[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3005 Reported in House (RH)]
Union Calendar No. 310
104th CONGRESS
2d Session
H. R. 3005
[Report No. 104-622]
_______________________________________________________________________
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.
_______________________________________________________________________
June 17, 1996
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
Union Calendar No. 310
104th CONGRESS
2d Session
H. R. 3005
[Report No. 104-622]
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
June 17, 1996
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed
in italic]
[For text of introduced bill, see copy of bill as introduced on March
5, 1996]
_______________________________________________________________________
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. Creation of national securities markets.
Sec. 103. Margin requirements.
Sec. 104. Prospectus delivery.
Sec. 105. Exemptive authority.
Sec. 106. Promotion of efficiency, competition, and capital formation.
Sec. 107. Privatization of EDGAR.
Sec. 108. Coordination of Examining Authorities.
Sec. 109. Foreign press conferences.
Sec. 110. 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. Exceptions from definition of investment company.
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. CREATION OF NATIONAL SECURITIES MARKETS.
(a) Securities Act of 1933.--
(1) Amendment.--Section 18 of the Securities Act of 1933
(15 U.S.C. 77r) is amended to read as follows:
``SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.
``(a) Scope of Exemption.--Except as otherwise provided in this
section, no law, rule, regulation, or order, or other administrative
action 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 registration or qualification
of securities transactions, shall directly or indirectly apply
to a security that--
``(A) is a covered security; or
``(B) will be a covered security upon completion of
the transaction;
``(2) shall directly or indirectly prohibit, limit, or
impose conditions upon the use of--
``(A) with respect to a covered security described
in subsection (b)(1) or (c)(1)--
``(i) any offering document that is
prepared by the issuer; or
``(ii) any offering document that is not
prepared by the issuer if such offering
document is required to be and is filed with
the Commission or any national securities
organization registered under section 15A of
the Securities Exchange Act of 1934 (15 U.S.C.
78o-3);
``(B) with respect to a covered security described
in paragraph (2), (3), or (4) of subsection (b), any
offering document; or
``(C) any proxy statement, report to shareholders,
or other disclosure document relating to a covered
security or the issuer thereof that is required to be
and is filed with the Commission or any national
securities organization registered under section 15A of
the Securities Exchange Act of 1934 (15 U.S.C. 78o-3);
or
``(3) shall directly or indirectly prohibit, limit, or
impose conditions, based on the merits of such offering or
issuer, upon the offer or sale of any security described in
paragraph (1).
``(b) Covered Securities.--For purposes of this section, the
following are covered securities:
``(1) Exclusive federal registration of nationally traded
securities.--A security is a covered security if such security
is--
``(A) listed, or authorized for listing, on the New
York Stock Exchange or the American Stock Exchange, or
included or qualified for inclusion in the National
Market System of the National Association of Securities
Dealers Automated Quotation System (or any successor to
such entities);
``(B) listed, or authorized for listing, on a
national securities exchange (or tier or segment
thereof) that has listing standards that the Commission
determines by rule (on its own initiative or on the
basis of a petition) are substantially similar to the
listing standards applicable to securities described in
subparagraph (A); or
``(C) is a security of the same issuer that is
equal in seniority or senior to a security described in
subparagraph (A) or (B).
``(2) Exclusive federal registration of investment
companies.--A security is a covered security if such security
is a security issued by an investment company that is
registered under the Investment Company Act of 1940 (15 U.S.C.
80a et seq.).
``(3) Sales to qualified purchasers.--A security is a
covered security with respect to the offer or sale of the
security to qualified purchasers, as defined by the Commission
by rule. In prescribing such rule, the Commission may define
qualified purchaser differently with respect to different
categories of securities, consistent with the public interest
and the protection of investors.
``(4) Exemption in connection with certain exempt
offerings.--A security is a covered security if--
``(A) the offer or sale of such security is exempt
from registration under this title pursuant to section
4(1) or 4(3), and--
``(i) the issuer of such security files
reports with the Commission pursuant to section
13 or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m, 78o(d)); or
``(ii) the issuer is exempt from filing
such reports;
``(B) such security is exempt from registration
under this title pursuant to section 4(4);
``(C) the offer or sale of such security is exempt
from registration under this title pursuant to section
3(a), other than the offer or sale of a security that
is exempt from such registration pursuant to paragraph (4) or (11) of
such section, except that a municipal security that is exempt from such
registration pursuant to paragraph (2) of such section is not a covered
security with respect to the offer or sale of such security in the
State in which such security is issued; or
``(D) the offer or sale of such security is exempt
from registration under this title pursuant to
Commission rule or regulation under section 4(2) of
this title.
``(c) Conditionally Covered Securities.--
``(1) Federally registered offerings.--Subject to the
limitations contained in paragraphs (2) and (3), a security is
a covered security if--
``(A) the issuer of such security has (or will have
upon conclusion of the transaction) total assets
exceeding $10,000,000;
``(B) such security is the subject of a
registration statement that is filed with the
Commission pursuant to this title; and
``(C) the issuer files with such registration
statement audited financial statements for each of the
two most recent fiscal years of its operations ending
before the filing of the registration statement.
``(2) Limitations for certain offerings.--Notwithstanding
paragraph (1), a security is not a covered security if such
security is--
``(A) a security of an issuer which is a blank
check company (as defined in section 7(b) of this
title), a partnership, a limited liability company, or
a direct participation investment program;
``(B) a penny stock (as such term is defined in
section 3(a)(51) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(51)); or
``(C) a security issued in an offering relating to
a rollup transaction (as such term is defined in
paragraphs (4) and (5) of section 14(h) of such Act (15
U.S.C. 78n(h)(4), (5)).
``(3) Limitations based on misconduct.--Notwithstanding
paragraph (1), a security is not a covered security--
``(A) with respect to any State, if the issuer, or
a principal officer or principal shareholder thereof--
``(i) is subject to a statutory
disqualification, as defined in subparagraph
(A), (B), (C), or (D) of section 3(a)(39) of
the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(39));
``(ii) has been convicted within 5 years
prior to the offering of any felony under
Federal or State law in connection with the
offer, purchase, or sale of any security, or
any felony under Federal or State law involving
fraud or deceit; or
``(iii) is currently named in and subject
to any order, judgment, or decree of any court
of competent jurisdiction acting pursuant to
Federal or State law temporarily or permanently
restraining or enjoining such issuer, officer,
or shareholder from engaging in or continuing
any conduct or practice in connection with a
security; or
``(B) with respect to a particular State, if the
issuer, or a principal officer or principal shareholder
thereof--
``(i) has filed a registration statement
which is the subject of a currently effective
stop order entered pursuant to that State's
securities laws within 5 years prior to the
offering;
``(ii) is currently named in and subject to
any administrative enforcement order or
judgment of that State's securities commission
(or any agency or office performing like
functions) entered within 5 years prior to the
offering, or is currently named in and subject
to any other administrative enforcement order
or judgment of that State entered within 5
years prior to the offering that finds fraud or
deceit; or
``(iii) is currently named in and subject
to any administrative enforcement order or
judgment of that State which prohibits or
denies registration, or revokes the use of any
exemption from registration, in connection with
the offer, purchase, or sale of securities.
``(4) Exceptions to limitations.--
``(A) Exemptions.--The limitations in paragraph
(3)(A) shall not apply if the Commission has exempted
the subject person from the application of such
paragraph by rule or order, and the limitations in
paragraph (3)(B) shall not apply if the securities
commission (or any agency or office performing like
functions) of the affected State has exempted the
subject person from the application of such paragraph
by rule or order.
``(B) Reasonable steps.--The provisions of
paragraph (3) shall not apply if the issuer has taken
reasonable steps to ascertain whether any principal
officer or principal shareholder is subject to such
paragraph, and such steps do not reveal a person who is
subject to such paragraph. An issuer shall be
considered to have taken reasonable steps if such
issuer or its agent has conducted a search of any
centralized data bases that the Commission may
designate by rule, and has received an affidavit under
oath by each such principal officer or principal
shareholder stating that such officer or shareholder is
not subject to the provisions of paragraph (3).
``(C) Effect of limitations on remedies.--
Notwithstanding paragraph (3), an issuer shall not be
subject to a right of rescission under State securities
laws solely as a result of the operation of such
paragraph.
``(5) No effect under subsection (b).--No limitation under
this subsection shall affect the treatment of a security that
qualifies as a covered security under subsection (b).
``(d) Preservation of Authority.--
``(1) Fraud authority.--Consistent with this section, 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, shall retain jurisdiction under the
laws of such State, Territory, or District to investigate and
bring enforcement actions with respect to fraud or deceit in
connection with securities or securities transactions.
``(2) Preservation of filing requirements.--
``(A) Notice filings permitted.--Nothing contained
in this section 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 solely for notice purposes,
together with any required fee.
``(B) Preservation of fees.--Until otherwise
provided by State law enacted after the date of
enactment of the Securities Amendments of 1996, filing
or registration fees with respect to securities or
securities transactions may continue to be collected in
amounts determined pursuant to State law as in effect
on the day before such date.
``(C) Fees not permitted on listed securities.--
Notwithstanding subparagraphs (A) and (B), no filing or
fee may be required with respect to any security that
is a covered security pursuant to subsection (b)(1) of
this section, or will be such a covered security upon
completion of the transaction, or is a security of the
same issuer that is equal in seniority or senior to a
security that is a covered security pursuant to such
subsection.
``(3) Enforcement of requirements.--Nothing in this section
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 suspending
the offer or sale of securities within such State, Territory,
or District as a result of the failure to submit any filing or
fee required under law and permitted under this section.
``(e) Definitions.--For purposes of this section:
``(1) Principal officer.--The term `principal officer'
means a director, chief executive officer, or chief financial
officer of an issuer, or any other officer performing like
functions.
``(2) Principal shareholder.--The term `principal
shareholder' means any person who is directly or indirectly the
beneficial owner of more than 20 percent of any class of equity
security of an issuer. 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
of an issuer, such syndicate or group shall be deemed a
`person' for purposes of this paragraph. In determining, for
purposes of this paragraph, any percentage of a class of any
security, such class shall be deemed to consist of the amount
of the outstanding securities of such class, exclusive of any
securities of such class held by or for the account of the
issuer or a subsidiary of the issuer.
``(3) Offering document.--The term `offering document' has
the meaning given the term `prospectus' by section 2(10), but
without regard to the provisions of clauses (a) and (b) of such
section, except that, with respect to a security described in
subsection (b)(2) of this section, such term also includes a
communication that is not deemed to offer such a security
pursuant to a rule of the Commission.
``(4) Prepared by the issuer.--Within 6 months after the
date of enactment of the Securities Amendments of 1996, the
Commission shall, by rule, define the term `prepared by the
issuer' for purposes of this section.''.
(2) Study of uniformity.--The Securities Exchange
Commission shall conduct a study after consultation with
States, issuers, brokers, and dealers on the extent to which
uniformity of State regulatory requirements for securities or
securities transactions has been achieved for securities that
are not covered securities (within the meaning of section 18 of
the Securities Act of 1933 as amended by paragraph (1) of this
subsection). Such study shall specifically focus on the impact
of such uniformity or lack thereof on the cost of capital,
innovation and technological development in securities markets,
and duplicative regulation with respect to securities issuers
(including small business), brokers, and dealers and the effect
on investor protection. The Commission shall submit to the
Congress a report on the results of such study within one year
after the date of enactment of this Act.
(b) Broker/Dealer Regulation.--
(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) Limitations on State Law.--
``(1) Capital, margin, books and records, bonding, and
reports.--No law, rule, regulation, or order, or other
administrative action of any State or political subdivision
thereof shall establish capital, custody, margin, financial
responsibility, making and keeping records, bonding, or
financial or operational reporting requirements for brokers,
dealers, municipal securities dealers, government securities
brokers, or government securities dealers that differ from, or
are in addition to, the requirements in those areas established
under this title. The Commission shall consult periodically the
securities commissions (or any agency or office performing like
functions) of the States concerning the adequacy of such
requirements as established under this title.
``(2) Exemption to permit service to customers.--No law,
rule, regulation, or order, or other administrative action of
any State or political subdivision thereof shall prohibit an
associated person from effecting a transaction described in
paragraph (3) for a customer in such State if--
``(A) such associated person is not ineligible to
register with such State for any reason other than such
a transaction;
``(B) such associated person is registered with a
registered securities association and at least one
State; and
``(C) the broker or dealer with which such person
is associated is registered with such State.
``(3) Described transactions.--A transaction is described
in this paragraph if--
``(A) such transaction is effected--
``(i) on behalf of a customer that, for 30
days prior to the day of the transaction,
maintains an account with the broker or dealer;
and
``(ii) by an associated person (I) to which
the customer was assigned for 14 days prior to
the day of the transaction, and (II) who is
registered with a State in which the customer
was a resident or was present for at least 30
consecutive days during the one-year period
prior to the transaction;
except that, if the customer is present in another
State for 30 or more consecutive days or has
permanently changed his or her residence to another
State, such transaction is not described in this
subparagraph unless the associated person files with
such State an application for registration within 10
business days of the later of the date of the
transaction or the date of the discovery of the
presence of the customer in the State for 30 or more
consecutive days or the change in the customer's
residence;
``(B) the transaction is effected--
``(i) on behalf of a customer that, for 30
days prior to the day of the transaction,
maintains an account with the broker or dealer;
and
``(ii) within the period beginning on the
date on which such associated person files with
the State in which the transaction is effected
an application for registration and ending on
the earlier of (I) 60 days after the date the
application is filed, or (II) the time at which
such State notifies the associated person that
it has denied the application for registration
or has stayed the pendency of the application
for cause; or
``(C) the transaction is one of 10 or fewer
transactions in a calendar year (excluding any
transactions described in subparagraph (A) or (B))
which the associated person effects in the States in
which the associated person is not registered.
``(4) Alternate associated persons.--For purposes of
paragraph (3)(A)(ii), each of up to 3 associated persons who
are designated to effect transactions during the absence or
unavailability of the principal associated person for a
customer may be treated as an associated person to which such
customer is assigned for purposes of such paragraph.''.
(2) Study.--Within 6 months after the date of enactment of
this Act, the Commission, after consultation with registered
securities associations, national securities exchanges, and
States, shall conduct a study of--
(A) the impact of disparate State licensing
requirements on associated persons of registered
brokers or dealers; and
(B) methods for States to attain uniform licensing
requirements for such persons.
(3) Report.--Within one year after the date of enactment of
this Act, the Commission shall submit to the Congress a report
on the study conducted under paragraph (2). Such report shall
include recommendations concerning appropriate methods
described in paragraph (2)(B), including any necessary
legislative changes to implement such recommendations.
(4) Technical amendment.--Section 28(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78bb(a)) is amended by striking
``Nothing'' and inserting ``Except as otherwise specifically
provided elsewhere in this title, nothing''.
SEC. 103. MARGIN REQUIREMENTS.
(a) Margin Requirements.--
(1) Extensions of credit by broker-dealers.--Section 7(c)
of the Securities Exchange Act of 1934 (15 U.S.C. 78g(c)) is
amended to read as follows:
``(c) Unlawful Credit Extension to Customers.--
``(1) Prohibition.--It shall be unlawful for any member of
a national securities exchange or any broker or dealer,
directly or indirectly, to extend or maintain credit or arrange
for the extension or maintenance of credit to or for any
customer--
``(A) on any security (other than an exempted
security), in contravention of the rules and
regulations which the Board of Governors of the Federal
Reserve System shall prescribe under subsections (a)
and (b) of this section;
``(B) without collateral or on any collateral other
than securities, except in accordance with such rules
and regulations as the Board of Governors of the
Federal Reserve System may prescribe--
``(i) to permit under specified conditions
and for a limited period any such member,
broker, or dealer to maintain a credit
initially extended in conformity with the rules
and regulations of the Board of governors of
the Federal Reserve System; and
``(ii) to permit the extension or
maintenance of credit in cases where the
extension or maintenance of credit is not for
the purpose of purchasing or carrying
securities or of evading or circumventing the
provisions of subparagraph (A) of this
paragraph.
``(2) Exception.--This subsection and the rules and
regulations thereunder shall not apply to any credit extended,
maintained, or arranged by a member of a national securities
exchange or a broker or dealer to or for a member of a national
securities exchange or a registered broker or dealer--
``(A) a substantial portion of whose business
consists of transactions with persons other than
brokers or dealers; or
``(B) to finance its activities as a market maker
or an underwriter;
except that the Board of Governors of the Federal Reserve
System may impose such rules and regulations, in whole or in
part, on any credit otherwise exempted by this paragraph if it
determines that such action is necessary or appropriate in the
public interest or for the protection of investors.''.
(2) Extensions of credit by other lenders.--Section 7(d) of
the Securities Exchange Act of 1934 (78 U.S.C. 78g(d)) is
amended to read as follows:
``(d) Unlawful Credit Extension in Violation of Rules and
Regulations; Exception to Application of Rules, Etc.--
``(1) Prohibition.--It shall be unlawful for any person not
subject to subsection (c) of this section to extend or maintain
credit or to arrange for the extension or maintenance of credit
for the purpose of purchasing or carrying any security, 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 or trading in securities 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 limitations similar to those imposed upon
members, brokers, or dealers by subsection (c) of this section
and the rules and regulations thereunder.
``(2) Exceptions.--This subsection and the rules and
regulations thereunder shall not apply to any credit extended,
maintained, or arranged--
``(A) by a person not in the ordinary course of
business;
``(B) on an exempted security;
``(C) to or for a member of a national securities
exchange or a registered broker or dealer--
``(i) a substantial portion of whose
business consists of transactions with persons
other than brokers or dealers; or
``(ii) to finance its activities as a
market maker or an underwriter;
``(D) by a bank on a security other than an equity
security; or
``(E) 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;
except that the Board of Governors of the Federal Reserve
System may impose such rules and regulations, in whole or in
part, on any credit otherwise exempted by subparagraph (C) of
this paragraph if it determines that such action is necessary
or appropriate in the public interest or for the protection of
investors.''.
(b) Borrowing by Members, Brokers, and Dealers.--Section 8 of the
Securities Exchange Act of 1934 (15 U.S.C. 78h) is amended--
(1) by striking subsection (a), and
(2) by redesignating subsections (b) and (c) as subsections
(a) and (b), respectively.
SEC. 104. PROSPECTUS DELIVERY.
(a) Report on Electronic Delivery.--Within six months after the
date of enactment of this Act, the Commission shall report to Congress
on the steps the Commission has taken, or anticipates taking, to
facilitate the electronic delivery of prospectuses to institutional and
other investors.
(b) Report on Advisory Committee Recommendations.--Within one year
after the date of enactment of this Act, the Commission shall report to
Congress on the Commission's views on the recommendations of the
Advisory Committee on Capital Formation, including any actions taken to
implement the recommendations of the Advisory Committee.
SEC. 105. 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.''.
(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 this 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. The Commission shall by rules and regulations
determine the procedures under which an exemptive order under this
section shall be granted and may, in its sole discretion, decline to
entertain any application for an order of exemption under this
section.''.
SEC. 106. 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 pursuant to this title the Commission is
engaged in rulemaking and is required to consider or determine whether
an action is necessary or appropriate in the public interest, the
Commission shall also consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.''.
(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:
``(f) Consideration of Promotion of Efficiency, Competition, and
Capital Formation.--Whenever pursuant to this title the Commission is
engaged in rulemaking, or in the review of a rule of a self-regulatory
organization, and is required to consider or determine whether an
action is necessary or appropriate in the public interest, the
Commission shall also consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.''.
(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 pursuant to this title the Commission is
engaged in rulemaking and is required to consider or determine whether
an action is consistent with the public interest, the Commission shall
also consider, in addition to the protection of investors, whether the
action will promote efficiency, competition, and capital formation.''.
SEC. 107. PRIVATIZATION OF EDGAR.
(a) Examination.--The Securities and Exchange Commission shall
examine proposals for the privatization of the EDGAR system. Such
examination shall promote competition in the automation and rapid
collection and dissemination of information required to be disclosed.
Such examination shall include proposals that maintain free public
access to data filings in the EDGAR system.
(b) Review and Report.--Within 180 days after the date of enactment
of this Act, the Commission shall submit to the Congress a report on
the examination under subsection (a). 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 objectives described in subsection (a).
SEC. 108. COORDINATION OF EXAMINING AUTHORITIES.
(a) Amendments.--Section 17 of the Securities Exchange Act of 1934
(15 U.S.C. 78q) is amended by adding at the end the following new
subsection:
``(i) Coordination of Examining Authorities.--
``(1) Elimination of duplication.--The Commission and the
examining authorities, through cooperation and coordination of
examination and oversight as required by this subsection, shall
eliminate any unnecessary and burdensome duplication in the
examination process.
``(2) Planning conferences.--
``(A) The Commission and the examining authorities
shall meet at least annually for a national general
planning conference to discuss coordination of
examination schedules and priorities and other areas of
interest relevant to examination coordination and
cooperation.
``(B) Within each geographic region designated by
the Commission, the Commission and the relevant
examining authorities shall meet at least annually for
a regional planning conference to discuss examination schedules and
priorities and other areas of related interest, and to encourage
information-sharing and to avoid unnecessary duplication of
examinations.
``(3) Coordination tracking system for broker-dealer
examinations.--
``(A) The Commission and the examining authorities
shall prepare, on a periodic basis in a uniform
computerized format, information on registered broker
and dealer examinations and shall submit such
information to the Commission.
``(B) The Commission shall maintain a computerized
database of consolidated examination information to be
used for examination planning and scheduling and for
monitoring coordination of registered broker and dealer
examinations under this section.
``(4) Coordination of examinations.--
``(A) The examining authorities shall share among
themselves such information, including reports of
examinations, customer complaint information, and other
non-public regulatory information, as appropriate to
foster a coordinated approach to regulatory oversight
of registered brokers and dealers subject to
examination by more than one examining authority.
``(B) To the extent practicable, the examining
authorities shall assure that each registered broker
and dealer subject to examination by more than one
examining authority that requests a coordinated
examination shall have all requested aspects of the
examination conducted simultaneously and without
duplication of the areas covered. The examining
authorities shall also prepare an advance schedule of
all such coordinated examinations.
``(5) Prohibited non-coordinated examinations.--Any
examining authority that does not participate in a coordinated
examination pursuant to paragraph (4) of this subsection shall
not conduct a routine examination other than a coordinated
examination of that broker or dealer within 9 months of the
conclusion of a scheduled coordinated examination.
``(6) Examinations for cause.--At any time, any examining
authority may conduct an examination for cause of any broker or
dealer subject to its jurisdiction.
``(7) Broker-dealer examination evaluation panel.--The
Commission shall establish an examination evaluation panel
composed of representatives of registered brokers and dealers
that are members of more than one self-regulatory organization
that conducts routine examinations. Prior to each national
general planning conference required by paragraph (2)(A) of
this subsection, the Commission shall convene the examination
evaluation panel to review consolidated and statistical
information on the coordination of examinations and information
on examinations that are not coordinated, including the
findings of Commission examiners on the effectiveness of the
examining authorities in achieving coordinated examinations.
The Commission shall present any findings and recommendations
of the examination evaluation panel to the next meeting of the
national general planning conference, and shall report back to
the examination evaluation panel on the actions taken by the
examining authorities regarding those findings and
recommendations. The examination evaluation panel shall not be
subject to the Federal Advisory Committee Act (5 U.S.C. App.).
``(8) Report to congress.--Within one year after the date
of enactment of this Act, the Commission shall report to the
Congress on the progress it and the examining authorities have
made in reducing duplication and improving coordination in
registered broker and dealer examinations, and on the
activities of the examination evaluation panel. Such report
shall also indicate whether the Commission has identified
additional redundancies that have failed to be addressed in the
coordination of examining authorities, or any recommendations
of the examination evaluation panel established under paragraph
(7) of this subsection that have not been addressed by the
examining authorities or the Commission.''.
(b) Definition.--Section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78e) is amended by adding at the end the following
paragraph:
``(54) The term `examining authority' means any self-
regulatory organization registered with the Commission under
this title (other than registered clearing agencies) with the
authority to examine, inspect, and otherwise oversee the
activities of a registered broker or dealer.''.
SEC. 109. FOREIGN PRESS CONFERENCES.
No later than one year after the date of enactment of this Act, the
Commission shall adopt rules under the Securities Act of 1933
concerning the status under the registration provisions of the
Securities Act of 1933 of foreign press conferences and foreign press
releases by persons engaged in the offer and sale of securities.
SEC. 110. 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 benefits of, the continuing need for, and, if necessary,
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)(iii)--
(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 company (the `acquired company')
purchased or otherwise acquired by a registered open-end 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 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 company, 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 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 pursuant to a
registration of an indefinite amount of securities under this
subsection 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
fiscal year ending not more than 1 year before the date
of enactment of the Investment Company Act Amendments
of 1996 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(a) 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.''.
(c) Effective Date.--The amendments made by this section shall be
effective 6 months after the date of enactment of this Act or on such
earlier date as the Commission may specify by rule.
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 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 of 1940 (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 this section as if it were a trustee
or custodian of the registered separate account; (ii) files
with the insurance regulatory authority of a State 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.
``(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' means
policies and procedures designed by subject persons to promote
compliance with the Federal securities laws; and
``(2) `internal compliance and audit record' means 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(d)) 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 the
Commission finds 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. EXCEPTIONS FROM DEFINITION OF INVESTMENT COMPANY.
(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 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 ``(other than
short-term paper)'' and inserting a period;
(3) in paragraph (2)--
(A) by striking ``and acting as broker,'' and
inserting ``acting as broker, and acting as market
intermediary,''; and
(B) by adding at the end of such paragraph the
following new sentences: ``For the purposes of this
paragraph, the term `market intermediary' means any
person that regularly holds itself out as being willing
contemporaneously to engage in, and is regularly
engaged in the business of entering into, transactions
on both sides of the market for a financial contract or
one or more such financial contracts. For purposes of
the preceding sentence, the term `financial contract'
means any arrangement that (A) takes the form of an
individually negotiated contract, agreement, or option to buy, sell,
lend, swap, or repurchase, or other similar individually negotiated
transaction commonly entered into by participants in the financial
markets; (B) is in respect of securities, 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 (C) is entered into in response to a request from a
counterparty for a quotation or is otherwise entered into and
structured to accommodate the objectives of the counterparty to such
arrangement.''; and
(4) 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 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
paragraph (3)(C) of this subsection) 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) of this paragraph 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 or an affiliated person
of the issuer of the securities of that issuer or affiliated
person 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 such Act.