[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3005 Introduced in House (IH)]
104th CONGRESS
2d Session
H. R. 3005
To amend the Federal securities laws in order to promote efficiency and
capital formation in the financial markets, and to amend the Investment
Company Act of 1940 to promote more efficient management of mutual
funds, protect investors, and provide more effective and less
burdensome regulation.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 5, 1996
Mr. Fields of Texas introduced the following bill; which was referred
to the Committee on Commerce
_______________________________________________________________________
A BILL
To amend the Federal securities laws in order to promote efficiency and
capital formation in the financial markets, and to amend the Investment
Company Act of 1940 to promote more efficient management of mutual
funds, protect investors, and provide more effective and less
burdensome regulation.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Securities
Amendments of 1996''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--CAPITAL MARKETS DEREGULATION AND LIBERALIZATION
Sec. 101. Short title.
Sec. 102. Investment recommendations to institutional clients.
Sec. 103. Creation of national securities markets.
Sec. 104. Securities margin requirements.
Sec. 105. Williams act study.
Sec. 106. Prospectus delivery.
Sec. 107. Exemptive authority.
Sec. 108. Promotion of efficiency, competition, and capital formation.
Sec. 109. Reduction in number of members of Commission.
Sec. 110. Privatization of EDGAR.
Sec. 111. Designation of primary SRO and examining authority.
Sec. 112. Treatment of press conferences.
Sec. 113. Report on Trust Indenture Act of 1939.
TITLE II--INVESTMENT COMPANY ACT AMENDMENTS
Sec. 201. Short title.
Sec. 202. Funds of funds.
Sec. 203. Registration of securities.
Sec. 204. Investment company advertising prospectus.
Sec. 205. Variable insurance contracts.
Sec. 206. Reports to the Commission and shareholders.
Sec. 207. Books, records and inspections.
Sec. 208. Investment company names.
Sec. 209. Excepted investment companies.
TITLE I--CAPITAL MARKETS DEREGULATION AND LIBERALIZATION
SEC. 101. SHORT TITLE.
This title may be cited as the ``Capital Markets Deregulation and
Liberalization Act of 1996''.
SEC. 102. INVESTMENT RECOMMENDATIONS TO INSTITUTIONAL CLIENTS.
(a) Rules of National Securities Exchanges Pertaining to Investment
Recommendations to Institutional Clients.--Section 6(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78f(b)) is amended by
inserting after paragraph (9) the following new paragraph:
``(10) Investment recommendations to institutional
clients.--
``(A) In general.--The rules of the exchange do not
provide that a member has an obligation to form a
belief as to the suitability of an investment
recommendation made by a member to an institutional
client, except that the rules of the association may
contain a provision in accordance with subparagraph
(B).
``(B) Provision for written agreements.--The rules
of the exchange may provide that a broker or dealer has
an obligation to form a reasonable belief as to the
suitability of an investment recommendation made by the
broker or dealer client if the following conditions are
met:
``(i) the broker or dealer and the
institutional client expressly agree in
writing, prior to or contemporaneously with the
recommendation, that the recommendation will be
made by the broker or dealer on a reasonable
belief that the recommendation is suitable for
such institutional client, based upon facts disclosed by such
institutional client as to its other security holdings and as to its
financial situation and needs; and
``(ii) such other conditions as the
exchange may establish in accordance with the
requirements of this section.
``(C) Definition of institutional client.--For
purposes of this paragraph, the term `institutional
client' means any person other than a natural person
that has at least $10,000,000 invested in securities in
the aggregate in its portfolio.''.
(b) Presumption in Actions Pertaining to Recommendations to
Institutional Clients.--Section 15 of the Securities Exchange Act of
1934 (15 U.S.C. 78o) is amended by inserting after subsection (g) the
following new subsection:
``(h) Investment Recommendations to Institutional Clients.--
``(1) Presumption.--In any action brought against a broker
or dealer or a person associated with a broker or dealer under
this title or under any rule or regulation thereunder
pertaining to an investment recommendation to an institutional
client, the broker or dealer or associated person shall be
entitled to a presumption that it is not liable for the
investment decisions of an institutional client.
``(2) Standard for rebutting presumption.--The presumption
set out in paragraph (1) may only be rebutted by proof that the
broker or dealer or associated person and the institutional
client expressly agreed in writing, prior to or
contemporaneously with the recommendation, that the
recommendation would be made by the broker or dealer or
associated person on a reasonable belief that the
recommendation would be suitable for such institutional client,
based upon facts disclosed by such institutional client as to
its other security holdings and as to its financial situation
and needs.
``(3) Definition of institutional client.--For purposes of
this subsection, the term `institutional client' means any
person other than a natural person that has at least
$10,000,000 invested in securities in the aggregate in its
portfolio.
``(4) Limitation.--This subsection shall not be deemed to
create or affirm any private right of action against a broker
or dealer or associated person for any investment
recommendation to an institutional client.''.
(c) Rules of Securities Associations.--Section 15A(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3(b)) is amended by
inserting after paragraph (13) the following new paragraph:
``(14) Investment recommendations to institutional
clients.--
``(A) In general.--The rules of the association do
not provide that a member has an obligation to form a
belief as to the suitability of an investment
recommendation made by a member to an institutional
client, except that the rules of the association may
contain a provision in accordance with subparagraph
(B).
``(B) Provision for written agreements.--The rules
of the association may provide that a broker or dealer
has an obligation to form a reasonable belief as to the
suitability of an investment recommendation made by the
broker or dealer client if the following conditions are
met:
``(i) the broker or dealer and the
institutional client expressly agree in
writing, prior to or contemporaneously with
the recommendation, that the recommendation will be made by the broker
or dealer on a reasonable belief that the recommendation is suitable
for such institutional client, based upon facts disclosed by such
institutional client as to its other security holdings and as to its
financial situation and needs; and
``(ii) such other conditions as the
association may establish in accordance with
the requirements of this section.
``(C) Definition of institutional client.--For
purposes of this paragraph, the term `institutional
client' means any person other than a natural person
that has at least $10,000,000 invested in securities in
the aggregate in its portfolio.''.
SEC. 103. CREATION OF NATIONAL SECURITIES MARKETS.
(a) Securities Act of 1933.--Section 18 of the Securities Act of
1933 (15 U.S.C. 77r) is amended to read as follows:
``SEC. 18. EXEMPTION FROM STATE CONTROL OF SECURITIES OFFERINGS.
``(a) Exemption From State Law for Registered Securities.--No law
of any State or Territory of the United States, or the District of
Columbia, or any political subdivision thereof--
``(1) requiring, or with respect to, registration or
qualification of securities or securities transactions shall
apply to any securities that are offered or sold using any
means or instruments of transportation or communication in
interstate commerce or of the mails pursuant to--
``(A) a registration statement filed pursuant to
this title, with the exception of a registration
statement filed by an issuer which is a blank check
company as defined in section 7(b) of this title;
``(B) an exemption from registration set forth in
section 3(a) of this title, with the exception of
section 3(a)(11) or any rule or regulation promulgated
thereunder; or
``(C) any other exemption from section 5 of this
title;
``(2) shall prohibit, limit, or impose conditions upon the
use of any prospectus contained in a registration statement
that has been filed with the Commission, or any sales
literature used in connection therewith; or
``(3) shall prohibit, limit, or impose conditions upon the
offer or sale of any security registered with the Commission
under this title based upon the merits of such offering or the
issuer thereof;
except where the Commission may, by rule or regulation, exclude such
securities from the provisions of this section upon a finding that the
public interest and the protection of investors would be served by
State regulation.
``(b) Preservation of Filing Requirements.--Nothing contained in
this title shall prohibit the securities commission (or any agency or
office performing like functions) of any State or Territory of the
United States, or the District of Columbia, from requiring the filing
of any documents filed with the Commission pursuant to this title, or
from requiring some other form of filing, solely for notice purposes,
along with a consent to service of process and requisite fee; except
that no such filing, consent, or fee may be required with respect to
securities, or transactions relating to securities, that are of the
same class as securities, or are senior to such a class, listed on a
national securities exchange or designated for trading in the National
Market System of the National Association of Securities Dealers
Automated Quotation System, or securities that will be so listed or
designated for trading upon completion of the transaction.
``(c) Exceptions.--Nothing in this title shall affect the
jurisdiction of the securities commission (or any agency or office
performing like functions) of any State or Territory of the United
States, or the District of Columbia, over--
``(1) any securities or transactions in securities
excluded, by statute, rule, or regulation, from the operation
of subsection (a) of this section, or
``(2) any person who, in the offer or sale of any
securities subject to subsection (a) of this section, directly
or indirectly, engages in conduct that violates section 17(a)
of this title, regardless of whether the jurisdictional means
specified therein are satisfied.''.
(2) Technical amendment.--Section 19(c)(3)(C) is amended by
striking the last sentence.
(3) Effective date.--The amendments made by this subsection
shall be effective 180 days after the date of the enactment of
this Act.
(b) Securities Exchange Act of 1934.--
(1) Amendment.--Section 15 of the Securities Exchange Act
of 1934 (15 U.S.C. 78o) is amended by adding at the end the
following new subsection:
``(h) Exemption From State Law for Registered Persons.--
``(1) Exemption.--No law of any State or political
subdivision thereof requiring the registration, licensing,
qualification, or inspection of a broker, dealer, or person
acting in a similar capacity in connection with the purchase or
sale of any security, shall apply to--
``(A) any person who is registered with the
Commission as a broker or dealer, municipal securities
dealer, or government securities broker or dealer under
this title, or who the Commission by rule or order has
exempted from registration, or any issuer;
``(B) any member of a national securities exchange;
or
``(C) any person associated with a broker or
dealer, member of a national securities exchange,
municipal securities dealer, government securities
broker or dealer, or any issuer, included within the
coverage of subparagraph (A) or (B).
``(2) Permitted state activities.--Nothing contained in
this subsection shall prohibit a State from requiring
registration, licensing, qualification, or inspection of any
person, other than an issuer, who is within the coverage of
paragraph (1) of this subsection--
``(A) in the case of paragraphs (1) (A) and (B),
the State performs its registration, licensing,
qualification, or inspection procedures through a
central registration depository system operated by a
national securities association registered under
section 15A of this title, and the State's requirements
are substantially similar to the Commission's
registration requirements and do not include any
provisions that are inconsistent with, or in addition
to, the Commission's registration requirements; or
``(B) in the case of paragraph (1)(C), the State
performs its registration, licensing, qualification, or
inspection procedures through a central registration
depository system operated by a national securities
association registered under section 15A of this title
and the State's requirements are substantially similar
to, and not inconsistent with, the registration
requirements of such association or the Commission.
``(3) Prohibited requirements.--No law of any State or
political subdivision thereof shall establish broker or dealer
capital, books, and records, or financial reporting
requirements regarding persons registered, licensed, qualified,
or inspected pursuant to paragraph (1) of this subsection that
differ from requirements established in these areas by the
Commission.
``(4) Exemptions.--The Commission may by rule, regulation,
or order exempt State requirements from the provisions of
paragraphs (1), (2), and (3) of this subsection, in whole or in
part, conditionally or unconditionally, upon a finding that the
public interest, the protection of investors, and the
maintenance of fair and orderly markets would be served by such
State regulation.
``(5) Fees permitted.--Nothing in this subsection shall
prohibit any State or political subdivision thereof from
charging requisite fees in connection with the registration,
licensing, or qualification of persons within the coverage of
this subsection.
``(6) Preservation of authority.--Nothing contained in this
subsection shall affect the jurisdiction of any State or
political subdivision thereof to administer or enforce any
provision of State law not preempted by this subsection.''.
(2) Effective date.--The amendments made by this subsection
shall be effective upon enactment.
SEC. 104. SECURITIES MARGIN REQUIREMENTS.
(a) Margin Requirements.--Section 7 of the Securities Exchange Act
of 1934 (15 U.S.C. 78g) is amended to read as follows:
``SEC. 7. MARGIN REQUIREMENTS.
``(a) Unlawful Credit Extension in Violation of Rules and
Regulations; Exception to Application of Rules, Etc.--
``(1) General limitations.--It shall be unlawful for any
person to extend or maintain credit on any equity security of a
class designated by the Board of Governors of the Federal
Reserve System for the purpose of purchasing or carrying any
equity security of a class so designated, in contravention of
such rules and regulations as the Board of Governors of the
Federal Reserve System shall prescribe to prevent the excessive
use of credit for the purchasing or carrying of equity
securities of a class so designated.
``(2) Applicability.--Such rules and regulations shall
designate the classes of equity securities subject to credit
restrictions under this subsection and shall apply equally to
banks, brokers, dealers, and other lenders. This subsection and
the rules and regulations thereunder shall not apply to any
credit extended or maintained--
``(A) by a person not in the ordinary course of
business;
``(B) on an exempted security;
``(C) to or for an excluded account; or
``(D) as the Board of Governors of the Federal
Reserve System shall, by such rules, regulations, or
orders 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) Exemption.--Notwithstanding subparagraphs (A), (B),
and (C) of paragraph (2), the Board of Governors of the Federal
Reserve System may impose such rules and regulations, in whole
or in part, on any extension of credit otherwise exempted by
such subparagraphs if the Board of Governors determines that
such action is necessary to deal with substantial instability
or the imminent threat of substantial instability in the
financial markets.
``(b) Unlawful Use of Foreign Credit Facilities.--
``(1) Limitations.--It shall be unlawful for any United
States person, or any foreign person controlled by a United
States person or acting on behalf of or in conjunction with
such person, to obtain, receive, or enjoy the beneficial use of
any extension of credit from any lender (without regard to
whether the lender's office or place of business is in a State
or the transaction occurred in whole or in part within a State)
for the purpose of--
``(A) purchasing or carrying United States equity
securities of a class designated by the Board of
Governors of the Federal Reserve System pursuant to
subsection (a); or
``(B) purchasing or carrying within the United
States of any other equity securities of a class so
designated, if, under this section or rules and
regulations prescribed thereunder, the extension of
credit 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.
``(2) Definitions.--For the purposes of this subsection:
``(A) The term `United States person' includes a
person which is organized or exists under the laws of
any State or, in the case of a natural person, a citizen or resident of
the United States; a domestic estate; or a trust in which one or more
of the foregoing persons has a cumulative direct or indirect beneficial
interest in excess of 50 percent of the value of the trust.
``(B) The term `United States equity security'
means an equity security (other than an exempted
security) issued by a person incorporated under the
laws of any State, or whose principal place of business
is within a State.
``(C) The term `foreign person controlled by a
United States person' includes any noncorporate entity
in which United States persons directly or indirectly
have more than a 50 percent beneficial interest, and
any corporation in which one or more United States
persons, directly or indirectly, own stock possessing
more than 50 percent of the total combined voting power
of all classes of stock entitled to vote, or more than
50 percent of the total value of shares of all classes
of stock.
``(3) Exemptions.--The Board of Governors of the Federal
Reserve System may, in its discretion and with due regard for
the purposes of this section, by rule, regulation, or order
exempt any class of United States persons or foreign persons
controlled by a United States person from the application of
this subsection.
``(c) Inconsistent Rules.--No margin, financial responsibility, or
other rule of any national securities exchange or of any national
securities association shall impose any limitation on the extension or
maintenance of credit more restrictive than, or otherwise inconsistent
with, those provided for in this section and the rules and regulations
of the Board of Governors of the Federal Reserve System adopted
hereunder.''.
(b) Removal of Restrictions on Borrowing by Broker-Dealers.--
Section 8 of the Securities Exchange Act of 1934 (15 U.S.C. 78h) is
amended--
(1) by striking out ``member of a national securities
exchange, or broker or dealer who transacts business in
securities through the medium of any member of a national
securities exchange,''; and
(2) by striking out subsection (a) and by redesignating
subsections (b) and (c) as subsections (a) and (b),
respectively.
(c) Trading by Members of Exchanges, Brokers and Dealers.--Section
11(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78k(d)) is
amended--
(1) by striking out ``a member of a national securities
exchange'' and inserting in lieu thereof ``any person'';
(2) by striking out ``, or for any person who both as a
broker and a dealer transacts a business in securities through
the medium of a member or otherwise,'';
(3) by striking out ``in the case of a member'';
(4) by inserting ``(other than an excluded account)'' after
``customer'' the first place it appears;
(5) by inserting ``equity'' before ``security'' the first
place it appears;
(6) by striking out ``(i)'' and by striking out ``or (ii)
any mortgage related security or any small business related
security against full payment of the entire purchase price
thereof upon such delivery within 180 days after such purchase
or within such shorter period as the Commission may prescribe
by rule or regulation''; and
(7) by adding at the end thereof the following new
sentence: ``The Commission may, by such rules, regulations, or
orders 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, any security or transaction, or class of securities or
transactions from the operation of this subsection and the rules and
regulations thereunder.''.
(d) Definition.--Section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)) is amended by adding at the end thereof the
following new paragraph:
``(54) The term `excluded account' means any person who
comes within any of the following categories:
``(A) A financial institution, trust company,
savings association, or savings and loan association
(acting in an individual, fiduciary, or agency
capacity).
``(B) A broker or dealer or an investment adviser
(acting on its own behalf or on behalf of another).
``(C) A futures commission merchant, floor broker,
or floor trader (acting on its own behalf or on behalf
of another).
``(D) An insurance company.
``(E) An investment company, small business
investment company, business development company, or
private business development company.
``(F) Any governmental entity (including the United
States, any State or any foreign government), any
political subdivision thereof, any multinational or
supranational entity, or any department, agency, or
instrumentality of any of the foregoing.
``(G) A corporation, partnership, proprietorship,
organization, trust, or other entity, not formed for
the specific purpose of evading the requirements of any
rule or regulation adopted under section 7, with total
assets exceeding $5,000,000 or the obligations of which
with respect to any extension of credit are guaranteed
or otherwise supported by a letter of credit or
keepwell, support, or other agreement by any such
entity or by an entity referred to in subparagraph (A),
(B), (C), (D), (E), or (F) of this paragraph.
``(H) An employee benefit plan with assets
exceeding $5,000,000 or whose investment decisions are
made by a bank, trust company, broker, dealer, or
registered investment adviser.
``(I) Any entity in which all the equity owners are
`excluded accounts'.
``(J) Any person, other than a natural person, who
is an affiliate of the person extending or maintaining
credit.
``(K) Such other persons as the Board of Governors
of the Federal Reserve System shall, by rule,
regulation, or order, designate as an `excluded
account', either unconditionally or upon specified
terms and conditions, or for specified periods.''.
(e) Effective Date.--The amendments made by this section shall be
effective 270 days after the date of enactment of this Act.
SEC. 105. WILLIAMS ACT STUDY.
(a) Study Required.--The Securities and Exchange Commission shall
conduct a study of--
(1) the burdens imposed on institutional investors and
other entities by the requirements of subsections (d), (g), and
(h) of section 13 of the Securities Exchange Act of 1934 (15
U.S.C. 78m (d), (g), (h)); and
(2) the extent to which the requirements of such section
13(d) redistribute income from active to passive investors.
(b) Report.--Within 18 months after the date of enactment of this
Act, the Commission shall submit to the Congress a report on the
results of the study required by subsection (a). Such report shall
include such legislative recommendations as the Commission considers
appropriate to reduce the regulatory burdens associated with
subsections (d), (g), and (h) of section 13 of the Securities Exchange
Act of 1934.
SEC. 106. PROSPECTUS DELIVERY.
(a) Definition of Prospectus.--Section 2(10) of the Securities Act
of 1933 (15 U.S.C. 77b(10)) is amended by striking ``or confirms the
sale of any security''.
(b) Delivery on Request.--Section 5(b)(2) of the Securities Act of
1933 (15 U.S.C. 77e(b)(2)) is amended by inserting before the period at
the end the following: ``, if the purchaser or prospective purchaser of
such security has requested a prospectus''.
(c) Authority To Exempt.--Section 5 of the Securities Act of 1933
(15 U.S.C. 77(e)) is amended by adding a new subsection (d) after
subsection (c) as follows:
``(d) Authority To Exempt.--The Commission may from time to time by
its rules and regulations and subject to such terms and conditions as
may be prescribed therein, upon its own motion or by order on
application by an interested person, exempt from subsection (b) of
section 5 any person or prospectus, or any class or classes of persons
or prospectuses, if and to the extent that such exemption is necessary
or appropriate in the public interest and consistent with the
protection of investors. The Commission 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 for an order of exemption under this subsection.''.
SEC. 107. EXEMPTIVE AUTHORITY.
(a) General Exemptive Authority Under the Securities Act of 1933.--
Title I of the Securities Act of 1933 (15 U.S.C. 77a et seq.) is
amended by adding at the end the following new section:
``SEC. 28. GENERAL EXEMPTIVE AUTHORITY.
``The Commission, by rules and regulations, may conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities, or transactions, from any
provision or provisions of this title 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 and the promotion of efficiency, competition,
and capital formation.''.
(b) General Exemptive Authority Under the Securities Exchange Act
of 1934.--Title I of the Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by adding at the end the following new section:
``SEC. 36. GENERAL EXEMPTIVE AUTHORITY.
``Notwithstanding any other provision of title, the Commission, by
rule, regulation, or order, may conditionally or unconditionally exempt
any person, security, or transaction, or any class or classes of
persons, securities, or transactions, from any provision or provisions
of this title 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 and the promotion of
efficiency, competition, and capital formation. The Commission shall by
rules and regulations determine the procedures under which an exemptive
order under this section shall be granted.''.
SEC. 108. PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION.
(a) Securities Act of 1933.--Section 2 of the Securities Act of
1933 (15 U.S.C. 77b) is amended--
(1) by inserting ``(a) Definitions.--'' after ``Sec. 2.'';
and
(2) by adding at the end the following new subsection:
``(b) Consideration of Promotion of Efficiency, Competition, and
Capital Formation.--Whenever in this title the Commission is required
to consider or determine whether an action is consistent with the
public interest or the protection of investors (or both), the
Commission shall also consider or determine whether the action will
promote efficiency, competition, and capital formation. This subsection
shall not apply with respect to any investigation or other action taken
with respect to a violation of this title.''.
(b) Securities Exchange Act of 1934.--Section 3 of the Securities
Exchange Act of 1934 (15 U.S.C. 78c) is amended by adding at the end
the following new subsection:
``(e) Consideration of Promotion of Efficiency, Competition, and
Capital Formation.--Whenever in this title the Commission is required
to consider or determine whether an action is consistent with the
public interest or the protection of investors (or both), the
Commission shall also consider or determine whether the action will
promote efficiency, competition, and capital formation. This subsection
shall not apply with respect to any investigation or other action taken
with respect to a violation of this title.''.
(c) Investment Company Act of 1940.--Section 2 of the Investment
Company Act of 1940 (15 U.S.C. 80a-2) is amended by adding at the end
the following new subsection:
``(c) Consideration of Promotion of Efficiency, Competition, and
Capital Formation.--Whenever in this title the Commission is required
to consider or determine whether an action is consistent with the
public interest or the protection of investors (or both), the
Commission shall also consider or determine whether the action will
promote efficiency, competition, and capital formation. This subsection
shall not apply with respect to any investigation or other action taken
with respect to a violation of this title.''.
SEC. 109. REDUCTION IN NUMBER OF MEMBERS OF COMMISSION.
(a) Amendments.--Section 4(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78d(a)) is amended--
(1) by striking ``five commissioners'' and inserting ``3
commissioners''; and
(2) by striking ``three of such commissioners'' and
inserting ``2 of such commissioners''.
(b) Effective Date; Implementation.--The amendments made by
subsection (a) shall take effect on the date of enactment of this Act,
except that--
(1) the offices the terms of which expired on June 5, 1994,
and June 5, 1995, shall be abolished; and
(2) notwithstanding section 4(a) of the Securities Exchange
Act of 1934--
(A) upon the expiration of the term of office
prescribed by law to occur on June 5, 1996, any person
appointed to serve as a commissioner of the Securities
and Exchange Commission to fill such office for the
following term shall be eligible to serve until June 5,
1999;
(B) upon the expiration of the term of office
prescribed by law to occur on June 5, 1997, any person
appointed to serve as a commissioner of the Securities
and Exchange Commission to fill such office for the
following term shall be eligible to serve until June 5,
2001; and
(C) upon the expiration of the term of office
prescribed by law to occur on June 5, 1998, any person
appointed to serve as a commissioner of the Securities
and Exchange Commission to fill such office for the
following term shall be eligible to serve until June 5,
2003.
SEC. 110. PRIVATIZATION OF EDGAR.
(a) Request for Proposals.--The Securities and Exchange Commission
shall, by public notice, request proposals for the privatization of the
EDGAR system. Such notice shall specify the methods by which the
Commission will evaluate such proposal, which shall include the
following objectives:
(1) return to the Government on its investment in the
establishment of such system; and
(2) promote the automation and rapid dissemination of
information required to be disclosed.
(b) Review and Report.--Within 180 days after the date of enactment
of this Act, the Commission shall review the proposal received pursuant
to subsection (a) and submit to the Congress a report thereon. Such
report shall include such recommendations for such legislative action
as may be necessary to implement the proposal that the Commission
determines most effectively achieves the objections described in
subsection (a).
SEC. 111. DESIGNATION OF PRIMARY SRO AND EXAMINING AUTHORITY.
(a) Amendments.--Section 17(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78q(d)) is amended to read as follows:
``(d) Designation of Examining Authorities.--
``(1) Designation.--After notice and comment, the
Commission shall designate for each registered broker or dealer
a self-regulatory organization of which the broker or dealer is
a member (other than a registered clearing agency) as its
examining authority. In no event shall the Commission designate
more than one examining authority for any broker or dealer,
except with the consent of such broker or dealer. In making any
such designation, the Commission shall take into consideration
the regulatory capabilities and procedures of the self-
regulatory organizations, availability of staff, convenience of
location, unnecessary regulatory duplication, and such other
factors as the Commission may consider germane to the
protection of investors, the promotion of efficiency,
competition, and capital formation, cooperation and
coordination among self-regulatory organizations, and the
development of a national market system and a national system
for the clearance and settlement of securities transactions.
``(2) Routine examinations and enforcement of rules.--(A)
Subject to paragraph (5), an examining authority shall have
exclusive authority to conduct routine examinations and
inspections of the financial operations or sales practices of
any broker or dealer for which it has been designated as the
examining authority, and to issue a report of examination
relating to each such examination or inspection noting any
deficiencies found.
``(B) An examining authority shall enforce its own rules
with respect to such broker or dealer, and the Federal
securities laws and rules and regulations thereunder.
``(C) An examining authority shall furnish copies of any
report of examination of any broker or dealer to the Commission
and to any self-regulatory organization of which such person is
a member or in which such person is a participant. Any self-
regulatory organization receiving a copy of the report shall
enforce its own rules with respect to such broker or dealer,
and the Federal securities laws and rules and regulations
thereunder.
``(3) Changes in designation.--On its own motion or
pursuant to a request by a broker or dealer for which the
Commission previously has designated an examining authority,
the Commission shall consider changing the designation of an
examining authority. After notice and comment, the Commission
shall change such designation by order if it is consistent with
the factors set forth in paragraph (1) of this subsection. The
issuance of such an order shall not alter or extinguish any
pending disciplinary proceeding that the originally designated
examining authority has brought against the broker or dealer or
any person associated with a broker or dealer.
``(4) Commission rules.--The Commission may adopt rules for
the designation of an examining authority for a broker or
dealer, and for changing such designation. Such rules shall be
designed to minimize the costs and burdens on the registered
broker or dealer, consistent with the protection of investors
and the public interest.
``(5) Preservation of existing authority.--Nothing in this
subsection shall be construed to alter, impair, or limit--
``(A) the Commission's authority (i) to conduct
examinations and inspections of a broker or dealer, or
(ii) to bring any action under this title against any
broker or dealer, or against any person associated with
a broker or dealer; or
``(B) the authority of any self-regulatory
organization to discipline any member or any person
associated with a member.''.
(b) Definition.--Section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78e) is amended by adding the following paragraph:
``(53) The term `examining authority' means a self-
regulatory organization (other than a registered clearing
agency), as designated by the Commission, with exclusive
authority to examine, inspect, and otherwise oversee the
activities of a registered broker or dealer.''.
(c) Conforming Amendments.--
(1) Section 19(g) of the Securities Exchange Act of 1934
(15 U.S.C. 78s(g))--
(A) by striking subparagraph (A);
(B) by inserting ``a national securities exchange
and'' after ``in the case of'' in subparagraph (B); and
(C) by redesignating subparagraphs (B) and (C) as
subparagraphs (A) and (B), respectively.
(2) Section 19(h) of such Act is amended in each of
paragraphs (1), (2), and (4)--
(A) by striking subparagraph (A) of each such
paragraph;
(B) by inserting ``a national securities exchange
and'' after ``in the case of'' in subparagraph (B) of
each such paragraph; and
(C) by redesignating subparagraphs (B) and (C) of
each such paragraph as subparagraphs (A) and (B) of
each such paragraph, respectively.
(2) Section 19(h)(3) of such Act is amended by striking
``transaction--'' and all that follows through ``(B) in the
case of'' and ``transaction, in the case of a national
securities exchange and''.
(d) Initial Designation.--The Commission shall complete the initial
designations of examining authorities for brokers and dealers required
by section 17(d) of the Security Exchange Act of 1934 no later than one
year after the date of enactment of this Act.
SEC. 112. TREATMENT OF PRESS CONFERENCES.
(a) Definition of Offer.--Section 2(3) of the Securities Act of
1933 (15 U.S.C. 77b(3)) is amended--
(1) in the third sentence--
(A) by inserting ``(A)'' after ``shall not
include''; and
(B) by inserting before the period at the end
thereof the following: ``or (B) solely for purposes of
section 5, offshore press conferences, meetings with
issuer representatives conducted offshore, or press
releases or other material issued or released offshore
in which an offshore offering is discussed,
irrespective of whether journalists from the United
States or journalists for publications (including on-
line services) with circulation in the United States
attend such press conferences or meetings or receive
such press releases or material''; and
(2) by inserting after such third sentence the following:
``Solely for purposes of section 5, no activity described in
clause (B) of this paragraph shall be considered in determining
whether any other activity or communication is included within
the terms defined in this paragraph and the term `offer to buy'
as used in subsection (c) of section 5 of this Act.''.
(b) Definition of Prospectus.--Section 2(10) of the Securities Act
of 1933 (15 U.S.C. 77b(10)) is amended--
(1) by redesignating clauses (a) and (b) as clauses (A) and
(B), respectively; and
(2) by striking the period at the end and inserting the
following: ``, and (C) solely for purposes of section 5, any
press release or other material issued or released offshore in
which an offshore offering is discussed shall not be deemed a
prospectus if such press release or material states that it is
not an offer of securities. For purposes of clause (C) of this
paragraph, the Commission, as it deems necessary or appropriate
in the public interest or for the protection of investors, may
adopt rules or regulations requiring such press releases or
material to contain additional information.''.
SEC. 113. REPORT ON TRUST INDENTURE ACT OF 1939.
Within 6 months after the date of enactment of this Act, the
Securities and Exchange Commission shall submit to the Congress a
report on the continuing need for, and options for the modification or
elimination of, the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et
seq.).
TITLE II--INVESTMENT COMPANY ACT AMENDMENTS
SEC. 201. SHORT TITLE.
This title may be cited as the ``Investment Company Act Amendments
of 1996''.
SEC. 202. FUNDS OF FUNDS.
Section 12(d)(1) of the Investment Company Act of 1940 (15 U.S.C.
80a-12(d)(1)) is amended--
(1) in subparagraph (E)--
(A) by striking ``in the event such investment
company is not a registered investment company''; and
(B) by inserting ``in the event such investment
company is not a registered investment company'' after
``(bb)'';
(2) by redesignating existing subparagraphs (G) and (H) as
subparagraphs (H) and (I), respectively;
(3) by inserting after subparagraph (F) the following new
subparagraph:
``(G) The provisions of this paragraph (1) shall not apply to
securities of a registered open-end investment company (the `acquired
company') purchased or otherwise acquired by a registered open-end
investment company (the `acquiring company') if--
``(i) the acquired company and the acquiring company are
part of the same group of investment companies;
``(ii) the securities of the acquired company, securities
of other registered open-end investment companies that are part
of the same group of investment companies, Government
securities, and short-term paper are the only investments held
by the acquiring company;
``(iii)(I) the acquiring company does not pay and is not
assessed any charges or fees for distribution-related
activities with respect to securities of the acquired company
unless the acquiring company does not charge a sales load or
other fees or charges for distribution-related activities; or
``(II) any sales loads and other distribution-related fees
charged with respect to securities of the acquiring company,
when aggregated with any sales load and distribution-related
fees paid by the acquiring company with respect to securities
of the acquired fund, are not excessive under rules adopted
pursuant to either section 22(b) or section 22(c) of this title
by a securities association registered under section 15A of the
Securities Exchange Act of 1934 or the Commission;
``(iv) the acquired company shall have a fundamental policy
that prohibits it from acquiring any securities of registered
open-end investment companies in reliance on this subparagraph
or subparagraph (F) of this subsection; and
``(v) such acquisition is not in contravention of such
rules and regulations as the Commission may from time to time
prescribe with respect to acquisitions in accordance with this
subparagraph as necessary and appropriate for the protection of
investors.
For purposes of this subparagraph, a `group of investment companies'
shall mean any two or more registered investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services.''; and
(4) adding at the end the following new subparagraph:
``(J) The Commission, by rules and regulations upon its own motion
or by order upon application, may conditionally or unconditionally
exempt any person, security or transaction, or any class or classes of
persons, securities or transactions from any provisions of this
subsection, if and to the extent such exemption is consistent with the
public interest and the protection of investors.''.
SEC. 203. REGISTRATION OF SECURITIES.
(a) Amendments to Registration Statements.--Section 24(e) of the
Investment Company Act of 1940 (15 U.S.C. 80a-24(e)) is amended--
(1) by striking paragraphs (1) and (2);
(2) by redesignating paragraph (3) as subsection (e); and
(3) in subsection (e) (as so redesignated) by striking
``pursuant to this subsection or otherwise''.
(b) Registration of Indefinite Amount of Securities.--Section 24(f)
of the Investment Company Act of 1940 (15 U.S.C. 80a-24(f)) is amended
to read as follows:
``(f) Registration of Indefinite Amount of Securities.--
``(1) Indefinite registration of securities.--Upon the
effectiveness of its registration statement under the
Securities Act of 1933, a face-amount certificate company,
open-end management company, or unit investment trust, shall be
deemed to have registered an indefinite amount of securities.
``(2) Payment of registration fees.--Within 90 days after
the end of the company's fiscal year, the company shall pay a
registration fee to the Commission, calculated in the manner
specified in section 6(b) of the Securities Act of 1933, based
on the aggregate sales price for which its securities
(including, for this purpose, all securities issued pursuant to
a dividend reinvestment plan) were sold during the company's
previous fiscal year reduced by--
``(A) the aggregate redemption or repurchase price
of the securities of the company during that year, and
``(B) the aggregate redemption or repurchase price
of the securities of the company during any prior year
that were not used previously by the company to reduce
fees payable under this section.
``(3) Interest due on late payment.--A company paying the
fee or any portion thereof more than 90 days after the end of
the company's fiscal year shall pay to the Commission interest
on unpaid amounts, compounded daily, at the underpayment rate
established by the Secretary of the Treasury pursuant to
section 3717 of title 31, United States Code. The payment of
interest pursuant to the requirement of this paragraph shall
not preclude the Commission from bringing an action to enforce
the requirements of paragraph (2) of this subsection.
``(4) Rulemaking authority.--The Commission may adopt rules
and regulations to implement the provisions of this
subsection.''.
SEC. 204. INVESTMENT COMPANY ADVERTISING PROSPECTUS.
Section 24 of the Investment Company Act of 1940 (15 U.S.C. 80a-24)
is amended by adding at the end the following new subsection:
``(g) In addition to the prospectuses permitted or required in
section 10(a) of the Securities Act of 1933, the Commission 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 for the purposes of section 5(b)(1) of such Act with respect
to securities issued by a registered investment company. Such a
prospectus, which may include information the substance of which is not
included in the prospectus specified in section 10(a) of the Securities
Act of 1933, shall be deemed to be permitted by section 10(b) of such
Act.''.
SEC. 205. VARIABLE INSURANCE CONTRACTS.
(a) Unit Investment Trust Treatment.--Section 26 of the Investment
Company Act (15 U.S.C. 80a-26) is amended by adding at the end the
following new subsection:
``(e)(1) Subsection (a) shall not apply to any registered separate
account funding variable insurance contracts, or to the sponsoring
insurance company and principal underwriter of such account.
``(2) It shall be unlawful for any registered separate account
funding variable insurance contracts, or for the sponsoring insurance
company of such account, to sell any such contract, unless--
``(A) 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, and the insurance company so
represents in the registration statement for the contract; and
``(B) the insurance company (i) complies with all other
applicable provisions of section 26 as if it were a trustee or
custodian of the registered separate account; (ii) files with
the insurance regulatory authority of a State or territory of
the United States or of the District of Columbia an annual
statement of its financial condition, which most recent
statement indicates that it has a combined capital and surplus,
if a stock company, or an unassigned surplus, if a mutual
company, of not less than $1,000,000, or such other amount as
the Commission 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, is supervised and examined periodically by
the insurance authority of such State, territory, or the
District of Columbia.
``(3) The Commission may adopt such rules and regulations under
paragraph (2)(A) as it determines are necessary or appropriate in the
public interest or for the protection of investors. For the purposes of
such paragraph, the fees and charges deducted under the contract shall
include all fees and charges imposed for any purpose and in any
manner.''.
(b) Periodic Payment Plan Treatment.--Section 27 of such Act (15
U.S.C. 80a-27) is amended by adding at the end the following new
subsection:
``(i)(1) This section shall not apply to any registered separate
account funding variable insurance contracts, or to the sponsoring
insurance company and principal underwriter of such account, except as
provided in paragraph (2).
``(2) It shall be unlawful for any registered separate account
funding variable insurance contracts, or for the sponsoring insurance
company of such account, to sell any such contract unless (A) such
contract is a redeemable security, and (B) the insurance company
complies with section 26(e) and any rules or regulations adopted by the
Commission thereunder.
SEC. 206. REPORTS TO THE COMMISSION AND SHAREHOLDERS.
Section 30 of the Investment Company Act of 1940 (15 U.S.C. 80a-29)
is amended--
(1) by striking paragraph (1) of subsection (b) and
inserting the following:
``(1) such information, documents, and reports (other than
financial statements), as the Commission may require to keep
reasonably current the information and documents contained in
the registration statement of such company filed under this
title;''; and
(2) by redesignating subsections (c), (d), (e), and (f) as
subsections (d), (e), (g), and (h), respectively;
(3) by inserting after subsection (b) the following new
subsection:
``(c) In exercising its authority under subsection (b)(1) to
require the filing of information, documents, and reports on a basis
more frequently than semi-annually, the Commission shall take such
steps 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 and their affiliated persons. Such steps shall
include considering and requesting public comment on--
``(1) feasible alternatives that minimize the reporting
burdens on registered investment companies; and
``(2) the utility of such information, documents, and
reports to the Commission in relation to the costs to
registered investment companies and their affiliated persons of
providing such information, documents, and reports.'';
(4) by inserting after subsection (e) (as redesignated by
paragraph (2) of this section) the following new subsection:
``(f) The Commission may by rule require that semi-annual reports
containing the information set forth in subsection (e) include such
other information as the Commission deems necessary or appropriate in
the public interest or for the protection of investors. In exercising
its authority under this subsection, the Commission shall take such
steps 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 and their affiliated persons. Such steps shall
include considering and requesting public comment on--
``(1) feasible alternatives that minimize the reporting
burdens on registered investment companies; and
``(2) the utility of such information to shareholders in
relation to the costs to registered investment companies and
their affiliated persons of providing such information to
shareholders.''; and
(5) in subsection (g) (as so redesignated) by striking
``subsections (a) and (d)'' and inserting ``subsections (a) and
(e)''.
SEC. 207. BOOKS, RECORDS AND INSPECTIONS.
Section 31 of the Investment Company Act of 1940 (15 U.S.C. 80a-30)
is amended--
(1) by striking subsections (a) and (b) and inserting the
following:
``(a) Every registered investment company, and every underwriter,
broker, dealer, or investment adviser that is a majority-owned
subsidiary of such a company, shall maintain and preserve such records
(as defined in section 3(a)(37) of the Securities Exchange Act of 1934)
for such period or periods as the Commission, by rules and regulations,
may prescribe as necessary or appropriate in the public interest or for
the protection of investors. Every investment adviser not a majority-
owned subsidiary of, and every depositor of any registered investment
company, and every principal underwriter for any registered investment
company other than a closed-end company, shall maintain and preserve
for such period or periods as the Commission shall prescribe by rules
and regulations, such records as are necessary or appropriate to record
such person's transactions with such registered company. In exercising
its authority under this subsection, the Commission 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
required to maintain records under this subsection (hereinafter in this
section referred to as `subject persons'). Such steps shall include
considering, and requesting public comment on--
``(1) feasible alternatives that minimize the recordkeeping
burdens on subject persons;
``(2) the necessity of such records in view of the public
benefits derived from the independent scrutiny of such records
through Commission examination;
``(3) the costs associated with maintaining the information
that would be required to be reflected in such records; and
``(4) the effects that a proposed recordkeeping requirement
would have on internal compliance policies and procedures.
``(b) All records required to be maintained and preserved in
accordance with subsection (a) of this section shall be subject at any
time and from time to time to such reasonable periodic, special, and
other examinations by the Commission, or any member or representative
thereof, as the Commission may prescribe. For purposes of such
examinations, any subject person shall make available to the Commission
or its representatives any copies or extracts from such records as may
be prepared without undue effort, expense, or delay as the Commission
or its representatives may reasonably request. The Commission shall
exercise its authority under this subsection with due regard for the
benefits of internal compliance policies and procedures and the
effective implementation and operation thereof.'';
(2) by redesignating existing subsections (c) and (d) as
subsections (e) and (f), respectively; and
(3) by inserting after subsection (b) the following new
subsections:
``(c) Notwithstanding any other provision of law, the Commission
shall not be compelled to disclose any internal compliance or audit
records, or information contained therein, provided to the Commission
under this section. Nothing in this subsection shall authorize the
Commission to withhold information from Congress or prevent the
Commission 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 of a
court of the United States in an action brought by the United States or
the Commission. For purposes of section 552 of title 5, United States
Code, this section shall be considered a statute described in
subsection (b)(3)(B) of such section 552.
``(d) For purposes of this section:
``(1) `internal compliance policies and procedures' shall
mean policies and procedures designed by subject persons to
promote compliance with the Federal securities laws; and
``(2) `internal compliance and audit record' shall mean any
record prepared by a subject person in accordance with internal
compliance policies and procedures.''.
SEC. 208. INVESTMENT COMPANY NAMES.
Section 35(d) of the Investment Company Act of 1940 (15 U.S.C. 80a-
34) is amended to read as follows:
``(d) It shall be unlawful for any registered investment company to
adopt as a part of the name or title of such company, or of any
securities of which it is the issuer, any word or words that are
materially deceptive or misleading. The Commission is authorized, by
rule, regulation, or order, to define such names or titles as are
materially deceptive or misleading.''.
SEC. 209. EXCEPTED INVESTMENT COMPANIES.
(a) Amendments.--Section 3(c) of the Investment Company Act of 1940
(15 U.S.C. 80a-3(c)) is amended--
(1) in paragraph (1), by inserting after the first sentence
the following new sentence: ``Such issuer nonetheless is deemed
to be an investment company for purposes of the limitations set
forth in section 12(d)(1) (A)(i) and (B)(i) governing the
purchase or other acquisition by such issuer of any security
issued by any registered investment company and the sale of any
security issued by any registered open-end investment company
to any such issuer.'';
(2) in subparagraph (A) of paragraph (1)--
(A) by inserting after ``issuer,'' the first place
it appears the following: ``and is or, but for the
exception in this paragraph or paragraph (7), would be
an investment company,''; and
(B) by striking all that follows the words ``(other
than short-term paper)'' and inserting a period; and
(3) by striking paragraph (7) and inserting the following:
``(7)(A) Any issuer (i) whose outstanding securities are
owned exclusively by persons who, at the time of acquisition of
such securities, are qualified purchasers, and (ii) who is not
making and does not presently propose to make a public offering
of such securities. Securities that are owned by persons who
received the securities from a qualified purchaser as a gift or
bequest, or where the transfer was caused by legal separation,
divorce, death, or other involuntary event, shall be deemed to
be owned by a qualified purchaser, subject to such rules,
regulations, and orders as the Commission may prescribe as
necessary or appropriate in the public interest or for the
protection of investors.
``(B) Notwithstanding subparagraph (A), an issuer is within
the exception provided by this paragraph if--
``(i) in addition to qualified purchasers, its
outstanding securities are beneficially owned by not
more than 100 persons who are not qualified purchasers
if (I) such persons acquired such securities on or
before December 31, 1995, and (II) at the time such
securities were acquired by such persons, the issuer
was excepted by paragraph (1) of this subsection; and
``(ii) prior to availing itself of the exception
provided by this paragraph--
``(I) such issuer has disclosed to such
persons that future investors will be limited
to qualified purchasers, and that ownership in
such issuer is no longer limited to not more
than 100 persons, and
``(II) concurrently with or after such
disclosure, such issuer has provided such
persons with a reasonable opportunity to redeem
any part or all of their interests in the
issuer for their proportionate share of the
issuer's current net assets, or the cash
equivalent thereof.
``(C) An issuer that is excepted under this paragraph shall
nonetheless be deemed to be an investment company for purposes
of the limitations set forth in section 12(d)(1) (A)(i) and
(B)(i) governing the purchase or other acquisition by such
issuer of any security issued by any registered investment
company and the sale of any security issued by any registered
open-end investment company to any such issuer.
``(D) For purposes of determining compliance with this
paragraph and paragraph (1) of this subsection, an issuer that
is otherwise excepted under this paragraph and an issuer that
is otherwise excepted under paragraph (1) shall not be treated
by the Commission as being a single issuer for purposes of
determining whether the outstanding securities of the issuer
excepted under paragraph (1) are beneficially owned by not more
than 100 persons or whether the outstanding securities of the
issuer excepted under this paragraph are owned by persons that
are not qualified purchasers. Nothing in this provision shall
be deemed to establish that a person is a bona fide qualified
purchaser for purposes of this paragraph or a bona fide
beneficial owner for purposes of paragraph (1) of this
subsection.''.
(b) Definition of Qualified Purchaser.--Section 2(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)) is amended by
inserting after paragraph (50) the following new paragraph:
``(51) `Qualified purchaser' means--
``(A) any natural person who owns at least
$10,000,000 in securities of issuers that are not
controlled by such person, except that securities of
such a controlled issuer may be counted toward such
amount if such issuer is, or but for the exception in
paragraph (1) or (7) of section 3(c) would be, an
investment company;
``(B) any trust not formed for the specific purpose
of acquiring the securities offered, as to which the
trustee or other person authorized to make decisions
with respect to the trust, and each settlor or other
person who has contributed assets to the trust, is a
person described in subparagraph (A) or (C); or
``(C) any person, acting for its own account or the
accounts of other qualified purchasers, who in the
aggregate owns and invests on a discretionary basis,
not less than $100,000,000 in securities of issuers
that are not affiliated persons (as defined in section
2(a)(3)(C)) of such person, except that securities of
such an affiliated person issuer may be counted toward
such amount if such issuer is, or but for the exception
in paragraph (1) or (7) of section 3(c) would be, an
investment company.
The Commission may adopt such rules and regulations governing
the persons and trusts specified in subparagraphs (A), (B), and
(C) as it determines are necessary or appropriate in the public
interest and for the protection of investors.''.
(c) Conforming Amendment.--The last sentence of section 3(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) is amended--
(1) by inserting ``(i)'' after ``of the owner''; and
(2) by inserting before the period the following: ``, and
(ii) which are not relying on the exception from the definition
of investment company in subsection (c)(1) or (c)(7) of this
section''.
(d) Rulemaking Required.--
(1) Implementation of section 3(c)(1)(b).--Within one year
after the date of enactment of this Act, the Commission shall
prescribe rules to implement the requirements of section
3(c)(1)(B) of the Investment Company Act of 1940 (15 U.S.C.
80a-3(c)(1)(B)).
(2) Employee exception.--Within one year after the date of
enactment of this Act, the Commission shall prescribe rules
pursuant to its authority under section 6 of the Investment
Company Act of 1940 (15 U.S.C. 80a-6) to permit the ownership
by knowledgeable employees of an issuer of the securities of
that issuer without loss of the issuer's exception under
section 3(c)(1) or 3(c)(7) of such Act from treatment as an
investment company under that Act.
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