Organization and conduct of the divisions and offices of the securities and exchange commission

Section 4 of the Securities Exchange Act of 1934 (15 U.S.C. 78d) is amended by adding at the end the following new subsections:

(g)

Divisions and offices of the commission

(1)

Compliance, inspections, and examinations

The authority that the Commission has to conduct inspections and examinations of registered brokers or dealers (15 U.S.C. 78q(b)), registered investment companies (15 U.S.C. 80a–30(b)), and registered investment advisers (15 U.S.C. 80b–4) shall be vested in the administrative divisions or offices to which the Commission has delegated pursuant to section 4A of this Act the authority to administer its responsibilities under this Act, the Investment Company Act of 1940 (15 U.S.C. 80a), and the Investment Advisers Act of 1940 (15 U.S.C. 80b). The Commission shall report to Congress pursuant to section 21(a) of this Act no less frequently than every 5 years from the enactment of this subsection, and shall in that report state its views on the continuing efficacy, effectiveness, and efficiency of requiring the administrative divisions or offices to conduct inspections and examinations of registered brokers or dealers, registered investment companies, and registered investment advisers. (2)

Closure of open matters

Not less frequently than every 120 days during a period in which an enforcement division or office of the Commission with respect to a formal or informal inquiry, or an administrative division or office of the Commission with respect to an inspection or examination, is conducting an inquiry or inspection, that division or office shall notify in writing the person who is the subject of that inquiry or inspection to inform such person of the status of the inquiry or inspection. When that division or office has completed its inquiry or inspection, that division or office shall, within 10 days of completing that inquiry or inspection, notify in writing the person who was the subject of that inquiry or inspection that the inquiry or inspection has been completed. (3)

Sweep examinations or inspections

(A)

Notice and approval

Before an administrative division or office of the Commission may conduct an inspection of registered brokers or dealers, registered investment companies, or registered investment advisers, it shall provide written notification in such form determined by the Chairman. Before an administrative division or office of the Commission may conduct a sweep examination of registered brokers or dealers, registered investment companies, or registered investment advisers, it shall seek authority from the Commission to conduct such a sweep examination or inspection in the same manner and subject to the same procedures that the enforcement divisions or offices of the Commission must follow in seeking the authority to conduct a formal investigation or inquiry regarding a registered broker or dealer, a registered investment company, or a registered investment adviser. (B)

Content

An administrative division or office of the Commission shall confine the content of a sweep examination or inspection to those existing books and records that the registered broker or dealer, registered investment company, or registered investment adviser is required to keep and maintain under applicable rules and regulations, and may not require the creation of a new document or the calculation or presentation of data that is not required to be kept or maintained under applicable rules and regulations. (4)

Definitions

For purposes of this subsection, the following definitions shall apply: (A)

Confidential communication

The term confidential communication shall mean any transfer of information, regardless of the form or format in which the information is communicated to an officer or employee of a compliance and inspections office, about a registered broker or dealer, registered investment company, or registered investment adviser by an officer or employee of a registered broker or dealer, registered investment company, or registered investment adviser regarding whether the broker or dealer, investment company, or investment adviser is in compliance with applicable provisions of this Act, the Securities Act of 1933, the Investment Company Act of 1940, or the Investment Advisers Act of 1940, wherein the officer or employee transferring such information reasonably believes in good faith that the information being communicated to an officer or employee of a compliance and inspections office of the Commission— (i)is not information required to be made publicly available by any applicable Federal law or regulation; or (ii)is information regarding any book, record, or other information in the possession of, or maintained on behalf of, the registered broker or dealer, registered investment company, or registered investment adviser that is subject to the examination and inspection authority of the Commission. (B)

Sweep examination

Not later than 60 days after the date of enactment of this subsection, the Commission shall define the term sweep examination for purposes of this subsection. (C)

Enforcement division

The term enforcement division means the divisions or offices to which the Commission has delegated pursuant to section 4A of this Act the authority to investigate and to enforce the provisions of this Act, the Investment Company Act of 1940 (15 U.S.C. 80a–41), and the Investment Advisers Act of 1940 (15 U.S.C. 80b–9). (h)

Ombudsman

(1)

Appointment

Not later than 180 days after the date of enactment of this section, the Chairman of the Securities and Exchange Commission shall appoint an Ombudsman who shall report directly to the Chairman. (2)

Duties of Ombudsman

The Ombudsman appointed under subsection (a) shall— (A)ensure safeguards exist to encourage persons who are issuers, registered brokers or dealers, registered investment companies, or registered investment advisers to present questions to the Commission regarding compliance with the securities laws; (B)maintain privilege of confidential communications between such persons and the Ombudsman; (C)advise and guide such persons through the process of self-reporting, ensuring appropriate and due credit is given to the registrant upon self-reporting; and (D)act as a liaison between the agency and such persons with respect to any problem such registrant may have in dealing with the agency resulting from the regulatory activities of the agency. (3)

Limitation

In carrying out the duties under paragraph (1), the Ombudsman shall utilize personnel of the Commission to the extent practicable. Nothing in this section is intended to replace, alter, or diminish the activities of any ombudsman or similar office in any other agency. (4)

Disclosure of confidential communications

Notwithstanding any other provision of this subsection, in those circumstances where the most senior officer of the enforcement division or office of the Commission has made a formal recommendation in writing to the Commission that it exercise its authority in section 21(d)(1) to seek an injunction against a registered broker or dealer, its authority in section 42(d) of the Investment Company Act of 1940 to seek an injunction against a registered investment company, or its authority in section 209(d) of the Investment Advisers Act of 1940 to seek an injunction against a registered investment adviser, the Ombudsman or an employee of the Ombudsman shall disclose to the officers and employees of any other division or office any confidential communications received from an officer or employee of a registered broker or dealer, a registered investment company, or a registered investment adviser pursuant to the provisions of section 24(b). (5)

Report

Each year, the Ombudsman shall submit a report to the Commission for inclusion in the annual report that describes the activities, and evaluates the effectiveness of the Ombudsman during the preceding year. In that report, the Ombudsman shall include solicited comments and evaluations from registrants in regards to the effectiveness of the Ombudsman.