[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1968 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1968

To amend the Federal securities laws to enhance oversight over certain 
  derivatives dealers and hedge funds, reduce the potential for such 
 entities to increase systemic risk in the financial markets, enhance 
             investor protections, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           November 18, 1999

  Mr. Dorgan introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
To amend the Federal securities laws to enhance oversight over certain 
  derivatives dealers and hedge funds, reduce the potential for such 
 entities to increase systemic risk in the financial markets, enhance 
             investor protections, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Derivatives Market Reform Act of 
1999''.

SEC. 2. DEFINITIONS.

    Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)) is amended by adding at the end the following new paragraphs:
            ``(55) The term `derivative' means any financial contract 
        or other instrument that derives its value from the value or 
        performance of any security, currency exchange rate, or 
        interest rate (or group or index thereof), but does not 
        include--
                    ``(A) any security that is traded on a national 
                securities exchange or on an automated interdealer 
                quotation system sponsored by a securities association 
                registered under section 15A of this title;
                    ``(B) any forward contract which has a maturity at 
                the time of issuance not exceeding 270 days;
                    ``(C) any contract of sale of a commodity for 
                future delivery, or any option on such a contract, 
                traded or executed on a designated contract market and 
                subject to regulation under the Commodity Exchange Act; 
                or
                    ``(D) any deposit held by a financial institution.
            ``(56) The term `derivatives dealer' means any person 
        engaged in the business of buying, selling, or entering into 
        derivatives for his own account, but does not include--
                    ``(A) any person insofar as such person buys, 
                sells, or enters into derivatives for his own account, 
                either individually or in a fiduciary capacity, but not 
                as part of a regular business; or
                    ``(B) any financial institution.
            ``(57) The term `material associated person' means any 
        associated person of a broker, dealer, government securities 
        broker, government securities dealer, municipal securities 
        dealer, or derivatives dealer (other than a natural person) 
        whose business activities are reasonably likely to have a 
        material impact on the financial or operational condition of 
        any such broker, dealer, government securities broker, 
        government securities dealer, municipal securities dealer, or 
        derivatives dealer, including on its net capital, its 
        liquidity, or its ability to conduct or finance its operations.
            ``(58) The term `person associated with a derivatives 
        dealer' or `associated person of a derivatives dealer' means 
        any partner, officer, director, or branch manager of such 
        derivatives dealer (or any person occupying a similar status or 
        performing similar functions), and any other employee of such 
        derivatives dealer who is engaged in the management, direction, 
        supervision, or performance of any activities relating to 
derivatives, and any person directly or indirectly controlling, 
controlled by, or under common control with such derivatives dealer.
            ``(59) The term `designated examining authority' means the 
        national securities exchange or registered securities 
        association of which a registered broker or dealer is a member, 
        and if such broker or dealer is a member of more than 1 such 
        self-regulatory organization, the organization designated by 
        the Commission as the principal examining authority for such 
        broker or dealer.''.

                      TITLE I--DERIVATIVES DEALERS

SEC. 101. DERIVATIVES DEALER REGISTRATION.

    The Securities Exchange Act of 1934 is amended by inserting after 
section 15C (15 U.S.C. 78o-5) the following new section:

``SEC. 15D. DERIVATIVES DEALERS.

    ``(a) Registration Required.--
            ``(1) Registration of derivatives dealers.--
                    ``(A) Registration requirement.--It shall be 
                unlawful for any derivatives dealer (other than a 
                registered broker or dealer, or a material associated 
                person of a registered broker or dealer that has filed 
                notice in accordance with subparagraph (B) of this 
                paragraph) to make use of the mails or any means or 
                instrumentality of interstate commerce to effect any 
                transaction in, or to induce or attempt to induce the 
                purchase or sale of, any derivative unless such 
                derivatives dealer is registered in accordance with 
                paragraph (2) of this subsection.
                    ``(B) Material associated persons of brokers and 
                dealers.--
                            ``(i) Notice requirement.--It shall be 
                        unlawful for any derivatives dealer that is a 
                        material associated person of a registered 
                        broker or dealer (other than a material 
                        associated person of a registered broker or 
                        dealer that is itself a registered broker or 
                        dealer, or a derivatives dealer that is 
                        registered in accordance with paragraph (2) of 
                        this subsection) to make use of the mails or 
                        any means or instrumentality of interstate 
                        commerce to effect any transaction in, or to 
                        induce or attempt to induce the purchase or 
                        sale of, any derivative unless such derivatives 
                        dealer has filed with the Commission written 
                        notice that it is a derivatives dealer. When 
                        such a derivatives dealer ceases to act as such 
                        it shall file with the Commission a written 
                        notice that it is no longer acting as a 
                        derivatives dealer.
                            ``(ii) Form of notice.--Such notices shall 
                        be in such form and contain such information 
                        concerning a derivatives dealer and any persons 
                        associated with such derivatives dealer as the 
                        Commission shall, by rule, prescribe as 
                        necessary or appropriate in the public interest 
                        or for the protection of investors.
            ``(2) Registration procedure.--
                    ``(A) Application for registration.--A derivatives 
                dealer subject to the registration requirement of 
                paragraph (1)(A) of this subsection may be registered 
                by filing with the Commission an application for 
                registration in such form and containing such 
                information and documents concerning such derivatives 
                dealer and any of its associated persons as the 
                Commission, by rule, may prescribe as necessary 
or appropriate in the public interest or for the protection of 
investors.
                    ``(B) Initial action.--Within 45 days of the date 
                of filing of such application (or within such longer 
                period as to which the applicant consents), the 
                Commission shall--
                            ``(i) by order grant registration, or
                            ``(ii) institute proceedings to determine 
                        whether registration should be denied.
                    ``(C) Proceedings on application.-- Such 
                proceedings shall include notice of the grounds for 
                denial under consideration and opportunity for hearing 
                and shall be concluded within 120 days of the date of 
                the filing of the application for registration. At the 
                conclusion of such proceedings, the Commission, by 
                order, shall grant or deny such registration. The 
                Commission may extend the time for the conclusion of 
                such proceedings for up to 90 days if it finds good 
                cause for such extension and publishes its reasons for 
                so finding or for such longer period as to which the 
                applicant consents.
                    ``(D) Effective date of registration.--The order 
                granting registration shall not be effective until such 
                derivatives dealer has become a member of a securities 
                association registered under section 15A of this title, 
                unless the Commission has exempted such derivatives 
                dealer, by rule or order, from such membership.
                    ``(E) Grounds for decision.--The Commission shall 
                grant the registration of a derivatives dealer if the 
                Commission finds that the requirements of this section 
                are satisfied. The Commission shall deny such 
                registration if it does not make such a finding or if 
                it finds that if the applicant were so registered, its 
                registration would be subject to suspension or 
                revocation under subsection (c) of this section.
            ``(3) Prohibited conduct.--Any provision of this title 
        (other than section 5 or paragraph (1) of this subsection) 
        which prohibits any act, practice, or course of business if the 
        mails or any means or instrumentality of interstate commerce is 
        used in connection therewith shall also prohibit any such act, 
        practice, or course of business by any derivatives dealer 
        registered or having filed notice under paragraph (1) of this 
        subsection or any person acting on behalf of such derivatives 
        dealer, irrespective of any use of the mails or any means or 
        instrumentality of interstate commerce in connection therewith.
            ``(4) Exemptions.--The Commission, by rule or order, upon 
        the Commission's own motion or upon application, may 
        conditionally or unconditionally exempt any derivatives dealer, 
        or class of derivatives dealers, from any provision of this 
        section, or the rules thereunder, if the Commission finds that 
        such exemption is consistent with the public interest, the 
protection of investors, and the purposes of this title.
    ``(b) Rules.--
            ``(1) Authority.--The Commission shall propose and adopt 
        rules to effect the purposes of this title with respect to 
        transactions in derivatives effected by derivatives dealers 
        registered or required to register under subsection (a)(1)(A) 
        of this section as follows:
                    ``(A) Financial responsibility.--Such rules shall 
                provide safeguards with respect to the financial 
                responsibility and related practices of such 
                derivatives dealers including, but not limited to, 
                capital adequacy standards and the carrying and use of 
                customers' deposits or credit balances.
                    ``(B) Reports.--Such rules shall require every such 
                derivatives dealer to make reports to and furnish 
                copies of records to the Commission, and to file with 
                the Commission, annually or more frequently, a balance 
                sheet and income statement certified by an independent 
                public accountant, prepared on a calendar or fiscal 
                year basis, and such other financial statements (which 
                shall, as the Commission specifies, be certified) and 
                information concerning its financial condition as 
                required by such rules.
                    ``(C) Recordkeeping.--Such rules shall require 
                records to be made and kept by such derivatives dealers 
                and shall specify the periods for which such records 
                shall be preserved.
            ``(2) Authority to limit disclosure of information.--
        Notwithstanding any other provision of law, the Commission 
        shall not be compelled to disclose any information required to 
        be kept or reported under rules adopted under paragraph (1) of 
        this subsection. Nothing in this paragraph 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 
        paragraph shall be considered a statute described in subsection 
        (b)(3)(B) of such section 552.
            ``(3) Fraudulent acts and practices.--With respect to any 
        derivatives dealer, the Commission may, by rule or regulation 
        define, and prescribe means reasonably designed to prevent, 
        such acts and practices as are fraudulent, deceptive, or 
        manipulative.
            ``(4) Compliance with rules under this section.--No 
        derivatives dealer shall make use of the mails or any means or 
        instrumentality of interstate commerce to effect any 
        transaction in, or to induce or attempt to induce the purchase 
        or sale of, any derivative in contravention of any rule under 
        this section.
    ``(c) Enforcement by the Commission.--
            ``(1) Administrative powers to impose sanctions.--With 
        respect to any derivatives dealer registered or required to 
        register under subsection (a)(1)(A) of this section:
                    ``(A) Derivatives dealers.--The Commission, by 
                order, shall censure, place limitations on the 
                activities, functions, or operations of, suspend for a 
                period not exceeding 12 months, or revoke the 
                registration of such derivatives dealer, if it finds, 
                on the record after notice and opportunity for hearing, 
                that such censure, placing of limitations, suspension, 
                or revocation is in the public interest and that such 
                derivatives dealer, or any person associated with such 
                derivatives dealer (whether prior or subsequent to 
                becoming so associated), has committed or omitted any 
                act or omission enumerated in subparagraph (A), (D), 
                (E), or (G) of paragraph (4) of section 15(b) of this 
                title, has been convicted of any offense specified in 
                subparagraph (B) of such paragraph (4) within 10 years 
                of the commencement of the proceedings under this 
                paragraph, or is enjoined from any action, conduct, or 
                practice specified in subparagraph (C) of such 
                paragraph (4).
                    ``(B) Suspension or withdrawal pending final 
                determination.--Pending final determination whether 
                registration of any derivatives dealer shall be 
                revoked, the Commission, by order, may suspend such 
                registration, if such suspension appears to the 
                Commission, after notice and opportunity for hearing, 
                to be necessary or appropriate in the public interest 
                or for the protection of investors. Any registered 
                derivatives dealer may, upon such terms and conditions 
                as the Commission may deem necessary in the public 
                interest or for the protection of investors, withdraw 
                from registration by filing a written notice of 
withdrawal with the Commission. If the Commission finds that any 
registered derivatives dealer is no longer in existence or has ceased 
to do business as a derivatives dealer, the Commission, by order, shall 
cancel the registration of such derivatives dealer.
                    ``(C) Associated persons.--The Commission, by 
                order, shall censure or place limitations on the 
                activities or functions of any person associated, or 
                seeking to become associated, with a derivatives dealer 
                registered or required to register under subsection 
                (a)(1)(A) of this section or suspend for a period not 
                exceeding 12 months or bar any such person from being 
                associated with such a derivatives dealer, if the 
                Commission finds, on the record after notice and 
                opportunity for hearing, that such censure, placing of 
                limitations, suspension, or bar is in the public 
                interest and that such person has committed or omitted 
                any act or omission enumerated in subparagraph (A), 
                (D), (E), or (G) of paragraph (4) of section 15(b) of 
                this title, has been convicted of any offense specified 
                in subparagraph (B) of such paragraph (4) within 10 
                years of the commencement of the proceedings under this 
                paragraph, or is enjoined from any action, conduct, or 
                practice specified in subparagraph (C) of such 
                paragraph (4).
            ``(2) Persons suspended or barred from association.--It 
        shall be unlawful for any person as to whom an order entered 
        pursuant to paragraph (1) of this subsection suspending or 
        barring him from being associated with a derivatives dealer is 
        in effect willfully to become, or to be, associated with a 
        derivatives dealer without the consent of the Commission, and 
        it shall be unlawful for any derivatives dealer to permit such 
        a person to become, or remain, a person associated with it 
        without the consent of the Commission, if such derivatives 
        dealer knew, or, in the exercise of reasonable care should have 
        known, of such order.
    ``(d) Examination of Records.--All records of a derivatives dealer 
registered or required to register under subsection (a)(1)(A) of this 
section, or that has filed notice or is required to file notice under 
subsection (a)(1)(B) of this section, are subject at any time, or from 
time to time, to such reasonable periodic, special, or other 
examinations by representatives of the Commission as the Commission 
deems necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
this title.
    ``(e) Securities Association Membership.--
            ``(1) Membership requirement.--It shall be unlawful for any 
        derivatives dealer registered or required to register with the 
        Commission under subsection (a)(1)(A) of this section to effect 
        any transaction in, or induce or attempt to induce the purchase 
        or sale of, any derivative, unless such derivatives dealer is a 
        member of a securities association registered under section 15A 
        of this title.
            ``(2) Exemption.--The Commission, by rule or order, as it 
        deems consistent with the public interest and the protection of 
        investors, may conditionally or unconditionally exempt from 
        paragraph (1) of this subsection any derivatives dealer or 
        class of derivatives dealers specified in such rule or 
        order.''.

               TITLE II--BROKER-DEALER OVERSIGHT REFORMS

SEC. 201. DERIVATIVES ON SECURITIES.

    Section 3(a)(10) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(10)) is amended by inserting ``derivative,'' after ``any put, 
call, straddle, option,'' the first place it appears.

SEC. 202. NATIONAL SECURITIES EXCHANGES.

    Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) is 
amended by adding at the end the following new subsection:
    ``(g) Authority To Adopt Rules Relating to Transactions in 
Derivatives.--A national securities exchange may adopt and implement 
rules applicable to members of such exchange, and material associated 
persons that have filed notice or are required to file notice under 
section 15D(a)(1)(B) of this title and that are associated with members 
for which the exchange is the designated examining authority, who 
engage in transactions in derivatives--
            ``(1) to enforce compliance with applicable provisions of 
        this title and the rules and regulations thereunder;
            ``(2) to provide that any such person shall be 
        appropriately disciplined for violations of applicable 
        provisions of this title and the rules and regulations 
        thereunder;
            ``(3) to provide for reasonable inspection and examination 
        of the books and records of any such person;
            ``(4) to prevent fraudulent and manipulative acts and 
        practices;
            ``(5) to promote just and equitable principles of trade; 
        and
            ``(6) to require the establishment of, and adherence to, 
        appropriate internal controls structures.''.

SEC. 203. FINANCIAL RESPONSIBILITY.

    Section 15(c)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(c)(3)) is amended--
            (1) by striking ``and'' at the end of clause (A); and
            (2) by inserting after ``requirements for all brokers and 
        dealers'' the following: ``, and (C) require the maintenance of 
        sufficient capital levels taking into account the financial 
        activities conducted by, the customary sources of capital and 
        funding of, and the credit risk and aggregate leverage of, any 
        derivatives dealer that is a material associated person of the 
        broker or dealer and that has filed notice or is required to 
        file notice under section 15D(a)(1)(B) of this title''.

SEC. 204. REGISTERED SECURITIES ASSOCIATION.

    Section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
3) is hereby amended by adding at the end the following new subsection:
    ``(j) Authority To Adopt Rules Relating to Transactions in 
Derivatives.--A registered securities association may adopt and 
implement rules applicable to members of such association, and material 
associated persons that have filed notice or are required to file 
notice under section 15D(a)(1)(B) of this title and that are associated 
with members for which the association is the designated examining 
authority, who engage in transactions in derivatives--
            ``(1) to enforce compliance with applicable provisions of 
        this title and the rules and regulations thereunder;
            ``(2) to provide that any such person shall be 
        appropriately disciplined, in accordance with subsections 
        (b)(7), (b)(8), and (h) of this section, for violations of 
        applicable provisions of this title and the rules and 
        regulations thereunder;
            ``(3) to provide for reasonable inspection and examination 
        of the books and records of any such person;
            ``(4) to prevent fraudulent and manipulative acts and 
        practices;
            ``(5) to promote just and equitable principles of trade; 
        and
            ``(6) to require the establishment of, and adherence to, 
        appropriate internal controls structures.''.

SEC. 205. RISK ASSESSMENT FOR GOVERNMENT SECURITIES BROKERS AND 
              DEALERS.

    Section 15C(b)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o-5(b)(2)) is amended
            (1) in subparagraph (A)--
                    (A) by striking ``Such records shall describe, in 
                the aggregate,'' in the second sentence and inserting 
                ``Such records may be required to describe'';
                    (B) by striking ``summary'' in the third sentence;
            (2) by redesignating subparagraphs (C) through (F) as 
        subparagraphs (G) through (J), respectively;
            (3) by inserting after subparagraph (B) the following new 
        subparagraphs:
                    ``(C) Reporting by holding companies and other 
                material associated persons.--Every person, other than 
                a natural person, who is associated with a government 
                securities broker or government securities dealer for 
                which the Commission is the appropriate regulatory 
                agency, and whose business activities are reasonably 
                likely to have a material impact on the financial or 
                operational condition of such registered person, 
                including its net capital, its liquidity, or its 
                ability to conduct or finance its operations, shall 
                make such reports concerning the associated person's 
                policies, procedures, or systems for monitoring and 
                controlling the financial and operational risks to the 
                registered person and its associated persons as the 
                Secretary, by rule, prescribes. Such reports may be 
                required to describe, without limitation, each of the 
                associated person's financial and securities 
                activities, and customary sources of capital and 
                funding. The Secretary, by rule, may require such 
                reports to be filed with the Commission no more 
                frequently than quarterly.
                    ``(D) Recordkeeping by holding companies and other 
                material associated persons.--All persons subject to 
                the reporting requirements under subparagraph (C) of 
                this subsection shall keep and maintain such records as 
                are necessary to permit the Commission to verify the 
                information contained in reports filed with the 
                Commission pursuant to subparagraph (C).
                    ``(E) Examination of holding companies and other 
                material associated persons.--All records of persons 
                subject to the reporting requirements contained in 
                subparagraph (C) of this subsection are subject at any 
                time, or from time to time, to such reasonable 
                periodic, special, or other examinations by 
                representatives of the Commission as the Commission 
                deems necessary or appropriate to verify the 
                information contained in reports filed with the 
                Commission pursuant to subparagraph (C).
                    ``(F) Use of alternative reports by registered 
                persons and their holding companies and other material 
                associated persons.--(i) The Secretary, insofar as the 
                Secretary determines is consistent with the purposes of 
                this title, shall permit persons subject to the 
                reporting requirements of subparagraphs (A) and (C) of 
this paragraph, to use reports otherwise created and maintained to meet 
the reporting requirements of those subparagraphs.
                    ``(ii) The appropriate regulatory agency, insofar 
                as such agency determines is consistent with the 
                purposes of this title, shall permit persons, subject 
                to the reporting requirements of subparagraph (B) of 
                this paragraph, to use reports otherwise created and 
                maintained to meet the reporting requirement of that 
                subparagraph.''; and
            (4) in subparagraphs (G) and (I) (as redesignated by 
        paragraph (2)), by striking ``subparagraph (A)'' each place it 
        appears and inserting ``subparagraphs (A) and (C)''.

SEC. 206. RISK ASSESSMENT FOR BROKERS AND DEALERS.

    Section 17(h) of the Securities Exchange Act of 1934 (15 U.S.C. 
78q(h)) is amended--
            (1) in paragraph (1)--
                    (A) by striking ``Such records shall describe, in 
                the aggregate,'' in the second sentence and inserting 
                ``Such records may be required to describe'';
                    (B) by striking ``summary'' in the third sentence;
            (2) by redesignating paragraphs (3) through (5) as 
        paragraphs (7) through (9), respectively;
            (3) by inserting after paragraph (2) the following new 
        paragraphs:
            ``(3) Reporting by holding companies and other material 
        associated persons.--Every person, other than a natural person, 
        who is associated with (A) a registered broker or dealer, or 
        (B) a registered municipal securities dealer for which the 
        Commission is the appropriate regulatory agency, and whose 
        business activities are reasonably likely to have a material 
        impact on the financial or operational condition of such 
        registered person, including its net capital, its liquidity, or 
        its ability to conduct or finance its operations, shall make 
        such reports concerning the associated person's policies, 
        procedures, or systems for monitoring and controlling the 
        financial and operation risks to the registered person and its 
        associated persons as the Commission, by rule, prescribes. Such 
        reports may be required to describe, without limitation, each 
        of the associated person's financial and securities activities, 
        and customary sources of capital and funding. The Commission, 
        by rule, may require such reports to be filed with the 
        Commission no more frequently than quarterly.
            ``(4) Recordkeeping by holding companies and other material 
        associated persons.--All persons subject to the reporting 
        requirements under paragraph (3) of this subsection shall keep 
        and maintain such records as are necessary to permit the 
        Commission to verify the information contained in reports filed 
        with the Commission pursuant to paragraph (3).
            ``(5) Examination of holding companies and other material 
        associated persons.--All records of persons subject to the 
        reporting requirements contained in paragraph (3) of this 
        subsection are subject at any time, or from time to time, to 
        such reasonable periodic, special, or other examinations by 
        representatives of the Commission as the Commission deems 
        necessary or appropriate to verify the information contained in 
        reports filed with the Commission pursuant to paragraph (3).
            ``(6) Use of alternative reports by registered persons and 
        their holding companies and other material associated 
        persons.--The Commission, insofar as it determines is 
        consistent with the purposes of this title, shall permit 
        persons subject to the reporting requirements of paragraphs 
        (1), (2), and (3) of this subsection, to use reports otherwise 
        created and maintained to meet the reporting requirements of 
        those paragraphs.''; and
            (4) in paragraphs (7) and (9) (as redesignated by paragraph 
        (2)), by striking ``paragraph (1)'' each place it appears and 
        inserting ``paragraphs (1) and (3)''.

SEC. 207. LARGE TRADER REPORTING: RULEMAKING DEADLINE.

    Within one year after the date of enactment of this Act, the 
Securities and Exchange Commission shall take all actions necessary to 
establish regulations pursuant to section 13(h) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(h)).

SEC. 208. RULES, REGULATIONS, AND ORDERS; ANNUAL REPORTS.

    (a) Rules, Regulations, and Orders.--Section 23(a)(1) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78w(a)(1)) is amended by 
inserting ``derivatives,'' after ``and may for such purposes classify 
persons, securities,''.
    (b) Reports.--Section 8(a) of the Market Reform Act of 1990 is 
amended by striking ``May 31, 1991, and annually thereafter until May 
31, 1995,'' and inserting ``May 31, 2000, and annually thereafter''.

SEC. 209. CONFORMING AMENDMENTS.

    Section 3(a)(48) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(48)) is amended to read as follows:
            ``(48) The term `registered broker or dealer' means a 
        broker or dealer registered or required to register pursuant to 
        section 15 or 15B of this title, except that--
                    ``(A) in paragraph (3)(A) of this subsection and in 
                section 6, the term means such a broker or dealer or a 
                government securities broker or government securities 
                dealer registered or required to register pursuant to 
                section 15C(a)(1)(A) of this title; and
                    ``(B) in paragraph (3)(B) of this subsection and in 
                section 15A, the term means such a broker or dealer, a 
                government securities broker or government securities 
                dealer registered or required to register pursuant to 
                section 15C(a)(1)(A) of this title, or a derivatives 
                dealer registered or required to register pursuant to 
                section 15D(a)(1)(A) of this title.''.

                    TITLE III--HEDGE FUND REPORTING

SEC. 301. PUBLIC REPORTING BY UNREGISTERED HEDGE FUNDS.

    Section 30 of the Investment Company Act of 1940 (15 U.S.C. 80a-29) 
is amended by adding at the end the following new subsection:
    ``(k) Reports of Unregistered Hedge Funds.--
            ``(1) Filing of reports.--No later than 15 days after the 
        end of each calendar or fiscal quarter, every unregistered 
        hedge fund shall submit to the Commission a report prepared in 
        accordance with United States generally accepted accounting 
        principles that includes the following information for each 
        pooled investment vehicle that is part of the unregistered 
        hedge fund:
                    ``(A) A statement of financial condition as of the 
                end of the quarter.
                    ``(B) A statement of income (loss) for the quarter 
                ended.
                    ``(C) A statement of cash flows.
                    ``(D) A statement of changes in equity.
                    ``(E) A description of the models and methodologies 
                that the pooled investment vehicle uses to calculate, 
                assess, and evaluate market risk.
                    ``(F) Such other information and within such time 
                period as the Commission, in consultation with the 
                Secretary of the Treasury, the Chairman of the Federal 
                Reserve Board, the Commodity Futures Trading 
                Commission, and other appropriate regulatory agencies, 
                may require by rule or regulation, as may be necessary 
                or appropriate in the public interest or for the 
                protection of investors, including information about 
                sudden changes in net asset value of a pooled 
                investment vehicle within the quarter, the leverage 
                ratio of the pooled investment vehicle, and the total 
                notional amount of the pooled investment vehicle's 
                exchange-traded and over-the-counter derivatives 
                positions.
            ``(2) Rulemaking.--The Commission shall have the authority 
        to promulgate rules and regulations, as may be necessary or 
        appropriate in the public interest or for the protection of 
        investors, that prescribe the form of the reports required by 
        paragraph (1) and define the terms used in this subsection.
            ``(3) Availability of reports.--Upon receipt of reports 
        under paragraph (1), the Commission shall--
                    ``(A) immediately transmit complete copies of the 
                reports to the Secretary of the Treasury, the Chairman 
                of the Federal Reserve Board, the Commodity Futures 
                Trading Commission, and other appropriate regulatory 
                agencies; and
                    ``(B) subject to paragraph (4), make the reports 
                widely available to the public.
            ``(4) Confidentiality of proprietary information.--
        Proprietary information contained in reports shall be treated 
        as follows:
                    ``(A) If, in preparing a complete and accurate 
                report under paragraph (1), an unregistered hedge fund 
                includes in the report proprietary information 
                concerning investment strategies or positions, such 
                proprietary information may, consistent with the 
                regulations prescribed by the Commission, be segregated 
                in a confidential section of the report that shall not 
                be available to the public under paragraph (3)(B).
                    ``(B) 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 Board.
            ``(5) Definitions.--For purposes of this subsection:
                    ``(A) Unregistered hedge fund.--The term 
                `unregistered hedge fund'--
                            ``(i) means any pooled investment vehicle, 
                        or group or family of pooled investment 
                        vehicles, that--
                                    ``(I) has total assets under 
                                management of $1,000,000,000 or more; 
                                and
                                    ``(II) is excepted from the 
                                definition of investment company by 
                                section 3(c)(1) or 3(c)(7), or is a 
                                foreign company that would be required 
                                to obtain an order of the Securities 
                                and Exchange Commission under section 
                                7(d) if it made a public offering of 
                                its securities by use of the mails and 
                                means or instrumentalities of 
                                interstate commerce; but
                            ``(ii) does not include a commodity pool 
                        operator or futures commission merchant (as 
                        such terms are defined under section 1a of the 
                        Commodity Exchange Act (7 U.S.C. 1a)).
                    ``(B) Appropriate regulatory agencies.--The term 
                `appropriate regulatory agencies' means each of the 
                agencies that is an appropriate regulatory agency under 
                section 3(a)(34) of the Securities Exchange Act of 
                1934.''.
                                 <all>