110 HR 7266 IH: Derivatives Market Reform Act of U.S. House of Representatives 2008-10-03 text/xml EN Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
I 110th CONGRESS 2d Session H. R. 7266 IN THE HOUSE OF REPRESENTATIVES October 3, 2008 Mr. Markey introduced the following bill; which was referred to the Committee on Financial Services 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.
1.
Short title
This Act may be cited as the Derivatives Market Reform Act of 1999.
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: (65)The term derivative means any financial contract or other instrument that derives its value from the value or performance of any security or other financial instrument, or of any excluded commodity (as defined in section 1a(13) of the Commodity Exchange Act), 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; or (C)any deposit held by a financial institution. (66)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. (67)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. (68)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. (69)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. .
<enum>I</enum><header>DERIVATIVES DEALERS</header> <section id="H35B901D37729420D9D9CDAC474B953B1"><enum>101.</enum><header>Derivatives dealer registration</header><text display-inline="no-display-inline">The <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> is amended by inserting after section 15E (<external-xref legal-doc="usc" parsable-cite="usc/15/78o-7">15 U.S.C. 78o–7</external-xref>) the following new section:</text> <quoted-block act-name="Securities Exchange Act of 1934" id="H0363E6AA5FE94216911200516EE02237" style="OLC"> <section id="HF53B128B4BA94D719BCF98495D7900FA"><enum>15F.</enum><header>Derivatives dealers</header> <subsection id="H565C344109CB451A007450EE40F3E089"><enum>(a)</enum><header>Registration Required</header> <paragraph id="HFBBC79D105BC462F8E00C19A7DC5E6B"><enum>(1)</enum><header>Registration of derivatives dealers</header> <subparagraph id="HDD04D0F9FA284B2086850389D996E71D"><enum>(A)</enum><header>Registration requirement</header><text>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.</text> </subparagraph><subparagraph id="H4B51176A03FA4A30ADAEBA1FC17AB37"><enum>(B)</enum><header>Material associated persons of brokers and dealers</header> <clause id="H458BCD8F821E41B7B8C8F1F781253B17"><enum>(i)</enum><header>Notice requirement</header><text>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.</text> </clause><clause id="HFB2F4DB7B80D4C84BC9DA6E8E319A150"><enum>(ii)</enum><header>Form of notice</header><text>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.</text> </clause></subparagraph></paragraph><paragraph id="HD310362FFC2B4D749618AA817DB138A1"><enum>(2)</enum><header>Registration procedure</header> <subparagraph id="H35540A392780421A96D95645B6651EA5"><enum>(A)</enum><header>Application for registration</header><text>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.</text> </subparagraph><subparagraph id="HCB8CFCCB7E034DE7A1F460F5E3A16076"><enum>(B)</enum><header>Initial action</header><text>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—</text> <clause id="H1447429EAD4B4BC78FAD1AC67FF9A0"><enum>(i)</enum><text>by order grant registration, or</text> </clause><clause id="HA2FDEBDC9EB14932B0CA555156E8F48"><enum>(ii)</enum><text>institute proceedings to determine whether registration should be denied.</text> </clause></subparagraph><subparagraph id="HD6FA407AC2EF4098BCFDAEA0C8BCEA"><enum>(C)</enum><header>Proceedings on application</header><text>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.</text> </subparagraph><subparagraph id="H26D876BD44684262925F08C64C10DCE"><enum>(D)</enum><header>Effective date of registration</header><text>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.</text> </subparagraph><subparagraph id="HC13FCB4F231E462C8FDE19C9BE763500"><enum>(E)</enum><header>Grounds for decision</header><text>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.</text> </subparagraph></paragraph><paragraph id="HB51F84A2CE3048649850561C9BED1623"><enum>(3)</enum><header>Prohibited conduct</header><text>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.</text> </paragraph><paragraph id="HC4D0551910154277A754B605C6D4EE44"><enum>(4)</enum><header>Exemptions</header><text>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.</text> </paragraph></subsection><subsection id="H4AD1764CB6944E43A418283F315FC14E"><enum>(b)</enum><header>Rules</header> <paragraph id="H030EFB44BB774E108FB8F8936FB2C900"><enum>(1)</enum><header>Authority</header><text>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:</text> <subparagraph id="H361E845450CD47D29D36F48191DC10"><enum>(A)</enum><header>Financial responsibility</header><text>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.</text> </subparagraph><subparagraph id="H989991FAFA364369A600673E0882DAF0"><enum>(B)</enum><header>Reports</header><text>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.</text> </subparagraph><subparagraph id="HA4479248F6F84B08B0339F5CCC4F028B"><enum>(C)</enum><header>Recordkeeping</header><text>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.</text> </subparagraph></paragraph><paragraph id="H3270E6DF24E94BBDB1FF50EDD37E503F"><enum>(2)</enum><header>Authority to limit disclosure of information</header><text>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.</text> </paragraph><paragraph id="HF245A46BACA44585A1AF83BCB93D4764"><enum>(3)</enum><header>Fraudulent acts and practices</header><text>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.</text> </paragraph><paragraph id="HFE2AA03EF2DA40BBB9936E981DA555B2"><enum>(4)</enum><header>Compliance with rules under this section</header><text>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.</text> </paragraph></subsection><subsection id="H917BD31B92774422909506E1E2F7C429"><enum>(c)</enum><header>Enforcement by the Commission</header> <paragraph id="HCC5377D7B56A4DAC8EA10280B122EC67"><enum>(1)</enum><header>Administrative powers to impose sanctions</header><text>With respect to any derivatives dealer registered or required to register under subsection (a)(1)(A) of this section:</text> <subparagraph id="H8700F365A1FA49A6AC2BCC921EEBA8BE"><enum>(A)</enum><header>Derivatives dealers</header><text>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).</text> </subparagraph><subparagraph id="HAF48E09C1A9B4258A0D3F94F14BB305D"><enum>(B)</enum><header>Suspension or withdrawal pending final determination</header><text>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.</text> </subparagraph><subparagraph id="H84ABA35B51FC461A91C7FFDF6B2BD3F1"><enum>(C)</enum><header>Associated persons</header><text>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).</text> </subparagraph></paragraph><paragraph id="HDD7A1EB4E8AD495E94FC3CA4CEFDF40"><enum>(2)</enum><header>Persons suspended or barred from association</header><text>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.</text> </paragraph></subsection><subsection id="H1C262FB998814B6A964F23B803CFF382"><enum>(d)</enum><header>Examination of Records</header><text>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.</text> </subsection><subsection id="HF13F4D4E04D14D6A00B988803162A3BD"><enum>(e)</enum><header>Securities Association Membership</header> <paragraph id="HA2B77FDA5A3F40CCB2BCE18F80284BC5"><enum>(1)</enum><header>Membership requirement</header><text>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.</text> </paragraph><paragraph id="HF5B11859A0224C4D99606128647046E2"><enum>(2)</enum><header>Exemption</header><text>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.</text> </paragraph></subsection><subsection id="H14CBF27DE1B844F1AE20E4F6607EFE9B"><enum>(f)</enum><header>Exclusive jurisdiction</header> <paragraph id="H568683C845D94FEAB42200747FB0FD9B"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">The Commission shall have exclusive jurisdiction with respect to accounts, agreements, transactions, and markets in derivatives (as such term is defined in section 3(a)(65)).</text> </paragraph><paragraph id="H81ACEFD3BCF24739942CFCACC010FF04"><enum>(2)</enum><header>Conflict of laws</header><text>In the event of a conflict between any provision of, or regulation prescribed under the securities laws, and any provision of, or regulation prescribed under the Commodity Exchange Act or the Commodity Futures Modernization Act of 2000, the provision of, or regulation prescribed under the securities laws shall control.</text> </paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block> </section><enum>II</enum><header>BROKER–DEALER OVERSIGHT REFORMS</header> <section id="H576784EA1D49469AAE6BF07E5990F4AA"><enum>201.</enum><header>Derivatives on securities</header> <subsection id="HFBB391BA6E9C4B1EAF75CA8C00E27F07"><enum>(a)</enum><header>Amendment</header><text display-inline="yes-display-inline">Section 3(a)(10) of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (15 U.S.C. 78c(a)(10)) is amended by inserting <quote>derivative,</quote> after <quote>any put, call, straddle, option,</quote> the first place it appears.</text> </subsection><subsection id="H972E8E1375D843AAA36146A900623BCB"><enum>(b)</enum><header>Use of exemptive authority</header><text display-inline="yes-display-inline">Not later than 180 days after the date of enactment of this Act, the Securities and Exchange Commission shall, pursuant to section 36 of the Securities Exchange Act of 1934 (<external-xref legal-doc="usc" parsable-cite="usc/15/78mm">15 U.S.C. 78mm</external-xref>) and the general exemptive authorities of the other securities laws (as such term is defined in section 3(a) of such Act), prescribe such exemptions from treating derivatives (as so defined) as securities (as so defined) as are necessary or appropriate in the public interest and for the protection of investors.</text> </subsection></section><section id="HEB56EBD1E93742F0A05F004CBCE64B43"><enum>202.</enum><header>National securities exchanges</header><text display-inline="no-display-inline">Section 6 of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (<external-xref legal-doc="usc" parsable-cite="usc/15/78f">15 U.S.C. 78f</external-xref>) is amended by adding at the end the following new subsection:</text> <quoted-block act-name="Securities Exchange Act of 1934" id="H2933F67937C14B53BB79EAEDB05EC43" style="OLC"> <subsection id="HDBFEBD9084B04952A3FB73A3CA709991"><enum>(<italic>l</italic>)</enum><header>Authority To Adopt Rules Relating to Transactions in Derivatives</header><text>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 15F(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—</text> <paragraph id="HB177A74427024578BFB2CB3040DC552"><enum>(1)</enum><text>to enforce compliance with applicable provisions of this title and the rules and regulations thereunder;</text> </paragraph><paragraph id="H351BE4F1D1D84C01A5FDB0CB3936E626"><enum>(2)</enum><text>to provide that any such person shall be appropriately disciplined for violations of applicable provisions of this title and the rules and regulations thereunder;</text> </paragraph><paragraph id="H57B8E97E88674687B4F94C6269CB87A1"><enum>(3)</enum><text>to provide for reasonable inspection and examination of the books and records of any such person;</text> </paragraph><paragraph id="H7A2F8407006841B000BF2396081FFB38"><enum>(4)</enum><text>to prevent fraudulent and manipulative acts and practices;</text> </paragraph><paragraph id="H86DEDD7385CA4188886669D6FDF646D4"><enum>(5)</enum><text>to promote just and equitable principles of trade; and</text> </paragraph><paragraph id="HF0645A62657C4096B00100FEA970399B"><enum>(6)</enum><text>to require the establishment of, and adherence to, appropriate internal controls structures.</text> </paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </section><section id="HC2EEE41E67594D22B2A3AFF345509CD8"><enum>203.</enum><header>Financial responsibility</header><text display-inline="no-display-inline">Section 15(c)(3)(A) of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (<external-xref legal-doc="usc" parsable-cite="usc/15/78o">15 U.S.C. 78o(c)(3)(A)</external-xref>) is amended—</text> <paragraph id="HCF73101D924D49A2A0AA84884F25B310"><enum>(1)</enum><text>by striking <quote>and</quote> at the end of clause (A); and</text> </paragraph><paragraph id="H9B8955F811BA4ABC93313457038C3D06"><enum>(2)</enum><text>by inserting after <quote>requirements for all brokers and dealers</quote> the following: <quote>, 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 15F(a)(1)(B) of this title</quote>.</text> </paragraph></section><section id="HDE34A2A9EB89406BA55D7F95796C2929"><enum>204.</enum><header>Registered securities association</header><text display-inline="no-display-inline">Section 15A of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (<external-xref legal-doc="usc" parsable-cite="usc/15/78o-3">15 U.S.C. 78o–3</external-xref>) is hereby amended by adding at the end the following new subsection:</text> <quoted-block act-name="Securities Exchange Act of 1934" id="H37F0A540083B47F4A776474581EA445D" style="OLC"> <subsection id="H4EAD74D94ED94CDBA60048E95293EF6D"><enum>(n)</enum><header>Authority To Adopt Rules Relating to Transactions in Derivatives</header><text>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 15F(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—</text> <paragraph id="H402B41E2BFF348E18DCCE2D432C79DE9"><enum>(1)</enum><text>to enforce compliance with applicable provisions of this title and the rules and regulations thereunder;</text> </paragraph><paragraph id="HA99BFCF0AED34AE58FD800A6E31038E8"><enum>(2)</enum><text>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;</text> </paragraph><paragraph id="HD6D69935C0A24C3EBCC829002F46A700"><enum>(3)</enum><text>to provide for reasonable inspection and examination of the books and records of any such person;</text> </paragraph><paragraph id="HB00AAC723B864C9B918252F59770E8A3"><enum>(4)</enum><text>to prevent fraudulent and manipulative acts and practices;</text> </paragraph><paragraph id="HAB5588E62BB34275A579786F0050F37E"><enum>(5)</enum><text>to promote just and equitable principles of trade; and</text> </paragraph><paragraph id="H45665322A0EA497EA273922B008DCBBE"><enum>(6)</enum><text>to require the establishment of, and adherence to, appropriate internal controls structures.</text> </paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </section><section id="H7ED656E33A9C4189B8BB33313C967B06"><enum>205.</enum><header>Risk assessment for government securities brokers and dealers</header><text display-inline="no-display-inline">Section 15C(b)(2) of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (15 U.S.C. 78o–5(b)(2)) is amended—</text> <paragraph id="H342B94DBAD0C4C43B94F45B1A295FD19"><enum>(1)</enum><text>in subparagraph (A)—</text> <subparagraph id="HAD1B2488569D4466AFEF779C7552E21"><enum>(A)</enum><text>by striking <quote>Such records shall describe, in the aggregate,</quote> in the second sentence and inserting <quote>Such records may be required to describe</quote>; and</text> </subparagraph><subparagraph id="HD5180B9A7B3843A1B9772434681CE429"><enum>(B)</enum><text>by striking <quote>summary</quote> in the third sentence;</text> </subparagraph></paragraph><paragraph id="H3F71F61FF6F14012A25150C1DB362EDD"><enum>(2)</enum><text>by redesignating subparagraphs (C) through (F) as subparagraphs (G) through (J), respectively;</text> </paragraph><paragraph id="H1809BF846C7F4301A713E1D5582D9C"><enum>(3)</enum><text>by inserting after subparagraph (B) the following new subparagraphs:</text> <quoted-block id="HCAE1ABF5EDB94661BC1300F383469F00" style="OLC"> <subparagraph id="HBB849430CCBA4008A110CED8E31B8ED"><enum>(C)</enum><header>Reporting by holding companies and other material associated persons</header><text>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.</text> </subparagraph><subparagraph id="H0FD23E7EB12C48609FD39EE1007C2F83"><enum>(D)</enum><header>Recordkeeping by holding companies and other material associated persons</header><text>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).</text> </subparagraph><subparagraph id="HA5B6B3AFE15C46B1BF27D479CC666FF"><enum>(E)</enum><header>Examination of holding companies and other material associated persons</header><text>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).</text> </subparagraph><subparagraph id="H8107EA74AAC840198200C6F7A051938F"><enum>(F)</enum><header>Use of alternative reports by registered persons and their holding companies and other material associated persons</header><clause commented="no" display-inline="yes-display-inline" id="H5B8CBAB4F41E487F8B1C7D886BFB6B9C"><enum>(i)</enum><text>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.</text> </clause><clause id="H57D4BEF2F83544218CD6523D2600A5F5" indent="up1"><enum>(ii)</enum><text>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.</text> </clause></subparagraph><after-quoted-block>; and</after-quoted-block></quoted-block> </paragraph><paragraph id="HB45F2EE47FC54A2FBCC614CF276E8DA4"><enum>(4)</enum><text>in subparagraphs (G) and (I) (as redesignated by paragraph (2)), by striking <quote>subparagraph (A)</quote> each place it appears and inserting <quote>subparagraphs (A) and (C)</quote>.</text> </paragraph></section><section id="H0189AAD2AC8B47DB8FBD54DB0648DA26"><enum>206.</enum><header>Risk assessment for brokers and dealers</header><text display-inline="no-display-inline">Section 17(h) of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (15 U.S.C. 78q(h)) is amended—</text> <paragraph id="H567EFE7B8AD348718812614F24099BD5"><enum>(1)</enum><text>in paragraph (1)—</text> <subparagraph id="H6AA402DD58E24614A365855FCC7B26DE"><enum>(A)</enum><text>by striking <quote>Such records shall describe, in the aggregate,</quote> in the second sentence and inserting <quote>Such records may be required to describe</quote>; and</text> </subparagraph><subparagraph id="H55D1B3A5F96C422F83AAAEA2EB0004E"><enum>(B)</enum><text>by striking <quote>summary</quote> in the third sentence;</text> </subparagraph></paragraph><paragraph id="HB6EBFDC1374B4203BC32E3D661ECC930"><enum>(2)</enum><text>by redesignating paragraphs (3) through (5) as paragraphs (7) through (9), respectively;</text> </paragraph><paragraph id="H09AEAB083D224838808558E860C992B4"><enum>(3)</enum><text>by inserting after paragraph (2) the following new paragraphs:</text> <quoted-block id="HBDDD66D17B2F424A91E02029FDEB7166" style="OLC"> <paragraph id="H83C1ECD421394B379CE4869FCCC986B6"><enum>(3)</enum><header>Reporting by holding companies and other material associated persons</header><text>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.</text> </paragraph><paragraph id="HE2EB8CA7668B40E5A58D6497A00557B6"><enum>(4)</enum><header>Recordkeeping by holding companies and other material associated persons</header><text>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).</text> </paragraph><paragraph id="H0DE2E62B83DD4D18B925FD864915C5C9"><enum>(5)</enum><header>Examination of holding companies and other material associated persons</header><text>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).</text> </paragraph><paragraph id="HF5F4D9783B384F02BCBE88B87035F0EF"><enum>(6)</enum><header>Use of alternative reports by registered persons and their holding companies and other material associated persons</header><text>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.</text> </paragraph><after-quoted-block>; and</after-quoted-block></quoted-block> </paragraph><paragraph id="H8487FAF0000C4E15B461FF1FF8240100"><enum>(4)</enum><text>in paragraphs (7) and (9) (as redesignated by paragraph (2)), by striking <quote>paragraph (1)</quote> each place it appears and inserting <quote>paragraphs (1) and (3)</quote>.</text> </paragraph></section><section id="H7E519E36780E4B63A78820BED2A85B06"><enum>207.</enum><header>Large trader reporting: rulemaking deadline</header><text display-inline="no-display-inline">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 <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (15 U.S.C. 78m(h)).</text> </section><section id="H981BBF6E4B594222A409E70C3884912"><enum>208.</enum><header>Rules, regulations, and orders; annual reports</header><text display-inline="no-display-inline">Section 8(a) of the Market Reform Act of 1990 is amended by striking <quote>May 31, 1991, and annually thereafter until May 31, 1995,</quote> and inserting <quote>May 31, 2009, and annually thereafter</quote>.</text> </section><section id="H34FB11A657744686A66835B1F4781900"><enum>209.</enum><header>Conforming amendments</header> <subsection id="HED59E16854A546BAA64400A75602C496"><enum>(a)</enum><header>Definition of broker or dealer</header><text display-inline="yes-display-inline">Section 3(a)(48) of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (<external-xref legal-doc="usc" parsable-cite="usc/15/78c">15 U.S.C. 78c(a)(48)</external-xref>) is amended to read as follows:</text> <quoted-block act-name="Securities Exchange Act of 1934" id="H5A93F2171156427EABF83089A7F52549" style="OLC"> <paragraph id="HF18C9F49F377448D88007EA8AD3B191B"><enum>(48)</enum><text>The term <term>registered broker or dealer</term> means a broker or dealer registered or required to register pursuant to section 15 or 15B of this title, except that—</text> <subparagraph id="HE1E8B949E39946348546B815C9FC2028"><enum>(A)</enum><text>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</text> </subparagraph><subparagraph id="H1DB84D38169C48D9A13E4046417C1976"><enum>(B)</enum><text>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 15F(a)(1)(A) of this title.</text> </subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H877128B000DE43450084BE62B1BB3F43"><enum>(b)</enum><header>Repeal of GLBA changes</header> <paragraph id="HC1780F09C30B4E2BA082CE541D26DE9E"><enum>(1)</enum><header>Definition of broker</header><text display-inline="yes-display-inline">Section 3(a)(4)(B) of such Act is amended by striking clause (ix).</text> </paragraph><paragraph id="HB3E9821874E0406A946DFFFA5BB0D400"><enum>(2)</enum><header>Definition of dealer</header><text>Section 3(a)(5)(C) of such Act is amended by striking clause (iv),</text> </paragraph><paragraph id="HC0E3BE8B737A43A80007DA0400A50840"><enum>(3)</enum><header>Repeal of new hybrid product authority</header><text>Section 15 of such Act (78 U.S.C. 78<italic>o</italic>) is amended by striking subsection (i) as added by section 205 of the Gramm-Leach-Bliley Act (113 Stat. 1391).</text> </paragraph><paragraph id="HAB4CAE979C9E49458FC8FC24B3D079E"><enum>(4)</enum><header>Identified banking product definition</header><text>Section 206 of the Gramm-Leach-Bliley Act (<external-xref legal-doc="usc" parsable-cite="usc/15/78c">15 U.S.C. 78c</external-xref>) is amended—</text> <subparagraph id="HF19D31C50F8B4D3290C495CB67F9658"><enum>(A)</enum><text>in subsection (a)—</text> <clause id="HB341F4621AA94B98870013C31C4E86F1"><enum>(i)</enum><text>by inserting <quote>; or</quote> after the semicolon at the end of paragraph (5);</text> </clause><clause id="HDD90FD63C0F24852AF85E62471D7D3E5"><enum>(ii)</enum><text>by striking <quote>; or</quote> at the end of paragraph (5) and inserting a period; and</text> </clause><clause id="H9AA4761BFFFA4E99A9EF78C42C023DE4"><enum>(iii)</enum><text>by striking paragraph (6);</text> </clause></subparagraph><subparagraph id="H7C07D094D3F34868BEECD8C224E7DC5F"><enum>(B)</enum><text>by striking subsection (b); and</text> </subparagraph><subparagraph id="HAE759A2E052C492CBCCD6605F06BB413"><enum>(C)</enum><text>by redesignating subsections (c) and (d) as subsections (b) and (c), respectively.</text> </subparagraph></paragraph></subsection></section><enum>III</enum><header>HEDGE FUND REPORTING</header> <section id="H5CCAF3B373A74B219694E263B1624692"><enum>301.</enum><header>Public reporting by unregistered hedge funds</header><text display-inline="no-display-inline">Section 30 of the <act-name parsable-cite="ICA40">Investment Company Act of 1940</act-name> (15 U.S.C. 80a–29) is amended by adding at the end the following new subsection:</text> <quoted-block act-name="Investment Company Act of 1940" id="H1A48489132C74F518E67135781ABEDE2" style="OLC"> <subsection id="H5A893B96545248BAADFD4BBF8D97D00"><enum>(k)</enum><header>Reports of Unregistered Hedge Funds</header> <paragraph id="H5F1FC8CC495D403FA28F3C10B18D3B22"><enum>(1)</enum><header>Filing of reports</header><text>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:</text> <subparagraph id="HA06C9252B6FF473DB5477398BA1671D2"><enum>(A)</enum><text>A statement of financial condition as of the end of the quarter.</text> </subparagraph><subparagraph id="H538626DD289148DC95CD6CB8EF00AA7E"><enum>(B)</enum><text>A statement of income (loss) for the quarter ended.</text> </subparagraph><subparagraph id="H6954FB199233412E9E11872CB0E0C07C"><enum>(C)</enum><text>A statement of cash flows.</text> </subparagraph><subparagraph id="HC244922945A04D7B000783009CDE2318"><enum>(D)</enum><text>A statement of changes in equity.</text> </subparagraph><subparagraph id="HE321A152A34445E59E45DB38B722A4EF"><enum>(E)</enum><text>A description of the models and methodologies that the pooled investment vehicle uses to calculate, assess, and evaluate market risk.</text> </subparagraph><subparagraph id="H3836568A98BF4206BBAE268B598CC0CD"><enum>(F)</enum><text>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.</text> </subparagraph></paragraph><paragraph id="H174A251746C34E35B18BC56B57B70038"><enum>(2)</enum><header>Rulemaking</header><text>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.</text> </paragraph><paragraph id="H48FC473CE0314E14ACA4BF1B43006472"><enum>(3)</enum><header>Availability of reports</header><text>Upon receipt of reports under paragraph (1), the Commission shall—</text> <subparagraph id="H4E76F35383B342BD86BF008CDCAAB9E0"><enum>(A)</enum><text>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</text> </subparagraph><subparagraph id="H802D153A5FAA4731ACA45465F258FEA2"><enum>(B)</enum><text>subject to paragraph (4), make the reports widely available to the public.</text> </subparagraph></paragraph><paragraph id="H3740F4010C0243789D782360469FF7F"><enum>(4)</enum><header>Confidentiality of proprietary information</header><text>Proprietary information contained in reports shall be treated as follows:</text> <subparagraph id="HF73683BEC34D4C75912817392554CA4E"><enum>(A)</enum><text>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).</text> </subparagraph><subparagraph id="H7258030FA114415D8C83FD62FBE6008F"><enum>(B)</enum><text>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.</text> </subparagraph></paragraph><paragraph id="H8117893D5AC64D2E8BBBECEC90672643"><enum>(5)</enum><header>Definitions</header><text>For purposes of this subsection:</text> <subparagraph id="H5B2A404C379C4DBB9F49A73DBAE593A7"><enum>(A)</enum><header>Unregistered hedge fund</header><text>The term <term>unregistered hedge fund</term>—</text> <clause id="H81438ADFBC7E4B6583589527611001ED"><enum>(i)</enum><text>means any pooled investment vehicle, or group or family of pooled investment vehicles, that—</text> <subclause id="HD0FB682B2647437997AF35BF17109628"><enum>(I)</enum><text>has total assets under management of $1,000,000,000 or more; and</text> </subclause><subclause id="HDC9BE226A49C48259F25E444E744CE1"><enum>(II)</enum><text>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</text> </subclause></clause><clause id="HC8A849FBFFBB4E4FB69215DE5EA8C1B0"><enum>(ii)</enum><text>does not include a commodity pool operator or futures commission merchant (as such terms are defined under section 1a of the <act-name parsable-cite="COMEX">Commodity Exchange Act</act-name> (<external-xref legal-doc="usc" parsable-cite="usc/7/1a">7 U.S.C. 1a</external-xref>)).</text> </clause></subparagraph><subparagraph id="HB38C24D74CD64FEFA52D229D6D2B1DA1"><enum>(B)</enum><header>Appropriate regulatory agencies</header><text>The term <term>appropriate regulatory agencies</term> means each of the agencies that is an appropriate regulatory agency under section 3(a)(34) of the <act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name>.</text> </subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </section>