[Congressional Record Volume 142, Number 90 (Tuesday, June 18, 1996)]
[House]
[Pages H6436-H6449]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SECURITIES AMENDMENTS OF 1996
Mr. BLILEY. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 3005) to amend the Federal securities laws in order to
promote efficiency and capital formation in the financial markets, and
to amend the Investment Company Act of 1940 to promote more efficient
management of mutual funds, protect investors, and provide more
effective and less burdensome regulation, as amended.
The Clerk read as follows:
H.R. 3005
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Securities
Amendments of 1996''.
(b) Table of Contents.--The table of contents of this Act
is as follows:
Sec. 1. Short title; table of contents.
TITLE I--CAPITAL MARKETS DEREGULATION AND LIBERALIZATION
Sec. 101. Short title.
Sec. 102. Creation of national securities markets.
Sec. 103. Margin requirements.
Sec. 104. Prospectus delivery.
Sec. 105. Exemptive authority.
Sec. 106. Promotion of efficiency, competition, and capital formation.
Sec. 107. Privatization of EDGAR.
Sec. 108. Coordination of Examining Authorities.
Sec. 109. Foreign press conferences.
Sec. 110. Report on Trust Indenture Act of 1939.
TITLE II--INVESTMENT COMPANY ACT AMENDMENTS
Sec. 201. Short title.
Sec. 202. Funds of funds.
Sec. 203. Registration of securities.
Sec. 204. Investment company advertising prospectus.
Sec. 205. Variable insurance contracts.
Sec. 206. Reports to the Commission and shareholders.
Sec. 207. Books, records and inspections.
Sec. 208. Investment company names.
Sec. 209. Exceptions from definition of investment company.
TITLE III--SECURITIES AND EXCHANGE COMMISSION AUTHORIZATION
Sec. 301. Short title.
Sec. 302. Purposes.
Sec. 303. Authorization of appropriations.
Sec. 304. Registration fees.
Sec. 305. Transaction fees.
Sec. 306. Time for payment.
Sec. 307. Sense of the Congress concerning fees.
TITLE I--CAPITAL MARKETS DEREGULATION AND LIBERALIZATION
SEC. 101. SHORT TITLE.
This title may be cited as the ``Capital Markets
Deregulation and Liberalization Act of 1996''.
SEC. 102. CREATION OF NATIONAL SECURITIES MARKETS.
(a) Securities Act of 1933.--
(1) Amendment.--Section 18 of the Securities Act of 1933
(15 U.S.C. 77r) is amended to read as follows:
``SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES
OFFERINGS.
``(a) Scope of Exemption.--Except as otherwise provided in
this section, no law, rule, regulation, or order, or other
administrative action of any State or Territory of the United
States, or the District of Columbia, or any political
subdivision thereof--
``(1) requiring, or with respect to, registration or
qualification of securities, or registration or qualification
of securities transactions, shall directly or indirectly
apply to a security that--
``(A) is a covered security; or
``(B) will be a covered security upon completion of the
transaction;
``(2) shall directly or indirectly prohibit, limit, or
impose conditions upon the use of--
``(A) with respect to a covered security described in
subsection (b)(1) or (c)(1)--
``(i) any offering document that is prepared by the issuer;
or
``(ii) any offering document that is not prepared by the
issuer if such offering document is required to be and is
filed with the Commission or any national securities
organization registered under section 15A of the Securities
Exchange Act of 1934 (15 U.S.C. 78o-3);
``(B) with respect to a covered security described in
paragraph (2), (3), or (4) of subsection (b), any offering
document; or
``(C) any proxy statement, report to shareholders, or other
disclosure document relating to a covered security or the
issuer thereof that is required to be and is filed with the
[[Page H6437]]
Commission or any national securities organization registered
under section 15A of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3); or
``(3) shall directly or indirectly prohibit, limit, or
impose conditions, based on the merits of such offering or
issuer, upon the offer or sale of any security described in
paragraph (1).
``(b) Covered Securities.--For purposes of this section,
the following are covered securities:
``(1) Exclusive federal registration of nationally traded
securities.--A security is a covered security if such
security is--
``(A) listed, or authorized for listing, on the New York
Stock Exchange or the American Stock Exchange, or included or
qualified for inclusion in the National Market System of the
National Association of Securities Dealers Automated
Quotation System (or any successor to such entities);
``(B) listed, or authorized for listing, on a national
securities exchange (or tier or segment thereof) that has
listing standards that the Commission determines by rule (on
its own initiative or on the basis of a petition) are
substantially similar to the listing standards applicable to
securities described in subparagraph (A); or
``(C) is a security of the same issuer that is equal in
seniority or senior to a security described in subparagraph
(A) or (B).
``(2) Exclusive federal registration of investment
companies.--A security is a covered security if such security
is a security issued by an investment company that is
registered under the Investment Company Act of 1940 (15
U.S.C. 80a et seq.).
``(3) Sales to qualified purchasers.--A security is a
covered security with respect to the offer or sale of the
security to qualified purchasers, as defined by the
Commission by rule. In prescribing such rule, the Commission
may define qualified purchaser differently with respect to
different categories of securities, consistent with the
public interest and the protection of investors.
``(4) Exemption in connection with certain exempt
offerings.--A security is a covered security if--
``(A) the offer or sale of such security is exempt from
registration under this title pursuant to section 4(1) or
4(3), and--
``(i) the issuer of such security files reports with the
Commission pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)); or
``(ii) the issuer is exempt from filing such reports;
``(B) such security is exempt from registration under this
title pursuant to section 4(4);
``(C) the offer or sale of such security is exempt from
registration under this title pursuant to section 3(a), other
than the offer or sale of a security that is exempt from such
registration pursuant to paragraph (4) or (11) of such
section, except that a municipal security that is exempt from
such registration pursuant to paragraph (2) of such section
is not a covered security with respect to the offer or sale
of such security in the State in which the issuer of such
security is located; or
``(D) the offer or sale of such security is exempt from
registration under this title pursuant to Commission rule or
regulation under section 4(2) of this title.
``(c) Conditionally Covered Securities.--
``(1) Federally registered offerings.--Subject to the
limitations contained in paragraphs (2) and (3), a security
is a covered security if--
``(A) the issuer of such security has (or will have upon
conclusion of the transaction) total assets exceeding
$10,000,000;
``(B) such security is the subject of a registration
statement that is filed with the Commission pursuant to this
title; and
``(C) the issuer files with such registration statement
audited financial statements for each of the two most recent
fiscal years of its operations ending before the filing of
the registration statement.
``(2) Limitations for certain offerings.--Notwithstanding
paragraph (1), a security is not a covered security if such
security is--
``(A) a security of an issuer which is a blank check
company (as defined in section 7(b) of this title), a
partnership, a limited liability company, or a direct
participation investment program;
``(B) a penny stock (as such term is defined in section
3(a)(51) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(51)); or
``(C) a security issued in an offering relating to a rollup
transaction (as such term is defined in paragraphs (4) and
(5) of section 14(h) of such Act (15 U.S.C. 78n(h)(4), (5)).
``(3) Limitations based on misconduct.--Notwithstanding
paragraph (1), a security is not a covered security--
``(A) with respect to any State, if the issuer, or a
principal officer or principal shareholder thereof--
``(i) is subject to a statutory disqualification, as
defined in subparagraph (A), (B), (C), or (D) of section
3(a)(39) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(39));
``(ii) has been convicted within 5 years prior to the
offering of any felony under Federal or State law in
connection with the offer, purchase, or sale of any security,
or any felony under Federal or State law involving fraud or
deceit; or
``(iii) is currently named in and subject to any order,
judgment, or decree of any court of competent jurisdiction
acting pursuant to Federal or State law temporarily or
permanently restraining or enjoining such issuer, officer, or
shareholder from engaging in or continuing any conduct or
practice in connection with a security; or
``(B) with respect to a particular State, if the issuer, or
a principal officer or principal shareholder thereof--
``(i) has filed a registration statement which is the
subject of a currently effective stop order entered pursuant
to that State's securities laws within 5 years prior to the
offering;
``(ii) is currently named in and subject to any
administrative enforcement order or judgment of that State's
securities commission (or any agency or office performing
like functions) entered within 5 years prior to the offering,
or is currently named in and subject to any other
administrative enforcement order or judgment of that State
entered within 5 years prior to the offering that finds fraud
or deceit; or
``(iii) is currently named in and subject to any
administrative enforcement order or judgment of that State
which prohibits or denies registration, or revokes the use of
any exemption from registration, in connection with the
offer, purchase, or sale of securities.
``(4) Exceptions to limitations.--
``(A) Debt security exemption.--The limitations in
paragraph (2)(A) shall not apply with respect to the debt
securities of any issuer that is a partnership or limited
liability company, provided that (i) the issuer is either a
registered dealer or an affiliate of such a dealer, (ii) the
issuer has, both before and after the offering, capital or
equity (each computed in accordance with United States
generally accepted accounting principles) of not less than
$75,000,000, and (iii) if the issuer is not a registered
dealer, such issuer does not use the proceeds of the offering
primarily to fund the nonfinancial business of the issuer or
any of its affiliates that are not registered dealers.
``(B) Misconduct exemptions.--The limitations in paragraph
(3)(A) shall not apply if the Commission has exempted the
subject person from the application of such paragraph by rule
or order, and the limitations in paragraph (3)(B) shall not
apply if the securities commission (or any agency or office
performing like functions) of the affected State has exempted
the subject person from the application of such paragraph by
rule or order.
``(C) Reasonable steps.--The provisions of paragraph (3)
shall not apply if the issuer has taken reasonable steps to
ascertain whether any principal officer or principal
shareholder is subject to such paragraph, and such steps do
not reveal a person who is subject to such paragraph. An
issuer shall be considered to have taken reasonable steps if
such issuer or its agent has conducted a search of any
centralized data bases that the Commission may designate by
rule, and has received an affidavit under oath by each such
principal officer or principal shareholder stating that such
officer or shareholder is not subject to the provisions of
paragraph (3).
``(D) Effect of limitations on remedies.--Notwithstanding
paragraph (3), an issuer shall not be subject to a right of
rescission under State securities laws solely as a result of
the operation of such paragraph.
``(5) No effect under subsection (b).--No limitation under
this subsection shall affect the treatment of a security that
qualifies as a covered security under subsection (b).
``(d) Preservation of Authority.--
``(1) Fraud authority.--Consistent with this section, the
securities commission (or any agency or office performing
like functions) of any State or Territory of the United
States, or the District of Columbia, shall retain
jurisdiction under the laws of such State, Territory, or
District to investigate and bring enforcement actions with
respect to fraud or deceit in connection with securities or
securities transactions.
``(2) Preservation of filing requirements.--
``(A) Notice filings permitted.--Nothing contained in this
section shall prohibit the securities commission (or any
agency or office performing like functions) of any State or
Territory of the United States, or the District of Columbia,
from requiring the filing of any documents filed with the
Commission pursuant to this title solely for notice purposes,
together with any required fee.
``(B) Preservation of fees.--Until otherwise provided by
State law enacted after the date of enactment of the
Securities Amendments of 1996, filing or registration fees
with respect to securities or securities transactions may
continue to be collected in amounts determined pursuant to
State law as in effect on the day before such date.
``(C) Fees not permitted on listed securities.--
Notwithstanding subparagraphs (A) and (B), no filing or fee
may be required with respect to any security that is a
covered security pursuant to subsection (b)(1) of this
section, or will be such a covered security upon completion
of the transaction, or is a security of the same issuer that
is equal in seniority or senior to a security that is a
covered security pursuant to such subsection.
``(3) Enforcement of requirements.--Nothing in this section
shall prohibit the securities commission (or any agency or
office performing like functions) of any State or Territory
of the United States, or the District of Columbia, from
suspending the offer or sale of securities within such State,
Territory, or District as a result of the failure to submit
any filing or fee required under law and permitted under this
section.
``(e) Definitions.--For purposes of this section:
[[Page H6438]]
``(1) Principal officer.--The term `principal officer'
means a director, chief executive officer, or chief financial
officer of an issuer, or any other officer performing like
functions.
``(2) Principal shareholder.--The term `principal
shareholder' means any person who is directly or indirectly
the beneficial owner of more than 20 percent of any class of
equity security of an issuer. When two or more persons act as
a partnership, limited partnership, syndicate, or other group
for the purpose of acquiring, holding, or disposing of
securities of an issuer, such syndicate or group shall be
deemed a `person' for purposes of this paragraph. In
determining, for purposes of this paragraph, any percentage
of a class of any security, such class shall be deemed to
consist of the amount of the outstanding securities of such
class, exclusive of any securities of such class held by or
for the account of the issuer or a subsidiary of the issuer.
``(3) Offering document.--The term `offering document' has
the meaning given the term `prospectus' by section 2(10), but
without regard to the provisions of clauses (a) and (b) of
such section, except that, with respect to a security
described in subsection (b)(2) of this section, such term
also includes a communication that is not deemed to offer
such a security pursuant to a rule of the Commission.
``(4) Prepared by the issuer.--Within 6 months after the
date of enactment of the Securities Amendments of 1996, the
Commission shall, by rule, define the term `prepared by the
issuer' for purposes of this section.''.
(2) Study of uniformity.--The Securities Exchange
Commission shall conduct a study after consultation with
States, issuers, brokers, and dealers on the extent to which
uniformity of State regulatory requirements for securities or
securities transactions has been achieved for securities that
are not covered securities (within the meaning of section 18
of the Securities Act of 1933 as amended by paragraph (1) of
this subsection). Such study shall specifically focus on the
impact of such uniformity or lack thereof on the cost of
capital, innovation and technological development in
securities markets, and duplicative regulation with respect
to securities issuers (including small business), brokers,
and dealers and the effect on investor protection. The
Commission shall submit to the Congress a report on the
results of such study within one year after the date of
enactment of this Act.
(b) Broker/Dealer Regulation.--
(1) Amendment.--Section 15 of the Securities Exchange Act
of 1934 (15 U.S.C. 78o) is amended by adding at the end the
following new subsection:
``(h) Limitations on State Law.--
``(1) Capital, margin, books and records, bonding, and
reports.--No law, rule, regulation, or order, or other
administrative action of any State or political subdivision
thereof shall establish capital, custody, margin, financial
responsibility, making and keeping records, bonding, or
financial or operational reporting requirements for brokers,
dealers, municipal securities dealers, government securities
brokers, or government securities dealers that differ from,
or are in addition to, the requirements in those areas
established under this title. The Commission shall consult
periodically the securities commissions (or any agency or
office performing like functions) of the States concerning
the adequacy of such requirements as established under this
title.
``(2) Exemption to permit service to customers.--No law,
rule, regulation, or order, or other administrative action of
any State or political subdivision thereof shall require an
associated person to register with such State prior to
effecting a transaction described in paragraph (3) for a
customer in such State if--
``(A) such transaction is effected on behalf of a customer
that, for 30 days prior to the day of the transaction,
maintains an account with the broker or dealer;
``(B) such associated person is not ineligible to register
with such State for any reason other than such a transaction;
``(C) such associated person is registered with a
registered securities association and at least one State; and
``(D) the broker or dealer with which such person is
associated is registered with such State.
``(3) Described transactions.--A transaction is described
in this paragraph if--
``(A) such transaction is effected by an associated person
(i) to which the customer was assigned for 14 days prior to
the day of the transaction, and (ii) who is registered with a
State in which the customer was a resident or was present for
at least 30 consecutive days during the one-year period prior
to the transaction; except that, if the customer is present
in another State for 30 or more consecutive days or has
permanently changed his or her residence to another State,
such transaction is not described in this subparagraph unless
the associated person files with such State an application
for registration within 10 calendar days of the later of the
date of the transaction or the date of the discovery of the
presence of the customer in the State for 30 or more
consecutive days or the change in the customer's residence;
``(B) the transaction is effected within the period
beginning on the date on which such associated person files
with the State in which the transaction is effected an
application for registration and ending on the earlier of (i)
60 days after the date the application is filed, or (ii) the
time at which such State notifies the associated person that
it has denied the application for registration or has stayed
the pendency of the application for cause; or
``(C) the transaction is one of 10 or fewer transactions in
a calendar year (excluding any transactions described in
subparagraph (A) or (B)) which the associated person effects
in the States in which the associated person is not
registered.
``(4) Alternate associated persons.--For purposes of
paragraph (3)(A)(ii), each of up to 3 associated persons who
are designated to effect transactions during the absence or
unavailability of the principal associated person for a
customer may be treated as an associated person to which such
customer is assigned for purposes of such paragraph.''.
(2) Study.--Within 6 months after the date of enactment of
this Act, the Commission, after consultation with registered
securities associations, national securities exchanges, and
States, shall conduct a study of--
(A) the impact of disparate State licensing requirements on
associated persons of registered brokers or dealers; and
(B) methods for States to attain uniform licensing
requirements for such persons.
(3) Report.--Within one year after the date of enactment of
this Act, the Commission shall submit to the Congress a
report on the study conducted under paragraph (2). Such
report shall include recommendations concerning appropriate
methods described in paragraph (2)(B), including any
necessary legislative changes to implement such
recommendations.
(4) Technical amendment.--Section 28(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78bb(a)) is amended by
striking ``Nothing'' and inserting ``Except as otherwise
specifically provided elsewhere in this title, nothing''.
SEC. 103. MARGIN REQUIREMENTS.
(a) Margin Requirements.--
(1) Extensions of credit by broker-dealers.--Section 7(c)
of the Securities Exchange Act of 1934 (15 U.S.C. 78g(c)) is
amended to read as follows:
``(c) Unlawful Credit Extension to Customers.--
``(1) Prohibition.--It shall be unlawful for any member of
a national securities exchange or any broker or dealer,
directly or indirectly, to extend or maintain credit or
arrange for the extension or maintenance of credit to or for
any customer--
``(A) on any security (other than an exempted security), in
contravention of the rules and regulations which the Board of
Governors of the Federal Reserve System shall prescribe under
subsections (a) and (b) of this section;
``(B) without collateral or on any collateral other than
securities, except in accordance with such rules and
regulations as the Board of Governors of the Federal Reserve
System may prescribe--
``(i) to permit under specified conditions and for a
limited period any such member, broker, or dealer to maintain
a credit initially extended in conformity with the rules and
regulations of the Board of governors of the Federal Reserve
System; and
``(ii) to permit the extension or maintenance of credit in
cases where the extension or maintenance of credit is not for
the purpose of purchasing or carrying securities or of
evading or circumventing the provisions of subparagraph (A)
of this paragraph.
``(2) Exception.--This subsection and the rules and
regulations thereunder shall not apply to any credit
extended, maintained, or arranged by a member of a national
securities exchange or a broker or dealer to or for a member
of a national securities exchange or a registered broker or
dealer--
``(A) a substantial portion of whose business consists of
transactions with persons other than brokers or dealers; or
``(B) to finance its activities as a market maker or an
underwriter;
except that the Board of Governors of the Federal Reserve
System may impose such rules and regulations, in whole or in
part, on any credit otherwise exempted by this paragraph if
it determines that such action is necessary or appropriate in
the public interest or for the protection of investors.''.
(2) Extensions of credit by other lenders.--Section 7(d) of
the Securities Exchange Act of 1934 (78 U.S.C. 78g(d)) is
amended to read as follows:
``(d) Unlawful Credit Extension in Violation of Rules and
Regulations; Exception to Application of Rules, Etc.--
``(1) Prohibition.--It shall be unlawful for any person not
subject to subsection (c) of this section to extend or
maintain credit or to arrange for the extension or
maintenance of credit for the purpose of purchasing or
carrying any security, in contravention of such rules and
regulations as the Board of Governors of the Federal Reserve
System shall prescribe to prevent the excessive use of credit
for the purchasing or carrying of or trading in securities in
circumvention of the other provisions of this section. Such
rules and regulations may impose upon all loans made for the
purpose of purchasing or carrying securities limitations
similar to those imposed upon members, brokers, or dealers by
subsection (c) of this section and the rules and regulations
thereunder.
``(2) Exceptions.--This subsection and the rules and
regulations thereunder shall not apply to any credit
extended, maintained, or arranged--
``(A) by a person not in the ordinary course of business;
[[Page H6439]]
``(B) on an exempted security;
``(C) to or for a member of a national securities exchange
or a registered broker or dealer--
``(i) a substantial portion of whose business consists of
transactions with persons other than brokers or dealers; or
``(ii) to finance its activities as a market maker or an
underwriter;
``(D) by a bank on a security other than an equity
security; or
``(E) as the Board of Governors of the Federal Reserve
System shall, by such rules, regulations, or orders as it may
deem necessary or appropriate in the public interest or for
the protection of investors, exempt, either unconditionally
or upon specified terms and conditions or for stated periods,
from the operation of this subsection and the rules and
regulations thereunder;
except that the Board of Governors of the Federal Reserve
System may impose such rules and regulations, in whole or in
part, on any credit otherwise exempted by subparagraph (C) of
this paragraph if it determines that such action is necessary
or appropriate in the public interest or for the protection
of investors.''.
(b) Borrowing by Members, Brokers, and Dealers.--Section 8
of the Securities Exchange Act of 1934 (15 U.S.C. 78h) is
amended--
(1) by striking subsection (a), and
(2) by redesignating subsections (b) and (c) as subsections
(a) and (b), respectively.
SEC. 104. PROSPECTUS DELIVERY.
(a) Report on Electronic Delivery.--Within six months after
the date of enactment of this Act, the Commission shall
report to Congress on the steps the Commission has taken, or
anticipates taking, to facilitate the electronic delivery of
prospectuses to institutional and other investors.
(b) Report on Advisory Committee Recommendations.--Within
one year after the date of enactment of this Act, the
Commission shall report to Congress on the Commission's views
on the recommendations of the Advisory Committee on Capital
Formation, including any actions taken to implement the
recommendations of the Advisory Committee.
SEC. 105. EXEMPTIVE AUTHORITY.
(a) General Exemptive Authority Under the Securities Act of
1933.--Title I of the Securities Act of 1933 (15 U.S.C. 77a
et seq.) is amended by adding at the end the following new
section:
``SEC. 28. GENERAL EXEMPTIVE AUTHORITY.
``The Commission, by rules and regulations, may
conditionally or unconditionally exempt any person, security,
or transaction, or any class or classes of persons,
securities, or transactions, from any provision or provisions
of this title or of any rule or regulation thereunder, to the
extent that such exemption is necessary or appropriate in the
public interest, and is consistent with the protection of
investors.''.
(b) General Exemptive Authority Under the Securities
Exchange Act of 1934.--Title I of the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.) is amended by adding at the
end the following new section:
``SEC. 36. GENERAL EXEMPTIVE AUTHORITY.
``(a) Authority.--Except as provided in subsection (b) but
notwithstanding any other provision of this title, the
Commission, by rule, regulation, or order, may conditionally
or unconditionally exempt any person, security, or
transaction, or any class or classes of persons, securities,
or transactions, from any provision or provisions of this
title or of any rule or regulation thereunder, to the extent
that such exemption is necessary or appropriate in the public
interest, and is consistent with the protection of investors.
The Commission shall by rules and regulations determine the
procedures under which an exemptive order under this section
shall be granted and may, in its sole discretion, decline to
entertain any application for an order of exemption under
this section.
``(b) Limitation.--The Commission shall not exercise
authority under this section to exempt any person, security,
or transaction, or any class or classes of persons,
securities, or transactions, from section 15C of this title
or the rules or regulations thereunder, or (for purposes of
such section 15C or such rules or regulations) from the
definitions in paragraphs (42) through (45) of section 3(a)
of this title.''.
SEC. 106. PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL
FORMATION.
(a) Securities Act of 1933.--Section 2 of the Securities
Act of 1933 (15 U.S.C. 77b) is amended--
(1) by inserting ``(a) Definitions.--'' after ``Sec. 2.'';
and
(2) by adding at the end the following new subsection:
``(b) Consideration of Promotion of Efficiency,
Competition, and Capital Formation.--Whenever pursuant to
this title the Commission is engaged in rulemaking and is
required to consider or determine whether an action is
necessary or appropriate in the public interest, the
Commission shall also consider, in addition to the protection
of investors, whether the action will promote efficiency,
competition, and capital formation.''.
(b) Securities Exchange Act of 1934.--Section 3 of the
Securities Exchange Act of 1934 (15 U.S.C. 78c) is amended by
adding at the end the following new subsection:
``(f) Consideration of Promotion of Efficiency,
Competition, and Capital Formation.--Whenever pursuant to
this title the Commission is engaged in rulemaking, or in the
review of a rule of a self-regulatory organization, and is
required to consider or determine whether an action is
necessary or appropriate in the public interest, the
Commission shall also consider, in addition to the protection
of investors, whether the action will promote efficiency,
competition, and capital formation.''.
(c) Investment Company Act of 1940.--Section 2 of the
Investment Company Act of 1940 (15 U.S.C. 80a-2) is amended
by adding at the end the following new subsection:
``(c) Consideration of Promotion of Efficiency,
Competition, and Capital Formation.--Whenever pursuant to
this title the Commission is engaged in rulemaking and is
required to consider or determine whether an action is
consistent with the public interest, the Commission shall
also consider, in addition to the protection of investors,
whether the action will promote efficiency, competition, and
capital formation.''.
SEC. 107. PRIVATIZATION OF EDGAR.
(a) Examination.--The Securities and Exchange Commission
shall examine proposals for the privatization of the EDGAR
system. Such examination shall promote competition in the
automation and rapid collection and dissemination of
information required to be disclosed. Such examination shall
include proposals that maintain free public access to data
filings in the EDGAR system.
(b) Review and Report.--Within 180 days after the date of
enactment of this Act, the Commission shall submit to the
Congress a report on the examination under subsection (a).
Such report shall include such recommendations for such
legislative action as may be necessary to implement the
proposal that the Commission determines most effectively
achieves the objectives described in subsection (a).
SEC. 108. COORDINATION OF EXAMINING AUTHORITIES.
(a) Amendments.--Section 17 of the Securities Exchange Act
of 1934 (15 U.S.C. 78q) is amended by adding at the end the
following new subsection:
``(i) Coordination of Examining Authorities.--
``(1) Elimination of duplication.--The Commission and the
examining authorities, through cooperation and coordination
of examination and oversight as required by this subsection,
shall eliminate any unnecessary and burdensome duplication in
the examination process.
``(2) Planning conferences.--
``(A) The Commission and the examining authorities shall
meet at least annually for a national general planning
conference to discuss coordination of examination schedules
and priorities and other areas of interest relevant to
examination coordination and cooperation.
``(B) Within each geographic region designated by the
Commission, the Commission and the relevant examining
authorities shall meet at least annually for a regional
planning conference to discuss examination schedules and
priorities and other areas of related interest, and to
encourage information-sharing and to avoid unnecessary
duplication of examinations.
``(3) Coordination tracking system for broker-dealer
examinations.--
``(A) The Commission and the examining authorities shall
prepare, on a periodic basis in a uniform computerized
format, information on registered broker and dealer
examinations and shall submit such information to the
Commission.
``(B) The Commission shall maintain a computerized database
of consolidated examination information to be used for
examination planning and scheduling and for monitoring
coordination of registered broker and dealer examinations
under this section.
``(4) Coordination of examinations.--
``(A) The examining authorities shall share among
themselves such information, including reports of
examinations, customer complaint information, and other non-
public regulatory information, as appropriate to foster a
coordinated approach to regulatory oversight of registered
brokers and dealers subject to examination by more than one
examining authority.
``(B) To the extent practicable, the examining authorities
shall assure that each registered broker and dealer subject
to examination by more than one examining authority that
requests a coordinated examination shall have all requested
aspects of the examination conducted simultaneously and
without duplication of the areas covered. The examining
authorities shall also prepare an advance schedule of all
such coordinated examinations.
``(5) Prohibited non-coordinated examinations.--Any
examining authority that does not participate in a
coordinated examination pursuant to paragraph (4) of this
subsection shall not conduct a routine examination other than
a coordinated examination of that broker or dealer within 9
months of the conclusion of a scheduled coordinated
examination.
``(6) Examinations for cause.--At any time, any examining
authority may conduct an examination for cause of any broker
or dealer subject to its jurisdiction.
``(7) Broker-dealer examination evaluation panel.--The
Commission shall establish an examination evaluation panel
composed of representatives of registered brokers and dealers
that are members of more than one self-regulatory
organization that conducts routine examinations. Prior to
each national general planning conference required by
[[Page H6440]]
paragraph (2)(A) of this subsection, the Commission shall
convene the examination evaluation panel to review
consolidated and statistical information on the coordination
of examinations and information on examinations that are not
coordinated, including the findings of Commission examiners
on the effectiveness of the examining authorities in
achieving coordinated examinations. The Commission shall
present any findings and recommendations of the examination
evaluation panel to the next meeting of the national general
planning conference, and shall report back to the examination
evaluation panel on the actions taken by the examining
authorities regarding those findings and recommendations. The
examination evaluation panel shall not be subject to the
Federal Advisory Committee Act (5 U.S.C. App.).
``(8) Report to congress.--Within one year after the date
of enactment of this Act, the Commission shall report to the
Congress on the progress it and the examining authorities
have made in reducing duplication and improving coordination
in registered broker and dealer examinations, and on the
activities of the examination evaluation panel. Such report
shall also indicate whether the Commission has identified
additional redundancies that have failed to be addressed in
the coordination of examining authorities, or any
recommendations of the examination evaluation panel
established under paragraph (7) of this subsection that have
not been addressed by the examining authorities or the
Commission.''.
(b) Definition.--Section 3(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78e) is amended by adding at the end
the following paragraph:
``(54) The term `examining authority' means any self-
regulatory organization registered with the Commission under
this title (other than registered clearing agencies) with the
authority to examine, inspect, and otherwise oversee the
activities of a registered broker or dealer.''.
SEC. 109. FOREIGN PRESS CONFERENCES.
No later than one year after the date of enactment of this
Act, the Commission shall adopt rules under the Securities
Act of 1933 concerning the status under the registration
provisions of the Securities Act of 1933 of foreign press
conferences and foreign press releases by persons engaged in
the offer and sale of securities.
SEC. 110. REPORT ON TRUST INDENTURE ACT OF 1939.
Within 6 months after the date of enactment of this Act,
the Securities and Exchange Commission shall submit to the
Congress a report on the benefits of, the continuing need
for, and, if necessary, options for the modification or
elimination of, the Trust Indenture Act of 1939 (15 U.S.C.
77aaa et seq.).
TITLE II--INVESTMENT COMPANY ACT AMENDMENTS
SEC. 201. SHORT TITLE.
This title may be cited as the ``Investment Company Act
Amendments of 1996''.
SEC. 202. FUNDS OF FUNDS.
Section 12(d)(1) of the Investment Company Act of 1940 (15
U.S.C. 80a-12(d)(1)) is amended--
(1) in subparagraph (E)(iii)--
(A) by striking ``in the event such investment company is
not a registered investment company,''; and
(B) by inserting ``in the event such investment company is
not a registered investment company'' after ``(bb)'';
(2) by redesignating existing subparagraphs (G) and (H) as
subparagraphs (H) and (I), respectively;
(3) by inserting after subparagraph (F) the following new
subparagraph:
``(G) The provisions of this paragraph (1) shall not apply
to securities of a registered open-end company (the `acquired
company') purchased or otherwise acquired by a registered
open-end company (the `acquiring company') if--
``(i) the acquired company and the acquiring company are
part of the same group of investment companies;
``(ii) the securities of the acquired company, securities
of other registered open-end companies that are part of the
same group of investment companies, Government securities,
and short-term paper are the only investments held by the
acquiring company;
``(iii)(I) the acquiring company does not pay and is not
assessed any charges or fees for distribution-related
activities with respect to securities of the acquired company
unless the acquiring company does not charge a sales load or
other fees or charges for distribution-related activities; or
``(II) any sales loads and other distribution-related fees
charged with respect to securities of the acquiring company,
when aggregated with any sales load and distribution-related
fees paid by the acquiring company with respect to securities
of the acquired company, are not excessive under rules
adopted pursuant to either section 22(b) or section 22(c) of
this title by a securities association registered under
section 15A of the Securities Exchange Act of 1934 or the
Commission;
``(iv) the acquired company shall have a fundamental policy
that prohibits it from acquiring any securities of registered
open-end companies in reliance on this subparagraph or
subparagraph (F) of this subsection; and
``(v) such acquisition is not in contravention of such
rules and regulations as the Commission may from time to time
prescribe with respect to acquisitions in accordance with
this subparagraph as necessary and appropriate for the
protection of investors.
For purposes of this subparagraph, a `group of investment
companies' shall mean any two or more registered investment
companies that hold themselves out to investors as related
companies for purposes of investment and investor
services.''; and
(4) adding at the end the following new subparagraph:
``(J) The Commission, by rules and regulations upon its own
motion or by order upon application, may conditionally or
unconditionally exempt any person, security, or transaction,
or any class or classes of persons, securities, or
transactions from any provisions of this subsection, if and
to the extent such exemption is consistent with the public
interest and the protection of investors.''.
SEC. 203. REGISTRATION OF SECURITIES.
(a) Amendments to Registration Statements.--Section 24(e)
of the Investment Company Act of 1940 (15 U.S.C. 80a-24(e))
is amended--
(1) by striking paragraphs (1) and (2);
(2) by redesignating paragraph (3) as subsection (e); and
(3) in subsection (e) (as so redesignated) by striking
``pursuant to this subsection or otherwise''.
(b) Registration of Indefinite Amount of Securities.--
Section 24(f) of the Investment Company Act of 1940 (15
U.S.C. 80a-24(f)) is amended to read as follows:
``(f) Registration of Indefinite Amount of Securities.--
``(1) Indefinite registration of securities.--Upon the
effectiveness of its registration statement under the
Securities Act of 1933, a face-amount certificate company,
open-end management company, or unit investment trust shall
be deemed to have registered an indefinite amount of
securities.
``(2) Payment of registration fees.--Within 90 days after
the end of the company's fiscal year, the company shall pay a
registration fee to the Commission, calculated in the manner
specified in section 6(b) of the Securities Act of 1933,
based on the aggregate sales price for which its securities
(including, for this purpose, all securities issued pursuant
to a dividend reinvestment plan) were sold pursuant to a
registration of an indefinite amount of securities under this
subsection during the company's previous fiscal year reduced
by--
``(A) the aggregate redemption or repurchase price of the
securities of the company during that year, and
``(B) the aggregate redemption or repurchase price of the
securities of the company during any prior fiscal year ending
not more than 1 year before the date of enactment of the
Investment Company Act Amendments of 1996 that were not used
previously by the company to reduce fees payable under this
section.
``(3) Interest due on late payment.--A company paying the
fee or any portion thereof more than 90 days after the end of
the company's fiscal year shall pay to the Commission
interest on unpaid amounts, compounded daily, at the
underpayment rate established by the Secretary of the
Treasury pursuant to section 3717(a) of title 31, United
States Code. The payment of interest pursuant to the
requirement of this paragraph shall not preclude the
Commission from bringing an action to enforce the
requirements of paragraph (2) of this subsection.
``(4) Rulemaking authority.--The Commission may adopt rules
and regulations to implement the provisions of this
subsection.''.
(c) Effective Date.--The amendments made by this section
shall be effective 6 months after the date of enactment of
this Act or on such earlier date as the Commission may
specify by rule.
SEC. 204. INVESTMENT COMPANY ADVERTISING PROSPECTUS.
Section 24 of the Investment Company Act of 1940 (15 U.S.C.
80a-24) is amended by adding at the end the following new
subsection:
``(g) In addition to the prospectuses permitted or required
in section 10 of the Securities Act of 1933, the Commission
shall permit, by rules or regulations deemed necessary or
appropriate in the public interest or for the protection of
investors, the use of a prospectus for the purposes of
section 5(b)(1) of such Act with respect to securities issued
by a registered investment company. Such a prospectus, which
may include information the substance of which is not
included in the prospectus specified in section 10(a) of the
Securities Act of 1933, shall be deemed to be permitted by
section 10(b) of such Act.''.
SEC. 205. VARIABLE INSURANCE CONTRACTS.
(a) Unit Investment Trust Treatment.--Section 26 of the
Investment Company Act of 1940 (15 U.S.C. 80a-26) is amended
by adding at the end the following new subsection:
``(e)(1) Subsection (a) shall not apply to any registered
separate account funding variable insurance contracts, or to
the sponsoring insurance company and principal underwriter of
such account.
``(2) It shall be unlawful for any registered separate
account funding variable insurance contracts, or for the
sponsoring insurance company of such account, to sell any
such contract, unless--
``(A) the fees and charges deducted under the contract in
the aggregate are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks
assumed by the insurance company, and the insurance company
so represents in the registration statement for the contract;
and
[[Page H6441]]
``(B) the insurance company (i) complies with all other
applicable provisions of this section as if it were a trustee
or custodian of the registered separate account; (ii) files
with the insurance regulatory authority of a State an annual
statement of its financial condition, which most recent
statement indicates that it has a combined capital and
surplus, if a stock company, or an unassigned surplus, if a
mutual company, of not less than $1,000,000, or such other
amount as the Commission may from time to time prescribe by
rule as necessary or appropriate in the public interest or
for the protection of investors; and (iii) together with its
registered separate accounts, is supervised and examined
periodically by the insurance authority of such State.
``(3) The Commission may adopt such rules and regulations
under paragraph (2)(A) as it determines are necessary or
appropriate in the public interest or for the protection of
investors. For the purposes of such paragraph, the fees and
charges deducted under the contract shall include all fees
and charges imposed for any purpose and in any manner.''.
(b) Periodic Payment Plan Treatment.--Section 27 of such
Act (15 U.S.C. 80a-27) is amended by adding at the end the
following new subsection:
``(i)(1) This section shall not apply to any registered
separate account funding variable insurance contracts, or to
the sponsoring insurance company and principal underwriter of
such account, except as provided in paragraph (2).
``(2) It shall be unlawful for any registered separate
account funding variable insurance contracts, or for the
sponsoring insurance company of such account, to sell any
such contract unless (A) such contract is a redeemable
security, and (B) the insurance company complies with section
26(e) and any rules or regulations adopted by the Commission
thereunder.''.
SEC. 206. REPORTS TO THE COMMISSION AND SHAREHOLDERS.
Section 30 of the Investment Company Act of 1940 (15 U.S.C.
80a-29) is amended--
(1) by striking paragraph (1) of subsection (b) and
inserting the following:
``(1) such information, documents, and reports (other than
financial statements), as the Commission may require to keep
reasonably current the information and documents contained in
the registration statement of such company filed under this
title; and'';
(2) by redesignating subsections (c), (d), (e), and (f) as
subsections (d), (e), (g), and (h), respectively;
(3) by inserting after subsection (b) the following new
subsection:
``(c) In exercising its authority under subsection (b)(1)
to require the filing of information, documents, and reports
on a basis more frequently than semi-annually, the Commission
shall take such steps as it deems necessary or appropriate,
consistent with the public interest and the protection of
investors, to avoid unnecessary reporting by, and minimize
the compliance burdens on, registered investment companies
and their affiliated persons. Such steps shall include
considering and requesting public comment on--
``(1) feasible alternatives that minimize the reporting
burdens on registered investment companies; and
``(2) the utility of such information, documents, and
reports to the Commission in relation to the costs to
registered investment companies and their affiliated persons
of providing such information, documents, and reports.'';
(4) by inserting after subsection (e) (as redesignated by
paragraph (2) of this section) the following new subsection:
``(f) The Commission may by rule require that semi-annual
reports containing the information set forth in subsection
(e) include such other information as the Commission deems
necessary or appropriate in the public interest or for the
protection of investors. In exercising its authority under
this subsection, the Commission shall take such steps as it
deems necessary or appropriate, consistent with the public
interest and the protection of investors, to avoid
unnecessary reporting by, and minimize the compliance burdens
on, registered investment companies and their affiliated
persons. Such steps shall include considering and requesting
public comment on--
``(1) feasible alternatives that minimize the reporting
burdens on registered investment companies; and
``(2) the utility of such information to shareholders in
relation to the costs to registered investment companies and
their affiliated persons of providing such information to
shareholders.''; and
(5) in subsection (g) (as so redesignated) by striking
``subsections (a) and (d)'' and inserting ``subsections (a)
and (e)''.
SEC. 207. BOOKS, RECORDS AND INSPECTIONS.
Section 31 of the Investment Company Act of 1940 (15 U.S.C.
80a-30) is amended--
(1) by striking subsections (a) and (b) and inserting the
following:
``(a) Every registered investment company, and every
underwriter, broker, dealer, or investment adviser that is a
majority-owned subsidiary of such a company, shall maintain
and preserve such records (as defined in section 3(a)(37) of
the Securities Exchange Act of 1934) for such period or
periods as the Commission, by rules and regulations, may
prescribe as necessary or appropriate in the public interest
or for the protection of investors. Every investment adviser
not a majority-owned subsidiary of, and every depositor of
any registered investment company, and every principal
underwriter for any registered investment company other than
a closed-end company, shall maintain and preserve for such
period or periods as the Commission shall prescribe by rules
and regulations, such records as are necessary or appropriate
to record such person's transactions with such registered
company. In exercising its authority under this subsection,
the Commission shall take such steps as it deems necessary or
appropriate, consistent with the public interest and for the
protection of investors, to avoid unnecessary recordkeeping
by, and minimize the compliance burden on, persons required
to maintain records under this subsection (hereinafter in
this section referred to as `subject persons'). Such steps
shall include considering, and requesting public comment on--
``(1) feasible alternatives that minimize the recordkeeping
burdens on subject persons;
``(2) the necessity of such records in view of the public
benefits derived from the independent scrutiny of such
records through Commission examination;
``(3) the costs associated with maintaining the information
that would be required to be reflected in such records; and
``(4) the effects that a proposed recordkeeping requirement
would have on internal compliance policies and procedures.
``(b) All records required to be maintained and preserved
in accordance with subsection (a) of this section shall be
subject at any time and from time to time to such reasonable
periodic, special, and other examinations by the Commission,
or any member or representative thereof, as the Commission
may prescribe. For purposes of such examinations, any subject
person shall make available to the Commission or its
representatives any copies or extracts from such records as
may be prepared without undue effort, expense, or delay as
the Commission or its representatives may reasonably request.
The Commission shall exercise its authority under this
subsection with due regard for the benefits of internal
compliance policies and procedures and the effective
implementation and operation thereof.'';
(2) by redesignating existing subsections (c) and (d) as
subsections (e) and (f), respectively; and
(3) by inserting after subsection (b) the following new
subsections:
``(c) Notwithstanding any other provision of law, the
Commission shall not be compelled to disclose any internal
compliance or audit records, or information contained
therein, provided to the Commission under this section.
Nothing in this subsection shall authorize the Commission to
withhold information from Congress or prevent the Commission
from complying with a request for information from any other
Federal department or agency requesting the information for
purposes within the scope of its jurisdiction, or complying
with an order of a court of the United States in an action
brought by the United States or the Commission. For purposes
of section 552 of title 5, United States Code, this section
shall be considered a statute described in subsection
(b)(3)(B) of such section 552.
``(d) For purposes of this section--
``(1) `internal compliance policies and procedures' means
policies and procedures designed by subject persons to
promote compliance with the Federal securities laws; and
``(2) `internal compliance and audit record' means any
record prepared by a subject person in accordance with
internal compliance policies and procedures.''.
SEC. 208. INVESTMENT COMPANY NAMES.
Section 35(d) of the Investment Company Act of 1940 (15
U.S.C. 80a-34(d)) is amended to read as follows:
``(d) It shall be unlawful for any registered investment
company to adopt as a part of the name or title of such
company, or of any securities of which it is the issuer, any
word or words that the Commission finds are materially
deceptive or misleading. The Commission is authorized, by
rule, regulation, or order, to define such names or titles as
are materially deceptive or misleading.''.
SEC. 209. EXCEPTIONS FROM DEFINITION OF INVESTMENT COMPANY.
(a) Amendments.--Section 3(c) of the Investment Company Act
of 1940 (15 U.S.C. 80a-3(c)) is amended--
(1) in paragraph (1), by inserting after the first sentence
the following new sentence: ``Such issuer nonetheless is
deemed to be an investment company for purposes of the
limitations set forth in section 12(d)(1)(A)(i) and (B)(i)
governing the purchase or other acquisition by such issuer of
any security issued by any registered investment company and
the sale of any security issued by any registered open-end
company to any such issuer.'';
(2) in subparagraph (A) of paragraph (1)--
(A) by inserting after ``issuer,'' the first place it
appears the following: ``and is or, but for the exception in
this paragraph or paragraph (7), would be an investment
company,''; and
(B) by striking all that follows ``(other than short-term
paper)'' and inserting a period;
(3) in paragraph (2)--
(A) by striking ``and acting as broker,'' and inserting
``acting as broker, and acting as market intermediary,''; and
(B) by adding at the end of such paragraph the following
new sentences: ``For the purposes of this paragraph, the term
`market
[[Page H6442]]
intermediary' means any person that regularly holds itself
out as being willing contemporaneously to engage in, and is
regularly engaged in the business of entering into,
transactions on both sides of the market for a financial
contract or one or more such financial contracts. For
purposes of the preceding sentence, the term `financial
contract' means any arrangement that (A) takes the form of an
individually negotiated contract, agreement, or option to
buy, sell, lend, swap, or repurchase, or other similar
individually negotiated transaction commonly entered into by
participants in the financial markets; (B) is in respect of
securities, commodities, currencies, interest or other rates,
other measures of value, or any other financial or economic
interest similar in purpose or function to any of the
foregoing; and (C) is entered into in response to a request
from a counterparty for a quotation or is otherwise entered
into and structured to accommodate the objectives of the
counterparty to such arrangement.''; and
(4) by striking paragraph (7) and inserting the following:
``(7)(A) Any issuer (i) whose outstanding securities are
owned exclusively by persons who, at the time of acquisition
of such securities, are qualified purchasers, and (ii) who is
not making and does not presently propose to make a public
offering of such securities. Securities that are owned by
persons who received the securities from a qualified
purchaser as a gift or bequest, or where the transfer was
caused by legal separation, divorce, death, or other
involuntary event, shall be deemed to be owned by a qualified
purchaser, subject to such rules, regulations, and orders as
the Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
``(B) Notwithstanding subparagraph (A), an issuer is within
the exception provided by this paragraph if--
``(i) in addition to qualified purchasers, its outstanding
securities are beneficially owned by not more than 100
persons who are not qualified purchasers if (I) such persons
acquired such securities on or before December 31, 1995, and
(II) at the time such securities were acquired by such
persons, the issuer was excepted by paragraph (1) of this
subsection; and
``(ii) prior to availing itself of the exception provided
by this paragraph--
``(I) such issuer has disclosed to such persons that future
investors will be limited to qualified purchasers, and that
ownership in such issuer is no longer limited to not more
than 100 persons, and
``(II) concurrently with or after such disclosure, such
issuer has provided such persons with a reasonable
opportunity to redeem any part or all of their interests in
the issuer for their proportionate share of the issuer's
current net assets, or the cash equivalent thereof.
``(C) An issuer that is excepted under this paragraph shall
nonetheless be deemed to be an investment company for
purposes of the limitations set forth in section
12(d)(1)(A)(i) and (B)(i) governing the purchase or other
acquisition by such issuer of any security issued by any
registered investment company and the sale of any security
issued by any registered open-end company to any such issuer.
``(D) For purposes of determining compliance with this
paragraph and paragraph (1) of this subsection, an issuer
that is otherwise excepted under this paragraph and an issuer
that is otherwise excepted under paragraph (1) shall not be
treated by the Commission as being a single issuer for
purposes of determining whether the outstanding securities of
the issuer excepted under paragraph (1) are beneficially
owned by not more than 100 persons or whether the outstanding
securities of the issuer excepted under this paragraph are
owned by persons that are not qualified purchasers. Nothing
in this provision shall be deemed to establish that a person
is a bona fide qualified purchaser for purposes of this
paragraph or a bona fide beneficial owner for purposes of
paragraph (1) of this subsection.''.
(b) Definition of Qualified Purchaser.--Section 2(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)) is
amended by inserting after paragraph (50) the following new
paragraph:
``(51) `Qualified purchaser' means--
``(A) any natural person who owns at least $10,000,000 in
securities of issuers that are not controlled by such person,
except that securities of such a controlled issuer may be
counted toward such amount if such issuer is, or but for the
exception in paragraph (1) or (7) of section 3(c) would be,
an investment company;
``(B) any trust not formed for the specific purpose of
acquiring the securities offered, as to which the trustee or
other person authorized to make decisions with respect to the
trust, and each settlor or other person who has contributed
assets to the trust, is a person described in subparagraph
(A) or (C); or
``(C) any person, acting for its own account or the
accounts of other qualified purchasers, who in the aggregate
owns and invests on a discretionary basis, not less than
$100,000,000 in securities of issuers that are not affiliated
persons (as defined in paragraph (3)(C) of this subsection)
of such person, except that securities of such an affiliated
person issuer may be counted toward such amount if such
issuer is, or but for the exception in paragraph (1) or (7)
of section 3(c) would be, an investment company.
The Commission may adopt such rules and regulations governing
the persons and trusts specified in subparagraphs (A), (B),
and (C) of this paragraph as it determines are necessary or
appropriate in the public interest and for the protection of
investors.''.
(c) Conforming Amendment.--The last sentence of section
3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
3(a)) is amended--
(1) by inserting ``(i)'' after ``of the owner''; and
(2) by inserting before the period the following: ``, and
(ii) which are not relying on the exception from the
definition of investment company in subsection (c)(1) or
(c)(7) of this section''.
(d) Rulemaking Required.--
(1) Implementation of section 3(c)(1)(b).--Within one year
after the date of enactment of this Act, the Commission shall
prescribe rules to implement the requirements of section
3(c)(1)(B) of the Investment Company Act of 1940 (15 U.S.C.
80a-3(c)(1)(B)).
(2) Employee exception.--Within one year after the date of
enactment of this Act, the Commission shall prescribe rules
pursuant to its authority under section 6 of the Investment
Company Act of 1940 (15 U.S.C. 80a-6) to permit the ownership
by knowledgeable employees of an issuer or an affiliated
person of the issuer of the securities of that issuer or
affiliated person without loss of the issuer's exception
under section 3(c)(1) or 3(c)(7) of such Act from treatment
as an investment company under such Act.
TITLE III--SECURITIES AND EXCHANGE COMMISSION AUTHORIZATION
SEC. 301. SHORT TITLE.
This title may be cited as the ``Securities and Exchange
Commission Authorization Act of 1996''.
SEC. 302. PURPOSES.
The purposes of this title are--
(1) to authorize appropriations for the Securities and
Exchange Commission for fiscal year 1997; and
(2) to reduce over time the rates of fees charged under the
Federal securities laws.
SEC. 303. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 is
amended to read as follows:
``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
``There are authorized to be appropriated to carry out the
functions, powers, and duties of the Commission $317,000,000
for fiscal year 1997.''.
SEC. 304. REGISTRATION FEES.
Section 6(b) of the Securities Act of 1933 (15 U.S.C.
77f(b)) is amended to read as follows:
``(b) Registration Fee.--
``(1) Recovery of cost of services.--The Commission shall,
in accordance with this subsection, collect registration fees
that are designed to recover the costs to the government of
the securities registration process, and costs related to
such process, including enforcement activities, policy and
rulemaking activities, administration, legal services, and
international regulatory activities.
``(2) Fee payment required.--At the time of filing a
registration statement, the applicant shall pay to the
Commission a fee that shall be equal to the sum of the
amounts (if any) determined under the rates established by
paragraphs (3) and (4). The Commission shall publish in the
Federal Register notices of the fee rates applicable under
this section for each fiscal year. In no case shall the fee
required by this subsection be less than $200, except that
during fiscal year 2002 or any succeeding fiscal year such
minimum fee shall be $182.
``(3) General revenue fees.--The rate determined under this
paragraph is a rate equal to $200 for each $1,000,000 of the
maximum aggregate price at which such securities are proposed
to be offered, except that during fiscal year 2002 and any
succeeding fiscal year such rate is equal to $182 for each
$1,000,000 of the maximum aggregate price at which such
securities are proposed to be offered. Fees collected during
any fiscal year pursuant to this paragraph shall be deposited
and credited as general revenues of the Treasury.
``(4) Offsetting collection fees.--
``(A) In general.--Except as provided in subparagraphs (B)
and (C), the rate determined under this paragraph is a rate
equal to the following amount for each $1,000,000 of the
maximum aggregate price at which such securities are proposed
to be offered:
``(i) $103 during fiscal year 1997;
``(ii) $70 during fiscal year 1998;
``(iii) $38 during fiscal year 1999;
``(iv) $17 during fiscal year 2000; and
``(v) $0 during fiscal year 2001 or any succeeding fiscal
year.
``(B) Limitation; deposit.--Except as provided in
subparagraph (C), no amounts shall be collected pursuant to
this paragraph (4) for any fiscal year except to the extent
provided in advance in appropriations acts. Fees collected
during any fiscal year pursuant to this paragraph shall be
deposited and credited as offsetting collections in
accordance with appropriations Acts.
``(C) Lapse of appropriations.--If on the first day of a
fiscal year a regular appropriation to the Commission has not
been enacted, the Commission shall continue to collect fees
(as offsetting collections) under this paragraph at the rate
in effect during the preceding fiscal year, until such a
regular appropriation is enacted.''.
SEC. 305. TRANSACTION FEES.
(a) Amendment.--Section 31 of the Securities Exchange Act
of 1934 (15 U.S.C. 78ee) is amended to read as follows:
[[Page H6443]]
``SEC. 31. TRANSACTION FEES.
``(a) Recovery of Cost of Services.--The Commission shall,
in accordance with this subsection, collect transaction fees
that are designed to recover the costs to the Government of
the supervision and regulation of securities markets and
securities professionals, and costs related to such
supervision and regulation, including enforcement activities,
policy and rulemaking activities, administration, legal
services, and international regulatory activities.
``(b) Exchange-Traded Securities.--Every national
securities exchange shall pay to the Commission a fee at a
rate equal to $33 for each $1,000,000 of the aggregate dollar
amount of sales of securities (other than bonds, debentures,
and other evidences of indebtedness) transacted on such
national securities exchange, except that for fiscal year
2002 or any succeeding fiscal year such rate shall be equal
to $25 for each $1,000,000 of such aggregate dollar amount of
sales. Fees collected pursuant to this subsection shall be
deposited and collected as general revenue of the Treasury.
``(c) Off-Exchange-Trades of Exchange Registered
Securities.--Every national securities association shall pay
to the Commission a fee at a rate equal $33 for each
$1,000,000 of the aggregate dollar amount of sales transacted
by or through any member of such association otherwise than
on a national securities exchange of securities registered on
such an exchange (other than bonds, debentures, and other
evidences of indebtedness), except that for fiscal year 2002
or any succeeding fiscal year such rate shall be equal to $25
for each $1,000,000 of such aggregate dollar amount of sales.
Fees collected pursuant to this subsection shall be deposited
and collected as general revenue of the Treasury.
``(d) Off-Exchange-Trades of Last-Sale-Reported
Securities.--
``(1) Covered transactions.--Every national securities
association shall pay to the Commission a fee at a rate equal
to the dollar amount determined under paragraph (2) for each
$1,000,000 of the aggregate dollar amount of sales transacted
by or through any member of such association otherwise than
on a national securities exchange of securities (other than
bonds, debentures, and other evidences of indebtedness)
subject to prompt last sale reporting pursuant to the rules
of the Commission or a registered national securities
association, excluding any sales for which a fee is paid
under subsection (c).
``(2) Fee rates.--Except as provided in paragraph (4), the
dollar amount determined under this paragraph is--
``(A) $12 for fiscal year 1997;
``(B) $14 for fiscal year 1998;
``(C) $17 for fiscal year 1999;
``(D) $18 for fiscal year 2000;
``(E) $20 for fiscal year 2001; and
``(F) $25 for fiscal year 2002 or for any succeeding fiscal
year.
``(3) Limitation; deposit of fees.--Except as provided in
paragraph (4), no amounts shall be collected pursuant to this
subsection (d) for any fiscal year beginning before October
1, 2001, except to the extent provided in advance in
appropriations Acts. Fees collected during any such fiscal
year pursuant to this subsection shall be deposited and
credited as offsetting collections to the account providing
appropriations to the Commission, except that any amounts in
excess of the following amounts (and any amount collected for
fiscal years beginning on or after October 1, 2001) shall be
deposited and credited as general revenues of the Treasury:
``(A) $20,000,000 for fiscal year 1997;
``(B) $26,000,000 for fiscal year 1998;
``(C) $32,000,000 for fiscal year 1999;
``(D) $32,000,000 for fiscal year 2000;
``(E) $32,000,000 for fiscal year 2001; and
``(F) $0 for fiscal year 2002 and any succeeding fiscal
year.
``(4) Lapse of appropriations.--If on the first day of a
fiscal year a regular appropriation to the Commission has not
been enacted, the Commission shall continue to collect fees
(as offsetting collections) under this subsection at the rate
in effect during the preceding fiscal year, until such a
regular appropriation is enacted.
``(e) Dates for Payment of Fees.--The fees required by
subsections (b), (c), and (d) of this section shall be paid--
``(1) on or before March 15, with respect to transactions
and sales occurring during the period beginning on the
preceding September 1 and ending at the close of the
preceding December 31; and
``(2) on or before September 30, with respect to
transactions and sales occurring during the period beginning
on the preceding January 1 and ending at the close of the
preceding August 31.
``(f) Exemptions.--The Commission, by rule, may exempt any
sale of securities or any class of sales of securities from
any fee imposed by this section, if the Commission finds that
such exemption is consistent with the public interest, the
equal regulation of markets and brokers and dealers, and the
development of a national market system.
``(g) Publication.--The Commission shall publish in the
Federal Register notices of the fee rates applicable under
this section for each fiscal year.''.
(b) Effective Dates; Transition.--
(1) In general.--Except as provided in paragraph (2), the
amendment made by subsection (a) shall apply with respect to
transactions in securities that occur on or after January 1,
1997.
(2) Off-exchange trades of last sale reported
transactions.--The amendment made by subsection (a) shall
apply with respect to transactions described in section
31(d)(1) of the Securities Exchange Act of 1934 (as amended
by subsection (a) of this section) that occur on or after
September 1, 1996.
(3) Rule of construction.--Nothing in this subsection shall
be construed to affect the obligation of national securities
exchanges and registered brokers and dealers under section 31
of the Securities Exchange Act of 1934 (15 U.S.C. 78ee) as in
effect prior to the amendment made by subsection (a) to make
the payments required by such section on March 15, 1997.
SEC. 306. TIME FOR PAYMENT.
Section 4(e) of the Securities Exchange Act of 1934 (15
U.S.C. 78d(e)) is amended by inserting before the period at
the end thereof the following: ``and the Commission may also
specify the time that such fee shall be determined and paid
relative to the filing of any statement or document with the
Commission''.
SEC. 307. SENSE OF THE CONGRESS CONCERNING FEES.
It is the sense of the Congress that--
(1) the fees authorized by the amendments made by this Act
are in lieu of, and not in addition to, any fees that the
Securities and Exchange Commission is authorized to impose or
collect pursuant to section 9701 of title 31, United States
Code; and
(2) in order to maintain the competitiveness of United
States securities markets relative to foreign markets, no fee
should be assessed on transactions involving portfolios of
equity securities taking place at times of day characterized
by low volume and during non-traditional trading hours.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Virginia [Mr. Bliley] and the gentleman from Massachusetts [Mr. Markey]
each will control 20 minutes.
The Chair recognizes the gentleman from Virginia [Mr. Bliley].
Mr. BLILEY. Mr. Speaker, I yield myself such time as I may consume.
(Mr. BLILEY asked and was given permission to revise and extend his
remarks.)
Mr. BLILEY. Mr. Speaker, today, the House will consider H.R. 3005,
the securities amendments of 1996. This is good bipartisan legislation.
It is designed to help small business find the money it needs to create
new jobs, and increase the returns to pension funds, mutual funds and
other savings vehicles in which our citizens are saving for their
retirement and for the education of their children. I am pleased that
this bill has bipartisan support, and has been endorsed by SEC Chairman
Arthur Levitt. The bill being considered is an amended version of that
which was reported from the Commerce Committee. I will insert an
explanation of these changes which I have prepared in the Record
immediately following my statement.
This bill accomplishes significant changes in the securities laws.
Chief among these is the elimination of State regulation of large
securities offerings and of mutual funds that we have found duplicates
the extensive system of SEC regulation. It is high time that we move to
facilitate national capital markets by having a unitary Federal system
of regulation of offerings. We believe that this system will reduce
regulatory burdens on companies seeking to raise capital, and will not
imperil the fine record of investor protection built up by the SEC
The bill codifies the existing exemption from State regulation for
companies that are listed on a national securities exchange. Both the
debt and equity offerings of these companies will be exempt from State
regulation. The legislation provides that other regional exchanges that
develop listing standards comparable to those of the national exchanges
can also be certified by the SEC and gain the advantages of this
exemption.
The legislation provides that offers and sales of securities to
qualified purchasers will be exempt from State regulation. We believe
that institutional investors are capable of assessing offerings without
the need of a second layer of regulation. This will help to increase
the rate of return to these institutional investors who are the savings
vehicles for people's retirement and for their children's education.
The legislation provides relief from a second tier of regulation to
the brokerage industry in a number of areas. The bill preempts State
authority over capital, margin, books and records of brokerage firms.
The bill also provides a uniform exception from State registration for
brokers whose customers go on vacation or are temporarily out of State.
[[Page H6444]]
The legislation also ends anticompetitive barriers on broker dealer
borrowing. The Government has given a legal monopoly to commercial
banks to lend money to brokers. That legal monopoly harms competition
and raises costs to our country's brokers. Eliminating this barrier
will, in the words of Federal Reserve Chairman Alan Greenspan, increase
the safety and soundness of the financial system. In April, the Board
of Governors of the Federal Reserve adopted changes to regulation T,
eliminating a substantial number of the rules regulating broker dealer
lending, including elimination of margin requirements on high quality
debt securities and arranged transactions. We applaud the action of
Chairman Greenspan and the board which will have the effect of making
our brokerage firms more competitive without sacrificing safety and
soundness.
This legislation requires that the SEC, when making a public interest
determination in a rulemaking consider efficiency, competition, and
capital formation. This will require the SEC to consider the costs of
its rules, which we think is very important in light of the enhanced
congressional role mandated for SEC rules and for rules of self
regulatory organizations under the Small Business Regulatory
Enforcement Act of 1996. The legislative history of the Small Business
Act makes clear that SRO rules are considered major rules for purposes
of the act. I endorse that interpretation, and expect to work
cooperatively with the SEC when it is considering SRO rules.
I would like to commend Chairman Fields for his work in crafting the
beginnings of a bipartisan agreement on securities reform in the
Subcommittee on Telecommunications and Finance. I would like to thank
the ranking member of the subcommittee, Ed Markey, for his fine
contributions to the bill. I would like to thank especially the ranking
member of the committee, my friend, John Dingell, for his cooperation
and assistance in crafting further changes to the bill.
I urge members to join with us in supporting this legislation.
{time} 1445
Mr. Speaker, I reserve the balance of my time.
Mr. MARKEY. Mr. Speaker, I yield myself such time as I may consume.
(Mr. MARKEY asked and was given permission to revise and extend his
remarks and to include extraneous material.)
Mr. MARKEY. Mr. Speaker, I am pleased to rise and speak in support of
H.R. 3005, The Securities Amendments of 1996. Let me begin by
congratulating the distinguished gentleman from Virginia [Mr. Bliley],
the chairman of the Committee on Commerce, and his counterpart, the
distinguished gentleman from Michigan [Mr. Dingell], the senior Member
of the House and the ranking Democrat on the committee. Both directed
that we put partisanship aside so that we could work on the three
critically important public policy issues that underlie the
legislation: the promotion of capital formation, the advancement of
efficient markets, and the maintenance of the highest possible
standards of investor protection.
Their guidance helped us overcome numerous obstacles, any one of
which could easily have upset the delicate compromises that brought us
to the House floor today. Even though virtually everyone agrees that
the policy objectives of titles I and II of The Securities Amendments
of 1996 are extraordinarily important, until March of this year few
thought it possible that we could overcome the deep differences as to
how we could in fact achieve them. But because of the truly remarkable
leadership of the distinguished gentleman from the State of Texas,
Chairman Jack Fields, my good friend and colleague of the subcommittee,
we were able to develop a consensus approach to these issues that
ultimately allowed us to bring this bill to the floor.
Indeed, Chairman Fields has been the singular driving force in the
U.S. Congress behind the idea of comprehensively modernizing our system
of securities regulation. His desire to promote capital formation and
efficient securities markets is unsurpassed, but it should also be
evident that he is committed to making sure that Federal and State
securities laws continue to protect American investors from fraud and
abuse. Indeed, he recognizes that the unparalleled success of our
markets is grounded in the fact that the United States maintains the
strongest and most profound commitment to investor protection of any
country on Earth. Chairman Fields' thoroughgoing commitment to
achieving this careful balanced played a crucial role in helping us to
develop the historic package of reforms that we will be voting on
today. His 2 years as chairman of the subcommittee passing historic
telecommunications and now securities legislation will have him being
looked back at as the one Republican who understood how to work in a
bipartisan fashion during this 2-year period, this brief 2-year period
that the Republicans controlled the House of Representatives.
So I want to congratulate the gentleman so much for the incredible
job which he has done during his tenure as the chairman of this
subcommittee. It is indeed remarkable and historic in fact, which is
not an overstatement. Comprehensive financial modernization, as some of
our colleagues are painfully aware, can be tauntingly elusive as a
goal. Yet in the last 3 months, Chairman Fields has given us all a case
study about how to get there.
When we step back from the details and examine the Bliley amendment
from the broad perspective, two historic qualities stand out. The first
is how far we have come in a relatively short time. Six months ago we
were on the eve of a huge ideological battle confronted with proposals
that in our judgment would have caused considerable damage to markets,
to companies, and to investors. Included among them were proposals to
preempt virtually every aspect of independent State securities
regulation, to repeal suitability requirements that protect
institutional investors and deter deceitful conduct, to repeal
the Williams Act, which could have encouraged a whole new round of
hostile takeovers, to eliminate virtually all margin requirements,
which could have fueled all sorts of undesirable speculation in the
stock markets at the worst possible time when the markets were already
at record highs.
There were several other issues as well. In every one of these areas,
we have worked diligently to make extraordinary improvements to the
original proposals. The results are contained in title I. Collectively
they represent a balance and a sensible, rather than a rigid and
ideological approach to modernization. More important, title I is
historic because it includes a truly unprecedented legislative effort
to modernize and to carefully reallocate important aspects of Federal
and State securities laws.
Without in any way compromising our longstanding commitment to
maintaining the highest possible standard of investor protection, as
anyone involved in its drafting knows, modernizing State securities
laws is an extraordinarily sensitive and complex subject. An editorial
in this morning's Boston Globe, a copy of which is attached to the
statement I will submit for the Record, captured this delicacy. While
it acknowledges that, quote,
There is a broad agreement among the industry and
regulators that some loosening is in order, but Congress must
take care as it balances the sometimes conflicting interests
of free markets and the reality of those who would exploit
them.
I have always agreed with that view personally and as a result have
given a tremendous amount of thought to this particular section of the
legislation, especially careful consideration of this section was
necessary in part because the States have historically filled such a
profound and irreplaceable role in protecting small investors from
fraud and abuse. Two years ago, I was deeply honored to receive an
investor protection award from the Association of State Securities
Administrators, the first non-NASAA North American Securities
Administrator member to ever receive the award.
I said at that time the States are the ones who work the front lines
and serve as the Nation's early warning system for financial fraud. You
are the ones who witness most closely the terrible consequences of
these frauds, not just the frustration and the anger of having been
robbed, but the heartache and the tragedy of dreams that have been
stolen, dreams about sending a
[[Page H6445]]
child to college or about planning for retirement years. Over the
years, your extraordinary and unwavering commitment to promoting the
interests of small investors has made NASA a powerful and respected and
necessary presence on Capitol Hill.
The Bliley amendment and the committee report that accompanies
explicitly provide that the States continue to have available to them
the full arsenal of powers needed to investigate and to enforce laws
against fraud and to continue their ability to protect the small
investor of this country. Similarly, the committee report also makes
clear that nothing in this legislation alters or affects in any way any
State statutory or common laws against fraud or deceit, including
private actions brought pursuant to such laws.
Such a provision was essential to prevent this legislation from
getting caught up in the disputes that surround that issue. In several
other ways, title I to the Bliley amendment largely strikes the proper
balance between promoting efficiency and growth while ensuring
integrity and fairness.
The second historic quality about the Bliley amendment is that it
includes the first significant proposal to affect the regulation of the
mutual fund industry in more than a generation. I am proud to have
joined with Chairman Fields and Chairman Bliley, Mr. Dingell, and
others as an original cosponsor of these proposals, and I am delighted
that Members of the Senate Committee on Banking, Housing, and Urban
Affairs have also taken a very strong interest in them. Most important,
this part of the legislation recognizes the fundamentally national
character of the fund industry by assigning exclusive responsibility
for the routine review of mutual fund offering documents and related
sales material to the SEC and the NASD.
Title II of the Bliley amendment also encourages further innovation
in this industry by allowing for the first time documents known as
advertising prospectuses, and for modestly liberalizing the rules for
fund of funds. At the same time, however, the Bliley amendment also
recognizes the extraordinary and rapidly growing importance of mutual
fund investments to the financial health of average Americans by
continuing to permit States to investigate sales practice abuses and
other types of fraudulent or deceitful activity.
In addition, the bill recognizes the critical challenge facing the
Securities and Exchange Commission, which must maintain its successful
record of overseeing the fund industry at a time when mutual funds are
growing exponentially and the industry is becoming more diverse and
complex. Thus, the Bliley amendment gives the Securities and Exchange
Commission the authority to obtain information it must have if it is to
determine accurately whether funds are in compliance with the investor
protection provisions of the Federal law. This provision has been
carefully negotiated with the Securities and Exchange Commission and
the fund industry, and it is an essential part of the balance of the
bill which we have put together today which ensures that the
information is there which guarantees investor protection.
Mr. Speaker, I cannot again praise the gentleman from Virginia [Mr.
Bliley] and the gentleman from Michigan [Mr. Dingell] enough for their
leadership and to single out the gentleman from Texas [Mr. Fields] here
near the end of his final year in Congress for his special work in
putting together this legislation today.
Mr. Speaker, I would like to close by thanking those who worked
tirelessly to bridge the gap that divided Democrats and Republicans on
these important issues.
Before concluding, I also believe a brief comment is due about the
fact that title III has been included as part of the Bliley amendment.
I understand that this legislation has already passed the House, and is
being included with this bill today in order to facilitate a conference
on the subject. and I am well aware of the unnecessary funding fights
that have hampered and demoralized the SEC in recent years. But I
believe the administration has raised important concerns about the
implications of the authorization bill that we need to explore, I am
committed to working with the administration to see if we can somehow
reconcile the important competing policy considerations that relate to
this issue.
As a practical matter, this bill could not have reached the floor
today without the tremendous commitment of time and energy on the part
of our staff: Linda Dallas Rich and David Cavicke, for the Republicans;
Consuela Washington, Jeff Duncan, and Timothy Forde, for the Democrats;
and Steve Cope, our exceptionally talented and exceedingly patient
legislative counsel. Senior staff of the SEC, under the direction and
with the encouragement of Chairman Arthur Levitt, also provided us with
critically important assistance at key times over the last few months.
All are to be commended for an extraordinary job.
Finally, I doubt that we would have reached this consensus without
the good faith participation of the States. As proposals and ideas have
been floated back and forth about how to change State laws and
regulations, the States have always responded stoically--with good
humor as well as with good faith. Neil Sullivan and Dee Harris have
provided remarkable leadership throughout this difficult process. I
have never been as proud of this group as I am today.
While there are not many legislative days left in this session of
Congress, I still think that we have a good chance of seeing much of
what we vote on here today enacted into law within a few months. That
remarkable prospect would not have been possible without the leadership
of Chairman Bliley, Chairman Fields, Ranking Democrat Dingell, and the
steadfast support of our colleagues on both sides of the aisle. I look
forward to working with them to secure the bill's passage through the
Senate and its signature by the President.
Mr. Speaker, include for the Record the following article.
[From the Boston Globe, June 18, 1996]
Insecurity Regulation
The Massachusetts congressional delegation will do well to
listen to the concerns of Secretary of State William Galvin
as it contemplates legislation loosening regulation of
securities dealers.
Although there is broad agreement among the industry and
regulators that some loosening is in order--the National
American Securities Administrators Association (NASAA) hopes
that a suitable bill can be drafted during the current
session of Congress--Galvin wants a more thorough review that
would likely push action into the next session.
Among the issues Galvin and his NASAA colleagues agree are
troubling would be relaxing rules for unlicensed broker
employees or sales agents who may use high-powered selling
tactics to entice the unwary into unwise investments. Many
such sales practices are engaged in by smaller brokerage
firms, involving small corporations with fewer shares, which
create markets that can be volatile and even treacherous.
These companies do not attract the institutional interest
that is important with larger stocks in establishing more
financially credible pricing.
The US Securities and Exchange Commission has historically
relied on states to supplement its enforcement activities
against shady sales practices by concentrating on these
smaller brokerages. The states' task is complicated enough
already by the tendency of victims to be embarrassed at
having been taken in. Galvin is worried that Congress will
prevent states from taking up even those cases where victims
do protest.
Those worries deserve the attention of the industry, whose
preponderantly ethical members are injured by the misdeeds of
a few slick dealers. Congress must take care as it balances
the sometimes conflicting interests of free markets and the
reality of those who would exploit them.
Mr. Speaker, I reserve the balance of my time.
Mr. Bliley. Mr. Speaker, I yield as much time as he may consume to
the gentleman from Texas [Mr. Fields], the chairman of the subcommittee
who put so much work into this bill.
(Mr. FIELDS of Texas asked and was given permission to revise and
extend his remarks.)
Mr. FIELDS of Texas. Mr. Speaker, first of all, I would be remiss if
I did not point out that the gentleman from Virginia [Mr. Bliley] is
once again bringing a very complex piece of legislation to the floor
that is meaningful in reform and it is bipartisan in nature.
For me personally, this is an exciting day, exciting because we have
been able to negotiate in a very complex issue area with bipartisan
cooperation, and we dramatically reform and modernize the regulation of
this country's capital markets. I would be less than candid if I did
not say that part of my excitement is in the fact that we were able to
forge and pass this legislation when everyone said that it could not be
done, and we were told earlier that our telecommunications reform
legislation was too complex and too contentious to pass.
With each of these difficult subject matter areas, the gentleman from
Massachusetts [Mr. Markey], my good friend and ranking minority member
of our subcommittee, and I were able to find commonality rather than
partisanship, were able to exercise our personal friendship in
representing our Members and our constituencies rather than looking for
political points to score.
[[Page H6446]]
Mr. Speaker, I appreciate all the nice things that the gentleman said
about me just a moment ago, but I want to say ``ditto'' so that the
gentleman does not get one up in terms of being overly nice with his
compliments. I also want to say that we shared the beliefs of investor
protection. We believed that there should be a reliable, secure, and
transparent market.
{time} 1500
We differed on a few points, and agreed to disagree and consider
these points of difference at some other time. If we had wanted to find
the differences and tear this legislation apart, we could have done so.
It has been surprising to me that many in our capital markets have
yet to appreciate or understand what this legislation actually
accomplishes. I think this stems from the fact that the markets are not
accustomed to Congress being proactive instead of just reacting to a
market crisis or scandal. To many, it has not sunk in yet that this
legislation dramatically reforms the 1933, 1934, and 1940 laws relative
to the securities and mutual fund industries.
So just as we reformed the 1934 Communications Act and brought the
communications industry into the 21st century, so too are we reforming
the securities and mutual fund industries into the 21st century in an
era of modern regulation without compromising one aspect of investor
protection.
When I introduced the capital markets bill back in July of last year,
I said you have to begin the dialog someplace. I said that that initial
bill was a work in progress. And to the credit of my subcommittee
members who originally cosponsored the legislation last July, who,
along with me, endured some criticism, they never wavered in their
belief that our capital markets needed to be reformed and modernized,
and we never lost our resolve to come to this day, and we were
encouraged to see some of the things that happened once the debate was
begun just with the introduction of the bill.
Chairman Levitt gave a speech in Vancouver which I think will go down
as one of the most significant events in the modernization of our
capital markets regulatory regime, when he suggested that there were
problems in duplicative regulation at the State and Federal level. Then
the SEC began to recommend eliminating unnecessary and redundant
regulations. Margin reform was acted upon by the Federal Reserve. A
memorandum of understanding was entered into by the SEC, the exchanges,
and the National Association of Securities Dealers to streamline the
examination of broker dealers. Many say that these reforms would not
have happened or would have come about much slower if the dialog had
not been initiated.
So today we bring to the House a very complex piece of dramatic
reform legislation, in a complex subject matter area, but, again, with
broad bipartisan support and effort.
In the most simplistic of terms, this legislation does the following:
Investment company securities sold in the secondary market and many
securities exempt from Federal registration will be subject to a single
national regulatory system. In addition, securities sold by the cream
of the small cap companies, companies with assets of at least $10
million and 2 years of operations, will be subject only to Federal
regulation.
This bill recognizes that we have entered the information age and
requires the SEC to report to Congress on the steps taken to facilitate
the electronic delivery of prospectuses.
We give a general grant of exemptive authority to the SEC under both
the 1933 and 1934 acts to eliminate rules and regulations that no
longer serve a legitimate purpose.
We require the SEC when promulgating a rule or granting an exemption
to consider efficiency, promotion of capital formation, and competition
as criteria in addition to investor protection. We require the SEC to
examine proposals for the privatization of EDGAR.
I want to stop just a moment and give special credit to the gentleman
from New York, Dan Frisa, who not only worked tirelessly on this
provision, but authored the definitive document on EDGAR and the SEC's
information management system.
In title II we permit all mutual fund companies to create a fund of
funds. We permit mutual funds to advertise more information than is
permitted under current law. We also preempt the State from duplicative
State regulations, recognizing that this is a national marketplace and
our companies are competing in a global way.
Mr. Speaker, this brief and cursory explanation does not do justice
to the historic reform that this legislation represents. This House
should be proud of what we are accomplishing today. The House should be
proud of the gentleman from Virginia, Chairman Bliley, for moving this
bill forward in the way that he did. It should be proud of the ranking
minority member from Michigan [Mr. Dingell] who has always been willing
to work in a positive and bipartisan manner with all of the Members of
our committee.
But, again, Mr. Speaker, I would be remiss if I did not give special
credit and focus on my good friend, the gentleman from Massachusetts,
Ed Markey, who came to my office 2 nights before we were to mark up the
capital markets bill in the subcommittee, and we sat together for 2
hours as we negotiated the bill. It was in those 2 hours as we
negotiated the bill. It was in those 2 hours, without staff, that
through our friendship, we found commonality, to serve the interests of
our constituents and the people who will be affected by this reform,
the investors of this country, and the capital markets community.
I would be further remiss if I did not acknowledge the hard work and
personal engagement of Chairman Arthur Levitt. Without his personal
efforts we would not be poised to pass this historic legislation. I
believe Chairman Levitt will go down as one of the greatest, if not the
greatest, SEC chairman that has ever served our country in that
capacity.
Finally, I must give credit to a staff who took what Mr. Markey and I
initially agreed upon, put it in legislative language for the
subcommittee, further refined it at the full committee, and then
brought us to this point today. Special thanks to David Cavicke, Linda
Rich, Brian McCullough, and on the minority staff Jeff Duncan, Tim
Ford, and Consuela Washington. And, of course, a special thanks to
Christy Strawman on my personal staff, and a special thanks to the
greatest draftsman in the House, Steve Cope.
Mr. MARKEY. Mr. Speaker, I yield 5 minutes to the gentleman from
Michigan [Mr. Dingell], the ranking Democrat on the Committee on
Commerce.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Mr. Speaker, I rise in support of the legislation and
urge its passage by the House.
The bill has come a long way since title I was originally proposed
last July as H.R. 2131. It was controversial legislation then which
would have, amongst other things, repealed the Trust Indenture Act and
key protections under the Williams Act and Federal margin provisions,
negated anti-fraud protections and suitability obligations on broker
dealers to institutional investors, and decimated securities regulation
and enforcement at the State level. That bill, thank heaven, is not
this bill.
With that, I wish to commend my good friend, the gentleman from Texas
[Mr. Fields], the chairman of the subcommittee, and the gentleman from
Massachusetts [Mr. Markey], for their outstanding efforts in reforming
that legislation into something we could rejoice in and pass today. I
want to again commend Mr. Fields, the chairman of the subcommittee, and
the gentleman from Virginia, Mr. Bliley, the chairman of the Committee
on Commerce, for working with Members on this side of the aisle, the
Securities and Exchange Commission, State securities regulators, and
the securities industry to write the balanced legislation that we
consider today.
I will express my personal thanks to the gentleman from Massachusetts
[Mr. Markey] for his important leadership on and contributions to this
bill.
Others will be describing the floor amendment in great detail. There
are a few points I would like to make. In his November 30, 1995,
testimony before our committee, a great and decent man and an
outstanding regulator, Chairman Levitt, stated that: ``State securities
regulators play an essential role in the regulation of the U.S.
securities industry. State regulators are often the
[[Page H6447]]
first line of defense against developing problems. They are the `local
cops' on the beat who can quickly detect and respond to violations of
law.''
I strongly agree with those sentiments. Nothing that we do in this
legislation should undercut the authority and ability of States to
detect and take action against securities fraud and sales practice
abuses. I will continue to work on this issue in conference with the
Senate.
While I support the bill's grant of exemptive authority to the SEC
under the Securities Act of 1933 and the Securities Exchange Act of
1934, I want it clearly understood that this bill does not grant the
SEC the authority to grant exemptions from the antifraud provisions of
either act. In determining the public interest, Congress has expressed
the public interest through the express provisions of law that it has
enacted. The SEC may not administratively repeal these provisions by
use of the new exemptive authority.
I support responsible efforts to reform and modernize the securities
laws consistent with the maintenance of investor protections and the
transparency, integrity, and fairness of the U.S. securities markets.
Our capital markets run on investor confidence, and that confidence
will disappear, and the liquidity and efficiency of our markets will be
seriously impaired, if investors believe that we are turning the hen-
house sentry posts over to the foxes or abolishing half the sentry
posts at a time of increases poaching. For example, yesterday's Wall
Street Journal [Investigators Tie Brokers To Bribes, Monday, June 17,
1996, at C1] reported that dozens of stockbrokers around the country
are suspected of taking hidden payments from promoters to sell stocks
to their customers. The March 1996 report of the SEC-SRO-State Joint
Regulatory Sales Practice Sweep found that: one-fifth of the
examinations resulted in enforcement referrals and an additional one-
fourth of the examinations resulted in the issuance of letters of
caution of deficiency letters; almost one-half of the branches that
engage in some type of cold calling evidence cold-calling violations or
deficiencies; supervisors in many of the branches examined conduct
inadequate or no routine review of registered representatives' customer
service transactions to detect sales practice abuses; and many of the
branches examined utilized only minimum hiring procedures and some of
these are willing to employ registered reps with a history of
disciplinary actions or customer complaints.
SEC resources are also an important part of this enforcement
equation. Title III of the floor amendment includes the text of the SEC
reauthorization bill that passed the House unanimously in march of this
year. As I understand it, the inclusion of this title is intended to
facilitate good faith negotiations between the House, Senate, and OMB
to resolve longstanding questions about SEC fees. Although the
administration supports other provisions of H.R. 3005, it has expressed
serious concerns with reauthorization provisions that would reduce or
eliminate the use of increased securities registration and transaction
fees for general-fund purposes. I intend to continue to work with the
administration to address their concerns with this provision, and hope
my colleagues on the Majority side will join in the effort to get a
cooperative resolution of this issue.
Also I wanted to just observe that this House is going to seriously
miss my friend from Texas, Mr. Fields, when he goes. He has been a
distinguished Member of this body, a fine chairman of this
subcommittee, a valuable friend of mine, a responsible and decent
Member of this body, and I am pleased that he is not yet leaving us. I
do want the Record to show the high regard in which I hold the fine
gentleman from Texas.
Mr. BLILEY. Mr. Speaker, I yield 2 minutes to the distinguished
gentleman from Ohio [Mr. Oxley], the vice chairman of the subcommittee.
Mr. OXLEY. Mr. Speaker, I thank the gentleman for yielding me time.
Mr. Speaker, never in our wildest dreams could we imagine we would be
on the floor today on a suspension calendar to pass H.R. 3005, the
securities amendments of 1996. I want to pay tribute to the gentleman
from Texas, Chairman Fields, for his great leadership, as well as the
chairman of the full committee, the gentleman from Virginia, Mr.
Bliley, along with our good friend, the gentleman from Massachusetts,
Ed Markey, the ranking member of the subcommittee, and the ranking
member, the gentleman from Michigan, Mr. Dingell, for their hard work,
and also to Chairman Levitt for providing the kind of leadership at the
SEC that we have come to expect from that fine gentleman. This bill is
a product of the work that all of the aforementioned gentlemen put in
on this very important bill.
Times are changing and the way Americans invest are changing. The
laws regarding securities and mutual fund policies must change as well.
According to the Fed, in 1980 the average American household had one-
third of its liquid assets in securities. By 1995 it had two-thirds of
its liquid assets in securities.
For once, Congress is taking positive action in the area of
securities law and not reacting to a crisis or to a scandal. The bill
is designated to promote capital formation, efficiency and competition,
without compromising the integrity of our confidence in the financial
marketplace. The bill repeals or amends sections of the Securities Act
of 1933, the SEC Act of 1934, and the Investment Company Act of 1940.
The bill creates a national system of securities regulation,
eliminating duplication in State and Federal regulation for exchange
listed securities, securities offerings to qualified investors, and
mutual funds. This will lower the administrative and regulatory costs
to investors across the country and increase returns to mutual funds
and other savings vehicles.
On the issue of institutional suitability, let me say during our
hearings we heard from three former SEC commissioners, the Public
Securities Administration, the PSA, and others in the private sector on
the need for reform. We plan to pursue that issue in the next Congress.
{time} 1515
Mr. BLILEY. Mr. Speaker, I yield 2 minutes to the gentleman from
Washington, Mr. Rick White, a valued member of the committee.
Mr. WHITE. Mr. Speaker, I thank the gentleman for yielding me this
time.
Mr. Speaker, 2 years ago, I was a business lawyer, now I am a humble
freshman Member of Congress. I would have to say that it has been a
great privilege to serve on this subcommittee and this committee, where
we have actually gotten some important things done during this
Congress.
It has been my privilege to serve with the gentleman from Virginia,
Chairman Bliley, the gentleman from Texas, Jack Fields, the
subcommittee chairman, and with the ranking members, the gentleman from
Michigan, John Dingell, and the gentleman from Massachusetts, Edward
Markey, especially on this bill, where we were able to work together
and do something that really needed to be done.
Mr. Speaker, the fact is, as we heard so many times during the
hearings on this bill, the United States right now has the best capital
markets in the world. But I remember my days when I was a lawyer, it
was only 2 years ago, and I dabbled in securities law at that time. And
in my office, right down the hall were the real securities lawyers in
my firm, and I well remember the days when those securities lawyers and
the people working for them would be tearing out their hair and rending
their garments because of all the regulations and hoops they had to
jump through in order to get a securities offering done.
The fact is, Mr. Speaker, the price of liberty is eternal vigilance,
and that maxim applies in the securities market just like in every
place else. The great thing about this bill is that it modernizes our
securities laws and puts them in line for what we are going to need in
the 21st century.
One of the main problems we have had, and one of the things that I
notices when I was a lawyer, is that when we want to issue a big
securities offering, not only do we have to get approval from
Washington, DC, we have to get approval from 52 States and other
offices in order to get that securities offering approved. That was one
of the reasons that the lawyers down the hall from me would tear out
their hair whenever they had to go through this process.
[[Page H6448]]
Our bill fixes that. For large offerings, there is one market from
now on. It streamlines it, makes it make a lot more sense. Our bill
also tries to bring us into the 21st century is providing information
to investors. Right now, the law says we have to provide investors with
a big thick book every time we are to issue a securities offering. But
in the future, if the SEC allows us to do that, we will be able to do
it by the Internet or fax or some other electronic means. That is
getting us ready for the 21st century.
The fact is, Mr. Speaker, our job is not over. We have some more work
we need to be beyond this bill to bring our securities in line with the
21st century, but it is a good step in the right direction, I am proud
to be a part of it, and I urge all my colleagues to vote for this bill.
Mr. MARKEY. Mr. Speaker, I yield myself the balance of my time in
which to close the debate.
Mr. Speaker, what I would like to do is thank those who helped to
bridge the gaps between the Democrats and Republicans in making this
legislation possible; because, as a practical matter, this bill could
not have become law, reached the floor today, without a tremendous
amount of dedication and hard work on the part of many people. But a
small number deserve to be especially singled out, and I begin with
Linda Dallas Rich and David Cavicke and Kristy Strahman, who served the
majority extremely well over this past year and a half in bringing this
bill to this place.
On the Democratic side, without the historic work of Consulea
Washington and Jeff Duncan and Tim Forde, who dedicated personally this
last year and a half to this particular piece of legislation, we could
not have been here.
And to Steve Cope, our exceptionally talented and exceedingly patient
legislative counsel, the senior staff of the Securities and Exchange
Commission, under the direction of our very distinguished chairman,
Arthur Levitt, who provided us with critically important assistance at
key times over the last few months, all are to be commended for an
extraordinary job.
Finally, I doubt we would have reached the consensus without the good
faith participation of the States. As proposals and ideas have been
floated back and forth about how to change State laws and regulations,
the States have always responded stoically, with good humor as well as
with good faith. Neil Sullivan and Dee Harris have provided remarkable
leadership throughout this difficult process. I have never been as
proud of that group as I am here today.
While there are not many legislative days left in this session of
Congress, I still think that we have a good chance of seeing much of
what we vote on there today enacted into law within the next couple of
months. That remarkable prospect would not have been possible without
the leadership of the gentleman from Virginia, Chairman Bliley, and of
the ranking minority leader, the gentleman from Michigan, John Dingell,
of the Committee on Commerce. Their historic roles in securities
legislation in very well known and appreciated.
And especially, as has been noted several times before, to my good
friend, the gentleman from Texas, Jack Fields, of this subcommittee,
who has worked long and hard to bring this historic piece of
legislation here to the floor.
Mr. FIELDS of Texas. Mr. Speaker, will the gentleman yield?
Mr. MARKEY. I yield to the gentleman from Texas.
Mr. FIELDS of Texas. Mr. Speaker, I appreciate all of the gentleman's
kind remarks. I think it is refreshing for the public and the country
at large to see both sides of the aisle working in an extremely complex
issue area, working together and finding commonality.
Mr. Speaker, I want to say on behalf of the gentleman that he made
this process a dialog, creating that opportunity for us to discuss and
find where we could agree, and helped bring us to this important day
today. Certainly I think it is historic, and I just want to compliment
the gentleman.
Mr. MARKEY. Mr. Speaker, reclaiming my time, I thank the gentleman,
and I look forward to its passage in the Senate and to the President's
signature on this bill as well, which is the only appropriate ending to
this.
Mr. BLILEY. Mr. Speaker, how much time do I have remaining?
The SPEAKER pro tempore (Mr. Weller). The gentleman from Virginia
[Mr. Bliley] has 3 minutes remaining.
Mr. BLILEY. Mr. Speaker, I yield myself 30 seconds.
Mr. MORAN. Mr. Speaker, will the gentleman yield?
Mr. BLILEY. I yield to the gentleman from Virginia.
Mr. MORAN. Mr. Speaker, I hate to get in the middle of this exchange
of roses, but our State Corporation Commission in Virginia, that I am
sure the chairman is very much aware of, has some concerns in that we
essentially wipe out of a lot of the State laws. I can understand why
we do, but they are very much afraid that they will not have the time
to go through their legislative and rulemaking process because they now
require regulation fees and the filing of notice of mutual fund shares.
And they are afraid as well that without doing so, they will not have
sufficient enforcement authority under their current State law. Can the
chairman assure us that it will be worked out?
Mr. BLILEY. Mr. Speaker, reclaiming my time, they have all of that
enforcement authority and they retain their fees.
Mr. MORAN. They retain their fees and enforcement authority.
Mr. BLILEY. That is correct.
Mr. MORAN. Mr. Speaker, I thank the gentleman for putting that on the
record.
Mr. BLILEY. Mr. Speaker, I yield 30 seconds to the gentleman from New
York [Mr. Lazio] for the purpose of a colloquy.
Mr. LAZIO of New York. Mr. Speaker, I thank the gentleman for
yielding me this time.
As the chairman knows, there are about 20 Members of Congress,
including the gentleman from New York, Congressman Dan Frisa, who have
expressed deep concerns about preferencing on securities exchanges.
Preferencing enables broker-dealers to take the other side of their own
customer orders, to the exclusion of competing market interest. It is a
de facto form of collusion. Perferencing was not permitted on
securities exchanges until 1991, when the Cincinnati Stock Exchange
began a preferencing pilot program.
I want to address this to the gentleman from Texas, if I can, and ask
him if in the course of deliberation, as the bill moves forward in the
conference process, if he would work with me and the others who are
interested in this subject to ensure that this issue is addressed?
Mr. BLILEY. Mr. Speaker, I yield such time as he may consume to the
gentleman from Texas [Mr. Fields] for a brief comment.
Mr. FIELDS of Texas. Mr. Speaker, I want to respond to the gentleman
that it is my intent to work with all Members of the House and develop
the best possible piece of legislation that can be developed.
Mr. BLILEY. Mr. Speaker, how much time remains?
The SPEAKER pro tempore. The gentleman from Virginia [Mr. Bliley] has
2 minutes remaining.
Mr. BLILEY. Mr. Speaker, I yield 1 minute to the gentleman from
Wisconsin, Mr. Toby Roth, a member of the Committee on Banking and
Financial Services.
Mr. ROTH. Mr. Speaker, I thank my friend, the chairman, for yielding
me this time and I congratulate him and the other members of this
committee who have done such a fine job on this bill.
I have listened attentively to the debate here this afternoon. This
is a good bill and I hope everyone votes for it. I did have a question
about the States and how they will be impacted and we heard that in the
debate here before. This bill will eliminate any duplications between
State and Federal regulations governing mutual funds and other security
activities.
Mr. Speaker, serving on the Committee on Banking and Financial
Services, I have had a great deal of interest in legislation like this.
The measure before us is not perfect, but it is going because it has
been scaled down a long way from the controversial changes that it
first had, but this is a good piece of legislation.
Even though this legislation preempts some State powers over
securities, the bill would preserve a significant role for the State
regulators. For
[[Page H6449]]
example, the State would no longer have jurisdiction over mutual funds,
and the bill would scale back State regulation securities offerings,
substituting Securities and Exchange Commission for a dual State-
Federal system in place. But, on the other hand, this is a good bill,
it is a well balanced bill, and I hope we all vote for it.
Mr. BLILEY. Mr. Speaker, I yield 1 minute, the balance of my time, to
the gentleman from New York [Mr. Frisa], a member of the committee.
Mr. FRISA. Mr. Speaker, I thank the chairman for yielding me this
time, and I would like to take this opportunity in joining with my
colleagues from both sides of the aisle in acknowledging the tremendous
leadership that the gentleman from Virginia, Chairman Bliley, of the
Committee on Commerce, has exhibited in this case to bring both sides
together in a very complex issue, which, most importantly, will benefit
the investors, all of them, the individual families who invest as well
as the large pools of money that invest; because, really, Mr. Speaker,
those investors are the few that drive the engine of the American
economy by investing in the stock market their hard-earned money so
that corporations will have the funds to invest in capital and in jobs.
I think it represents yet another victory for the people and for the
Committee on Commerce in crafting this bipartisan legislation.
I think it is also important, Mr. Speaker, to acknowledge that the
chairman of the Securities and Exchange Commission, Arthur Levitt, has
worked with us as well in order to craft this agreement. And I think,
finally, the gentleman from Texas [Mr. Fields], the chairman of the
subcommittee, who I have been pleased to work with, and the gentleman
from Massachusetts [Mr. Markey], the ranking member of the
subcommittee, have provided leadership as well.
Mr. Speaker, I say to the gentleman from Virginia [Mr. Bliley] and to
all the others, this entire House can be proud of this legislation. I
urge its adoption.
Mr. HASTERT. Mr. Speaker, I am glad to see consensus has been reached
to move ahead with bipartisan legislation that will equip America's
capital markets to compete in the global marketplace. The changes in
this bill will ultimately make it easier for business people and
investors all over this Nation to reach the American Dream.
We all know that communications technologies have made the world a
smaller place. People and businesses looking for capital, or those
looking to invest, are now able to shop around the world. They look for
those markets that provide the highest degree of integrity,
transparency, and liquidity, but do not require unnecessary or
burdensome red tape.
H.R. 3005 makes commonsense changes to a system that today, makes the
cost of capital generation unnecessarily high and overburdens the
Securities and Exchange Commission. The most fundamental change
provides efficiency by dividing financial instruments into those that
are national in scope and those that are not. This allows the SEC to
focus its resources as the sole regulator of larger, national
offerings, while the States will carry out the crucial role of
regulating smaller offerings. This change enables regulators to
concentrate on those instruments they are best suited to oversee. At
the same time, eliminating duplicative registration requirements will
reduce the cost of raising capital. Thus, more companies will be able
to create jobs, pay out higher dividends, and further expand their
business.
These are the tangible effects of the bill we are addressing today.
Thus, this bill moves entrepreneurs and investors one step closer to
fulfilling the American Dream. Congress can and should continue to
enact legislation that provides hope to the citizens of this Nation.
Mrs. COLLINS of Illinois. Mr. Speaker, during three hearings held on
securities amendments, the Commerce Committee heard support for
sensible, targeted efforts to reform Federal securities laws to promote
greater efficiency and capital formation in U.S. financial markets. We
also heard from a number of witnesses, including Securities and
Exchange Commission Chairman Arthur Levitt, who urged us to proceed
carefully and cautiously, keeping in mind the fact that investor
confidence and consumer protection must not in any way be compromised
in this undertaking. I agree fully. I was extremely pleased that a
bipartisan agreement was reached that heeded Chairman Levitt's sage
device.
As we all know, U.S. capital markets are the strongest financial
markets in the world. Today, nearly one-third of all families in the
Nation have a portion of their savings invested in stocks, bonds, and
mutual funds in order to ensure a better future for themselves and
their loved ones. These investors have trust in their investments
because our regulatory system has proven beneficial in protecting
individuals from fraud and abuse perpetuated by unscrupulous brokers
and dealers. We will be preserving and strengthening this trust with
the legislation we consider before us today.
This legislation will maintain the authority of State securities
regulators to police wrongdoing. In addition, the legislation in its
current form ensures that the SEC mandate to protect American investors
and the public interest as well as the long-term stability of our major
markets remains intact. This is a most important point. While there is
room to fine tune the regulatory functions of the SEC, reforms must
never be structured in such a way that they undermine consumer
confidence.
This bill, H.R. 2005, does not seek to greatly limit inspections of
brokerage firms who have violated SEC rules or relieve firms of
liability for recommending unsuitably risky investments to
institutional clients. The bill also modifies previous language that
would have eliminated the requirement in current law that investors be
sent a prospectus and informed of the risks they face before they buy
newly offered securities by requiring the SEC to move forward with its
study of this issue.
Mr. Speaker, there is undoubtedly a need to monitor mutual fund
regulation to fully account for the constantly evolving size,
complexity, and investment opportunities of our Nation's financial
markets. While mutual funds have grown by more than 20 percent annually
throughout the 1980's and into the 1990's, Congress has not addressed
the issue of fund regulation since 1970. This bill updates our
securities laws.
I urge my colleagues to support H.R. 3005.
Mr. ACKERMAN. Mr. Speaker, on May 9, 1996, 18 of my colleagues and I
wrote to the SEC to express our strong concern about the SEC's order
giving permanent approval to a preferencing program on the Cincinnati
Stock Exchange, the CSE. Among the important issues raised in the
letter was the adequacy of the CSE's surveillance system.
Preferencing enables a broker-dealer to take the other side of its
own customer order, to the exclusion of the other competing market
interest. Because preferencing presents a broker-dealer with a conflict
between its duty to its customer as a broker and its financial self-
interest as a dealer, an effective surveillance system is especially
important. Among the unanswered questions about the CSE preferencing
program is whether the CSE's surveillance system can ensure that
dealers taking the other side of their customers' orders fulfill their
fiduciary obligations to achieve the best price for their customers.
Given the SEC's traditional emphasis on investor protection, it is
surprising that the order approving the CSE preferencing program does
not address this issue.
Mr. Speaker, today we take up H.R. 3005, the securities amendments of
1996. This legislation does not address the issue of preferencing but I
understand that similar legislation in the other body may contain a
provision directing the SEC to undertake detailed study of preferencing
on exchange markets. Such a study would likely provide answers to some
of the unanswered questions about preferencing on the CSE, such as the
adequacy of the CSE's surveillance system. Unless such a study
concludes that there are tangible benefits to investors and to the
capital formation process from this questionable practice, I would
support efforts to move swiftly to ban preferencing on exchanges.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Virginia [Mr. Bliley] that the House suspend the rules
and pass the bill, H.R. 3005, as amended.
The question was taken.
Mr. BLILEY. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 5 of rule I and the
Chair's prior announcement, further proceedings on this motion will be
postponed.
____________________