[Congressional Record Volume 142, Number 139 (Tuesday, October 1, 1996)]
[Senate]
[Pages S12093-S12095]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  THE NATIONAL SECURITIES MARKETS IMPROVEMENT ACT OF 1996--CONFERENCE 
                                 REPORT

  Mr. MURKOWSKI. Mr. President, I submit a report of the committee of 
conference on (H.R. 3005) and ask for its immediate consideration.
  The PRESIDING OFFICER. The report will be stated.
  The clerk read as follows:

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the Senate to 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, having met, after full and free conference, have 
     agreed to recommend and do recommend to their respective 
     Houses this report, signed by a majority of the conferees.

  The PRESIDING OFFICER. Without objection, the Senate will proceed to 
the consideration of the conference report.
  (The conference report is printed in the House proceedings of the 
Record of September 28, 1996.)
  Mr. D'AMATO. Mr. President, today I speak in support of H.R. 3005, 
the National Securities Markets Improvement Act of 1996. This bill is a 
critical piece of securities legislation that will vastly improve our 
securities markets and provide important investor and consumer 
protections.
  As most of my colleagues already know, an earlier version of this 
bill, S. 1815, passed the Senate unanimously in late June. That bill 
enjoyed strong bipartisan support. As testament to that support, we 
were able to introduce the bill, mark it up in committee, and pass it 
through the Senate within 2 months.
  Through hard work on both sides of the Capitol, the House and Senate 
conference on H.R. 3005 produced a sound bill that thoughtfully and 
carefully tightens the securities laws. I thank my distinguished 
colleagues and conferees whose tenacity and dedication have made it 
possible to produce this legislation. I thank the chairman and ranking 
member of the Securities Subcommittee, Senators Gramm and Dodd, along 
with the ranking member of the full committee, Senator Sarbanes. I also 
thank my esteemed colleague, Senator Bennett, who has been very helpful 
to the committee on securities legislation this Congress. I thank the 
staffs: Howard Mennell, Steve Harris, Laura Unger, Wayne Abernathy, 
Mitchell Feuer, Andrew Lowenthal, and Robert Cresanti, as well as the 
legislative counsel, Laura Ayud, who literally made this bill possible.
  Mr. President, I urge the Senate to act expeditiously on this 
conference report so that we may then forward it to the White House for 
the President's signature.
  The National Securities Markets Improvement Act of 1996 is a 
significant piece of legislation that will ensure that the U.S. 
securities market remains the pre-eminent securities market in the 
world. The U.S. securities market has the most capital and the most 
investors. Over 50 million Americans own stocks, not counting more than 
10,000 institutional investors. Last year, the U.S. stock market had 
$7.98 trillion in capital--close to half the amount of capital in the 
entire world market.
  This legislation will make it easier to raise capital in the 
securities market. The bill will create a new category of unregistered 
private investment companies that will help venture capitalists tap the 
capital markets to fund business endeavors. It will also bring more 
funding and investment to small business by making it easier for 
economic, business, and industrial development companies to raise money 
without having to register with the SEC and by providing liquidity and 
investment opportunities to business development companies.
  The bill will promote capital formation by eliminating many 
overlapping State and Federal requirements for registering securities. 
It eases the restrictions on borrowing that currently restricts U.S. 
broker-dealers' sources of funding their business. The bill will make 
U.S. broker-dealers more competitive in the global markets. It will 
also allow U.S. firms to pass on substantial savings to their 
customers.
  This bill will make the securities laws reflect the reality of 
today's marketplace. It will simplify procedures for paying fees and 
making disclosures. It will give the Securities and Exchange Commission 
flexibility to adapt to the changing financial market by letting the 
SEC say the securities laws don't apply where they don't make sense.
  This legislation will tighten up regulation by giving the States and 
the SEC distinctly separate regulatory roles. It will divide between 
the SEC and the States regulation of the 22,000 registered investment 
advisers who are entrusted with $10.6 trillion in customer funds--much 
of which represents savings and retirement money. As a result, 
investment advisers will be better regulated and consumers and 
investors better protected.
  The bill will make the mutual fund market a national market, that 
will be comprehensively regulated by the SEC. Mutual funds have become 
a household commodity in the last several years with almost one-third 
of U.S. households--that's 30 million households--owning a total of 
$2.7 trillion in mutual funds. This bill recognizes that the growth in 
the mutual fund industry means that it is no longer practicable for all 
50 States to have a hand in what goes into a mutual fund prospectus.
  This legislation also makes sure investors and consumers are not 
confused about what's in a mutual fund by giving the SEC authority to 
set standards on mutual fund names.
  This is not a controversial bill, it enjoys support on both sides of 
the aisle. It thoughtfully and carefully tightens the laws governing 
the securities market. I commend my colleagues and their staff for 
their excellent work in drafting this legislation and urge my

[[Page S12094]]

colleagues to support passage of the bill.
  Mr. DODD. Mr. President, I rise today to join my colleagues in 
supporting the passage of the conference report on H.R. 3005, the 
National Securities Markets Improvement Act of 1996. Allow me to begin 
by offering my heartfelt congratulations to my fellow conferees: 
Senators D'Amato, Sarbanes, Gramm, and Bennett, with whom I worked very 
closely in first creating and now passing this thoughtful and strongly 
bipartisan bill. I believe that the high quality of this legislation is 
demonstrable proof of what can be accomplished when we set aside our 
partisan differences to work for the good of the Nation.
  As I've said many times, the U.S. capital markets are vitally 
important for the good economic health not only of virtually every 
American company but for millions and millions of individual investors 
who have placed some of their assets either directly in securities or, 
as has become more and more common, into mutual funds.
  Sustained economic growth is heavily dependent upon the continuing 
ability of our capital markets and financial services industry to 
function efficiently and with integrity. If companies find impediments 
to obtaining capital, they will not grow. If individuals find 
impediments to their access to securities and other investments, they 
will not save.
  Taking steps to enhance the access of both corporations and 
individuals to the securities markets is a prudent means by which 
Congress can help sustain or even increase the Nation's rate of 
economic growth.
  Furthermore, the American capital markets are the envy of the world. 
No other Nation enjoys the international reputation of our capital 
markets and it is necessary for Congress periodically to review and 
modernize, where necessary, the laws that make our markets and our 
financial services industry the world's leader.
  I will acknowledge that it took us a little longer to get to this 
point than I had anticipated when the Senate passed S. 1815 at the end 
of June. Despite the other body's initially leisurely attitude toward 
conference negotiations, we have collectively achieved an excellent 
product.
  This conference report, which I hope that the Senate will adopt 
today, is the culmination of a lengthy bipartisan effort to reform 
those aspects of the securities laws that are an outdated impediment to 
the efficient functioning of the securities industry.
  The legislation will also provide clearer statutory directives to 
both State and Federal regulators so that the integrity of--and 
confidence in--our capital markets and financial services industry is 
enhanced.
  Without going into excruciating detail, let me just highlight the 
main areas that this legislation covers: it improves the regulation of 
investment advisors by clarifying the proper roles of the SEC and the 
State regulators; it modernizes and streamlines the regulation of 
mutual funds on the one hand, and provides badly needed modernization 
of the statutes covering hedge funds and venture capital funds on the 
other hand; it provides for clarification on a host of technical 
matters ranging from treatment of church pension plans to the access by 
U.S. journalists to foreign issuer press conferences. And, 
significantly, the bill creates the mechanism for increased regulatory 
flexibility so that the SEC will have the ability to keep pace with 
needed regulatory changes as the needs and demands both of investors 
and the financial industry develop over time.
  As I mentioned earlier, the legislation will allow the creation of a 
new kind of private investment company that is exempt from the 
restrictions of the Investment Company Act of 1940. Because this is a 
new mechanism for fund managers to use, we provide safeguards for 
participants in existing private investment companies. Any fund manager 
seeking to convert their existing fund to a new fund--called 3(c)[7] 
funds in the bill--must offer all their participants the option to 
first ``cash out.'' It is further the intent of the conferees that 
these dissenter's rights not be evaded by fund managers who might seek 
to either invest their existing fund solely in the new fund or to 
simply have the old fund exactly mirror the investment decisions of the 
new fund. The conferees expect the commission to be particularly 
vigilant in this matter. It is also the expectation of the conferees 
that the commission act swiftly to define the term ``Beneficial 
owners.'' It is the intent of the conferees that when such notices are 
given to institutional investors, the notice be given only to the 
controlling entity of that institution, not directly to all of the 
investing institution's underlying investors or participants.
  I am also pleased that the conference report will require the 
Commission to study the impact of recent judicial and regulatory 
rulings that have limited the ability of shareholders to offer 
proposals at shareholder meetings regarding a company's employment 
practices. The abilities of shareholders to offer such kinds of 
resolutions such as the ``Sullivan principles'' for South Africa and 
the ``MacBride principles'' for Northern Ireland have had a direct 
impact on ensuring that U.S. corporations do not participate in the 
loathsome discriminatory practices that occurred--or still occur--in 
those Nations. I look forward to the results of the Commission's study 
in a year's time.
  I would also note a few important provisions from the House bill that 
were included in this conference report. First, the conference report 
contains a 10-year authorization for the Securities and Exchange 
Commission that will reduce registration fees that were a drag on 
capital formation and will provide a level playing field for 
transaction fees on the New York Stock Exchange, the American Stock 
Exchange, and the NASDAQ stock market. This provision is a huge 
improvement over the House's original plan, since the plan first 
adopted by the House would have caused a negative impact upon programs 
in the Commerce Department, Justice Department and the State 
Department.
  The Senate played a critical role in forcing the other body to reach 
agreement with the administration and Senate appropriators so that the 
goal of fee reduction could be achieved without harming other important 
Federal programs.
  The conference report also contains a requirement for the 
establishment of uniform State laws on books and records for broker-
dealers. While this uniformity has long been sought by State 
regulators, the SEC and industry, I remain concerned that some States 
will have to adjust their laws regarding books and records kept at 
branch offices. It is the intent of the conferees that the SEC work 
closely with the States to determine what records should be maintained 
at branch offices and to establish a mechanism so that States could 
require such records be kept in the branch office, rather than at a 
back office halfway across the Nation.
  At this time, it is also appropriate to thank the Senate staffers who 
have worked so hard on turning ideas and goals into concrete 
legislation. I extend my congratulations and appreciation to Andrew 
Lowenthal from my staff; Laura Unger, the majority counsel; Mitchell 
Feuer, the minority counsel; and, Wayne Abernathy, the majority staff 
director of the Securities Subcommittee. I would also like to extend my 
thanks to someone who frequently, though unjustly, goes unmentioned 
when accolades are given on the floor--Laura Syoud of the Senate 
legislative counsel's office whose expertise was invaluable in solving 
some of the most difficult problems we confronted in drafting not only 
this conference report, but in the original Senate legislation.
  Mr. President, this is a carefully balanced bill that, upon enactment 
by President Clinton, will improve our Nation's securities laws to 
allow the markets to function more efficiently, while balancing those 
reforms by maintaining, and in some cases enhancing, The full strength 
of investor protections that have made our markets the best in the 
world.
  I urge my colleagues to support adoption of this important 
legislation.
  Mr. SARBANES. Mr. President, I am pleased that the Congress has today 
enacted H.R. 3005, the National Securities Markets Improvement Act of 
1996. Both the Senate and the House of Representatives passed 
legislation intended to promote efficiency in the regulation of mutual 
funds, better allocation of responsibility between Federal and State

[[Page S12095]]

securities regulators, and elimination of outdated provisions. While 
the two bills had much in common, they also differed in certain 
respects. I commend Senator D'Amato for his leadership of the 
Conference Committee, which has successfully bridged the differences 
between the two bills. Credit also goes to Senator Gramm, Senator Dodd, 
Senator Bennett, and the House Conferees. The final product is a 
reasonable bill that deserves support.
  This bill has two major themes: first, improvement of mutual fund 
regulation, and second, reallocation of responsibility between Federal 
and State securities regulators. It is appropriate to review the 
regulation of mutual funds, given the tremendous growth in this segment 
of the financial services industry. Mutual fund assets now equal 
insured bank deposits in size. The legislation contains a number of 
provisions supported by the SEC that are intended to allow mutual funds 
to operate more flexibly. These provisions include allowing the SEC to 
require mutual funds to provide shareholders with more current 
information and to maintain additional records that will be available 
to the SEC. Given the importance that mutual funds now have as an 
investment vehicle for millions of American households, it is crucial 
that information be available for mutual fund shareholders, and these 
provisions address that need. Both the Senate and House bills contained 
provisions creating a new exemption for funds open solely to 
sophisticated investors know as qualified purchasers. In the conference 
report, the House and Senate reached a compromise on the definition of 
qualified purchaser.
  With respect to the role of the States in securities regulation, let 
me say that State securities regulators play a crucial role in policing 
our markets. Still, dual regulation need not mean duplicative 
regulation. The State regulators themselves have convened a task force 
to recommend how securities regulation can be made more efficient and 
effective by dividing authority between the Federal and State level. 
This conference report retains the provision of the Senate bill, that 
the SEC may preempt State laws only with respect to securities traded 
on the New York Stock Exchange, the American Stock Exchange, the 
NASDAQ, or other exchanges with substantially similar listing 
standards. The provision in the House bill would have preempted State 
law for securities not traded on an exchange. The conference report 
does contain preemption provisions from the House bill that were not 
present in the Senate bill, addressing secondary trading and regulation 
of brokerage firms.
  The House and Senate compromised on the investment adviser provisions 
of the Senate bill. These would have removed investment advisory firms 
with $25 million or more under management from State regulation. The 
conference report provides that investment adviser representatives of 
such firms will continue to be licensed by the States in which they 
have places of business. The bill does not prohibit a State from 
requiring that investment adviser representatives doing business in 
that State designate a place of business in the State, such as an 
address for service of process, for purposes of maintaining State 
licensing authority over such individuals.
  This is a moderate bill, and appropriately so, for the Federal and 
State laws governing our securities markets and the participants in 
those markets are not in need of wholesale changes. All the evidence 
suggests that the U.S. securities markets are functioning well. 
Companies continue to raise capital in the U.S. markets in record 
amounts. In addition to established businesses, new companies have been 
raising capital in record amounts. Individual investor confidence in 
the securities markets, measured by direct investment in securities and 
investment through mutual funds and pension plans, remains high. The 
U.S. securities markets retain their preeminent position in the world.
  As passed by the conference, this bill strikes a reasonable balance. 
It should improve efficiency in the regulation of our securities 
markets without unduly limiting the authority of the State regulators, 
thereby exposing investors to sharp practices. The bill received 
support from Democratic and Republican House and Senate conferees, and 
was passed by the House unanimously 2 days ago. I am pleased that the 
House and Senate, Democrats and Republicans alike, were able to reach 
consensus on this legislation.
  Mr. MURKOWSKI. Mr. President, I ask unanimous consent that the 
conference report be considered as adopted, the motion to reconsider be 
laid upon the table, and statements relating to the report appear at 
the appropriate place in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The conference report was agreed to.

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