[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3447 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 3447

    To amend the Federal securities laws to equalize the regulatory 
  treatment of participants in the securities industry, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            November 4, 1993

 Mr. Dingell (for himself, Mr. Moorhead, Mr. Markey, and Mr. Fields of 
    Texas) introduced the following bill; which was referred to the 
                    Committee on Energy and Commerce

_______________________________________________________________________

                                 A BILL


 
    To amend the Federal securities laws to equalize the regulatory 
  treatment of participants in the securities industry, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Securities Regulatory Equality Act 
of 1993''.

TITLE I--REGULATION OF SECURITIES ACTIVITIES OF DEPOSITORY INSTITUTIONS

                    PART A--BROKER-DEALER PROVISIONS

SEC. 101. DEFINITION OF BROKER.

    Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(4)) is amended to read as follows:
            ``(4)(A) The term `broker' means any person engaged in the 
        business of effecting transactions in securities for the 
        account of others.
            ``(B) A bank shall not be deemed to be a `broker' because 
        it engages in one or more of the following activities:
                    ``(i) Engages in fiduciary activities (including 
                effecting transactions in the course of such fiduciary 
                activities) permissible for national banks under the 
                first section of the Act of September 28, 1962 (12 
                U.S.C. 92a), or for State banks under relevant State 
                trust law, except that a bank shall be deemed a broker 
                if, in the conduct of such fiduciary activities, it--
                            ``(I) publicly solicits brokerage business; 
                        or
                            ``(II) is compensated for such business by 
                        the payment of commissions or similar 
                        remuneration based on effecting transactions in 
                        securities (excluding fees calculated as 
                        percentage of assets under management).
                    ``(ii) Effects transactions in exempted securities, 
                other than municipal securities, or in commercial 
                paper, bankers' acceptances, or commercial bills.''.

SEC. 102. DEFINITION OF DEALER.

    Section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(5)) is amended to read as follows:
            ``(5)(A) The term `dealer' means any person engaged in the 
        business of buying and selling securities for his own account 
        through a broker or otherwise.
            ``(B) Such term does not include--
                    ``(i) any person insofar as he buys or sells 
                securities for his own account, either individually or 
                in some fiduciary capacity, but not as part of a 
                regular business; or
                    ``(ii) any bank insofar as the bank (I) buys and 
                sells commercial paper, bankers' acceptances, or 
                commercial bills, or exempted securities other than 
                municipal securities; or (II) buys and sells securities 
                for investment purposes for the bank or for accounts in 
                which the bank, acting as trustee, is authorized to 
                determine the securities to be purchased or sold.''.

SEC. 103. POWER TO EXEMPT FROM THE DEFINITIONS OF BROKER AND DEALER.

    Section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c) is 
amended by adding at the end the following:
    ``(e) The Commission, by rule, regulation, or order, upon its own 
motion or upon application, may conditionally or unconditionally exempt 
any person or class of persons from the definitions of `broker' or 
`dealer,' if the Commission finds that such exemption is consistent 
with the public interest, the protection of investors, and the purposes 
of this title.''.

SEC. 104. REQUIREMENT THAT BANKS FALLING WITHIN THE DEFINITIONS OF 
              BROKER OR DEALER PLACE THEIR SECURITIES ACTIVITIES IN A 
              SEPARATE CORPORATE ENTITY.

    Section 15(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(a)) is amended to read as follows:
    ``Sec. 15. (a)(1) It shall be unlawful for any broker or dealer 
that is either a person other than a natural person or a natural person 
not associated with a broker or dealer that is a person other than a 
natural person (other than such a broker or dealer whose business is 
exclusively intrastate and who does not make use of any facility of a 
national securities exchange) to make use of the mails or any means or 
instrumentality of interstate commerce to effect any transactions in, 
or to induce or attempt to induce the purchase or sale of, any security 
(other than an exempted security or commercial paper, bankers' 
acceptances, or commercial bills) unless such broker or dealer is 
registered in accordance with subsection (b) of this section.
    ``(2) It shall be unlawful for any bank to act as a broker or 
dealer, except in the course of an exclusively intrastate business.
    ``(3) The Commission, by rule or order, as it deems consistent with 
the public interest and the protection of investors, may conditionally 
or unconditionally exempt from paragraphs (1) and (2) of this 
subsection any broker or dealer or class of brokers or dealers 
specified in such rule or order.''.

               PART B--BANK-INVESTMENT COMPANY ACTIVITIES

SEC. 111. CUSTODY OF INVESTMENT COMPANY ASSETS BY AFFILIATED BANKS.

    (a) Management Companies.--Section 17(f) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-17(f)) is amended--
            (1) by redesignating clauses (1), (2), and (3) of the first 
        sentence as clauses (A), (B), and (C), respectively;
            (2) by designating the five sentences of such section as 
        paragraphs (1) through (5), respectively; and
            (3) by adding at the end thereof the following new 
        paragraph:
    ``(6) Notwithstanding paragraph (1)(A) of this subsection, if a 
bank described in such paragraph, or affiliated person thereof, is an 
affiliated person of the registered management company, such bank may 
not serve as custodian under this subsection unless permitted by such 
rules, regulations, or orders as the Commission prescribes consistent 
with the protection of investors.''.
    (b) Unit Investment Trusts.--Section 26(a)(1) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-26(a)(1)) is amended by inserting 
after ``bank'' the following: ``that is not an affiliated person of 
such principal underwriter or depositor and is not an affiliated person 
of an affiliated person of such principal underwriter or depositor, 
unless permitted by such rules, regulations, or orders as the 
Commission prescribes consistent with the protection of investors''.

SEC. 112. AFFILIATED PERSONS AND TRANSACTIONS.

    (a) Affiliated Persons.--Section 2(a)(3) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-2(a)(3)) is amended by--
            (1) striking ``thereof; and'' and inserting in lieu thereof 
        ``thereof;''; and
            (2) by inserting before the period at the end of clause (F) 
        the following: ``; and (G) if such other person is an 
        investment company, any person or class of persons which the 
        Commission by rule, regulation, or order shall have determined 
        to be affiliated persons by reason of having had, at any time 
        since the beginning of the last two completed fiscal years of 
        such company, a material business or professional relationship 
        with such company or with any person that is a principal 
        underwriter for, or promoter or sponsor of, such company or any 
        affiliated person (as described in clauses (A) through (F) of 
        this paragraph) of such company''.
    (b) Purchases or Acquisitions During Underwriting.--Section 10(f) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-10(f)) is amended 
by--
            (1) inserting ``(1)'' immediately before ``a principal 
        underwriter'' the first place it appears; and
            (2) inserting after ``for the issuer'' the following: ``; 
        or (2) the proceeds of which will be used to retire any part of 
        an indebtedness owed to a bank where the bank or an affiliated 
        person thereof is an affiliated person of such registered 
        company''.

SEC. 113. PROHIBITION OF CONTROLLING INTEREST IN INVESTMENT COMPANY.

    Section 15 of the Investment Company Act of 1940 (15 U.S.C. 80a-15) 
is amended by adding at the end the following new subsection:
    ``(g) Prohibition of Controlling Interest in Investment Company.--
If any investment adviser to a registered investment company, or an 
affiliated person of such investment adviser, also holds shares of the 
investment company in a fiduciary capacity, that investment adviser or 
affiliated person may own, directly or indirectly, a controlling 
interest in such registered investment company only--
            ``(1) if it passes through to the beneficial owners of the 
        shares, including any person acting in a fiduciary capacity who 
        is not an affiliated person of that investment adviser or any 
        affiliated person thereof, the power to vote the shares of the 
        investment company;
            ``(2) if it votes the shares of the investment company held 
        by it in the same proportion as shares held by all other 
        shareholders of the investment company; or
            ``(3) as otherwise permitted under such rules, regulations, 
        or orders as the Commission may prescribe for the protection of 
        investors.''.

SEC. 114. BORROWING FROM AN AFFILIATED BANK.

    Section 18(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-
18(f)) is amended by adding at the end thereof the following new 
paragraph:
    ``(3) Notwithstanding the provisions of paragraph (1) of this 
subsection, it shall be unlawful for any registered investment company 
to borrow from any bank if such bank or any affiliated person thereof 
is an affiliated person of such company, except that the Commission 
may, by rule, regulation, or order, permit such borrowing which the 
Commission finds to be in the public interest and consistent with the 
protection of investors.''.

SEC. 115. INDEPENDENT DIRECTORS.

    (a) Definition of Interested Person.--Section 2(a)(19)(A) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(A)) is amended--
            (1) in clause (v), by striking out ``1934 or any affiliated 
        person of such a broker or dealer, and'' and inserting in lieu 
        thereof: ``1934 or any person that, at any time during the last 
        6 months, has executed any portfolio transactions for, engaged 
        in any principal transactions with, or loaned money to, the 
        investment company or any other investment company having the 
        same investment adviser, principal underwriter, sponsor, or 
        promoter, or any affiliated person of such a broker, dealer, or 
        person,'';
            (2) by redesignating clause (vi) as clause (vii); and
            (3) by inserting after clause (v) the following new clause:
                            ``(vi) any employee of a bank that acts as 
                        custodian or transfer agent for such company, 
                        and''.
    (b) Bank Holding Companies.--Section 10(c) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-10(c)) is amended by striking 
``bank, except'' and inserting in lieu thereof: ``bank (together with 
its subsidiaries) or any one bank holding company (together with its 
affiliates and subsidiaries), as those terms are defined in the Bank 
Holding Company Act of 1956, except''.
    (c) Effective Date.--The provisions of subsection (a) of this 
section shall become effective one year after the date of enactment of 
this Act.

SEC. 116. PROHIBITION AGAINST USE OF A BANK'S NAME BY AN AFFILIATED 
              INVESTMENT COMPANY.

    Section 35(d) of the Investment Company Act of 1940 (15 U.S.C. 80a-
35(d)) is amended by inserting after the first sentence thereof the 
following: ``It shall be deceptive and misleading for any registered 
investment company which has as an investment adviser or distributor a 
bank or affiliated person thereof, to adopt, as part of the name, 
title, or logo of such company, or of any security of which it is the 
issuer, any word or design which is the same as or similar to, or a 
variation of, the name, title, or logo of such bank.''.

SEC. 117. DEFINITION OF BROKER.

    Section 2(a)(6) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(6)) is amended to read as follows:
            ``(6) `Broker' has the same meaning as in the Securities 
        Exchange Act of 1934, but does not include any person solely by 
        reason of the fact that such person is an underwriter for one 
        or more investment companies.''.

SEC. 118. DEFINITION OF DEALER.

    Section 2(a)(11) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(11)) is amended to read as follows:
            ``(11) `Dealer' has the same meaning as in the Securities 
        Exchange Act of 1934, but does not include an insurance company 
        or investment company.''.

SEC. 119. TREATMENT OF PUBLICLY ADVERTISED COMMON TRUST FUNDS.

    (a) Securities Act of 1933.--Section 3(a)(2) of the Securities Act 
of 1933 (15 U.S.C. 77c(a)(2)) is amended--
            (1) by inserting ``that is'' after ``common trust fund or 
        similar fund''; and
            (2) by inserting after ``administrator, or guardian'' the 
        following: ``, and that is not offered to the general public''.
    (b) Securities Exchange Act of 1934.--Section 3(a)(12)(A)(iii) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii)) is 
amended--
            (1) by inserting ``that is'' after ``common trust fund or 
        similar fund''; and
            (2) by inserting after ``administrator, or guardian'' the 
        following: ``, and that is not offered to the general public''.
    (c) Investment Company Act of 1940.--Section 3(c)(3) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(3)) is amended--
            (1) by inserting ``that is'' after ``common trust fund or 
        similar fund''; and
            (2) by inserting after ``administrator, or guardian'' the 
        following: ``, and that is not offered to the general public''.

SEC. 120. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF INVESTMENT 
              ADVISER FOR BANKS THAT ADVISE INVESTMENT COMPANIES.

    Section 202(a)(11)(A) of the Investment Advisers Act of 1940 (15 
U.S.C. 80b-2(a)(11)(A)) is amended by striking out ``investment 
company'' and inserting in lieu thereof ``investment company, except 
that the term `investment adviser' includes any bank or bank holding 
company to the extent that such bank or bank holding company acts as an 
investment adviser to a registered investment company''.

SEC. 121. DEFINITION OF BROKER.

    Section 202(a)(3) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(3)) is amended to read as follows:
            ``(3) `Broker' has the same meaning as in the Securities 
        Exchange Act of 1934.''.

SEC. 122. DEFINITION OF DEALER.

    Section 202(a)(7) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(7)) is amended to read as follows:
            ``(7) `Dealer' has the same meaning as in the Securities 
        Exchange Act of 1934, but does not include an insurance company 
        or investment company.''.

TITLE II--ADMINISTRATION OF SECURITIES LAWS WITH RESPECT TO SECURITIES 
                       OF DEPOSITORY INSTITUTIONS

            PART A--AMENDMENTS TO THE SECURITIES ACT OF 1933

SEC. 201. BANK-ISSUED SECURITIES.

    Section 3(a)(2) of the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) 
is amended--
            (1) by striking ``or any security issued or guaranteed by 
        any bank'', and
            (2) by striking ``For purposes of this paragraph, a 
        security issued or guaranteed by a bank shall not include any 
        interest or participation in any collective trust fund 
        maintained by a bank; and'', and inserting in lieu thereof 
        ``For purposes of this title,''.

SEC. 202. SAVINGS ASSOCIATION-ISSUED SECURITIES.

    Section 3(a)(5) of the Securities Act of 1933 (15 U.S.C. 77c(a)(5)) 
is amended to read as follows:
            ``(5) Any security issued by--
                    ``(A) a farmer's cooperative organization exempt 
                from tax under section 521 of the Internal Revenue Code 
                of 1986,
                    ``(B) a corporation described in section 501(c)(16) 
                of such Code and exempt from tax under section 501(a) 
                of such Code, or
                    ``(C) a corporation described in section 501(c)(2) 
                of such Code which is exempt for tax under section 
                501(a) of such Code 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 subparagraph (A) or (C).''.

SEC. 203. EXEMPTION TO PERMIT TRANSITION TO HOLDING COMPANY STRUCTURES.

    Section 3(a)(9) of the Securities Act of 1933 (15 U.S.C. 77c(a)(9)) 
is amended to read as follows:
            ``(9) Except with respect to a security exchanged in a case 
        under title 11 of the United States Code--
                    ``(A) any security exchanged by the issuer with its 
                existing security holders exclusively where no 
                commission or other remuneration is paid or given 
                directly or indirectly for soliciting such exchange; or
                    ``(B) any security issued or exchanged in 
                connection with a transaction solely involving 
                exchanges or substitutions of securities as part of a 
                reorganization of a corporation into a holding company, 
                if--
                            ``(i) as part of the reorganization, the 
                        security holders exchange their securities of 
                        the corporation for securities of a newly 
                        formed holding company with no significant 
                        assets other than securities of the corporation 
                        and its existing subsidiaries, and receive 
                        securities of the same class evidencing the 
                        same proportional share or debt interests in 
                        the holding company as they held in the 
                        corporation prior to the transaction, except 
                        for changes resulting from lawful elimination 
                        of fractional interests and the exercise of 
                        dissenting shareholder rights under applicable 
                        law;
                            ``(ii) the rights and interests of security 
                        holders in the holding company are 
                        substantially the same as those in the 
                        corporation prior to the transaction other than 
                        as may be required by law; and
                            ``(iii) the holding company has 
                        substantially the same assets and liabilities 
                        as the corporation had prior to the 
                        transaction.''.

SEC. 204. TREATMENT OF CERTAIN BANK AND SAVINGS ASSOCIATION 
              INSTRUMENTS.

    Section 3 of the Securities Act of 1933 (15 U.S.C. 77c) is amended 
by adding at the end thereof the following new subsection:
    ``(d)(1) Except as hereinafter expressly provided, in those 
circumstances in which an interest in any of the following is otherwise 
deemed to be a `security' within the meaning of section 2, the 
provisions of this Act shall not apply to--
            ``(A) a deposit account, savings account, certificate of 
        deposit, or other deposit instrument issued by a bank or 
        savings association;
            ``(B) a share account issued by a savings association if 
        such account is insured by the Federal Deposit Insurance 
        Corporation;
            ``(C) a banker's acceptance;
            ``(D) a letter of credit issued by a bank or savings 
        association; or
            ``(E) a debit account at a bank or savings association 
        arising from a credit card or other similar arrangement.
This paragraph shall not exempt from the provisions of this Act any 
participation in such an interest, account, certificate, instrument, 
acceptance, or letter other than a participation that is a direct 
obligation of a bank or savings association.
    ``(2) For purposes of this subsection, the term `deposit' means the 
unpaid balance of money or its equivalent received or held by a bank or 
savings association in the usual course of business--
            ``(A) for which it has given or is obligated to give 
        credit, either conditionally or unconditionally, to a 
        commercial, checking, savings, time, or thrift account;
            ``(B) which is evidenced by its certificate of deposit, a 
        check or draft drawn against a deposit account and certified by 
        a bank or savings association, a letter of credit or a 
        traveler's check, or by any other similar instrument on which a 
        bank or savings association is liable;
            ``(C) which consists of nonpooled assets of individual 
        trust funds received or held by bank or savings association 
        whether held in the trust department or deposited in any other 
        department of such bank or savings association; or
            ``(D) which is received or held by a bank or savings 
        association for a special or specific noninvestment purpose, 
        including, without being limited to, escrow funds, funds held 
        as security for any obligation due to the bank or savings 
        association or others (including funds held as dealers' 
        reserves) or for securities loaned by the bank or savings 
        association, funds deposited by a debtor to meet maturing 
        subscriptions to United States Government securities, funds 
        held to meet its acceptances or letters of credit, and withheld 
        taxes.
    ``(3) For purposes of this subsection, the term `savings 
association' shall have the meaning given in section 3 of the Federal 
Deposit Insurance Act, as amended (12 U.S.C. 1813).''.

SEC. 205. TECHNICAL AMENDMENT.

    Section 12(2) of the Securities Act of 1933 (15 U.S.C. 771(2)) is 
amended by inserting ``or subsection (d)'' after ``subsection (a)''.

        PART B--SECURITIES EXCHANGE ACT ADMINISTRATION TRANSFER

SEC. 211. AMENDMENT TO THE SECURITIES EXCHANGE ACT OF 1934.

    Subsection (i) of section 12 of the Securities Exchange Act of 1934 
(15 U.S.C. 781(i)) is repealed.

                    PART C--MISCELLANEOUS PROVISION

SEC. 221. TECHNICAL AMENDMENT.

    Section 304(a)(4) of the Trust Indenture Act of 1939 (15 U.S.C. 
77ddd(a)(4)) is amended by inserting ``or by section 3(d)'' after 
``section 3(a)''.

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