[Congressional Record Volume 142, Number 142 (Friday, October 4, 1996)]
[Extensions of Remarks]
[Pages E1928-E1929]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




CONFERENCE REPORT ON H.R. 3005, NATIONAL SECURITIES MARKETS IMPROVEMENT 
                              ACT OF 1996

                                 ______
                                 

                               speech of

                       HON. THOMAS J. BLILEY, JR.

                              of virginia

                    in the house of representatives

                      Saturday, September 28, 1996

  Mr. BLILEY. Mr. Speaker, in connection with the historic passage in 
the House of Representatives and the Senate of the National Securities 
Markets Improvement Act of 1996, I offer the following remarks to 
clarify the congressional intent underlying certain provisions in the 
act.


         preemption of state authority over securities issuers

  Section 102 of the National Securities Markets Improvement Act of 
1996 eliminates State regulation of securities offerings by a variety 
of securities issuers, while preserving State authority to police 
against fraud and to require notice filings and fees. The legislation's 
express preservation of State authority to require securities issuers 
to file documents with the States for notice purposes only is intended 
to allow States access to information that is routinely filed with the 
Commission and is not intended to extend to documents that are not 
filed with the Commission. This would not, however, preclude a State 
that, consistent with the legislation, has legitimate cause to commence 
an investigation pursuant to its antifraud authority from requesting 
such documents as it might be entitled to pursuant to such authority.
  The preemption effected by section 102 also extends to securities 
that are listed on the New York Stock Exchange, the American Stock 
Exchange, or the National Market System of the Nasdaq Stock Market. 
This preemption is intended to apply to securities that are nationally 
traded and list or have been authorized for listing on any of these 
three markets. In the past, disparate regulatory treatment of these 
markets by State laws has unnecessarily hindered the competition that 
improves the markets for investors. This legislation is designed to 
provide a level playing field for those markets by eliminating 
duplicative or unnecessary State regulation equally for securities that 
are listed or authorized for listing on any of the New York Stock 
Exchange, the American Stock Exchange, or the National Market System of 
the Nasdaq Stock Market.

[[Page E1929]]

Furthermore, the preemption effected by the act applies to a security 
that is a ``covered security'' or will be a ``covered security'' upon 
completion of the transaction. Thus, for example, the preemption 
effected by section 102 applies to initial public offerings that are 
authorized for listing on the National Market System of the Nasdaq 
Stock Market and are sold in advance of the effective date of their 
registration statements.
  Generally, States regulate securities offerings through laws 
administered by State securities administrators or, in certain cases, 
State insurance regulators. The preemption provided in section 102 of 
the act applies to any State authority, whether a securities 
administrator or an insurance regulator.


        Exceptions from the definition of ``investment company''

  Section 209 of the act provides a new exception from the Investment 
Company Act for investment pools that sell their shares only to 
``qualified purchasers''--qualified purchaser pools. This section 
provides a grandfather provision enabling private investment companies 
that qualify for the exception from the definition of ``investment 
company'' in section 3(c)(1) of the Investment Company Act--``Section 
3(c)(1) pools''--to qualify under the qualified purchaser pool 
provision notwithstanding that such a section 3(c)(1) pool might have 
investors that are not ``qualified purchasers'' under the provision, so 
long as the pool complies with certain requirements, including 
providing notice to its beneficial owners of its intent to use the 
qualified purchaser pool exception.
  Section 209 includes a requirement that the Securities and Exchange 
Commission prescribe rules defining the term ``beneficial owner'' for 
purposes of this notice requirement. I would expect the Commission to 
promulgate rules pursuant to this provision that will ensure that this 
notice requirement is not unnecessarily burdensome, especially for 
section 3(c)(1) pools that have shareholders that are themselves 
section 3(c)(1) pools, investment companies, or other institutional 
shareholders. The notice requirement was intended to ensure that direct 
shareholders of section 3(c)(1) pools seeking to convert to qualified 
purchaser pool status would be notified of the imminent change in their 
investment. The notice requirement was not intended to cause a section 
3(c)(1) pool seeking to convert to qualified purchaser pool status to 
have to provide notice of the impending change to the underlying 
shareholders of the converting pool's institutional shareholders, such 
as shareholders that are section 3(c)(1) pools, investment companies, 
or other companies, so long as those institutional shareholders are not 
under common control or controlled by the converting pool. The purpose 
of this notice is to ensure that the investor in the converting pool is 
aware of the imminent change in the nature of the pool so that the 
investor may choose whether to divest from the pool or not. Thus, 
notice to the person making the investment decisions for an 
institutional shareholder should suffice to carry out this 
congressional intent. In the event the institutional shareholders of a 
converting section 3(c)(1) pool are under common control or controlled 
by the converting pool, it might be appropriate to require the 
converting fund to provide notice of its intent to the underlying 
shareholders. I would expect the Commission to act expediently to 
promulgate rules to implement this congressional intent with respect to 
the notice requirement.
  In addition, the Commission should act as soon as practicable to 
promulgate the rules defining ``investments'' under section 209 of the 
act in order to expedite the effective date of that section.


                        SEC exemptive authority

  This act grants the Securities and Exchange Commission the authority 
to issue exemptions from the provisions of the securities laws. We 
intend that the Commission use this exemptive authority responsibly and 
flexibly. We are certain that the Commission will not use the exemptive 
authority to undermine the basic goals of the federal securities laws. 
However, in the past, Congress tied the hands of the Commission: for 
example, it limited the Commission's ability to decide when a 
prospectus should be delivered. I expect that the Commission will use 
the exemptive authority granted by this legislation to provide for 
greater flexibility in the administration of the securities laws. The 
Commission has used its existing exemptive authority, such as its 
authority under section 10(b) of the Securities Exchange Act of 1934 to 
define deceptive or manipulative conduct, to further the Federal 
securities laws by creating exemptions and safe harbors in order to 
make the letter of the law consistent with the spirit of the law. 
Similarly, in section 21A(c) of the Securities Exchange Act of 1934, 
Congress granted the Commission authority to exempt, in whole or in 
part, either unconditionally or upon specific terms and conditions, any 
person or transaction or class of persons or transactions from the 
provisions allowing the Commission to seek certain civil penalties for 
insider trading.
  The exemptive provisions in this legislation are intended to expand 
such existing exemptive authority, so that the Commission will be able 
to create exemptions from any provision of the securities laws where 
the Commission finds it appropriate to do so, consistent with this 
provision. The Commission will have the ability to adapt rules to the 
needs of all types of issuers, investors, and broker-dealers. The 
provisions will afford the Commission the ability to tailor rules to 
new technology, evolving products, and differing investor needs. We 
further intend that this exemptive authority will be used for the 
protection of investors and the public, as well as to promote 
efficiency, competition, and capital formation.