are not in contravention of fiduciary principles established under applicable Federal or [State](/usc/15/80a–2.md?p=a-39) law. - (4) Any [person](/usc/15/80a–2.md?p=a-28) substantially all of whose business is confined to making small loans, industrial banking, or similar businesses. - (5) Any [person](/usc/15/80a–2.md?p=a-28) who is not engaged in the business of issuing [redeemable securities](/usc/15/80a–2.md?p=a-32), [face-amount certificates](/usc/15/80a–2.md?p=a-15) of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses: (A) Purchasing or otherwise acquiring notes, drafts, acceptances, open [accounts](/usc/15/1681a.md?p=r-4) receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services; (B) making loans to [manufacturers](/usc/15/1278.md?p=c-1-D-i), wholesalers, and [retailers](/usc/15/1278.md?p=c-1-D-ii) of, and to prospective purchasers of, specified merchandise, insurance, and services; and (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. - (6) Any [company](/usc/15/80a–2.md?p=a-8) primarily engaged, directly or through majority-owned subsidiaries, in one or more of the businesses described in paragraphs (3), (4), and (5) of this subsection, or in one or more of such businesses (from which not less than 25 per centum of such [company](/usc/15/80a–2.md?p=a-8)’s gross income during its last fiscal year was derived) together with an additional business or businesses other than investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36). - (7) - (A) Any [issuer](/usc/15/80a–2.md?p=a-22), the outstanding [securities](/usc/15/80a–2.md?p=a-36) of which are owned exclusively by [persons](/usc/15/80a–2.md?p=a-28) who, at the time of acquisition of such [securities](/usc/15/80a–2.md?p=a-36), are [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), and which is not making and does not at that time propose to make a public offering of such [securities](/usc/15/80a–2.md?p=a-36). [Securities](/usc/15/80a–2.md?p=a-36) that are owned by [persons](/usc/15/80a–2.md?p=a-28) who received the [securities](/usc/15/80a–2.md?p=a-36) from a [qualified purchaser](/usc/15/80a–2.md?p=a-51-A) as a gift or bequest, or in a case in which the transfer was caused by legal separation, divorce, death, or other involuntary event, shall be deemed to be owned by a [qualified purchaser](/usc/15/80a–2.md?p=a-51-A), subject to such rules, regulations, and [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (B) Notwithstanding [subparagraph (A)](#c-7-A), an [issuer](/usc/15/80a–2.md?p=a-22) is within the exception provided by this paragraph if— - (i) in addition to [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), outstanding [securities](/usc/15/80a–2.md?p=a-36) of that [issuer](/usc/15/80a–2.md?p=a-22) are beneficially owned by not more than 100 [persons](/usc/15/80a–2.md?p=a-28) who are not [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), if— - (I) such [persons](/usc/15/80a–2.md?p=a-28) acquired any portion of the [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22) on or before September 1, 1996; and - (II) at the time at which such [persons](/usc/15/80a–2.md?p=a-28) initially acquired the [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22), the [issuer](/usc/15/80a–2.md?p=a-22) was excepted by [paragraph (1)](#c-1); and - (ii) prior to availing itself of the exception provided by this paragraph— - (I) such [issuer](/usc/15/80a–2.md?p=a-22) has disclosed to each beneficial owner, as determined under [paragraph (1)](#c-1), that future investors will be limited to [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), and that ownership in such [issuer](/usc/15/80a–2.md?p=a-22) is no longer limited to not more than 100 [persons](/usc/15/80a–2.md?p=a-28); and - (II) concurrently with or after such disclosure, such [issuer](/usc/15/80a–2.md?p=a-22) has provided each beneficial owner, as determined under [paragraph (1)](#c-1), with a reasonable opportunity to redeem any part or all of their interests in the [issuer](/usc/15/80a–2.md?p=a-22), notwithstanding any [agreement](/usc/15/7a.md?p=2) to the contrary between the [issuer](/usc/15/80a–2.md?p=a-22) and such [persons](/usc/15/80a–2.md?p=a-28), for that [person](/usc/15/80a–2.md?p=a-28)’s proportionate share of the [issuer](/usc/15/80a–2.md?p=a-22)’s net assets. - (C) Each [person](/usc/15/80a–2.md?p=a-28) that elects to redeem under [subparagraph (B)(ii)(II)](#c-7-B-ii-II) shall receive an amount in cash equal to that [person](/usc/15/80a–2.md?p=a-28)’s proportionate share of the [issuer](/usc/15/80a–2.md?p=a-22)’s net assets, unless the [issuer](/usc/15/80a–2.md?p=a-22) elects to provide such [person](/usc/15/80a–2.md?p=a-28) with the option of receiving, and such [person](/usc/15/80a–2.md?p=a-28) agrees to receive, all or a portion of such [person](/usc/15/80a–2.md?p=a-28)’s share in assets of the [issuer](/usc/15/80a–2.md?p=a-22). If the [issuer](/usc/15/80a–2.md?p=a-22) elects to provide such [persons](/usc/15/80a–2.md?p=a-28) with such an opportunity, disclosure concerning such opportunity shall be made in the disclosure required by [subparagraph (B)(ii)(I)](#c-7-B-ii-I). - (D) An [issuer](/usc/15/80a–2.md?p=a-22) that is excepted under this paragraph shall nonetheless be deemed to be an [investment company](/usc/15/77z–2.md?p=i-2) for purposes of the limitations set forth in subparagraphs (A)(i) and (B)(i) of [section 80a–12(d)(1) of this title](/usc/15/80a–12.md?p=d-1) relating to the [purchase](/usc/15/78c–5.md?p=g) or other acquisition by such [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered [investment company](/usc/15/77z–2.md?p=i-2) and the sale of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered open-end [investment company](/usc/15/77z–2.md?p=i-2) to any such [issuer](/usc/15/80a–2.md?p=a-22). - (E) For purposes of determining compliance with this paragraph and [paragraph (1)](#c-1), an [issuer](/usc/15/80a–2.md?p=a-22) that is otherwise excepted under this paragraph and an [issuer](/usc/15/80a–2.md?p=a-22) that is otherwise excepted under [paragraph (1)](#c-1) shall not be treated by the [Commission](/usc/15/80a–2.md?p=a-7) as being a single [issuer](/usc/15/80a–2.md?p=a-22) for purposes of determining whether the outstanding [securities](/usc/15/80a–2.md?p=a-36) of the [issuer](/usc/15/80a–2.md?p=a-22) excepted under [paragraph (1)](#c-1) are beneficially owned by not more than 100 [persons](/usc/15/80a–2.md?p=a-28) or whether the outstanding [securities](/usc/15/80a–2.md?p=a-36) of the [issuer](/usc/15/80a–2.md?p=a-22) excepted under this paragraph are owned by [persons](/usc/15/80a–2.md?p=a-28) that are not [qualified purchasers](/usc/15/80a–2.md?p=a-51-A). Nothing in this subparagraph shall be construed to establish that a [person](/usc/15/80a–2.md?p=a-28) is a bona fide [qualified purchaser](/usc/15/80a–2.md?p=a-51-A) for purposes of this paragraph or a bona fide beneficial owner for purposes of [paragraph (1)](#c-1). - (8) [Repealed] Pub. L. 111–203, title IX, § 986(c)(2), July 21, 2010, 124 Stat. 1936. - (9) Any [person](/usc/15/80a–2.md?p=a-28) substantially all of whose business consists of owning or holding oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, leases, or fractional interests. - (10) - (A) Any [company](/usc/15/80a–2.md?p=a-8) organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes— - (i) no part of the net earnings of which inures to the benefit of any private shareholder or individual; or - (ii) which is or maintains a fund described in [subparagraph (B)](#c-10-B). - (B) For the purposes of [subparagraph (A)(ii)](#c-10-A-ii), a fund is described in this subparagraph if such fund is a [pooled income fund](#c-10-D-ii), collective trust fund, collective investment fund, or similar fund maintained by a [charitable organization](#c-10-D-iii) exclusively for the collective investment and reinvestment of one or more of the following: - (i) assets of the general endowment fund or other funds of one or more [charitable organizations](#c-10-D-iii); - (ii) assets of a [pooled income fund](#c-10-D-ii); - (iii) assets contributed to a [charitable organization](#c-10-D-iii) in [exchange](/usc/15/80a–2.md?p=a-14) for the issuance of [charitable gift annuities](#c-10-D-vi); - (iv) assets of a [charitable remainder trust](#c-10-D-v) or of any other trust, the remainder interests of which are irrevocably dedicated to any [charitable organization](#c-10-D-iii); - (v) assets of a [charitable lead trust](#c-10-D-iv); - (vi) assets of a trust, the remainder interests of which are revocably dedicated to or for the benefit of 1 or more [charitable organizations](#c-10-D-iii), if the ability to revoke the dedication is limited to circumstances involving— - (I) an adverse change in the financial circumstances of a settlor or an income beneficiary of the trust; - (II) a change in the identity of the [charitable organization](#c-10-D-iii) or organizations having the remainder interest, provided that the new beneficiary is also a [charitable organization](#c-10-D-iii); or - (III) both the changes described in subclauses [(I)](#c-10-B-vi-I) and [(II)](#c-10-B-vi-II); - (vii) assets of a trust not described in [clauses (i) through (v)](#c-10-B-i..c-10-B-v), the remainder interests of which are revocably dedicated to a [charitable organization](#c-10-D-iii), subject to [subparagraph (C)](#c-10-C); or - (viii) such assets as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rule, regulation, or [order](/usc/15/8702.md?p=14) in accordance with [section 80a–6(c) of this title](/usc/15/80a–6.md?p=c). - (C) A fund that contains assets described in [clause (vii)](#c-10-B-vii) of subparagraph (B) shall be excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) for a period of 3 years after December 8, 1995, but only if— - (i) such assets were contributed before the date which is 60 days after December 8, 1995; and - (ii) such assets are commingled in the fund with assets described in one or more of clauses [(i) through (vi)](#c-10-B-i..c-10-B-vi) and [(viii)](#c-10-B-viii) of subparagraph (B). - (D) For purposes of this paragraph— - (i) a trust or fund is “maintained” by a [charitable organization](#c-10-D-iii) if the organization serves as a trustee or [administrator](/usc/15/9001.md?p=1) of the trust or fund or has the power to remove the trustees or [administrators](/usc/15/9001.md?p=1) of the trust or fund and to designate new trustees or [administrators](/usc/15/9001.md?p=1); - (ii) the term “pooled income fund” has the same meaning as in [section 642(c)(5) of title 26](/usc/26/642.md?p=c-5); - (iii) the term “charitable organization” means an organization described in [paragraphs (1) through (5)](/usc/15/170.md?p=c-1..c-5) of section 170(c) or [section 501(c)(3) of title 26](/usc/26/501.md?p=c-3); - (iv) the term “charitable lead trust” means a trust described in section [170(f)(2)(B)](/usc/26/170.md?p=f-2-B), [2055(e)(2)(B)](/usc/26/2055.md?p=e-2-B), or [2522(c)(2)(B)](/usc/26/2522.md?p=c-2-B) of title 26; - (v) the term “charitable remainder trust” means a charitable remainder annuity trust or a charitable remainder unitrust, as those terms are defined in [section 664(d) of title 26](/usc/26/664.md?p=d); and - (vi) the term “charitable gift annuity” means an annuity issued by a [charitable organization](#c-10-D-iii) that is described in [section 501(m)(5) of title 26](/usc/26/501.md?p=m-5). - (11) Any employee’s stock bonus, pension, or profit-sharing trust which meets the requirements for qualification under [section 401 of title 26](/usc/26/401.md); or any governmental plan described in [section 77c(a)(2)(C) of this title](/usc/15/77c.md); or any collective trust fund maintained by a bank consisting solely of assets of one or more of such trusts, government plans, or church plans, [companies](/usc/15/80a–2.md?p=a-8) or [accounts](/usc/15/1681a.md?p=r-4) that are excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under paragraph (14) of this subsection; or any [separate account](/usc/15/80a–2.md?p=a-37) the assets of which are derived solely from (A) contributions under pension or profit-sharing plans which meet the requirements of [section 401 of title 26](/usc/26/401.md) or the requirements for deduction of the employer’s contribution under [section 404(a)(2) of title 26](/usc/26/404.md?p=a-2), (B) contributions under governmental plans in connection with which interests, participations, or [securities](/usc/15/80a–2.md?p=a-36) are exempted from the registration provisions of [section 77e of this title](/usc/15/77e.md) by [section 77c(a)(2)(C) of this title](/usc/15/77c.md), and (C) advances made by an [insurance company](/usc/15/80a–2.md?p=a-17) in connection with the operation of such [separate account](/usc/15/80a–2.md?p=a-37). - (12) Any voting trust the assets of which consist exclusively of [securities](/usc/15/80a–2.md?p=a-36) of a single [issuer](/usc/15/80a–2.md?p=a-22) which is not an [investment company](/usc/15/77z–2.md?p=i-2). - (13) Any [security](/usc/15/80a–2.md?p=a-36) holders’ protective [committee](/usc/15/2921.md?p=1) or similar [issuer](/usc/15/80a–2.md?p=a-22) having outstanding and issuing no [securities](/usc/15/80a–2.md?p=a-36) other than certificates of deposit and [short-term paper](/usc/15/80a–2.md?p=a-38). - (14) Any church plan described in [section 414(e) of title 26](/usc/26/414.md?p=e), if, under any such plan, no part of the assets may be used for, or diverted to, purposes other than the exclusive benefit of plan participants or beneficiaries, or any [company](/usc/15/80a–2.md?p=a-8) or [account](/usc/15/1681a.md?p=r-4) that is— - (A) established by a [person](/usc/15/80a–2.md?p=a-28) that is eligible to establish and maintain such a plan under [section 414(e) of title 26](/usc/26/414.md?p=e); and - (B) substantially all of the activities of which consist of— - (i) managing or holding assets contributed to such church plans or other assets which are permitted to be commingled with the assets of church plans under [title 26](/usc/26.md); or - (ii) administering or providing benefits pursuant to church plans. # §80a–3a. Protection of philanthropy under State law - (a) **Registration requirements—** A [security](/usc/15/80a–2.md?p=a-36) issued by or any interest or participation in any pooled income fund, collective trust fund, collective investment fund, or similar fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B), and the offer or sale thereof, shall be exempt from any statute or regulation of a [State](#d-3) that requires registration or qualification of [securities](/usc/15/80a–2.md?p=a-36). - (b) **Treatment of charitable organizations—** No [charitable organization](#d-1), or any trustee, [director](/usc/15/80a–2.md?p=a-12), officer, employee, or volunteer of a [charitable organization](#d-1) acting within the scope of such [person](/usc/15/80a–2.md?p=a-28)’s employment or duties, shall be required to register as, or be subject to regulation as, a [dealer](/usc/15/80a–2.md?p=a-11), [broker](/usc/15/80a–2.md?p=a-6), agent, or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under the [securities laws](/usc/15/77z–2.md?p=i-5) of any [State](#d-3) because such organization or [person](/usc/15/80a–2.md?p=a-28) buys, holds, sells, or trades in [securities](/usc/15/80a–2.md?p=a-36) for its own [account](/usc/15/1681a.md?p=r-4) in its capacity as trustee or [administrator](/usc/15/9001.md?p=1) of, or otherwise on behalf of or for the [account](/usc/15/1681a.md?p=r-4) of one or more of the following: - (1) a [charitable organization](#d-1); - (2) a fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B); or - (3) a trust or other donative instrument described in [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B), or the settlors (or potential settlors) or beneficiaries of any such trusts or other instruments. - (c) **State action—** Notwithstanding subsections [(a)](#a) and [(b)](#b), during the 3-year period beginning on December 8, 1995, a [State](#d-3) may enact a statute that specifically refers to this section and provides prospectively that this section shall not preempt the laws of that [State](#d-3) referred to in this section. - (d) **Definitions—** For purposes of this section— - (1) the term “charitable organization” means an organization described in [paragraphs (1) through (5)](/usc/15/170.md?p=c-1..c-5) of section 170(c) or [section 501(c)(3) of title 26](/usc/26/501.md?p=c-3); - (2) the term “[security](/usc/15/80a–2.md?p=a-36)” has the same meaning as in [section 78c of this title](/usc/15/78c.md); and - (3) the term “State” means each of the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. # §80a–4. Classification of investment companies For the purposes of this subchapter, [investment companies](/usc/15/77z–2.md?p=i-2) are divided into three principal classes, defined as follows: - (1) “Face-amount certificate company” means an [investment company](/usc/15/77z–2.md?p=i-2) which is engaged or proposes to engage in the business of issuing [face-amount certificates](/usc/15/80a–2.md?p=a-15) of the installment type, or which has been engaged in such business and has any such certificate outstanding. - (2) “Unit investment trust” means an [investment company](/usc/15/77z–2.md?p=i-2) which (A) is organized under a trust indenture, contract of custodianship or agency, or similar instrument, (B) does not have a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), and (C) issues only [redeemable securities](/usc/15/80a–2.md?p=a-32), each of which represents an undivided interest in a unit of specified [securities](/usc/15/80a–2.md?p=a-36); but does not include a voting trust. - (3) “Management company” means any [investment company](/usc/15/77z–2.md?p=i-2) other than a [face-amount certificate company](#1) or a [unit investment trust](#2). # §80a–5. Subclassification of management companies - (a) **Open-end and closed-end companies—** For the purposes of this subchapter, [management companies](/usc/15/80a–4.md?p=3) are divided into open-end and [closed-end companies](#a-2), defined as follows: - (1) “Open-end company” means a [management company](/usc/15/80a–4.md?p=3) which is offering for sale or has outstanding any [redeemable security](/usc/15/80a–2.md?p=a-32) of which it is the [issuer](/usc/15/80a–2.md?p=a-22). - (2) “Closed-end company” means any [management company](/usc/15/80a–4.md?p=3) other than an [open-end company](#a-1). - (b) **Diversified and non-diversified companies—** [Management companies](/usc/15/80a–4.md?p=3) are further divided into [diversified companies](#b-1) and [non-diversified companies](#b-2), defined as follows: - (1) “Diversified company” means a [management company](/usc/15/80a–4.md?p=3) which meets the following requirements: At least 75 per centum of the value of its total assets is represented by cash and cash items (including receivables), [Government securities](/usc/15/80a–2.md?p=a-16), [securities](/usc/15/80a–2.md?p=a-36) of other [investment companies](/usc/15/77z–2.md?p=i-2), and other [securities](/usc/15/80a–2.md?p=a-36) for the purposes of this calculation limited in respect of any one [issuer](/usc/15/80a–2.md?p=a-22) to an amount not greater in value than 5 per centum of the value of the total assets of such [management company](/usc/15/80a–4.md?p=3) and to not more than 10 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [issuer](/usc/15/80a–2.md?p=a-22). - (2) “Non-diversified company” means any [management company](/usc/15/80a–4.md?p=3) other than a [diversified company](#b-1). - (c) **Loss of status as diversified company—** A registered [diversified company](#b-1) which at the time of its qualification as such meets the requirements of [paragraph (1)](#b-1) of subsection (b) shall not lose its status as a [diversified company](#b-1) because of any subsequent discrepancy between the value of its various investments and the requirements of said paragraph, so long as any such discrepancy existing immediately after its acquisition of any [security](/usc/15/80a–2.md?p=a-36) or other property is neither wholly nor partly the result of such acquisition. # §80a–6. Exemptions - (a) **Exemption of specified investment companies—** The following [investment companies](/usc/15/77z–2.md?p=i-2) are exempt from the provisions of this subchapter: - (1) Any [company](/usc/15/80a–2.md?p=a-8) which since the effective date of this subchapter or within five years prior to such date has been reorganized under the supervision of a court of competent jurisdiction, if (A) such [company](/usc/15/80a–2.md?p=a-8) was not an [investment company](/usc/15/77z–2.md?p=i-2) at the commencement of such [reorganization](/usc/15/80a–2.md?p=a-33) proceedings, (B) at the conclusion of such proceedings all outstanding [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) were owned by [creditors](/usc/15/1615.md?p=d-2) of such [company](/usc/15/80a–2.md?p=a-8) or by [persons](/usc/15/80a–2.md?p=a-28) to whom such [securities](/usc/15/80a–2.md?p=a-36) were issued on [account](/usc/15/1681a.md?p=r-4) of [creditors](/usc/15/1615.md?p=d-2)’ claims, and (C) more than 50 per centum of the [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), and [securities](/usc/15/80a–2.md?p=a-36) representing more than 50 per centum of the net asset value of such [company](/usc/15/80a–2.md?p=a-8), are currently owned beneficially by not more than twenty-five [persons](/usc/15/80a–2.md?p=a-28); but such exemption shall terminate if any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22) is offered for sale or sold to the public after the conclusion of such proceedings by the [issuer](/usc/15/80a–2.md?p=a-22) or by or through any underwriter. For the purposes of this paragraph, any new [company](/usc/15/80a–2.md?p=a-8) organized as part of the [reorganization](/usc/15/80a–2.md?p=a-33) shall be deemed the same [company](/usc/15/80a–2.md?p=a-8) as its predecessor; and beneficial ownership shall be determined in the manner provided in [section 80a–3(c)(1) of this title](/usc/15/80a–3.md?p=c-1). - (2) Any [issuer](/usc/15/80a–2.md?p=a-22) as to which there is outstanding a writing filed with the [Commission](/usc/15/80a–2.md?p=a-7) by the Federal Savings and Loan Insurance Corporation stating that exemption of such [issuer](/usc/15/80a–2.md?p=a-22) from the provisions of this subchapter is consistent with the public interest and the protection of investors and is necessary or appropriate by reason of the fact that such [issuer](/usc/15/80a–2.md?p=a-22) holds or proposes to acquire any assets or any product of any assets which have been segregated (A) from assets of any [company](/usc/15/80a–2.md?p=a-8) which at the filing of such writing is an insured institution within the meaning of section 1724(a)[^1] of [title 12](/usc/12.md), or (B) as a part of or in connection with any plan for or condition to the insurance of [accounts](/usc/15/1681a.md?p=r-4) of any [company](/usc/15/80a–2.md?p=a-8) by said corporation or the conversion of any [company](/usc/15/80a–2.md?p=a-8) into a Federal [savings and loan association](/usc/15/80a–2.md?p=a-45). Any such writing shall expire when canceled by a writing similarly filed or at the expiration of two years after the date of its filing, whichever first occurs; but said corporation may, nevertheless, before, at, or after the expiration of any such writing file another writing or writings with respect to such [issuer](/usc/15/80a–2.md?p=a-22). - (3) Any [company](/usc/15/80a–2.md?p=a-8) which prior to March 15, 1940, was and now is a wholly-owned subsidiary of a registered [face-amount certificate company](/usc/15/80a–4.md?p=1) and was prior to said date and now is organized and operating under the insurance laws of any [State](/usc/15/80a–2.md?p=a-39) and subject to supervision and examination by the insurance commissioner thereof, and which prior to March 15, 1940, was and now is engaged, subject to such laws, in business substantially all of which consists of issuing and selling only to residents of such [State](/usc/15/80a–2.md?p=a-39) and investing the proceeds from, [securities](/usc/15/80a–2.md?p=a-36) providing for or representing participations or interests in intangible assets consisting of mortgages or other liens on real estate or notes or bonds secured thereby or in a fund or deposit of mortgages or other liens on real estate or notes or bonds secured thereby or having outstanding such [securities](/usc/15/80a–2.md?p=a-36) so issued and sold. - (4) - (A) Any [company](/usc/15/80a–2.md?p=a-8) that is not engaged in the business of issuing [redeemable securities](/usc/15/80a–2.md?p=a-32), the operations of which are subject to regulation by the [State](/usc/15/80a–2.md?p=a-39) in which the [company](/usc/15/80a–2.md?p=a-8) is organized under a statute governing entities that provide financial or managerial assistance to enterprises doing business, or proposing to do business, in that [State](/usc/15/80a–2.md?p=a-39) if— - (i) the organizational documents of the [company](/usc/15/80a–2.md?p=a-8) [state](/usc/15/80a–2.md?p=a-39) that the activities of the [company](/usc/15/80a–2.md?p=a-8) are limited to the promotion of economic, business, or industrial development in the [State](/usc/15/80a–2.md?p=a-39) through the provision of financial or managerial assistance to enterprises doing business, or proposing to do business, in that [State](/usc/15/80a–2.md?p=a-39), and such other activities that are incidental or necessary to carry out that purpose; - (ii) immediately following each sale of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) by the [company](/usc/15/80a–2.md?p=a-8) or any underwriter for the [company](/usc/15/80a–2.md?p=a-8), not less than 80 percent of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) being offered in such sale, on a class-by-class basis, are held by [persons](/usc/15/80a–2.md?p=a-28) who reside or who have a substantial business presence in that [State](/usc/15/80a–2.md?p=a-39); - (iii) the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) are sold, or proposed to be sold, by the [company](/usc/15/80a–2.md?p=a-8) or by any underwriter for the [company](/usc/15/80a–2.md?p=a-8), solely to accredited investors, as that term is defined in [section 77b(a)(15) of this title](/usc/15/77b.md?p=a-15), or to such other [persons](/usc/15/80a–2.md?p=a-28) that the [Commission](/usc/15/80a–2.md?p=a-7), as necessary or appropriate in the public interest and consistent with the protection of investors, may permit by rule, regulation, or [order](/usc/15/8702.md?p=14); and - (iv) the [company](/usc/15/80a–2.md?p=a-8) does not [purchase](/usc/15/78c–5.md?p=g) any [security](/usc/15/80a–2.md?p=a-36) issued by an [investment company](/usc/15/77z–2.md?p=i-2) or by any [company](/usc/15/80a–2.md?p=a-8) that would be an [investment company](/usc/15/77z–2.md?p=i-2) except for the exclusions from the definition of the term “[investment company](/usc/15/77z–2.md?p=i-2)” under paragraph (1) or (7) of [section 80a–3(c) of this title](/usc/15/80a–3.md?p=c), other than— - (I) any debt [security](/usc/15/80a–2.md?p=a-36) that meets such standards of [credit](/usc/15/1679a.md?p=4)-worthiness as the [Commission](/usc/15/80a–2.md?p=a-7) shall adopt; or - (II) any [security](/usc/15/80a–2.md?p=a-36) issued by a registered open-end [investment company](/usc/15/77z–2.md?p=i-2) that is required by its investment policies to invest not less than 65 percent of its total assets in [securities](/usc/15/80a–2.md?p=a-36) described in [subclause (I)](#a-4-A-iv-I) or [securities](/usc/15/80a–2.md?p=a-36) that are determined by such registered open-end [investment company](/usc/15/77z–2.md?p=i-2) to be comparable in quality to [securities](/usc/15/80a–2.md?p=a-36) described in [subclause (I)](#a-4-A-iv-I). - (B) Notwithstanding the exemption provided by this paragraph, [section 80a–9 of this title](/usc/15/80a–9.md) (and, to the extent necessary to enforce [section 80a–9 of this title](/usc/15/80a–9.md), [sections 80a–37 through 80a–50](/usc/15/80a–37..80a–50.md) of this title) shall apply to a [company](/usc/15/80a–2.md?p=a-8) described in this paragraph as if the [company](/usc/15/80a–2.md?p=a-8) were an [investment company](/usc/15/77z–2.md?p=i-2) registered under this subchapter. - (C) Any [company](/usc/15/80a–2.md?p=a-8) proposing to rely on the exemption provided by this paragraph shall file with the [Commission](/usc/15/80a–2.md?p=a-7) a notification stating that the [company](/usc/15/80a–2.md?p=a-8) intends to do so, in such form and manner as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rule. - (D) Any [company](/usc/15/80a–2.md?p=a-8) meeting the requirements of this paragraph may rely on the exemption provided by this paragraph upon filing with the [Commission](/usc/15/80a–2.md?p=a-7) the notification required by [subparagraph (C)](#a-4-C), until such time as the [Commission](/usc/15/80a–2.md?p=a-7) determines by [order](/usc/15/8702.md?p=14) that such reliance is not in the public interest or is not consistent with the protection of investors. - (E) The exemption provided by this paragraph may be subject to such additional terms and conditions as the [Commission](/usc/15/80a–2.md?p=a-7) may by rule, regulation, or [order](/usc/15/8702.md?p=14) determine are necessary or appropriate in the public interest or for the protection of investors. - (b) **Exemption of employees’ security company upon application; matters considered—** Upon [application](/usc/15/77ccc.md?p=8) by any employees’ [security](/usc/15/80a–2.md?p=a-36) [company](/usc/15/80a–2.md?p=a-8), the [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) exempt such [company](/usc/15/80a–2.md?p=a-8) from the provisions of this subchapter and of the rules and regulations hereunder, if and to the extent that such exemption is consistent with the protection of investors. In determining the provisions to which such an [order](/usc/15/8702.md?p=14) of exemption shall apply, the [Commission](/usc/15/80a–2.md?p=a-7) shall give due weight, among other things, to the form of organization and the capital structure of such [company](/usc/15/80a–2.md?p=a-8), the [persons](/usc/15/80a–2.md?p=a-28) by whom its [voting securities](/usc/15/80a–2.md?p=a-42), evidences of indebtedness, and other [securities](/usc/15/80a–2.md?p=a-36) are owned and controlled, the prices at which [securities](/usc/15/80a–2.md?p=a-36) issued by such [company](/usc/15/80a–2.md?p=a-8) are sold and the [sales load](/usc/15/80a–2.md?p=a-35) thereon, the disposition of the proceeds of such sales, the character of the [securities](/usc/15/80a–2.md?p=a-36) in which such proceeds are invested, and any relationship between such [company](/usc/15/80a–2.md?p=a-8) and the [issuer](/usc/15/80a–2.md?p=a-22) of any such [security](/usc/15/80a–2.md?p=a-36). - (c) **Exemption of persons, securities or any class or classes of persons as necessary and appropriate in public interest—** The [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, or any class or classes of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or transactions, from any provision or provisions of this subchapter or of any rule or regulation thereunder, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter. - (d) **Exemption of closed-end investment companies—** The [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations or [order](/usc/15/8702.md?p=14), shall exempt a closed-end [investment company](/usc/15/77z–2.md?p=i-2) from any or all provisions of this subchapter, but subject to such terms and conditions as may be necessary or appropriate in the public interest or for the protection of investors, if— - (1) the aggregate sums received by such [company](/usc/15/80a–2.md?p=a-8) from the sale of all its outstanding [securities](/usc/15/80a–2.md?p=a-36), plus the aggregate offering price of all [securities](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22) and which it proposes to offer for sale, do not exceed $10,000,000, or such other amount as the [Commission](/usc/15/80a–2.md?p=a-7) may set by rule, regulation, or [order](/usc/15/8702.md?p=14); - (2) no [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22) has been or is proposed to be sold by such [company](/usc/15/80a–2.md?p=a-8) or any underwriter therefor, in connection with a public offering, to any [person](/usc/15/80a–2.md?p=a-28) who is not a resident of the [State](/usc/15/80a–2.md?p=a-39) under the laws of which such [company](/usc/15/80a–2.md?p=a-8) is organized or otherwise created; and - (3) such exemption is not contrary to the public interest or inconsistent with the protection of investors. - (e) **Application of certain specified provisions of subchapter to otherwise exempt companies—** If, in connection with any rule, regulation, or [order](/usc/15/8702.md?p=14) under this section exempting any [investment company](/usc/15/77z–2.md?p=i-2) from any provision of [section 80a–7 of this title](/usc/15/80a–7.md), the [Commission](/usc/15/80a–2.md?p=a-7) deems it necessary or appropriate in the public interest or for the protection of investors that certain specified provisions of this subchapter pertaining to registered [investment companies](/usc/15/77z–2.md?p=i-2) shall be applicable in respect of such [company](/usc/15/80a–2.md?p=a-8), the provisions so specified shall apply to such [company](/usc/15/80a–2.md?p=a-8), and to other [persons](/usc/15/80a–2.md?p=a-28) in their transactions and relations with such [company](/usc/15/80a–2.md?p=a-8), as though such [company](/usc/15/80a–2.md?p=a-8) were a registered [investment company](/usc/15/77z–2.md?p=i-2). - (f) **Exemption of closed-end company treated as business development company—** Any [closed-end company](/usc/15/80a–5.md?p=a-2) which— - (1) elects to be treated as a [business development company](/usc/15/80a–2.md?p=a-48) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md); or - (2) would be excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) by [section 80a–3(c)(1) of this title](/usc/15/80a–3.md?p=c-1), except that it presently proposes to make a public offering of its [securities](/usc/15/80a–2.md?p=a-36) as a [business development company](/usc/15/80a–2.md?p=a-48), and has notified the [Commission](/usc/15/80a–2.md?p=a-7), in a form and manner which the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe, that it intends in good faith to file, within 90 days, a notification of election to become subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title, shall be exempt from [sections 80a–1 through 80a–52](/usc/15/80a–1..80a–52.md) of this title, except to the extent provided in [sections 80a–58 through 80a–64](/usc/15/80a–58..80a–64.md) of this title. # §80a–7. Transactions by unregistered investment companies - (a) **Prohibition of transactions in interstate commerce by companies—** No [investment company](/usc/15/77z–2.md?p=i-2) organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39) and having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), unless registered under [section 80a–8 of this title](/usc/15/80a–8.md), shall directly or indirectly— - (1) offer for sale, sell, or deliver after sale, by the use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36), whether the [issuer](/usc/15/80a–2.md?p=a-22) of such [security](/usc/15/80a–2.md?p=a-36) is such [investment company](/usc/15/77z–2.md?p=i-2) or another [person](/usc/15/80a–2.md?p=a-28); or offer for sale, sell, or deliver after sale any such [security](/usc/15/80a–2.md?p=a-36) or interest, having reason to believe that such [security](/usc/15/80a–2.md?p=a-36) or interest will be made the subject of a public offering by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25); - (2) [purchase](/usc/15/78c–5.md?p=g), redeem, retire, or otherwise acquire or attempt to acquire, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36), whether the [issuer](/usc/15/80a–2.md?p=a-22) of such [security](/usc/15/80a–2.md?p=a-36) is such [investment company](/usc/15/77z–2.md?p=i-2) or another [person](/usc/15/80a–2.md?p=a-28); - (3) [control](/usc/15/80a–2.md?p=a-9) any [investment company](/usc/15/77z–2.md?p=i-2) which does any of the acts enumerated in paragraphs (1) and (2) of this subsection; - (4) engage in any business in [interstate commerce](/usc/15/80a–2.md?p=a-18); or - (5) [control](/usc/15/80a–2.md?p=a-9) any [company](/usc/15/80a–2.md?p=a-8) which is engaged in any business in [interstate commerce](/usc/15/80a–2.md?p=a-18). The provisions of this subsection shall not apply to transactions of an [investment company](/usc/15/77z–2.md?p=i-2) which are merely incidental to its dissolution. - (b) **Prohibition of transactions in interstate commerce by depositors or trustees of companies—** No depositor or trustee of or underwriter for any [investment company](/usc/15/77z–2.md?p=i-2), organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39) and not having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), unless such [company](/usc/15/80a–2.md?p=a-8) is registered under [section 80a–8 of this title](/usc/15/80a–8.md) or exempt under [section 80a–6 of this title](/usc/15/80a–6.md), shall directly or indirectly— - (1) offer for sale, sell, or deliver after sale, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22); or offer for sale, sell, or deliver after sale any such [security](/usc/15/80a–2.md?p=a-36) or interest, having reason to believe that such [security](/usc/15/80a–2.md?p=a-36) or interest will be made the subject of a public offering by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25); - (2) [purchase](/usc/15/78c–5.md?p=g), redeem, or otherwise acquire or attempt to acquire, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22); or - (3) sell or [purchase](/usc/15/78c–5.md?p=g) for the [account](/usc/15/1681a.md?p=r-4) of such [company](/usc/15/80a–2.md?p=a-8), by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or interest in a [security](/usc/15/80a–2.md?p=a-36), by whomever issued. The provisions of this subsection shall not apply to transactions which are merely incidental to the dissolution of an [investment company](/usc/15/77z–2.md?p=i-2). - (c) **Prohibition of transactions in interstate commerce by promoters of proposed investment companies—** No promoter of a proposed [investment company](/usc/15/77z–2.md?p=i-2), and no underwriter for such a promoter, shall make use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), directly or indirectly, to offer for sale, sell, or deliver after sale, in connection with a public offering, any preorganization certificate or subscription for such a [company](/usc/15/80a–2.md?p=a-8). - (d) **Prohibition of transactions in interstate commerce by companies not organized under laws of the United States or a State; exceptions—** No [investment company](/usc/15/77z–2.md?p=i-2), unless organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39), and no depositor or trustee of or underwriter for such a [company](/usc/15/80a–2.md?p=a-8) not so organized or created, shall make use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), directly or indirectly, to offer for sale, sell, or deliver after sale, in connection with a public offering, any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22). Notwithstanding the provisions of this subsection and of [section 80a–8(a) of this title](/usc/15/80a–8.md?p=a), the [Commission](/usc/15/80a–2.md?p=a-7) is authorized, upon [application](/usc/15/77ccc.md?p=8) by an [investment company](/usc/15/77z–2.md?p=i-2) organized or otherwise created under the laws of a foreign country, to issue a conditional or unconditional [order](/usc/15/8702.md?p=14) permitting such [company](/usc/15/80a–2.md?p=a-8) to register under this subchapter, and to make a public offering of its [securities](/usc/15/80a–2.md?p=a-36) by use of the mails and means or instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), if the [Commission](/usc/15/80a–2.md?p=a-7) finds that, by reason of special circumstances or arrangements, it is both legally and practically feasible effectively to enforce the provisions of this subchapter against such [company](/usc/15/80a–2.md?p=a-8) and that the issuance of such [order](/usc/15/8702.md?p=14) is otherwise consistent with the public interest and the protection of investors. - (e) **Disclosure by exempt charitable organizations—** Each fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B) shall provide, to each donor to such fund, at the time of the donation or within 90 days after December 8, 1995, whichever is later, written information describing the material terms of the operation of such fund. # §80a–8. Registration of investment companies - (a) **Notification of registration; effective date of registration—** Any [investment company](/usc/15/77z–2.md?p=i-2) organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39) may register for the purposes of this subchapter by filing with the [Commission](/usc/15/80a–2.md?p=a-7) a notification of registration, in such form as the [Commission](/usc/15/80a–2.md?p=a-7) shall by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. An [investment company](/usc/15/77z–2.md?p=i-2) shall be deemed to be registered upon receipt by the [Commission](/usc/15/80a–2.md?p=a-7) of such notification of registration. - (b) **Registration statement; contents—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall file with the [Commission](/usc/15/80a–2.md?p=a-7), within such reasonable time after registration as the [Commission](/usc/15/80a–2.md?p=a-7) shall fix by rules and regulations, an original and such copies of a [registration statement](/usc/15/77b.md?p=a-8), in such form and containing such of the following information and documents as the [Commission](/usc/15/80a–2.md?p=a-7) shall by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors: - (1) a recital of the policy of the registrant in respect of each of the following types of activities, such recital consisting in each case of a statement whether the registrant reserves freedom of action to engage in activities of such type, and if such freedom of action is reserved, a statement briefly indicating, insofar as is practicable, the extent to which the registrant intends to engage therein: (A) the classification and subclassifications, as defined in sections [80a–4](/usc/15/80a–4.md) and [80a–5](/usc/15/80a–5.md) of this title, within which the registrant proposes to operate; (B) borrowing money; (C) the issuance of senior [securities](/usc/15/80a–2.md?p=a-36); (D) engaging in the business of underwriting [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28); (E) concentrating investments in a particular industry or group of industries; (F) the [purchase](/usc/15/78c–5.md?p=g) and sale of real estate and commodities, or either of them; (G) making loans to other [persons](/usc/15/80a–2.md?p=a-28); and (H) portfolio turn-over (including a statement showing the aggregate dollar amount of [purchases](/usc/15/78c–5.md?p=g) and sales of portfolio [securities](/usc/15/80a–2.md?p=a-36), other than [Government securities](/usc/15/80a–2.md?p=a-16), in each of the last three full fiscal years preceding the filing of such [registration statement](/usc/15/77b.md?p=a-8)); - (2) a recital of all investment policies of the registrant, not enumerated in [paragraph (1)](#b-1), which are changeable only if authorized by shareholder vote; - (3) a recital of all policies of the registrant, not enumerated in paragraphs [(1)](#b-1) and [(2)](#b-2), in respect of matters which the registrant deems matters of fundamental policy; - (4) the name and address of each affiliated [person](/usc/15/80a–2.md?p=a-28) of the registrant; the name and principal address of every [company](/usc/15/80a–2.md?p=a-8), other than the registrant, of which each such [person](/usc/15/80a–2.md?p=a-28) is an officer, [director](/usc/15/80a–2.md?p=a-12), or partner; a brief statement of the business experience for the preceding five years of each officer and [director](/usc/15/80a–2.md?p=a-12) of the registrant; and - (5) the information and documents which would be required to be filed in [order](/usc/15/8702.md?p=14) to register under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], all [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) which the registrant has outstanding or proposes to issue. - (c) **Alternative information—** The [Commission](/usc/15/80a–2.md?p=a-7) shall make provision, by permissive rules and regulations or [order](/usc/15/8702.md?p=14), for the filing of the following, or so much of the following as the [Commission](/usc/15/80a–2.md?p=a-7) may designate, in lieu of the information and documents required pursuant to [subsection (b)](#b): - (1) copies of the most recent [registration statement](/usc/15/77b.md?p=a-8) filed by the registrant under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and currently effective under such Act, or if the registrant has not filed such a statement, copies of a [registration statement](/usc/15/77b.md?p=a-8) filed by the registrant under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.] and currently effective under such Act; - (2) copies of any reports filed by the registrant pursuant to section [78m](/usc/15/78m.md) or [78o(d)](/usc/15/78o.md?p=d) of this title; and - (3) a report containing reasonably current information regarding the matters included in copies filed pursuant to paragraphs (1) and (2) of this subsection, and such further information regarding matters not included in such copies as the [Commission](/usc/15/80a–2.md?p=a-7) is authorized to require under [subsection (b)](#b). - (d) **Registration of unit investment trusts—** If the registrant is a [unit investment trust](/usc/15/80a–4.md?p=2) substantially all of the assets of which are [securities](/usc/15/80a–2.md?p=a-36) issued by another registered [investment company](/usc/15/77z–2.md?p=i-2), the [Commission](/usc/15/80a–2.md?p=a-7) is authorized to prescribe for the registrant, by rules and regulations or [order](/usc/15/8702.md?p=14), a [registration statement](/usc/15/77b.md?p=a-8) which eliminates inappropriate duplication of information contained in the [registration statement](/usc/15/77b.md?p=a-8) filed under this section by such other [investment company](/usc/15/77z–2.md?p=i-2). - (e) **Failure to file registration statement or omissions of material fact—** If it appears to the [Commission](/usc/15/80a–2.md?p=a-7) that a registered [investment company](/usc/15/77z–2.md?p=i-2) has failed to file the [registration statement](/usc/15/77b.md?p=a-8) required by this section or a report required pursuant to section [80a–29 (a)](/usc/15/80a–29.md?p=a) or [(b)](/usc/15/80a–29.md?p=b) of this title, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report but omitted therefrom material facts required to be stated therein, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report in [violation](/usc/15/57b–1.md?p=a-7) of [section 80a–33(b) of this title](/usc/15/80a–33.md?p=b), the [Commission](/usc/15/80a–2.md?p=a-7) shall notify such [company](/usc/15/80a–2.md?p=a-8) by registered mail or by certified mail of the failure to file such [registration statement](/usc/15/77b.md?p=a-8) or report, or of the respects in which such [registration statement](/usc/15/77b.md?p=a-8) or report appears to be materially incomplete or misleading, as the case may be, and shall fix a date (in no event earlier than thirty days after the mailing of such notice) prior to which such [company](/usc/15/80a–2.md?p=a-8) may file such [registration statement](/usc/15/77b.md?p=a-8) or report or correct the same. If such [registration statement](/usc/15/77b.md?p=a-8) or report is not filed or corrected within the time so fixed by the [Commission](/usc/15/80a–2.md?p=a-7) or any extension thereof, the [Commission](/usc/15/80a–2.md?p=a-7), after appropriate notice and opportunity for hearing, and upon such conditions and with such exemptions as it deems appropriate for the protection of investors, may by [order](/usc/15/8702.md?p=14) suspend the registration of such [company](/usc/15/80a–2.md?p=a-8) until such statement or report is filed or corrected, or may by [order](/usc/15/8702.md?p=14) revoke such registration, if the evidence establishes— - (1) that such [company](/usc/15/80a–2.md?p=a-8) has failed to file a [registration statement](/usc/15/77b.md?p=a-8) required by this section or a report required pursuant to section [80a–29(a)](/usc/15/80a–29.md?p=a) or [(b)](/usc/15/80a–29.md?p=b) of this title, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report but omitted therefrom material facts required to be stated therein, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report in [violation](/usc/15/57b–1.md?p=a-7) of [section 80a–33(b) of this title](/usc/15/80a–33.md?p=b); and - (2) that such suspension or revocation is in the public interest. - (f) **Cessation of existence as investment company—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7), on its own motion or upon [application](/usc/15/77ccc.md?p=8), finds that a registered [investment company](/usc/15/77z–2.md?p=i-2) has ceased to be an [investment company](/usc/15/77z–2.md?p=i-2), it shall so declare by [order](/usc/15/8702.md?p=14) and upon the taking effect of such [order](/usc/15/8702.md?p=14) the registration of such [company](/usc/15/80a–2.md?p=a-8) shall cease to be in effect. If necessary for the protection of investors, an [order](/usc/15/8702.md?p=14) under this subsection may be made upon appropriate conditions. The [Commission](/usc/15/80a–2.md?p=a-7)’s denial of any [application](/usc/15/77ccc.md?p=8) under this subsection shall be by [order](/usc/15/8702.md?p=14). - (g) **Data standards for registration statements—** - (1) **Requirement—** The [Commission](/usc/15/80a–2.md?p=a-7) shall, by rule, adopt data standards for all [registration statements](/usc/15/77b.md?p=a-8) required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this section, except that the [Commission](/usc/15/80a–2.md?p=a-7) may exempt exhibits, signatures, and certifications from those data standards. - (2) **Consistency—** The data standards required under [paragraph (1)](#g-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §80a–9. Ineligibility of certain affiliated persons and underwriters - (a) **Persons deemed ineligible for service with investment companies, etc.; investment adviser—** It shall be unlawful for any of the following [persons](/usc/15/80a–2.md?p=a-28) to serve or act in the capacity of employee, officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), investment adviser, or depositor of any registered [investment company](/usc/15/77z–2.md?p=i-2), or principal underwriter for any registered [open-end company](/usc/15/80a–5.md?p=a-1), registered [unit investment trust](/usc/15/80a–4.md?p=2), or registered [face-amount certificate company](/usc/15/80a–4.md?p=1): - (1) any [person](/usc/15/80a–2.md?p=a-28) who within 10 years has been [convicted](/usc/15/80a–2.md?p=a-10) of any felony or misdemeanor involving the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80a–2.md?p=a-36) or arising out of such [person](/usc/15/80a–2.md?p=a-28)’s conduct as an underwriter, [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), [investment adviser](#a), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), bank, [transfer agent](/usc/15/6102.md?p=d-2-B-i), [credit rating agency](/usc/15/80a–2.md?p=a-53), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or as an affiliated [person](/usc/15/80a–2.md?p=a-28), salesman, or employee of any [investment company](/usc/15/77z–2.md?p=i-2), bank, [insurance company](/usc/15/80a–2.md?p=a-17), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act; - (2) any [person](/usc/15/80a–2.md?p=a-28) who, by reason of any misconduct, is permanently or temporarily enjoined by [order](/usc/15/8702.md?p=14), judgment, or decree of any court of competent jurisdiction from acting as an underwriter, [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), [investment adviser](#a), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), bank, [transfer agent](/usc/15/6102.md?p=d-2-B-i), [credit rating agency](/usc/15/80a–2.md?p=a-53), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or as an affiliated [person](/usc/15/80a–2.md?p=a-28), salesman, or employee of any [investment company](/usc/15/77z–2.md?p=i-2), bank, [insurance company](/usc/15/80a–2.md?p=a-17), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80a–2.md?p=a-36); or - (3) a [company](/usc/15/80a–2.md?p=a-8) any affiliated [person](/usc/15/80a–2.md?p=a-28) of which is ineligible, by reason of paragraph (1) or (2) of this subsection, to serve or act in the foregoing capacities. For the purposes of [paragraphs (1) to (3)](#1..3) of this subsection, the term “investment adviser” shall include an investment adviser as defined in subchapter II of this chapter. - (b) **Certain persons serving investment companies; administrative action of Commission—** The [Commission](/usc/15/80a–2.md?p=a-7) may, after notice and opportunity for hearing, by [order](/usc/15/8702.md?p=14) prohibit, conditionally or unconditionally, either permanently or for such period of time as it in its discretion shall deem appropriate in the public interest, any [person](/usc/15/80a–2.md?p=a-28) from serving or acting as an employee, officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](#a) or depositor of, or principal underwriter for, a registered [investment company](/usc/15/77z–2.md?p=i-2) or affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](#a), depositor, or principal underwriter, if such [person](/usc/15/80a–2.md?p=a-28)— - (1) has willfully made or caused to be made in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8) or report filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80a–2.md?p=a-39) in any such [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), or report any material fact which was required to be stated therein; - (2) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], or of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or of subchapter II of this chapter, or of this subchapter, or of the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or of any rule or regulation under any of such statutes; - (3) has willfully aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80a–2.md?p=a-28) of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], or of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or of subchapter II of this chapter, or of this subchapter, or of the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or of any rule or regulation under any of such statutes; - (4) has been found by a [foreign financial regulatory authority](/usc/15/80a–2.md?p=a-50) to have— - (A) made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with a [foreign securities authority](/usc/15/80a–2.md?p=a-49), or in any proceeding before a [foreign securities authority](/usc/15/80a–2.md?p=a-49) with respect to registration, any statement that was at the time and in light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80a–2.md?p=a-39) in any [application](/usc/15/77ccc.md?p=8) or report to a [foreign securities authority](/usc/15/80a–2.md?p=a-49) any material fact that is required to be stated therein; - (B) violated any foreign statute or regulation regarding transactions in [securities](/usc/15/80a–2.md?p=a-36) or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any [board](/usc/15/205c.md?p=1) of trade; or - (C) aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80a–2.md?p=a-28) of any foreign statute or regulation regarding transactions in [securities](/usc/15/80a–2.md?p=a-36) or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any [board](/usc/15/205c.md?p=1) of trade; - (5) within 10 years has been [convicted](/usc/15/80a–2.md?p=a-10) by a foreign court of competent jurisdiction of a crime, however denominated by the laws of the relevant foreign government, that is substantially equivalent to an offense set forth in [paragraph (1)](#a-1) of subsection (a); or - (6) by reason of any misconduct, is temporarily or permanently enjoined by any foreign court of competent jurisdiction from acting in any of the capacities, set forth in [paragraph (2)](#a-2) of subsection (a), or a substantially equivalent foreign capacity, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80a–2.md?p=a-36). - (c) **Application of ineligible person for exemption—** Any [person](/usc/15/80a–2.md?p=a-28) who is ineligible, by reason of [subsection (a)](#a), to serve or act in the capacities enumerated in such subsection, may file with the [Commission](/usc/15/80a–2.md?p=a-7) an [application](/usc/15/77ccc.md?p=8) for an exemption from the provisions of such subsection. The [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) grant such [application](/usc/15/77ccc.md?p=8), either unconditionally or on an appropriate temporary or other conditional basis, if it is established that the prohibitions of such [subsection (a)](#a) as applied to such [person](/usc/15/80a–2.md?p=a-28), are unduly or disproportionately severe or that the conduct of such [person](/usc/15/80a–2.md?p=a-28) has been such as not to make it against the public interest or protection of investors to grant such [application](/usc/15/77ccc.md?p=8). - (d) **Money penalties in administrative proceedings—** - (1) **Authority of Commission—** - (A) **In general—** In any proceeding instituted pursuant to [subsection (b)](#b) against any [person](/usc/15/80a–2.md?p=a-28), the [Commission](/usc/15/80a–2.md?p=a-7) may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such penalty is in the public interest, and that such [person](/usc/15/80a–2.md?p=a-28)— - (i) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], subchapter II of this chapter, or this subchapter, or the rules or regulations thereunder; - (ii) has willfully aided, abetted, counseled, commanded, induced, or procured such a [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80a–2.md?p=a-28); or - (iii) has willfully made or caused to be made in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), or report required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80a–2.md?p=a-39) in any such [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), or report any material fact which was required to be stated therein;[^1] - (B) **Cease-and-desist proceedings—** In any proceeding instituted pursuant to [subsection (f)](#f) against any [person](/usc/15/80a–2.md?p=a-28), the [Commission](/usc/15/80a–2.md?p=a-7) may impose a civil penalty if the [Commission](/usc/15/80a–2.md?p=a-7) finds, on the record, after notice and opportunity for hearing, that such [person](/usc/15/80a–2.md?p=a-28)— - (i) is violating or has violated any provision of this subchapter, or any rule or regulation issued under this subchapter; or - (ii) is or was a cause of the [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or any rule or regulation issued under this subchapter. - (2) **Maximum amount of penalty—** - (A) **First tier—** The maximum amount of penalty for each act or omission described in [paragraph (1)](#d-1) shall be $5,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $50,000 for any other [person](/usc/15/80a–2.md?p=a-28). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#d-2-A), the maximum amount of penalty for each such act or omission shall be $50,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $250,000 for any other [person](/usc/15/80a–2.md?p=a-28) if the act or omission described in [paragraph (1)](#d-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#d-2-A) and [(B)](#d-2-B), the maximum amount of penalty for each such act or omission shall be $100,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $500,000 for any other [person](/usc/15/80a–2.md?p=a-28) if— - (i) the act or omission described in [paragraph (1)](#d-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (ii) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/80a–2.md?p=a-28) or resulted in substantial pecuniary gain to the [person](/usc/15/80a–2.md?p=a-28) who committed the act or omission. - (3) **Determination of public interest—** In considering under this section whether a penalty is in the public interest, the [Commission](/usc/15/80a–2.md?p=a-7) may consider— - (A) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; - (B) the harm to other [persons](/usc/15/80a–2.md?p=a-28) resulting either directly or indirectly from such act or omission; - (C) the extent to which any [person](/usc/15/80a–2.md?p=a-28) was unjustly enriched, taking into [account](/usc/15/1681a.md?p=r-4) any restitution made to [persons](/usc/15/80a–2.md?p=a-28) injured by such behavior; - (D) whether such [person](/usc/15/80a–2.md?p=a-28) previously has been found by the [Commission](/usc/15/80a–2.md?p=a-7), another appropriate regulatory agency, or a [self-regulatory organization](/usc/15/78c.md?p=a-26) to have violated the Federal [securities laws](/usc/15/77z–2.md?p=i-5), [State](/usc/15/80a–2.md?p=a-39) [securities laws](/usc/15/77z–2.md?p=i-5), or the rules of a [self-regulatory organization](/usc/15/78c.md?p=a-26), has been enjoined by a court of competent jurisdiction from [violations](/usc/15/57b–1.md?p=a-7) of such laws or rules, or has been [convicted](/usc/15/80a–2.md?p=a-10) by a court of competent jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of such laws or of any felony or misdemeanor described in [section 80b–3(e)(2) of this title](/usc/15/80b–3.md?p=e-2); - (E) the need to deter such [person](/usc/15/80a–2.md?p=a-28) and other [persons](/usc/15/80a–2.md?p=a-28) from committing such acts or omissions; and - (F) such other matters as justice may require. - (4) **Evidence concerning ability to pay—** In any proceeding in which the [Commission](/usc/15/80a–2.md?p=a-7) may impose a penalty under this section, a respondent may present evidence of the respondent’s ability to pay such penalty. The [Commission](/usc/15/80a–2.md?p=a-7) may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such [person](/usc/15/80a–2.md?p=a-28)’s ability to continue in business and the collectability of a penalty, taking into [account](/usc/15/1681a.md?p=r-4) any other claims of the United States or third parties upon such [person](/usc/15/80a–2.md?p=a-28)’s assets and the amount of such [person](/usc/15/80a–2.md?p=a-28)’s assets. - (e) **Authority to enter order requiring accounting and disgorgement—** In any proceeding in which the [Commission](/usc/15/80a–2.md?p=a-7) may impose a penalty under this section, the [Commission](/usc/15/80a–2.md?p=a-7) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (f) **Cease-and-desist proceedings—** - (1) **Authority of Commission—** If the [Commission](/usc/15/80a–2.md?p=a-7) finds, after notice and opportunity for hearing, that any [person](/usc/15/80a–2.md?p=a-28) is violating, has violated, or is about to violate any provision of this subchapter, or any rule or regulation thereunder, the [Commission](/usc/15/80a–2.md?p=a-7) may publish its findings and enter an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/80a–2.md?p=a-28), and any other [person](/usc/15/80a–2.md?p=a-28) that is, was, or would be a cause of the [violation](/usc/15/57b–1.md?p=a-7), due to an act or omission the [person](/usc/15/80a–2.md?p=a-28) knew or should have known would contribute to such [violation](/usc/15/57b–1.md?p=a-7), to cease and desist from committing or causing such [violation](/usc/15/57b–1.md?p=a-7) and any future [violation](/usc/15/57b–1.md?p=a-7) of the same provision, rule, or regulation. Such [order](/usc/15/8702.md?p=14) may, in addition to requiring a [person](/usc/15/80a–2.md?p=a-28) to cease and desist from committing or causing a [violation](/usc/15/57b–1.md?p=a-7), require such [person](/usc/15/80a–2.md?p=a-28) to comply, or to take steps to effect compliance, with such provision, rule, or regulation, upon such terms and conditions and within such time as the [Commission](/usc/15/80a–2.md?p=a-7) may specify in such [order](/usc/15/8702.md?p=14). Any such [order](/usc/15/8702.md?p=14) may, as the [Commission](/usc/15/80a–2.md?p=a-7) deems appropriate, require future compliance or steps to effect future compliance, either permanently or for such period of time as the [Commission](/usc/15/80a–2.md?p=a-7) may specify, with such provision, rule, or regulation with respect to any [security](/usc/15/80a–2.md?p=a-36), any [issuer](/usc/15/80a–2.md?p=a-22), or any other [person](/usc/15/80a–2.md?p=a-28). - (2) **Hearing—** The notice instituting proceedings pursuant to [paragraph (1)](#f-1) shall fix a hearing date not earlier than 30 days nor later than 60 days after service of the notice unless an earlier or a later date is set by the [Commission](/usc/15/80a–2.md?p=a-7) with the consent of any respondent so served. - (3) **Temporary order—** - (A) **In general—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7) determines that the alleged [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) specified in the notice instituting proceedings pursuant to [paragraph (1)](#f-1), or the continuation thereof, is likely to result in significant dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the [Securities](/usc/15/80a–2.md?p=a-36) Investor Protection Corporation, prior to the completion of the proceeding, the [Commission](/usc/15/80a–2.md?p=a-7) may enter a temporary [order](/usc/15/8702.md?p=14) requiring the respondent to cease and desist from the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to take such action to prevent the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to prevent dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest as the [Commission](/usc/15/80a–2.md?p=a-7) deems appropriate pending completion of such proceedings. Such an [order](/usc/15/8702.md?p=14) shall be entered only after notice and opportunity for a hearing, unless the [Commission](/usc/15/80a–2.md?p=a-7), notwithstanding [section 80a–39(a) of this title](/usc/15/80a–39.md?p=a), determines that notice and hearing prior to entry would be impracticable or contrary to the public interest. A temporary [order](/usc/15/8702.md?p=14) shall become effective upon service upon the respondent and, unless set aside, limited, or suspended by the [Commission](/usc/15/80a–2.md?p=a-7) or a court of competent jurisdiction, shall remain effective and enforceable pending the completion of the proceedings. - (B) **Applicability—** This paragraph shall apply only to a respondent that acts, or, at the time of the alleged misconduct acted, as a [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), [investment adviser](#a), [investment company](/usc/15/77z–2.md?p=i-2), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), or [transfer agent](/usc/15/6102.md?p=d-2-B-i), or is, or was at the time of the alleged misconduct, an associated [person](/usc/15/80a–2.md?p=a-28) of, or a [person](/usc/15/80a–2.md?p=a-28) seeking to become associated with, any of the foregoing. - (4) **Review of temporary orders—** - (A) **Commission review—** At any time after the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) pursuant to [paragraph (3)](#f-3), the respondent may apply to the [Commission](/usc/15/80a–2.md?p=a-7) to have the [order](/usc/15/8702.md?p=14) set aside, limited, or suspended. If the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing, the respondent may, within 10 days after the date on which the [order](/usc/15/8702.md?p=14) was served, request a hearing on such [application](/usc/15/77ccc.md?p=8) and the [Commission](/usc/15/80a–2.md?p=a-7) shall hold a hearing and render a decision on such [application](/usc/15/77ccc.md?p=8) at the earliest possible time. - (B) **Judicial review—** Within— - (i) 10 days after the date the respondent was served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered with a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing, or - (ii) 10 days after the [Commission](/usc/15/80a–2.md?p=a-7) renders a decision on an [application](/usc/15/77ccc.md?p=8) and hearing under [subparagraph (A)](#f-4-A), with respect to any temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing, the respondent may apply to the United States district court for the district in which the respondent resides or has its principal place of business, or for the District of Columbia, for an [order](/usc/15/8702.md?p=14) setting aside, limiting, or suspending the effectiveness or enforcement of the [order](/usc/15/8702.md?p=14), and the court shall have jurisdiction to enter such an [order](/usc/15/8702.md?p=14). A respondent served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing may not apply to the court except after hearing and decision by the [Commission](/usc/15/80a–2.md?p=a-7) on the respondent’s [application](/usc/15/77ccc.md?p=8) under subparagraph (A) of this paragraph. - (C) **No automatic stay of temporary order—** The commencement of proceedings under subparagraph (B) of this paragraph shall not, unless specifically ordered by the court, operate as a stay of the [Commission](/usc/15/80a–2.md?p=a-7)’s [order](/usc/15/8702.md?p=14). - (D) **Exclusive review—** [Section 80a–42 of this title](/usc/15/80a–42.md) shall not apply to a temporary [order](/usc/15/8702.md?p=14) entered pursuant to this section. - (5) **Authority to enter order requiring accounting and disgorgement—** In any cease-and-desist proceeding under [subsection (f)(1)](#f-1), the [Commission](/usc/15/80a–2.md?p=a-7) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (g) **Corporate or other trustees performing functions of investment advisers—** For the purposes of this section, the term “[investment adviser](#a)” includes a corporate or other trustee performing the functions of an [investment adviser](#a). # §80a–10. Affiliations or interest of directors, officers, and employees - (a) **Interested persons of company who may serve on board of directors—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall have a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) more than 60 per centum of the members of which are [persons](/usc/15/80a–2.md?p=a-28) who are interested [persons](/usc/15/80a–2.md?p=a-28) of such registered [company](/usc/15/80a–2.md?p=a-8). - (b) **Employment and use of directors, officers, etc., as regular broker, principal underwriter, or investment banker—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall— - (1) employ as regular [broker](/usc/15/80a–2.md?p=a-6) any [director](/usc/15/80a–2.md?p=a-12), officer, or employee of such registered [company](/usc/15/80a–2.md?p=a-8), or any [person](/usc/15/80a–2.md?p=a-28) of which any such [director](/usc/15/80a–2.md?p=a-12), officer, or employee is an affiliated [person](/usc/15/80a–2.md?p=a-28), unless a majority of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) shall be [persons](/usc/15/80a–2.md?p=a-28) who are not such [brokers](/usc/15/80a–2.md?p=a-6) or affiliated [persons](/usc/15/80a–2.md?p=a-28) of any of such [brokers](/usc/15/80a–2.md?p=a-6); - (2) use as a principal underwriter of [securities](/usc/15/80a–2.md?p=a-36) issued by it any [director](/usc/15/80a–2.md?p=a-12), officer, or employee of such registered [company](/usc/15/80a–2.md?p=a-8) or any [person](/usc/15/80a–2.md?p=a-28) of which any such [director](/usc/15/80a–2.md?p=a-12), officer, or employee is an interested [person](/usc/15/80a–2.md?p=a-28), unless a majority of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) shall be [persons](/usc/15/80a–2.md?p=a-28) who are not such principal underwriters or interested [persons](/usc/15/80a–2.md?p=a-28) of any of such principal underwriters; or - (3) have as [director](/usc/15/80a–2.md?p=a-12), officer, or employee any [investment banker](/usc/15/80a–2.md?p=a-21), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment banker](/usc/15/80a–2.md?p=a-21), unless a majority of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) shall be [persons](/usc/15/80a–2.md?p=a-28) who are not [investment bankers](/usc/15/80a–2.md?p=a-21) or affiliated [persons](/usc/15/80a–2.md?p=a-28) of any [investment banker](/usc/15/80a–2.md?p=a-21). For the purposes of this paragraph, a [person](/usc/15/80a–2.md?p=a-28) shall not be deemed an affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment banker](/usc/15/80a–2.md?p=a-21) solely by reason of the fact that he is an affiliated [person](/usc/15/80a–2.md?p=a-28) of a [company](/usc/15/80a–2.md?p=a-8) of the character described in section [80a–12(d)(3)(A)](/usc/15/80a–12.md) and [(B)](/usc/15/80a–12.md) of this title. - (c) **Officers, directors, or employees of one bank or bank holding company as majority of board of directors of company; exceptions—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall have a majority of its [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) consisting of [persons](/usc/15/80a–2.md?p=a-28) who are officers, [directors](/usc/15/80a–2.md?p=a-12), or employees of any one bank (together with its affiliates and subsidiaries) or any one bank holding [company](/usc/15/80a–2.md?p=a-8) (together with its affiliates and subsidiaries) (as such terms are defined in [section 1841 of title 12](/usc/12/1841.md)) or any one savings and loan holding [company](/usc/15/80a–2.md?p=a-8), together with its affiliates and subsidiaries (as such terms are defined in [section 1467a of title 12](/usc/12/1467a.md)),,[^1] except that, if on March 15, 1940, any registered [investment company](/usc/15/77z–2.md?p=i-2) had a majority of its [directors](/usc/15/80a–2.md?p=a-12) consisting of [persons](/usc/15/80a–2.md?p=a-28) who are [directors](/usc/15/80a–2.md?p=a-12), officers, or employees of any one bank, such [company](/usc/15/80a–2.md?p=a-8) may continue to have the same percentage of its [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) consisting of [persons](/usc/15/80a–2.md?p=a-28) who are [directors](/usc/15/80a–2.md?p=a-12), officers, or employees of such bank. - (d) **Exception to limitation of number of interested persons who may serve on board of directors—** Notwithstanding subsections [(a)](#a) and [(b)(2)](#b-2) of this section, a registered [investment company](/usc/15/77z–2.md?p=i-2) may have a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) all the members of which, except one, are interested [persons](/usc/15/80a–2.md?p=a-28) of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8), or are officers or employees of such [company](/usc/15/80a–2.md?p=a-8), if— - (1) such [investment company](/usc/15/77z–2.md?p=i-2) is an [open-end company](/usc/15/80a–5.md?p=a-1); - (2) such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is registered under subchapter II of this chapter and is engaged principally in the business of rendering investment supervisory services as defined in subchapter II; - (3) no [sales load](/usc/15/80a–2.md?p=a-35) is charged on [securities](/usc/15/80a–2.md?p=a-36) issued by such [investment company](/usc/15/77z–2.md?p=i-2); - (4) any premium over net asset value charged by such [company](/usc/15/80a–2.md?p=a-8) upon the issuance of any such [security](/usc/15/80a–2.md?p=a-36), plus any [discount](/usc/15/1602.md?p=q) from net asset value charged on redemption thereof, shall not in the aggregate exceed 2 per centum; - (5) no sales or promotion expenses are incurred by such registered [company](/usc/15/80a–2.md?p=a-8); but expenses incurred in complying with laws regulating the issue or sale of [securities](/usc/15/80a–2.md?p=a-36) shall not be deemed sales or promotion expenses; - (6) such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is the only [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to such [investment company](/usc/15/77z–2.md?p=i-2), and such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) does not receive a management fee exceeding 1 per centum per annum of the value of such [company](/usc/15/80a–2.md?p=a-8)’s net assets averaged over the year or taken as of a definite date or dates within the year; - (7) all executive salaries and executive expenses and office rent of such [investment company](/usc/15/77z–2.md?p=i-2) are paid by such [investment adviser](/usc/15/6102.md?p=d-2-B-ii); and - (8) such [investment company](/usc/15/77z–2.md?p=i-2) has only one class of [securities](/usc/15/80a–2.md?p=a-36) outstanding, each unit of which has equal voting rights with every other unit. - (e) **Death, disqualification, or resignation of directors as suspension of limitation provisions—** If by reason of the death, disqualification, or bona fide resignation of any [director](/usc/15/80a–2.md?p=a-12) or [directors](/usc/15/80a–2.md?p=a-12), the requirements of the foregoing provisions of this section or of [section 80a–15(f)(1) of this title](/usc/15/80a–15.md?p=f-1) in respect of [directors](/usc/15/80a–2.md?p=a-12) shall not be met by a registered [investment company](/usc/15/77z–2.md?p=i-2), the operation of such provision shall be suspended as to such registered [company](/usc/15/80a–2.md?p=a-8)— - (1) for a period of thirty days if the vacancy or vacancies may be filled by action of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12); - (2) for a period of sixty days if a vote of stockholders is required to fill the vacancy or vacancies; or - (3) for such longer period as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, by rules and regulations upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), as not inconsistent with the protection of investors. - (f) **Officer, director, etc., of company acting as principal underwriter of security acquired by company—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall knowingly [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire, during the existence of any underwriting or selling syndicate, any [security](/usc/15/80a–2.md?p=a-36) (except a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22)) a principal underwriter of which is an officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or employee of such registered [company](/usc/15/80a–2.md?p=a-8), or is a [person](/usc/15/80a–2.md?p=a-28) (other than a [company](/usc/15/80a–2.md?p=a-8) of the character described in section [80a–12(d)(3)(A)](/usc/15/80a–12.md) and [(B)](/usc/15/80a–12.md) of this title) of which any such officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or employee is an affiliated [person](/usc/15/80a–2.md?p=a-28), unless in acquiring such [security](/usc/15/80a–2.md?p=a-36) such registered [company](/usc/15/80a–2.md?p=a-8) is itself acting as a principal underwriter for the [issuer](/usc/15/80a–2.md?p=a-22). The [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any transaction or classes of transactions from any of the provisions of this subsection, if and to the extent that such exemption is consistent with the protection of investors. - (g) **Advisory boards; restrictions on membership—** In the case of a registered [investment company](/usc/15/77z–2.md?p=i-2) which has an [advisory board](/usc/15/80a–2.md?p=a-1), such [board](/usc/15/205c.md?p=1), as a distinct entity, shall be subject to the same restrictions as to its membership as are imposed upon a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) by this section. - (h) **Application of section to unincorporated registered management companies—** In the case of a registered [management company](/usc/15/80a–4.md?p=3) which is an unincorporated [company](/usc/15/80a–2.md?p=a-8) not having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), the provisions of this section shall apply as follows: - (1) the provisions of [subsection (a)](#a), as modified by [subsection (e)](#e), shall apply to the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of the depositor of such [company](/usc/15/80a–2.md?p=a-8); - (2) the provisions of subsections [(b)](#b) and [(c)](#c), as modified by [subsection (e)](#e), shall apply to the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of the depositor and of every [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8); and - (3) the provisions of [subsection (f)](#f) shall apply to [purchases](/usc/15/78c–5.md?p=g) and other acquisitions for the [account](/usc/15/1681a.md?p=r-4) of such [company](/usc/15/80a–2.md?p=a-8) of [securities](/usc/15/80a–2.md?p=a-36) a principal underwriter of which is the depositor or an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8), or an affiliated [person](/usc/15/80a–2.md?p=a-28) of such depositor or [investment adviser](/usc/15/6102.md?p=d-2-B-ii). # §80a–11. Offers to exchange securities - (a) **Approval by Commission for exchanges of securities on basis other than relative net asset value—** It shall be unlawful for any registered [open-end company](/usc/15/80a–5.md?p=a-1) or any principal underwriter for such a [company](/usc/15/80a–2.md?p=a-8) to make or cause to be made an offer to the holder of a [security](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) or of any other open-end [investment company](/usc/15/77z–2.md?p=i-2) to [exchange](/usc/15/80a–2.md?p=a-14) his [security](/usc/15/80a–2.md?p=a-36) for a [security](/usc/15/80a–2.md?p=a-36) in the same or another such [company](/usc/15/80a–2.md?p=a-8) on any basis other than the relative net asset values of the respective [securities](/usc/15/80a–2.md?p=a-36) to be exchanged, unless the terms of the offer have first been submitted to and approved by the [Commission](/usc/15/80a–2.md?p=a-7) or are in accordance with such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may have prescribed in respect of such offers which are in effect at the time such offer is made. For the purposes of this section, (A) an offer by a principal underwriter means an offer communicated to holders of [securities](/usc/15/80a–2.md?p=a-36) of a class or series but does not include an offer made by such principal underwriter to an individual investor in the course of a retail business conducted by such principal underwriter, and (B) the net asset value means the net asset value which is in effect for the purpose of determining the price at which the [securities](/usc/15/80a–2.md?p=a-36), or class or series of [securities](/usc/15/80a–2.md?p=a-36) involved, are offered for sale to the public either (1) at the time of the receipt by the offeror of the acceptance of the offer or (2) at such later times as is specified in the offer. - (b) **Application of section to offers pursuant to plan of reorganization—** The provisions of this section shall not apply to any offer made pursuant to any plan of [reorganization](/usc/15/80a–2.md?p=a-33), which is submitted to and requires the approval of the holders of at least a majority of the outstanding shares of the class or series to which the [security](/usc/15/80a–2.md?p=a-36) owned by the offeree belongs. - (c) **Application of section to specific exchange offers—** The provisions of [subsection (a)](#a) shall be applicable, irrespective of the basis of [exchange](/usc/15/80a–2.md?p=a-14), (1) to any offer of [exchange](/usc/15/80a–2.md?p=a-14) of any [security](/usc/15/80a–2.md?p=a-36) of a registered [open-end company](/usc/15/80a–5.md?p=a-1) for a [security](/usc/15/80a–2.md?p=a-36) of a registered [unit investment trust](/usc/15/80a–4.md?p=2) or registered [face-amount certificate company](/usc/15/80a–4.md?p=1); and (2) to any type of offer of [exchange](/usc/15/80a–2.md?p=a-14) of the [securities](/usc/15/80a–2.md?p=a-36) of registered [unit investment trusts](/usc/15/80a–4.md?p=2) or registered [face-amount certificate companies](/usc/15/80a–4.md?p=1) for the [securities](/usc/15/80a–2.md?p=a-36) of any other [investment company](/usc/15/77z–2.md?p=i-2). # §80a–12. Functions and activities of investment companies - (a) **Purchase of securities on margin; joint trading accounts; short sales of securities; exceptions—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2), in contravention of such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors— - (1) to [purchase](/usc/15/78c–5.md?p=g) any [security](/usc/15/80a–2.md?p=a-36) on margin, except such short-term [credits](/usc/15/1679a.md?p=4) as are necessary for the clearance of transactions; - (2) to participate on a joint or a joint and several basis in any trading [account](/usc/15/1681a.md?p=r-4) in [securities](/usc/15/80a–2.md?p=a-36), except in connection with an underwriting in which such registered [company](/usc/15/80a–2.md?p=a-8) is a participant; or - (3) to effect a short sale of any [security](/usc/15/80a–2.md?p=a-36), except in connection with an underwriting in which such registered [company](/usc/15/80a–2.md?p=a-8) is a participant. - (b) **Distribution by investment company of securities of which it is issuer—** It shall be unlawful for any registered [open-end company](/usc/15/80a–5.md?p=a-1) (other than a [company](/usc/15/80a–2.md?p=a-8) complying with the provisions of [section 80a–10(d) of this title](/usc/15/80a–10.md?p=d)) to act as a [distributor](/usc/15/1278.md?p=c-1-D-i) of [securities](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), except through an underwriter, in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (c) **Limitations on commitments as underwriter—** It shall be unlawful for any registered diversified [company](/usc/15/80a–2.md?p=a-8) to make any commitment as underwriter, if immediately thereafter the amount of its outstanding underwriting commitments, plus the value of its investments in [securities](/usc/15/80a–2.md?p=a-36) of [issuers](/usc/15/80a–2.md?p=a-22) (other than [investment companies](/usc/15/77z–2.md?p=i-2)) of which it owns more than 10 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), exceeds 25 per centum of the value of its total assets. - (d) **Limitations on acquisition by investment companies of securities of other specific businesses—** - (1) - (A) It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such acquiring [company](/usc/15/80a–2.md?p=a-8) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by any other [investment company](/usc/15/77z–2.md?p=i-2) (the “acquired [company](/usc/15/80a–2.md?p=a-8)”), and for any [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such acquiring [company](/usc/15/80a–2.md?p=a-8) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by any registered [investment company](/usc/15/77z–2.md?p=i-2) (the “acquired [company](/usc/15/80a–2.md?p=a-8)”), if the acquiring [company](/usc/15/80a–2.md?p=a-8) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by it immediately after such [purchase](/usc/15/78c–5.md?p=g) or acquisition own in the aggregate— - (i) more than 3 per centum of the total outstanding voting stock of the acquired [company](/usc/15/80a–2.md?p=a-8); - (ii) [securities](/usc/15/80a–2.md?p=a-36) issued by the acquired [company](/usc/15/80a–2.md?p=a-8) having an aggregate value in excess of 5 per centum of the value of the total assets of the acquiring [company](/usc/15/80a–2.md?p=a-8); or - (iii) [securities](/usc/15/80a–2.md?p=a-36) issued by the acquired [company](/usc/15/80a–2.md?p=a-8) and all other [investment companies](/usc/15/77z–2.md?p=i-2) (other than treasury stock of the acquiring [company](/usc/15/80a–2.md?p=a-8)) having an aggregate value in excess of 10 per centum of the value of the total assets of the acquiring [company](/usc/15/80a–2.md?p=a-8). - (B) It shall be unlawful for any registered open-end [investment company](/usc/15/77z–2.md?p=i-2) (the “acquired [company](/usc/15/80a–2.md?p=a-8)”), any principal underwriter therefor, or any [broker or dealer](/usc/15/78c.md?p=h-2) registered under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], knowingly to sell or otherwise dispose of any [security](/usc/15/80a–2.md?p=a-36) issued by the acquired [company](/usc/15/80a–2.md?p=a-8) to any other [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) or any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by the acquiring [company](/usc/15/80a–2.md?p=a-8), if immediately after such sale or disposition— - (i) more than 3 per centum of the total outstanding voting stock of the acquired [company](/usc/15/80a–2.md?p=a-8) is owned by the acquiring [company](/usc/15/80a–2.md?p=a-8) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by it; or - (ii) more than 10 per centum of the total outstanding voting stock of the acquired [company](/usc/15/80a–2.md?p=a-8) is owned by the acquiring [company](/usc/15/80a–2.md?p=a-8) and other [investment companies](/usc/15/77z–2.md?p=i-2) and [companies](/usc/15/80a–2.md?p=a-8) controlled by them. - (C) It shall be unlawful for any [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by the acquiring [company](/usc/15/80a–2.md?p=a-8) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), if immediately after such [purchase](/usc/15/78c–5.md?p=g) or acquisition the acquiring [company](/usc/15/80a–2.md?p=a-8), other [investment companies](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii), and [companies](/usc/15/80a–2.md?p=a-8) controlled by such [investment companies](/usc/15/77z–2.md?p=i-2), own more than 10 per centum of the total outstanding voting stock of such [closed-end company](/usc/15/80a–5.md?p=a-2). - (D) The provisions of this paragraph shall not apply to a [security](/usc/15/80a–2.md?p=a-36) received as a dividend or as a result of an offer of [exchange](/usc/15/80a–2.md?p=a-14) approved pursuant to [section 80a–11 of this title](/usc/15/80a–11.md) or of a plan of [reorganization](/usc/15/80a–2.md?p=a-33) of any [company](/usc/15/80a–2.md?p=a-8) (other than a plan devised for the purpose of evading the foregoing provisions). - (E) The provisions of this paragraph shall not apply to a [security](/usc/15/80a–2.md?p=a-36) (or [securities](/usc/15/80a–2.md?p=a-36)) purchased or acquired by an [investment company](/usc/15/77z–2.md?p=i-2) if— - (i) the depositor of, or principal underwriter for, such [investment company](/usc/15/77z–2.md?p=i-2) is a [broker or dealer](/usc/15/78c.md?p=h-2) registered under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or a [person](/usc/15/80a–2.md?p=a-28) controlled by such a [broker or dealer](/usc/15/78c.md?p=h-2); - (ii) such [security](/usc/15/80a–2.md?p=a-36) is the only investment [security](/usc/15/80a–2.md?p=a-36) held by such [investment company](/usc/15/77z–2.md?p=i-2) (or such [securities](/usc/15/80a–2.md?p=a-36) are the only investment [securities](/usc/15/80a–2.md?p=a-36) held by such [investment company](/usc/15/77z–2.md?p=i-2), if such [investment company](/usc/15/77z–2.md?p=i-2) is a registered [unit investment trust](/usc/15/80a–4.md?p=2) that issues two or more classes or series of [securities](/usc/15/80a–2.md?p=a-36), each of which provides for the accumulation of shares of a different [investment company](/usc/15/77z–2.md?p=i-2)); and - (iii) the [purchase](/usc/15/78c–5.md?p=g) or acquisition is made pursuant to an arrangement with the [issuer](/usc/15/80a–2.md?p=a-22) of, or principal underwriter for the [issuer](/usc/15/80a–2.md?p=a-22) of, the [security](/usc/15/80a–2.md?p=a-36) whereby such [investment company](/usc/15/77z–2.md?p=i-2) is obligated— - (aa) either to seek instructions from its [security](/usc/15/80a–2.md?p=a-36) holders with regard to the voting of all proxies with respect to such [security](/usc/15/80a–2.md?p=a-36) and to vote such proxies only in accordance with such instructions, or to vote the shares held by it in the same proportion as the vote of all other holders of such [security](/usc/15/80a–2.md?p=a-36), and - (bb) in the event that such [investment company](/usc/15/77z–2.md?p=i-2) is not a registered [investment company](/usc/15/77z–2.md?p=i-2), to refrain substituting such [security](/usc/15/80a–2.md?p=a-36) unless the [Commission](/usc/15/80a–2.md?p=a-7) shall have approved such substitution in the manner provided in [section 80a–26 of this title](/usc/15/80a–26.md). - (F) The provisions of this paragraph shall not apply to [securities](/usc/15/80a–2.md?p=a-36) purchased or otherwise acquired by a registered [investment company](/usc/15/77z–2.md?p=i-2) if— - (i) immediately after such [purchase](/usc/15/78c–5.md?p=g) or acquisition not more than 3 per centum of the total outstanding stock of such [issuer](/usc/15/80a–2.md?p=a-22) is owned by such registered [investment company](/usc/15/77z–2.md?p=i-2) and all affiliated [persons](/usc/15/80a–2.md?p=a-28) of such registered [investment company](/usc/15/77z–2.md?p=i-2); and - (ii) such registered [investment company](/usc/15/77z–2.md?p=i-2) has not offered or sold after January 1, 1971, and is not proposing to offer or sell any [security](/usc/15/80a–2.md?p=a-36) issued by it through a principal underwriter or otherwise at a public offering price which includes a [sales load](/usc/15/80a–2.md?p=a-35) of more than 1½ per centum. No [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) purchased or acquired by a registered [investment company](/usc/15/77z–2.md?p=i-2) pursuant to this subparagraph shall be obligated to redeem such [security](/usc/15/80a–2.md?p=a-36) in an amount exceeding 1 per centum of such [issuer](/usc/15/80a–2.md?p=a-22)’s total outstanding [securities](/usc/15/80a–2.md?p=a-36) during any period of less than thirty days. Such [investment company](/usc/15/77z–2.md?p=i-2) shall exercise voting rights by proxy or otherwise with respect to any [security](/usc/15/80a–2.md?p=a-36) purchased or acquired pursuant to this subparagraph in the manner prescribed by subparagraph (E) of this subsection. - (G) - (i) This paragraph does not apply to [securities](/usc/15/80a–2.md?p=a-36) of a registered open-end [investment company](/usc/15/77z–2.md?p=i-2) or a registered [unit investment trust](/usc/15/80a–4.md?p=2) (hereafter in this subparagraph referred to as the “acquired [company](/usc/15/80a–2.md?p=a-8)”) purchased or otherwise acquired by a registered open-end [investment company](/usc/15/77z–2.md?p=i-2) or a registered [unit investment trust](/usc/15/80a–4.md?p=2) (hereafter in this subparagraph referred to as the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) if— - (I) the acquired [company](/usc/15/80a–2.md?p=a-8) and the acquiring [company](/usc/15/80a–2.md?p=a-8) are part of the same [group of investment companies](#d-1-G-ii); - (II) the [securities](/usc/15/80a–2.md?p=a-36) of the acquired [company](/usc/15/80a–2.md?p=a-8), [securities](/usc/15/80a–2.md?p=a-36) of other registered open-end [investment companies](/usc/15/77z–2.md?p=i-2) and registered [unit investment trusts](/usc/15/80a–4.md?p=2) that are part of the same [group of investment companies](#d-1-G-ii), [Government securities](/usc/15/80a–2.md?p=a-16), and [short-term paper](/usc/15/80a–2.md?p=a-38) are the only investments held by the acquiring [company](/usc/15/80a–2.md?p=a-8); - (III) with respect to— - (aa) [securities](/usc/15/80a–2.md?p=a-36) of the acquired [company](/usc/15/80a–2.md?p=a-8), the acquiring [company](/usc/15/80a–2.md?p=a-8) does not pay and is not assessed any charges or fees for distribution-related activities, unless the acquiring [company](/usc/15/80a–2.md?p=a-8) does not charge a [sales load](/usc/15/80a–2.md?p=a-35) or other fees or charges for distribution-related activities; or - (bb) [securities](/usc/15/80a–2.md?p=a-36) of the acquiring [company](/usc/15/80a–2.md?p=a-8), any [sales loads](/usc/15/80a–2.md?p=a-35) and other distribution-related fees charged, when aggregated with any [sales load](/usc/15/80a–2.md?p=a-35) and distribution-related fees paid by the acquiring [company](/usc/15/80a–2.md?p=a-8) with respect to [securities](/usc/15/80a–2.md?p=a-36) of the acquired [company](/usc/15/80a–2.md?p=a-8), are not excessive under rules adopted pursuant to [section 80a–22(b) of this title](/usc/15/80a–22.md?p=b) or [section 80a–22(c) of this title](/usc/15/80a–22.md?p=c) by a [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) registered under section 15A of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78o](/usc/15/78o.md)–3], or the [Commission](/usc/15/80a–2.md?p=a-7); - (IV) the acquired [company](/usc/15/80a–2.md?p=a-8) has a policy that prohibits it from acquiring any [securities](/usc/15/80a–2.md?p=a-36) of registered open-end [investment companies](/usc/15/77z–2.md?p=i-2) or registered [unit investment trusts](/usc/15/80a–4.md?p=2) in reliance on this subparagraph or [subparagraph (F)](#d-1-F); and - (V) such acquisition is not in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe with respect to acquisitions in accordance with this subparagraph, as necessary and appropriate for the protection of investors. - (ii) For purposes of this subparagraph, the term “group of investment companies” means any 2 or more registered [investment companies](/usc/15/77z–2.md?p=i-2) that hold themselves out to investors as related [companies](/usc/15/80a–2.md?p=a-8) for purposes of investment and investor services. - (H) For the purposes of this paragraph, the value of an [investment company](/usc/15/77z–2.md?p=i-2)’s total assets shall be computed as of the time of a [purchase](/usc/15/78c–5.md?p=g) or acquisition or as closely thereto as is reasonably possible. - (I) In any action brought to enforce the provisions of this paragraph, the [Commission](/usc/15/80a–2.md?p=a-7) may join as a party the [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) purchased or otherwise acquired in [violation](/usc/15/57b–1.md?p=a-7) of this paragraph, and the court may issue any [order](/usc/15/8702.md?p=14) with respect to such [issuer](/usc/15/80a–2.md?p=a-22) as may be necessary or appropriate for the enforcement of the provisions of this paragraph. - (J) The [Commission](/usc/15/80a–2.md?p=a-7), by rule or regulation, upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, or any class or classes of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or transactions from any provision of this paragraph, if and to the extent that such exemption is consistent with the public interest and the protection of investors. - (2) It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [investment company](/usc/15/77z–2.md?p=i-2) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) (except a [security](/usc/15/80a–2.md?p=a-36) received as a dividend or as a result of a plan of [reorganization](/usc/15/80a–2.md?p=a-33) of any [company](/usc/15/80a–2.md?p=a-8), other than a plan devised for the purpose of evading the provisions of this paragraph) issued by any [insurance company](/usc/15/80a–2.md?p=a-17) of which such registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) do not, at the time of such [purchase](/usc/15/78c–5.md?p=g) or acquisition, own in the aggregate at least 25 per centum of the total outstanding voting stock, if such registered [company](/usc/15/80a–2.md?p=a-8) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by it own in the aggregate, or as a result of such [purchase](/usc/15/78c–5.md?p=g) or acquisition will own in the aggregate, more than 10 per centum of the total outstanding voting stock of such [insurance company](/usc/15/80a–2.md?p=a-17). - (3) It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [investment company](/usc/15/77z–2.md?p=i-2) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by or any other interest in the business of any [person](/usc/15/80a–2.md?p=a-28) who is a [broker](/usc/15/80a–2.md?p=a-6), a [dealer](/usc/15/80a–2.md?p=a-11), is engaged in the business of underwriting, or is either an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of an [investment company](/usc/15/77z–2.md?p=i-2) or an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under subchapter II of this chapter, unless (A) such [person](/usc/15/80a–2.md?p=a-28) is a corporation all the outstanding [securities](/usc/15/80a–2.md?p=a-36) of which (other than [short-term paper](/usc/15/80a–2.md?p=a-38), [securities](/usc/15/80a–2.md?p=a-36) representing bank loans, and [directors](/usc/15/80a–2.md?p=a-12)’ qualifying shares) are, or after such acquisition will be, owned by one or more registered [investment companies](/usc/15/77z–2.md?p=i-2); and (B) such [person](/usc/15/80a–2.md?p=a-28) is primarily engaged in the business of underwriting and distributing [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28), selling [securities](/usc/15/80a–2.md?p=a-36) to [customers](/usc/15/78c–5.md?p=g), or any one or more of such or related activities, and the gross income of such [person](/usc/15/80a–2.md?p=a-28) normally is derived principally from such business or related activities. - (e) **Acquisition of securities issued by corporations in business of underwriting, furnishing capital to industry, etc.** Notwithstanding any provisions of this subchapter, any registered [investment company](/usc/15/77z–2.md?p=i-2) may hereafter [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by any one corporation engaged or proposing to engage in the business of underwriting, furnishing capital to industry, financing promotional enterprises, purchasing [securities](/usc/15/80a–2.md?p=a-36) of [issuers](/usc/15/80a–2.md?p=a-22) for which no ready market is in existence, and reorganizing [companies](/usc/15/80a–2.md?p=a-8) or similar activities; provided— - (1) That the [securities](/usc/15/80a–2.md?p=a-36) issued by such corporation (other than [short-term paper](/usc/15/80a–2.md?p=a-38) and [securities](/usc/15/80a–2.md?p=a-36) representing bank loans) shall consist solely of one class of common stock and shall have been originally issued or sold for investment to registered [investment companies](/usc/15/77z–2.md?p=i-2) only; - (2) That the aggregate cost of the [securities](/usc/15/80a–2.md?p=a-36) of such corporation purchased by such registered [investment company](/usc/15/77z–2.md?p=i-2) does not exceed 5 per centum of the value of the total assets of such registered [company](/usc/15/80a–2.md?p=a-8) at the time of any [purchase](/usc/15/78c–5.md?p=g) or acquisition of such [securities](/usc/15/80a–2.md?p=a-36); and - (3) That the aggregate paid-in capital and surplus of such corporation does not exceed $100,000,000. For the purpose of paragraph (1) of [section 80a–5(b) of this title](/usc/15/80a–5.md?p=b) any investment in any such corporation shall be deemed to be an investment in an [investment company](/usc/15/77z–2.md?p=i-2). - (f) **Organization and ownership by one registered face-amount certificate company of all or part of capital stock of not more than two other face-amount certificate companies; limitations—** Notwithstanding any provisions of this chapter, any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) may organize not more than two [face-amount certificate companies](/usc/15/80a–4.md?p=1) and acquire and own all or any part of the capital stock thereof only if such stock is acquired and held for investment: Provided, That the aggregate cost to such registered [company](/usc/15/80a–2.md?p=a-8) of all such stock so acquired shall not exceed six times the amount of the minimum capital stock requirement provided in subdivision (1) of subsection (a) of [section 80a–28 of this title](/usc/15/80a–28.md) for a face-amount [company](/usc/15/80a–2.md?p=a-8) organized on or after March 15, 1940: And provided further, That the aggregate cost to such registered [company](/usc/15/80a–2.md?p=a-8) of all such capital stock issued by [face-amount certificate companies](/usc/15/80a–4.md?p=1) organized or otherwise created under laws other than the laws of the United States or any [State](/usc/15/80a–2.md?p=a-39) thereof shall not exceed twice the amount of the minimum capital stock requirement provided in subdivision (1) of [subsection (a)](#a) of said [section 80a–28](/usc/15/80a–28.md) for a [company](/usc/15/80a–2.md?p=a-8) organized on or after March 15, 1940. Nothing contained in this subsection shall be deemed to prevent the sale of any such stock to any other [person](/usc/15/80a–2.md?p=a-28) if the original [purchase](/usc/15/78c–5.md?p=g) was made by such registered [face-amount certificate company](/usc/15/80a–4.md?p=1) in good faith for investment and not for resale. - (g) **Exceptions to limitation on ownership by investment company of securities of insurance com­pany—** Notwithstanding the provisions of this section any registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) may [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire from another [investment company](/usc/15/77z–2.md?p=i-2) or any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) more than 10 per centum of the total outstanding voting stock of any [insurance company](/usc/15/80a–2.md?p=a-17) owned by any such [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8), or may acquire the [securities](/usc/15/80a–2.md?p=a-36) of any [insurance company](/usc/15/80a–2.md?p=a-17) if the [Commission](/usc/15/80a–2.md?p=a-7) by [order](/usc/15/8702.md?p=14) determines that such acquisition is in the public interest because the financial condition of such [insurance company](/usc/15/80a–2.md?p=a-17) will be improved as a result of such acquisition or any plan contemplated as a result thereof. This section shall not be deemed to prohibit the promotion of a new [insurance company](/usc/15/80a–2.md?p=a-17) or the acquisition of the [securities](/usc/15/80a–2.md?p=a-36) of any newly created [insurance company](/usc/15/80a–2.md?p=a-17) by a registered [investment company](/usc/15/77z–2.md?p=i-2), alone or with other [persons](/usc/15/80a–2.md?p=a-28). Nothing contained in this section shall in any way affect or derogate from the powers of any insurance commissioner or similar official or agency of the United States or any [State](/usc/15/80a–2.md?p=a-39), or to affect the right under [State](/usc/15/80a–2.md?p=a-39) law of any [insurance company](/usc/15/80a–2.md?p=a-17) to acquire [securities](/usc/15/80a–2.md?p=a-36) of any other [insurance company](/usc/15/80a–2.md?p=a-17) or [insurance companies](/usc/15/80a–2.md?p=a-17). # §80a–13. Changes in investment policy - (a) **Prohibited actions for registered investment companies—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall, unless authorized by the vote of a majority of its outstanding [voting securities](/usc/15/80a–2.md?p=a-42)— - (1) change its subclassification as defined in section [80a–5(a)(1)](/usc/15/80a–5.md?p=a-1) and [(2)](/usc/15/80a–5.md?p=a-2) of this title or its subclassification from a diversified to a nondiversified [company](/usc/15/80a–2.md?p=a-8); - (2) borrow money, issue senior [securities](/usc/15/80a–2.md?p=a-36), underwrite [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28), [purchase](/usc/15/78c–5.md?p=g) or sell real estate or commodities or make loans to other [persons](/usc/15/80a–2.md?p=a-28), except in each case in accordance with the recitals of policy contained in its [registration statement](/usc/15/77b.md?p=a-8) in respect thereto; - (3) deviate from its policy in respect of concentration of investments in any particular industry or group of industries as recited in its [registration statement](/usc/15/77b.md?p=a-8), deviate from any investment policy which is changeable only if authorized by shareholder vote, or deviate from any policy recited in its [registration statement](/usc/15/77b.md?p=a-8) pursuant to [section 80a–8(b)(3) of this title](/usc/15/80a–8.md?p=b-3); or - (4) change the nature of its business so as to cease to be an [investment company](/usc/15/77z–2.md?p=i-2). - (b) **Majority equivalent for common-law trusts—** In the case of a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md), either written approval by holders of a majority of the outstanding shares of beneficial interest or the vote of a majority of such outstanding shares cast in [person](/usc/15/80a–2.md?p=a-28) or by proxy at a meeting called for the purpose shall for the purposes of [subsection (a)](#a) be deemed the equivalent of the vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), and the provisions of paragraph (42) of [section 80a–2(a) of this title](/usc/15/80a–2.md?p=a) as to a majority shall be applicable to the vote cast at such a meeting. - (c) **Limitation on actions—** - (1) **In general—** Notwithstanding any other provision of Federal or [State](/usc/15/80a–2.md?p=a-39) law, no [person](#c-3) may bring any civil, criminal, or administrative action against any registered [investment company](/usc/15/77z–2.md?p=i-2), or any employee, officer, [director](/usc/15/80a–2.md?p=a-12), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) thereof, based solely upon the [investment company](/usc/15/77z–2.md?p=i-2) divesting from, or avoiding investing in, [securities](/usc/15/80a–2.md?p=a-36) issued by [persons](#c-3) that the [investment company](/usc/15/77z–2.md?p=i-2) determines, using credible information available to the public— - (A) conduct or have direct investments in business operations in Sudan described in [section 3(d)](/usc/15/3.md) of the Sudan Accountability and Divestment Act of 2007 ([50 U.S.C. 1701](/usc/50/1701.md) note); or - (B) engage in investment activities in Iran described in [section 8532(c) of title 22](/usc/22/8532.md?p=c). - (2) **Applicability—** - (A) **Rule of construction—** Nothing in [paragraph (1)](#c-1) shall be construed to create, imply, diminish, change, or affect in any way whether or not a private right of action exists under [subsection (a)](#a) or any other provision of this chapter. - (B) **Disclosures—** [Paragraph (1)](#c-1) shall not apply to a registered [investment company](/usc/15/77z–2.md?p=i-2), or any employee, officer, [director](/usc/15/80a–2.md?p=a-12), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) thereof, unless the [investment company](/usc/15/77z–2.md?p=i-2) makes disclosures in accordance with regulations prescribed by the [Commission](/usc/15/80a–2.md?p=a-7). - (3) **Person defined—** For purposes of this subsection the term “person” includes the Federal Government and any [State](/usc/15/80a–2.md?p=a-39) or political subdivision of a [State](/usc/15/80a–2.md?p=a-39). # §80a–14. Size of investment companies - (a) **Public offerings—** No registered [investment company](/usc/15/77z–2.md?p=i-2) organized after August 22, 1940, and no principal underwriter for such a [company](/usc/15/80a–2.md?p=a-8), shall make a public offering of [securities](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), unless— - (1) such [company](/usc/15/80a–2.md?p=a-8) has a net worth of at least $100,000; - (2) such [company](/usc/15/80a–2.md?p=a-8) has previously made a public offering of its [securities](/usc/15/80a–2.md?p=a-36), and at the time of such offering had a net worth of at least $100,000; or - (3) provision is made in connection with and as a condition of the registration of such [securities](/usc/15/80a–2.md?p=a-36) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] which in the opinion of the [Commission](/usc/15/80a–2.md?p=a-7) adequately insures (A) that after the effective date of such [registration statement](/usc/15/77b.md?p=a-8) such [company](/usc/15/80a–2.md?p=a-8) will not issue any [security](/usc/15/80a–2.md?p=a-36) or receive any proceeds of any subscription for any [security](/usc/15/80a–2.md?p=a-36) until firm [agreements](/usc/15/7a.md?p=2) have been made with such [company](/usc/15/80a–2.md?p=a-8) by not more than twenty-five responsible [persons](/usc/15/80a–2.md?p=a-28) to [purchase](/usc/15/78c–5.md?p=g) from it [securities](/usc/15/80a–2.md?p=a-36) to be issued by it for an aggregate net amount which plus the then net worth of the [company](/usc/15/80a–2.md?p=a-8), if any, will equal at least $100,000; (B) that said aggregate net amount will be paid in to such [company](/usc/15/80a–2.md?p=a-8) before any subscriptions for such [securities](/usc/15/80a–2.md?p=a-36) will be accepted from any [persons](/usc/15/80a–2.md?p=a-28) in excess of twenty-five; (C) that arrangements will be made whereby any proceeds so paid in, as well as any [sales load](/usc/15/80a–2.md?p=a-35), will be refunded to any subscriber on demand without any deduction, in the event that the net proceeds so received by the [company](/usc/15/80a–2.md?p=a-8) do not result in the [company](/usc/15/80a–2.md?p=a-8) having a net worth of at least $100,000 within ninety days after such [registration statement](/usc/15/77b.md?p=a-8) becomes effective. At any time after the occurrence of the event specified in clause (C) of paragraph (3) of this subsection the [Commission](/usc/15/80a–2.md?p=a-7) may issue a stop [order](/usc/15/8702.md?p=14) suspending the effectiveness of the [registration statement](/usc/15/77b.md?p=a-8) of such [securities](/usc/15/80a–2.md?p=a-36) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and may suspend or revoke the registration of such [company](/usc/15/80a–2.md?p=a-8) under this subchapter. - (b) **Study on effects of size—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, at such times as it deems that any substantial further increase in size of [investment companies](/usc/15/77z–2.md?p=i-2) creates any problem involving the protection of investors or the public interest, to make a study and investigation of the effects of size on the investment policy of [investment companies](/usc/15/77z–2.md?p=i-2) and on [security](/usc/15/80a–2.md?p=a-36) markets, on concentration of [control](/usc/15/80a–2.md?p=a-9) of wealth and industry, and on [companies](/usc/15/80a–2.md?p=a-8) in which [investment companies](/usc/15/77z–2.md?p=i-2) are interested, and from time to time to report the results of its studies and investigations and its recommendations to the Congress. # §80a–15. Contracts of advisers and underwriters - (a) **Written contract to serve or act as investment adviser; contents—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of a registered [investment company](/usc/15/77z–2.md?p=i-2), except pursuant to a written contract, which contract, whether with such registered [company](/usc/15/80a–2.md?p=a-8) or with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such registered [company](/usc/15/80a–2.md?p=a-8), has been approved by the vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such registered [company](/usc/15/80a–2.md?p=a-8), and— - (1) precisely describes all compensation to be paid thereunder; - (2) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8); - (3) provides, in substance, that it may be terminated at any time, without the payment of any penalty, by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) or by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8) on not more than sixty days’ written notice to the [investment adviser](/usc/15/6102.md?p=d-2-B-ii); and - (4) provides, in substance, for its automatic termination in the event of its [assignment](/usc/15/80a–2.md?p=a-4). - (b) **Written contract with company for sale by principal underwriter of security of which company is issuer; contents—** It shall be unlawful for any principal underwriter for a registered [open-end company](/usc/15/80a–5.md?p=a-1) to offer for sale, sell, or deliver after sale any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), except pursuant to a written contract with such [company](/usc/15/80a–2.md?p=a-8), which contract— - (1) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8); and - (2) provides, in substance, for its automatic termination in the event of its [assignment](/usc/15/80a–2.md?p=a-4). - (c) **Approval of contract to undertake service as investment adviser or principal underwriter by majority of noninterested directors—** In addition to the requirements of subsections [(a)](#a) and [(b)](#b) of this section, it shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) to enter into, renew, or perform any contract or [agreement](/usc/15/7a.md?p=2), written or oral, whereby a [person](/usc/15/80a–2.md?p=a-28) undertakes regularly to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for such [company](/usc/15/80a–2.md?p=a-8), unless the terms of such contract or [agreement](/usc/15/7a.md?p=2) and any renewal thereof have been approved by the vote of a majority of [directors](/usc/15/80a–2.md?p=a-12), who are not parties to such contract or [agreement](/usc/15/7a.md?p=2) or interested [persons](/usc/15/80a–2.md?p=a-28) of any such party, cast in [person](/usc/15/80a–2.md?p=a-28) at a meeting called for the purpose of voting on such approval. It shall be the duty of the [directors](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2) to request and evaluate, and the duty of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to such [company](/usc/15/80a–2.md?p=a-8) to furnish, such information as may reasonably be necessary to evaluate the terms of any contract whereby a [person](/usc/15/80a–2.md?p=a-28) undertakes regularly to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8). It shall be unlawful for the [directors](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2), in connection with their evaluation of the terms of any contract whereby a [person](/usc/15/80a–2.md?p=a-28) undertakes regularly to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8), to take into [account](/usc/15/1681a.md?p=r-4) the [purchase](/usc/15/78c–5.md?p=g) price or other consideration any [person](/usc/15/80a–2.md?p=a-28) may have paid in connection with a transaction of the type referred to in paragraph [(1)](#f-1), [(3)](#f-3), or [(4)](#f-4) of subsection (f). - (d) **Equivalent of vote of majority of outstanding voting securities in case of common-law trust—** In the case of a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md), either written approval by holders of a majority of the outstanding shares of beneficial interest or the vote of a majority of such outstanding shares cast in [person](/usc/15/80a–2.md?p=a-28) or by proxy at a meeting called for the purpose shall for the purposes of this section be deemed the equivalent of the vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), and the provisions of paragraph (42) of [section 80a–2(a) of this title](/usc/15/80a–2.md?p=a) as to a majority shall be applicable to the vote cast at such a meeting. - (e) **Exemption of advisory boards or members from provisions of this section—** Nothing contained in this section shall be deemed to require or contemplate any action by an [advisory board](/usc/15/80a–2.md?p=a-1) of any registered [company](/usc/15/80a–2.md?p=a-8) or by any of the members of such a [board](/usc/15/205c.md?p=1). - (f) **Receipt of benefits by investment adviser from sale of securities or other interest in such investment adviser resulting in assignment of investment advisory contract—** - (1) An [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or a corporate trustee performing the functions of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), of a registered [investment company](/usc/15/77z–2.md?p=i-2) or an affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee may receive any amount or benefit in connection with a sale of [securities](/usc/15/80a–2.md?p=a-36) of, or a sale of any other interest in, such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee which results in an [assignment](/usc/15/80a–2.md?p=a-4) of an investment advisory contract with such [company](/usc/15/80a–2.md?p=a-8) or the change in [control](/usc/15/80a–2.md?p=a-9) of or identity of such corporate trustee, if— - (A) for a period of three years after the time of such action, at least 75 per centum of the members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) or such corporate trustee (or successor thereto, by [reorganization](/usc/15/80a–2.md?p=a-33) or otherwise) are not (i) interested [persons](/usc/15/80a–2.md?p=a-28) of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8) or such corporate trustee, or (ii) interested [persons](/usc/15/80a–2.md?p=a-28) of the predecessor [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or such corporate trustee; and - (B) there is not imposed an unfair burden on such [company](/usc/15/80a–2.md?p=a-8) as a result of such transaction or any express or implied terms, conditions, or understandings applicable thereto. - (2) - (A) For the purpose of paragraph (1)(A) of this subsection, interested [persons](/usc/15/80a–2.md?p=a-28) of a corporate trustee shall be determined in accordance with [section 80a–2(a)(19)(B) of this title](/usc/15/80a–2.md?p=a-19-B): Provided, That no [person](/usc/15/80a–2.md?p=a-28) shall be deemed to be an interested [person](/usc/15/80a–2.md?p=a-28) of a corporate trustee solely by reason of (i) his being a member of its [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or [advisory board](/usc/15/80a–2.md?p=a-1) or (ii) his membership in the immediate family of any [person](/usc/15/80a–2.md?p=a-28) specified in clause (i) of this subparagraph. - (B) For the purpose of paragraph (1)(B) of this subsection, an unfair burden on a registered [investment company](/usc/15/77z–2.md?p=i-2) includes any arrangement, during the two-year period after the date on which any such transaction occurs, whereby the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee or predecessor or successor [investment advisers](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee or any interested [person](/usc/15/80a–2.md?p=a-28) of any such adviser or any such corporate trustee receives or is entitled to receive any compensation directly or indirectly (i) from any [person](/usc/15/80a–2.md?p=a-28) in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale of [securities](/usc/15/80a–2.md?p=a-36) or other property to, from, or on behalf of such [company](/usc/15/80a–2.md?p=a-8), other than bona fide ordinary compensation as principal underwriter for such [company](/usc/15/80a–2.md?p=a-8), or (ii) from such [company](/usc/15/80a–2.md?p=a-8) or its [security](/usc/15/80a–2.md?p=a-36) holders for other than bona fide investment advisory or other services. - (3) If— - (A) an [assignment](/usc/15/80a–2.md?p=a-4) of an investment advisory contract with a registered [investment company](/usc/15/77z–2.md?p=i-2) results in a successor [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to such [company](/usc/15/80a–2.md?p=a-8), or if there is a change in [control](/usc/15/80a–2.md?p=a-9) of or identity of a corporate trustee of a registered [investment company](/usc/15/77z–2.md?p=i-2), and such adviser or trustee is then an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee with respect to other assets substantially greater in amount than the amount of assets of such [company](/usc/15/80a–2.md?p=a-8), or - (B) as a result of a merger of, or a sale of substantially all the assets by, a registered [investment company](/usc/15/77z–2.md?p=i-2) with or to another registered [investment company](/usc/15/77z–2.md?p=i-2) with assets substantially greater in amount, a transaction occurs which would be subject to paragraph (1)(A) of this subsection, such discrepancy in size of assets shall be considered by the [Commission](/usc/15/80a–2.md?p=a-7) in determining whether or to what extent an [application](/usc/15/77ccc.md?p=8) under [section 80a–6(c) of this title](/usc/15/80a–6.md?p=c) for exemption from the provisions of paragraph (1)(A) of this subsection should be granted. - (4) Paragraph (1)(A) of this subsection shall not apply to a transaction in which a controlling block of outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to a registered [investment company](/usc/15/77z–2.md?p=i-2) or of a corporate trustee performing the functions of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to a registered [investment company](/usc/15/77z–2.md?p=i-2) is— - (A) distributed to the public and in which there is, in fact, no change in the identity of the [persons](/usc/15/80a–2.md?p=a-28) who [control](/usc/15/80a–2.md?p=a-9) such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee, or - (B) transferred to the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or the corporate trustee, or an affiliated [person](/usc/15/80a–2.md?p=a-28) or [persons](/usc/15/80a–2.md?p=a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee, or is transferred from the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee to an affiliated [person](/usc/15/80a–2.md?p=a-28) or [persons](/usc/15/80a–2.md?p=a-28) of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee: Provided, That (i) each transferee (other than such adviser or trustee) is a natural [person](/usc/15/80a–2.md?p=a-28) and (ii) the transferees (other than such adviser or trustee) owned in the aggregate more than 25 per centum of such [voting securities](/usc/15/80a–2.md?p=a-42) for a period of at least six months prior to such transfer. # §80a–16. Board of directors (a) Election of [directors](/usc/15/80a–2.md?p=a-12) No [person](/usc/15/80a–2.md?p=a-28) shall serve as a [director](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2) unless elected to that office by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), at an annual or a special meeting duly called for that purpose; except that vacancies occurring between such meetings may be filled in any otherwise legal manner if immediately after filling any such vacancy at least two-thirds of the [directors](/usc/15/80a–2.md?p=a-12) then holding office shall have been elected to such office by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the [company](/usc/15/80a–2.md?p=a-8) at such an annual or special meeting. In the event that at any time less than a majority of the [directors](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8) holding office at that time were so elected by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or proper officer of such [company](/usc/15/80a–2.md?p=a-8) shall forthwith cause to be held as promptly as possible and in any event within sixty days a meeting of such holders for the purpose of electing [directors](/usc/15/80a–2.md?p=a-12) to fill any existing vacancies in the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) unless the [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) extend such period. The foregoing provisions of this subsection shall not apply to members of an [advisory board](/usc/15/80a–2.md?p=a-1). Nothing herein shall, however, preclude a registered [investment company](/usc/15/77z–2.md?p=i-2) from dividing its [directors](/usc/15/80a–2.md?p=a-12) into classes if its charter, certificate of incorporation, articles of [association](/usc/15/657h.md?p=a-2), by-laws, trust indenture, or other instrument or the law under which it is organized, so provides and prescribes the tenure of office of the several classes: Provided, That no class shall be elected for a shorter period than one year or for a longer period than five years and the term of office of at least one class shall expire each year. (b) Term vacancies Any vacancy on the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2) which occurs in connection with compliance with [section 80a–15(f)(1)(A) of this title](/usc/15/80a–15.md?p=f-1-A) and which must be filled by a [person](/usc/15/80a–2.md?p=a-28) who is not an interested [person](/usc/15/80a–2.md?p=a-28) of either party to a transaction subject to [section 80a–15(f)(1)(A) of this title](/usc/15/80a–15.md?p=f-1-A) shall be filled only by a [person](/usc/15/80a–2.md?p=a-28) (1) who has been selected and proposed for election by a majority of the [directors](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8) who are not such interested [persons](/usc/15/80a–2.md?p=a-28), and (2) who has been elected by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), except that in the case of the death, disqualification, or bona fide resignation of a [director](/usc/15/80a–2.md?p=a-12) selected and elected pursuant to clauses (1) and (2) of this subsection (b), the vacancy created thereby may be filled as provided in subsection (a). (c) Trustees of common-law trusts The foregoing provisions of this section shall not apply to a common-law trust existing on August 22, 1940, under an indenture of trust which does not provide for the election of trustees by the shareholders. No natural [person](/usc/15/80a–2.md?p=a-28) shall serve as trustee of such a trust, which is registered as an [investment company](/usc/15/77z–2.md?p=i-2), after the holders of record of not less than two-thirds of the outstanding shares of beneficial interests in such trust have declared that he be removed from that office either by declaration in writing filed with the [custodian](/usc/15/57b–1.md?p=a-4) of the [securities](/usc/15/80a–2.md?p=a-36) of the trust or by votes cast in [person](/usc/15/80a–2.md?p=a-28) or by proxy at a meeting called for the purpose. Solicitation of such a declaration shall be deemed a solicitation of a proxy within the meaning of [section 80a–20(a) of this title](/usc/15/80a–20.md?p=a). The trustees of such a trust shall promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any such trustee or trustees when requested in writing so to do by the record holders of not less than 10 per centum of the outstanding shares. Whenever ten or more shareholders of record who have been such for at least six months preceding the date of [application](/usc/15/77ccc.md?p=8), and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least 1 per centum of the outstanding shares, whichever is less, shall apply to the trustees in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to a request for a meeting pursuant to this subsection and accompanied by a form of communication and request which they wish to transmit, the trustees shall within five business days after receipt of such [application](/usc/15/77ccc.md?p=8) either— (1) afford to such [applicants](/usc/15/7a.md?p=3) access to a list of the names and addresses of all shareholders as recorded on the books of the trust; or (2) inform such [applicants](/usc/15/7a.md?p=3) as to the approximate number of shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request. If the trustees elect to follow the course specified in paragraph (2) of this subsection the trustees, upon the written request of such [applicants](/usc/15/7a.md?p=3), accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the trustees shall mail to such [applicants](/usc/15/7a.md?p=3) and file with the [Commission](/usc/15/80a–2.md?p=a-7), together with a copy of the material to be mailed, a written statement signed by at least a majority of the trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to [state](/usc/15/80a–2.md?p=a-39) facts necessary to make the statements contained therein not misleading, or would be in [violation](/usc/15/57b–1.md?p=a-7) of applicable law, and specifying the basis of such opinion. After opportunity for hearing upon the objections specified in the written statement so filed, the [Commission](/usc/15/80a–2.md?p=a-7) may, and if demanded by the trustees or by such [applicants](/usc/15/7a.md?p=3) shall, enter an [order](/usc/15/8702.md?p=14) either sustaining one or more of such objections or refusing to sustain any of them. If the [Commission](/usc/15/80a–2.md?p=a-7) shall enter an [order](/usc/15/8702.md?p=14) refusing to sustain any of such objections, or if, after the entry of an [order](/usc/15/8702.md?p=14) sustaining one or more of such objections, the [Commission](/usc/15/80a–2.md?p=a-7) shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an [order](/usc/15/8702.md?p=14) so declaring, the trustees shall mail copies of such material to all shareholders with reasonable promptness after the entry of such [order](/usc/15/8702.md?p=14) and the renewal of such tender. # §80a–17. Transactions of certain affiliated persons and underwriters - (a) **Prohibited transactions—** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) or promoter of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2) (other than a [company](/usc/15/80a–2.md?p=a-8) of the character described in section [80a–12(d)(3)(A)](/usc/15/80a–12.md) and [(B)](/usc/15/80a–12.md) of this title), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such a [person](/usc/15/80a–2.md?p=a-28), promoter, or principal underwriter, acting as principal— - (1) knowingly to sell any [security](/usc/15/80a–2.md?p=a-36) or other property to such registered [company](/usc/15/80a–2.md?p=a-8) or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), unless such sale involves solely (A) [securities](/usc/15/80a–2.md?p=a-36) of which the buyer is the [issuer](/usc/15/80a–2.md?p=a-22), (B) [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22) and which are part of a general offering to the holders of a class of its [securities](/usc/15/80a–2.md?p=a-36), or (C) [securities](/usc/15/80a–2.md?p=a-36) deposited with the trustee of a [unit investment trust](/usc/15/80a–4.md?p=2) or periodic payment plan by the depositor thereof; - (2) knowingly to [purchase](/usc/15/78c–5.md?p=g) from such registered [company](/usc/15/80a–2.md?p=a-8), or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), any [security](/usc/15/80a–2.md?p=a-36) or other property (except [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22)); - (3) to borrow money or other property from such registered [company](/usc/15/80a–2.md?p=a-8) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) (unless the [borrower](/usc/15/697f.md?p=e-2) is controlled by the lender) except as permitted in [section 80a–21(b) of this title](/usc/15/80a–21.md?p=b); or - (4) to loan money or other property to such registered [company](/usc/15/80a–2.md?p=a-8), or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), in contravention of such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), prescribe or issue consistent with the protection of investors. - (b) **Application for exemption of proposed transaction from certain restrictions—** Notwithstanding [subsection (a)](#a), any [person](/usc/15/80a–2.md?p=a-28) may file with the [Commission](/usc/15/80a–2.md?p=a-7) an [application](/usc/15/77ccc.md?p=8) for an [order](/usc/15/8702.md?p=14) exempting a proposed transaction of the [applicant](/usc/15/7a.md?p=3) from one or more provisions of said subsection. The [Commission](/usc/15/80a–2.md?p=a-7) shall grant such [application](/usc/15/77ccc.md?p=8) and issue such [order](/usc/15/8702.md?p=14) of exemption if evidence establishes that— - (1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned; - (2) the proposed transaction is consistent with the policy of each registered [investment company](/usc/15/77z–2.md?p=i-2) concerned, as recited in its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under this subchapter; and - (3) the proposed transaction is consistent with the general purposes of this subchapter. - (c) **Sale or purchase of merchandise from any company or furnishing of services incident to lessor-lessee relationship—** Notwithstanding [subsection (a)](#a), a [person](/usc/15/80a–2.md?p=a-28) may, in the ordinary course of business, sell to or [purchase](/usc/15/78c–5.md?p=g) from any [company](/usc/15/80a–2.md?p=a-8) merchandise or may enter into a lessor-lessee relationship with any [person](/usc/15/80a–2.md?p=a-28) and furnish the services incident thereto. - (d) **Joint or joint and several participation with company in transactions—** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2) (other than a [company](/usc/15/80a–2.md?p=a-8) of the character described in [section 80a–12(d)(3)](/usc/15/80a–12.md?p=d-3) (A) and (B) of this title), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such a [person](/usc/15/80a–2.md?p=a-28) or principal underwriter, acting as principal to effect any transaction in which such registered [company](/usc/15/80a–2.md?p=a-8), or a [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), is a joint or a joint and several participant with such [person](/usc/15/80a–2.md?p=a-28), principal underwriter, or affiliated [person](/usc/15/80a–2.md?p=a-28), in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe for the purpose of limiting or preventing participation by such registered or controlled [company](/usc/15/80a–2.md?p=a-8) on a basis different from or less advantageous than that of such other participant. Nothing contained in this subsection shall be deemed to preclude any affiliated [person](/usc/15/80a–2.md?p=a-28) from acting as manager of any underwriting syndicate or other group in which such registered or controlled [company](/usc/15/80a–2.md?p=a-8) is a participant and receiving compensation therefor. - (e) **Acceptance of compensation, commissions, fees, etc.** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) of a registered [investment company](/usc/15/77z–2.md?p=i-2), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such [person](/usc/15/80a–2.md?p=a-28)— - (1) acting as agent, to accept from any source any compensation (other than a regular salary or wages from such registered [company](/usc/15/80a–2.md?p=a-8)) for the [purchase](/usc/15/78c–5.md?p=g) or sale of any property to or for such registered [company](/usc/15/80a–2.md?p=a-8) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, except in the course of such [person](/usc/15/80a–2.md?p=a-28)’s business as an underwriter or [broker](/usc/15/80a–2.md?p=a-6); or - (2) acting as [broker](/usc/15/80a–2.md?p=a-6), in connection with the sale of [securities](/usc/15/80a–2.md?p=a-36) to or by such registered [company](/usc/15/80a–2.md?p=a-8) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, to receive from any source a [commission](/usc/15/80a–2.md?p=a-7), fee, or other remuneration for effecting such transaction which exceeds (A) the usual and customary [broker](/usc/15/80a–2.md?p=a-6)’s [commission](/usc/15/80a–2.md?p=a-7) if the sale is effected on a [securities](/usc/15/80a–2.md?p=a-36) [exchange](/usc/15/80a–2.md?p=a-14), or (B) 2 per centum of the sales price if the sale is effected in connection with a secondary distribution of such [securities](/usc/15/80a–2.md?p=a-36), or (C) 1 per centum of the [purchase](/usc/15/78c–5.md?p=g) or sale price of such [securities](/usc/15/80a–2.md?p=a-36) if the sale is otherwise effected unless the [Commission](/usc/15/80a–2.md?p=a-7) shall, by rules and regulations or [order](/usc/15/8702.md?p=14) in the public interest and consistent with the protection of investors, permit a larger [commission](/usc/15/80a–2.md?p=a-7). - (f) **Custody of securities—** - (1) Every registered [management company](/usc/15/80a–4.md?p=3) shall place and maintain its [securities](/usc/15/80a–2.md?p=a-36) and similar investments in the custody of (A) a bank or banks having the qualifications prescribed in paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trustees of [unit investment trusts](/usc/15/80a–4.md?p=2); or (B) a [company](/usc/15/80a–2.md?p=a-8) which is a member of a [national securities exchange](/usc/15/80a–2.md?p=a-26) as defined in the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], subject to such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe for the protection of investors; or (C) such registered [company](/usc/15/80a–2.md?p=a-8), but only in accordance with such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe for the protection of investors. - (2) Subject to such rules, regulations, and [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may adopt as necessary or appropriate for the protection of investors, a registered [management company](/usc/15/80a–4.md?p=3) or any such [custodian](/usc/15/57b–1.md?p=a-4), with the consent of the registered [management company](/usc/15/80a–4.md?p=3) for which it acts as [custodian](/usc/15/57b–1.md?p=a-4), may deposit all or any part of the [securities](/usc/15/80a–2.md?p=a-36) owned by such registered [management company](/usc/15/80a–4.md?p=3) in a system for the central handling of [securities](/usc/15/80a–2.md?p=a-36) established by a [national securities exchange](/usc/15/80a–2.md?p=a-26) or national [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) registered with the [Commission](/usc/15/80a–2.md?p=a-7) under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or such other [person](/usc/15/80a–2.md?p=a-28) as may be permitted by the [Commission](/usc/15/80a–2.md?p=a-7), pursuant to which system all [securities](/usc/15/80a–2.md?p=a-36) of any particular class or series of any [issuer](/usc/15/80a–2.md?p=a-22) deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such [securities](/usc/15/80a–2.md?p=a-36). - (3) Rules, regulations, and [orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) under this subsection, among other things, may make appropriate provision with respect to such matters as the earmarking, segregation, and hypothecation of such [securities](/usc/15/80a–2.md?p=a-36) and investments, and may provide for or require periodic or other inspections by any or all of the following: Independent public accountants, employees and agents of the [Commission](/usc/15/80a–2.md?p=a-7), and such other [persons](/usc/15/80a–2.md?p=a-28) as the [Commission](/usc/15/80a–2.md?p=a-7) may designate. - (4) No member of a [national securities exchange](/usc/15/80a–2.md?p=a-26) which trades in [securities](/usc/15/80a–2.md?p=a-36) for its own [account](/usc/15/1681a.md?p=r-4) may act as [custodian](/usc/15/57b–1.md?p=a-4) except in accordance with rules and regulations prescribed by the [Commission](/usc/15/80a–2.md?p=a-7) for the protection of investors. - (5) If a registered [company](/usc/15/80a–2.md?p=a-8) maintains its [securities](/usc/15/80a–2.md?p=a-36) and similar investments in the custody of a qualified bank or banks, the cash proceeds from the sale of such [securities](/usc/15/80a–2.md?p=a-36) and similar investments and other cash assets of the [company](/usc/15/80a–2.md?p=a-8) shall likewise be kept in the custody of such a bank or banks, or in accordance with such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe for the protection of investors, except that such a registered [company](/usc/15/80a–2.md?p=a-8) may maintain a checking [account](/usc/15/1681a.md?p=r-4) in a bank or banks having the qualifications prescribed in paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trustees of [unit investment trusts](/usc/15/80a–4.md?p=2) with the balance of such [account](/usc/15/1681a.md?p=r-4) or the aggregate balances of such [accounts](/usc/15/1681a.md?p=r-4) at no time in excess of the amount of the fidelity bond, maintained pursuant to [subsection (g)](#g) covering the officers or employees authorized to draw on such [account](/usc/15/1681a.md?p=r-4) or [accounts](/usc/15/1681a.md?p=r-4). - (6) The [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), adopt rules and regulations, and issue [orders](/usc/15/8702.md?p=14), consistent with the protection of investors, prescribing the conditions under which a bank, or an affiliated [person](/usc/15/80a–2.md?p=a-28) of a bank, either of which is an affiliated [person](/usc/15/80a–2.md?p=a-28), promoter, organizer, or sponsor of, or principal underwriter for, a registered [management company](/usc/15/80a–4.md?p=3), may serve as [custodian](/usc/15/57b–1.md?p=a-4) of that registered [management company](/usc/15/80a–4.md?p=3). - (g) **Bonding of officers and employees having access to securities or funds—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to require by rules and regulations or [orders](/usc/15/8702.md?p=14) for the protection of investors that any officer or employee of a registered management [investment company](/usc/15/77z–2.md?p=i-2) who may singly, or jointly with others, have access to [securities](/usc/15/80a–2.md?p=a-36) or funds of any registered [company](/usc/15/80a–2.md?p=a-8), either directly or through [authority](/usc/15/3051.md?p=1) to draw upon such funds or to direct generally the disposition of such [securities](/usc/15/80a–2.md?p=a-36) (unless the officer or employee has such access solely through his position as an officer or employee of a bank) be bonded by a reputable fidelity [insurance company](/usc/15/80a–2.md?p=a-17) against larceny and embezzlement in such reasonable minimum amounts as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (h) **Provisions in charter, by-laws, etc., protecting against liability for willful misfeasance, etc.** After one year from the effective date of this subchapter, neither the charter, certificate of incorporation, articles of [association](/usc/15/657h.md?p=a-2), indenture of trust, nor the by-laws of any registered [investment company](/usc/15/77z–2.md?p=i-2), nor any other instrument pursuant to which such a [company](/usc/15/80a–2.md?p=a-8) is organized or administered, shall contain any provision which protects or purports to protect any [director](/usc/15/80a–2.md?p=a-12) or officer of such [company](/usc/15/80a–2.md?p=a-8) against any liability to the [company](/usc/15/80a–2.md?p=a-8) or to its [security](/usc/15/80a–2.md?p=a-36) holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. - (i) **Provisions in contracts protecting against willful misfeasance, etc.** After one year from the effective date of this subchapter no contract or [agreement](/usc/15/7a.md?p=2) under which any [person](/usc/15/80a–2.md?p=a-28) undertakes to act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of, or principal underwriter for, a registered [investment company](/usc/15/77z–2.md?p=i-2) shall contain any provision which protects or purports to protect such [person](/usc/15/80a–2.md?p=a-28) against any liability to such [company](/usc/15/80a–2.md?p=a-8) or its [security](/usc/15/80a–2.md?p=a-36) holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of his duties, or by reason of his reckless disregard of his obligations and duties under such contract or [agreement](/usc/15/7a.md?p=2). - (j) **Rules and regulations prohibiting fraudulent, deceptive or manipulative courses of conduct—** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2) or any affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2), to engage in any act, practice, or course of business in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale, directly or indirectly, by such [person](/usc/15/80a–2.md?p=a-28) of any [security](/usc/15/80a–2.md?p=a-36) held or to be acquired by such registered [investment company](/usc/15/77z–2.md?p=i-2) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may adopt to define, and prescribe means reasonably necessary to prevent, such acts, practices, or courses of business as are fraudulent, deceptive or manipulative. Such rules and regulations may include requirements for the adoption of codes of ethics by registered [investment companies](/usc/15/77z–2.md?p=i-2) and [investment advisers](/usc/15/6102.md?p=d-2-B-ii) of, and principal underwriters for, such [investment companies](/usc/15/77z–2.md?p=i-2) establishing such standards as are reasonably necessary to prevent such acts, practices, or courses of business. # §80a–18. Capital structure of investment companies - (a) **Qualifications on issuance of senior securities—** It shall be unlawful for any registered [closed-end company](/usc/15/80a–5.md?p=a-2) to issue any class of [senior security](#g), or to sell any such [security](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), unless— - (1) if such class of [senior security](#g) represents an indebtedness— - (A) immediately after such issuance or sale, it will have an asset coverage of at least 300 per centum; - (B) provision is made to prohibit the declaration of any dividend (except a dividend payable in stock of the [issuer](/usc/15/80a–2.md?p=a-22)), or the declaration of any other distribution, upon any class of the capital stock of such [investment company](/usc/15/77z–2.md?p=i-2), or the [purchase](/usc/15/78c–5.md?p=g) of any such capital stock, unless, in every such case, such class of [senior securities](#g) has at the time of the declaration of any such dividend or distribution or at the time of any such [purchase](/usc/15/78c–5.md?p=g) an asset coverage of at least 300 per centum after deducting the amount of such dividend, distribution, or [purchase](/usc/15/78c–5.md?p=g) price, as the case may be, except that dividends may be declared upon any preferred stock if such [senior security](#g) representing indebtedness has an asset coverage of at least 200 per centum at the time of declaration thereof after deducting the amount of such dividend; and - (C) provision is made either— - (i) that, if on the last business day of each of twelve consecutive calendar months such class of [senior securities](#g) shall have an asset coverage of less than 100 per centum, the holders of such [securities](/usc/15/80a–2.md?p=a-36) voting as a class shall be entitled to elect at least a majority of the members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8), such voting right to continue until such class of [senior security](#g) shall have an asset coverage of 110 per centum or more on the last business day of each of three consecutive calendar months, or - (ii) that, if on the last business day of each of twenty-four consecutive calendar months such class of [senior securities](#g) shall have an asset coverage of less than 100 per centum, an event of default shall be deemed to have occurred; - (2) if such class of [senior security](#g) is a stock— - (A) immediately after such issuance or sale it will have an asset coverage of at least 200 per centum; - (B) provision is made to prohibit the declaration of any dividend (except a dividend payable in common stock of the [issuer](/usc/15/80a–2.md?p=a-22)), or the declaration of any other distribution, upon the common stock of such [investment company](/usc/15/77z–2.md?p=i-2), or the [purchase](/usc/15/78c–5.md?p=g) of any such common stock, unless in every such case such class of [senior security](#g) has at the time of the declaration of any such dividend or distribution or at the time of any such [purchase](/usc/15/78c–5.md?p=g) an asset coverage of at least 200 per centum after deducting the amount of such dividend, distribution or [purchase](/usc/15/78c–5.md?p=g) price, as the case may be; - (C) provision is made to entitle the holders of such [senior securities](#g), voting as a class, to elect at least two [directors](/usc/15/80a–2.md?p=a-12) at all times, and, subject to the prior rights, if any, of the holders of any other class of [senior securities](#g) outstanding, to elect a majority of the [directors](/usc/15/80a–2.md?p=a-12) if at any time dividends on such class of [securities](/usc/15/80a–2.md?p=a-36) shall be unpaid in an amount equal to two full years’ dividends on such [securities](/usc/15/80a–2.md?p=a-36), and to continue to be so represented until all dividends in arrears shall have been paid or otherwise provided for; - (D) provision is made requiring approval by the vote of a majority of such [securities](/usc/15/80a–2.md?p=a-36), voting as a class, of any plan of [reorganization](/usc/15/80a–2.md?p=a-33) adversely affecting such [securities](/usc/15/80a–2.md?p=a-36) or of any action requiring a vote of [security](/usc/15/80a–2.md?p=a-36) holders as in [section 80a–13(a) of this title](/usc/15/80a–13.md?p=a) provided; and - (E) such class of stock shall have complete priority over any other class as to distribution of assets and payment of dividends, which dividends shall be cumulative. - (b) **Asset coverage in respect of senior securities—** The asset coverage in respect of a [senior security](#g) provided for in [subsection (a)](#a) may be determined on the basis of values calculated as of a time within forty-eight hours (not including Sundays or holidays) next preceding the time of such determination. The time of issue or sale shall, in the case of an offering of such [securities](/usc/15/80a–2.md?p=a-36) to existing stockholders of the [issuer](/usc/15/80a–2.md?p=a-22), be deemed to be the first date on which such offering is made, and in all other cases shall be deemed to be the time as of which a firm commitment to issue or sell and to take or [purchase](/usc/15/78c–5.md?p=g) such [securities](/usc/15/80a–2.md?p=a-36) shall be made. - (c) **Prohibitions relating to issuance of senior securities—** Notwithstanding the provisions of [subsection (a)](#a) it shall be unlawful for any registered closed-end [investment company](/usc/15/77z–2.md?p=i-2) to issue or sell any [senior security](#g) representing indebtedness if immediately thereafter such [company](/usc/15/80a–2.md?p=a-8) will have outstanding more than one class of [senior security](#g) representing indebtedness, or to issue or sell any [senior security](#g) which is a stock if immediately thereafter such [company](/usc/15/80a–2.md?p=a-8) will have outstanding more than one class of [senior security](#g) which is a stock, except that (1) any such class of indebtedness or stock may be issued in one or more series: Provided, That no such series shall have a preference or priority over any other series upon the distribution of the assets of such registered [closed-end company](/usc/15/80a–5.md?p=a-2) or in respect of the payment of interest or dividends, and (2) promissory notes or other evidences of indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other [person](/usc/15/80a–2.md?p=a-28) and privately arranged, and not intended to be publicly distributed, shall not be deemed to be a separate class of [senior securities](#g) representing indebtedness within the meaning of this subsection. - (d) **Warrants and rights to subscription—** It shall be unlawful for any registered [management company](/usc/15/80a–4.md?p=3) to issue any warrant or right to subscribe to or [purchase](/usc/15/78c–5.md?p=g) a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), except in the form of warrants or rights to subscribe expiring not later than one hundred and twenty days after their issuance and issued exclusively and ratably to a class or classes of such [company](/usc/15/80a–2.md?p=a-8)’s [security](/usc/15/80a–2.md?p=a-36) holders; except that any warrant may be issued in [exchange](/usc/15/80a–2.md?p=a-14) for outstanding warrants in connection with a plan of [reorganization](/usc/15/80a–2.md?p=a-33). - (e) **Application of section to specific senior securities—** The provisions of this section shall not apply to any [senior securities](#g) issued or sold by any registered [closed-end company](/usc/15/80a–5.md?p=a-2)— - (1) for the purpose of refunding through payment, [purchase](/usc/15/78c–5.md?p=g), redemption, retirement, or [exchange](/usc/15/80a–2.md?p=a-14), any [senior security](#g) of such registered [investment company](/usc/15/77z–2.md?p=i-2) except that no [senior security](#g) representing indebtedness shall be so issued or sold for the purpose of refunding any [senior security](#g) which is a stock; or - (2) pursuant to any plan of [reorganization](/usc/15/80a–2.md?p=a-33) (other than for refunding as referred to in paragraph (1) of this subsection), provided— - (A) that such [senior securities](#g) are issued or sold for the purpose of substituting or exchanging such [senior securities](#g) for outstanding [senior securities](#g), and if such [senior securities](#g) represent indebtedness they are issued or sold for the purpose of substituting or exchanging such [senior securities](#g) for outstanding [senior securities](#g) representing indebtedness, of any registered [investment company](/usc/15/77z–2.md?p=i-2) which is a party to such plan of [reorganization](/usc/15/80a–2.md?p=a-33); or - (B) that the total amount of such [senior securities](#g) so issued or sold pursuant to such plan does not exceed the total amount of [senior securities](#g) of all the [companies](/usc/15/80a–2.md?p=a-8) which are parties to such plan, and the total amount of [senior securities](#g) representing indebtedness so issued or sold pursuant to such plan does not exceed the total amount of [senior securities](#g) representing indebtedness of all such [companies](/usc/15/80a–2.md?p=a-8), or, alternatively, the total amount of such [senior securities](#g) so issued or sold pursuant to such plan does not have the effect of increasing the ratio of [senior securities](#g) representing indebtedness to the [securities](/usc/15/80a–2.md?p=a-36) representing stock or the ratio of [senior securities](#g) representing stock to [securities](/usc/15/80a–2.md?p=a-36) junior thereto when compared with such ratios as they existed before such [reorganization](/usc/15/80a–2.md?p=a-33). - (f) **Senior securities securing loans from bank; securities not included in “senior security”—** - (1) It shall be unlawful for any registered [open-end company](/usc/15/80a–5.md?p=a-1) to issue any class of [senior security](#g) or to sell any [senior security](#g) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), except that any such registered [company](/usc/15/80a–2.md?p=a-8) shall be permitted to borrow from any bank: Provided, That immediately after any such borrowing there is an asset coverage of at least 300 per centum for all borrowings of such registered [company](/usc/15/80a–2.md?p=a-8): And provided further, That in the event that such asset coverage shall at any time fall below 300 per centum such registered [company](/usc/15/80a–2.md?p=a-8) shall, within three days thereafter (not including Sundays and holidays) or such longer period as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rules and regulations, reduce the amount of its borrowings to an extent that the asset coverage of such borrowings shall be at least 300 per centum. - (2) “[Senior security](#g)” shall not, in the case of a registered [open-end company](/usc/15/80a–5.md?p=a-1), include a class or classes or a number of series of preferred or special stock each of which is preferred over all other classes or series in respect of assets specifically allocated to that class or series: Provided, That (A) such [company](/usc/15/80a–2.md?p=a-8) has outstanding no class or series of stock which is not so preferred over all other classes or series, or (B) the only other outstanding class of the [issuer](/usc/15/80a–2.md?p=a-22)’s stock consists of a common stock upon which no dividend (other than a liquidating dividend) is permitted to be paid and which in the aggregate represents not more than one-half of 1 per centum of the [issuer](/usc/15/80a–2.md?p=a-22)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42). For the purpose of insuring fair and equitable treatment of the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of each class or series of stock of such [company](/usc/15/80a–2.md?p=a-8), the [Commission](/usc/15/80a–2.md?p=a-7) may by rule, regulation, or [order](/usc/15/8702.md?p=14) direct that any matter required to be submitted to the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8) shall not be deemed to have been effectively acted upon unless approved by the holders of such percentage (not exceeding a majority) of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of each class or series of stock affected by such matter as shall be prescribed in such rule, regulation, or [order](/usc/15/8702.md?p=14). - (g) **“Senior security” defined—** Unless otherwise provided: “Senior security” means any bond, debenture, note, or similar obligation or instrument constituting a [security](/usc/15/80a–2.md?p=a-36) and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends; and “senior security representing indebtedness” means any senior security other than stock. The term “senior security”, when used in subparagraphs (B) and (C) of paragraph (1) of [subsection (a)](#a), shall not include any promissory note or other evidence of indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other [person](/usc/15/80a–2.md?p=a-28) and privately arranged, and not intended to be publicly distributed; nor shall such term, when used in this section, include any such promissory note or other evidence of indebtedness in any case where such a loan is for temporary purposes only and in an amount not exceeding 5 per centum of the value of the total assets of the [issuer](/usc/15/80a–2.md?p=a-22) at the time when the loan is made. A loan shall be presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed; otherwise it shall be presumed not to be for temporary purposes. Any such presumption may be rebutted by evidence. - (h) **“Asset coverage” defined—** “Asset coverage” of a class of [senior security](#g) representing an indebtedness of an [issuer](/usc/15/80a–2.md?p=a-22) means the ratio which the value of the total assets of such [issuer](/usc/15/80a–2.md?p=a-22), less all liabilities and indebtedness not represented by [senior securities](#g), bears to the aggregate amount of [senior securities](#g) representing indebtedness of such [issuer](/usc/15/80a–2.md?p=a-22). “Asset coverage” of a class of [senior security](#g) of an [issuer](/usc/15/80a–2.md?p=a-22) which is a stock means the ratio which the value of the total assets of such [issuer](/usc/15/80a–2.md?p=a-22), less all liabilities and indebtedness not represented by [senior securities](#g), bears to the aggregate amount of [senior securities](#g) representing indebtedness of such [issuer](/usc/15/80a–2.md?p=a-22) plus the aggregate of the involuntary liquidation preference of such class of [senior security](#g) which is a stock. The involuntary liquidation preference of a class of [senior security](#g) which is a stock shall be deemed to mean the amount to which such class of [senior security](#g) would be entitled on involuntary liquidation of the [issuer](/usc/15/80a–2.md?p=a-22) in preference to a [security](/usc/15/80a–2.md?p=a-36) junior to it. - (i) **Future issuance of stock as voting stock; exceptions—** Except as provided in [subsection (a)](#a) of this section, or as otherwise required by law, every share of stock hereafter issued by a registered [management company](/usc/15/80a–4.md?p=3) (except a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md)) shall be a voting stock and have equal voting rights with every other outstanding voting stock: Provided, That this subsection shall not apply to shares issued pursuant to the terms of any warrant or subscription right outstanding on March 15, 1940, or any firm contract entered into before March 15, 1940, to [purchase](/usc/15/78c–5.md?p=g) such [securities](/usc/15/80a–2.md?p=a-36) from such [company](/usc/15/80a–2.md?p=a-8) nor to shares issued in accordance with any rules, regulations, or [orders](/usc/15/8702.md?p=14) which the [Commission](/usc/15/80a–2.md?p=a-7) may make permitting such issue. - (j) **Securities issued by registered face-amount certificate company—** Notwithstanding any provision of this subchapter, it shall be unlawful, after August 22, 1940, for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1)— - (1) to issue, except in accordance with such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe in the public interest or as necessary or appropriate for the protection of investors, any [security](/usc/15/80a–2.md?p=a-36) other than (A) a [face-amount certificate](/usc/15/80a–2.md?p=a-15); (B) a common stock having a par value and being without preference as to dividends or distributions and having at least equal voting rights with any outstanding [security](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8); or (C) short-term payment or promissory notes or other indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other [person](/usc/15/80a–2.md?p=a-28) and privately arranged and not intended to be publicly offered; - (2) if such [company](/usc/15/80a–2.md?p=a-8) has outstanding any [security](/usc/15/80a–2.md?p=a-36), other than such [face-amount certificates](/usc/15/80a–2.md?p=a-15), common stock, promissory notes, or other evidence of indebtedness, to make any distribution or declare or pay any dividend on any capital [security](/usc/15/80a–2.md?p=a-36) in contravention of such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe in the public interest or as necessary or appropriate for the protection of investors or to insure the financial integrity of such [company](/usc/15/80a–2.md?p=a-8), to prevent the impairment of the [company](/usc/15/80a–2.md?p=a-8)’s ability to meet its obligations upon its [face-amount certificates](/usc/15/80a–2.md?p=a-15); or - (3) to issue any of its [securities](/usc/15/80a–2.md?p=a-36) except for cash or [securities](/usc/15/80a–2.md?p=a-36) including [securities](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22). - (k) **Application of section to companies operating under Small Business Investment Act provisions—** The provisions of subparagraphs (A) and (B) of paragraph (1) of [subsection (a)](#a) of this section shall not apply to [investment companies](/usc/15/77z–2.md?p=i-2) operating under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.], and the provisions of [paragraph (2)](#a-2) of said subsection shall not apply to such [companies](/usc/15/80a–2.md?p=a-8) so long as such class of [senior security](#g) shall be held or guaranteed by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2). # §80a–19. Payments or distributions - (a) **Dividends; restriction; exception—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) to pay any dividend, or to make any distribution in the nature of a dividend payment, wholly or partly from any source other than— - (1) such [company](/usc/15/80a–2.md?p=a-8)’s accumulated undistributed net income, determined in accordance with good accounting practice and not including profits or losses realized upon the sale of [securities](/usc/15/80a–2.md?p=a-36) or other properties; or - (2) such [company](/usc/15/80a–2.md?p=a-8)’s net income so determined for the current or preceding fiscal year; unless such payment is accompanied by a written statement which adequately discloses the source or sources of such payment. The [Commission](/usc/15/80a–2.md?p=a-7) may prescribe the form of such statement by rules and regulations in the public interest and for the protection of investors. - (b) **Long-term capital gains; limitation—** It shall be unlawful in contravention of such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors for any registered [investment company](/usc/15/77z–2.md?p=i-2) to distribute long-term capital gains, as defined in [title 26](/usc/26.md), more often than once every twelve months. # §80a–20. Proxies; voting trusts; circular ownership - (a) **Prohibition on use of means of interstate commerce for solicitation of proxies—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25) or otherwise, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any [security](/usc/15/80a–2.md?p=a-36) of which a registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (b) **Prohibition on use of means of interstate commerce for sale of voting-trust certificates—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) or affiliated [person](/usc/15/80a–2.md?p=a-28) thereof, any [issuer](/usc/15/80a–2.md?p=a-22) of a voting-trust certificate relating to any [security](/usc/15/80a–2.md?p=a-36) of a registered [investment company](/usc/15/77z–2.md?p=i-2), or any underwriter of such a certificate, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), or otherwise, to offer for sale, sell, or deliver after sale, in connection with a public offering, any such voting-trust certificate. - (c) **Prohibition on purchase of securities knowingly resulting in cross-ownership or circular ownership—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall [purchase](/usc/15/78c–5.md?p=g) any [voting security](/usc/15/80a–2.md?p=a-42) if, to the knowledge of such registered [company](/usc/15/80a–2.md?p=a-8), cross-ownership or circular ownership exists, or after such acquisition will exist, between such registered [company](/usc/15/80a–2.md?p=a-8) and the [issuer](/usc/15/80a–2.md?p=a-22) of such [security](/usc/15/80a–2.md?p=a-36). Cross-ownership shall be deemed to exist between two [companies](/usc/15/80a–2.md?p=a-8) when each of such [companies](/usc/15/80a–2.md?p=a-8) beneficially owns more than 3 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the other [company](/usc/15/80a–2.md?p=a-8). Circular ownership shall be deemed to exist between two [companies](/usc/15/80a–2.md?p=a-8) if such [companies](/usc/15/80a–2.md?p=a-8) are included within a group of three or more [companies](/usc/15/80a–2.md?p=a-8), each of which— - (1) beneficially owns more than 3 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of one or more other [companies](/usc/15/80a–2.md?p=a-8) of the group; and - (2) has more than 3 per centum of its own outstanding [voting securities](/usc/15/80a–2.md?p=a-42) beneficially owned by another [company](/usc/15/80a–2.md?p=a-8), or by each of two or more other [companies](/usc/15/80a–2.md?p=a-8), of the group. - (d) **Duty to eliminate existing cross-ownership or circular ownership—** If cross-ownership or circular ownership between a registered [investment company](/usc/15/77z–2.md?p=i-2) and any other [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) comes into existence upon the [purchase](/usc/15/78c–5.md?p=g) by a registered [investment company](/usc/15/77z–2.md?p=i-2) of the [securities](/usc/15/80a–2.md?p=a-36) of another [company](/usc/15/80a–2.md?p=a-8), it shall be the duty of such registered [company](/usc/15/80a–2.md?p=a-8), within one year after it first knows of the existence of such cross-ownership or circular ownership, to eliminate the same. # §80a–21. Loans by management companies It shall be unlawful for any registered [management company](/usc/15/80a–4.md?p=3) to [lend](/usc/15/80a–2.md?p=a-23) money or property to any [person](/usc/15/80a–2.md?p=a-28), directly or indirectly, if— - (a) the investment policies of such registered [company](/usc/15/80a–2.md?p=a-8), as recited in its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under this subchapter, do not permit such a loan; or - (b) such [person](/usc/15/80a–2.md?p=a-28) [controls](/usc/15/80a–2.md?p=a-9) or is under common [control](/usc/15/80a–2.md?p=a-9) with such registered [company](/usc/15/80a–2.md?p=a-8); except that the provisions of this paragraph shall not apply to any loan from a registered [company](/usc/15/80a–2.md?p=a-8) to a [company](/usc/15/80a–2.md?p=a-8) which owns all of the outstanding [securities](/usc/15/80a–2.md?p=a-36) of such registered [company](/usc/15/80a–2.md?p=a-8), except [directors](/usc/15/80a–2.md?p=a-12)’ qualifying shares. # §80a–22. Distribution, redemption, and repurchase of securities; regulations by securities associations - (a) **Rules relating to minimum and maximum prices for purchase and sale of securities from investment company; time for resale and redemption—** A [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) registered under [section 78o–3](/usc/15/78o–3.md) of this title may prescribe, by rules adopted and in effect in accordance with said section and subject to all provisions of said section applicable to the rules of such an [association](/usc/15/657h.md?p=a-2)— - (1) a method or methods for computing the minimum price at which a member thereof may [purchase](/usc/15/78c–5.md?p=g) from any [investment company](/usc/15/77z–2.md?p=i-2) any [redeemable security](/usc/15/80a–2.md?p=a-32) issued by such [company](/usc/15/80a–2.md?p=a-8) and the maximum price at which a member may sell to such [company](/usc/15/80a–2.md?p=a-8) any [redeemable security](/usc/15/80a–2.md?p=a-32) issued by it or which he may receive for such [security](/usc/15/80a–2.md?p=a-36) upon redemption, so that the price in each case will bear such relation to the current net asset value of such [security](/usc/15/80a–2.md?p=a-36) computed as of such time as the rules may prescribe; and - (2) a minimum period of time which must elapse after the sale or issue of such [security](/usc/15/80a–2.md?p=a-36) before any resale to such [company](/usc/15/80a–2.md?p=a-8) by a member or its redemption upon surrender by a member; in each case for the purpose of eliminating or reducing so far as reasonably practicable any dilution of the value of other outstanding [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) or any other result of such [purchase](/usc/15/78c–5.md?p=g), redemption, or sale which is unfair to holders of such other outstanding [securities](/usc/15/80a–2.md?p=a-36); and said rules may prohibit the members of the [association](/usc/15/657h.md?p=a-2) from purchasing, selling, or surrendering for redemption any such [redeemable securities](/usc/15/80a–2.md?p=a-32) in contravention of said rules. - (b) **Rules relating to purchase of securities by members from issuer investment company—** - (1) Such a [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) may also, by rules adopted and in effect in accordance with [section 78o–3](/usc/15/78o–3.md) of this title, and notwithstanding the provisions of subsection (b)(6) thereof but subject to all other provisions of said section applicable to the rules of such an [association](/usc/15/657h.md?p=a-2), prohibit its members from purchasing, in connection with a primary distribution of [redeemable securities](/usc/15/80a–2.md?p=a-32) of which any registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22), any such [security](/usc/15/80a–2.md?p=a-36) from the [issuer](/usc/15/80a–2.md?p=a-22) or from any principal underwriter except at a price equal to the price at which such [security](/usc/15/80a–2.md?p=a-36) is then offered to the public less a [commission](/usc/15/80a–2.md?p=a-7), [discount](/usc/15/1602.md?p=q), or spread which is computed in conformity with a method or methods, and within such limitations as to the relation thereof to said public offering price, as such rules may prescribe in [order](/usc/15/8702.md?p=14) that the price at which such [security](/usc/15/80a–2.md?p=a-36) is offered or sold to the public shall not include an excessive [sales load](/usc/15/80a–2.md?p=a-35) but shall allow for reasonable compensation for sales personnel, [broker](/usc/15/80a–2.md?p=a-6)-[dealers](/usc/15/80a–2.md?p=a-11), and underwriters, and for reasonable [sales loads](/usc/15/80a–2.md?p=a-35) to investors. The [Commission](/usc/15/80a–2.md?p=a-7) shall on [application](/usc/15/77ccc.md?p=8) or otherwise, if it appears that smaller [companies](/usc/15/80a–2.md?p=a-8) are subject to relatively higher operating costs, make due allowance therefor by granting any such [company](/usc/15/80a–2.md?p=a-8) or class of [companies](/usc/15/80a–2.md?p=a-8) appropriate qualified exemptions from the provisions of this section. - (2) At any time after the expiration of eighteen months from December 14, 1970 (or, if earlier, after a [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) has adopted for purposes of [paragraph (1)](#b-1) any rule respecting excessive [sales loads](/usc/15/80a–2.md?p=a-35)), the [Commission](/usc/15/80a–2.md?p=a-7) may alter or supplement the rules of any [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) as may be necessary to effectuate the purposes of this subsection in the manner provided by [section 78s(c) of this title](/usc/15/78s.md?p=c). - (3) If any provision of this subsection is in conflict with any provision of any law of the United States in effect on December 14, 1970, the provisions of this subsection shall prevail. - (c) **Conflicting rules of Commission and associations—** The [Commission](/usc/15/80a–2.md?p=a-7) may make rules and regulations applicable to registered [investment companies](/usc/15/77z–2.md?p=i-2) and to principal underwriters of, and [dealers](/usc/15/80a–2.md?p=a-11) in, the [redeemable securities](/usc/15/80a–2.md?p=a-32) of any registered [investment company](/usc/15/77z–2.md?p=i-2), whether or not members of any [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2), to the same extent, covering the same subject matter, and for the accomplishment of the same ends as are prescribed in [subsection (a)](#a) of this section in respect of the rules which may be made by a registered [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) governing its members. Any rules and regulations so made by the [Commission](/usc/15/80a–2.md?p=a-7), to the extent that they may be inconsistent with the rules of any such [association](/usc/15/657h.md?p=a-2), shall so long as they remain in force supersede the rules of the [association](/usc/15/657h.md?p=a-2) and be binding upon its members as well as all other underwriters and [dealers](/usc/15/80a–2.md?p=a-11) to whom they may be applicable. - (d) **Sale of securities except to or through principal underwriter; price of securities—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall sell any [redeemable security](/usc/15/80a–2.md?p=a-32) issued by it to any [person](/usc/15/80a–2.md?p=a-28) except either to or through a principal underwriter for distribution or at a current public offering price described in the [prospectus](/usc/15/77b.md?p=a-10), and, if such class of [security](/usc/15/80a–2.md?p=a-36) is being currently offered to the public by or through an underwriter, no principal underwriter of such [security](/usc/15/80a–2.md?p=a-36) and no [dealer](/usc/15/80a–2.md?p=a-11) shall sell any such [security](/usc/15/80a–2.md?p=a-36) to any [person](/usc/15/80a–2.md?p=a-28) except a [dealer](/usc/15/80a–2.md?p=a-11), a principal underwriter, or the [issuer](/usc/15/80a–2.md?p=a-22), except at a current public offering price described in the [prospectus](/usc/15/77b.md?p=a-10). Nothing in this subsection shall prevent a sale made (i) pursuant to an offer of [exchange](/usc/15/80a–2.md?p=a-14) permitted by [section 80a–11 of this title](/usc/15/80a–11.md) including any offer made pursuant to [section 80a–11(b) of this title](/usc/15/80a–11.md?p=b); (ii) pursuant to an offer made solely to all registered holders of the [securities](/usc/15/80a–2.md?p=a-36), or of a particular class or series of [securities](/usc/15/80a–2.md?p=a-36) issued by the [company](/usc/15/80a–2.md?p=a-8) proportionate to their holdings or proportionate to any cash distribution made to them by the [company](/usc/15/80a–2.md?p=a-8) (subject to appropriate qualifications designed solely to avoid issuance of fractional [securities](/usc/15/80a–2.md?p=a-36)); or (iii) in accordance with rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7) made pursuant to subsection (b) of [section 80a–12 of this title](/usc/15/80a–12.md). - (e) **Suspension of right of redemption or postponement of date of payment—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall suspend the right of redemption, or postpone the date of payment or satisfaction upon redemption of any [redeemable security](/usc/15/80a–2.md?p=a-32) in accordance with its terms for more than seven days after the tender of such [security](/usc/15/80a–2.md?p=a-36) to the [company](/usc/15/80a–2.md?p=a-8) or its agent designated for that purpose for redemption, except— - (1) for any period (A) during which the New York Stock [Exchange](/usc/15/80a–2.md?p=a-14) is closed other than customary week-end and holiday closings or (B) during which trading on the New York Stock [Exchange](/usc/15/80a–2.md?p=a-14) is restricted; - (2) for any period during which an emergency exists as a result of which (A) disposal by the [company](/usc/15/80a–2.md?p=a-8) of [securities](/usc/15/80a–2.md?p=a-36) owned by it is not reasonably practicable or (B) it is not reasonably practicable for such [company](/usc/15/80a–2.md?p=a-8) fairly to determine the value of its net assets; or - (3) for such other periods as the [Commission](/usc/15/80a–2.md?p=a-7) may by [order](/usc/15/8702.md?p=14) permit for the protection of [security](/usc/15/80a–2.md?p=a-36) holders of the [company](/usc/15/80a–2.md?p=a-8). The [Commission](/usc/15/80a–2.md?p=a-7) shall by rules and regulations determine the conditions under which (i) trading shall be deemed to be restricted and (ii) an emergency shall be deemed to exist within the meaning of this subsection. - (f) **Restrictions on transferability or negotiability of securities—** No registered [open-end company](/usc/15/80a–5.md?p=a-1) shall restrict the transferability or negotiability of any [security](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22) except in conformity with the statements with respect thereto contained in its [registration statement](/usc/15/77b.md?p=a-8) nor in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe in the interests of the holders of all of the outstanding [securities](/usc/15/80a–2.md?p=a-36) of such [investment company](/usc/15/77z–2.md?p=i-2). - (g) **Issuance of securities for services or property other than cash—** No registered [open-end company](/usc/15/80a–5.md?p=a-1) shall issue any of its [securities](/usc/15/80a–2.md?p=a-36) (1) for services; or (2) for property other than cash or [securities](/usc/15/80a–2.md?p=a-36) (including [securities](/usc/15/80a–2.md?p=a-36) of which such registered [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22)), except as a dividend or distribution to its [security](/usc/15/80a–2.md?p=a-36) holders or in connection with a [reorganization](/usc/15/80a–2.md?p=a-33). # §80a–23. Closed-end companies - (a) **Issuance of securities—** No registered [closed-end company](/usc/15/80a–5.md?p=a-2) shall issue any of its [securities](/usc/15/80a–2.md?p=a-36) (1) for services; or (2) for property other than cash or [securities](/usc/15/80a–2.md?p=a-36) (including [securities](/usc/15/80a–2.md?p=a-36) of which such registered [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22)), except as a dividend or distribution to its [security](/usc/15/80a–2.md?p=a-36) holders or in connection with a [reorganization](/usc/15/80a–2.md?p=a-33). - (b) **Sale of common stock at price below current net asset value—** No registered [closed-end company](/usc/15/80a–5.md?p=a-2) shall sell any common stock of which it is the [issuer](/usc/15/80a–2.md?p=a-22) at a price below the current net asset value of such stock, exclusive of any distributing [commission](/usc/15/80a–2.md?p=a-7) or [discount](/usc/15/1602.md?p=q) (which net asset value shall be determined as of a time within forty-eight hours, excluding Sundays and holidays, next preceding the time of such determination), except (1) in connection with an offering to the holders of one or more classes of its capital stock; (2) with the consent of a majority of its common stockholders; (3) upon conversion of a convertible [security](/usc/15/80a–2.md?p=a-36) in accordance with its terms; (4) upon the exercise of any warrant outstanding on August 22, 1940, or issued in accordance with the provisions of [section 80a–18(d) of this title](/usc/15/80a–18.md?p=d); or (5) under such other circumstances as the [Commission](/usc/15/80a–2.md?p=a-7) may permit by rules and regulations or [orders](/usc/15/8702.md?p=14) for the protection of investors. - (c) **Purchase of securities of which it is issuer; exceptions—** No registered [closed-end company](/usc/15/80a–5.md?p=a-2) shall [purchase](/usc/15/78c–5.md?p=g) any [securities](/usc/15/80a–2.md?p=a-36) of any class of which it is the [issuer](/usc/15/80a–2.md?p=a-22) except— - (1) on a [securities](/usc/15/80a–2.md?p=a-36) [exchange](/usc/15/80a–2.md?p=a-14) or such other open market as the [Commission](/usc/15/80a–2.md?p=a-7) may designate by rules and regulations or [orders](/usc/15/8702.md?p=14): Provided, That if such [securities](/usc/15/80a–2.md?p=a-36) are stock, such registered [company](/usc/15/80a–2.md?p=a-8) shall, within the preceding six months, have informed stockholders of its intention to [purchase](/usc/15/78c–5.md?p=g) stock of such class by letter or report addressed to stockholders of such class; or - (2) pursuant to tenders, after reasonable opportunity to submit tenders given to all holders of [securities](/usc/15/80a–2.md?p=a-36) of the class to be purchased; or - (3) under such other circumstances as the [Commission](/usc/15/80a–2.md?p=a-7) may permit by rules and regulations or [orders](/usc/15/8702.md?p=14) for the protection of investors in [order](/usc/15/8702.md?p=14) to insure that such [purchases](/usc/15/78c–5.md?p=g) are made in a manner or on a basis which does not unfairly discriminate against any holders of the class or classes of [securities](/usc/15/80a–2.md?p=a-36) to be purchased. # §80a–24. Registration of securities under Securities Act of 1933 - (a) **Registration statement; contents—** In registering under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], any [security](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), a registered [investment company](/usc/15/77z–2.md?p=i-2), in lieu of furnishing a [registration statement](/usc/15/77b.md?p=a-8) containing the information and documents specified in schedule A of said Act [[15 U.S.C. 77aa](/usc/15/77aa.md)], may file a [registration statement](/usc/15/77b.md?p=a-8) containing the following information and documents: - (1) such copies of the [registration statement](/usc/15/77b.md?p=a-8) filed by such [company](/usc/15/80a–2.md?p=a-8) under this subchapter, and of such reports filed by such [company](/usc/15/80a–2.md?p=a-8) pursuant to [section 80a–29 of this title](/usc/15/80a–29.md) or such copies of portions of such [registration statement](/usc/15/77b.md?p=a-8) and reports, as the [Commission](/usc/15/80a–2.md?p=a-7) shall designate by rules and regulations; and - (2) such additional information and documents (including a [prospectus](/usc/15/77b.md?p=a-10)) as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe by rules and regulations as necessary or appropriate in the public interest or for the protection of investors. - (b) **Filing of three copies of advertisement, pamphlet, etc. in connection with public offering; time of filing—** It shall be unlawful for any of the following [companies](/usc/15/80a–2.md?p=a-8), or for any underwriter for such a [company](/usc/15/80a–2.md?p=a-8), in connection with a public offering of any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), to make use of the mails or any means or instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), to transmit any advertisement, pamphlet, circular, form letter, or other sales literature addressed to or intended for distribution to prospective investors unless three copies of the full text thereof have been filed with the [Commission](/usc/15/80a–2.md?p=a-7) or are filed with the [Commission](/usc/15/80a–2.md?p=a-7) within ten days thereafter: - (1) any registered [open-end company](/usc/15/80a–5.md?p=a-1); - (2) any registered [unit investment trust](/usc/15/80a–4.md?p=2); or - (3) any registered [face-amount certificate company](/usc/15/80a–4.md?p=1). - (c) **Additional requirement for prospectuses relating to periodic payment plan certificates or face-amount certificate—** In addition to the powers relative to [prospectuses](/usc/15/77b.md?p=a-10) granted the [Commission](/usc/15/80a–2.md?p=a-7) by section 10 of the Securities Act of 1933 [[15 U.S.C. 77j](/usc/15/77j.md)], the [Commission](/usc/15/80a–2.md?p=a-7) is authorized to require, by rules and regulations or [order](/usc/15/8702.md?p=14), that the information contained in any [prospectus](/usc/15/77b.md?p=a-10) relating to any periodic payment plan certificate or [face-amount certificate](/usc/15/80a–2.md?p=a-15) registered under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], on or after the effective date of this subchapter be presented in such form and [order](/usc/15/8702.md?p=14) of items, and such [prospectus](/usc/15/77b.md?p=a-10) contain such summaries of any portion of such information, as are necessary or appropriate in the public interest or for the protection of investors. - (d) **Application of other provisions to securities of investment companies, face-amount certificate companies, and open-end companies or unit investment trust—** The exemption provided by [paragraph (8)](/usc/15/3.md) of section 3(a) of the Securities Act of 1933 [[15 U.S.C. 77c(a)(8)](/usc/15/77c.md?p=a-8)] shall not apply to any [security](/usc/15/80a–2.md?p=a-36) of which an [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22). The exemption provided by paragraph (11) of said [section 3(a)](/usc/15/3.md?p=a) [[15 U.S.C. 77c(a)(11)](/usc/15/77c.md?p=a-11)] shall not apply to any [security](/usc/15/80a–2.md?p=a-36) of which a registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22). The exemption provided by [section 4(3)](/usc/15/4.md)[^1] of the Securities Act of 1933 [[15 U.S.C. 77d(a)(3)](/usc/15/77d.md?p=a-3)] shall not apply to any transaction in a [security](/usc/15/80a–2.md?p=a-36) issued by a [face-amount certificate company](/usc/15/80a–4.md?p=1) or in a [redeemable security](/usc/15/80a–2.md?p=a-32) issued by an open-end [management company](/usc/15/80a–4.md?p=3) or [unit investment trust](/usc/15/80a–4.md?p=2) if any other [security](/usc/15/80a–2.md?p=a-36) of the same class is currently being offered or sold by the [issuer](/usc/15/80a–2.md?p=a-22) or by or through an underwriter in a distribution which is not exempted from [section 5](/usc/15/5.md) of said Act [[15 U.S.C. 77e](/usc/15/77e.md)], except to such extent and subject to such terms and conditions as the [Commission](/usc/15/80a–2.md?p=a-7), having due regard for the public interest and the protection of investors, may prescribe by rules or regulations with respect to any class of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or transactions. - (e) **Amendment of registration statements relating to securities issued by face-amount certificate companies, open-end management companies or unit investment trusts—** For the purposes of section 11 of the Securities Act of 1933, as amended [[15 U.S.C. 77k](/usc/15/77k.md)] the effective date of the latest amendment filed shall be deemed the effective date of the [registration statement](/usc/15/77b.md?p=a-8) with respect to [securities](/usc/15/80a–2.md?p=a-36) sold after such amendment shall have become effective. For the purposes of section 13 of the Securities Act of 1933, as amended [[15 U.S.C. 77m](/usc/15/77m.md)], no such [security](/usc/15/80a–2.md?p=a-36) shall be deemed to have been bona fide offered to the public prior to the effective date of the latest amendment filed pursuant to this subsection. Except to the extent the [Commission](/usc/15/80a–2.md?p=a-7) otherwise provides by rules or regulations as appropriate in the public interest or for the protection of investors, no [prospectus](/usc/15/77b.md?p=a-10) relating to a [security](/usc/15/80a–2.md?p=a-36) issued by a [face-amount certificate company](/usc/15/80a–4.md?p=1) or a [redeemable security](/usc/15/80a–2.md?p=a-32) issued by an open-end [management company](/usc/15/80a–4.md?p=3) or [unit investment trust](/usc/15/80a–4.md?p=2) which varies for the purposes of [subsection (a)(3)](/usc/15/10.md) of section 10 of the Securities Act of 1933 [[15 U.S.C. 77j(a)(3)](/usc/15/77j.md?p=a-3)] from the latest [prospectus](/usc/15/77b.md?p=a-10) filed as a part of the [registration statement](/usc/15/77b.md?p=a-8) shall be deemed to meet the requirements of said [section 10](/usc/15/10.md) [[15 U.S.C. 77j](/usc/15/77j.md)] unless filed as part of an amendment to the [registration statement](/usc/15/77b.md?p=a-8) under said Act [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and such amendment has become effective. - (f) **Registration of indefinite amount of securities—** - (1) **Registration of securities—** Upon the effective date of its [registration statement](/usc/15/77b.md?p=a-8), as provided by section 8 of the Securities Act of 1933 [[15 U.S.C. 77h](/usc/15/77h.md)], a [face-amount certificate company](/usc/15/80a–4.md?p=1), open-end [management company](/usc/15/80a–4.md?p=3), or [unit investment trust](/usc/15/80a–4.md?p=2), shall be deemed to have registered an indefinite amount of [securities](/usc/15/80a–2.md?p=a-36). - (2) **Payment of registration fees—** Not later than 90 days after the end of the fiscal year of a [company](/usc/15/80a–2.md?p=a-8) or trust referred to in [paragraph (1)](#f-1), the [company](/usc/15/80a–2.md?p=a-8) or trust, as applicable, shall pay a registration fee to the [Commission](/usc/15/80a–2.md?p=a-7), calculated in the manner specified in section 6(b) of the Securities Act of 1933 [[15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)], based on the aggregate sales price for which its [securities](/usc/15/80a–2.md?p=a-36) (including, for purposes of this paragraph, all [securities](/usc/15/80a–2.md?p=a-36) issued pursuant to a dividend reinvestment plan) were sold pursuant to a registration of an indefinite amount of [securities](/usc/15/80a–2.md?p=a-36) under this subsection during the previous fiscal year of the [company](/usc/15/80a–2.md?p=a-8) or trust, reduced by— - (A) the aggregate redemption or repurchase price of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) or trust during that year; and - (B) the aggregate redemption or repurchase price of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) or trust during any prior fiscal year ending not more than 1 year before October 11, 1996, that were not used previously by the [company](/usc/15/80a–2.md?p=a-8) or trust to reduce fees payable under this section. - (3) **Interest due on late payment—** A [company](/usc/15/80a–2.md?p=a-8) or trust paying the fee required by this subsection or any portion thereof more than 90 days after the end of the fiscal year of the [company](/usc/15/80a–2.md?p=a-8) or trust shall pay to the [Commission](/usc/15/80a–2.md?p=a-7) interest on unpaid amounts, at the average investment rate for Treasury tax and loan [accounts](/usc/15/1681a.md?p=r-4) published by the Secretary of the Treasury pursuant to [section 3717(a) of title 31](/usc/31/3717.md?p=a). The payment of interest pursuant to this paragraph shall not preclude the [Commission](/usc/15/80a–2.md?p=a-7) from bringing an action to enforce the requirements of [paragraph (2)](#f-2). - (4) **Rulemaking authority—** The [Commission](/usc/15/80a–2.md?p=a-7) may adopt rules and regulations to implement this subsection. - (g) **Additional prospectuses—** In addition to any [prospectus](/usc/15/77b.md?p=a-10) permitted or required by section 10(a) of the Securities Act of 1933 [[15 U.S.C. 77j(a)](/usc/15/77j.md?p=a)], the [Commission](/usc/15/80a–2.md?p=a-7) 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](/usc/15/77b.md?p=a-10) for purposes of [section 5(b)(1)](/usc/15/5.md) of that Act [[15 U.S.C. 77e(b)(1)](/usc/15/77e.md?p=b-1)] with respect to [securities](/usc/15/80a–2.md?p=a-36) issued by a registered [investment company](/usc/15/77z–2.md?p=i-2). Such a [prospectus](/usc/15/77b.md?p=a-10), which may include information the substance of which is not included in the [prospectus](/usc/15/77b.md?p=a-10) specified in section 10(a) of the Securities Act of 1933, shall be deemed to be permitted by [section 10(b)](/usc/15/10.md) of that Act [[15 U.S.C. 77j(b)](/usc/15/77j.md?p=b)]. # §80a–25. Reorganization plans; reports by Commission - (a) **Filing of reorganization plan and other information with Commission—** Any [person](/usc/15/80a–2.md?p=a-28) who, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25) or otherwise, solicits or permits the use of his name to solicit any proxy, consent, authorization, power of attorney, ratification, deposit, or dissent in respect of any plan of [reorganization](/usc/15/80a–2.md?p=a-33) of any registered [investment company](/usc/15/77z–2.md?p=i-2) shall file with, or mail to, the [Commission](/usc/15/80a–2.md?p=a-7) for its information, within twenty-four hours after the commencement of any such solicitation, a copy of such plan and any deposit [agreement](/usc/15/7a.md?p=2) relating thereto and of any proxy, consent, authorization, power of attorney, ratification, instrument of deposit, or instrument of dissent in respect thereto, if or to the extent that such documents shall not already have been filed with the [Commission](/usc/15/80a–2.md?p=a-7). - (b) **Advisory report by Commission at request of shareholders—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, if so requested, prior to any solicitation of [security](/usc/15/80a–2.md?p=a-36) holders with respect to any plan of [reorganization](/usc/15/80a–2.md?p=a-33), by any registered [investment company](/usc/15/77z–2.md?p=i-2) which is, or any of the [securities](/usc/15/80a–2.md?p=a-36) of which are, the subject of or is a participant in any such plan, or if so requested by the holders of 25 per centum of any class of its outstanding [securities](/usc/15/80a–2.md?p=a-36), to render an advisory report in respect of the fairness of any such plan and its effect upon any class or classes of [security](/usc/15/80a–2.md?p=a-36) holders. In such event any registered [investment company](/usc/15/77z–2.md?p=i-2), in respect of which the [Commission](/usc/15/80a–2.md?p=a-7) shall have rendered any such advisory report, shall mail promptly a copy of such advisory report to all its [security](/usc/15/80a–2.md?p=a-36) holders affected by any such plan: Provided, That such advisory report shall have been received by it at least forty-eight hours (not including Sundays and holidays) before final action is taken in relation to such plan at any meeting of [security](/usc/15/80a–2.md?p=a-36) holders called to act in relation thereto, or any adjournment of any such meeting, or if no meeting be called, then prior to the final date of acceptance of such plan by [security](/usc/15/80a–2.md?p=a-36) holders. In respect of [securities](/usc/15/80a–2.md?p=a-36) not registered as to ownership, in lieu of mailing a copy of such advisory report, such registered [company](/usc/15/80a–2.md?p=a-8) shall publish promptly a statement of the existence of such advisory report in a newspaper of general circulation in its principal place of business and shall make available copies of such advisory report upon request. Notwithstanding the provision of this section the [Commission](/usc/15/80a–2.md?p=a-7) shall not render such advisory report although so requested by any such [investment company](/usc/15/77z–2.md?p=i-2) or such [security](/usc/15/80a–2.md?p=a-36) holders if the fairness or feasibility of said plan is in issue in any proceeding pending in any court of competent jurisdiction unless such plan is submitted to the [Commission](/usc/15/80a–2.md?p=a-7) for that purpose by such court. - (c) **Enjoinder of plan of reorganization—** Any district court of the United States in the [State](/usc/15/80a–2.md?p=a-39) of incorporation of a registered [investment company](/usc/15/77z–2.md?p=i-2), or any such court for the district in which such [company](/usc/15/80a–2.md?p=a-8) maintains its principal place of business, is authorized to enjoin the consummation of any plan of [reorganization](/usc/15/80a–2.md?p=a-33) of such registered [investment company](/usc/15/77z–2.md?p=i-2) upon proceedings instituted by the [Commission](/usc/15/80a–2.md?p=a-7) (which is authorized so to proceed upon behalf of [security](/usc/15/80a–2.md?p=a-36) holders of such registered [company](/usc/15/80a–2.md?p=a-8), or any class thereof), if such court shall determine that any such plan is not fair and equitable to all [security](/usc/15/80a–2.md?p=a-36) holders. - (d) **Application of section to reorganizations under title 11—** Nothing contained in this section shall in any way affect or derogate from the powers of the courts of the United States and the [Commission](/usc/15/80a–2.md?p=a-7) with reference to [reorganizations](/usc/15/80a–2.md?p=a-33) contained in [title 11](/usc/11.md). # §80a–26. Unit investment trusts - (a) **Custody and sale of securities—** No principal underwriter for or depositor of a registered [unit investment trust](/usc/15/80a–4.md?p=2) shall sell, except by surrender to the trustee for redemption, any [security](/usc/15/80a–2.md?p=a-36) of which such trust is the [issuer](/usc/15/80a–2.md?p=a-22) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)), unless the trust indenture, [agreement](/usc/15/7a.md?p=2) of custodianship, or other instrument pursuant to which such [security](/usc/15/80a–2.md?p=a-36) is issued— - (1) designates one or more trustees or [custodians](/usc/15/57b–1.md?p=a-4), each of which is a bank, and provides that each such trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall have at all times an aggregate capital, surplus, and undivided profits of a specified minimum amount, which shall not be less than $500,000 (but may also provide, if such trustee or [custodian](/usc/15/57b–1.md?p=a-4) publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or [examining authority](/usc/15/78lll.md?p=6), that for the purposes of this paragraph the aggregate capital, surplus, and undivided profits of such trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall be deemed to be its aggregate capital, surplus, and undivided profits as set forth in its most recent report of condition so published); - (2) provides, in substance, (A) that during the life of the trust the trustee or [custodian](/usc/15/57b–1.md?p=a-4), if not otherwise remunerated, may charge against and collect from the income of the trust, and from the corpus thereof if no income is available, such fees for its services and such reimbursement for its expenses as are provided for in such instrument; (B) that no such charge or collection shall be made except for services theretofore performed or expenses theretofore incurred; (C) that no payment to the depositor of or a principal underwriter for such trust, or to any affiliated [person](/usc/15/80a–2.md?p=a-28) or agent of such depositor or underwriter, shall be allowed the trustee or [custodian](/usc/15/57b–1.md?p=a-4) as an expense (except that provision may be made for the payment to any such [person](/usc/15/80a–2.md?p=a-28) of a fee, not exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as compensation for performing bookkeeping and other administrative services, of a character normally performed by the trustee or [custodian](/usc/15/57b–1.md?p=a-4) itself); and (D) that the trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall have possession of all [securities](/usc/15/80a–2.md?p=a-36) and other property in which the funds of the trust are invested, all funds held for such investment, all equalization, redemption, and other special funds of the trust, and all income upon, accretions to, and proceeds of such property and funds, and shall segregate and hold the same in trust (subject only to the charges and collections allowed under clauses (A), (B), and (C) of this paragraph) until distribution thereof to the [security](/usc/15/80a–2.md?p=a-36) holders of the trust; - (3) provides, in substance, that the trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall not resign until either (A) the trust has been completely liquidated and the proceeds of the liquidation distributed to the [security](/usc/15/80a–2.md?p=a-36) holders of the trust, or (B) a successor trustee or [custodian](/usc/15/57b–1.md?p=a-4), having the qualifications prescribed in paragraph (1) of this subsection, has been designated and has accepted such trusteeship or custodianship; and - (4) provides, in substance, (A) that a record will be kept by the depositor or an agent of the depositor of the name and address of, and the shares issued by the trust and held by, every holder of any [security](/usc/15/80a–2.md?p=a-36) issued pursuant to such instrument, insofar as such information is known to the depositor or agent; and (B) that whenever a [security](/usc/15/80a–2.md?p=a-36) is deposited with the trustee in substitution for any [security](/usc/15/80a–2.md?p=a-36) in which such [security](/usc/15/80a–2.md?p=a-36) holder has an undivided interest, the depositor or the agent of the depositor will, within five days after such substitution, either deliver or mail to such [security](/usc/15/80a–2.md?p=a-36) holder a notice of substitution, including an identification of the [securities](/usc/15/80a–2.md?p=a-36) eliminated and the [securities](/usc/15/80a–2.md?p=a-36) substituted, and a specification of the shares of such [security](/usc/15/80a–2.md?p=a-36) holder affected by the substitution. - (b) **Bank or affiliated person of bank as trustee or custodian—** The [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), adopt rules and regulations, and issue [orders](/usc/15/8702.md?p=14), consistent with the protection of investors, prescribing the conditions under which a bank, or an affiliated [person](/usc/15/80a–2.md?p=a-28) of a bank, either of which is an affiliated [person](/usc/15/80a–2.md?p=a-28) of a principal underwriter for, or depositor of, a registered [unit investment trust](/usc/15/80a–4.md?p=2), may serve as trustee or [custodian](/usc/15/57b–1.md?p=a-4) under [subsection (a)(1)](#a-1). - (c) **Substitution of securities—** It shall be unlawful for any depositor or trustee of a registered [unit investment trust](/usc/15/80a–4.md?p=2) holding the [security](/usc/15/80a–2.md?p=a-36) of a single [issuer](/usc/15/80a–2.md?p=a-22) to substitute another [security](/usc/15/80a–2.md?p=a-36) for such [security](/usc/15/80a–2.md?p=a-36) unless the [Commission](/usc/15/80a–2.md?p=a-7) shall have approved such substitution. The [Commission](/usc/15/80a–2.md?p=a-7) shall issue an [order](/usc/15/8702.md?p=14) approving such substitution if the evidence establishes that it is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter. - (d) **Binding contract or agreement embodying applicable provisions deemed to qualify non-complying instrument by which securities were issued—** In the event that a trust indenture, [agreement](/usc/15/7a.md?p=2) of custodianship, or other instrument pursuant to which [securities](/usc/15/80a–2.md?p=a-36) of a registered [unit investment trust](/usc/15/80a–4.md?p=2) are issued does not comply with the requirements of [subsection (a)](#a), such instrument will be deemed to meet such requirements if a written contract or [agreement](/usc/15/7a.md?p=2) binding on the parties and embodying such requirements has been executed by the depositor on the one part and the trustee or [custodian](/usc/15/57b–1.md?p=a-4) on the other part, and three copies of such contract or [agreement](/usc/15/7a.md?p=2) have been filed with the [Commission](/usc/15/80a–2.md?p=a-7). - (e) **Liquidation of unit investment trust—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7) has reason to believe that a [unit investment trust](/usc/15/80a–4.md?p=2) is inactive and that its liquidation is in the interest of the [security](/usc/15/80a–2.md?p=a-36) holders of such trust, the [Commission](/usc/15/80a–2.md?p=a-7) may file a complaint seeking the liquidation of such trust in the district court of the United States in any district wherein any trustee of such trust resides or has its principal place of business. A copy of such complaint shall be served on every trustee of such trust, and notice of the proceeding shall be given such other interested [persons](/usc/15/80a–2.md?p=a-28) in such manner and at such times as the court may direct. If the court determines that such liquidation is in the interest of the [security](/usc/15/80a–2.md?p=a-36) holders of such trust, the court shall [order](/usc/15/8702.md?p=14) such liquidation and, after payment of necessary expenses, the distribution of the proceeds to the [security](/usc/15/80a–2.md?p=a-36) holders of the trust in such manner and on such terms as may to the court appear equitable. - (f) **Exemption—** - (1) **In general—** [Subsection (a)](#a) does not apply to any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or to the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) and principal underwriter of such [account](/usc/15/1681a.md?p=r-4). - (2) **Limitation on sales—** It shall be unlawful for any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or for the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) of such [account](/usc/15/1681a.md?p=r-4), to sell any such contract— - (A) unless 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](/usc/15/80a–2.md?p=a-17), and, beginning on the earlier of August 1, 1997, or the earliest effective date of any [registration statement](/usc/15/77b.md?p=a-8) or amendment thereto for such contract following October 11, 1996, the [insurance company](/usc/15/80a–2.md?p=a-17) so represents in the [registration statement](/usc/15/77b.md?p=a-8) for the contract; and - (B) unless the [insurance company](/usc/15/80a–2.md?p=a-17)— - (i) complies with all other applicable provisions of this section, as if it were a trustee or [custodian](/usc/15/57b–1.md?p=a-4) of the registered [separate account](/usc/15/80a–2.md?p=a-37); - (ii) files with the insurance regulatory [authority](/usc/15/3051.md?p=1) of the [State](/usc/15/80a–2.md?p=a-39) which is the domiciliary [State](/usc/15/80a–2.md?p=a-39) of the [insurance company](/usc/15/80a–2.md?p=a-17), an annual statement of its financial condition, which most recent statement indicates that the [insurance company](/usc/15/80a–2.md?p=a-17) has a combined capital and surplus, if a stock [company](/usc/15/80a–2.md?p=a-8), or an unassigned surplus, if a mutual [company](/usc/15/80a–2.md?p=a-8), of not less than $1,000,000, or such other amount as the [Commission](/usc/15/80a–2.md?p=a-7) 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 accounts](/usc/15/80a–2.md?p=a-37), is supervised and examined periodically by the insurance [authority](/usc/15/3051.md?p=1) of such [State](/usc/15/80a–2.md?p=a-39). - (3) **Fees and charges—** For purposes of [paragraph (2)](#f-2), the fees and charges deducted under the contract shall include all fees and charges imposed for any purpose and in any manner. - (4) **Regulatory authority—** The [Commission](/usc/15/80a–2.md?p=a-7) may issue such rules and regulations to carry out [paragraph (2)(A)](#f-2-A) as it determines are necessary or appropriate in the public interest or for the protection of investors. # §80a–27. Periodic payment plans - (a) **Sale of certificates; restrictions—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate, if— - (1) the [sales load](/usc/15/80a–2.md?p=a-35) on such certificate exceeds 9 per centum of the total payments to be made thereon; - (2) more than one-half of any of the first twelve monthly payments thereon, or their equivalent, is deducted for [sales load](/usc/15/80a–2.md?p=a-35); - (3) the amount of [sales load](/usc/15/80a–2.md?p=a-35) deducted from any one of such first payments exceeds proportionately the amount deducted from any other such payment, or the amount deducted from any subsequent payment exceeds proportionately the amount deducted from any other subsequent payment; - (4) the first payment on such certificate is less than $20, or any subsequent payment is less than $10; - (5) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [management company](/usc/15/80a–4.md?p=3), the proceeds of such certificate or the [securities](/usc/15/80a–2.md?p=a-36) in which such proceeds are invested are subject to management fees (other than fees for administrative services of the character described in clause (C), [paragraph (2)](#a-2), of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a)) exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, whether such fees are payable to such [company](/usc/15/80a–2.md?p=a-8) or to [investment advisers](/usc/15/6102.md?p=d-2-B-ii) thereof; or - (6) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [unit investment trust](/usc/15/80a–4.md?p=2) the assets of which are [securities](/usc/15/80a–2.md?p=a-36) issued by a [management company](/usc/15/80a–4.md?p=3), the depositor of or principal underwriter for such trust, or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such depositor or underwriter, is to receive from such [management company](/usc/15/80a–4.md?p=3) or any affiliated [person](/usc/15/80a–2.md?p=a-28) thereof any fee or payment on [account](/usc/15/1681a.md?p=r-4) of payments on such certificate exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (b) **Exemptions—** If it appears to the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8) or otherwise, that smaller [companies](/usc/15/80a–2.md?p=a-8) are subjected to relatively higher operating costs and that in [order](/usc/15/8702.md?p=14) to make due allowance therefor it is necessary or appropriate in the public interest and consistent with the protection of investors that a provision or provisions of paragraph [(1)](#a-1), [(2)](#a-2), or [(3)](#a-3) of subsection (a) relative to [sales load](/usc/15/80a–2.md?p=a-35) be relaxed in the case of certain registered [investment companies](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or certain specified classes of such [companies](/usc/15/80a–2.md?p=a-8), the [Commission](/usc/15/80a–2.md?p=a-7) is authorized by rules and regulations or [order](/usc/15/8702.md?p=14) to grant any such [company](/usc/15/80a–2.md?p=a-8) or class of [companies](/usc/15/80a–2.md?p=a-8) appropriate qualified exemptions from the provisions of said paragraphs. - (c) **Sale of certificates; requirements—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate, unless— - (1) such certificate is a [redeemable security](/usc/15/80a–2.md?p=a-32); and - (2) the proceeds of all payments on such certificate (except such amounts as are deducted for [sales load](/usc/15/80a–2.md?p=a-35)) are deposited with a trustee or [custodian](/usc/15/57b–1.md?p=a-4) having the qualifications prescribed in paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trustees of [unit investment trusts](/usc/15/80a–4.md?p=2), and are held by such trustee or [custodian](/usc/15/57b–1.md?p=a-4) under an indenture or [agreement](/usc/15/7a.md?p=2) containing, in substance, the provisions required by paragraphs (2) and (3) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trust indentures of [unit investment trusts](/usc/15/80a–4.md?p=2). - (d) **Surrender of certificates; regulations—** Notwithstanding [subsection (a)](#a) of this section, it shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate unless the certificate provide that the holder thereof may surrender the certificate at any time within the first eighteen months after the issuance of the certificate and receive in payment thereof, in cash, the sum of (1) the value of his [account](/usc/15/1681a.md?p=r-4), and (2) an amount, from such underwriter or depositor, equal to that part of the excess paid for sales loading which is over 15 per centum of the gross payments made by the certificate holder. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules and regulations applicable to such underwriters and depositors specifying such reserve requirements as it deems necessary or appropriate in [order](/usc/15/8702.md?p=14) for such underwriters and depositors to carry out the obligations to refund sales charges required by this subsection. - (e) **Refund privileges; notice; rules—** With respect to any periodic payment plan certificate sold subject to the provisions of [subsection (d)](#d) of this section, the registered [investment company](/usc/15/77z–2.md?p=i-2) issuing such periodic payment plan certificate, or any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), shall in writing (1) inform each certificate holder who has missed three payments or more, within thirty days following the expiration of fifteen months after the issuance of the certificate, or, if any such holder has missed one payment or more after such period of fifteen months but prior to the expiration of eighteen months after the issuance of the certificate, at any time prior to the expiration of such eighteen-month period, of his right to surrender his certificate as specified in [subsection (d)](#d) of this section, and (2) inform the certificate holder of (A) the value of the holder’s [account](/usc/15/1681a.md?p=r-4) as of the time the written notice was given to such holder, and (B) the amount to which he is entitled as specified in [subsection (d)](#d) of this section. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules specifying the method, form, and contents of the notice required by this subsection. - (f) **Charges, statement; rules; surrender of certificates; regulations—** With respect to any periodic payment plan (other than a plan under which the amount of [sales load](/usc/15/80a–2.md?p=a-35) deducted from any payment thereon does not exceed 9 per centum of such payment), the [custodian](/usc/15/57b–1.md?p=a-4) bank for such plan shall mail to each certificate holder, within sixty days after the issuance of the certificate, a statement of charges to be deducted from the projected payments on the certificate and a notice of his right of withdrawal as specified in this section. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules specifying the method, form, and contents of the notice required by this subsection. The certificate holder may within forty-five days of the mailing of the notice specified in this subsection surrender his certificate and receive in payment thereof, in cash, the sum of (1) the value of his [account](/usc/15/1681a.md?p=r-4), and (2) an amount, from the underwriter or depositor, equal to the difference between the gross payments made and the net amount invested. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules and regulations applicable to underwriters and depositors of [companies](/usc/15/80a–2.md?p=a-8) issuing any such certificate specifying such reserve requirements as it deems necessary or appropriate in [order](/usc/15/8702.md?p=14) for such underwriters and depositors to carry out the obligations to refund sales charges required by this subsection. - (g) **Governing provisions; election—** Notwithstanding the provisions of subsections [(a)](#a) and [(d)](#d), a registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates may elect, by written notice to the [Commission](/usc/15/80a–2.md?p=a-7), to be governed by the provisions of [subsection (h)](#h) rather than the provisions of subsections [(a)](#a) and [(d)](#d) of this section. - (h) **Sale of certificates; restrictions—** Upon making the election specified in [subsection (g)](#g), it shall be unlawful for any such electing registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate, if— - (1) the [sales load](/usc/15/80a–2.md?p=a-35) on such certificate exceeds 9 per centum of the total payments to be made thereon; - (2) more than 20 per centum of any payment thereon is deducted for [sales load](/usc/15/80a–2.md?p=a-35), or an average of more than 16 per centum is deducted for [sales load](/usc/15/80a–2.md?p=a-35) from the first forty-eight monthly payments thereon, or their equivalent; - (3) the amount of [sales load](/usc/15/80a–2.md?p=a-35) deducted from any one of the first twelve monthly payments, the thirteenth through twenty-fourth monthly payments, the twenty-fifth through thirty-sixth monthly payments, or the thirty-seventh through forty-eighth monthly payments, or their equivalents, respectively, exceeds proportionately the amount deducted from any other such payment, or the amount deducted from any subsequent payment exceeds proportionately the amount deducted from any other subsequent payment; - (4) the deduction for [sales load](/usc/15/80a–2.md?p=a-35) on the excess of the payment or payments in any month over the minimum monthly payment, or its equivalent, to be made on the certificate exceeds the [sales load](/usc/15/80a–2.md?p=a-35) applicable to payments subsequent to the first forty-eight monthly payments or their equivalent; - (5) the first payment on such certificate is less than $20, or any subsequent payment is less than $10; - (6) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [management company](/usc/15/80a–4.md?p=3), the proceeds of such certificate or the [securities](/usc/15/80a–2.md?p=a-36) in which such proceeds are invested are subject to management fees (other than fees for administrative services of the character described in clause (C) of paragraph (2) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a)) exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, whether such fees are payable to such [company](/usc/15/80a–2.md?p=a-8) or to [investment advisers](/usc/15/6102.md?p=d-2-B-ii) thereof; or - (7) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [unit investment trust](/usc/15/80a–4.md?p=2) the assets of which are [securities](/usc/15/80a–2.md?p=a-36) issued by a [management company](/usc/15/80a–4.md?p=3), the depositor of or principal underwriter for such trust, or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such depositor or underwriter, is to receive from such [management company](/usc/15/80a–4.md?p=3) or any affiliated [person](/usc/15/80a–2.md?p=a-28) thereof any fee or payment on [account](/usc/15/1681a.md?p=r-4) of payments on such certificate exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (i) **Applicability to registered separate account funding variable insurance contracts—** - (1) This section does not apply to any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or to the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) and principal underwriter of such [account](/usc/15/1681a.md?p=r-4), except as provided in [paragraph (2)](#i-2). - (2) It shall be unlawful for any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or for the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) of such [account](/usc/15/1681a.md?p=r-4), to sell any such contract unless— - (A) such contract is a [redeemable security](/usc/15/80a–2.md?p=a-32); and - (B) the [insurance company](/usc/15/80a–2.md?p=a-17) complies with [section 80a–26(f) of this title](/usc/15/80a–26.md?p=f) and any rules or regulations issued by the [Commission](/usc/15/80a–2.md?p=a-7) under [section 80a–26(f) of this title](/usc/15/80a–26.md?p=f). - (j) **Termination of sales—** - (1) **Termination—** Effective 30 days after September 29, 2006, it shall be unlawful, subject to [subsection (i)](#i)— - (A) for any registered [investment company](/usc/15/77z–2.md?p=i-2) to issue any periodic payment plan certificate; or - (B) for such [company](/usc/15/80a–2.md?p=a-8), or any depositor of or underwriter for any such [company](/usc/15/80a–2.md?p=a-8), or any other [person](/usc/15/80a–2.md?p=a-28), to sell such a certificate. - (2) **No invalidation of existing certificates—** [Paragraph (1)](#j-1) shall not be construed to alter, invalidate, or otherwise affect any rights or obligations, including rights of redemption, under any periodic payment plan certificate issued and sold before 30 days after September 29, 2006. # §80a–28. Face-amount certificate companies - (a) **Issuance or sale of certificates—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, unless— - (1) such [company](/usc/15/80a–2.md?p=a-8), if organized before March 15, 1940, was actively and continuously engaged in selling [face-amount certificates](/usc/15/80a–2.md?p=a-15) on and before that date, and has outstanding capital stock worth upon a fair valuation of assets not less than $50,000; or if organized on or after March 15, 1940, has capital stock in an amount not less than $250,000 which has been bona fide subscribed and paid for in cash; and - (2) such [company](/usc/15/80a–2.md?p=a-8) maintains at all times minimum certificate reserves on all its outstanding [face-amount certificates](/usc/15/80a–2.md?p=a-15) in an aggregate amount calculated and adjusted as follows: - (A) the reserves for each certificate of the installment type shall be based on assumed annual, semi-annual, quarterly, or monthly reserve payments according to the manner in which gross payments for any [certificate year](#d) are made by the holder, which reserve payments shall be sufficient in amount, as and when accumulated at a rate not to exceed 3½ per centum per annum compounded annually, to provide the minimum maturity or face amount of the certificate when due. Such reserve payments may be graduated according to [certificate years](#d) so that the reserve payment or payments for the first [certificate year](#d) shall amount to at least 50 per centum of the required gross annual payment for such year and the reserve payment or payments for each of the second to fifth [certificate years](#d) inclusive shall amount to at least 93 per centum of each such year’s required gross annual payment and for the sixth and each subsequent [certificate year](#d) the reserve payment or payments shall amount to at least 96 per centum of each such year’s required gross annual payment: Provided, That such aggregate reserve payments shall amount to at least 93 per centum of the aggregate gross annual payments required to be made by the holder to obtain the maturity of the certificate. The [company](/usc/15/80a–2.md?p=a-8) may at its option take as loading from the gross payment or payments for a [certificate year](#d), as and when made by the certificate holder, an amount or amounts equal in the aggregate for such year to not more than the excess, if any, of the gross payment or payments required to be made by the holder for such year, over and above the percentage of the gross annual payment required herein for such year for reserve purposes. Such loading may be taken by the [company](/usc/15/80a–2.md?p=a-8) prior to or after the setting up of the reserve payment or payments for such year and the reserve payment or payments for such year may be graduated and adjusted to correspond with the amount of the gross payment or payments made by the certificate holder for such year less the loading so taken; - (B) if the foregoing minimum percentages of the gross annual payments required under the provisions of such certificate should produce reserve payments larger than are necessary at 3½ per centum per annum compounded annually to provide the minimum maturity or face amount of the certificate when due, the reserve shall be based upon reserve payments accumulated as provided under preceding subparagraph (A) of this paragraph except that in lieu of the 3½ per centum rate specified therein, such rate shall be lowered to the minimum rate, expressed in multiples of one-eighth of 1 per centum, which will accumulate such reserve payments to the maturity value when due; - (C) if the actual annual gross payment to be made by the certificate holder on any certificate issued prior to or after the effective date of this chapter is less than the amount of any assumed reserve payment or payments for a [certificate year](#d), such [company](/usc/15/80a–2.md?p=a-8) shall maintain as a part of such minimum certificate reserves a deficiency reserve equal to the total present value of future deficiencies in the gross payments, calculated at a rate not to exceed 3½ per centum per annum compounded annually; - (D) for each certificate of the installment type the amount of the reserve shall at any time be at least equal to (1) the then amount of the reserve payments set up under subparagraphs (A) or (B) of this paragraph; (2) the accumulations on such reserve payments as computed under subparagraphs (A) or (B) of this paragraph; (3) the amount of any deficiency reserve required under subparagraph (C) of this paragraph; and (4) such amount as shall have been credited to the [account](/usc/15/1681a.md?p=r-4) of each certificate holder in the form of any [credit](/usc/15/1679a.md?p=4), or any dividend, or any interest in addition to the minimum maturity amount specified in such certificate, plus any accumulations on any amount or amounts so credited, at a rate not exceeding 3½ per centum per annum compounded annually; - (E) for each certificate which is fully paid, including any fully paid obligations resulting from or effected upon the maturity of the previously issued certificate, and for each paid-up certificate issued as provided in [subsection (f)](#f) of this section prior to maturity, the amount of the reserve shall at any time be at least equal to (1) such amount as and when accumulated at a rate not to exceed 3½ per centum per annum compounded annually, will provide the amount or amounts payable when due and (2) such amount as shall have been credited to the [account](/usc/15/1681a.md?p=r-4) of each such certificate holder in the form of any [credit](/usc/15/1679a.md?p=4), or any dividend, or any interest in addition to the minimum maturity amount specified in the certificate, plus any accumulations on any amount or amounts so credited, at a rate not exceeding 3½ per centum per annum compounded annually; - (F) for each certificate of the installment type under which gross payments have been made by or credited to the holder thereof covering a payment period or periods or any part thereof beyond the then current payment period as defined by the terms of such certificate, and for which period or periods no reserve has been set up under subparagraph (A) or (B) of this paragraph, an advance payment reserve shall be set up and maintained in the amount of the present value of any such unapplied advance gross payments, computed at a rate not to exceed 3½ per centum per annum compounded annually; - (G) such appropriate contingency reserves for death and disability benefits and for reinstatement rights on any such certificate providing for such benefits or rights as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe by rule, regulation, or [order](/usc/15/8702.md?p=14) based upon the experience of face-amount [companies](/usc/15/80a–2.md?p=a-8) in relation to such contingencies. At no time shall the aggregate certificate reserves herein required by [subparagraphs (A) to (F)](#a-A..a-F) of this paragraph, be less than the aggregate surrender values and other amounts to which all certificate holders may be then entitled. For the purpose of this subsection, no certificate of the installment type shall be deemed to be outstanding if before a surrender value has been attained the holder thereof has been in continuous [default](#f) in making his payments thereon for a period of one year. - (b) **Asset requirements prior to sale of certificates—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, unless such [company](/usc/15/80a–2.md?p=a-8) has, in cash or qualified investments, assets having a value not less than the aggregate amount of the capital stock requirement and certificate reserves as computed under the provisions of [subsection (a)](#a) hereof. As used in this subsection, “qualified investments” means investments of a kind which life-[insurance companies](/usc/15/80a–2.md?p=a-17) are permitted to invest in or hold under the provisions of the Code of the District of Columbia as heretofore or hereafter amended, and such other investments as the [Commission](/usc/15/80a–2.md?p=a-7) shall by rule, regulation, or [order](/usc/15/8702.md?p=14) authorize as qualified investments. Such investments shall be valued in accordance with the provisions of said Code where such provisions are applicable. Investments to which such provisions do not apply shall be valued in accordance with such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe for the protection of investors. - (c) **Certificate reserve requirements—** The [Commission](/usc/15/80a–2.md?p=a-7) shall by rule, regulation, or [order](/usc/15/8702.md?p=14), in the public interest or for the protection of investors, require a registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to deposit and maintain, upon such terms and conditions as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe and as are appropriate for the protection of investors, with one or more institutions having the qualifications required by paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for a trustee of a [unit investment trust](/usc/15/80a–4.md?p=2), all or any part of the investments maintained by such [company](/usc/15/80a–2.md?p=a-8) as certificate reserve requirements under the provisions of [subsection (b)](#b) hereof: Provided, however, That where qualified investments are maintained on deposit by such [company](/usc/15/80a–2.md?p=a-8) in respect of its liabilities under certificates issued to or held by residents of any [State](/usc/15/80a–2.md?p=a-39) as required by the statute of such [State](/usc/15/80a–2.md?p=a-39) or by any [order](/usc/15/8702.md?p=14), regulation, or requirement of such [State](/usc/15/80a–2.md?p=a-39) or any official or agency thereof, the amount so on deposit, but not to exceed the amount of reserves required by [subsection (a)](#a) hereof for the certificates so issued or held, shall be deducted from the amount of qualified investments that may be required to be deposited hereunder. Assets which are qualified investments under [subsection (b)](#b) and which are deposited under or as permitted by this subsection, may be used and shall be considered as a part of the assets required to be maintained under the provisions of said [subsection (b)](#b). - (d) **Provisions required in certificate—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, unless such certificate contains a provision or provisions to the effect— - (1) that, in respect of any certificate of the installment type, during the first [certificate year](#d) the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the reserve payments as specified in subparagraph (A) or (B) of paragraph (2) of [subsection (a)](#a) and at the end of such [certificate year](#d), a value payable in cash at least equal to 50 per centum of the amount of the gross annual payment required thereby for such year; - (2) that, in respect of any certificate of the installment type, at any time after the expiration of the first [certificate year](#d) and prior to maturity, the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the then amount of the reserve for such certificate required by numbered items (1) and (2) of subparagraph (D) of [paragraph (2)](#a-2) of subsection (a) hereof, less a surrender charge that shall not exceed 2 per centum of the face or maturity amount of the certificate, or 15 per centum of the amount of such reserve, whichever is the lesser, but in no event shall such value be less than 50 per centum of the amount of such reserve. The amount of the surrender value for the end of each [certificate year](#d) shall be set out in the certificate; - (3) that, in respect of any certificate of the installment type, the holder of the certificate, upon surrender thereof for cash or upon receipt of a paid-up certificate as provided in [subsection (f)](#f) hereof, shall be entitled to a value payable in cash equal to the then amount of any advance payment reserve under such certificate required by subparagraph (F) of paragraph (2) of [subsection (a)](#a) hereof in addition to any other amounts due the holder hereunder; - (4) that at any time prior to maturity, in respect of any certificate which is fully paid, the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the then amount of the reserve for such certificate required by item (1) of subparagraph (E) of [paragraph (2)](#a-2) of subsection (a) hereof, less a surrender charge that shall not exceed 2 per centum of the face or maturity amount of the certificate, or 15 per centum of the amount of such reserve, whichever is the lesser: Provided, however, That such surrender charge shall not apply as to any obligations of a fully paid type resulting from the maturity of a previously issued certificate. The amount of the surrender value for the end of each [certificate year](#d) shall be set out in the certificate; - (5) that in respect of any certificate, the holder of the certificate, upon maturity, upon surrender thereof for cash or upon receipt of a paid-up certificate as provided in [subsection (f)](#f) hereof, shall be entitled to a value payable in cash equal to the then amount of the reserve, if any, for such certificate required by item (4) of subparagraph (D) of [paragraph (2)](#a-2) of subsection (a) hereof or item (2) of subparagraph (E) of [paragraph (2)](#d-2) of said [subsection (a)](#a) in addition to any other amounts due the holder hereunder. The term “certificate year” as used in this section in respect of any certificate of the installment type means a period or periods for which one year’s payment or payments as provided by the certificate have been made thereon by the holder and the certificate maintained in force by such payments for the time for which the same have been made, and in respect of any certificate which is fully paid or paid-up means any year ending on the anniversary of the date of issuance of the certificate. Any certificate may provide for loans or advances by the [company](/usc/15/80a–2.md?p=a-8) to the certificate holder on the [security](/usc/15/80a–2.md?p=a-36) of such certificate upon terms prescribed therein but at an interest rate not exceeding 6 per centum per annum. The amount of the required reserves, deposits, and the surrender values thereof available to the holder may be adjusted to take into [account](/usc/15/1681a.md?p=r-4) any unpaid balance on such loans or advances and interest thereon, for the purposes of this subsection and subsections [(b)](#b) and [(c)](#c) hereof. Any certificate may provide that the [company](/usc/15/80a–2.md?p=a-8) at its option may, prior to the maturity thereof, defer any payment or payments to the certificate holder to which he may be entitled under this subsection, for a period of not more than thirty days: Provided, That in the event such option is exercised by the [company](/usc/15/80a–2.md?p=a-8), interest shall accrue on any payment or payments due to the holder, for the period of such deferment at a rate equal to that used in accumulating the reserves for such certificate: And provided further, That the [Commission](/usc/15/80a–2.md?p=a-7) may, by rules and regulations or [orders](/usc/15/8702.md?p=14) in the public interest or for the protection of investors, make provision for any other deferment upon such terms and conditions as it shall prescribe. - (e) **Liability of holder to legal action for unpaid amount of certificate—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, which certificate makes the holder liable to any legal action or proceeding for any unpaid amount on such certificate. - (f) **Optional right to paid up certificate in lieu of cash surrender value—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, (1) unless such [face-amount certificate](/usc/15/80a–2.md?p=a-15) contains a provision or provisions to the effect that the holder shall have an optional right to receive a paid-up certificate in lieu of the then attained cash surrender value provided therein and in the amount of such value plus accumulations thereon at a rate to be specified in the paid-up certificate equal to that used in computing the reserve on the original certificate under subparagraph (A) or (B) of paragraph (2) of [subsection (a)](#a) of this section, such paid-up certificate to become due and payable at the end of a period equal to the balance of the term of such original certificate before maturity; and during the period prior to maturity such paid-up certificate shall have a cash value upon surrender thereof equal to the then amount of the reserve therefor; and (2) unless such [face-amount certificate](/usc/15/80a–2.md?p=a-15) contains a further provision or provisions to the effect that if the holder be in continuous default in his payments on such certificate for a period of six months without having exercised his option to receive a paid-up certificate, as herein provided, the [company](/usc/15/80a–2.md?p=a-8) at the expiration of such six months shall pay the surrender value in cash if such value is less than $100 or if such value is $100 or more shall issue such paid-up certificate to such holder and such payment or issuance, plus the payment of all other amounts to which he may be then entitled under the original certificate, shall operate to cancel his original certificate: Provided, That in lieu of the issuance of a new paid-up certificate the original certificate may be converted into a paid-up certificate with the same effect; and (3) unless, where such certificate provides, in the event of default, for the deferment of payments thereon by the holder or of the due dates of such payments or of the maturity date of the certificate, it shall also provide in effect for the right of reinstatement by the holder of the certificate after default and for an option in the holder, at the time of reinstatement, to make up the payment or payments for the default period next preceding such reinstatement with interest thereon not exceeding 6 per centum per annum, with the same effect as if no such default in making such payments had occurred. The term “default” as used in this subsection shall, without restricting its usual meaning, include a failure to make a payment or payments as and when provided by the certificate. - (g) **Application of section to company issuing certificates only to holders of previously issued certificates—** The foregoing provisions of this section shall not apply to a [face-amount certificate company](/usc/15/80a–4.md?p=1) which on or before the effective date of this chapter has discontinued the offering of [face-amount certificates](/usc/15/80a–2.md?p=a-15) to the public and issues [face-amount certificates](/usc/15/80a–2.md?p=a-15) only to the holders of certificates previously issued pursuant to an obligation expressed or implied in such certificates. - (h) **Declaration or payment of dividends—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) which does not maintain the minimum certificate reserve on all its outstanding [face-amount certificates](/usc/15/80a–2.md?p=a-15) issued prior to the effective date of this chapter, in an aggregate amount calculated and adjusted as provided in this section to declare or pay any dividends on the shares of such [company](/usc/15/80a–2.md?p=a-8) for or during any calendar year which shall exceed one-third of the net earnings for the next preceding calendar year or which shall exceed 10 per centum of the aggregate net earnings for the next preceding five calendar years, whichever is the lesser amount, or any dividend which shall have been forbidden by the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to the provision of the next sentence of this paragraph. At least thirty days before such [company](/usc/15/80a–2.md?p=a-8) shall declare, pay, or distribute any dividend, it shall give the [Commission](/usc/15/80a–2.md?p=a-7) written notice of its intention to declare, pay, or distribute the same; and if at any time it shall appear to the [Commission](/usc/15/80a–2.md?p=a-7) that the declaration, payment or distribution of any dividend for or during any calendar year might impair the financial integrity of such [company](/usc/15/80a–2.md?p=a-8) or its ability to meet its liabilities under its outstanding [face-amount certificates](/usc/15/80a–2.md?p=a-15), it may by [order](/usc/15/8702.md?p=14) forbid the declaration, distribution, or payment of any such dividend. - (i) **Application of section to certificates issued prior to effective date of section—** The foregoing provisions of this section shall apply to all [face-amount certificates](/usc/15/80a–2.md?p=a-15) issued prior to the effective date of this subsection; to the collection or acceptance of any payment on such certificates; to the issuance of [face-amount certificates](/usc/15/80a–2.md?p=a-15) to the holders of such certificates pursuant to an obligation expressed or implied in such certificates; to the provisions of such certificates; to the minimum certificate reserves and deposits maintained with respect thereto; and to the assets that the [issuer](/usc/15/80a–2.md?p=a-22) of such certificate was and is required to have with respect to such certificates. With respect to all [face-amount certificates](/usc/15/80a–2.md?p=a-15) issued after the effective date of this subsection, the provisions of this section shall apply except as hereinafter provided. - (1) Notwithstanding subparagraph (A) of paragraph (2) of [subsection (a)](#a), the reserves for each certificate of the installment type shall be based on assumed annual, semiannual, quarterly, or monthly reserve payments according to the manner in which gross payments for any [certificate year](#d) are made by the holder, which reserve payments shall be sufficient in amount, as and when accumulated at a rate not to exceed 3½ per centum per annum compounded annually, to provide the minimum maturity or face amount of the certificate when due. Such reserve payments may be graduated according to [certificate years](#d) so that the reserve payment or payments for the first three [certificate years](#d) shall amount to at least 80 per centum of the required gross annual payment for such years; the reserve payment or payments for the fourth [certificate year](#d) shall amount to at least 90 per centum of such year’s required gross annual payment; the reserve payment or payments for the fifth [certificate year](#d) shall amount to at least 93 per centum of such year’s gross annual payment; and for the sixth and each subsequent [certificate year](#d) the reserve payment or payments shall amount to at least 96 per centum of each such year’s required gross annual payment: Provided, That such aggregate reserve payments shall amount to at least 93 per centum of the aggregate gross annual payments required to be made by the holder to obtain the maturity of the certificate. The [company](/usc/15/80a–2.md?p=a-8) may at its option take as loading from the gross payment or payments for a [certificate year](#d), as and when made by the certificate holder, an amount or amounts equal in the aggregate for such year to not more than the excess, if any, of the gross payment or payments required to be made by the holder for such year, over and above the percentage of the gross annual payment required herein for such year for reserve purposes. Such loading may be taken by the [company](/usc/15/80a–2.md?p=a-8) prior to or after the setting up of the reserve payment or payments for such year and the reserve payment or payments for such year may be graduated and adjusted to correspond with the amount of the gross payment or payments made by the certificate holder for such year less the loading so taken. - (2) Notwithstanding paragraphs [(1)](#d-1) and [(2)](#d-2) of subsection (d), (A) in respect of any certificate of the installment type, during the first [certificate year](#d), the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than 80 per centum of the amount of the gross payments made on the certificate; and (B) in respect of any certificate of the installment type, at any time after the expiration of the first [certificate year](#d) and prior to maturity, the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the then amount of the reserve for such certificate required by clauses (1) and (2) of subparagraph (D) of [paragraph (2)](#a-2) of subsection (a), less a surrender charge that shall not exceed 2 per centum of the face or maturity amount of the certificate, or 15 per centum of the amount of such reserve, whichever is the lesser, but in no event shall such value be less than 80 per centum of the gross payments made on the certificate. The amount of the surrender value for the end of each [certificate year](#d) shall be set out in the certificate. # §80a–29. Reports and financial statements of investment companies and affiliated persons - (a) **Annual report by company—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall file annually with the [Commission](/usc/15/80a–2.md?p=a-7) such information, documents, and reports as [investment companies](/usc/15/77z–2.md?p=i-2) having [securities](/usc/15/80a–2.md?p=a-36) registered on a [national securities exchange](/usc/15/80a–2.md?p=a-26) are required to file annually pursuant to section 13(a) of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78m(a)](/usc/15/78m.md?p=a)] and the rules and regulations issued thereunder. - (b) **Semi-annual or quarterly filing of information; copies of periodic or interim reports sent to security holders—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall file with the [Commission](/usc/15/80a–2.md?p=a-7)— - (1) such information, documents, and reports (other than financial statements), as the [Commission](/usc/15/80a–2.md?p=a-7) may require to keep reasonably current the information and documents contained in the [registration statement](/usc/15/77b.md?p=a-8) of such [company](/usc/15/80a–2.md?p=a-8) filed under this subchapter; and - (2) copies of every periodic or interim report or similar communication containing financial statements and transmitted to any class of such [company](/usc/15/80a–2.md?p=a-8)’s [security](/usc/15/80a–2.md?p=a-36) holders, such copies to be filed not later than ten days after such transmission. Any information or documents contained in a report or other communication to [security](/usc/15/80a–2.md?p=a-36) holders filed pursuant to paragraph (2) of this subsection may be incorporated by reference in any report subsequently or concurrently filed pursuant to paragraph (1) of this subsection. - (c) **Minimizing reporting burdens—** - (1) The [Commission](/usc/15/80a–2.md?p=a-7) shall take such action 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](/usc/15/77z–2.md?p=i-2) and their affiliated [persons](/usc/15/80a–2.md?p=a-28) in exercising its [authority](/usc/15/3051.md?p=1)— - (A) under [subsection (f)](#f); and - (B) under [subsection (b)(1)](#b-1), if the [Commission](/usc/15/80a–2.md?p=a-7) requires the filing of information, documents, and reports under that subsection on a basis more frequently than semiannually. - (2) Action taken by the [Commission](/usc/15/80a–2.md?p=a-7) under [paragraph (1)](#c-1) shall include considering, and requesting public comment on— - (A) feasible alternatives that minimize the reporting burdens on registered [investment companies](/usc/15/77z–2.md?p=i-2); and - (B) the utility of such information, documents, and reports to the [Commission](/usc/15/80a–2.md?p=a-7) in relation to the costs to registered [investment companies](/usc/15/77z–2.md?p=i-2) and their affiliated [persons](/usc/15/80a–2.md?p=a-28) of providing such information, documents, and reports. - (d) **Reports under this section in lieu of reports under other provisions of law—** The [Commission](/usc/15/80a–2.md?p=a-7) shall issue rules and regulations permitting the filing with the [Commission](/usc/15/80a–2.md?p=a-7), and with any [national securities exchange](/usc/15/80a–2.md?p=a-26) concerned, of copies of periodic reports, or of extracts therefrom, filed by any registered [investment company](/usc/15/77z–2.md?p=i-2) pursuant to subsections [(a)](#a) and [(b)](#b), in lieu of any reports and documents required of such [company](/usc/15/80a–2.md?p=a-8) under section 13 or 15(d) of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78m](/usc/15/78m.md) or 78o(d)]. - (e) **Semiannual reports to stockholders—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall transmit to its stockholders, at least semiannually, reports containing such of the following information and financial statements or their equivalent, as of a reasonably current date, as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rules and regulations for the protection of investors, which reports shall not be misleading in any material respect in the light of the reports required to be filed pursuant to subsections [(a)](#a) and [(b)](#b): - (1) a balance sheet accompanied by a statement of the aggregate value of investments on the date of such balance sheet; - (2) a list showing the amounts and values of [securities](/usc/15/80a–2.md?p=a-36) owned on the date of such balance sheet; - (3) a statement of income, for the period covered by the report, which shall be itemized at least with respect to each category of income and expense representing more than 5 per centum of total income or expense; - (4) a statement of surplus, which shall be itemized at least with respect to each charge or [credit](/usc/15/1679a.md?p=4) to the surplus [account](/usc/15/1681a.md?p=r-4) which represents more than 5 per centum of the total charges or [credits](/usc/15/1679a.md?p=4) during the period covered by the report; - (5) a statement of the aggregate remuneration paid by the [company](/usc/15/80a–2.md?p=a-8) during the period covered by the report (A) to all [directors](/usc/15/80a–2.md?p=a-12) and to all members of any [advisory board](/usc/15/80a–2.md?p=a-1) for regular compensation; (B) to each [director](/usc/15/80a–2.md?p=a-12) and to each member of an [advisory board](/usc/15/80a–2.md?p=a-1) for special compensation; (C) to all officers; and (D) to each [person](/usc/15/80a–2.md?p=a-28) of whom any officer or [director](/usc/15/80a–2.md?p=a-12) of the [company](/usc/15/80a–2.md?p=a-8) is an affiliated [person](/usc/15/80a–2.md?p=a-28); and - (6) a statement of the aggregate dollar amounts of [purchases](/usc/15/78c–5.md?p=g) and sales of investment [securities](/usc/15/80a–2.md?p=a-36), other than [Government securities](/usc/15/80a–2.md?p=a-16), made during the period covered by the report: - (f) **Additional information—** The [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, require that semiannual reports containing the information set forth in [subsection (e)](#e) include such other information as the [Commission](/usc/15/80a–2.md?p=a-7) deems necessary or appropriate in the public interest or for the protection of investors. - (g) **Certificate of independent public accountants—** Financial statements contained in annual reports required pursuant to subsections [(a)](#a) and [(e)](#e), if required by the rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7), shall be accompanied by a certificate of independent public accountants. The certificate of such independent public accountants shall be based upon an [audit](/usc/15/7201.md?p=2) not less in scope or procedures followed than that which independent public accountants would ordinarily make for the purpose of presenting comprehensive and dependable financial statements, and shall contain such information as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, by rules and regulations in the public interest or for the protection of investors, as to the nature and scope of the [audit](/usc/15/7201.md?p=2) and the findings and opinion of the accountants. Each such report shall [state](/usc/15/80a–2.md?p=a-39) that such independent public accountants have verified [securities](/usc/15/80a–2.md?p=a-36) owned, either by actual examination, or by receipt of a certificate from the [custodian](/usc/15/57b–1.md?p=a-4), as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rules and regulations. - (h) **Duties and liabilities of affiliated persons—** Every [person](/usc/15/80a–2.md?p=a-28) who is directly or indirectly the beneficial owner of more than 10 per centum of any class of outstanding [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) of which a registered [closed-end company](/usc/15/80a–5.md?p=a-2) is the [issuer](/usc/15/80a–2.md?p=a-22) or who is an officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such a [company](/usc/15/80a–2.md?p=a-8) shall in respect of his transactions in any [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) be subject to the same duties and liabilities as those imposed by section 16 of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78p](/usc/15/78p.md)] upon certain beneficial owners, [directors](/usc/15/80a–2.md?p=a-12), and officers in respect of their transactions in certain [equity securities](/usc/15/9041.md?p=6). - (i) **Disclosure to church plan participants—** A [person](/usc/15/80a–2.md?p=a-28) that maintains a church plan that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) solely by reason of [section 80a–3(c)(14) of this title](/usc/15/80a–3.md?p=c-14) shall provide disclosure to plan participants, in writing, and not less frequently than annually, and for new participants joining such a plan after May 31, 1996, as soon as is practicable after joining such plan, that— - (1) the plan, or any [company](/usc/15/80a–2.md?p=a-8) or [account](/usc/15/1681a.md?p=r-4) maintained to manage or hold plan assets and interests in such plan, [company](/usc/15/80a–2.md?p=a-8), or [account](/usc/15/1681a.md?p=r-4), are not subject to registration, regulation, or reporting under this subchapter, the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or [State](/usc/15/80a–2.md?p=a-39) [securities laws](/usc/15/77z–2.md?p=i-5); and - (2) plan participants and beneficiaries therefore will not be afforded the protections of those provisions. - (j) **Notice to Commission—** The [Commission](/usc/15/80a–2.md?p=a-7) may issue rules and regulations to require any [person](/usc/15/80a–2.md?p=a-28) that maintains a church plan that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) solely by reason of [section 80a–3(c)(14) of this title](/usc/15/80a–3.md?p=c-14) to file a notice with the [Commission](/usc/15/80a–2.md?p=a-7) containing such information and in such form as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or consistent with the protection of investors. - (k) **Data standards for reports—** - (1) **Requirement—** The [Commission](/usc/15/80a–2.md?p=a-7) shall, by rule, adopt data standards for all reports required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this section, except that the [Commission](/usc/15/80a–2.md?p=a-7) may exempt exhibits, signatures, and certifications from those data standards. - (2) **Consistency—** The data standards required under [paragraph (1)](#k-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §80a–30. Accounts and records - (a) **Maintenance of records—** - (1) **In general—** Each registered [investment company](/usc/15/77z–2.md?p=i-2), and each underwriter, [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is a majority-owned subsidiary of such a [company](/usc/15/80a–2.md?p=a-8), shall maintain and preserve such records (as defined in [section 78c(a)(37) of this title](/usc/15/78c.md?p=a-37)) for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Each [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is not a majority-owned subsidiary of, and each depositor of any registered [investment company](/usc/15/77z–2.md?p=i-2), and each principal underwriter for any registered [investment company](/usc/15/77z–2.md?p=i-2) other than a [closed-end company](/usc/15/80a–5.md?p=a-2), shall maintain and preserve for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe by rules and regulations, such records as are necessary or appropriate to record such [person](/usc/15/80a–2.md?p=a-28)’s transactions with such registered [company](/usc/15/80a–2.md?p=a-8). Each [person](/usc/15/80a–2.md?p=a-28) having custody or use of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of a registered [investment company](/usc/15/77z–2.md?p=i-2) shall maintain and preserve all records that relate to the custody or use by such [person](/usc/15/80a–2.md?p=a-28) of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of the registered [investment company](/usc/15/77z–2.md?p=i-2) for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7), by rule or regulation, may prescribe, as necessary or appropriate in the public interest or for the protection of investors. - (2) **Minimizing compliance burden—** In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/80a–2.md?p=a-7) 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](/usc/15/80a–2.md?p=a-28) required to maintain records under this subsection (hereafter in this section referred to as “subject [persons](/usc/15/80a–2.md?p=a-28)”). Such steps shall include considering, and requesting public comment on— - (A) feasible alternatives that minimize the recordkeeping burdens on subject [persons](/usc/15/80a–2.md?p=a-28); - (B) the necessity of such records in view of the public benefits derived from the independent scrutiny of such records through [Commission](/usc/15/80a–2.md?p=a-7) examination; - (C) the costs associated with maintaining the information that would be required to be reflected in such records; and - (D) the effects that a proposed recordkeeping requirement would have on internal compliance policies and procedures. - (b) **Examinations of records—** - (1) **In general—** All records required to be maintained and preserved in accordance with [subsection (a)](#a) shall be subject at any time and from time to time to such reasonable periodic, special, and other examinations by the [Commission](/usc/15/80a–2.md?p=a-7), or any member or representative thereof, as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (2) **Availability—** For purposes of examinations referred to in [paragraph (1)](#b-1), any subject [person](/usc/15/80a–2.md?p=a-28) shall make available to the [Commission](/usc/15/80a–2.md?p=a-7) or its representatives any copies or extracts from such records as may be prepared without undue effort, expense, or delay as the [Commission](/usc/15/80a–2.md?p=a-7) or its representatives may reasonably request. - (3) **Commission action—** The [Commission](/usc/15/80a–2.md?p=a-7) shall exercise its [authority](/usc/15/3051.md?p=1) under this subsection with due regard for the benefits of internal compliance policies and procedures and the effective implementation and operation thereof. - (4) **Records of persons with custody or use—** - (A) **In general—** Records of [persons](/usc/15/80a–2.md?p=a-28) having custody or use of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of a registered [investment company](/usc/15/77z–2.md?p=i-2) 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 representatives of the [Commission](/usc/15/80a–2.md?p=a-7), as the [Commission](/usc/15/80a–2.md?p=a-7) deems necessary or appropriate in the public interest or for the protection of investors. - (B) **Certain persons subject to other regulation—** Any [person](/usc/15/80a–2.md?p=a-28) that is subject to regulation and examination by a Federal [financial institution](/usc/15/1681s–2.md?p=a-7-G-ii) regulatory agency (as such term is defined under [section 212(c)(2) of title 18](/usc/18/212.md?p=c-2)) may satisfy any examination request, information request, or document request described under [subparagraph (A)](#b-4-A), by providing to the [Commission](/usc/15/80a–2.md?p=a-7) a detailed listing, in writing, of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of the registered [investment company](/usc/15/77z–2.md?p=i-2) within the custody or use of such [person](/usc/15/80a–2.md?p=a-28). - (c) **Regulatory authority—** The [Commission](/usc/15/80a–2.md?p=a-7) may, in the public interest or for the protection of investors, issue rules and regulations providing for a reasonable degree of uniformity in the accounting policies and principles to be followed by registered [investment companies](/usc/15/77z–2.md?p=i-2) in maintaining their accounting records and in preparing financial statements required pursuant to this subchapter. - (d) **Exemption authority—** The [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8) made by any registered [investment company](/usc/15/77z–2.md?p=i-2), may by [order](/usc/15/8702.md?p=14) exempt a specific transaction or transactions from the provisions of any rule or regulation made pursuant to subsection (e), if the [Commission](/usc/15/80a–2.md?p=a-7) finds that such rule or regulation should not reasonably be applied to such transaction. # §80a–31. Accountants and auditors - (a) **Selection of accountant—** It shall be unlawful for any registered [management company](/usc/15/80a–4.md?p=3) or registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to file with the [Commission](/usc/15/80a–2.md?p=a-7) any financial statement signed or certified by an independent public accountant, unless— - (1) such accountant shall have been selected at a meeting held within thirty days before or after the beginning of the fiscal year or before the annual meeting of stockholders in that year by the vote, cast in [person](/usc/15/80a–2.md?p=a-28), of a majority of those members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such registered [company](/usc/15/80a–2.md?p=a-8); - (2) such selection shall have been submitted for ratification or rejection at the next succeeding annual meeting of stockholders if such meeting be held, except that any vacancy occurring between annual meetings, due to the death or resignation of the accountant, may be filled by the vote of a majority of those members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such registered [company](/usc/15/80a–2.md?p=a-8), cast in [person](/usc/15/80a–2.md?p=a-28) at a meeting called for the purpose of voting on such action; - (3) the employment of such accountant shall have been conditioned upon the right of the [company](/usc/15/80a–2.md?p=a-8) by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) at any meeting called for the purpose to terminate such employment forthwith without any penalty; and - (4) such certificate or report of such accountant shall be addressed both to the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) and to the [security](/usc/15/80a–2.md?p=a-36) holders thereof. If the selection of an accountant has been rejected pursuant to [paragraph (2)](#a-2) or his employment terminated pursuant to [paragraph (3)](#a-3), the vacancy so occurring may be filled by a vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), either at the meeting at which the rejection or termination occurred or, if not so filled, at a subsequent meeting which shall be called for the purpose. In the case of a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md), no ratification of the employment of such accountant shall be required but such employment may be terminated and such accountant removed by action of the holders of record of a majority of the outstanding shares of beneficial interest in such trust in the same manner as is provided in [section 80a–16(c) of this title](/usc/15/80a–16.md) in respect of the removal of a trustee, and all the provisions therein contained as to the calling of a meeting shall be applicable. In the event of such termination and removal, the vacancy so occurring may be filled by action of the holders of record of a majority of the shares of beneficial interest either at the meeting, if any, at which such termination and removal occurs, or by instruments in writing filed with the [custodian](/usc/15/57b–1.md?p=a-4), or if not so filed within a reasonable time then at a subsequent meeting which shall be called by the trustees for the purpose. The provisions of paragraph (42) of [section 80a–2(a) of this title](/usc/15/80a–2.md?p=a) as to a majority shall be applicable to the vote cast at any meeting of the shareholders of such a trust held pursuant to this subsection. - (b) **Selection of controller or other principal accounting officer—** No registered [management company](/usc/15/80a–4.md?p=3) or registered [face-amount certificate company](/usc/15/80a–4.md?p=1) shall file with the [Commission](/usc/15/80a–2.md?p=a-7) any financial statement in the preparation of which the controller or other principal accounting officer or employee of such [company](/usc/15/80a–2.md?p=a-8) participated, unless such controller, officer or employee was selected, either by vote of the holders of such [company](/usc/15/80a–2.md?p=a-8)’s [voting securities](/usc/15/80a–2.md?p=a-42) at the last annual meeting of such [security](/usc/15/80a–2.md?p=a-36) holders, or by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8). - (c) **Reports of accountants and auditors—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, by rules and regulations or [order](/usc/15/8702.md?p=14) in the public interest or for the protection of investors, to require accountants and auditors to keep reports, work sheets, and other documents and papers relating to registered [investment companies](/usc/15/77z–2.md?p=i-2) for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, and to make the same available for inspection by the [Commission](/usc/15/80a–2.md?p=a-7) or any member or representative thereof. # §80a–32. Filing of documents with Commission in civil actions Every registered [investment company](/usc/15/77z–2.md?p=i-2) which is a party and every affiliated [person](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8) who is a party defendant to any action or claim by a registered [investment company](/usc/15/77z–2.md?p=i-2) or a [security](/usc/15/80a–2.md?p=a-36) holder thereof in a derivative or representative capacity against an officer, [director](/usc/15/80a–2.md?p=a-12), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), trustee, or depositor of such [company](/usc/15/80a–2.md?p=a-8), shall file with the [Commission](/usc/15/80a–2.md?p=a-7), unless already so filed, (1) a copy of all pleadings, verdicts, or judgments filed with the court or served in connection with such action or claim, (2) a copy of any proposed settlement, compromise, or discontinuance of such action, and (3) a copy of such motions, transcripts, or other documents filed in or issued by the court or served in connection with such action or claim as may be requested in writing by the [Commission](/usc/15/80a–2.md?p=a-7). If any document referred to in clause (1) or (2)— - (A) is delivered to such [company](/usc/15/80a–2.md?p=a-8) or party defendant, such document shall be filed with the [Commission](/usc/15/80a–2.md?p=a-7) not later than ten days after the receipt thereof; or - (B) is filed in such court or delivered by such [company](/usc/15/80a–2.md?p=a-8) or party defendant, such documents shall be filed with the [Commission](/usc/15/80a–2.md?p=a-7) not later than five days after such filing or delivery. # §80a–33. Destruction and falsification of reports and records - (a) **Willful destruction—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), except as permitted by rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), willfully to destroy, mutilate, or alter any [account](/usc/15/1681a.md?p=r-4), book, or other document the preservation of which has been required pursuant to section [80a–30(a)](/usc/15/80a–30.md?p=a) or [80a–31(c)](/usc/15/80a–31.md?p=c) of this title. - (b) **Untrue statements or omissions—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) to make any untrue statement of a material fact in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), report, [account](/usc/15/1681a.md?p=r-4), record, or other document filed or transmitted pursuant to this subchapter or the keeping of which is required pursuant to [section 80a–30 (a)](/usc/15/80a–30.md?p=a) of this title. It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) so filing, transmitting, or keeping any such document to omit to [state](/usc/15/80a–2.md?p=a-39) therein any fact necessary in [order](/usc/15/8702.md?p=14) to prevent the statements made therein, in the light of the circumstances under which they were made, from being materially misleading. For the purposes of this subsection, any part of any such document which is signed or certified by an accountant or auditor in his capacity as such shall be deemed to be made, filed, transmitted, or kept by such accountant or auditor, as well as by the [person](/usc/15/80a–2.md?p=a-28) filing, transmitting, or keeping the complete document. # §80a–34. Unlawful representations and names - (a) **Misrepresentation of guarantees—** - (1) **In general—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), issuing or selling any [security](/usc/15/80a–2.md?p=a-36) of which a registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22), to represent or imply in any manner whatsoever that such [security](/usc/15/80a–2.md?p=a-36) or [company](/usc/15/80a–2.md?p=a-8)— - (A) has been guaranteed, sponsored, recommended, or approved by the United States, or any agency, instrumentality or officer of the United States; - (B) has been insured by the Federal Deposit Insurance Corporation; or - (C) is guaranteed by or is otherwise an obligation of any bank or [insured depository institution](#a-3). - (2) **Disclosures—** Any [person](/usc/15/80a–2.md?p=a-28) issuing or selling the [securities](/usc/15/80a–2.md?p=a-36) of a registered [investment company](/usc/15/77z–2.md?p=i-2) that is advised by, or sold through, a bank shall prominently disclose that an investment in the [company](/usc/15/80a–2.md?p=a-8) is not insured by the Federal Deposit Insurance Corporation or any other government agency. The [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), adopt rules and regulations, and issue [orders](/usc/15/8702.md?p=14), consistent with the protection of investors, prescribing the manner in which the disclosure under this paragraph shall be provided. - (3) **Definitions—** The terms “insured depository institution” and “appropriate Federal banking agency” have the same meanings as given in [section 1813 of title 12](/usc/12/1813.md). - (b) **Unlawful representation of sponsorship by United States or agency thereof—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) registered under any section of this subchapter, to represent or imply in any manner whatsoever that such [person](/usc/15/80a–2.md?p=a-28) has been sponsored, recommended, or approved, or that his abilities or qualifications have in any respect been passed upon by the United States or any agency or officer thereof. - (c) **Statement of registration under securities provisions—** No provision of subsection [(a)](#a) or [(b)](#b) shall be construed to prohibit a statement that a [person](/usc/15/80a–2.md?p=a-28) or [security](/usc/15/80a–2.md?p=a-36) is registered under this chapter, the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], or the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], if such statement is true in fact and if the effect of such registration is not misrepresented. - (d) **Deceptive or misleading names—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) to adopt as a part of the name or title of such [company](/usc/15/80a–2.md?p=a-8), or of any [securities](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), any word or words that the [Commission](/usc/15/80a–2.md?p=a-7) finds are materially deceptive or misleading. The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, by rule, regulation, or [order](/usc/15/8702.md?p=14), to define such names or titles as are materially deceptive or misleading. # §80a–35. Breach of fiduciary duty - (a) **Civil actions by Commission; jurisdiction; allegations; injunctive or other relief—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to bring an action in the proper district court of the United States, or in the United States court of any territory or other place subject to the jurisdiction of the United States, alleging that a [person](/usc/15/80a–2.md?p=a-28) who is, or at the time of the alleged misconduct was, serving or acting in one or more of the following capacities has engaged within five years of the commencement of the action or is about to engage in any act or practice constituting a breach of fiduciary duty involving personal misconduct in respect of any registered [investment company](/usc/15/77z–2.md?p=i-2) for which such [person](/usc/15/80a–2.md?p=a-28) so serves or acts, or at the time of the alleged misconduct, so served or acted— - (1) as officer, [director](/usc/15/80a–2.md?p=a-12), member of any [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](#c), or depositor; or - (2) as principal underwriter, if such registered [company](/usc/15/80a–2.md?p=a-8) is an [open-end company](/usc/15/80a–5.md?p=a-1), [unit investment trust](/usc/15/80a–4.md?p=2), or [face-amount certificate company](/usc/15/80a–4.md?p=1). If such allegations are established, the court may enjoin such [persons](/usc/15/80a–2.md?p=a-28) from acting in any or all such capacities either permanently or temporarily and award such injunctive or other relief against such [person](/usc/15/80a–2.md?p=a-28) as may be reasonable and appropriate in the circumstances, having due regard to the protection of investors and to the effectuation of the policies declared in [section 80a–1(b) of this title](/usc/15/80a–1.md?p=b). - (b) **Compensation or payments as basis of fiduciary duty; civil actions by Commission or security holder; burden of proof; judicial consideration of director or shareholder approval; persons liable; extent of liability; exempted transactions; jurisdiction; finding restriction—** For the purposes of this subsection, the [investment adviser](#c) of a registered [investment company](/usc/15/77z–2.md?p=i-2) shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered [investment company](/usc/15/77z–2.md?p=i-2) or by the [security](/usc/15/80a–2.md?p=a-36) holders thereof, to such [investment adviser](#c) or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](#c). An action may be brought under this subsection by the [Commission](/usc/15/80a–2.md?p=a-7), or by a [security](/usc/15/80a–2.md?p=a-36) holder of such registered [investment company](/usc/15/77z–2.md?p=i-2) on behalf of such [company](/usc/15/80a–2.md?p=a-8), against such [investment adviser](#c), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](#c), or any other [person](/usc/15/80a–2.md?p=a-28) enumerated in [subsection (a)](#a) of this section who has a fiduciary duty concerning such compensation or payments, for breach of fiduciary duty in respect of such compensation or payments paid by such registered [investment company](/usc/15/77z–2.md?p=i-2) or by the [security](/usc/15/80a–2.md?p=a-36) holders thereof to such [investment adviser](#c) or [person](/usc/15/80a–2.md?p=a-28). With respect to any such action the following provisions shall apply: - (1) It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty. - (2) In any such action approval by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such [investment company](/usc/15/77z–2.md?p=i-2) of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, and ratification or approval of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, by the shareholders of such [investment company](/usc/15/77z–2.md?p=i-2), shall be given such consideration by the court as is deemed appropriate under all the circumstances. - (3) No such action shall be brought or maintained against any [person](/usc/15/80a–2.md?p=a-28) other than the recipient of such compensation or payments, and no damages or other relief shall be granted against any [person](/usc/15/80a–2.md?p=a-28) other than the recipient of such compensation or payments. No award of damages shall be recoverable for any period prior to one year before the action was instituted. Any award of damages against such recipient shall be limited to the actual damages resulting from the breach of fiduciary duty and shall in no event exceed the amount of compensation or payment received from such [investment company](/usc/15/77z–2.md?p=i-2), or the [security](/usc/15/80a–2.md?p=a-36) holders thereof, by such recipient. - (4) This subsection shall not apply to compensation or payments made in connection with transactions subject to [section 80a–17 of this title](/usc/15/80a–17.md), or rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, or to [sales loads](/usc/15/80a–2.md?p=a-35) for the acquisition of any [security](/usc/15/80a–2.md?p=a-36) issued by a registered [investment company](/usc/15/77z–2.md?p=i-2). - (5) Any action pursuant to this subsection may be brought only in an appropriate district court of the United States. - (6) No finding by a court with respect to a breach of fiduciary duty under this subsection shall be made a basis (A) for a finding of a [violation](/usc/15/57b–1.md?p=a-7) of this subchapter for the purposes of sections [80a–9](/usc/15/80a–9.md) and [80a–48](/usc/15/80a–48.md) of this title, [section 78o](/usc/15/78o.md) of this title, or [section 80b–3 of this title](/usc/15/80b–3.md), or (B) for an injunction to prohibit any [person](/usc/15/80a–2.md?p=a-28) from serving in any of the capacities enumerated in [subsection (a)](#a) of this section. - (c) **Corporate or other trustees performing functions of investment advisers—** For the purposes of subsections [(a)](#a) and [(b)](#b) of this section, the term “[investment adviser](/usc/15/6102.md?p=d-2-B-ii)” includes a corporate or other trustee performing the functions of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii). # §80a–36. Larceny and embezzlement Whoever steals, unlawfully abstracts, unlawfully and willfully converts to his own use or to the use of another, or embezzles any of the moneys, funds, [securities](/usc/15/80a–2.md?p=a-36), [credits](/usc/15/1679a.md?p=4), property, or assets of any registered [investment company](/usc/15/77z–2.md?p=i-2) shall be deemed guilty of a crime, and upon conviction thereof shall be subject to the penalties provided in [section 80a–48 of this title](/usc/15/80a–48.md). A judgment of conviction or acquittal on the merits under the laws of any [State](/usc/15/80a–2.md?p=a-39) shall be a bar to any prosecution under this section for the same act or acts. # §80a–37. Rules, regulations, and orders - (a) **Powers of Commission—** The [Commission](/usc/15/80a–2.md?p=a-7) shall have [authority](/usc/15/3051.md?p=1) from time to time to make, issue, amend, and rescind such rules and regulations and such [orders](/usc/15/8702.md?p=14) as are necessary or appropriate to the exercise of the powers conferred upon the [Commission](/usc/15/80a–2.md?p=a-7) elsewhere in this subchapter, including rules and regulations defining accounting, technical, and trade terms used in this subchapter, and prescribing the form or forms in which information required in [registration statements](/usc/15/77b.md?p=a-8), [applications](/usc/15/77ccc.md?p=8), and reports to the [Commission](/usc/15/80a–2.md?p=a-7) shall be set forth. For the purposes of its rules or regulations the [Commission](/usc/15/80a–2.md?p=a-7) may classify [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), and other matters within its jurisdiction and prescribe different requirements for different classes of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or matters. - (b) **Filing of information and documents—** The [Commission](/usc/15/80a–2.md?p=a-7), by such rules and regulations or [order](/usc/15/8702.md?p=14) as it deems necessary or appropriate in the public interest or for the protection of investors, may authorize the filing of any information or documents required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter, subchapter II of this chapter, the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or the Trust Indenture Act of 1939 [[15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.], by incorporating by reference any information or documents theretofore or concurrently filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter or any of such Acts. - (c) **Good faith conformance with rules, regulations, and orders—** No provision of this subchapter imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), notwithstanding that such rule, regulation, or [order](/usc/15/8702.md?p=14) may, after such act or omission, by amended or rescinded or be determined by judicial or other [authority](/usc/15/3051.md?p=1) to be invalid for any reason. # §80a–38. Procedure for issuance of rules and regulations Subject to the provisions of [chapter 15](/usc/44/ch15.md) of title 44 and regulations prescribed under the [authority](/usc/15/3051.md?p=1) thereof, the rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter, and amendments thereof, shall be effective upon publication in the manner which the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe, or upon such later date as may be provided in such rules and regulations. # §80a–39. Procedure for issuance of orders - (a) **Notice and hearing—** [Orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter shall be issued only after appropriate notice and opportunity for hearing. Notice to the parties to a proceeding before the [Commission](/usc/15/80a–2.md?p=a-7) shall be given by personal service upon each party or by registered mail or certified mail or confirmed telegraphic notice to the party’s last known business address. Notice to interested [persons](/usc/15/80a–2.md?p=a-28), if any, other than parties may be given in the same manner or by publication in the Federal Register. - (b) **Application verified under oath admissible as evidence—** The [Commission](/usc/15/80a–2.md?p=a-7) may provide, by appropriate rules or regulations, that an [application](/usc/15/77ccc.md?p=8) verified under oath may be admissible in evidence in a proceeding before the [Commission](/usc/15/80a–2.md?p=a-7) and that the record in such a proceeding may consist, in whole or in part, of such [application](/usc/15/77ccc.md?p=8). - (c) **Parties—** In any proceeding before the [Commission](/usc/15/80a–2.md?p=a-7), the [Commission](/usc/15/80a–2.md?p=a-7), in accordance with such rules and regulations as it may prescribe, shall admit as a party any interested [State](/usc/15/80a–2.md?p=a-39) or [State](/usc/15/80a–2.md?p=a-39) agency, and may admit as a party any representative of interested [security](/usc/15/80a–2.md?p=a-36) holders, or any other [person](/usc/15/80a–2.md?p=a-28) whose participation in the proceeding may be in the public interest or for the protection of investors. # §80a–40. Hearings by Commission Hearings may be public and may be held before the [Commission](/usc/15/80a–2.md?p=a-7), any member or members thereof, or any officer or officers of the [Commission](/usc/15/80a–2.md?p=a-7) designated by it, and appropriate records thereof shall be kept. # §80a–41. Enforcement of subchapter - (a) **Investigation—** The [Commission](/usc/15/80a–2.md?p=a-7) may make such investigations as it deems necessary to determine whether any [person](/usc/15/80a–2.md?p=a-28) has violated or is about to violate any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, or to determine whether any action in any court or any proceeding before the [Commission](/usc/15/80a–2.md?p=a-7) shall be instituted under this subchapter against a particular [person](/usc/15/80a–2.md?p=a-28) or [persons](/usc/15/80a–2.md?p=a-28), or with respect to a particular transaction or transactions. The [Commission](/usc/15/80a–2.md?p=a-7) shall permit any [person](/usc/15/80a–2.md?p=a-28) to file with it a statement in writing, under oath or otherwise as the [Commission](/usc/15/80a–2.md?p=a-7) shall determine, as to all the facts and circumstances concerning the matter to be investigated. - (b) **Administration of oaths and affirmations, subpena of witnesses, etc.** For the purpose of any investigation or any other proceeding under this subchapter, any member of the [Commission](/usc/15/80a–2.md?p=a-7), or any officer thereof designated by it, is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records which are relevant or material to the inquiry. Such attendance of witnesses and the production of any such records may be required from any place in any [State](/usc/15/80a–2.md?p=a-39) or in any Territory or other place subject to the jurisdiction of the United States at any designated place of hearing. - (c) **Jurisdiction of courts of United States—** In case of contumacy by, or refusal to obey a subpena issued to, any [person](/usc/15/80a–2.md?p=a-28), the [Commission](/usc/15/80a–2.md?p=a-7) may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such [person](/usc/15/80a–2.md?p=a-28) resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), and other records. And such court may issue an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/80a–2.md?p=a-28) to appear before the [Commission](/usc/15/80a–2.md?p=a-7) or member or officer designated by the [Commission](/usc/15/80a–2.md?p=a-7), there to produce records, if so ordered, or to give testimony touching the matter under investigation or in question; any failure to obey such [order](/usc/15/8702.md?p=14) of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district whereof such [person](/usc/15/80a–2.md?p=a-28) is an inhabitant or wherever he may be found. Any [person](/usc/15/80a–2.md?p=a-28) who without just cause shall fail or refuse to attend and testify or to answer any lawful inquiry or to produce books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records, if in his or its power so to do, in obedience to the subpena of the [Commission](/usc/15/80a–2.md?p=a-7), shall be guilty of a misdemeanor, and upon conviction shall be subject to a fine of not more than $1,000 or to imprisonment for a term of not more than one year, or both. - (d) **Action for injunction—** Whenever it shall appear to the [Commission](/usc/15/80a–2.md?p=a-7) that any [person](/usc/15/80a–2.md?p=a-28) has engaged or is about to engage in any act or practice constituting a [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, it may in its discretion bring an action in the proper district court of the United States, or the proper United States court of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices and to enforce compliance with this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder. Upon a showing that such [person](/usc/15/80a–2.md?p=a-28) has engaged or is about to engage in any such act or practice, a permanent or temporary injunction or decree or restraining [order](/usc/15/8702.md?p=14) shall be granted without bond. In any proceeding under this subsection to enforce compliance with [section 80a–7 of this title](/usc/15/80a–7.md), the court as a court of equity may, to the extent it deems necessary or appropriate, take exclusive jurisdiction and possession of the [investment company](/usc/15/77z–2.md?p=i-2) or [companies](/usc/15/80a–2.md?p=a-8) involved and the books, records, and assets thereof, wherever located; and the court shall have jurisdiction to appoint a trustee, who with the approval of the court shall have power to dispose of any or all of such assets, subject to such terms and conditions as the court may prescribe. The [Commission](/usc/15/80a–2.md?p=a-7) may transmit such evidence as may be available concerning any [violation](/usc/15/57b–1.md?p=a-7) of the provisions of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, to the Attorney General, who, in his discretion, may [institute](/usc/15/9401.md?p=7) the appropriate criminal proceedings under this subchapter. - (e) **Money penalties in civil actions—** - (1) **Authority of Commission—** Whenever it shall appear to the [Commission](/usc/15/80a–2.md?p=a-7) that any [person](/usc/15/80a–2.md?p=a-28) has violated any provision of this subchapter, the rules or regulations thereunder, or a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to [section 80a–9(f) of this title](/usc/15/80a–9.md?p=f), the [Commission](/usc/15/80a–2.md?p=a-7) may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, upon a proper showing, a civil penalty to be paid by the [person](/usc/15/80a–2.md?p=a-28) who committed such [violation](/usc/15/57b–1.md?p=a-7). - (2) **Amount of penalty—** - (A) **First tier—** The amount of the penalty shall be determined by the court in light of the facts and circumstances. For each [violation](/usc/15/57b–1.md?p=a-7), the amount of the penalty shall not exceed the greater of (i) $5,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $50,000 for any other [person](/usc/15/80a–2.md?p=a-28), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#e-2-A), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $50,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $250,000 for any other [person](/usc/15/80a–2.md?p=a-28), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#e-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#e-2-A) and [(B)](#e-2-B), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $100,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $500,000 for any other [person](/usc/15/80a–2.md?p=a-28), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if— - (I) the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#e-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (II) such [violation](/usc/15/57b–1.md?p=a-7) directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/80a–2.md?p=a-28). - (3) **Procedures for collection—** - (A) **Payment of penalty to Treasury—** A penalty imposed under this section shall be payable into the Treasury of the United States, except as otherwise provided in [section 7246 of this title](/usc/15/7246.md) and [section 78u–6 of this title](/usc/15/78u–6.md). - (B) **Collection of penalties—** If a [person](/usc/15/80a–2.md?p=a-28) upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/80a–2.md?p=a-7) may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court. - (C) **Remedy not exclusive—** The actions authorized by this subsection may be brought in addition to any other action that the [Commission](/usc/15/80a–2.md?p=a-7) or the Attorney General is entitled to bring. - (D) **Jurisdiction and venue—** For purposes of [section 80a–43 of this title](/usc/15/80a–43.md), actions under this paragraph shall be actions to enforce a liability or a duty created by this subchapter. - (4) **Special provisions relating to a violation of a cease-and-desist order—** In an action to enforce a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to [section 80a–9(f) of this title](/usc/15/80a–9.md?p=f), each separate [violation](/usc/15/57b–1.md?p=a-7) of such [order](/usc/15/8702.md?p=14) shall be a separate offense, except that in the case of a [violation](/usc/15/57b–1.md?p=a-7) through a continuing failure to comply with the [order](/usc/15/8702.md?p=14), each day of the failure to comply shall be deemed a separate offense. # §80a–42. Court review of orders - (a) Any [person](/usc/15/80a–2.md?p=a-28) or party aggrieved by an [order](/usc/15/8702.md?p=14) issued by the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter may obtain a review of such [order](/usc/15/8702.md?p=14) in the United States court of appeals within any circuit wherein such [person](/usc/15/80a–2.md?p=a-28) resides or has his principal place of business, or in the United States Court of Appeals for the District of Columbia, by filing in such court, within sixty days after the entry of such [order](/usc/15/8702.md?p=14), a written petition praying that the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) be modified or set aside in whole or in part. A copy of such petition shall be forthwith transmitted by the clerk of the court to any member of the [Commission](/usc/15/80a–2.md?p=a-7) or any officer thereof designated by the [Commission](/usc/15/80a–2.md?p=a-7) for that purpose, and thereupon the [Commission](/usc/15/80a–2.md?p=a-7) shall file in the court the record upon which the [order](/usc/15/8702.md?p=14) complained of was entered, as provided in [section 2112 of title 28](/usc/28/2112.md). Upon the filing of such petition such court shall have jurisdiction, which upon the filing of the record shall be exclusive, to affirm, modify, or set aside such [order](/usc/15/8702.md?p=14), in whole or in part. No objection to the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) shall be considered by the court unless such objection shall have been urged before the [Commission](/usc/15/80a–2.md?p=a-7) or unless there were reasonable grounds for failure so to do. The findings of the [Commission](/usc/15/80a–2.md?p=a-7) as to the facts, if supported by substantial evidence, shall be conclusive. If [application](/usc/15/77ccc.md?p=8) is made to the court for leave to adduce additional evidence, and it is shown to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the proceeding before the [Commission](/usc/15/80a–2.md?p=a-7), the court may [order](/usc/15/8702.md?p=14) such additional evidence to be taken before the [Commission](/usc/15/80a–2.md?p=a-7) and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The [Commission](/usc/15/80a–2.md?p=a-7) may modify its findings as to the facts by reason of the additional evidence so taken, and it shall file with the court such modified or new findings, which, if supported by substantial evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original [order](/usc/15/8702.md?p=14). The judgment and decree of the court affirming, modifying, or setting aside, in whole or in part, any such [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in [section 1254 of title 28](/usc/28/1254.md). - (b) The commencement of proceedings under [subsection (a)](#a) to review an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) issued under [section 80a–8(e) of this title](/usc/15/80a–8.md?p=e) shall operate as a stay of the [Commission](/usc/15/80a–2.md?p=a-7)’s [order](/usc/15/8702.md?p=14) unless the court otherwise [orders](/usc/15/8702.md?p=14). The commencement of proceedings under [subsection (a)](#a) to review an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) issued under any provision of this subchapter other than [section 80a–8(e) of this title](/usc/15/80a–8.md?p=e) shall not operate as a stay of the [Commission](/usc/15/80a–2.md?p=a-7)’s [order](/usc/15/8702.md?p=14) unless the court specifically so [orders](/usc/15/8702.md?p=14). # §80a–43. Jurisdiction of offenses and suits The district courts of the United States and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of this subchapter or the rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, and, concurrently with [State](/usc/15/80a–2.md?p=a-39) and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any [violation](/usc/15/57b–1.md?p=a-7) of, this subchapter or the rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the [violation](/usc/15/57b–1.md?p=a-7) occurred. A criminal proceeding based upon a [violation](/usc/15/57b–1.md?p=a-7) of [section 80a–33 of this title](/usc/15/80a–33.md), or upon a failure to file a report or other document required to be filed under this subchapter, may be brought in the district wherein the defendant is an inhabitant or maintains his principal office or place of business. Any suit or action to enforce any liability or duty created by, or to enjoin any [violation](/usc/15/57b–1.md?p=a-7) of, this subchapter or rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, may be brought in any such district or in the district wherein the defendant is an inhabitant or transacts business, and process in such cases may be served in any district of which the defendant is an inhabitant or transacts business or wherever the defendant may be found. In any action or proceeding instituted by the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter in a United States district court for any judicial district, a subpoena issued to compel the attendance of a witness or the production of documents or tangible things (or both) at a hearing or trial may be served at any place within the United States. [Rule 45(c)(3)(A)(ii)](/usc/28a/civil-45.md) of the Federal Rules of Civil Procedure shall not apply to a subpoena issued under the preceding sentence. Judgments and decrees so rendered shall be subject to review as provided in sections [1254](/usc/28/1254.md), [1291](/usc/28/1291.md), [1292](/usc/28/1292.md), and [1294](/usc/28/1294.md) of title 28. No costs shall be assessed for or against the [Commission](/usc/15/80a–2.md?p=a-7) in any proceeding under this subchapter brought by or against the [Commission](/usc/15/80a–2.md?p=a-7) in any court. The [Commission](/usc/15/80a–2.md?p=a-7) may intervene as a party in any action or suit to enforce any liability or duty created by, or to enjoin any noncompliance with, [section 80a–35(b) of this title](/usc/15/80a–35.md?p=b) at any stage of such action or suit prior to final judgment therein. # §80a–44. Disclosure of information filed with Commission; copies - (a) The information contained in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), report, or other document filed with the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to any provision of this subchapter or of any rule or regulation thereunder (as distinguished from any information or document transmitted to the [Commission](/usc/15/80a–2.md?p=a-7)) shall be made available to the public, unless and except insofar as the [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), finds that public disclosure is neither necessary nor appropriate in the public interest or for the protection of investors. Except as provided in [section 78x(c) of this title](/usc/15/78x.md?p=c), it shall be unlawful for any member, officer, or employee of the [Commission](/usc/15/80a–2.md?p=a-7) to use for personal benefit, or to disclose to any [person](/usc/15/80a–2.md?p=a-28) other than an official or employee of the United States or of a [State](/usc/15/80a–2.md?p=a-39), for official use, or for any such official or employee to use for personal benefit, any information contained in any document so filed or transmitted, if such information is not available to the public. - (b) Photostatic or other copies of information contained in documents filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter and made available to the public shall be furnished any [person](/usc/15/80a–2.md?p=a-28) at such reasonable charge and under such reasonable limitations as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe. # §80a–45. Reports by Commission; hiring and leasing authority - (a) **Omitted—** - (b) **Hiring and leasing authority—** The provisions of [section 78d(b) of this title](/usc/15/78d.md?p=b) shall be applicable with respect to the power of the [Commission](/usc/15/80a–2.md?p=a-7)— - (1) to appoint and fix the compensation of such employees as may be necessary for carrying out its functions under this subchapter, and - (2) to lease and allocate such real property as may be necessary for carrying out its functions under this subchapter. # §80a–46. Validity of contracts - (a) **Waiver of compliance as void—** Any condition, stipulation, or provision binding any [person](/usc/15/80a–2.md?p=a-28) to waive compliance with any provision of this subchapter or with any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder shall be void. - (b) **Equitable results; rescission; severance—** - (1) A contract that is made, or whose performance involves, a [violation](/usc/15/57b–1.md?p=a-7) of this subchapter, or of any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, is unenforceable by either party (or by a nonparty to the contract who acquired a right under the contract with knowledge of the facts by reason of which the making or performance violated or would violate any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder) unless a court finds that under the circumstances enforcement would produce a more equitable result than nonenforcement and would not be inconsistent with the purposes of this subchapter. - (2) To the extent that a contract described in [paragraph (1)](#b-1) has been performed, a court may not deny rescission at the instance of any party unless such court finds that under the circumstances the denial of rescission would produce a more equitable result than its grant and would not be inconsistent with the purposes of this subchapter. - (3) This subsection shall not apply (A) to the lawful portion of a contract to the extent that it may be severed from the unlawful portion of the contract, or (B) to preclude recovery against any [person](/usc/15/80a–2.md?p=a-28) for unjust enrichment. # §80a–47. Liability of controlling persons; preventing compliance with subchapter - (a) **Procurement—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), directly or indirectly, to cause to be done any act or thing through or by means of any other [person](/usc/15/80a–2.md?p=a-28) which it would be unlawful for such [person](/usc/15/80a–2.md?p=a-28) to do under the provisions of this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder. - (b) **Substantially assisting a violation—** For purposes of any action brought by the [Commission](/usc/15/80a–2.md?p=a-7) under subsection (d) or (e) of [section 80a–41 of this title](/usc/15/80a–41.md), any [person](/usc/15/80a–2.md?p=a-28) that knowingly or recklessly provides substantial assistance to another [person](/usc/15/80a–2.md?p=a-28) in [violation](/usc/15/57b–1.md?p=a-7) of a provision of this subchapter, or of any rule or regulation issued under this subchapter, shall be deemed to be in [violation](/usc/15/57b–1.md?p=a-7) of such provision to the same extent as the [person](/usc/15/80a–2.md?p=a-28) to whom such assistance is provided. - (c) **Obstructing compliance—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) without just cause to hinder, delay, or obstruct the making, filing, or keeping of any information, document, report, record, or [account](/usc/15/1681a.md?p=r-4) required to be made, filed, or kept under any provision of this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder. # §80a–48. Penalties Any [person](/usc/15/80a–2.md?p=a-28) who willfully violates any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, or any [person](/usc/15/80a–2.md?p=a-28) who willfully in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), report, [account](/usc/15/1681a.md?p=r-4), record, or other document filed or transmitted pursuant to this subchapter or the keeping of which is required pursuant to [section 80a–30(a) of this title](/usc/15/80a–30.md?p=a) makes any untrue statement of a material fact or omits to [state](/usc/15/80a–2.md?p=a-39) any material fact necessary in [order](/usc/15/8702.md?p=14) to prevent the statements made therein from being materially misleading in the light of the circumstances under which they were made, shall upon conviction be fined not more than $10,000 or imprisoned not more than five years, or both; but no [person](/usc/15/80a–2.md?p=a-28) shall be [convicted](/usc/15/80a–2.md?p=a-10) under this section for the [violation](/usc/15/57b–1.md?p=a-7) of any rule, regulation, or [order](/usc/15/8702.md?p=14) if he proves that he had no actual knowledge of such rule, regulation, or [order](/usc/15/8702.md?p=14). # §80a–49. Construction with other laws Except where specific provision is made to the contrary, nothing in this subchapter shall affect (1) the jurisdiction of the [Commission](/usc/15/80a–2.md?p=a-7) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], the Trust Indenture Act of 1939 [[15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.], or subchapter II of this chapter, over any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, or (2) the rights, obligations, duties, or liabilities of any [person](/usc/15/80a–2.md?p=a-28) under such Acts; nor shall anything in this subchapter affect the jurisdiction of any other [commission](/usc/15/80a–2.md?p=a-7), [board](/usc/15/205c.md?p=1), agency, or officer of the United States or of any [State](/usc/15/80a–2.md?p=a-39) or political subdivision of any [State](/usc/15/80a–2.md?p=a-39), over any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, insofar as such jurisdiction does not conflict with any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder. # §80a–50. Separability If any provision of this subchapter or any provision incorporated in this subchapter by reference, or the [application](/usc/15/77ccc.md?p=8) of any such provision to any [person](/usc/15/80a–2.md?p=a-28) or circumstances, shall be held invalid, the remainder of this subchapter and the [application](/usc/15/77ccc.md?p=8) of any such provision to [person](/usc/15/80a–2.md?p=a-28) or circumstances other than those as to which it is held invalid shall not be affected thereby. # §80a–51. Short title This subchapter may be cited as the “Investment Company Act of 1940”. # §80a–52. Effective date The effective date of the provisions of this subchapter, so far as the same relate to [face-amount certificates](/usc/15/80a–2.md?p=a-15) or to [face-amount certificate companies](/usc/15/80a–4.md?p=1), is January 1, 1941. The effective date of provisions hereof, insofar as the same do not apply to [face-amount certificates](/usc/15/80a–2.md?p=a-15) or [face-amount certificate companies](/usc/15/80a–4.md?p=1) is November 1, 1940. Except as herein otherwise provided, every provision of this subchapter shall take effect on November 1, 1940. # §80a–53. Election to be regulated as business development company - (a) **Eligibility—** Any [company](/usc/15/80a–2.md?p=a-8) defined in section [80a–2(a)(48)(A)](/usc/15/80a–2.md?p=a-48-A) and [(B)](/usc/15/80a–2.md?p=a-48-B) of this title may elect to be subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title by filing with the [Commission](/usc/15/80a–2.md?p=a-7) a notification of election, if such [company](/usc/15/80a–2.md?p=a-8)— - (1) has a class of its [equity securities](/usc/15/9041.md?p=6) registered under [section 78l](/usc/15/78l.md) of this title; or - (2) has filed a [registration statement](/usc/15/77b.md?p=a-8) pursuant to [section 78l](/usc/15/78l.md) of this title for a class of its [equity securities](/usc/15/9041.md?p=6). - (b) **Form and manner of notification; effect—** The [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe the form and manner in which notification of election under this section shall be given. A [business development company](/usc/15/80a–2.md?p=a-48) shall be deemed to be subject to [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title upon receipt by the [Commission](/usc/15/80a–2.md?p=a-7) of such notification of election. - (c) **Revocation or withdrawal of election—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7) finds, on its own motion or upon [application](/usc/15/77ccc.md?p=8), that a [business development company](/usc/15/80a–2.md?p=a-48) which has filed a notification of election pursuant to [subsection (a)](#a) of this section has ceased to engage in business, the [Commission](/usc/15/80a–2.md?p=a-7) shall so declare by [order](/usc/15/8702.md?p=14) revoking such [company](/usc/15/80a–2.md?p=a-8)’s election. Any [business development company](/usc/15/80a–2.md?p=a-48) may voluntarily withdraw its election under [subsection (a)](#a) by filing a notice of withdrawal of election with the [Commission](/usc/15/80a–2.md?p=a-7), in a form and manner which the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe. Such withdrawal shall be effective immediately upon receipt by the [Commission](/usc/15/80a–2.md?p=a-7). # §80a–54. Acquisition of assets by business development companies - (a) **Permissible assets; percentage—** It shall be unlawful for a [business development company](/usc/15/80a–2.md?p=a-48) to acquire any assets (other than those described in [paragraphs (1) through (7)](#1..7) of this subsection) unless, at the time the acquisition is made, assets described in [paragraphs (1) through (6)](#a-1..a-6) below represent at least 70 per centum of the value of its total assets (other than assets described in [paragraph (7)](#a-7) below): - (1) [securities](/usc/15/80a–2.md?p=a-36) purchased, in transactions not involving any public offering or in such other transactions as the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe if it finds that enforcement of this subchapter and of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] with respect to such transactions is not necessary in the public interest or for the protection of investors by reason of the small amount, or the limited nature of the public offering, involved in such transactions— - (A) from the [issuer](/usc/15/80a–2.md?p=a-22) of such [securities](/usc/15/80a–2.md?p=a-36), which [issuer](/usc/15/80a–2.md?p=a-22) is an [eligible portfolio company](/usc/15/80a–2.md?p=a-46), from any [person](/usc/15/80a–2.md?p=a-28) who is, or who within the preceding thirteen months has been, an affiliated [person](/usc/15/80a–2.md?p=a-28) of such [eligible portfolio company](/usc/15/80a–2.md?p=a-46), or from any other [person](/usc/15/80a–2.md?p=a-28), subject to such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors; or - (B) from the [issuer](/usc/15/80a–2.md?p=a-22) of such [securities](/usc/15/80a–2.md?p=a-36), which [issuer](/usc/15/80a–2.md?p=a-22) is described in section [80a–2(a)(46)(A)](/usc/15/80a–2.md?p=a-46-A) and [(B)](/usc/15/80a–2.md?p=a-46-B) of this title but is not an [eligible portfolio company](/usc/15/80a–2.md?p=a-46) because it has issued a class of [securities](/usc/15/80a–2.md?p=a-36) with respect to which a member of a [national securities exchange](/usc/15/80a–2.md?p=a-26), [broker](/usc/15/80a–2.md?p=a-6), or [dealer](/usc/15/80a–2.md?p=a-11) may extend or maintain [credit](/usc/15/1679a.md?p=4) to or for a [customer](/usc/15/78c–5.md?p=g) pursuant to rules or regulations adopted by the [Board](/usc/15/205c.md?p=1) of Governors of the Federal Reserve System under [section 78g of this title](/usc/15/78g.md), or from any [person](/usc/15/80a–2.md?p=a-28) who is an officer or employee of such [issuer](/usc/15/80a–2.md?p=a-22), if— - (i) at the time of the [purchase](/usc/15/78c–5.md?p=g), the [business development company](/usc/15/80a–2.md?p=a-48) owns at least 50 per centum of— - (I) the greatest number of [equity securities](/usc/15/9041.md?p=6) of such [issuer](/usc/15/80a–2.md?p=a-22) and [securities](/usc/15/80a–2.md?p=a-36) convertible into or exchangeable for such [securities](/usc/15/80a–2.md?p=a-36); and - (II) the greatest amount of debt [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22), held by such [business development company](/usc/15/80a–2.md?p=a-48) at any point in time during the period when such [issuer](/usc/15/80a–2.md?p=a-22) was an [eligible portfolio company](/usc/15/80a–2.md?p=a-46), except that options, warrants, and similar [securities](/usc/15/80a–2.md?p=a-36) which have by their terms expired and debt [securities](/usc/15/80a–2.md?p=a-36) which have been converted, or repaid or prepaid in the ordinary course of business or incident to a public offering of [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22), shall not be considered to have been held by such [business development company](/usc/15/80a–2.md?p=a-48) for purposes of this requirement; and - (ii) the [business development company](/usc/15/80a–2.md?p=a-48) is one of the 20 largest holders of record of such [issuer](/usc/15/80a–2.md?p=a-22)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42); - (2) [securities](/usc/15/80a–2.md?p=a-36) of any [eligible portfolio company](/usc/15/80a–2.md?p=a-46) with respect to which the [business development company](/usc/15/80a–2.md?p=a-48) satisfies the requirements of [section 80a–2(a)(46)(C)(ii) of this title](/usc/15/80a–2.md?p=a-46-C-ii); - (3) [securities](/usc/15/80a–2.md?p=a-36) purchased in transactions not involving any public offering from an [issuer](/usc/15/80a–2.md?p=a-22) described in sections [80a–2(a)(46)(A)](/usc/15/80a–2.md?p=a-46-A) and [(B)](/usc/15/80a–2.md?p=a-46-B) of this title or from a [person](/usc/15/80a–2.md?p=a-28) who is, or who within the preceding thirteen months has been, an affiliated [person](/usc/15/80a–2.md?p=a-28) of such [issuer](/usc/15/80a–2.md?p=a-22), or from any [person](/usc/15/80a–2.md?p=a-28) in transactions incident thereto, if such [securities](/usc/15/80a–2.md?p=a-36) were— - (A) issued by an [issuer](/usc/15/80a–2.md?p=a-22) that is, or was immediately prior to the [purchase](/usc/15/78c–5.md?p=g) of its [securities](/usc/15/80a–2.md?p=a-36) by the [business development company](/usc/15/80a–2.md?p=a-48), in bankruptcy proceedings, subject to [reorganization](/usc/15/80a–2.md?p=a-33) under the supervision of a court of competent jurisdiction, or subject to a plan or arrangement resulting from such bankruptcy proceedings or [reorganization](/usc/15/80a–2.md?p=a-33); - (B) issued by an [issuer](/usc/15/80a–2.md?p=a-22) pursuant to or in consummation of such a plan or arrangement; or - (C) issued by an [issuer](/usc/15/80a–2.md?p=a-22) that, immediately prior to the [purchase](/usc/15/78c–5.md?p=g) of such [issuer](/usc/15/80a–2.md?p=a-22)’s [securities](/usc/15/80a–2.md?p=a-36) by the [business development company](/usc/15/80a–2.md?p=a-48), was not in bankruptcy proceedings but was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements; - (4) [securities](/usc/15/80a–2.md?p=a-36) of [eligible portfolio companies](/usc/15/80a–2.md?p=a-46) purchased from any [person](/usc/15/80a–2.md?p=a-28) in transactions not involving any public offering, if there is no ready market for such [securities](/usc/15/80a–2.md?p=a-36) and if immediately prior to such [purchase](/usc/15/78c–5.md?p=g) the [business development company](/usc/15/80a–2.md?p=a-48) owns at least 60 per centum of the outstanding [equity securities](/usc/15/9041.md?p=6) of such [issuer](/usc/15/80a–2.md?p=a-22) (giving effect to all [securities](/usc/15/80a–2.md?p=a-36) presently convertible into or exchangeable for [equity securities](/usc/15/9041.md?p=6) of such [issuer](/usc/15/80a–2.md?p=a-22) as if such [securities](/usc/15/80a–2.md?p=a-36) were so converted or exchanged); - (5) [securities](/usc/15/80a–2.md?p=a-36) received in [exchange](/usc/15/80a–2.md?p=a-14) for or distributed on or with respect to [securities](/usc/15/80a–2.md?p=a-36) described in [paragraphs (1) through (4)](#1..4) of this subsection, or pursuant to the exercise of options, warrants, or rights relating to [securities](/usc/15/80a–2.md?p=a-36) described in such paragraphs; - (6) cash, cash items, [Government securities](/usc/15/80a–2.md?p=a-16), or high quality debt [securities](/usc/15/80a–2.md?p=a-36) maturing in one year or less from the time of investment in such high quality debt [securities](/usc/15/80a–2.md?p=a-36); and - (7) office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operations of the [business development company](/usc/15/80a–2.md?p=a-48), deferred organization and operating expenses, and other noninvestment assets necessary and appropriate to its operations as a [business development company](/usc/15/80a–2.md?p=a-48), including notes of indebtedness of [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners held by a [business development company](/usc/15/80a–2.md?p=a-48) as payment for [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) issued in connection with an executive compensation plan described in [section 80a–56(j) of this title](/usc/15/80a–56.md?p=j). - (b) **Valuation of assets—** For purposes of this section, the value of a [business development company](/usc/15/80a–2.md?p=a-48)’s assets shall be determined as of the date of the most recent financial statements filed by such [company](/usc/15/80a–2.md?p=a-8) with the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to [section 78m of this title](/usc/15/78m.md), and shall be determined no less frequently than annually. # §80a–55. Qualifications of directors - (a) **Non-interested persons—** A majority of a [business development company](/usc/15/80a–2.md?p=a-48)’s [directors](/usc/15/80a–2.md?p=a-12) or general partners shall be [persons](/usc/15/80a–2.md?p=a-28) who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8). - (b) **Vacancies; suspension of provisions—** If, by reason of the death, disqualification, or bona fide resignation of any [director](/usc/15/80a–2.md?p=a-12) or general partner, a [business development company](/usc/15/80a–2.md?p=a-48) does not meet the requirements of [subsection (a)](#a) of this section, or the requirements of [section 80a–15(f)(1) of this title](/usc/15/80a–15.md?p=f-1) with respect to [directors](/usc/15/80a–2.md?p=a-12), the operation of such provisions shall be suspended for a period of 90 days or for such longer period as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), as not inconsistent with the protection of investors. # §80a–56. Transactions with certain affiliates - (a) **Transactions involving controlling or closely affiliated persons—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) who is related to a [business development company](/usc/15/80a–2.md?p=a-48) in a manner described in [subsection (b)](#b) of this section, acting as principal— - (1) knowingly to sell any [security](/usc/15/80a–2.md?p=a-36) or other property to such [business development company](/usc/15/80a–2.md?p=a-48) or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), unless such sale involves solely (A) [securities](/usc/15/80a–2.md?p=a-36) of which the buyer is the [issuer](/usc/15/80a–2.md?p=a-22), or (B) [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22) and which are part of a general offering to the holders of a class of its [securities](/usc/15/80a–2.md?p=a-36); - (2) knowingly to [purchase](/usc/15/78c–5.md?p=g) from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), any [security](/usc/15/80a–2.md?p=a-36) or other property (except [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22)); - (3) knowingly to borrow money or other property from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) (unless the [borrower](/usc/15/697f.md?p=e-2) is controlled by the lender), except as permitted in [section 80a–21(b)](/usc/15/80a–21.md?p=b) or [section 80a–61 of this title](/usc/15/80a–61.md); or - (4) knowingly to effect any transaction in which such [business development company](/usc/15/80a–2.md?p=a-48) or a [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) is a joint or a joint and several participant with such [person](/usc/15/80a–2.md?p=a-28) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe for the purpose of limiting or preventing participation by such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) on a basis less advantageous than that of such [person](/usc/15/80a–2.md?p=a-28), except that nothing contained in this paragraph shall be deemed to preclude any [person](/usc/15/80a–2.md?p=a-28) from acting as manager of any underwriting syndicate or other group in which such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) is a participant and receiving compensation therefor. - (b) **Controlling or closely affiliated persons—** The provisions of [subsection (a)](#a) of this section shall apply to the following [persons](/usc/15/80a–2.md?p=a-28): - (1) Any [director](/usc/15/80a–2.md?p=a-12), officer, employee, or member of an [advisory board](/usc/15/80a–2.md?p=a-1) of a [business development company](/usc/15/80a–2.md?p=a-48) or any [person](/usc/15/80a–2.md?p=a-28) (other than the [business development company](/usc/15/80a–2.md?p=a-48) itself) who is, within the meaning of [section 80a–2(a)(3)(C) of this title](/usc/15/80a–2.md), an affiliated [person](/usc/15/80a–2.md?p=a-28) of any such [person](/usc/15/80a–2.md?p=a-28) specified in this paragraph. - (2) Any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or promoter of, general partner in, principal underwriter for, or [person](/usc/15/80a–2.md?p=a-28) directly or indirectly either controlling, controlled by, or under common [control](/usc/15/80a–2.md?p=a-9) with, a [business development company](/usc/15/80a–2.md?p=a-48) (except the [business development company](/usc/15/80a–2.md?p=a-48) itself and any [person](/usc/15/80a–2.md?p=a-28) who, if it were not directly or indirectly controlled by the [business development company](/usc/15/80a–2.md?p=a-48), would not be directly or indirectly under the [control](/usc/15/80a–2.md?p=a-9) of a [person](/usc/15/80a–2.md?p=a-28) who [controls](/usc/15/80a–2.md?p=a-9) the [business development company](/usc/15/80a–2.md?p=a-48)), or any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of section [80a–2(a)(3)(C)](/usc/15/80a–2.md) or [(D)](/usc/15/80a–2.md) of this title, an affiliated [person](/usc/15/80a–2.md?p=a-28) of any such [person](/usc/15/80a–2.md?p=a-28) specified in this paragraph. - (c) **Exemption orders—** Notwithstanding paragraphs [(1)](#a-1), [(2)](#a-2), and [(3)](#a-3) of subsection (a), any [person](/usc/15/80a–2.md?p=a-28) may file with the [Commission](/usc/15/80a–2.md?p=a-7) an [application](/usc/15/77ccc.md?p=8) for an [order](/usc/15/8702.md?p=14) exempting a proposed transaction of the [applicant](/usc/15/7a.md?p=3) from one or more provisions of such paragraphs. The [Commission](/usc/15/80a–2.md?p=a-7) shall grant such [application](/usc/15/77ccc.md?p=8) and issue such [order](/usc/15/8702.md?p=14) of exemption if evidence establishes that— - (1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching of the [business development company](/usc/15/80a–2.md?p=a-48) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned; - (2) the proposed transaction is consistent with the policy of the [business development company](/usc/15/80a–2.md?p=a-48) as recited in the filings made by such [company](/usc/15/80a–2.md?p=a-8) with the [Commission](/usc/15/80a–2.md?p=a-7) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], and its reports to shareholders or partners; and - (3) the proposed transaction is consistent with the general purposes of this subchapter. - (d) **Transactions involving noncontrolling shareholders or affiliated persons—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) who is related to a [business development company](/usc/15/80a–2.md?p=a-48) in the manner described in [subsection (e)](#e) of this section and who is not subject to the prohibitions of [subsection (a)](#a) of this section, acting as principal— - (1) knowingly to sell any [security](/usc/15/80a–2.md?p=a-36) or other property to such [business development company](/usc/15/80a–2.md?p=a-48) or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), unless such sale involves solely (A) [securities](/usc/15/80a–2.md?p=a-36) of which the buyer is the [issuer](/usc/15/80a–2.md?p=a-22), or (B) [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22) and which are part of a general offering to the holders of a class of its [securities](/usc/15/80a–2.md?p=a-36); - (2) knowingly to [purchase](/usc/15/78c–5.md?p=g) from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), any [security](/usc/15/80a–2.md?p=a-36) or other property (except [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22)); - (3) knowingly to borrow money or other property from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) (unless the [borrower](/usc/15/697f.md?p=e-2) is controlled by the lender), except as permitted in [section 80a–21(b) of this title](/usc/15/80a–21.md?p=b); or - (4) knowingly to effect any transaction in which such [business development company](/usc/15/80a–2.md?p=a-48) or a [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) is a joint or a joint and several participant with such affiliated [person](/usc/15/80a–2.md?p=a-28) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe for the purpose of limiting or preventing participation by such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) on a basis less advantageous than that of such affiliated [person](/usc/15/80a–2.md?p=a-28), except that nothing contained in this paragraph shall be deemed to preclude any [person](/usc/15/80a–2.md?p=a-28) from acting as manager of any underwriting syndicate or other group in which such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) is a participant and receiving compensation therefor. - (e) **Noncontrolling shareholders or affiliated persons; executive officer—** The provisions of [subsection (d)](#d) of this section shall apply to the following [persons](/usc/15/80a–2.md?p=a-28): - (1) Any [person](/usc/15/80a–2.md?p=a-28) (A) who is, within the meaning of [section 80a–2(a)(3)(A) of this title](/usc/15/80a–2.md), an affiliated [person](/usc/15/80a–2.md?p=a-28) of a [business development company](/usc/15/80a–2.md?p=a-48), (B) who is an [executive officer](#e) or a [director](/usc/15/80a–2.md?p=a-12) of, or general partner in, any such affiliated [person](/usc/15/80a–2.md?p=a-28), or (C) who directly or indirectly either [controls](/usc/15/80a–2.md?p=a-9), is controlled by, or is under common [control](/usc/15/80a–2.md?p=a-9) with, such affiliated [person](/usc/15/80a–2.md?p=a-28). - (2) Any [person](/usc/15/80a–2.md?p=a-28) who is an affiliated [person](/usc/15/80a–2.md?p=a-28) of a [director](/usc/15/80a–2.md?p=a-12), officer, employee, [investment adviser](/usc/15/6102.md?p=d-2-B-ii), member of an [advisory board](/usc/15/80a–2.md?p=a-1) or promoter of, principal underwriter for, general partner in, or an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [person](/usc/15/80a–2.md?p=a-28) directly or indirectly either controlling or under common [control](/usc/15/80a–2.md?p=a-9) with a [business development company](/usc/15/80a–2.md?p=a-48) (except the [business development company](/usc/15/80a–2.md?p=a-48) itself and any [person](/usc/15/80a–2.md?p=a-28) who, if it were not directly or indirectly controlled by the [business development company](/usc/15/80a–2.md?p=a-48), would not be directly or indirectly under the [control](/usc/15/80a–2.md?p=a-9) of a [person](/usc/15/80a–2.md?p=a-28) who [controls](/usc/15/80a–2.md?p=a-9) the [business development company](/usc/15/80a–2.md?p=a-48)). For purposes of this subsection, the term “executive officer” means the president, secretary, treasurer, any vice president in charge of a principal business function, and any other [person](/usc/15/80a–2.md?p=a-28) who performs similar policymaking functions. - (f) **Approval of proposed transactions—** Notwithstanding [subsection (d)](#d) of this section, a [person](/usc/15/80a–2.md?p=a-28) described in [subsection (e)](#e) may engage in a proposed transaction described in [subsection (d)](#d) if such proposed transaction is approved by the [required majority](#o) (as defined in [subsection (o)](#o)) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in the [business development company](/usc/15/80a–2.md?p=a-48) on the basis that— - (1) the terms thereof, including the consideration to be paid or received, are reasonable and fair to the shareholders or partners of the [business development company](/usc/15/80a–2.md?p=a-48) and do not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned; - (2) the proposed transaction is consistent with the interests of the shareholders or partners of the [business development company](/usc/15/80a–2.md?p=a-48) and is consistent with the policy of such [company](/usc/15/80a–2.md?p=a-8) as recited in filings made by such [company](/usc/15/80a–2.md?p=a-8) with the [Commission](/usc/15/80a–2.md?p=a-7) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], and its reports to shareholders or partners; and - (3) the [directors](/usc/15/80a–2.md?p=a-12) or general partners record in their minutes and preserve in their records, for such periods as if such records were required to be maintained pursuant to [section 80a–30(a) of this title](/usc/15/80a–30.md?p=a), a description of such transaction, their findings, the information or materials upon which their findings were based, and the basis therefor. - (g) **Transactions in the ordinary course of business—** Notwithstanding subsection [(a)](#a) or [(d)](#d), a [person](/usc/15/80a–2.md?p=a-28) may, in the ordinary course of business, sell to or [purchase](/usc/15/78c–5.md?p=g) from any [company](/usc/15/80a–2.md?p=a-8) merchandise or may enter into a lessor-lessee relationship with any [person](/usc/15/80a–2.md?p=a-28) and furnish the services incident thereto. - (h) **Inquiry procedures—** The [directors](/usc/15/80a–2.md?p=a-12) of or general partners in any [business development company](/usc/15/80a–2.md?p=a-48) shall adopt, and periodically review and update as appropriate, procedures reasonably designed to ensure that reasonable inquiry is made, prior to the consummation of any transaction in which such [business development company](/usc/15/80a–2.md?p=a-48) or a [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) proposes to participate, with respect to the possible involvement in the transaction of [persons](/usc/15/80a–2.md?p=a-28) described in subsections [(b)](#b) and [(e)](#e) of this section. - (i) **Rules and regulations of Commission—** Until the adoption by the [Commission](/usc/15/80a–2.md?p=a-7) of rules or regulations under subsections [(a)](#a) and [(d)](#d) of this section, the rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7) under subsections (a) and (d) of [section 80a–17 of this title](/usc/15/80a–17.md) applicable to registered closed-end [investment companies](/usc/15/77z–2.md?p=i-2) shall be deemed to apply to transactions subject to subsections [(a)](#a) and [(d)](#d) of this section. Any rules or regulations adopted by the [Commission](/usc/15/80a–2.md?p=a-7) to implement this section shall be no more restrictive than the rules or regulations adopted by the [Commission](/usc/15/80a–2.md?p=a-7) under subsections (a) and (d) of [section 80a–17 of this title](/usc/15/80a–17.md) that are applicable to all registered closed-end [investment companies](/usc/15/77z–2.md?p=i-2). - (j) **Warrants, options, and rights to purchase voting securities; loans to facilitate executive compensation plans—** Notwithstanding subsections [(a)](#a) and [(d)](#d) of this section, any [director](/usc/15/80a–2.md?p=a-12), officer, or employee of, or general partner in, a [business development company](/usc/15/80a–2.md?p=a-48) may— - (1) acquire warrants, options, and rights to [purchase](/usc/15/78c–5.md?p=g) [voting securities](/usc/15/80a–2.md?p=a-42) of such [business development company](/usc/15/80a–2.md?p=a-48), and [securities](/usc/15/80a–2.md?p=a-36) issued upon the exercise or conversion thereof, pursuant to an executive compensation plan offered by such [company](/usc/15/80a–2.md?p=a-8) which meets the requirements of [section 80a–60(a)(4)(B) of this title](/usc/15/80a–60.md?p=a-4-B); and - (2) borrow money from such [business development company](/usc/15/80a–2.md?p=a-48) for the purpose of purchasing [securities](/usc/15/80a–2.md?p=a-36) issued by such [company](/usc/15/80a–2.md?p=a-8) pursuant to an executive compensation plan, if each such loan— - (A) has a term of not more than ten years; - (B) becomes due within a reasonable time, not to exceed sixty days, after the termination of such [person](/usc/15/80a–2.md?p=a-28)’s employment or service; - (C) bears interest at no less than the prevailing rate applicable to 90-day United States Treasury bills at the time the loan is made; - (D) at all times is fully collateralized (such collateral may include any [securities](/usc/15/80a–2.md?p=a-36) issued by such [business development company](/usc/15/80a–2.md?p=a-48)); and - (E) - (i) in the case of a loan to any officer or employee of such [business development company](/usc/15/80a–2.md?p=a-48) (including any officer or employee who is also a [director](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8)), is approved by the [required majority](#o) (as defined in [subsection (o)](#o)) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that the loan is in the best interests of such [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners; or - (ii) in the case of a loan to any [director](/usc/15/80a–2.md?p=a-12) of such [business development company](/usc/15/80a–2.md?p=a-48) who is not also an officer or employee of such [company](/usc/15/80a–2.md?p=a-8), or to any general partner in such [company](/usc/15/80a–2.md?p=a-8), is approved by [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8), on the basis that the terms of the loan are fair and reasonable and do not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners. - (k) **Restriction on brokerage commissions—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) described in [subsection (l)](#l)— - (1) acting as agent, to accept from any source any compensation (other than a regular salary or wages from the [business development company](/usc/15/80a–2.md?p=a-48)) for the [purchase](/usc/15/78c–5.md?p=g) or sale of any property to or for such [business development company](/usc/15/80a–2.md?p=a-48) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, except in the course of such [person](/usc/15/80a–2.md?p=a-28)’s business as an underwriter or [broker](/usc/15/80a–2.md?p=a-6); or - (2) acting as [broker](/usc/15/80a–2.md?p=a-6), in connection with the sale of [securities](/usc/15/80a–2.md?p=a-36) to or by the [business development company](/usc/15/80a–2.md?p=a-48) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, to receive from any source a [commission](/usc/15/80a–2.md?p=a-7), fee, or other remuneration for effecting such transaction which exceeds— - (A) the usual and customary [broker](/usc/15/80a–2.md?p=a-6)’s [commission](/usc/15/80a–2.md?p=a-7) if the sale is effected on a [securities](/usc/15/80a–2.md?p=a-36) [exchange](/usc/15/80a–2.md?p=a-14); - (B) 2 per centum of the sales price if the sale is effected in connection with a secondary distribution of such [securities](/usc/15/80a–2.md?p=a-36); or - (C) 1 per centum of the [purchase](/usc/15/78c–5.md?p=g) or sale price of such [securities](/usc/15/80a–2.md?p=a-36) if the sale is otherwise effected, unless the [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations or [order](/usc/15/8702.md?p=14) in the public interest and consistent with the protection of investors, permits a larger [commission](/usc/15/80a–2.md?p=a-7). - (l) **Persons subject to brokerage commission restrictions—** The provisions of [subsection (k)](#k) of this section shall apply to the following [persons](/usc/15/80a–2.md?p=a-28): - (1) Any affiliated [person](/usc/15/80a–2.md?p=a-28) of a [business development company](/usc/15/80a–2.md?p=a-48). - (2) - (A) Any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of section [80a–2(a)(3)(B)](/usc/15/80a–2.md), [(C)](/usc/15/80a–2.md), or [(D)](/usc/15/80a–2.md) of this title, an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [director](/usc/15/80a–2.md?p=a-12), officer, employee, or member of an [advisory board](/usc/15/80a–2.md?p=a-1) of the [business development company](/usc/15/80a–2.md?p=a-48). - (B) Any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of section [80a–2(a)(3)(A)](/usc/15/80a–2.md), [(B)](/usc/15/80a–2.md), [(C)](/usc/15/80a–2.md), or [(D)](/usc/15/80a–2.md) of this title, an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of, general partner in, or [person](/usc/15/80a–2.md?p=a-28) directly or indirectly either controlling, controlled by, or under common [control](/usc/15/80a–2.md?p=a-9) with, the [business development company](/usc/15/80a–2.md?p=a-48). - (C) Any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of [section 80a–2(a)(3)(C) of this title](/usc/15/80a–2.md), an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [person](/usc/15/80a–2.md?p=a-28) who is an affiliated [person](/usc/15/80a–2.md?p=a-28) of the [business development company](/usc/15/80a–2.md?p=a-48) within the meaning of [section 80a–2(a)(3)(A) of this title](/usc/15/80a–2.md). - (m) **Receipt of fee or salary from transaction participant—** For purposes of subsections [(a)](#a) and [(d)](#d), a [person](/usc/15/80a–2.md?p=a-28) who is a [director](/usc/15/80a–2.md?p=a-12), officer, or employee of a party to a transaction and who receives his usual and ordinary fee or salary for usual and customary services as a [director](/usc/15/80a–2.md?p=a-12), officer, or employee from such party shall not be deemed to have a financial interest or to participate in the transaction solely by reason of his receipt of such fee or salary. - (n) **Profit-sharing plans—** - (1) Notwithstanding [subsection (a)(4)](#a-4) of this section, a [business development company](/usc/15/80a–2.md?p=a-48) may establish and maintain a profit-sharing plan for its [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners and such [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners may participate in such profit-sharing plan, if— - (A) - (i) in the case of a profit-sharing plan for officers and employees of the [business development company](/usc/15/80a–2.md?p=a-48) (including any officer or employee who is also a [director](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8)), such profit-sharing plan is approved by the [required majority](#o) (as defined in [subsection (o)](#o)) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that such plan is reasonable and fair to the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8), does not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned, and is consistent with the interests of the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8); or - (ii) in the case of a profit-sharing plan which includes one or more [directors](/usc/15/80a–2.md?p=a-12) of the [business development company](/usc/15/80a–2.md?p=a-48) who are not also officers or employees of such [company](/usc/15/80a–2.md?p=a-8), or one or more general partners in such [company](/usc/15/80a–2.md?p=a-8), such profit-sharing plan is approved by [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8), on the basis that such plan is reasonable and fair to the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8), does not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned, and is consistent with the interests of the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8); and - (B) the aggregate amount of benefits which would be paid or accrued under such plan shall not exceed 20 per centum of the [business development company](/usc/15/80a–2.md?p=a-48)’s net income after taxes in any fiscal year. - (2) This subsection may not be used where the [business development company](/usc/15/80a–2.md?p=a-48) has outstanding any stock option, warrant, or right issued as part of an executive compensation plan, including a plan pursuant to [section 80a–60(a)(4)(B) of this title](/usc/15/80a–60.md?p=a-4-B), or has an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered or required to be registered under subchapter II of this chapter. - (o) **Required majority for approval of proposed transactions—** The term “required majority”, when used with respect to the approval of a proposed transaction, plan, or arrangement, means both a majority of a [business development company](/usc/15/80a–2.md?p=a-48)’s [directors](/usc/15/80a–2.md?p=a-12) or general partners who have no financial interest in such transaction, plan, or arrangement and a majority of such [directors](/usc/15/80a–2.md?p=a-12) or general partners who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8). # §80a–57. Changes in investment policy No [business development company](/usc/15/80a–2.md?p=a-48) shall, unless authorized by the vote of a majority of its outstanding [voting securities](/usc/15/80a–2.md?p=a-42) or partnership interests, change the nature of its business so as to cease to be, or to withdraw its election as, a [business development company](/usc/15/80a–2.md?p=a-48). # §80a–58. Incorporation of subchapter provisions Notwithstanding the exemption set forth in [section 80–6(f) of this title](https://uscode.house.gov/view.xhtml?req=(/us/usc/t15/s80–6/f)), sections [80a–1](/usc/15/80a–1.md), [80a–2](/usc/15/80a–2.md), [80a–3](/usc/15/80a–3.md), [80a–4](/usc/15/80a–4.md), [80a–5](/usc/15/80a–5.md), [80a–6](/usc/15/80a–6.md), [80a–9](/usc/15/80a–9.md), [80a–10(f)](/usc/15/80a–10.md?p=f), [80a–15(a)](/usc/15/80a–15.md?p=a), [(c)](/usc/15/80a–15.md?p=c), and [(f)](/usc/15/80a–15.md?p=f), [80a–16(b)](/usc/15/80a–16.md), [80a–17(f) through (j)](/usc/15/80a–17.md?p=f..j), [80a–19(a)](/usc/15/80a–19.md?p=a), [80a–20(b)](/usc/15/80a–20.md?p=b), [80a–31(a)](/usc/15/80a–31.md?p=a) and [(c)](/usc/15/80a–31.md?p=c), [80a–32 through 80a–46](/usc/15/80a–32..80a–46.md), and [80a–48 through 80a–52](/usc/15/80a–48..80a–52.md) of this title shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2). # §80a–59. Functions and activities of business development companies Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–12 of this title](/usc/15/80a–12.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that the [Commission](/usc/15/80a–2.md?p=a-7) shall not prescribe any rule, regulation, or [order](/usc/15/8702.md?p=14) pursuant to [section 80a–12(a)(1) of this title](/usc/15/80a–12.md?p=a-1) governing the circumstances in which a [business development company](/usc/15/80a–2.md?p=a-48) may borrow from a bank in [order](/usc/15/8702.md?p=14) to [purchase](/usc/15/78c–5.md?p=g) any [security](/usc/15/80a–2.md?p=a-36). # §80a–60. Capital structure - (a) **Exceptions for business development company—** Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–18 of this title](/usc/15/80a–18.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except as follows: - (1) Except as provided in [paragraph (2)](#a-2), the asset coverage requirements of subparagraphs (A) and (B) of [section 80a–18(a)(1) of this title](/usc/15/80a–18.md?p=a-1) (and any related rule promulgated under this subchapter) applicable to [business development companies](/usc/15/80a–2.md?p=a-48) shall be 200 percent. - (2) The asset coverage requirements of subparagraphs (A) and (B) of [section 80a–18(a)(1) of this title](/usc/15/80a–18.md?p=a-1) and of subparagraphs (A) and (B) of [section 80a–18(a)(2) of this title](/usc/15/80a–18.md?p=a-2) (and any related rule promulgated under this subchapter) applicable to a [business development company](/usc/15/80a–2.md?p=a-48) shall be 150 percent if— - (A) not later than 5 business days after the date on which those asset coverage requirements are approved under subparagraph (D) of this paragraph, the [business development company](/usc/15/80a–2.md?p=a-48) discloses that the requirements were approved, and the effective date of the approval, in— - (i) any filing submitted to the [Commission](/usc/15/80a–2.md?p=a-7) under section [78m(a)](/usc/15/78m.md?p=a) or [78o(d)](/usc/15/78o.md?p=d) of this title; and - (ii) a notice on the website of the [business development company](/usc/15/80a–2.md?p=a-48); - (B) the [business development company](/usc/15/80a–2.md?p=a-48) discloses, in each periodic filing required under [section 78m(a) of this title](/usc/15/78m.md?p=a)— - (i) the aggregate outstanding principal amount or liquidation preference, as applicable, of the senior [securities](/usc/15/80a–2.md?p=a-36) issued by the [business development company](/usc/15/80a–2.md?p=a-48) and the asset coverage percentage as of the date of the [business development company](/usc/15/80a–2.md?p=a-48)’s most recent financial statements included in that filing; - (ii) that the [business development company](/usc/15/80a–2.md?p=a-48), under [subparagraph (D)](#a-2-D), has approved the asset coverage requirements under this paragraph; and - (iii) the effective date of the approval described in [clause (ii)](#a-2-B-ii); - (C) with respect to a [business development company](/usc/15/80a–2.md?p=a-48) that is an [issuer](/usc/15/80a–2.md?p=a-22) of common [equity securities](/usc/15/9041.md?p=6), each periodic filing of the [company](/usc/15/80a–2.md?p=a-8) required under [section 78m(a) of this title](/usc/15/78m.md?p=a) includes disclosures that are reasonably designed to ensure that shareholders are informed of— - (i) the amount of senior [securities](/usc/15/80a–2.md?p=a-36) (and the associated asset coverage ratios) of the [company](/usc/15/80a–2.md?p=a-8), determined as of the date of the most recent financial statements of the [company](/usc/15/80a–2.md?p=a-8) included in that filing; and - (ii) the principal risk factors associated with the senior [securities](/usc/15/80a–2.md?p=a-36) described in [clause (i)](#a-2-C-i), to the extent that risk is incurred by the [company](/usc/15/80a–2.md?p=a-8); and - (D) the [company](/usc/15/80a–2.md?p=a-8)— - (i) - (I) through a vote of the required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title), approves the [application](/usc/15/77ccc.md?p=8) of this paragraph to the [company](/usc/15/80a–2.md?p=a-8), to become effective on the date that is 1 year after the date of the approval; or - (II) obtains, at a special or annual meeting of shareholders or partners at which a quorum is present, the approval of more than 50 percent of the votes cast for the [application](/usc/15/77ccc.md?p=8) of this paragraph to the [company](/usc/15/80a–2.md?p=a-8), to become effective on the first day after the date of the approval; and - (ii) if the [company](/usc/15/80a–2.md?p=a-8) is not an [issuer](/usc/15/80a–2.md?p=a-22) of common [equity securities](/usc/15/9041.md?p=6) that are listed on a [national securities exchange](/usc/15/80a–2.md?p=a-26), extends, to each [person](/usc/15/80a–2.md?p=a-28) that is a shareholder as of the date of an approval described in subclause [(I)](#a-2-D-i-I) or [(II)](#a-2-D-i-II) of clause (i), as applicable, the opportunity (which may include a tender offer) to sell the [securities](/usc/15/80a–2.md?p=a-36) held by that shareholder as of that applicable approval date, with 25 percent of those [securities](/usc/15/80a–2.md?p=a-36) to be repurchased in each of the 4 calendar quarters following the calendar quarter in which that applicable approval date takes place. - (3) Notwithstanding [section 80a–18(c) of this title](/usc/15/80a–18.md?p=c), a [business development company](/usc/15/80a–2.md?p=a-48) may issue more than one class of senior [security](/usc/15/80a–2.md?p=a-36) representing indebtedness. - (4) Notwithstanding [section 80a–18(d) of this title](/usc/15/80a–18.md?p=d)— - (A) a [business development company](/usc/15/80a–2.md?p=a-48) may issue warrants, options, or rights to subscribe or convert to [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), accompanied by [securities](/usc/15/80a–2.md?p=a-36), if— - (i) such warrants, options, or rights expire by their terms within ten years; - (ii) such warrants, options, or rights are not separately transferable unless no class of such warrants, options, or rights and the [securities](/usc/15/80a–2.md?p=a-36) accompanying them has been publicly distributed; - (iii) the exercise or conversion price is not less than the current market value at the date of issuance, or if no such market value exists, the current net asset value of such [voting securities](/usc/15/80a–2.md?p=a-42); and - (iv) the proposal to issue such [securities](/usc/15/80a–2.md?p=a-36) is authorized by the shareholders or partners of such [business development company](/usc/15/80a–2.md?p=a-48), and such issuance is approved by the required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that such issuance is in the best interests of such [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners; - (B) a [business development company](/usc/15/80a–2.md?p=a-48) may issue, to its [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners, warrants, options, and rights to [purchase](/usc/15/78c–5.md?p=g) [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8) pursuant to an executive compensation plan, if— - (i) - (I) in the case of warrants, options, or rights issued to any officer or employee of such [business development company](/usc/15/80a–2.md?p=a-48) (including any officer or employee who is also a [director](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8)), such [securities](/usc/15/80a–2.md?p=a-36) satisfy the conditions in clauses [(i)](#a-4-A-i), [(iii)](#a-4-A-iii), and [(iv)](#a-4-A-iv) of subparagraph (A); or (II) in the case of warrants, options, or rights issued to any [director](/usc/15/80a–2.md?p=a-12) of such [business development company](/usc/15/80a–2.md?p=a-48) who is not also an officer or employee of such [company](/usc/15/80a–2.md?p=a-8), or to any general partner in such [company](/usc/15/80a–2.md?p=a-8), the proposal to issue such [securities](/usc/15/80a–2.md?p=a-36) satisfies the conditions in clauses [(i)](#a-4-A-i) and [(iii)](#a-4-A-iii) of subparagraph (A), is authorized by the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8), and is approved by [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8), on the basis that the terms of the proposal are fair and reasonable and do not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners; - (ii) such [securities](/usc/15/80a–2.md?p=a-36) are not transferable except for disposition by gift, will, or intestacy; - (iii) no [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [business development company](/usc/15/80a–2.md?p=a-48) receives any compensation described in [section 80b–5(a)(1) of this title](/usc/15/80b–5.md?p=a-1), except to the extent permitted by paragraph (1) or (2) of [section 80b–5(b) of this title](/usc/15/80b–5.md?p=b); and - (iv) such [business development company](/usc/15/80a–2.md?p=a-48) does not have a profit-sharing plan described in [section 80a–56(n) of this title](/usc/15/80a–56.md?p=n); and - (C) a [business development company](/usc/15/80a–2.md?p=a-48) may issue warrants, options, or rights to subscribe to, convert to, or [purchase](/usc/15/78c–5.md?p=g) [voting securities](/usc/15/80a–2.md?p=a-42) not accompanied by [securities](/usc/15/80a–2.md?p=a-36), if— - (i) such warrants, options, or rights satisfy the conditions in clauses [(i)](#a-4-A-i) and [(iii)](#a-4-A-iii) of subparagraph (A); and - (ii) the proposal to issue such warrants, options, or rights is authorized by the shareholders or partners of such [business development company](/usc/15/80a–2.md?p=a-48), and such issuance is approved by the required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that such issuance is in the best interests of the [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners. Notwithstanding this paragraph, the amount of [voting securities](/usc/15/80a–2.md?p=a-42) that would result from the exercise of all outstanding warrants, options, and rights at the time of issuance shall not exceed 25 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the [business development company](/usc/15/80a–2.md?p=a-48), except that if the amount of [voting securities](/usc/15/80a–2.md?p=a-42) that would result from the exercise of all outstanding warrants, options, and rights issued to such [company](/usc/15/80a–2.md?p=a-8)’s [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners pursuant to any executive compensation plan meeting the requirements of subparagraph (B) of this paragraph would exceed 15 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), then the total amount of [voting securities](/usc/15/80a–2.md?p=a-42) that would result from the exercise of all outstanding warrants, options, and rights at the time of issuance shall not exceed 20 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8). - (5) For purposes of measuring the asset coverage requirements of [section 80a–18(a) of this title](/usc/15/80a–18.md?p=a), a senior [security](/usc/15/80a–2.md?p=a-36) created by the guarantee by a [business development company](/usc/15/80a–2.md?p=a-48) of indebtedness issued by another [company](/usc/15/80a–2.md?p=a-8) shall be the amount of the maximum potential liability less the fair market value of the net unencumbered assets (plus the indebtedness which has been guaranteed) available in the borrowing [company](/usc/15/80a–2.md?p=a-8) whose debts have been guaranteed, except that a guarantee issued by a [business development company](/usc/15/80a–2.md?p=a-48) of indebtedness issued by a [company](/usc/15/80a–2.md?p=a-8) which is a wholly-owned subsidiary of the [business development company](/usc/15/80a–2.md?p=a-48) and is licensed as a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.] shall not be deemed to be a senior [security](/usc/15/80a–2.md?p=a-36) of such [business development company](/usc/15/80a–2.md?p=a-48) for purposes of [section 80a–18(a) of this title](/usc/15/80a–18.md?p=a) if the amount of the indebtedness at the time of its issuance by the borrowing [company](/usc/15/80a–2.md?p=a-8) is itself taken fully into [account](/usc/15/1681a.md?p=r-4) as a liability by such [business development company](/usc/15/80a–2.md?p=a-48), as if it were issued by such [business development company](/usc/15/80a–2.md?p=a-48), in determining whether such [business development company](/usc/15/80a–2.md?p=a-48), at that time, satisfies the asset coverage requirements of [section 80a–18(a) of this title](/usc/15/80a–18.md?p=a). - (b) **Compliance—** A [business development company](/usc/15/80a–2.md?p=a-48) shall comply with the provisions of this section at the time it becomes subject to [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title, as if it were issuing a [security](/usc/15/80a–2.md?p=a-36) of each class which it has outstanding at such time. # §80a–61. Loans Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–21 of this title](/usc/15/80a–21.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that nothing in that section shall be deemed to prohibit— - (1) any loan to a [director](/usc/15/80a–2.md?p=a-12), officer, or employee of, or general partner in, a [business development company](/usc/15/80a–2.md?p=a-48) for the purpose of purchasing [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) as part of an executive compensation plan, if such loan meets the requirements of [section 80a–56(j) of this title](/usc/15/80a–56.md?p=j); or - (2) any loan to a [company](/usc/15/80a–2.md?p=a-8) controlled by a [business development company](/usc/15/80a–2.md?p=a-48), which [companies](/usc/15/80a–2.md?p=a-8) could be deemed to be under common [control](/usc/15/80a–2.md?p=a-9) solely because a third [person](/usc/15/80a–2.md?p=a-28) [controls](/usc/15/80a–2.md?p=a-9) such [business development company](/usc/15/80a–2.md?p=a-48). # §80a–62. Distribution and repurchase of securities Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–23 of this title](/usc/15/80a–23.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except as follows: - (1) The prohibitions of [section 80a–23(a)(2) of this title](/usc/15/80a–23.md) shall not apply to any [company](/usc/15/80a–2.md?p=a-8) which (A) is a wholly-owned subsidiary of, or directly or indirectly controlled by, a [business development company](/usc/15/80a–2.md?p=a-48), and (B) immediately after the issuance of any of its [securities](/usc/15/80a–2.md?p=a-36) for property other than cash or [securities](/usc/15/80a–2.md?p=a-36), will not be an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of [section 80a–3(a) of this title](/usc/15/80a–3.md?p=a). - (2) Notwithstanding the provisions of [section 80a–23(b) of this title](/usc/15/80a–23.md?p=b), a [business development company](/usc/15/80a–2.md?p=a-48) may sell any common stock of which it is the [issuer](/usc/15/80a–2.md?p=a-22) at a price below the current net asset value of such stock, and may sell warrants, options, or rights to acquire any such common stock at a price below the current net asset value of such stock, if— - (A) the holders of a majority of such [business development company](/usc/15/80a–2.md?p=a-48)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42), and the holders of a majority of such [company](/usc/15/80a–2.md?p=a-8)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42) that are not affiliated [persons](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8), approved such [company](/usc/15/80a–2.md?p=a-8)’s policy and practice of making such sales of [securities](/usc/15/80a–2.md?p=a-36) at the last annual meeting of shareholders or partners within one year immediately prior to any such sale, except that the shareholder approval requirements of this subparagraph shall not apply to the initial public offering by a [business development company](/usc/15/80a–2.md?p=a-48) of its [securities](/usc/15/80a–2.md?p=a-36); - (B) a required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [business development company](/usc/15/80a–2.md?p=a-48) have determined that any such sale would be in the best interests of such [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners; and - (C) a required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [business development company](/usc/15/80a–2.md?p=a-48), in consultation with the underwriter or underwriters of the offering if it is to be underwritten, have determined in good faith, and as of a time immediately prior to the first solicitation by or on behalf of such [company](/usc/15/80a–2.md?p=a-8) of firm commitments to [purchase](/usc/15/78c–5.md?p=g) such [securities](/usc/15/80a–2.md?p=a-36) or immediately prior to the issuance of such [securities](/usc/15/80a–2.md?p=a-36), that the price at which such [securities](/usc/15/80a–2.md?p=a-36) are to be sold is not less than a price which closely approximates the market value of those [securities](/usc/15/80a–2.md?p=a-36), less any distributing [commission](/usc/15/80a–2.md?p=a-7) or [discount](/usc/15/1602.md?p=q). - (3) A [business development company](/usc/15/80a–2.md?p=a-48) may sell any common stock of which it is the [issuer](/usc/15/80a–2.md?p=a-22) at a price below the current net asset value of such stock upon the exercise of any warrant, option, or right issued in accordance with [section 80a–60(a)(4) of this title](/usc/15/80a–60.md?p=a-4). # §80a–63. Accounts and records - (a) **Exception for business development company—** Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–30 of this title](/usc/15/80a–30.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that the reference to the financial statements required to be filed pursuant to [section 80a–29 of this title](/usc/15/80a–29.md) shall be construed to refer to the financial statements required to be filed by such [business development company](/usc/15/80a–2.md?p=a-48) pursuant to [section 78m of this title](/usc/15/78m.md). - (b) **Risk factors statement; availability—** - (1) In addition to the requirements of [subsection (a)](#a), a [business development company](/usc/15/80a–2.md?p=a-48) shall file with the [Commission](/usc/15/80a–2.md?p=a-7) and supply annually to its shareholders a written statement, in such form and manner as the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe, describing the risk factors involved in an investment in the [securities](/usc/15/80a–2.md?p=a-36) of a [business development company](/usc/15/80a–2.md?p=a-48) due to the nature of such [company](/usc/15/80a–2.md?p=a-8)’s investment portfolio and capital structure, and shall supply copies of such statement to any [registered broker or dealer](/usc/15/78c.md?p=h-2) upon request. - (2) If the [Commission](/usc/15/80a–2.md?p=a-7) finds it is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter, the [Commission](/usc/15/80a–2.md?p=a-7) may also require, by rule, any [person](/usc/15/80a–2.md?p=a-28) who, acting as principal or agent, sells a [security](/usc/15/80a–2.md?p=a-36) of a [business development company](/usc/15/80a–2.md?p=a-48) to inform the purchaser of such [securities](/usc/15/80a–2.md?p=a-36), at or before the time of sale, of the existence of the risk statement prepared by such [business development company](/usc/15/80a–2.md?p=a-48) pursuant to this subsection, and make such risk statement available on request. The [Commission](/usc/15/80a–2.md?p=a-7), in making such rules and regulations, shall consider, among other matters, whether any such rule or regulation would impose any unreasonable burdens on such [brokers](/usc/15/80a–2.md?p=a-6) or [dealers](/usc/15/80a–2.md?p=a-11) or unreasonably impair the maintenance of fair and orderly markets. # §80a–64. Preventing compliance with subchapter; liability of controlling persons Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–47 of this title](/usc/15/80a–47.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that the provisions of [section 80a–47(a) of this title](/usc/15/80a–47.md?p=a) shall not be construed to require any [company](/usc/15/80a–2.md?p=a-8) which is not an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of [section 80a–3(a) of this title](/usc/15/80a–3.md?p=a) to comply with the provisions of this subchapter which are applicable to a [business development company](/usc/15/80a–2.md?p=a-48) solely because such [company](/usc/15/80a–2.md?p=a-8) is a wholly-owned subsidiary of, or directly or indirectly controlled by, a [business development company](/usc/15/80a–2.md?p=a-48). # §80b–1. Findings Upon the basis of facts disclosed by the record and report of the [Securities](/usc/15/80b–2.md?p=a-18) and [Exchange](/usc/15/80b–2.md?p=a-9) [Commission](/usc/15/80b–2.md?p=a-4) made pursuant to section 79z–4[^1] of this title, and facts otherwise disclosed and ascertained, it is found that [investment advisers](/usc/15/6102.md?p=d-2-B-ii) are of national concern, in that, among other things— - (1) their advice, counsel, publications, writings, analyses, and reports are furnished and distributed, and their contracts, subscription [agreements](/usc/15/7a.md?p=2), and other arrangements with [clients](/usc/15/80b–11.md?p=a) are negotiated and performed, by the use of the mails and means and instrumentalities of [interstate commerce](/usc/15/80b–2.md?p=a-10); - (2) their advice, counsel, publications, writings, analyses, and reports customarily relate to the [purchase](/usc/15/78c–5.md?p=g) and sale of [securities](/usc/15/80b–2.md?p=a-18) traded on [national securities exchanges](/usc/15/80b–2.md?p=a-15) and in interstate over-the-counter markets, [securities](/usc/15/80b–2.md?p=a-18) issued by [companies](/usc/15/80b–2.md?p=a-5) engaged in business in [interstate commerce](/usc/15/80b–2.md?p=a-10), and [securities](/usc/15/80b–2.md?p=a-18) issued by national banks and member banks of the Federal Reserve System; and - (3) the foregoing transactions occur in such volume as substantially to affect [interstate commerce](/usc/15/80b–2.md?p=a-10), [national securities exchanges](/usc/15/80b–2.md?p=a-15), and other [securities](/usc/15/80b–2.md?p=a-18) markets, the national banking system and the national economy. # §80b–2. Definitions - (a) **In general—** When used in this subchapter, unless the context otherwise requires, the following definitions shall apply: - (1) “Assignment” includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor’s outstanding voting [securities](#a-18) by a [security](#a-18) holder of the assignor; but if the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is a partnership, no assignment of an investment advisory contract shall be deemed to result from the death or withdrawal of a minority of the members of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) having only a minority interest in the business of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or from the admission to the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of one or more members who, after such admission, shall be only a minority of the members and shall have only a minority interest in the business. - (2) “Bank” means (A) a banking institution organized under the laws of the United States or a Federal savings [association](/usc/15/657h.md?p=a-2), as defined in [section 1462(5) of title 12](/usc/12/1462.md?p=5), (B) a member bank of the Federal Reserve System, (C) any other banking institution, savings [association](/usc/15/657h.md?p=a-2), as defined in [section 1462(4) of title 12](/usc/12/1462.md?p=4), or trust [company](#a-5), whether incorporated or not, doing business under the laws of any [State](#a-19) or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the [authority](/usc/15/3051.md?p=1) of the Comptroller of the Currency, and which is supervised and examined by [State](#a-19) or Federal [authority](/usc/15/3051.md?p=1) having supervision over banks or savings [associations](/usc/15/657h.md?p=a-2), and which is not operated for the purpose of evading the provisions of this subchapter, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B), or (C) of this paragraph. - (3) The term “broker” has the same meaning as given in section 3 of the [Securities](#a-18) Exchange Act of 1934 [[15 U.S.C. 78c](/usc/15/78c.md)]. - (4) “Commission” means the [Securities](#a-18) and [Exchange](#a-9) Commission. - (5) “Company” means a corporation, a partnership, an [association](/usc/15/657h.md?p=a-2), a joint-stock company, a trust, or any organized group of [persons](#a-16), whether incorporated or not; or any receiver, trustee in a case under [title 11](/usc/11.md), or similar official, or any liquidating agent for any of the foregoing, in his capacity as such. - (6) “Convicted” includes a verdict, judgment, or plea of guilty, or a finding of guilt on a plea of nolo contendere, if such verdict, judgment, plea, or finding has not been reversed, set aside, or withdrawn, whether or not sentence has been imposed. - (7) The term “dealer” has the same meaning as given in section 3 of the [Securities](#a-18) Exchange Act of 1934 [[15 U.S.C. 78c](/usc/15/78c.md)], but does not include an insurance [company](#a-5) or [investment company](/usc/15/77z–2.md?p=i-2). - (8) “Director” means any director of a corporation or any [person](#a-16) performing similar functions with respect to any organization, whether incorporated or unincorporated. - (9) “Exchange” means any organization, [association](/usc/15/657h.md?p=a-2), or group of [persons](#a-16), whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of [securities](#a-18) or for otherwise performing with respect to [securities](#a-18) the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange. - (10) “Interstate commerce” means trade, commerce, transportation, or communication among the several [States](#a-19), or between any foreign country and any [State](#a-19), or between any [State](#a-19) and any place or ship outside thereof. - (11) “Investment adviser” means any [person](#a-16) who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of [securities](#a-18) or as to the advisability of investing in, purchasing, or selling [securities](#a-18), or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning [securities](#a-18); but does not include (A) a bank, or any bank holding [company](#a-5) as defined in the Bank Holding Company Act of 1956 [[12 U.S.C. 1841](/usc/12/1841.md) et seq.] which is not an [investment company](/usc/15/77z–2.md?p=i-2), except that the term “investment adviser” includes any bank or bank holding [company](#a-5) to the extent that such bank or bank holding [company](#a-5) serves or acts as an investment adviser to a registered [investment company](/usc/15/77z–2.md?p=i-2), but if, in the case of a bank, such services or actions are performed through a [separately identifiable department or division](#a-26), the department or division, and not the bank itself, shall be deemed to be the investment adviser; (B) any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession; (C) any [broker or dealer](/usc/15/78c.md?p=h-2) whose performance of such services is solely incidental to the conduct of his business as a [broker or dealer](/usc/15/78c.md?p=h-2) and who receives no special compensation therefor; (D) the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation; (E) any [person](#a-16) whose advice, analyses or reports relate to no [securities](#a-18) other than [securities](#a-18) which are direct obligations of or obligations guaranteed as to principal or interest by the United States, or [securities](#a-18) issued or guaranteed by corporations in which the United States has a direct or indirect interest which shall have been designated by the Secretary of the Treasury, pursuant to section 3(a)(12) of the [Securities](#a-18) Exchange Act of 1934 [[15 U.S.C. 78c(a)(12)](/usc/15/78c.md?p=a-12)], as exempted [securities](#a-18) for the purposes of that Act [[15 U.S.C. 78a](/usc/15/78a.md) et seq.]; (F) any nationally recognized statistical rating organization, as that term is defined in section 3(a)(62) of the [Securities](#a-18) Exchange Act of 1934 [[15 U.S.C. 78c(a)(62)](/usc/15/78c.md?p=a-62)], unless such organization engages in issuing recommendations as to purchasing, selling, or holding [securities](#a-18) or in managing assets, consisting in whole or in part of [securities](#a-18), on behalf of others;;[^1] (G) any family office, as defined by rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](#a-4), in accordance with the purposes of this subchapter; or (H) such other [persons](#a-16) not within the intent of this paragraph, as the [Commission](#a-4) may designate by rules and regulations or [order](/usc/15/8702.md?p=14). - (12) “[Investment company](/usc/15/77z–2.md?p=i-2)”, affiliated [person](#a-16), and “insurance [company](#a-5)” have the same meanings as in the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.]. “Control” means the power to exercise a controlling influence over the management or policies of a [company](#a-5), unless such power is solely the result of an official position with such [company](#a-5). - (13) “Investment supervisory services” means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each [client](/usc/15/80b–11.md?p=a). - (14) “Means or instrumentality of interstate commerce” includes any facility of a [national securities exchange](#a-15). - (15) “National securities exchange” means an [exchange](#a-9) registered under section 6 of the [Securities](#a-18) Exchange Act of 1934 [[15 U.S.C. 78f](/usc/15/78f.md)]. - (16) “Person” means a natural person or a [company](#a-5). - (17) The term “person associated with an investment adviser” means any partner, officer, or [director](#a-8) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) (or any [person](#a-16) performing similar functions), or any [person](#a-16) directly or indirectly controlling or controlled by such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), including any employee of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), except that for the purposes of [section 80b–3 of this title](/usc/15/80b–3.md) (other than subsection (f) thereof), [persons](#a-16) associated with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) whose functions are clerical or ministerial shall not be included in the meaning of such term. The [Commission](#a-4) may by rules and regulations classify, for the purposes of any portion of portions of this subchapter, [persons](#a-16), including employees controlled by an [investment adviser](/usc/15/6102.md?p=d-2-B-ii). - (18) “Security” means any note, stock, treasury stock, [security future](#a-27), bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing [agreement](/usc/15/7a.md?p=2), collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a [national securities exchange](#a-15) relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guaranty of, or warrant or right to subscribe to or [purchase](/usc/15/78c–5.md?p=g) any of the foregoing. - (19) “State” means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States. - (20) “Underwriter” means any [person](#a-16) who has purchased from an issuer with a view to, or sells for an issuer in connection with, the distribution of any [security](#a-18), or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a [person](#a-16) whose interest is limited to a [commission](#a-4) from an underwriter or [dealer](#a-7) not in excess of the usual and customary [distributor](/usc/15/1278.md?p=c-1-D-i)’s or seller’s [commission](#a-4). As used in this paragraph the term “issuer” shall include in addition to an issuer, any [person](#a-16) directly or indirectly controlling or controlled by the issuer, or any [person](#a-16) under direct or indirect common control with the issuer. - (21) “Securities Act of 1933” [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], “[Securities](#a-18) Exchange Act of 1934” [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], and “Trust Indenture Act of 1939” [[15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.], mean those Acts, respectively, as heretofore or hereafter amended. - (22) “Business development company” means any [company](#a-5) which is a business development company as defined in [section 80a–2(a)(48) of this title](/usc/15/80a–2.md?p=a-48) and which complies with [section 80a–54 of this title](/usc/15/80a–54.md), except that— - (A) the 70 per centum of the value of the total assets condition referred to in sections [80a–2(a)(48)](/usc/15/80a–2.md?p=a-48) and [80a–54](/usc/15/80a–54.md) of this title shall be 60 per centum for purposes of determining compliance therewith; - (B) such [company](#a-5) need not be a closed-end [company](#a-5) and need not elect to be subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title; and - (C) the [securities](#a-18) which may be purchased pursuant to [section 80a–54(a) of this title](/usc/15/80a–54.md?p=a) may be purchased from any [person](#a-16). For purposes of this paragraph, all terms in sections [80a–2(a)(48)](/usc/15/80a–2.md?p=a-48) and [80a–54](/usc/15/80a–54.md) of this title shall have the same meaning set forth in subchapter I as if such [company](#a-5) were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that the value of the assets of a business development company which is not subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title shall be determined as of the date of the most recent financial statements which it furnished to all holders of its [securities](#a-18), and shall be determined no less frequently than annually. - (23) “Foreign securities authority” means any foreign government, or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate to [securities](#a-18) matters. - (24) “Foreign financial regulatory authority” means any (A) [foreign securities authority](#a-23), (B) other governmental body or foreign equivalent of a [self-regulatory organization](/usc/15/78c.md?p=a-26) empowered by a foreign government to administer or enforce its laws relating to the regulation of fiduciaries, trusts, commercial lending, insurance, trading in contracts of sale of a commodity for future delivery, or other instruments traded on or subject to the rules of a contract market, [board](/usc/15/205c.md?p=1) of trade or foreign equivalent, or other financial activities, or (C) membership organization a function of which is to regulate the participation of its members in activities listed above. - (25) “Supervised person” means any partner, officer, [director](#a-8) (or other [person](#a-16) occupying a similar status or performing similar functions), or employee of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or other [person](#a-16) who provides investment advice on behalf of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) and is subject to the supervision and control of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii). - (26) The term “separately identifiable department or division” of a bank means a unit— - (A) that is under the direct supervision of an officer or officers designated by the [board](/usc/15/205c.md?p=1) of [directors](#a-8) of the bank as responsible for the day-to-day conduct of the bank’s [investment adviser](/usc/15/6102.md?p=d-2-B-ii) activities for one or more [investment companies](/usc/15/77z–2.md?p=i-2), including the supervision of all bank employees engaged in the performance of such activities; and - (B) for which all of the records relating to its [investment adviser](/usc/15/6102.md?p=d-2-B-ii) activities are separately maintained in or extractable from such unit’s own facilities or the facilities of the bank, and such records are so maintained or otherwise accessible as to permit independent examination and enforcement by the [Commission](#a-4) of this subchapter or the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.] and rules and regulations promulgated under this subchapter or the Investment Company Act of 1940. - (27) The terms “security future” and “narrow-based security index” have the same meanings as provided in section 3(a)(55) of the [Securities](#a-18) Exchange Act of 1934 [[15 U.S.C. 78c(a)(55)](/usc/15/78c.md?p=a-55)]. - (28) The term “credit rating agency” has the same meaning as in section 3 of the [Securities](#a-18) Exchange Act of 1934 [[15 U.S.C. 78c](/usc/15/78c.md)]. - (29) [^2] The term “private fund” means an [issuer](/usc/15/636.md?p=a-36-A-xvi) that would be an [investment company](/usc/15/77z–2.md?p=i-2), as defined in section 3 of the Investment Company Act of 1940 ([15 U.S.C. 80a–3](/usc/15/80a–3.md)), but for section [3(c)(1)](/usc/15/3.md) or [3(c)(7)](/usc/15/3.md) of that Act. - (30) The term “foreign private adviser” means any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) who— - (A) has no place of business in the United States; - (B) has, in total, fewer than 15 [clients](/usc/15/80b–11.md?p=a) and investors in the United States in [private funds](#a-29) advised by the [investment adviser](/usc/15/6102.md?p=d-2-B-ii); - (C) has aggregate assets under management attributable to [clients](/usc/15/80b–11.md?p=a) in the United States and investors in the United States in [private funds](#a-29) advised by the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of less than $25,000,000, or such higher amount as the [Commission](#a-4) may, by rule, deem appropriate in accordance with the purposes of this subchapter; and - (D) neither— - (i) holds itself out generally to the public in the United States as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii); nor - (ii) acts as— - (I) an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to any [investment company](/usc/15/77z–2.md?p=i-2) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.]; or - (II) a [company](#a-5) that has elected to be a [business development company](#a-22) pursuant to section 54 of the Investment Company Act of 1940 ([15 U.S.C. 80a–53](/usc/15/80a–53.md)), and has not withdrawn its election. - (29) [^3] The terms “commodity pool”, “commodity pool operator”, “commodity trading advisor”, “major swap participant”, “swap”, “swap dealer”, and “swap execution facility” have the same meanings as in [section 1a of title 7](/usc/7/1a.md). - (b) **Applicability to Federal or State government, agency, or instrumentality, or to officers, agents, or employees thereof—** No provision in this subchapter shall apply to, or be deemed to include, the United States, a [State](#a-19), or any political subdivision of a [State](#a-19), or any agency, [authority](/usc/15/3051.md?p=1), or instrumentality of any one or more of the foregoing, or any corporation which is wholly owned directly or indirectly by any one or more of the foregoing, or any officer, agent, or employee of any of the foregoing acting as such in the course of his official duty, unless such provision makes specific reference thereto. - (c) **Consideration of promotion of efficiency, competition, and capital formation—** Whenever pursuant to this subchapter the [Commission](#a-4) is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the [Commission](#a-4) shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. # §80b–3. Registration of investment advisers - (a) **Necessity of registration—** Except as provided in [subsection (b)](#b) and [section 80b–3a of this title](/usc/15/80b–3a.md), it shall be unlawful for any [investment adviser](/usc/15/6102.md?p=d-2-B-ii), unless registered under this section, to make use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80b–2.md?p=a-14) in connection with his or its business as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii). - (b) **Investment advisers who need not be registered—** The provisions of [subsection (a)](#a) shall not apply to— - (1) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii), other than an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) who acts as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to any [private fund](/usc/15/80b–2.md?p=a-29), all of whose [clients](/usc/15/80b–11.md?p=a) are residents of the [State](/usc/15/80b–2.md?p=a-19) within which such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) maintains his or its principal office and place of business, and who does not furnish advice or issue analyses or reports with respect to [securities](/usc/15/80b–2.md?p=a-18) listed or admitted to unlisted trading privileges on any [national securities exchange](/usc/15/80b–2.md?p=a-15); - (2) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) whose only [clients](/usc/15/80b–11.md?p=a) are insurance [companies](/usc/15/80b–2.md?p=a-5); - (3) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is a [foreign private adviser](/usc/15/80b–2.md?p=a-30); - (4) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is a charitable organization, as defined in [section 80a–3(c)(10)(D) of this title](/usc/15/80a–3.md?p=c-10-D), or is a trustee, [director](/usc/15/80b–2.md?p=a-8), officer, employee, or volunteer of such a charitable organization acting within the scope of such [person](/usc/15/80b–2.md?p=a-16)’s employment or duties with such organization, whose advice, analyses, or reports are provided only to one or more of the following: - (A) any such charitable organization; - (B) a fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B); or - (C) a trust or other donative instrument described in [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B), or the trustees, [administrators](/usc/15/9001.md?p=1), settlors (or potential settlors), or beneficiaries of any such trust or other instrument; - (5) any plan described in [section 414(e) of title 26](/usc/26/414.md?p=e), any [person](/usc/15/80b–2.md?p=a-16) or entity eligible to establish and maintain such a plan under [title 26](/usc/26.md), or any trustee, [director](/usc/15/80b–2.md?p=a-8), officer, or employee of or volunteer for any such plan or [person](/usc/15/80b–2.md?p=a-16), if such [person](/usc/15/80b–2.md?p=a-16) or entity, acting in such capacity, provides investment advice exclusively to, or with respect to, any plan, [person](/usc/15/80b–2.md?p=a-16), or entity or any [company](/usc/15/80b–2.md?p=a-5), [account](/usc/15/1681a.md?p=r-4), or fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(14) of this title](/usc/15/80a–3.md?p=c-14); - (6) - (A) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is registered with the Commodity Futures Trading [Commission](/usc/15/80b–2.md?p=a-4) as a [commodity trading advisor](/usc/15/80b–2.md?p=a-29) whose business does not consist primarily of acting as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), as defined in [section 80b–2(a)(11) of this title](/usc/15/80b–2.md?p=a-11), and that does not act as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to— - (i) an [investment company](/usc/15/77z–2.md?p=i-2) registered under subchapter I of this chapter; or - (ii) a [company](/usc/15/80b–2.md?p=a-5) which has elected to be a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md) and has not withdrawn its election; or - (B) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is registered with the Commodity Futures Trading [Commission](/usc/15/80b–2.md?p=a-4) as a [commodity trading advisor](/usc/15/80b–2.md?p=a-29) and advises a [private fund](/usc/15/80b–2.md?p=a-29), provided that, if after July 21, 2010, the business of the advisor should become predominately the provision of [securities](/usc/15/80b–2.md?p=a-18)-related advice, then such adviser shall register with the [Commission](/usc/15/80b–2.md?p=a-4); - (7) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii), other than any entity that has elected to be regulated or is regulated as a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md), who solely advises— - (A) [small business](/usc/15/1691c–2.md?p=h-2) [investment companies](/usc/15/77z–2.md?p=i-2) that are licensees under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.]; - (B) entities that have received from the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2) notice to proceed to qualify for a [license](/usc/15/662.md?p=7) as a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958, which notice or [license](/usc/15/662.md?p=7) has not been revoked; or - (C) [applicants](/usc/15/7a.md?p=3) that are affiliated with 1 or more licensed [small business](/usc/15/1691c–2.md?p=h-2) [investment companies](/usc/15/77z–2.md?p=i-2) described in [subparagraph (A)](#b-7-A) and that have applied for another [license](/usc/15/662.md?p=7) under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958, which [application](/usc/15/77ccc.md?p=8) remains pending; or - (8) any [investment adviser](/usc/15/6102.md?p=d-2-B-ii), other than an entity that has elected to be regulated or is regulated as a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md), who solely advises— - (A) rural business [investment companies](/usc/15/77z–2.md?p=i-2) (as defined in [section 2009cc of title 7](/usc/7/2009cc.md)); or - (B) [companies](/usc/15/80b–2.md?p=a-5) that have submitted to the Secretary of Agriculture an [application](/usc/15/77ccc.md?p=8) in accordance with [section 2009cc–3(b) of title 7](/usc/7/2009cc–3.md?p=b) that— - (i) have received from the Secretary of Agriculture a letter of conditions, which has not been revoked; or - (ii) are affiliated with 1 or more rural business [investment companies](/usc/15/77z–2.md?p=i-2) described in [subparagraph (A)](#b-8-A). - (c) **Procedure for registration; filing of application; effective date of registration; amendment of registration—** - (1) An [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or any [person](/usc/15/80b–2.md?p=a-16) who presently contemplates becoming an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), may be registered by filing with the [Commission](/usc/15/80b–2.md?p=a-4) an [application](/usc/15/77ccc.md?p=8) for registration in such form and containing such of the following information and documents as the [Commission](/usc/15/80b–2.md?p=a-4), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors: - (A) the name and form of organization under which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) engages or intends to engage in business; the name of the [State](/usc/15/80b–2.md?p=a-19) or other sovereign power under which such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is organized; the location of his or its principal office, principal place of business, and branch offices, if any; the names and addresses of his or its partners, officers, [directors](/usc/15/80b–2.md?p=a-8), and [persons](/usc/15/80b–2.md?p=a-16) performing similar functions or, if such an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) be an individual, of such individual; and the number of his or its employees; - (B) the education, the business affiliations for the past ten years, and the present business affiliations of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) and of his or its partners, officers, [directors](/usc/15/80b–2.md?p=a-8), and [persons](/usc/15/80b–2.md?p=a-16) performing similar functions and of any controlling [person](/usc/15/80b–2.md?p=a-16) thereof; - (C) the nature of the business of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), including the manner of giving advice and rendering analyses or reports; - (D) a balance sheet certified by an independent public accountant and other financial statements (which shall, as the [Commission](/usc/15/80b–2.md?p=a-4) specifies, be certified); - (E) the nature and scope of the [authority](/usc/15/3051.md?p=1) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) with respect to [clients](/usc/15/80b–11.md?p=a)’ funds and [accounts](/usc/15/1681a.md?p=r-4); - (F) the basis or bases upon which such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is compensated; - (G) whether such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or any [person](/usc/15/80b–2.md?p=a-16) associated with such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), is subject to any disqualification which would be a basis for denial, suspension, or revocation of registration of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under the provisions of [subsection (e)](#e) of this section; and - (H) a statement as to whether the principal business of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) consists or is to consist of acting as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) and a statement as to whether a substantial part of the business of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), consists or is to consist of rendering [investment supervisory services](/usc/15/80b–2.md?p=a-13). - (2) Within forty-five days of the date of the filing of such [application](/usc/15/77ccc.md?p=8) (or within such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents) the [Commission](/usc/15/80b–2.md?p=a-4) shall— - (A) by [order](/usc/15/8702.md?p=14) grant such registration; or - (B) [institute](/usc/15/9401.md?p=7) proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred twenty days of the date of the filing of the [application](/usc/15/77ccc.md?p=8) for registration. At the conclusion of such proceedings the [Commission](/usc/15/80b–2.md?p=a-4), by [order](/usc/15/8702.md?p=14), shall grant or deny such registration. The [Commission](/usc/15/80b–2.md?p=a-4) may extend the time for conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the [applicant](/usc/15/7a.md?p=3) consents. The [Commission](/usc/15/80b–2.md?p=a-4) shall grant such registration if the [Commission](/usc/15/80b–2.md?p=a-4) finds that the requirements of this section are satisfied and that the [applicant](/usc/15/7a.md?p=3) is not prohibited from registering as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under [section 80b–3a of this title](/usc/15/80b–3a.md). The [Commission](/usc/15/80b–2.md?p=a-4) shall deny such registration if it does not make such a finding or if it finds that if the [applicant](/usc/15/7a.md?p=3) were so registered, its registration would be subject to suspension or revocation under [subsection (e)](#e) of this section. - (d) **Other acts prohibited by subchapter—** Any provision of this subchapter (other than [subsection (a)](#a) of this section) which prohibits any act, practice, or course of business if the mails or any [means or instrumentality of interstate commerce](/usc/15/80b–2.md?p=a-14) are used in connection therewith shall also prohibit any such act, practice, or course of business by any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered pursuant to this section or any [person](/usc/15/80b–2.md?p=a-16) acting on behalf of such an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), irrespective of any use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80b–2.md?p=a-14) in connection therewith. - (e) **Censure, denial, or suspension of registration; notice and hearing—** The [Commission](/usc/15/80b–2.md?p=a-4), by [order](/usc/15/8702.md?p=14), shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding twelve months, or revoke the registration of any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is in the public interest and that such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or any [person](/usc/15/80b–2.md?p=a-16) associated with such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), whether prior to or subsequent to becoming so associated— - (1) has willfully made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with the [Commission](/usc/15/80b–2.md?p=a-4) under this subchapter, or in any proceeding before the [Commission](/usc/15/80b–2.md?p=a-4) with respect to registration, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80b–2.md?p=a-19) in any such [application](/usc/15/77ccc.md?p=8) or report any material fact which is required to be stated therein. - (2) has been [convicted](/usc/15/80b–2.md?p=a-6) within ten years preceding the filing of any [application](/usc/15/77ccc.md?p=8) for registration or at any time thereafter of any felony or misdemeanor or of a substantially equivalent crime by a foreign court of competent jurisdiction which the [Commission](/usc/15/80b–2.md?p=a-4) finds— - (A) involves the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80b–2.md?p=a-18), the taking of a false oath, the making of a false report, bribery, perjury, burglary, any substantially equivalent activity however denominated by the laws of the relevant foreign government, or conspiracy to commit any such offense; - (B) arises out of the conduct of the business of a [broker](/usc/15/80b–2.md?p=a-3), [dealer](/usc/15/80b–2.md?p=a-7), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), bank, insurance [company](/usc/15/80b–2.md?p=a-5), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), fiduciary, [transfer agent](/usc/15/6102.md?p=d-2-B-i), [credit rating agency](/usc/15/80b–2.md?p=a-28), foreign [person](/usc/15/80b–2.md?p=a-16) performing a function substantially equivalent to any of the above, or entity or [person](/usc/15/80b–2.md?p=a-16) required to be registered under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.] or any substantially equivalent statute or regulation; - (C) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or [securities](/usc/15/80b–2.md?p=a-18) or substantially equivalent activity however denominated by the laws of the relevant foreign government; or - (D) involves the [violation](/usc/15/57b–1.md?p=a-7) of section [152](/usc/15/152.md), [1341](/usc/15/1341.md), 1342, or 1343 or chapter [25](/usc/18/chptI-ch25.md) or [47](/usc/18/chptI-ch47.md) of title 18, or a [violation](/usc/15/57b–1.md?p=a-7) of[^1] substantially equivalent foreign statute. - (3) has been [convicted](/usc/15/80b–2.md?p=a-6) during the 10-year period preceding the date of filing of any [application](/usc/15/77ccc.md?p=8) for registration, or at any time thereafter, of— - (A) any crime that is punishable by imprisonment for 1 or more years, and that is not described in [paragraph (2)](#e-2); or - (B) a substantially equivalent crime by a foreign court of competent jurisdiction. - (4) is permanently or temporarily enjoined by [order](/usc/15/8702.md?p=14), judgment, or decree of any court of competent jurisdiction, including any foreign court of competent jurisdiction, from acting as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), underwriter, [broker](/usc/15/80b–2.md?p=a-3), [dealer](/usc/15/80b–2.md?p=a-7), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), [transfer agent](/usc/15/6102.md?p=d-2-B-i), [credit rating agency](/usc/15/80b–2.md?p=a-28), foreign [person](/usc/15/80b–2.md?p=a-16) performing a function substantially equivalent to any of the above, or entity or [person](/usc/15/80b–2.md?p=a-16) required to be registered under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.] or any substantially equivalent statute or regulation, or as an affiliated [person](/usc/15/80b–2.md?p=a-16) or employee of any [investment company](/usc/15/77z–2.md?p=i-2), bank, insurance [company](/usc/15/80b–2.md?p=a-5), foreign entity substantially equivalent to any of the above, or entity or [person](/usc/15/80b–2.md?p=a-16) required to be registered under the Commodity Exchange Act or any substantially equivalent statute or regulation, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80b–2.md?p=a-18). - (5) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], subchapter I of this chapter, this subchapter, the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or the rules or regulations under any such statutes or any rule of the Municipal [Securities](/usc/15/80b–2.md?p=a-18) Rulemaking [Board](/usc/15/205c.md?p=1), or is unable to comply with any such provision. - (6) has willfully aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80b–2.md?p=a-16) of any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], subchapter I of this chapter, this subchapter, the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], the rules or regulations under any of such statutes, or the rules of the Municipal [Securities](/usc/15/80b–2.md?p=a-18) Rulemaking [Board](/usc/15/205c.md?p=1), or has failed reasonably to supervise, with a view to preventing [violations](/usc/15/57b–1.md?p=a-7) of the provisions of such statutes, rules and regulations, another [person](/usc/15/80b–2.md?p=a-16) who commits such a [violation](/usc/15/57b–1.md?p=a-7), if such other [person](/usc/15/80b–2.md?p=a-16) is subject to his supervision. For the purposes of this paragraph no [person](/usc/15/80b–2.md?p=a-16) shall be deemed to have failed reasonably to supervise any [person](/usc/15/80b–2.md?p=a-16), if— - (A) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such [violation](/usc/15/57b–1.md?p=a-7) by such other [person](/usc/15/80b–2.md?p=a-16), and - (B) such [person](/usc/15/80b–2.md?p=a-16) has reasonably discharged the duties and obligations incumbent upon him by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with. - (7) is subject to any [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80b–2.md?p=a-4) barring or suspending the right of the [person](/usc/15/80b–2.md?p=a-16) to be associated with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii); - (8) has been found by a [foreign financial regulatory authority](/usc/15/80b–2.md?p=a-24) to have— - (A) made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with a [foreign securities authority](/usc/15/80b–2.md?p=a-23), or in any proceeding before a [foreign securities authority](/usc/15/80b–2.md?p=a-23) with respect to registration, any statement that was at the time and in light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80b–2.md?p=a-19) in any [application](/usc/15/77ccc.md?p=8) or report to a [foreign securities authority](/usc/15/80b–2.md?p=a-23) any material fact that is required to be stated therein; - (B) violated any foreign statute or regulation regarding transactions in [securities](/usc/15/80b–2.md?p=a-18) or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any [board](/usc/15/205c.md?p=1) of trade; or - (C) aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80b–2.md?p=a-16) of any foreign statute or regulation regarding transactions in [securities](/usc/15/80b–2.md?p=a-18) or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any [board](/usc/15/205c.md?p=1) of trade, or has been found, by the foreign finanical[^2] regulatory [authority](/usc/15/3051.md?p=1), to have failed reasonably to supervise, with a view to preventing [violations](/usc/15/57b–1.md?p=a-7) of statutory provisions, and rules and regulations promulgated thereunder, another [person](/usc/15/80b–2.md?p=a-16) who commits such a [violation](/usc/15/57b–1.md?p=a-7), if such other [person](/usc/15/80b–2.md?p=a-16) is subject to his supervision; or - (9) is subject to any final [order](/usc/15/8702.md?p=14) of a [State](/usc/15/80b–2.md?p=a-19) [securities](/usc/15/80b–2.md?p=a-18) [commission](/usc/15/80b–2.md?p=a-4) (or any agency or officer performing like functions), [State](/usc/15/80b–2.md?p=a-19) [authority](/usc/15/3051.md?p=1) that supervises or examines banks, savings [associations](/usc/15/657h.md?p=a-2), or [credit](/usc/15/1679a.md?p=4) unions, [State](/usc/15/80b–2.md?p=a-19) insurance [commission](/usc/15/80b–2.md?p=a-4) (or any agency or office performing like functions), an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act ([12 U.S.C. 1813(q)](/usc/12/1813.md?p=q))), or the National [Credit](/usc/15/1679a.md?p=4) Union [Administration](/usc/15/2203.md?p=2), that— - (A) bars such [person](/usc/15/80b–2.md?p=a-16) from [association](/usc/15/657h.md?p=a-2) with an entity regulated by such [commission](/usc/15/80b–2.md?p=a-4), [authority](/usc/15/3051.md?p=1), agency, or officer, or from engaging in the business of [securities](/usc/15/80b–2.md?p=a-18), insurance, banking, savings [association](/usc/15/657h.md?p=a-2) activities, or [credit](/usc/15/1679a.md?p=4) union activities; or - (B) constitutes a final [order](/usc/15/8702.md?p=14) based on [violations](/usc/15/57b–1.md?p=a-7) of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct. - (f) **Bar or suspension from association with investment adviser; notice and hearing—** The [Commission](/usc/15/80b–2.md?p=a-4), by [order](/usc/15/8702.md?p=14), shall censure or place limitations on the activities of any [person](/usc/15/80b–2.md?p=a-16) associated, seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or suspend for a period not exceeding 12 months or bar any such [person](/usc/15/80b–2.md?p=a-16) from being associated with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), [broker](/usc/15/80b–2.md?p=a-3), [dealer](/usc/15/80b–2.md?p=a-7), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), municipal advisor, [transfer agent](/usc/15/6102.md?p=d-2-B-i), or nationally recognized statistical rating organization, if the [Commission](/usc/15/80b–2.md?p=a-4) finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such [person](/usc/15/80b–2.md?p=a-16) has committed or omitted any act or omission enumerated in paragraph [(1)](#e-1), [(5)](#e-5), [(6)](#e-6), [(8)](#e-8), or [(9)](#e-9) of subsection (e) or has been [convicted](/usc/15/80b–2.md?p=a-6) of any offense specified in paragraph [(2)](#e-2) or [(3)](#e-3) of subsection (e) within ten years of the commencement of the proceedings under this subsection, or is enjoined from any action, conduct, or practice specified in [paragraph (4)](#e-4) of subsection (e). It shall be unlawful for any [person](/usc/15/80b–2.md?p=a-16) as to whom such an [order](/usc/15/8702.md?p=14) suspending or barring him from being associated with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is in effect willfully to become, or to be, associated with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) without the consent of the [Commission](/usc/15/80b–2.md?p=a-4), and it shall be unlawful for any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to permit such a [person](/usc/15/80b–2.md?p=a-16) to become, or remain, a [person](/usc/15/80b–2.md?p=a-16) associated with him without the consent of the [Commission](/usc/15/80b–2.md?p=a-4), if such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) knew, or in the exercise of reasonable care, should have known, of such [order](/usc/15/8702.md?p=14). - (g) **Registration of successor to business of investment adviser—** Any successor to the business of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under this section shall be deemed likewise registered hereunder, if within thirty days from its succession to such business it shall file an [application](/usc/15/77ccc.md?p=8) for registration under this section, unless and until the [Commission](/usc/15/80b–2.md?p=a-4), pursuant to [subsection (c)](#c) or [subsection (e)](#e) of this section, shall deny registration to or revoke or suspend the registration of such successor. - (h) **Withdrawal of registration—** Any [person](/usc/15/80b–2.md?p=a-16) registered under this section may, upon such terms and conditions as the [Commission](/usc/15/80b–2.md?p=a-4) finds necessary in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the [Commission](/usc/15/80b–2.md?p=a-4). If the [Commission](/usc/15/80b–2.md?p=a-4) finds that any [person](/usc/15/80b–2.md?p=a-16) registered under this section, or who has pending an [application](/usc/15/77ccc.md?p=8) for registration filed under this section, is no longer in existence, is not engaged in business as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or is prohibited from registering as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under [section 80b–3a of this title](/usc/15/80b–3a.md), the [Commission](/usc/15/80b–2.md?p=a-4) shall by [order](/usc/15/8702.md?p=14) cancel the registration of such [person](/usc/15/80b–2.md?p=a-16). - (i) **Money penalties in administrative proceedings—** - (1) **Authority of Commission—** - (A) **In general—** In any proceeding instituted pursuant to subsection [(e)](#e) or [(f)](#f) against any [person](/usc/15/80b–2.md?p=a-16), the [Commission](/usc/15/80b–2.md?p=a-4) may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such penalty is in the public interest and that such [person](/usc/15/80b–2.md?p=a-16)— - (i) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], subchapter I of this chapter, or this subchapter, or the rules or regulations thereunder; - (ii) has willfully aided, abetted, counseled, commanded, induced, or procured such a [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80b–2.md?p=a-16); - (iii) has willfully made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with the [Commission](/usc/15/80b–2.md?p=a-4) under this subchapter, or in any proceeding before the [Commission](/usc/15/80b–2.md?p=a-4) with respect to registration, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80b–2.md?p=a-19) in any such [application](/usc/15/77ccc.md?p=8) or report any material fact which was required to be stated therein; or - (iv) has failed reasonably to supervise, within the meaning of [subsection (e)(6)](#e-6), with a view to preventing [violations](/usc/15/57b–1.md?p=a-7) of the provisions of this subchapter and the rules and regulations thereunder, another [person](/usc/15/80b–2.md?p=a-16) who commits such a [violation](/usc/15/57b–1.md?p=a-7), if such other [person](/usc/15/80b–2.md?p=a-16) is subject to his supervision;[^3] - (B) **Cease-and-desist proceedings—** In any proceeding instituted pursuant to [subsection (k)](#k) against any [person](/usc/15/80b–2.md?p=a-16), the [Commission](/usc/15/80b–2.md?p=a-4) may impose a civil penalty if the [Commission](/usc/15/80b–2.md?p=a-4) finds, on the record, after notice and opportunity for hearing, that such [person](/usc/15/80b–2.md?p=a-16)— - (i) is violating or has violated any provision of this subchapter, or any rule or regulation issued under this subchapter; or - (ii) is or was a cause of the [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or any rule or regulation issued under this subchapter. - (2) **Maximum amount of penalty—** - (A) **First tier—** The maximum amount of penalty for each act or omission described in [paragraph (1)](#i-1) shall be $5,000 for a natural [person](/usc/15/80b–2.md?p=a-16) or $50,000 for any other [person](/usc/15/80b–2.md?p=a-16). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#i-2-A), the maximum amount of penalty for each such act or omission shall be $50,000 for a natural [person](/usc/15/80b–2.md?p=a-16) or $250,000 for any other [person](/usc/15/80b–2.md?p=a-16) if the act or omission described in [paragraph (1)](#i-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#i-2-A) and [(B)](#i-2-B), the maximum amount of penalty for each such act or omission shall be $100,000 for a natural [person](/usc/15/80b–2.md?p=a-16) or $500,000 for any other [person](/usc/15/80b–2.md?p=a-16) if— - (i) the act or omission described in [paragraph (1)](#i-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (ii) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/80b–2.md?p=a-16) or resulted in substantial pecuniary gain to the [person](/usc/15/80b–2.md?p=a-16) who committed the act or omission. - (3) **Determination of public interest—** In considering under this section whether a penalty is in the public interest, the [Commission](/usc/15/80b–2.md?p=a-4) may consider— - (A) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; - (B) the harm to other [persons](/usc/15/80b–2.md?p=a-16) resulting either directly or indirectly from such act or omission; - (C) the extent to which any [person](/usc/15/80b–2.md?p=a-16) was unjustly enriched, taking into [account](/usc/15/1681a.md?p=r-4) any restitution made to [persons](/usc/15/80b–2.md?p=a-16) injured by such behavior; - (D) whether such [person](/usc/15/80b–2.md?p=a-16) previously has been found by the [Commission](/usc/15/80b–2.md?p=a-4), another appropriate regulatory agency, or a [self-regulatory organization](/usc/15/78c.md?p=a-26) to have violated the Federal [securities laws](/usc/15/77z–2.md?p=i-5), [State](/usc/15/80b–2.md?p=a-19) [securities laws](/usc/15/77z–2.md?p=i-5), or the rules of a [self-regulatory organization](/usc/15/78c.md?p=a-26), has been enjoined by a court of competent jurisdiction from [violations](/usc/15/57b–1.md?p=a-7) of such laws or rules, or has been [convicted](/usc/15/80b–2.md?p=a-6) by a court of competent jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of such laws or of any felony or misdemeanor described in [subsection (e)(2)](#e-2); - (E) the need to deter such [person](/usc/15/80b–2.md?p=a-16) and other [persons](/usc/15/80b–2.md?p=a-16) from committing such acts or omissions; and - (F) such other matters as justice may require. - (4) **Evidence concerning ability to pay—** In any proceeding in which the [Commission](/usc/15/80b–2.md?p=a-4) may impose a penalty under this section, a respondent may present evidence of the respondent’s ability to pay such penalty. The [Commission](/usc/15/80b–2.md?p=a-4) may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such [person](/usc/15/80b–2.md?p=a-16)’s ability to continue in business and the collectability of a penalty, taking into [account](/usc/15/1681a.md?p=r-4) any other claims of the United States or third parties upon such [person](/usc/15/80b–2.md?p=a-16)’s assets and the amount of such [person](/usc/15/80b–2.md?p=a-16)’s assets. - (j) **Authority to enter order requiring accounting and disgorgement—** In any proceeding in which the [Commission](/usc/15/80b–2.md?p=a-4) may impose a penalty under this section, the [Commission](/usc/15/80b–2.md?p=a-4) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/80b–2.md?p=a-4) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (k) **Cease-and-desist proceedings—** - (1) **Authority of Commission—** If the [Commission](/usc/15/80b–2.md?p=a-4) finds, after notice and opportunity for hearing, that any [person](/usc/15/80b–2.md?p=a-16) is violating, has violated, or is about to violate any provision of this subchapter, or any rule or regulation thereunder, the [Commission](/usc/15/80b–2.md?p=a-4) may publish its findings and enter an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/80b–2.md?p=a-16), and any other [person](/usc/15/80b–2.md?p=a-16) that is, was, or would be a cause of the [violation](/usc/15/57b–1.md?p=a-7), due to an act or omission the [person](/usc/15/80b–2.md?p=a-16) knew or should have known would contribute to such [violation](/usc/15/57b–1.md?p=a-7), to cease and desist from committing or causing such [violation](/usc/15/57b–1.md?p=a-7) and any future [violation](/usc/15/57b–1.md?p=a-7) of the same provision, rule, or regulation. Such [order](/usc/15/8702.md?p=14) may, in addition to requiring a [person](/usc/15/80b–2.md?p=a-16) to cease and desist from committing or causing a [violation](/usc/15/57b–1.md?p=a-7), require such [person](/usc/15/80b–2.md?p=a-16) to comply, or to take steps to effect compliance, with such provision, rule, or regulation, upon such terms and conditions and within such time as the [Commission](/usc/15/80b–2.md?p=a-4) may specify in such [order](/usc/15/8702.md?p=14). Any such [order](/usc/15/8702.md?p=14) may, as the [Commission](/usc/15/80b–2.md?p=a-4) deems appropriate, require future compliance or steps to effect future compliance, either permanently or for such period of time as the [Commission](/usc/15/80b–2.md?p=a-4) may specify, with such provision, rule, or regulation with respect to any [security](/usc/15/80b–2.md?p=a-18), any [issuer](/usc/15/636.md?p=a-36-A-xvi), or any other [person](/usc/15/80b–2.md?p=a-16). - (2) **Hearing—** The notice instituting proceedings pursuant to [paragraph (1)](#k-1) shall fix a hearing date not earlier than 30 days nor later than 60 days after service of the notice unless an earlier or a later date is set by the [Commission](/usc/15/80b–2.md?p=a-4) with the consent of any respondent so served. - (3) **Temporary order—** - (A) **In general—** Whenever the [Commission](/usc/15/80b–2.md?p=a-4) determines that the alleged [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) specified in the notice instituting proceedings pursuant to [paragraph (1)](#k-1), or the continuation thereof, is likely to result in significant dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the [Securities](/usc/15/80b–2.md?p=a-18) Investor Protection Corporation, prior to the completion of the proceedings, the [Commission](/usc/15/80b–2.md?p=a-4) may enter a temporary [order](/usc/15/8702.md?p=14) requiring the respondent to cease and desist from the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to take such action to prevent the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to prevent dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest as the [Commission](/usc/15/80b–2.md?p=a-4) deems appropriate pending completion of such proceedings. Such an [order](/usc/15/8702.md?p=14) shall be entered only after notice and opportunity for a hearing, unless the [Commission](/usc/15/80b–2.md?p=a-4), notwithstanding [section 80b–11(c) of this title](/usc/15/80b–11.md?p=c), determines that notice and hearing prior to entry would be impracticable or contrary to the public interest. A temporary [order](/usc/15/8702.md?p=14) shall become effective upon service upon the respondent and, unless set aside, limited, or suspended by the [Commission](/usc/15/80b–2.md?p=a-4) or a court of competent jurisdiction, shall remain effective and enforceable pending the completion of the proceedings. - (B) **Applicability—** This paragraph shall apply only to a respondent that acts, or, at the time of the alleged misconduct acted, as a [broker](/usc/15/80b–2.md?p=a-3), [dealer](/usc/15/80b–2.md?p=a-7), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), [investment company](/usc/15/77z–2.md?p=i-2), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), or [transfer agent](/usc/15/6102.md?p=d-2-B-i), or is, or was at the time of the alleged misconduct, an associated [person](/usc/15/80b–2.md?p=a-16) of, or a [person](/usc/15/80b–2.md?p=a-16) seeking to become associated with, any of the foregoing. - (4) **Review of temporary orders—** - (A) **Commission review—** At any time after the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) pursuant to [paragraph (3)](#k-3), the respondent may apply to the [Commission](/usc/15/80b–2.md?p=a-4) to have the [order](/usc/15/8702.md?p=14) set aside, limited, or suspended. If the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80b–2.md?p=a-4) hearing, the respondent may, within 10 days after the date on which the [order](/usc/15/8702.md?p=14) was served, request a hearing on such [application](/usc/15/77ccc.md?p=8) and the [Commission](/usc/15/80b–2.md?p=a-4) shall hold a hearing and render a decision on such [application](/usc/15/77ccc.md?p=8) at the earliest possible time. - (B) **Judicial review—** Within— - (i) 10 days after the date the respondent was served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered with a prior [Commission](/usc/15/80b–2.md?p=a-4) hearing, or - (ii) 10 days after the [Commission](/usc/15/80b–2.md?p=a-4) renders a decision on an [application](/usc/15/77ccc.md?p=8) and hearing under [subparagraph (A)](#k-4-A), with respect to any temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80b–2.md?p=a-4) hearing, the respondent may apply to the United States district court for the district in which the respondent resides or has its principal office or place of business, or for the District of Columbia, for an [order](/usc/15/8702.md?p=14) setting aside, limiting, or suspending the effectiveness or enforcement of the [order](/usc/15/8702.md?p=14), and the court shall have jurisdiction to enter such an [order](/usc/15/8702.md?p=14). A respondent served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80b–2.md?p=a-4) hearing may not apply to the court except after hearing and decision by the [Commission](/usc/15/80b–2.md?p=a-4) on the respondent’s [application](/usc/15/77ccc.md?p=8) under subparagraph (A) of this paragraph. - (C) **No automatic stay of temporary order—** The commencement of proceedings under subparagraph (B) of this paragraph shall not, unless specifically ordered by the court, operate as a stay of the [Commission](/usc/15/80b–2.md?p=a-4)’s [order](/usc/15/8702.md?p=14). - (D) **Exclusive review—** [Section 80b–13 of this title](/usc/15/80b–13.md) shall not apply to a temporary [order](/usc/15/8702.md?p=14) entered pursuant to this section. - (5) **Authority to enter order requiring accounting and disgorgement—** In any cease-and-desist proceeding under [paragraph (1)](#k-1), the [Commission](/usc/15/80b–2.md?p=a-4) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/80b–2.md?p=a-4) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (l) **Exemption of venture capital fund advisers—** - (1) **In general—** No [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that acts as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) solely to 1 or more venture capital funds shall be subject to the registration requirements of this subchapter with respect to the provision of investment advice relating to a venture capital fund. Not later than 1 year after July 21, 2010, the [Commission](/usc/15/80b–2.md?p=a-4) shall issue final rules to define the term “venture capital fund” for purposes of this subsection. The [Commission](/usc/15/80b–2.md?p=a-4) shall require such advisers to maintain such records and provide to the [Commission](/usc/15/80b–2.md?p=a-4) such annual or other reports as the [Commission](/usc/15/80b–2.md?p=a-4) determines necessary or appropriate in the public interest or for the protection of investors. - (2) **Advisers of SBICS—** For purposes of this subsection, a [venture capital fund](#l-1) includes an entity described in subparagraph [(A)](#b-7-A), [(B)](#b-7-B), or [(C)](#b-7-C) of subsection (b)(7) (other than an entity that has elected to be regulated or is regulated as a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md)). - (3) **Advisers of RBICS—** For purposes of this subsection, a [venture capital fund](#l-1) includes an entity described in subparagraph [(A)](#b-8-A) or [(B)](#b-8-B) of subsection (b)(8) (other than an entity that has elected to be regulated as a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md)). - (m) **Exemption of and reporting by certain private fund advisers—** - (1) **In general—** The [Commission](/usc/15/80b–2.md?p=a-4) shall provide an exemption from the registration requirements under this section to any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of [private funds](/usc/15/80b–2.md?p=a-29), if each of[^4] such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) acts solely as an adviser to [private funds](/usc/15/80b–2.md?p=a-29) and has assets under management in the United States of less than $150,000,000. - (2) **Reporting—** The [Commission](/usc/15/80b–2.md?p=a-4) shall require [investment advisers](/usc/15/6102.md?p=d-2-B-ii) exempted by reason of this subsection to maintain such records and provide to the [Commission](/usc/15/80b–2.md?p=a-4) such annual or other reports as the [Commission](/usc/15/80b–2.md?p=a-4) determines necessary or appropriate in the public interest or for the protection of investors. - (3) **Advisers of SBICS—** For purposes of this subsection, the assets under management of a [private fund](/usc/15/80b–2.md?p=a-29) that is an entity described in subparagraph [(A)](#b-7-A), [(B)](#b-7-B), or [(C)](#b-7-C) of subsection (b)(7) (other than an entity that has elected to be regulated or is regulated as a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md)) shall be excluded from the limit set forth in [paragraph (1)](#m-1). - (4) **Advisers of RBICS—** For purposes of this subsection, the assets under management of a [private fund](/usc/15/80b–2.md?p=a-29) that is an entity described in subparagraph [(A)](#b-8-A) or [(B)](#b-8-B) of subsection (b)(8) (other than an entity that has elected to be regulated or is regulated as a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md)) shall be excluded from the limit set forth in [paragraph (1)](#m-1). - (n) **Registration and examination of mid-sized private fund advisers—** In prescribing regulations to carry out the requirements of this section with respect to [investment advisers](/usc/15/6102.md?p=d-2-B-ii) acting as [investment advisers](/usc/15/6102.md?p=d-2-B-ii) to mid-sized [private funds](/usc/15/80b–2.md?p=a-29), the [Commission](/usc/15/80b–2.md?p=a-4) shall take into [account](/usc/15/1681a.md?p=r-4) the size, governance, and investment strategy of such funds to determine whether they pose systemic risk, and shall provide for registration and examination procedures with respect to the [investment advisers](/usc/15/6102.md?p=d-2-B-ii) of such funds which reflect the level of systemic risk posed by such funds. # §80b–3a. State and Federal responsibilities - (a) **Advisers subject to State authorities—** - (1) **In general—** No [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is regulated or required to be regulated as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) in the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business shall register under [section 80b–3 of this title](/usc/15/80b–3.md), unless the [investment adviser](/usc/15/6102.md?p=d-2-B-ii)— - (A) has [assets under management](#a-3) of not less than $25,000,000, or such higher amount as the [Commission](/usc/15/80b–2.md?p=a-4) may, by rule, deem appropriate in accordance with the purposes of this subchapter; or - (B) is an adviser to an [investment company](/usc/15/77z–2.md?p=i-2) registered under subchapter I of this chapter. - (2) **Treatment of mid-sized investment advisers—** - (A) **In general—** No [investment adviser](/usc/15/6102.md?p=d-2-B-ii) described in [subparagraph (B)](#a-2-B) shall register under [section 80b–3 of this title](/usc/15/80b–3.md), unless the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is an adviser to an [investment company](/usc/15/77z–2.md?p=i-2) registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], or a [company](/usc/15/80b–2.md?p=a-5) which has elected to be a [business development company](/usc/15/80b–2.md?p=a-22) pursuant to section 54 of the Investment Company Act of 1940 [[15 U.S.C. 80a–53](/usc/15/80a–53.md)], and has not withdrawn the election, except that, if by effect of this paragraph an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) would be required to register with 15 or more [States](/usc/15/80b–2.md?p=a-19), then the adviser may register under [section 80b–3 of this title](/usc/15/80b–3.md). - (B) **Covered persons—** An [investment adviser](/usc/15/6102.md?p=d-2-B-ii) described in this subparagraph is an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that— - (i) is required to be registered as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) with the [securities](/usc/15/80b–2.md?p=a-18) commissioner (or any agency or office performing like functions) of the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business and, if registered, would be subject to examination as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) by any such commissioner, agency, or office; and - (ii) has [assets under management](#a-3) between— - (I) the amount specified under [subparagraph (A)](#a-1-A) of paragraph (1), as such amount may have been adjusted by the [Commission](/usc/15/80b–2.md?p=a-4) pursuant to that subparagraph; and - (II) $100,000,000, or such higher amount as the [Commission](/usc/15/80b–2.md?p=a-4) may, by rule, deem appropriate in accordance with the purposes of this subchapter. - (3) **“Assets under management” defined—** For purposes of this subsection, the term “assets under management” means the [securities](/usc/15/80b–2.md?p=a-18) portfolios with respect to which an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) provides continuous and regular supervisory or management services. - (b) **Advisers subject to Commission authority—** - (1) **In general—** No law of any [State](/usc/15/80b–2.md?p=a-19) or political subdivision thereof requiring the registration, licensing, or qualification as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or [supervised person](/usc/15/80b–2.md?p=a-25) of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) shall apply to any [person](/usc/15/80b–2.md?p=a-16)— - (A) that is registered under [section 80b–3 of this title](/usc/15/80b–3.md) as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or that is a [supervised person](/usc/15/80b–2.md?p=a-25) of such [person](/usc/15/80b–2.md?p=a-16), except that a [State](/usc/15/80b–2.md?p=a-19) may [license](/usc/15/662.md?p=7), register, or otherwise qualify any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) representative who has a place of business located within that [State](/usc/15/80b–2.md?p=a-19); - (B) that is not registered under [section 80b–3 of this title](/usc/15/80b–3.md) because that [person](/usc/15/80b–2.md?p=a-16) is excepted from the definition of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under [section 80b–2(a)(11) of this title](/usc/15/80b–2.md?p=a-11); or[^1] - (C) that is not registered under [section 80b–3 of this title](/usc/15/80b–3.md) because that [person](/usc/15/80b–2.md?p=a-16) is exempt from registration as provided in [subsection (b)(7)](/usc/15/80b–3.md?p=b-7) of such section, or is a [supervised person](/usc/15/80b–2.md?p=a-25) of such [person](/usc/15/80b–2.md?p=a-16); or - (D) that is not registered under [section 80b–3 of this title](/usc/15/80b–3.md) because that [person](/usc/15/80b–2.md?p=a-16) is exempt from registration as provided in [subsection (b)(8)](/usc/15/80b–3.md?p=b-8) of such section, or is a [supervised person](/usc/15/80b–2.md?p=a-25) of such [person](/usc/15/80b–2.md?p=a-16). - (2) **Limitation—** Nothing in this subsection shall prohibit the [securities](/usc/15/80b–2.md?p=a-18) [commission](/usc/15/80b–2.md?p=a-4) (or any agency or office performing like functions) of any [State](/usc/15/80b–2.md?p=a-19) from investigating and bringing enforcement actions with respect to fraud or deceit against an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or [person associated with an investment adviser](/usc/15/80b–2.md?p=a-17). - (c) **Exemptions—** Notwithstanding [subsection (a)](#a), the [Commission](/usc/15/80b–2.md?p=a-4), by rule or regulation upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may permit the registration with the [Commission](/usc/15/80b–2.md?p=a-4) of any [person](/usc/15/80b–2.md?p=a-16) or class of [persons](/usc/15/80b–2.md?p=a-16) to which the [application](/usc/15/77ccc.md?p=8) of [subsection (a)](#a) would be unfair, a burden on [interstate commerce](/usc/15/80b–2.md?p=a-10), or otherwise inconsistent with the purposes of this section. - (d) **State assistance—** Upon request of the [securities](/usc/15/80b–2.md?p=a-18) commissioner (or any agency or officer performing like functions) of any [State](/usc/15/80b–2.md?p=a-19), the [Commission](/usc/15/80b–2.md?p=a-4) may provide such training, technical assistance, or other reasonable assistance in connection with the regulation of [investment advisers](/usc/15/6102.md?p=d-2-B-ii) by the [State](/usc/15/80b–2.md?p=a-19). # §80b–4. Reports by investment advisers - (a) **In general—** Every [investment adviser](/usc/15/6102.md?p=d-2-B-ii) who makes use of the mails or of any [means or instrumentality of interstate commerce](/usc/15/80b–2.md?p=a-14) in connection with his or its business as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) (other than one specifically exempted from registration pursuant to [section 80b–3(b) of this title](/usc/15/80b–3.md?p=b)), shall make and keep for prescribed periods such records (as defined in [section 78c(a)(37) of this title](/usc/15/78c.md?p=a-37)), furnish such copies thereof, and make and disseminate such reports as the [Commission](/usc/15/80b–2.md?p=a-4), by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. All records (as so defined) of such [investment advisers](/usc/15/6102.md?p=d-2-B-ii) are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the [Commission](/usc/15/80b–2.md?p=a-4) as the [Commission](/usc/15/80b–2.md?p=a-4) deems necessary or appropriate in the public interest or for the protection of investors. - (b) **Records and reports of private funds—** - (1) **In general—** The [Commission](/usc/15/80b–2.md?p=a-4) may require any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under this subchapter— - (A) to maintain such records of, and file with the [Commission](/usc/15/80b–2.md?p=a-4) such reports regarding, [private funds](/usc/15/80b–2.md?p=a-29) advised by the [investment adviser](/usc/15/6102.md?p=d-2-B-ii), as necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic risk by the Financial Stability Oversight [Council](/usc/15/4601.md?p=c-1) (in this subsection referred to as the “[Council](/usc/15/4601.md?p=c-1)”); and - (B) to provide or make available to the [Council](/usc/15/4601.md?p=c-1) those reports or records or the information contained therein. - (2) **Treatment of records—** The records and reports of any [private fund](/usc/15/80b–2.md?p=a-29) to which an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under this subchapter provides investment advice shall be deemed to be the records and reports of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii). - (3) **Required information—** The records and reports required to be maintained by an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) and subject to inspection by the [Commission](/usc/15/80b–2.md?p=a-4) under this subsection shall include, for each [private fund](/usc/15/80b–2.md?p=a-29) advised by the [investment adviser](/usc/15/6102.md?p=d-2-B-ii), a description of— - (A) the amount of assets under management and use of leverage, including off-balance-sheet leverage; - (B) counterparty [credit](/usc/15/1679a.md?p=4) risk exposure; - (C) trading and investment positions; - (D) valuation policies and practices of the fund; - (E) types of assets held; - (F) side arrangements or side letters, whereby certain investors in a fund obtain more favorable rights or entitlements than other investors; - (G) trading practices; and - (H) such other information as the [Commission](/usc/15/80b–2.md?p=a-4), in consultation with the [Council](/usc/15/4601.md?p=c-1), determines is necessary and appropriate in the public interest and for the protection of investors or for the assessment of systemic risk, which may include the establishment of different reporting requirements for different classes of fund advisers, based on the type or size of [private fund](/usc/15/80b–2.md?p=a-29) being advised. - (4) **Maintenance of records—** An [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under this subchapter shall maintain such records of [private funds](/usc/15/80b–2.md?p=a-29) advised by the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) for such period or periods as the [Commission](/usc/15/80b–2.md?p=a-4), by rule, may prescribe as necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic risk. - (5) **Filing of records—** The [Commission](/usc/15/80b–2.md?p=a-4) shall issue rules requiring each [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to a [private fund](/usc/15/80b–2.md?p=a-29) to file reports containing such information as the [Commission](/usc/15/80b–2.md?p=a-4) deems necessary and appropriate in the public interest and for the protection of investors or for the assessment of systemic risk. - (6) **Examination of records—** - (A) **Periodic and special examinations—** The [Commission](/usc/15/80b–2.md?p=a-4)— - (i) shall conduct periodic inspections of the records of [private funds](/usc/15/80b–2.md?p=a-29) maintained by an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under this subchapter in accordance with a schedule established by the [Commission](/usc/15/80b–2.md?p=a-4); and - (ii) may conduct at any time and from time to time such additional, special, and other examinations as the [Commission](/usc/15/80b–2.md?p=a-4) may prescribe as necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic risk. - (B) **Availability of records—** An [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under this subchapter shall make available to the [Commission](/usc/15/80b–2.md?p=a-4) any copies or extracts from such records as may be prepared without undue effort, expense, or delay, as the [Commission](/usc/15/80b–2.md?p=a-4) or its representatives may reasonably request. - (7) **Information sharing—** - (A) **In general—** The [Commission](/usc/15/80b–2.md?p=a-4) shall make available to the [Council](/usc/15/4601.md?p=c-1) copies of all reports, documents, records, and information filed with or provided to the [Commission](/usc/15/80b–2.md?p=a-4) by an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under this subsection as the [Council](/usc/15/4601.md?p=c-1) may consider necessary for the purpose of assessing the systemic risk posed by a [private fund](/usc/15/80b–2.md?p=a-29). - (B) **Confidentiality—** The [Council](/usc/15/4601.md?p=c-1) shall maintain the confidentiality of information received under this paragraph in all such reports, documents, records, and information, in a manner consistent with the level of confidentiality established for the [Commission](/usc/15/80b–2.md?p=a-4) pursuant to [paragraph (8)](#b-8). The [Council](/usc/15/4601.md?p=c-1) shall be exempt from [section 552 of title 5](/usc/5/552.md) with respect to any information in any report, document, record, or information made available, to the [Council](/usc/15/4601.md?p=c-1) under this subsection.”.[^1] - (8) **Commission confidentiality of reports—** Notwithstanding any other provision of law, the [Commission](/usc/15/80b–2.md?p=a-4) may not be compelled to disclose any report or information contained therein required to be filed with the [Commission](/usc/15/80b–2.md?p=a-4) under this subsection, except that nothing in this subsection authorizes the [Commission](/usc/15/80b–2.md?p=a-4)— - (A) to withhold information from Congress, upon an [agreement](/usc/15/7a.md?p=2) of confidentiality; or - (B) prevent[^2] the [Commission](/usc/15/80b–2.md?p=a-4) from complying with— - (i) a request for information from any other Federal department or agency or any [self-regulatory organization](/usc/15/78c.md?p=a-26) requesting the report or information for purposes within the scope of its jurisdiction; or - (ii) an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States or the [Commission](/usc/15/80b–2.md?p=a-4). - (9) **Other recipients confidentiality—** Any department, agency, or [self-regulatory organization](/usc/15/78c.md?p=a-26) that receives reports or information from the [Commission](/usc/15/80b–2.md?p=a-4) under this subsection shall maintain the confidentiality of such reports, documents, records, and information in a manner consistent with the level of confidentiality established for the [Commission](/usc/15/80b–2.md?p=a-4) under [paragraph (8)](#b-8). - (10) **Public information exception—** - (A) **In general—** The [Commission](/usc/15/80b–2.md?p=a-4), the [Council](/usc/15/4601.md?p=c-1), and any other department, agency, or [self-regulatory organization](/usc/15/78c.md?p=a-26) that receives information, reports, documents, records, or information from the [Commission](/usc/15/80b–2.md?p=a-4) under this subsection, shall be exempt from the provisions of [section 552 of title 5](/usc/5/552.md) with respect to any such report, document, record, or information. Any proprietary information of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) ascertained by the [Commission](/usc/15/80b–2.md?p=a-4) from any report required to be filed with the [Commission](/usc/15/80b–2.md?p=a-4) pursuant to this subsection shall be subject to the same limitations on public disclosure as any facts ascertained during an examination, as provided by [section 80b–10(b) of this title](/usc/15/80b–10.md?p=b). - (B) **Proprietary information—** For purposes of this paragraph, proprietary information includes sensitive, non-public information regarding— - (i) the investment or trading strategies of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii); - (ii) analytical or research methodologies; - (iii) trading data; - (iv) computer hardware or software containing intellectual property; and - (v) any additional information that the [Commission](/usc/15/80b–2.md?p=a-4) determines to be proprietary. - (11) **Annual report to Congress—** The [Commission](/usc/15/80b–2.md?p=a-4) shall report annually to Congress on how the [Commission](/usc/15/80b–2.md?p=a-4) has used the data collected pursuant to this subsection to monitor the markets for the protection of investors and the integrity of the markets. - (c) **Filing depositories—** The [Commission](/usc/15/80b–2.md?p=a-4) may, by rule, require an [investment adviser](/usc/15/6102.md?p=d-2-B-ii)— - (1) to file with the [Commission](/usc/15/80b–2.md?p=a-4) any fee, [application](/usc/15/77ccc.md?p=8), report, or notice required to be filed by this subchapter or the rules issued under this subchapter through any entity designated by the [Commission](/usc/15/80b–2.md?p=a-4) for that purpose; and - (2) to pay the reasonable costs associated with such filing and the establishment and maintenance of the systems required by [subsection (c)](#c). - (d) **Access to disciplinary and other information—** - (1) **Maintenance of system to respond to inquiries—** - (A) **In general—** The [Commission](/usc/15/80b–2.md?p=a-4) shall require the entity designated by the [Commission](/usc/15/80b–2.md?p=a-4) under [subsection (b)(1)](#b-1) to establish and maintain a toll-free telephone listing, or a readily accessible electronic or other process, to receive and promptly respond to inquiries regarding registration information (including disciplinary actions, regulatory, judicial, and arbitration proceedings, and other information required by law or rule to be reported) involving [investment advisers](/usc/15/6102.md?p=d-2-B-ii) and [persons](/usc/15/80b–2.md?p=a-16) associated with [investment advisers](/usc/15/6102.md?p=d-2-B-ii). - (B) **Applicability—** This subsection shall apply to any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) (and the [persons](/usc/15/80b–2.md?p=a-16) associated with that adviser), whether the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is registered with the [Commission](/usc/15/80b–2.md?p=a-4) under [section 80b–3 of this title](/usc/15/80b–3.md) or regulated solely by a [State](/usc/15/80b–2.md?p=a-19), as described in [section 80b–3a of this title](/usc/15/80b–3a.md). - (2) **Recovery of costs—** An entity designated by the [Commission](/usc/15/80b–2.md?p=a-4) under [subsection (b)(1)](#b-1) may charge [persons](/usc/15/80b–2.md?p=a-16) making inquiries, other than individual investors, reasonable fees for responses to inquiries described in [paragraph (1)](#d-1). - (3) **Limitation on liability—** An entity designated by the [Commission](/usc/15/80b–2.md?p=a-4) under [subsection (b)(1)](#b-1) shall not have any liability to any [person](/usc/15/80b–2.md?p=a-16) for any actions taken or omitted in good faith under this subsection. - (e) **Records of persons with custody or use—** - (1) **In general—** Records of [persons](/usc/15/80b–2.md?p=a-16) having custody or use of the [securities](/usc/15/80b–2.md?p=a-18), deposits, or [credits](/usc/15/1679a.md?p=4) of a [client](/usc/15/80b–11.md?p=a), 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 representatives of the [Commission](/usc/15/80b–2.md?p=a-4), as the [Commission](/usc/15/80b–2.md?p=a-4) deems necessary or appropriate in the public interest or for the protection of investors. - (2) **Certain persons subject to other regulation—** Any [person](/usc/15/80b–2.md?p=a-16) that is subject to regulation and examination by a Federal [financial institution](/usc/15/1681s–2.md?p=a-7-G-ii) regulatory agency (as such term is defined under [section 212(c)(2) of title 18](/usc/18/212.md?p=c-2)) may satisfy any examination request, information request, or document request described under [paragraph (1)](#e-1), by providing the [Commission](/usc/15/80b–2.md?p=a-4) with a detailed listing, in writing, of the [securities](/usc/15/80b–2.md?p=a-18), deposits, or [credits](/usc/15/1679a.md?p=4) of the [client](/usc/15/80b–11.md?p=a) within the custody or use of such [person](/usc/15/80b–2.md?p=a-16). - (f) **Data standards for reports filed under this section—** - (1) **Requirement—** The [Commission](/usc/15/80b–2.md?p=a-4) shall, by rule, adopt data standards for all reports filed by [investment advisers](/usc/15/6102.md?p=d-2-B-ii) with the [Commission](/usc/15/80b–2.md?p=a-4) under this section. - (2) **Consistency—** The data standards required under [paragraph (1)](#f-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §80b–4a. Prevention of misuse of nonpublic information Every [investment adviser](/usc/15/6102.md?p=d-2-B-ii) subject to [section 80b–4 of this title](/usc/15/80b–4.md) shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii)’s business, to prevent the misuse in [violation](/usc/15/57b–1.md?p=a-7) of this chapter or the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or the rules or regulations thereunder, of material, nonpublic information by such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or any [person](/usc/15/80b–2.md?p=a-16) associated with such [investment adviser](/usc/15/6102.md?p=d-2-B-ii). The [Commission](/usc/15/80b–2.md?p=a-4), as it deems necessary or appropriate in the public interest or for the protection of investors, shall adopt rules or regulations to require specific policies or procedures reasonably designed to prevent misuse in [violation](/usc/15/57b–1.md?p=a-7) of this chapter or the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 (or the rules or regulations thereunder) of material, nonpublic information. # §80b–5. Investment advisory contracts - (a) **Compensation, assignment, and partnership-membership provisions—** No [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered or required to be registered with the [Commission](/usc/15/80b–2.md?p=a-4) shall enter into, extend, or renew any investment advisory contract, or in any way perform any investment advisory contract entered into, extended, or renewed on or after November 1, 1940, if such contract— - (1) provides for compensation to the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the [client](/usc/15/80b–11.md?p=a); - (2) fails to provide, in substance, that no [assignment](/usc/15/80b–2.md?p=a-1) of such contract shall be made by the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) without the consent of the other party to the contract; or - (3) fails to provide, in substance, that the [investment adviser](/usc/15/6102.md?p=d-2-B-ii), if a partnership, will notify the other party to the contract of any change in the membership of such partnership within a reasonable time after such change. - (b) **Compensation prohibition inapplicable to certain compensation computations—** [Paragraph (1)](#a-1) of subsection (a) shall not— - (1) be construed to prohibit an investment advisory contract which provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates, or taken as of a definite date; - (2) apply to an investment advisory contract with— - (A) an [investment company](/usc/15/77z–2.md?p=i-2) registered under subchapter I of this chapter, or - (B) any other [person](/usc/15/80b–2.md?p=a-16) (except a trust, governmental plan, collective trust fund, or separate [account](/usc/15/1681a.md?p=r-4) referred to in [section 80a–3(c)(11) of this title](/usc/15/80a–3.md?p=c-11)), provided that the contract relates to the investment of assets in excess of $1 million, if the contract provides for compensation based on the asset value of the [company](/usc/15/80b–2.md?p=a-5) or fund under management averaged over a specified period and increasing and decreasing proportionately with the investment performance of the [company](/usc/15/80b–2.md?p=a-5) or fund over a specified period in relation to the investment record of an appropriate index of [securities](/usc/15/80b–2.md?p=a-18) prices or such other measure of investment performance as the [Commission](/usc/15/80b–2.md?p=a-4) by rule, regulation, or [order](/usc/15/8702.md?p=14) may specify; - (3) apply with respect to any investment advisory contract between an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) and a [business development company](/usc/15/80b–2.md?p=a-22), as defined in this subchapter, if (A) the compensation provided for in such contract does not exceed 20 per centum of the realized capital gains upon the funds of the [business development company](/usc/15/80b–2.md?p=a-22) over a specified period or as of definite dates, computed net of all realized capital losses and unrealized capital depreciation, and the condition of [section 80a–60(a)(4)(B)(iii) of this title](/usc/15/80a–60.md?p=a-4-B-iii) is satisfied, and (B) the [business development company](/usc/15/80b–2.md?p=a-22) does not have outstanding any option, warrant, or right issued pursuant to [section 80a–60(a)(4)(B) of this title](/usc/15/80a–60.md?p=a-4-B) and does not have a profit-sharing plan described in [section 80a–56(n) of this title](/usc/15/80a–56.md?p=n); - (4) apply to an investment advisory contract with a [company](/usc/15/80b–2.md?p=a-5) excepted from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(7) of this title](/usc/15/80a–3.md?p=c-7); or - (5) apply to an investment advisory contract with a [person](/usc/15/80b–2.md?p=a-16) who is not a resident of the United States. - (c) **Measurement of changes in compensation—** For purposes of [paragraph (2)](#b-2) of subsection (b), the point from which increases and decreases in compensation are measured shall be the fee which is paid or earned when the investment performance of such [company](/usc/15/80b–2.md?p=a-5) or fund is equivalent to that of the index or other measure of performance, and an index of [securities](/usc/15/80b–2.md?p=a-18) prices shall be deemed appropriate unless the [Commission](/usc/15/80b–2.md?p=a-4) by [order](/usc/15/8702.md?p=14) shall determine otherwise. - (d) **“Investment advisory contract” defined—** As used in paragraphs [(2)](#a-2) and [(3)](#a-3) of subsection (a), “investment advisory contract” means any contract or [agreement](/usc/15/7a.md?p=2) whereby a [person](/usc/15/80b–2.md?p=a-16) agrees to act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to or to manage any investment or trading [account](/usc/15/1681a.md?p=r-4) of another [person](/usc/15/80b–2.md?p=a-16) other than an [investment company](/usc/15/77z–2.md?p=i-2) registered under subchapter I of this chapter. - (e) **Exempt persons and transactions—** The [Commission](/usc/15/80b–2.md?p=a-4), by rule or regulation, upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [person](/usc/15/80b–2.md?p=a-16) or transaction, or any class or classes of [persons](/usc/15/80b–2.md?p=a-16) or transactions, from [subsection (a)(1)](#a-1), if and to the extent that the exemption relates to an investment advisory contract with any [person](/usc/15/80b–2.md?p=a-16) that the [Commission](/usc/15/80b–2.md?p=a-4) determines does not need the protections of [subsection (a)(1)](#a-1), on the basis of such factors as financial sophistication, net worth, knowledge of and experience in financial matters, amount of assets under management, relationship with a registered [investment adviser](/usc/15/6102.md?p=d-2-B-ii), and such other factors as the [Commission](/usc/15/80b–2.md?p=a-4) determines are consistent with this section. With respect to any factor used in any rule or regulation by the [Commission](/usc/15/80b–2.md?p=a-4) in making a determination under this subsection, if the [Commission](/usc/15/80b–2.md?p=a-4) uses a dollar amount test in connection with such factor, such as a net asset threshold, the [Commission](/usc/15/80b–2.md?p=a-4) shall, by [order](/usc/15/8702.md?p=14), not later than 1 year after July 21, 2010, and every 5 years thereafter, adjust for the effects of inflation on such test. Any such adjustment that is not a multiple of $100,000 shall be rounded to the nearest multiple of $100,000. - (f) **Authority to restrict mandatory pre-dispute arbitration—** The [Commission](/usc/15/80b–2.md?p=a-4), by rule, may prohibit, or impose conditions or limitations on the use of, [agreements](/usc/15/7a.md?p=2) that require [customers](/usc/15/78c–5.md?p=g) or [clients](/usc/15/80b–11.md?p=a) of any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to arbitrate any future dispute between them arising under the Federal [securities laws](/usc/15/77z–2.md?p=i-5), the rules and regulations thereunder, or the rules of a [self-regulatory organization](/usc/15/78c.md?p=a-26) if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors. # §80b–6. Prohibited transactions by investment advisers It shall be unlawful for any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80b–2.md?p=a-14), directly or indirectly— - (1) to employ any device, scheme, or artifice to defraud any [client](/usc/15/80b–11.md?p=a) or prospective [client](/usc/15/80b–11.md?p=a); - (2) to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any [client](/usc/15/80b–11.md?p=a) or prospective [client](/usc/15/80b–11.md?p=a); - (3) acting as principal for his own [account](/usc/15/1681a.md?p=r-4), knowingly to sell any [security](/usc/15/80b–2.md?p=a-18) to or [purchase](/usc/15/78c–5.md?p=g) any [security](/usc/15/80b–2.md?p=a-18) from a [client](/usc/15/80b–11.md?p=a), or acting as [broker](/usc/15/80b–2.md?p=a-3) for a [person](/usc/15/80b–2.md?p=a-16) other than such [client](/usc/15/80b–11.md?p=a), knowingly to effect any sale or [purchase](/usc/15/78c–5.md?p=g) of any [security](/usc/15/80b–2.md?p=a-18) for the [account](/usc/15/1681a.md?p=r-4) of such [client](/usc/15/80b–11.md?p=a), without disclosing to such [client](/usc/15/80b–11.md?p=a) in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the [client](/usc/15/80b–11.md?p=a) to such transaction. The prohibitions of this paragraph shall not apply to any transaction with a [customer](/usc/15/78c–5.md?p=g) of a [broker or dealer](/usc/15/78c.md?p=h-2) if such [broker or dealer](/usc/15/78c.md?p=h-2) is not acting as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) in relation to such transaction; or - (4) to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative. The [Commission](/usc/15/80b–2.md?p=a-4) shall, for the purposes of this [paragraph (4)](#4) by rules and regulations define, and prescribe means reasonably designed to prevent, such acts, practices, and courses of business as are fraudulent, deceptive, or manipulative. # §80b–6a. Exemptions The [Commission](/usc/15/80b–2.md?p=a-4), by rules and regulations, upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [person](/usc/15/80b–2.md?p=a-16) or transaction, or any class or classes of [persons](/usc/15/80b–2.md?p=a-16), or transactions, from any provision or provisions of this subchapter or of any rule or regulation thereunder, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter. # §80b–7. Material misstatements It shall be unlawful for any [person](/usc/15/80b–2.md?p=a-16) willfully to make any untrue statement of a material fact in any registration [application](/usc/15/77ccc.md?p=8) or report filed with the [Commission](/usc/15/80b–2.md?p=a-4) under section [80b–3](/usc/15/80b–3.md) or [80b–4](/usc/15/80b–4.md) of this title, or willfully to omit to [state](/usc/15/80b–2.md?p=a-19) in any such [application](/usc/15/77ccc.md?p=8) or report any material fact which is required to be stated therein. # §80b–8. General prohibitions - (a) **Representations of sponsorship by United States or agency thereof—** It shall be unlawful for any [person](/usc/15/80b–2.md?p=a-16) registered under [section 80b–3 of this title](/usc/15/80b–3.md) to represent or imply in any manner whatsoever that such [person](/usc/15/80b–2.md?p=a-16) has been sponsored, recommended, or approved, or that his abilities or qualifications have in any respect been passed upon by the United States or any agency or any officer thereof. - (b) **Statement of registration under Securities Exchange Act of 1934 provisions—** No provision of [subsection (a)](#a) shall be construed to prohibit a statement that a [person](/usc/15/80b–2.md?p=a-16) is registered under this subchapter or under the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], if such statement is true in fact and if the effect of such registration is not misrepresented. - (c) **Use of name “investment counsel” as descriptive of business—** It shall be unlawful for any [person](/usc/15/80b–2.md?p=a-16) registered under [section 80b–3 of this title](/usc/15/80b–3.md) to represent that he is an investment counsel or to use the name “investment counsel” as descriptive of his business unless (1) his or its principal business consists of acting as [investment adviser](/usc/15/6102.md?p=d-2-B-ii), and (2) a substantial part of his or its business consists of rendering [investment supervisory services](/usc/15/80b–2.md?p=a-13). - (d) **Use of indirect means to do prohibited act—** It shall be unlawful for any [person](/usc/15/80b–2.md?p=a-16) indirectly, or through or by any other [person](/usc/15/80b–2.md?p=a-16), to do any act or thing which it would be unlawful for such [person](/usc/15/80b–2.md?p=a-16) to do directly under the provisions of this subchapter or any rule or regulation thereunder. # §80b–9. Enforcement of subchapter - (a) **Investigation—** Whenever it shall appear to the [Commission](/usc/15/80b–2.md?p=a-4), either upon complaint or otherwise, that the provisions of this subchapter or of any rule or regulation prescribed under the [authority](/usc/15/3051.md?p=1) thereof, have been or are about to be violated by any [person](/usc/15/80b–2.md?p=a-16), it may in its discretion require, and in any event shall permit, such [person](/usc/15/80b–2.md?p=a-16) to file with it a statement in writing, under oath or otherwise, as to all the facts and circumstances relevant to such [violation](/usc/15/57b–1.md?p=a-7), and may otherwise investigate all such facts and circumstances. - (b) **Administration of oaths and affirmations, subpena of witnesses, etc.** For the purposes of any investigation or any proceeding under this subchapter, any member of the [Commission](/usc/15/80b–2.md?p=a-4) or any officer thereof designated by it is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records which are relevant or material to the inquiry. Such attendance of witnesses and the production of any such records may be required from any place in any [State](/usc/15/80b–2.md?p=a-19) or in any Territory or other place subject to the jurisdiction of the United States at any designated place of hearing. - (c) **Jurisdiction of courts of United States—** In case of contumacy by, or refusal to obey a subpena issued to, any [person](/usc/15/80b–2.md?p=a-16), the [Commission](/usc/15/80b–2.md?p=a-4) may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such [person](/usc/15/80b–2.md?p=a-16) resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), and other records. And such court may issue an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/80b–2.md?p=a-16) to appear before the [Commission](/usc/15/80b–2.md?p=a-4) or member or officer designated by the [Commission](/usc/15/80b–2.md?p=a-4), there to produce records, if so ordered, or to give testimony touching the matter under investigation or in question; and any failure to obey such [order](/usc/15/8702.md?p=14) of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district whereof such [person](/usc/15/80b–2.md?p=a-16) is an inhabitant or wherever he may be found. Any [person](/usc/15/80b–2.md?p=a-16) who without just cause shall fail or refuse to attend and testify or to answer any lawful inquiry or to produce books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records, if in his or its power so to do, in obedience to the subpena of the [Commission](/usc/15/80b–2.md?p=a-4), shall be guilty of a misdemeanor, and upon conviction shall be subject to a fine of not more than $1,000 or to imprisonment for a term of not more than one year, or both. - (d) **Action for injunction—** Whenever it shall appear to the [Commission](/usc/15/80b–2.md?p=a-4) that any [person](/usc/15/80b–2.md?p=a-16) has engaged, is engaged, or is about to engage in any act or practice constituting a [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, or that any [person](/usc/15/80b–2.md?p=a-16) has aided, abetted, counseled, commanded, induced, or procured, is aiding, abetting, counseling, commanding, inducing, or procuring, or is about to aid, abet, counsel, command, induce, or procure such a [violation](/usc/15/57b–1.md?p=a-7), it may in its discretion bring an action in the proper district court of the United States, or the proper United States court of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices and to enforce compliance with this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder. Upon a showing that such [person](/usc/15/80b–2.md?p=a-16) has engaged, is engaged, or is about to engage in any such act or practice, or in aiding, abetting, counseling, commanding, inducing, or procuring any such act or practice, a permanent or temporary injunction or decree or restraining [order](/usc/15/8702.md?p=14) shall be granted without bond. The [Commission](/usc/15/80b–2.md?p=a-4) may transmit such evidence as may be available concerning any [violation](/usc/15/57b–1.md?p=a-7) of the provisions of this subchapter, or of any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, to the Attorney General, who, in his discretion, may [institute](/usc/15/9401.md?p=7) the appropriate criminal proceedings under this subchapter. - (e) **Money penalties in civil actions—** - (1) **Authority of Commission—** Whenever it shall appear to the [Commission](/usc/15/80b–2.md?p=a-4) that any [person](/usc/15/80b–2.md?p=a-16) has violated any provision of this subchapter, the rules or regulations thereunder, or a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/80b–2.md?p=a-4) pursuant to [section 80b–3(k) of this title](/usc/15/80b–3.md?p=k), the [Commission](/usc/15/80b–2.md?p=a-4) may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, upon a proper showing, a civil penalty to be paid by the [person](/usc/15/80b–2.md?p=a-16) who committed such [violation](/usc/15/57b–1.md?p=a-7). - (2) **Amount of penalty—** - (A) **First tier—** The amount of the penalty shall be determined by the court in light of the facts and circumstances. For each [violation](/usc/15/57b–1.md?p=a-7), the amount of the penalty shall not exceed the greater of (i) $5,000 for a natural [person](/usc/15/80b–2.md?p=a-16) or $50,000 for any other [person](/usc/15/80b–2.md?p=a-16), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#e-2-A), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $50,000 for a natural [person](/usc/15/80b–2.md?p=a-16) or $250,000 for any other [person](/usc/15/80b–2.md?p=a-16), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#e-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#e-2-A) and [(B)](#e-2-B), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $100,000 for a natural [person](/usc/15/80b–2.md?p=a-16) or $500,000 for any other [person](/usc/15/80b–2.md?p=a-16), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if— - (I) the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#e-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (II) such [violation](/usc/15/57b–1.md?p=a-7) directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/80b–2.md?p=a-16). - (3) **Procedures for collection—** - (A) **Payment of penalty to Treasury—** A penalty imposed under this section shall be payable into the Treasury of the United States, except as otherwise provided in [section 7246 of this title](/usc/15/7246.md) and [section 78u–6 of this title](/usc/15/78u–6.md). - (B) **Collection of penalties—** If a [person](/usc/15/80b–2.md?p=a-16) upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/80b–2.md?p=a-4) may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court. - (C) **Remedy not exclusive—** The actions authorized by this subsection may be brought in addition to any other action that the [Commission](/usc/15/80b–2.md?p=a-4) or the Attorney General is entitled to bring. - (D) **Jurisdiction and venue—** For purposes of [section 80b–14 of this title](/usc/15/80b–14.md), actions under this paragraph shall be actions to enforce a liability or a duty created by this subchapter. - (4) **Special provisions relating to violation of cease-and-desist order—** In an action to enforce a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/80b–2.md?p=a-4) pursuant to [section 80b–3(k) of this title](/usc/15/80b–3.md?p=k), each separate [violation](/usc/15/57b–1.md?p=a-7) of such [order](/usc/15/8702.md?p=14) shall be a separate offense, except that in the case of a [violation](/usc/15/57b–1.md?p=a-7) through a continuing failure to comply with the [order](/usc/15/8702.md?p=14), each day of the failure to comply shall be deemed a separate offense. - (f) **Aiding and abetting—** For purposes of any action brought by the [Commission](/usc/15/80b–2.md?p=a-4) under [subsection (e)](#e), any [person](/usc/15/80b–2.md?p=a-16) that knowingly or recklessly has aided, abetted, counseled, commanded, induced, or procured a [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, shall be deemed to be in [violation](/usc/15/57b–1.md?p=a-7) of such provision, rule, regulation, or [order](/usc/15/8702.md?p=14) to the same extent as the [person](/usc/15/80b–2.md?p=a-16) that committed such [violation](/usc/15/57b–1.md?p=a-7). # §80b–10. Disclosure of information by Commission - (a) **Information available to public—** The information contained in any registration [application](/usc/15/77ccc.md?p=8) or report or amendment thereto filed with the [Commission](/usc/15/80b–2.md?p=a-4) pursuant to any provision of this subchapter shall be made available to the public, unless and except insofar as the [Commission](/usc/15/80b–2.md?p=a-4), by rules and regulations upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), finds that public disclosure is neither necessary nor appropriate in the public interest or for the protection of investors. Photostatic or other copies of information contained in documents filed with the [Commission](/usc/15/80b–2.md?p=a-4) under this subchapter and made available to the public shall be furnished to any [person](/usc/15/80b–2.md?p=a-16) at such reasonable charge and under such reasonable limitations as the [Commission](/usc/15/80b–2.md?p=a-4) shall prescribe. - (b) **Disclosure of fact of examination or investigation; exceptions—** Subject to the provisions of subsections (c) and (d) of [section 80b–9 of this title](/usc/15/80b–9.md) and [section 78x(c) of this title](/usc/15/78x.md?p=c), the [Commission](/usc/15/80b–2.md?p=a-4), or any member, officer, or employee thereof, shall not make public the fact that any examination or investigation under this subchapter is being conducted, or the results of or any facts ascertained during any such examination or investigation; and no member, officer, or employee of the [Commission](/usc/15/80b–2.md?p=a-4) shall disclose to any [person](/usc/15/80b–2.md?p=a-16) other than a member, officer, or employee of the [Commission](/usc/15/80b–2.md?p=a-4) any information obtained as a result of any such examination or investigation except with the approval of the [Commission](/usc/15/80b–2.md?p=a-4). The provisions of this subsection shall not apply— - (1) in the case of any hearing which is public under the provisions of [section 80b–12 of this title](/usc/15/80b–12.md); or - (2) in the case of a resolution or request from either House of Congress. - (c) **Disclosure by investment adviser of identity of clients—** No provision of this subchapter shall be construed to require, or to authorize the [Commission](/usc/15/80b–2.md?p=a-4) to require any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) engaged in rendering [investment supervisory services](/usc/15/80b–2.md?p=a-13) to disclose the identity, investments, or affairs of any [client](/usc/15/80b–11.md?p=a) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii), except insofar as such disclosure may be necessary or appropriate in a particular proceeding or investigation having as its object the enforcement of a provision or provisions of this subchapter or for purposes of assessment of potential systemic risk. # §80b–10a. Consultation - (a) **Examination results and other information—** - (1) The [appropriate Federal banking agency](#c) shall provide the [Commission](/usc/15/80b–2.md?p=a-4) upon request the results of any examination, reports, records, or other information to which such agency may have access— - (A) with respect to the investment advisory activities of any— - (i) bank holding [company](/usc/15/80b–2.md?p=a-5) or savings and loan holding [company](/usc/15/80b–2.md?p=a-5); - (ii) bank; or - (iii) [separately identifiable department or division](/usc/15/80b–2.md?p=a-26) of a bank, that is registered under [section 80b–3 of this title](/usc/15/80b–3.md); and - (B) in the case of a bank holding [company](/usc/15/80b–2.md?p=a-5) or savings and loan holding [company](/usc/15/80b–2.md?p=a-5) or bank that has a subsidiary or a [separately identifiable department or division](/usc/15/80b–2.md?p=a-26) registered under that section, with respect to the investment advisory activities of such bank or bank holding [company](/usc/15/80b–2.md?p=a-5) or savings and loan holding [company](/usc/15/80b–2.md?p=a-5). - (2) The [Commission](/usc/15/80b–2.md?p=a-4) shall provide to the [appropriate Federal banking agency](#c) upon request the results of any examination, reports, records, or other information with respect to the investment advisory activities of any bank holding [company](/usc/15/80b–2.md?p=a-5) or savings and loan holding [company](/usc/15/80b–2.md?p=a-5), bank, or [separately identifiable department or division](/usc/15/80b–2.md?p=a-26) of a bank, which is registered under [section 80b–3 of this title](/usc/15/80b–3.md). - (3) Notwithstanding any other provision of law, the [Commission](/usc/15/80b–2.md?p=a-4) and the [appropriate Federal banking agencies](#c) shall not be compelled to disclose any information provided under paragraph [(1)](#a-1) or [(2)](#a-2). Nothing in this paragraph shall authorize the [Commission](/usc/15/80b–2.md?p=a-4) or such agencies to withhold information from Congress, or prevent the [Commission](/usc/15/80b–2.md?p=a-4) or such agencies from complying with a request for information from any other Federal department or agency or any [self-regulatory organization](/usc/15/78c.md?p=a-26) requesting the information for purposes within the scope of its jurisdiction, or complying with an [order](/usc/15/8702.md?p=14) of a court of the United States in an action brought by the United States, the [Commission](/usc/15/80b–2.md?p=a-4), or such agencies. For purposes of [section 552 of title 5](/usc/5/552.md), this paragraph shall be considered a statute described in [subsection (b)(3)(B)](/usc/5/552.md?p=b-3-B) of such section 552. - (b) **Effect on other authority—** Nothing in this section shall limit in any respect the [authority](/usc/15/3051.md?p=1) of the [appropriate Federal banking agency](#c) with respect to such bank holding [company](/usc/15/80b–2.md?p=a-5) or savings and loan holding [company](/usc/15/80b–2.md?p=a-5) (or affiliates or subsidiaries thereof), bank, or subsidiary, department, or division or a bank under any other provision of law. - (c) **Definition—** For purposes of this section, the term “appropriate Federal banking agency” shall have the same meaning as given in [section 1813 of title 12](/usc/12/1813.md). # §80b–11. Rules, regulations, and orders of Commission - (a) **Power of Commission—** The [Commission](/usc/15/80b–2.md?p=a-4) shall have [authority](/usc/15/3051.md?p=1) from time to time to make, issue, amend, and rescind such rules and regulations and such [orders](/usc/15/8702.md?p=14) as are necessary or appropriate to the exercise of the functions and powers conferred upon the [Commission](/usc/15/80b–2.md?p=a-4) elsewhere in this subchapter, including rules and regulations defining technical, trade, and other terms used in this subchapter, except that the [Commission](/usc/15/80b–2.md?p=a-4) may not define the term “client” for purposes of paragraphs (1) and (2) of [section 80b–6 of this title](/usc/15/80b–6.md) to include an investor in a [private fund](/usc/15/80b–2.md?p=a-29) managed by an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), if such [private fund](/usc/15/80b–2.md?p=a-29) has entered into an advisory contract with such adviser. For the purposes of its rules or regulations the [Commission](/usc/15/80b–2.md?p=a-4) may classify [persons](/usc/15/80b–2.md?p=a-16) and matters within its jurisdiction and prescribe different requirements for different classes of [persons](/usc/15/80b–2.md?p=a-16) or matters. - (b) **Effective date of regulations—** Subject to the provisions of [chapter 15](/usc/44/ch15.md) of title 44 and regulations prescribed under the [authority](/usc/15/3051.md?p=1) thereof, the rules and regulations of the [Commission](/usc/15/80b–2.md?p=a-4) under this subchapter, and amendments thereof, shall be effective upon publication in the manner which the [Commission](/usc/15/80b–2.md?p=a-4) shall prescribe, or upon such later date as may be provided in such rules and regulations. - (c) **Orders of Commission after notice and hearing; type of notice—** [Orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80b–2.md?p=a-4) under this subchapter shall be issued only after appropriate notice and opportunity for hearing. Notice to the parties to a proceeding before the [Commission](/usc/15/80b–2.md?p=a-4) shall be given by personal service upon each party or by registered mail or certified mail or confirmed telegraphic notice to the party’s last known business address. Notice to interested [persons](/usc/15/80b–2.md?p=a-16), if any, other than parties may be given in the same manner or by publication in the Federal Register. - (d) **Good faith compliance with rules and regulations—** No provision of this subchapter imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80b–2.md?p=a-4), notwithstanding that such rule, regulation, or [order](/usc/15/8702.md?p=14) may, after such act or omission, be amended or rescinded or be determined by judicial or other [authority](/usc/15/3051.md?p=1) to be invalid for any reason. - (e) **Disclosure rules on private funds—** The [Commission](/usc/15/80b–2.md?p=a-4) and the Commodity Futures Trading [Commission](/usc/15/80b–2.md?p=a-4) shall, after consultation with the [Council](/usc/15/4601.md?p=c-1) but not later than 12 months after July 21, 2010, jointly promulgate rules to establish the form and content of the reports required to be filed with the [Commission](/usc/15/80b–2.md?p=a-4) under subsection[^1] 80b–4(b) of this title and with the Commodity Futures Trading [Commission](/usc/15/80b–2.md?p=a-4) by [investment advisers](/usc/15/6102.md?p=d-2-B-ii) that are registered both under this subchapter and the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.]. - (g) **[^2] Standard of conduct—** - (1) **In general—** The [Commission](/usc/15/80b–2.md?p=a-4) may promulgate rules to provide that the standard of conduct for all [brokers](/usc/15/80b–2.md?p=a-3), [dealers](/usc/15/80b–2.md?p=a-7), and [investment advisers](/usc/15/6102.md?p=d-2-B-ii), when providing personalized investment advice about [securities](/usc/15/80b–2.md?p=a-18) to [retail customers](#g-2) (and such other [customers](/usc/15/78c–5.md?p=g) as the [Commission](/usc/15/80b–2.md?p=a-4) may by rule provide), shall be to act in the best interest of the [customer](/usc/15/78c–5.md?p=g) without regard to the financial or other interest of the [broker](/usc/15/80b–2.md?p=a-3), [dealer](/usc/15/80b–2.md?p=a-7), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) providing the advice. In accordance with such rules, any material conflicts of interest shall be disclosed and may be consented to by the [customer](/usc/15/78c–5.md?p=g). Such rules shall provide that such standard of conduct shall be no less stringent than the standard applicable to [investment advisers](/usc/15/6102.md?p=d-2-B-ii) under section [80b–6(1)](/usc/15/80b–6.md?p=1) and [(2)](/usc/15/80b–6.md?p=2) of this title when providing personalized investment advice about [securities](/usc/15/80b–2.md?p=a-18), except the [Commission](/usc/15/80b–2.md?p=a-4) shall not ascribe a meaning to the term “[customer](/usc/15/78c–5.md?p=g)” that would include an investor in a [private fund](/usc/15/80b–2.md?p=a-29) managed by an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), where such [private fund](/usc/15/80b–2.md?p=a-29) has entered into an advisory contract with such adviser. The receipt of compensation based on [commission](/usc/15/80b–2.md?p=a-4) or fees shall not, in and of itself, be considered a [violation](/usc/15/57b–1.md?p=a-7) of such standard applied to a [broker](/usc/15/80b–2.md?p=a-3), [dealer](/usc/15/80b–2.md?p=a-7), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii). - (2) **Retail customer defined—** For purposes of this subsection, the term “retail customer” means a natural [person](/usc/15/80b–2.md?p=a-16), or the legal representative of such natural [person](/usc/15/80b–2.md?p=a-16), who— - (A) receives personalized investment advice about [securities](/usc/15/80b–2.md?p=a-18) from a [broker](/usc/15/80b–2.md?p=a-3), [dealer](/usc/15/80b–2.md?p=a-7), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii); and - (B) uses such advice primarily for personal, family, or household purposes. - (h) **Other matters—** The [Commission](/usc/15/80b–2.md?p=a-4) shall— - (1) facilitate the provision of simple and clear disclosures to investors regarding the terms of their relationships with [brokers](/usc/15/80b–2.md?p=a-3), [dealers](/usc/15/80b–2.md?p=a-7), and [investment advisers](/usc/15/6102.md?p=d-2-B-ii), including any material conflicts of interest; and - (2) examine and, where appropriate, promulgate rules prohibiting or restricting certain sales practices, conflicts of interest, and compensation schemes for [brokers](/usc/15/80b–2.md?p=a-3), [dealers](/usc/15/80b–2.md?p=a-7), and [investment advisers](/usc/15/6102.md?p=d-2-B-ii) that the [Commission](/usc/15/80b–2.md?p=a-4) deems contrary to the public interest and the protection of investors. - (i) **Harmonization of enforcement—** The enforcement [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/80b–2.md?p=a-4) with respect to [violations](/usc/15/57b–1.md?p=a-7) of the standard of conduct applicable to an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) shall include— - (1) the enforcement [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/80b–2.md?p=a-4) with respect to such [violations](/usc/15/57b–1.md?p=a-7) provided under this subchapter; and - (2) the enforcement [authority](/usc/15/3051.md?p=1) of the [Commission](/usc/15/80b–2.md?p=a-4) with respect to [violations](/usc/15/57b–1.md?p=a-7) of the standard of conduct applicable to a [broker or dealer](/usc/15/78c.md?p=h-2) providing personalized investment advice about [securities](/usc/15/80b–2.md?p=a-18) to a retail customer under the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], including the [authority](/usc/15/3051.md?p=1) to impose sanctions for such [violations](/usc/15/57b–1.md?p=a-7), and the [Commission](/usc/15/80b–2.md?p=a-4) shall seek to prosecute and sanction [violators](/usc/15/1114.md?p=2-E-i) of the standard of conduct applicable to an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under this subchapter to same extent as the [Commission](/usc/15/80b–2.md?p=a-4) prosecutes and sanctions [violators](/usc/15/1114.md?p=2-E-i) of the standard of conduct applicable to a [broker or dealer](/usc/15/78c.md?p=h-2) providing personalized investment advice about [securities](/usc/15/80b–2.md?p=a-18) to a retail customer under the [Securities](/usc/15/80b–2.md?p=a-18) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.]. # §80b–12. Hearings Hearings may be public and may be held before the [Commission](/usc/15/80b–2.md?p=a-4), any member or members thereof, or any officer or officers of the [Commission](/usc/15/80b–2.md?p=a-4) designated by it, and appropriate records thereof shall be kept. # §80b–13. Court review of orders - (a) **Petition; jurisdiction; findings of Commission; additional evidence; finality—** Any [person](/usc/15/80b–2.md?p=a-16) or party aggrieved by an [order](/usc/15/8702.md?p=14) issued by the [Commission](/usc/15/80b–2.md?p=a-4) under this subchapter may obtain a review of such [order](/usc/15/8702.md?p=14) in the United States court of appeals within any circuit wherein such [person](/usc/15/80b–2.md?p=a-16) resides or has his principal office or place of business, or in the United States Court of Appeals for the District of Columbia, by filing in such court, within sixty days after the entry of such [order](/usc/15/8702.md?p=14), a written petition praying that the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80b–2.md?p=a-4) be modified or set aside in whole or in part. A copy of such petition shall be forthwith transmitted by the clerk of the court to any member of the [Commission](/usc/15/80b–2.md?p=a-4), or any officer thereof designated by the [Commission](/usc/15/80b–2.md?p=a-4) for that purpose, and thereupon the [Commission](/usc/15/80b–2.md?p=a-4) shall file in the court the record upon which the [order](/usc/15/8702.md?p=14) complained of was entered, as provided in [section 2112 of title 28](/usc/28/2112.md). Upon the filing of such petition such court shall have jurisdiction, which upon the filing of the record shall be exclusive, to affirm, modify, or set aside such [order](/usc/15/8702.md?p=14), in whole or in part. No objection to the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80b–2.md?p=a-4) shall be considered by the court unless such objection shall have been urged before the [Commission](/usc/15/80b–2.md?p=a-4) or unless there were reasonable grounds for failure so to do. The findings of the [Commission](/usc/15/80b–2.md?p=a-4) as to the facts, if supported by substantial evidence, shall be conclusive. If [application](/usc/15/77ccc.md?p=8) is made to the court for leave to adduce additional evidence, and it is shown to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the proceeding before the [Commission](/usc/15/80b–2.md?p=a-4), the court may [order](/usc/15/8702.md?p=14) such additional evidence to be taken before the [Commission](/usc/15/80b–2.md?p=a-4) and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The [Commission](/usc/15/80b–2.md?p=a-4) may modify its findings as to the facts by reason of the additional evidence so taken, and it shall file with the court such modified or new findings, which, if supported by substantial evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original [order](/usc/15/8702.md?p=14). The judgment and decree of the court affirming, modifying, or setting aside, in whole or in part, any such [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80b–2.md?p=a-4) shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in [section 1254 of title 28](/usc/28/1254.md). - (b) **Stay of Commission’s order—** The commencement of proceedings under [subsection (a)](#a) shall not, unless specifically ordered by the court, operate as a stay of the [Commission](/usc/15/80b–2.md?p=a-4)’s [order](/usc/15/8702.md?p=14). # §80b–14. Jurisdiction of offenses and suits - (a) **In general—** The district courts of the United States and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of this subchapter or the rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, and, concurrently with [State](/usc/15/80b–2.md?p=a-19) and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any [violation](/usc/15/57b–1.md?p=a-7) of this subchapter or the rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the [violation](/usc/15/57b–1.md?p=a-7) occurred. Any suit or action to enforce any liability or duty created by, or to enjoin any [violation](/usc/15/57b–1.md?p=a-7) of this subchapter or rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, may be brought in any such district or in the district wherein the defendant is an inhabitant or transacts business, and process in such cases may be served in any district of which the defendant is an inhabitant or transacts business or wherever the defendant may be found. In any action or proceeding instituted by the [Commission](/usc/15/80b–2.md?p=a-4) under this subchapter in a United States district court for any judicial district, a subpoena issued to compel the attendance of a witness or the production of documents or tangible things (or both) at a hearing or trial may be served at any place within the United States. [Rule 45(c)(3)(A)(ii)](/usc/28a/civil-45.md) of the Federal Rules of Civil Procedure shall not apply to a subpoena issued under the preceding sentence. Judgments and decrees so rendered shall be subject to review as provided in sections [1254](/usc/28/1254.md), [1291](/usc/28/1291.md), [1292](/usc/28/1292.md), and [1294](/usc/28/1294.md) of title 28. No costs shall be assessed for or against the [Commission](/usc/15/80b–2.md?p=a-4) in any proceeding under this subchapter brought by or against the [Commission](/usc/15/80b–2.md?p=a-4) in any court. - (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](/usc/15/80b–2.md?p=a-4) or the United States alleging a [violation](/usc/15/57b–1.md?p=a-7) of [section 80b–6 of this title](/usc/15/80b–6.md) involving— - (1) conduct within the United States that constitutes significant steps in furtherance of the [violation](/usc/15/57b–1.md?p=a-7), even if the [violation](/usc/15/57b–1.md?p=a-7) 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. # §80b–15. Validity of contracts - (a) **Waiver of compliance as void—** Any condition, stipulation, or provision binding any [person](/usc/15/80b–2.md?p=a-16) to waive compliance with any provision of this subchapter or with any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder shall be void. - (b) **Rights affected by invalidity—** Every contract made in [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter and every contract heretofore or hereafter made, the performance of which involves the [violation](/usc/15/57b–1.md?p=a-7) of, or the continuance of any relationship or practice in [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, shall be void (1) as regards the rights of any [person](/usc/15/80b–2.md?p=a-16) who, in [violation](/usc/15/57b–1.md?p=a-7) of any such provision, rule, regulation, or [order](/usc/15/8702.md?p=14), shall have made or engaged in the performance of any such contract, and (2) as regards the rights of any [person](/usc/15/80b–2.md?p=a-16) who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in [violation](/usc/15/57b–1.md?p=a-7) of any such provision. # [§80b–16. Omitted — omitted] # §80b–17. Penalties Any [person](/usc/15/80b–2.md?p=a-16) who willfully violates any provision of this subchapter, or any rule, regulation, or [order](/usc/15/8702.md?p=14) promulgated by the [Commission](/usc/15/80b–2.md?p=a-4) under [authority](/usc/15/3051.md?p=1) thereof, shall, upon conviction, be fined not more than $10,000, imprisoned for not more than five years, or both. # §80b–18. Hiring and leasing authority of Commission The provisions of [section 78d(b) of this title](/usc/15/78d.md?p=b) shall be applicable with respect to the power of the [Commission](/usc/15/80b–2.md?p=a-4)— - (1) to appoint and fix the compensation of such other employees as may be necessary for carrying out its functions under this subchapter, and - (2) to lease and allocate such real property as may be necessary for carrying out its functions under this subchapter. # §80b–18a. State regulation of investment advisers - (a) **Jurisdiction of State regulators—** Nothing in this subchapter shall affect the jurisdiction of the [securities](/usc/15/80b–2.md?p=a-18) commissioner (or any agency or officer performing like functions) of any [State](/usc/15/80b–2.md?p=a-19) over any [security](/usc/15/80b–2.md?p=a-18) or any [person](/usc/15/80b–2.md?p=a-16) insofar as it does not conflict with the provisions of this subchapter or the rules and regulations thereunder. - (b) **Dual compliance purposes—** No [State](/usc/15/80b–2.md?p=a-19) may enforce any law or regulation that would require an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to maintain any books or records in addition to those required under the laws of the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business, if the [investment adviser](/usc/15/6102.md?p=d-2-B-ii)— - (1) is registered or licensed as such in the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business; and - (2) is in compliance with the applicable books and records requirements of the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business. - (c) **Limitation on capital and bond requirements—** No [State](/usc/15/80b–2.md?p=a-19) may enforce any law or regulation that would require an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to maintain a higher minimum net capital or to post any bond in addition to any that is required under the laws of the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business, if the [investment adviser](/usc/15/6102.md?p=d-2-B-ii)— - (1) is registered or licensed as such in the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business; and - (2) is in compliance with the applicable net capital or bonding requirements of the [State](/usc/15/80b–2.md?p=a-19) in which it maintains its principal office and place of business. - (d) **National de minimis standard—** No law of any [State](/usc/15/80b–2.md?p=a-19) or political subdivision thereof requiring the registration, licensing, or qualification as an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) shall require an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to register with the [securities](/usc/15/80b–2.md?p=a-18) commissioner of the [State](/usc/15/80b–2.md?p=a-19) (or any agency or officer performing like functions) or to comply with such law (other than any provision thereof prohibiting fraudulent conduct) if the [investment adviser](/usc/15/6102.md?p=d-2-B-ii)— - (1) does not have a place of business located within the [State](/usc/15/80b–2.md?p=a-19); and - (2) during the preceding 12-month period, has had fewer than 6 [clients](/usc/15/80b–11.md?p=a) who are residents of that [State](/usc/15/80b–2.md?p=a-19). # §80b–18b. Custody of client accounts An [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under this subchapter shall take such steps to safeguard [client](/usc/15/80b–11.md?p=a) assets over which such adviser has custody, including, without limitation, verification of such assets by an independent public accountant, as the [Commission](/usc/15/80b–2.md?p=a-4) may, by rule, prescribe. # §80b–18c. Rule of construction relating to the Commodities Exchange Act Nothing in this subchapter shall relieve any [person](/usc/15/80b–2.md?p=a-16) of any obligation or duty, or affect the availability of any right or remedy available to the Commodity Futures Trading [Commission](/usc/15/80b–2.md?p=a-4) or any private party, arising under the Commodity Exchange Act ([7 U.S.C. 1](/usc/7/1.md) et seq.) governing [commodity pools](/usc/15/80b–2.md?p=a-29), [commodity pool operators](/usc/15/80b–2.md?p=a-29), or [commodity trading advisors](/usc/15/80b–2.md?p=a-29). # §80b–19. Separability If any provision of this subchapter or the [application](/usc/15/77ccc.md?p=8) of such provision to any [person](/usc/15/80b–2.md?p=a-16) or circumstances shall be held invalid, the remainder of the subchapter and the [application](/usc/15/77ccc.md?p=8) of such provision to [persons](/usc/15/80b–2.md?p=a-16) or circumstances other than those as to which it is held invalid shall not be affected thereby. # §80b–20. Short title This subchapter may be cited as the “Investment Advisers Act of 1940”.