[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1015 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1015

To require enhanced disclosure with respect to securities transactions 
conducted ``online'', to require the Securities and Exchange Commission 
   to study the effects of online trading on securities markets, to 
        prevent online securities fraud, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 12, 1999

  Mr. Schumer (for himself, Mr. Sarbanes, Mr. Bryan, and Mr. Johnson) 
introduced the following bill; which was read twice and referred to the 
            Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
To require enhanced disclosure with respect to securities transactions 
conducted ``online'', to require the Securities and Exchange Commission 
   to study the effects of online trading on securities markets, to 
        prevent online securities fraud, and for other purposes.

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

SECTION 1. SHORT TITLE; DEFINITIONS.

    (a) Short Title.--This Act may be cited as the ``Online Investor 
Protection Act of 1999''.
    (b) Definitions.--In this Act--
            (1) the term ``Commission'' means the Securities and 
        Exchange Commission;
            (2) the term ``Internet'' means the international computer 
        network of both Federal and non-Federal interoperable packet 
        switched data networks;
            (3) the term ``interactive computer service'' means any 
        information service, system, or access software provider that 
        provides or enables computer access by multiple users to a 
        computer server, including specifically a service or system 
        that provides access to the Internet and such systems operated 
        or services offered by libraries or educational institutions;
            (4) the term ``investment adviser'' has the same meaning as 
        in section 202 of the Investment Advisers Act of 1940;
            (5) the term ``investment company'' has the same meaning as 
        in section 3 of the Investment Company Act of 1940;
            (6) the term ``registered broker or dealer'' has the same 
        meaning as in section 3 of the Securities Exchange Act of 1934; 
        and
            (7) the term ``retail investor'' means--
                    (A) any investor other than an accredited investor 
                (as defined in section 2(a)(15) of the Securities Act 
                of 1933); and
                    (B) any other similar person or class of persons, 
                as the Commission determines to be appropriate.

SEC. 2. ONLINE TRADING DISCLOSURES.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 35A the following:

``SEC. 35B. ONLINE TRADING DISCLOSURES.

    ``(a) In General.--Each online broker or dealer shall, on a 
quarterly basis, make available on the Internet or other interactive 
computer service, such information as the Commission may require, by 
rule or order, taking into account the needs of customers, and in such 
format and within such time periods as the Commission may prescribe 
regarding--
            ``(1) the date, time, and duration of any system outage or 
        other event that prevented or materially delayed the execution 
        of online securities transactions during the preceding quarter;
            ``(2) any steps taken to address or prevent such outages or 
        events; and
            ``(3) information regarding limiting risk of loss to 
        securities investors that is unique to online trading, as 
        required by the Commission, by rule or order.
    ``(b) Exceptions.--The Commission, by rule or order, may exempt 
from the requirements of subsection (a) any online broker or dealer, or 
class of online brokers or dealers, as the Commission determines to be 
appropriate.
    ``(c) Definitions.--In this section--
            ``(1) the term `Internet' means the international computer 
        network of both Federal and non-Federal interoperable packet 
        switched data networks;
            ``(2) the term `interactive computer service' means any 
        information service, system, or access software provider that 
        provides or enables computer access by multiple users to a 
        computer server, including specifically a service or system 
        that provides access to the Internet and such systems operated 
        or services offered by libraries or educational institutions;
            ``(3) the term `online broker or dealer' means any broker 
        or dealer that provides retail investors with a means to effect 
        securities transactions over the Internet or an interactive 
        computer service;
            ``(4) the term `online securities transaction' means a 
        securities transaction effected between a retail investor and 
an online broker or dealer over the Internet or an interactive computer 
service; and
            ``(5) the term `retail investor' means--
                    ``(A) any customer of an online broker or dealer, 
                other than an accredited investor (as defined in 
                section 2(a)(15) of the Securities Act of 1933); and
                    ``(B) any other similar person or class of persons, 
                as the Commission determines to be appropriate, by rule 
                or order.''.

SEC. 3. EXTENDING DISCIPLINARY DISCLOSURES TO THE INTERNET.

    (a) In General.--Section l5A of the Securities Exchange Act of 1934 
(15 U.S.C. 78o-3) is amended by striking subsection (i) and inserting 
the following:
    ``(i) Obligation To Maintain Disciplinary and Other Data.--
            ``(1) Maintenance of system to respond to inquiries.--A 
        registered securities association shall--
                    ``(A) establish and maintain a toll-free telephone 
                listing or other readily accessible electronic process 
                to receive inquiries regarding disciplinary actions and 
                proceedings and other information involving its members 
                and associated persons of those members; and
                    ``(B) promptly respond to such inquiries.
            ``(2) Recovery of costs.--A registered securities 
        association may charge persons, other than individual 
        investors, reasonable fees for responses to inquiries referred 
        to in paragraph (1).
            ``(3) Limitation on liability.--A registered securities 
        association shall not have any liability to any person for any 
        action taken or omitted in good faith under this subsection.''.
    (b) Records and Reports of Investment Advisers.--Section 204 of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-4) is amended--
            (1) by striking ``Every investment'' and inserting the 
        following:
    ``(a) In General.--Every investment''; and
            (2) by adding at the end the following:
    ``(b) Filing Depositories.--The Commission, by rule or order, may 
require an investment adviser--
            ``(1) to file with the Commission any fee, application, 
        report, or notice required to be filed by this title or the 
        rules issued under this title through any entity designated by 
        the Commission for that purpose; and
            ``(2) to pay the reasonable costs associated with such 
        filing and the establishment and maintenance of the systems 
        required by subsection (c).
    ``(c) Access to Disciplinary and Other Information.--
            ``(1) Maintenance of system to respond to inquiries.--The 
        Commission shall require an entity designated by the Commission 
        pursuant to subsection (b)(1)--
                    ``(A) to establish and maintain a toll-free 
                telephone listing or other readily accessible 
                electronic process to receive inquiries regarding 
                disciplinary actions and proceedings and other 
                information involving investment advisers and persons 
                associated with investment advisers; and
                    ``(B) to respond promptly to such inquiries.
            ``(2) Recovery of costs.--An entity designated under 
        subsection (b)(1) may charge persons, other than individual 
        investors, reasonable fees for responses to inquiries referred 
        to in paragraph (1).
            ``(3) Limitation on liability.--An entity designated under 
        subsection (b)(1) shall not have any liability to any person 
        for any action taken or omitted in good faith under this 
        subsection.''.
    (c) Conforming Amendments.--
            (1) In general.--Section 203A of the Investment Advisers 
        Act of 1940 (15 U.S.C. 80b-3a) is amended--
                    (A) by striking subsection (d); and
                    (B) by redesignating subsection (e) as subsection 
                (d).
            (2) Repeal.--Section 306 of the National Securities Markets 
        Improvement Act of 1996 (Public Law 104-290; 110 Stat. 3438) is 
        repealed.

SEC. 4. ELECTRONIC ACCESS TO COMMISSION INFORMATION.

    (a) Electronic Links.--Not later than 1 year after the date of 
enactment of this Act, each broker or dealer, investment company, and 
investment adviser that effects securities transactions with retail 
investors, or makes securities market information available to retail 
investors for the purpose of effecting such transactions over the 
Internet or other interactive computer service, shall provide to those 
investors information regarding investor education and fraud prevention 
provided by the Commission, through a hypertext link to a Commission 
website established for that purpose, or in such other manner as may be 
prescribed by the Commission.
    (b) Regulatory Action.--The Commission shall issue final 
regulations to implement this section not later than 6 months after the 
date of enactment of this Act.

SEC. 5. CIVIL PENALTIES FOR INTERNET-RELATED VIOLATIONS.

    (a) Securities Act of 1933.--Section 20(d)(2) of the Securities Act 
of 1933 (15 U.S.C. 77t(d)(2)) is amended by adding at the end the 
following:
                    ``(D) Internet-related violations.--In any case in 
                which the Internet or other interactive computer 
                service (as defined in section 35B of the Securities 
                Exchange Act of 1934) is used as part of the Act or 
                omission resulting in a violation referred to in 
                paragraph (1) the amount of the penalty provided for in 
                this paragraph shall be doubled.''.
    (b) Securities Exchange Act of 1934.--
            (1) Section 21.--Section 21(d)(3)(B) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by 
        adding at the end the following:
                            ``(iv) Internet-related violations.--In any 
                        case in which the Internet or other interactive 
computer service (as defined in section 35B) is used as part of the act 
or omission resulting in a violation referred to in subparagraph (A), 
the amount of the penalty provided for in this subparagraph shall be 
doubled.''.
            (2) Section 21b.--Section 21B(b) of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78u-2(b)) is amended by adding at the 
        end the following:
            ``(4) Internet-related violations.--In any case in which 
        the Internet or other interactive computer service (as defined 
        in section 35B) is used as part of the act or omission 
        resulting in a violation referred to in subsection (a), the 
        amount of the penalty provided for in this subsection shall be 
        doubled.''.
    (c) Investment Advisers Act of 1940.--
            (1) Section 203.--Section 203(i)(2) of the Investment 
        Advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended by 
        adding at the end the following:
                    ``(D) Internet-related violations.--In any case in 
                which the Internet or other interactive computer 
                service (as defined in section 35B of the Securities 
                Exchange Act of 1934) is used as part of the act or 
                omission resulting in a violation referred to in 
                paragraph (1), the amount of the penalty provided for 
                in this paragraph shall be doubled.''.
            (2) Section 209.--Section 209(e)(2) of the Investment 
        Advisers Act of 1940 (15 U.S.C. 80b-9(e)(2)) is amended by 
        adding at the end the following:
                    ``(D) Internet-related violations.--In any case in 
                which the Internet or other interactive computer 
                service (as defined in section 35B of the Securities 
                Exchange Act of 1934) is used as part of the act or 
                omission resulting in a violation referred to in 
                paragraph (1), the amount of the penalty provided for 
                in this paragraph shall be doubled.''.
    (d) Investment Company Act of 1940.--Section 9(d)(2) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended by 
adding at the end the following:
                    ``(D) Internet-related violations.--In any case in 
                which the Internet or other interactive computer 
                service (as defined in section 35B of the Securities 
                Exchange Act of 1934) is used as part of the act or 
                omission resulting in a violation referred to in 
                paragraph (1), the amount of the penalty provided for 
                in this paragraph shall be doubled.''.

SEC. 6. STUDY AND REPORT ON MARKET IMPACT OF ONLINE TRADING.

    (a) Study.--The Commission shall conduct a study of the effects 
that trading in securities by retail investors over the Internet or 
other interactive computer service has on the securities markets, 
including--
            (1) with respect to ``day trading'' activities--
                    (A) whether a greater risk of fraud exists;
                    (B) whether such trading results in market 
                volatility;
                    (C) the effects on individual companies, the stock 
                of which fluctuates as a result of such volatility, if 
                any; and
                    (D) the effects on investors and their investment 
                patterns resulting from such volatility, if any; and
            (2) the quality of execution received through online 
        trading services, including the effect of ``payment for order 
        flow'' and other practices on--
                    (A) the promptness of execution; and
                    (B) the purchase or sale price obtained for the 
                retail investor.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Commission shall submit to the Congress a report on the 
results of its study under subsection (a).

SEC. 7. AUTHORIZATION OF APPROPRIATIONS.

    There is authorized to be appropriated to the Office of Internet 
Enforcement of the Securities and Exchange Commission $70,000,000 for 
each of fiscal years 2000 through 2004, for the purpose of Internet 
enforcement and other related investor protection activities, subject 
to appropriations Acts.
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