[House Report 105-640]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-640
_______________________________________________________________________


 
          SECURITIES LITIGATION UNIFORM STANDARDS ACT OF 1998

                                _______
                                

  July 21, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                             together with

               DISSENTING AND ADDITIONAL DISSENTING VIEWS

                        [To accompany H.R. 1689]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Commerce, to whom was referred the bill 
(H.R. 1689) to amend the Securities Act of 1933 and the 
Securities Exchange Act of 1934 to limit the conduct of 
securities class actions under State law, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     8
Background and Need for Legislation..............................     9
Hearings.........................................................    11
Committee Consideration..........................................    12
Rollcall Votes...................................................    12
Committee Oversight Findings.....................................    12
Committee on Government Reform and Oversight.....................    12
New Budget Authority, Entitlement Authority, and Tax Expenditures    13
Committee Cost Estimate..........................................    13
Congressional Budget Office Estimate.............................    13
Federal Mandates Statement.......................................    15
Advisory Committee Statement.....................................    15
Constitutional Authority Statement...............................    15
Applicability to Legislative Branch..............................    15
Section-by-Section Analysis of the Legislation...................    16
Changes in Existing Law Made by the Bill, as Reported............    19
Dissenting and Additional Dissenting Views.......................    45

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Securities Litigation Uniform 
Standards Act of 1998''.

            TITLE I--SECURITIES LITIGATION UNIFORM STANDARDS

SEC. 101. LIMITATION ON REMEDIES.

  (a) Amendments to the Securities Act of 1933.--
          (1) Amendment.--Section 16 of the Securities Act of 1933 (15 
        U.S.C. 77p) is amended to read as follows:

``SEC. 16. ADDITIONAL REMEDIES; LIMITATION ON REMEDIES.

  ``(a) Remedies Additional.--Except as provided in subsection (b), the 
rights and remedies provided by this title shall be in addition to any 
and all other rights and remedies that may exist at law or in equity.
  ``(b) Class Action Limitations.--No class action based upon the 
statutory or common law of any State or subdivision thereof may be 
maintained in any State or Federal court by any private party 
alleging--
          ``(1) an untrue statement or omission of a material fact in 
        connection with the purchase or sale of a covered security; or
          ``(2) that the defendant used or employed any manipulative or 
        deceptive device or contrivance in connection with the purchase 
        or sale of a covered security.
  ``(c) Removal of Class Actions.--Any class action brought in any 
State court involving a covered security, as set forth in subsection 
(b), shall be removable to the Federal district court for the district 
in which the action is pending, and shall be subject to subsection (b).
  ``(d) Preservation of Certain Actions.--
          ``(1) Actions under state law of state of incorporation.--
                  ``(A) Actions preserved.--Notwithstanding subsection 
                (b) or (c), a class action described in subparagraph 
                (B) of this paragraph that is based upon the statutory 
                or common law of the State in which the issuer is 
                incorporated (in the case of a corporation) or 
                organized (in the case of any other entity) may be 
                maintained in a State or Federal court by a private 
                party.
                  ``(B) Permissible actions.--A class action is 
                described in this subparagraph if it involves--
                          ``(i) the purchase or sale of securities by 
                        the issuer or an affiliate of the issuer 
                        exclusively from or to holders of equity 
                        securities of the issuer; or
                          ``(ii) any recommendation, position, or other 
                        communication with respect to the sale of 
                        securities of the issuer that--
                                  ``(I) is made by or on behalf of the 
                                issuer or an affiliate of the issuer to 
                                holders of equity securities of the 
                                issuer; and
                                  ``(II) concerns decisions of those 
                                equity holders with respect to voting 
                                their securities, acting in response to 
                                a tender or exchange offer, or 
                                exercising dissenters' or appraisal 
                                rights.
          ``(2) State actions.--
                  ``(A) In general.--Notwithstanding any other 
                provision of this section, nothing in this section may 
                be construed to preclude a State or political 
                subdivision thereof or a State pension plan from 
                bringing an action involving a covered security on its 
                own behalf, or as a member of a class comprised solely 
                of other States, political subdivisions, or State 
                pension plans that are named plaintiffs, and that have 
                authorized participation, in such action.
                  ``(B) State pension plan defined.--For purposes of 
                this paragraph, the term `State pension plan' means a 
                pension plan established and maintained for its 
                employees by the government of the State or political 
                subdivision thereof, or by any agency or 
                instrumentality thereof.
          ``(3) Actions under contractual agreements between issuers 
        and indenture trustees.--Notwithstanding subsection (b) or (c), 
        a class action that seeks to enforce a contractual agreement 
        between an issuer and an indenture trustee may be maintained in 
        a State or Federal court by a party to the agreement or a 
        successor to such party.
          ``(4) Remand of removed actions.--In an action that has been 
        removed from a State court pursuant to subsection (c), if the 
        Federal court determines that the action may be maintained in 
        State court pursuant to this subsection, the Federal court 
        shall remand such action to such State court.
  ``(e) Preservation of State Jurisdiction.--The securities commission 
(or any agency or office performing like functions) of any State shall 
retain jurisdiction under the laws of such State to investigate and 
bring enforcement actions.
  ``(f) Definitions.--For purposes of this section, the following 
definitions shall apply:
          ``(1) Affiliate of the issuer.--The term `affiliate of the 
        issuer' means a person that directly or indirectly, through 1 
        or more intermediaries, controls or is controlled by or is 
        under common control with, the issuer.
          ``(2) Class action.--
                  ``(A) In general.--The term `class action' means--
                          ``(i) any single lawsuit in which--
                                  ``(I) damages are sought on behalf of 
                                more than 50 persons or prospective 
                                class members, and questions of law or 
                                fact common to those persons or members 
                                of the prospective class, without 
                                reference to issues of individualized 
                                reliance on an alleged misstatement or 
                                omission, predominate over any 
                                questions affecting only individual 
                                persons or members; or
                                  ``(II) 1 or more named parties seek 
                                to recover damages on a representative 
                                basis on behalf of themselves and other 
                                unnamed parties similarly situated, and 
                                questions of law or fact common to 
                                those persons or members of the 
                                prospective class predominate over any 
                                questions affecting only individual 
                                persons or members; or
                          ``(ii) any group of lawsuits filed in or 
                        pending in the same court and involving common 
                        questions of law or fact, in which--
                                  ``(I) damages are sought on behalf of 
                                more than 50 persons; and
                                  ``(II) the lawsuits are joined, 
                                consolidated, or otherwise proceed as a 
                                single action for any purpose.
                  ``(B) Exception for derivative actions.--
                Notwithstanding subparagraph (A), the term `class 
                action' does not include an exclusively derivative 
                action brought by 1 or more shareholders on behalf of a 
                corporation.
                  ``(C) Counting of certain class members.--For 
                purposes of this paragraph, a corporation, investment 
                company, pension plan, partnership, or other entity, 
                shall be treated as 1 person or prospective class 
                member, but only if the entity is not established for 
                the purpose of participating in the action.
                  ``(D) Rule of construction.--Nothing in this 
                paragraph shall be construed to affect the discretion 
                of a State court in determining whether actions filed 
                in such court should be joined, consolidated, or 
                otherwise allowed to proceed as a single action.
          ``(3) Covered security.--The term `covered security' means a 
        security that satisfies the standards for a covered security 
        specified in section 18(b)(1) at the time during which it is 
        alleged that the misrepresentation, omission, or manipulative 
        or deceptive conduct occurred, except that such term shall not 
        include any debt security that is exempt from registration 
        under this title pursuant to rules issued by the Commission 
        under section 4(2) of this title.''.
          (2) Circumvention of stay of discovery.--Section 27(b) of the 
        Securities Act of 1933 (15 U.S.C. 77z-1(b)) is amended by 
        inserting after paragraph (3) the following new paragraph:
          ``(4) Circumvention of stay of discovery.--Upon a proper 
        showing, a court may stay discovery proceedings in any private 
        action in a State court as necessary in aid of its 
        jurisdiction, or to protect or effectuate its judgments, in an 
        action subject to a stay of discovery pursuant to this 
        subsection.''.
          (3) Conforming amendments.--Section 22(a) of the Securities 
        Act of 1933 (15 U.S.C. 77v(a)) is amended--
                  (A) by inserting ``except as provided in section 16 
                with respect to class actions,'' after ``Territorial 
                courts,''; and
                  (B) by striking ``No case'' and inserting ``Except as 
                provided in section 16(c), no case''.
  (b) Amendments to the Securities Exchange Act of 1934.--
          (1) Amendment.--Section 28 of the Securities Exchange Act of 
        1934 (15 U.S.C. 78bb) is amended--
                  (A) in subsection (a), by striking ``The rights and 
                remedies'' and inserting ``Except as provided in 
                subsection (f), the rights and remedies''; and
                  (B) by adding at the end the following new 
                subsection:
  ``(f) Limitations on Remedies.--
          ``(1) Class action limitations.--No class action based upon 
        the statutory or common law of any State or subdivision thereof 
        may be maintained in any State or Federal court by any private 
        party alleging--
                  ``(A) a misrepresentation or omission of a material 
                fact in connection with the purchase or sale of a 
                covered security; or
                  ``(B) that the defendant used or employed any 
                manipulative or deceptive device or contrivance in 
                connection with the purchase or sale of a covered 
                security.
          ``(2) Removal of class actions.--Any class action brought in 
        any State court involving a covered security, as set forth in 
        paragraph (1), shall be removable to the Federal district court 
        for the district in which the action is pending, and shall be 
        subject to paragraph (1).
          ``(3) Preservation of certain actions.--
                  ``(A) Actions under state law of state of 
                incorporation.--
                          ``(i) Actions preserved.--Notwithstanding 
                        paragraph (1) or (2), a class action described 
                        in clause (ii) of this subparagraph that is 
                        based upon the statutory or common law of the 
                        State in which the issuer is incorporated (in 
                        the case of a corporation) or organized (in the 
                        case of any other entity) may be maintained in 
                        a State or Federal court by a private party.
                          ``(ii) Permissible actions.--A class action 
                        is described in this clause if it involves--
                                  ``(I) the purchase or sale of 
                                securities by the issuer or an 
                                affiliate of the issuer exclusively 
                                from or to holders of equity securities 
                                of the issuer; or
                                  ``(II) any recommendation, position, 
                                or other communication with respect to 
                                the sale of securities of an issuer 
                                that--
                                          ``(aa) is made by or on 
                                        behalf of the issuer or an 
                                        affiliate of the issuer to 
                                        holders of equity securities of 
                                        the issuer; and
                                          ``(bb) concerns decisions of 
                                        such equity holders with 
                                        respect to voting their 
                                        securities, acting in response 
                                        to a tender or exchange offer, 
                                        or exercising dissenters' or 
                                        appraisal rights.
                  ``(B) State actions.--
                          ``(i) In general.--Notwithstanding any other 
                        provision of this subsection, nothing in this 
                        subsection may be construed to preclude a State 
                        or political subdivision thereof or a State 
                        pension plan from bringing an action involving 
                        a covered security on its own behalf, or as a 
                        member of a class comprised solely of other 
                        States, political subdivisions, or State 
                        pension plans that are named plaintiffs, and 
                        that have authorized participation, in such 
                        action.
                          ``(ii) State pension plan defined.--For 
                        purposes of this subparagraph, the term `State 
                        pension plan' means a pension plan established 
                        and maintained for its employees by the 
                        government of a State or political subdivision 
                        thereof, or by any agency or instrumentality 
                        thereof.
                  ``(C) Actions under contractual agreements between 
                issuers and indenture trustees.--Notwithstanding 
                paragraph (1) or (2), a class action that seeks to 
                enforce a contractual agreement between an issuer and 
                an indenture trustee may be maintained in a State or 
                Federal court by a party to the agreement or a 
                successor to such party.
                  ``(D) Remand of removed actions.--In an action that 
                has been removed from a State court pursuant to 
                paragraph (2), if the Federal court determines that the 
                action may be maintained in State court pursuant to 
                this subsection, the Federal court shall remand such 
                action to such State court.
          ``(4) Preservation of state jurisdiction.--The securities 
        commission (or any agency or office performing like functions) 
        of any State shall retain jurisdiction under the laws of such 
        State to investigate and bring enforcement actions.
          ``(5) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                  ``(A) Affiliate of the issuer.--The term `affiliate 
                of the issuer' means a person that directly or 
                indirectly, through 1 or more intermediaries, controls 
                or is controlled by or is under common control with, 
                the issuer.
                  ``(B) Class action.--The term `class action' means--
                          ``(i) any single lawsuit in which--
                                  ``(I) damages are sought on behalf of 
                                more than 50 persons or prospective 
                                class members, and questions of law or 
                                fact common to those persons or members 
                                of the prospective class, without 
                                reference to issues of individualized 
                                reliance on an alleged misstatement or 
                                omission, predominate over any 
                                questions affecting only individual 
                                persons or members; or
                                  ``(II) 1 or more named parties seek 
                                to recover damages on a representative 
                                basis on behalf of themselves and other 
                                unnamed parties similarly situated, and 
                                questions of law or fact common to 
                                those persons or members of the 
                                prospective class predominate over any 
                                questions affecting only individual 
                                persons or members; or
                          ``(ii) any group of lawsuits filed in or 
                        pending in the same court and involving common 
                        questions of law or fact, in which--
                                  ``(I) damages are sought on behalf of 
                                more than 50 persons; and
                                  ``(II) the lawsuits are joined, 
                                consolidated, or otherwise proceed as a 
                                single action for any purpose.
                  ``(C) Exception for derivative actions.--
                Notwithstanding subparagraph (B), the term `class 
                action' does not include an exclusively derivative 
                action brought by 1 or more shareholders on behalf of a 
                corporation.
                  ``(D) Counting of certain class members.--For 
                purposes of this paragraph, a corporation, investment 
                company, pension plan, partnership, or other entity, 
                shall be treated as 1 person or prospective class 
                member, but only if the entity is not established for 
                the purpose of participating in the action.
                  ``(E) Covered security.--The term `covered security' 
                means a security that satisfies the standards for a 
                covered security specified in section 18(b)(1) of the 
                Securities Act of 1933, at the time during which it is 
                alleged that the misrepresentation, omission, or 
                manipulative or deceptive conduct occurred, except that 
                such term shall not include any debt security that is 
                exempt from registration under the Securities Act of 
                1933 pursuant to rules issued by the Commission under 
                section 4(2) of such Act.
                  ``(F) Rule of construction.--Nothing in this 
                paragraph shall be construed to affect the discretion 
                of a State court in determining whether actions filed 
                in such court should be joined, consolidated, or 
                otherwise allowed to proceed as a single action.''.
          (2) Circumvention of stay of discovery.--Section 21D(b)(3) of 
        the Securities Exchange Act of 1934 (15 U.S.C. 78u-4(b)(3)) is 
        amended by inserting after subparagraph (C) the following new 
        subparagraph:
                  ``(D) Circumvention of stay of discovery.--Upon a 
                proper showing, a court may stay discovery proceedings 
                in any private action in a State court as necessary in 
                aid of its jurisdiction, or to protect or effectuate 
                its judgments, in an action subject to a stay of 
                discovery pursuant to this paragraph.''.
  (c) Applicability.--The amendments made by this section shall not 
affect or apply to any action commenced before and pending on the date 
of enactment of this Act.

SEC. 102. ISSUANCE OF SUBPOENAS IN JUDICIAL ACTIONS.

  (a) Securities Act.--Section 22(a) of the Securities Act of 1933 (15 
U.S.C. 77v(a)) is amended by inserting after the second sentence the 
following: ``In any action or proceeding instituted by the Commission 
under this title in the district court of the United States for any 
judicial district, subpoenas issued by such court to compel the 
attendance of witnesses may be served in any other district.''.
  (b) Securities Exchange Act.--Section 27 of the Securities Act of 
1934 (15 U.S.C. 78aa) is amended by inserting after the third sentence 
the following: ``In any action or proceeding instituted by the 
Commission under this title in the district court of the United States 
for any judicial district, subpoenas issued by such court to compel the 
attendance of witnesses may be served in any other district.''.
  (c) Investment Company Act.--Section 44 of the Investment Company Act 
of 1940 (15 U.S.C. 80a-43) is amended by inserting after the fourth 
sentence the following: ``In any action or proceeding instituted by the 
Commission under this title in the district court of the United States 
for any judicial district, subpoenas issued by such court to compel the 
attendance of witnesses may be served in any other district.''.
  (d) Investment Advisers Act.--Section 214 of the Investment Advisers 
Act of 1940 (15 U.S.C. 80b-14) is amended by inserting after the third 
sentence the following: ``In any action or proceeding instituted by the 
Commission under this title in the district court of the United States 
for any judicial district, subpoenas issued by such court to compel the 
attendance of witnesses may be served in any other district.''.
  (e) Public Utility Holding Company Act.--Section 25 of the Public 
Utility Holding Company Act of 1935 (15 U.S.C. 79y) is amended by 
inserting after the third sentence the following: ``In any action or 
proceeding instituted by the Commission under this title in the 
district court of the United States for any judicial district, 
subpoenas issued by such court to compel the attendance of witnesses 
may be served in any other district.''.

SEC. 103. PROMOTION OF RECIPROCAL SUBPOENA ENFORCEMENT.

  (a) Commission Action.--The Securities and Exchange Commission, in 
consultation with State securities commissions, shall seek to encourage 
the adoption of State laws providing for reciprocal enforcement by 
State securities commissions of subpoenas issued by another State 
securities commission seeking to compel persons to attend, testify in, 
or produce documents or records in connection with an action or 
investigation by a State securities commission of an alleged violation 
of State securities laws.
  (b) Report.--Within 24months after the date of enactment of this Act, 
the Commission shall submit a report to the Congress--
          (1) identifying the States that have adopted laws described 
        in subsection (a);
          (2) describing the actions undertaken by the Commission and 
        State securities commissions to promote the adoption of such 
        laws; and
          (3) identifying any further actions the Commission recommends 
        for such purposes.

SEC. 104. REPORT ON CONSEQUENCES.

  The Securities and Exchange Commission shall include in each of its 
first 3 annual reports submitted after the date of enactment of this 
Act a report regarding--
          (1) the nature and the extent of the class action cases that 
        are preempted by, or removed pursuant to, the amendments made 
        by section 101 of this title;
          (2) the extent to which that preemption or removal either 
        promotes or adversely affects the protection of securities 
        investors or the public interest; and
          (3) if adverse effects are found, alternatives to, or 
        revisions of, such preemption or removal that--
                  (A) would not have such adverse effects;
                  (B) would further promote the protection of investors 
                and the public interest; and
                  (C) would still substantially reduce the risk of 
                abusive securities litigation.

  TITLE II--REAUTHORIZATION OF THE SECURITIES AND EXCHANGE COMMISSION

SEC. 201. AUTHORIZATION OF APPROPRIATIONS.

  Section 35 of the Securities Exchange Act of 1934 (15 U.S.C. 78kk) is 
amended to read as follows:

``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

  ``(a) In General.--In addition to any other funds authorized to be 
appropriated to the Commission, there are authorized to be appropriated 
to carry out the functions, powers, and duties of the Commission 
$351,280,000 for fiscal year 1999.
  ``(b) Miscellaneous Expenses.--Funds appropriated pursuant to this 
section are authorized to be expended--
          ``(1) not to exceed $3,000 per fiscal year, for official 
        reception and representation expenses;
          ``(2) not to exceed $10,000 per fiscal year, for funding a 
        permanent secretariat for the International Organization of 
        Securities Commissions; and
          ``(3) not to exceed $100,000 per fiscal year, for expenses 
        for consultations and meetings hosted by the Commission with 
        foreign governmental and other regulatory officials, members of 
        their delegations, appropriate representatives, and staff to 
        exchange views concerning developments relating to securities 
        matters, for development and implementation of cooperation 
        agreements concerning securities matters and provision of 
        technical assistance for the development of foreign securities 
        markets, such expenses to include necessary logistic and 
        administrative expenses and the expenses of Commission staff 
        and foreign invitees in attendance at such consultations and 
        meetings, including--
                  ``(A) such incidental expenses as meals taken in the 
                course of such attendance;
                  ``(B) any travel or transportation to or from such 
                meetings; and
                  ``(C) any other related lodging or subsistence.''.

              TITLE III--CLERICAL AND TECHNICAL AMENDMENTS

SEC. 301. CLERICAL AND TECHNICAL AMENDMENTS.

  (a) Securities Act of 1933.--The Securities Act of 1933 (15 U.S.C. 77 
et seq.) is amended as follows:
          (1) Section 2(a)(15)(i) (15 U.S.C. 77b(a)(15)(i)) is amended 
        by striking ``section 2(13) of the Act'' and inserting 
        ``paragraph (13) of this subsection''.
          (2) Section 11(f)(2)(A) (15 U.S.C. 77k(f)(2)(A)) is amended 
        by striking ``section 38'' and inserting ``section 21D(f)''.
          (3) Section 13 (15 U.S.C. 77m) is amended--
                  (A) by striking ``section 12(2)'' each place it 
                appears and inserting ``section 12(a)(2)''; and
                  (B) by striking ``section 12(1)'' each place it 
                appears and inserting ``section 12(a)(1)''.
          (4) Section 18 (15 U.S.C. 77r) is amended--
                  (A) in subsection (b)(1)(A), by inserting ``, or 
                authorized for listing,'' after ``Exchange, or 
                listed'';
                  (B) in subsection (c)(2)(B)(i), by striking ``Capital 
                Markets Efficiency Act of 1996'' and inserting 
                ``National Securities Markets Improvement Act of 
                1996'';
                  (C) in subsection (c)(2)(C)(i), by striking 
                ``Market'' and inserting ``Markets'';
                  (D) in subsection (d)(1)(A)--
                          (i) by striking ``section 2(10)'' and 
                        inserting ``section 2(a)(10)''; and
                          (ii) by striking ``subparagraphs (A) and 
                        (B)'' and inserting ``subparagraphs (a) and 
                        (b)'';
                  (E) in subsection (d)(2), by striking ``Securities 
                Amendments Act of 1996'' and inserting ``National 
                Securities Markets Improvement Act of 1996''; and
                  (F) in subsection (d)(4), by striking ``For purposes 
                of this paragraph, the'' and inserting ``The''.
          (5) Sections 27, 27A, and 28 (15 U.S.C. 77z-1, 77z-2, 77z-3) 
        are transferred to appear after section 26.
          (6) Paragraph (28) of schedule A of such Act (15 U.S.C. 
        77aa(28)) is amended by striking ``identic'' and inserting 
        ``identical''.
  (b) Securities Exchange Act of 1934.--The Securities Exchange Act of 
1934 (15 U.S.C. 78 et seq.) is amended as follows:
          (1) Section 3(a)(10) (15 U.S.C. 78c(a)(10)) is amended by 
        striking ``deposit, for'' and inserting ``deposit for''.
          (2) Section 3(a)(12)(A) (15 U.S.C. 78c(a)(12)(A)) is amended 
        by moving clause (vi) two em spaces to the left.
          (3) Section 3(a)(22)(A) (15 U.S.C. 78c(a)(22)(A)) is 
        amended--
                  (A) by striking ``section 3(h)'' and inserting 
                ``section 3''; and
                  (B) by striking ``section 3(t)'' and inserting ``such 
                section 3''.
          (4) Section 3(a)(39)(B)(i) (15 U.S.C. 78c(a)(39)(B)(i)) is 
        amended by striking ``an order to the Commission'' and 
        inserting ``an order of the Commission''.
          (5) The following sections are each amended by striking 
        ``Federal Reserve Board'' and inserting ``Board of Governors of 
        the Federal Reserve System'': subsections (a) and (b) of 
        section 7 (15 U.S.C. 78g(a), (b)); section 17(g) (15 U.S.C. 
        78q(g)); and section 26 (15 U.S.C. 78z).
          (6) The heading of subsection (d) of section 7 (15 U.S.C. 
        78g(d)) is amended by striking ``Exception'' and inserting 
        ``Exceptions''.
          (7) Section 14(g)(4) (15 U.S.C. 78n(g)(4)) is amended by 
        striking ``consolidation sale,'' and inserting ``consolidation, 
        sale,''.
          (8) Section 15 (15 U.S.C. 78o) is amended--
                  (A) in subsection (c), by moving paragraph (8) two em 
                spaces to the left;
                  (B) in subsection (h)(2), by striking ``affecting'' 
                and inserting ``effecting'';
                  (C) in subsection (h)(3)(A)(i)(II)(bb), by inserting 
                ``or'' after the semicolon;
                  (D) in subsection (h)(3)(A)(ii)(I), by striking 
                ``maintains'' and inserting ``maintained'';
                  (E) in subsection (h)(3)(B)(ii), by striking 
                ``association'' and inserting ``associated''.
          (9) Section 15B(c)(4) (15 U.S.C. 78o-4(c)(4)) is amended by 
        striking ``convicted by any offense'' and inserting ``convicted 
        of any offense''.
          (10) Section 15C(f)(5) (15 U.S.C. 78o-5(f)(5)) is amended by 
        striking ``any person or class or persons'' and inserting ``any 
        person or class of persons''.
          (11) Section 19(c) (15 U.S.C. 78s(c)) is amended by moving 
        paragraph (5) two em spaces to the right.
          (12) Section 20 (15 U.S.C. 78t) is amended by redesignating 
        subsection (f) as subsection (e).
          (13) Section 21D (15 U.S.C. 78u-4) is amended--
                  (A) by redesignating subsection (g) as subsection 
                (f); and
                  (B) in paragraph (2)(B)(i) of such subsection, by 
                striking ``paragraph (1)'' and inserting ``subparagraph 
                (A)''.
          (14) Section 31(a) (15 U.S.C. 78ee(a)) is amended by striking 
        ``this subsection'' and inserting ``this section''.
  (c) Investment Company Act of 1940.--The Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) is amended as follows:
          (1) Section 2(a)(8) (15 U.S.C. 80a-2(a)(8)) is amended by 
        striking ``Unitde'' and inserting ``United''.
          (2) Section 3(b) (15 U.S.C. 80a-3(b)) is amended by striking 
        ``paragraph (3) of subsection (a)'' and inserting ``paragraph 
        (1)(C) of subsection (a)''.
          (3) Section 12(d)(1)(G)(i)(III)(bb) (15 U.S.C. 80a-
        12(d)(1)(G)(i)(III)(bb)), by striking ``the acquired fund'' and 
        inserting ``the acquired company''.
          (4) Section 18(e)(2) (15 U.S.C. 80a-18(e)(2)) is amended by 
        striking ``subsection (e)(2)'' and inserting ``paragraph (1) of 
        this subsection''.
          (5) Section 30 (15 U.S.C. 80a-29) is amended--
                  (A) by inserting ``and'' after the semicolon at the 
                end of subsection (b)(1);
                  (B) in subsection (e), by striking ``semi-annually'' 
                and inserting ``semiannually''; and
                  (C) by redesignating subsections (g) and (h) as added 
                by section 508(g) of the National Securities Markets 
                Improvement Act of 1996 as subsections (i) and (j), 
                respectively.
          (6) Section 31(f) (15 U.S.C. 80a-30(f)) is amended by 
        striking ``subsection (c)'' and inserting ``subsection (e)''.
  (d) Investment Advisers Act of 1940.--The Investment Advisers Act of 
1940 (15 U.S.C. 80b et seq.) is amended as follows:
          (1) Section 203(e)(8)(B) (15 U.S.C. 80b-3(e)(8)(B)) is 
        amended by inserting ``or'' after the semicolon.
          (2) Section 222(b)(2) of (15 U.S.C. 80b-18a(b)(2)) is amended 
        by striking ``principle'' and inserting ``principal''.
  (e) Trust Indenture Act of 1939.--The Trust Indenture Act of 1939 (15 
U.S.C. 77aaa et seq.) is amended as follows:
          (1) Section 303 (15 U.S.C. 77ccc) is amended by striking 
        ``section 2'' each place it appears in paragraphs (2) and (3) 
        and inserting ``section 2(a)''.
          (2) Section 304(a)(4)(A) (15 U.S.C. 77ddd(a)(4)(A)) is 
        amended by striking ``(14) of subsection'' and inserting ``(13) 
        of section''.
          (3) Section 313(a) (15 U.S.C. 77mmm(a)) is amended--
                  (A) by inserting ``any change to'' after the 
                paragraph designation at the beginning of paragraph 
                (4); and
                  (B) by striking ``any change to'' in paragraph (6).
          (4) Section 319(b) (15 U.S.C. 77sss(b)) is amended by 
        striking ``the Federal Register Act'' and inserting ``chapter 
        15 of title 44, United States Code,''.

SEC. 302. EXEMPTION OF SECURITIES ISSUED IN CONNECTION WITH CERTAIN 
                    STATE HEARINGS.

  Section 18(b)(4)(C) of the Securities Act of 1933 (15 U.S.C. 
77r(b)(4)(C)) is amended by striking ``paragraph (4) or (11)'' and 
inserting ``paragraph (4), (10), or (11)''.

                          Purpose and Summary

    Title I of H.R. 1689, the Securities Litigation Uniform 
Standards Act of 1998, makes Federal court the exclusive venue 
for most securities class action lawsuits. The purpose of this 
title is to prevent plaintiffs from seeking to evade the 
protections that Federal law provides against abusive 
litigation by filing suit in State, rather than in Federal, 
court. The legislation is designed to protect the interests of 
shareholders and employees of public companies that are the 
target of meritless ``strike'' suits, the purpose of which is 
to extract a sizeable settlement from companies that are 
economically forced to settle, regardless of the lack of merits 
of the suit, simply to avoid the potentially bankrupting 
expense of litigating.
    Additionally, consistent with the determination that 
Congress made in the National Securities Markets Improvement 
Act \1\ (NSMIA), this legislation establishes uniform national 
rules for securities class action litigation involving our 
national capital markets. Under the legislation, class actions 
relating to a ``covered security'' (as defined by section 
18(b)(1) of the Securities Act of 1933 which was added to that 
Act by NSMIA) alleging fraud or manipulation must be maintained 
pursuant to the provisions of Federal securities law, in 
Federal court (subject to certain exceptions).
---------------------------------------------------------------------------
    \1\ Public Law 104-290 (October 11, 1996).
---------------------------------------------------------------------------
     ``Class actions'' that the legislation bars from State 
court include actions brought on behalf of more than 50 
persons, actions brought on behalf of one or more unnamed 
parties, and so-called ``mass actions,'' in which a group of 
lawsuits filed in the same court are joined or otherwise 
proceed as a single action.
    The legislation provides for certain exceptions for 
specific types of actions. The legislation preserves State 
jurisdiction over: (1) certain actions that are based upon the 
law of the State in which the issuer of the security in 
question is incorporated; (2) actions brought by States and 
political subdivisions, and State pension plans, so long as the 
plaintiffs are named and have authorized participation in the 
action; and (3) actions by a party to a contractual agreement 
(such as an indenture trustee) seeking to enforce provisions of 
the indenture.
    Additionally, the legislation provides for an exception 
from the definition of ``class action'' for certain shareholder 
derivative actions.
    Title II of the legislation reauthorizes the Securities and 
Exchange Commission (SEC or Commission) for Fiscal Year 1999. 
This title is substantially consistent with H.R. 1262, the 
Securities and Exchange Commission Reauthorization Act of 1997, 
which passed the House on November 13, 1997.
    Title III of the legislation provides for corrections to 
certain clerical and technical errors in the Federal securities 
laws arising from changes made by the Private Securities 
Litigation Reform Act of 1995 \2\ (the ``Reform Act'') and 
NSMIA.
---------------------------------------------------------------------------
    \2\ Public Law 104-67 (December 22, 1995).
---------------------------------------------------------------------------

                  Background and Need for Legislation

    The 104th Congress passed, over President Clinton's veto, 
the Reform Act, which was designed to put an end to vexatious 
litigation that was draining value from the shareholders and 
employees of public companies. The Subcommittee on Finance and 
Hazardous Materials held an oversight hearing to review the 
implementation of the Reform Act on October 21, 1997. During 
this hearing, witnesses testified that there had been a 
noticeable shift in class action litigation from Federal to 
State courts.\3\
---------------------------------------------------------------------------
    \3\ Testimony of Mr. David L. Anderson before the Subcommittee on 
Finance and Hazardous Materials of the Committee on Commerce, Serial 
No. 105-85, at 47 (May 19, 1998). ``It is the conclusion of many of us 
practicing in this area that many state court lawsuits are being 
brought for improper purposes. . . . The plaintiffs' bar largely 
ignored the state courts until the passage of the Reform Act. . . . 
[W]hat they are trying to do is end-run the Reform Act in the state 
courts. Directing securities class actions cases back to the Federal 
courts is the only way to eliminate that end run.''
---------------------------------------------------------------------------
    A report and statistical analysis of securities class 
actions lawsuits authored by Joseph A. Grundfest and Michael A. 
Perino reached the following conclusion:

          The evidence presented in this report suggests that 
        the level of class action securities fraud litigation 
        has declined by about a third in federal courts, but 
        that there has been an almost equal increase in the 
        level of state court activity, largely as a result of a 
        ``substitution effect'' whereby plaintiffs resort to 
        state court to avoid the new, more stringent 
        requirements of federal cases. There has also been an 
        increase in parallel litigation between state and 
        federal courts in an apparent effort to avoid the 
        federal discovery stay or other provisions of the Act. 
        This increase in state activity has the potential not 
        only to undermine the intent of the Act, but to 
        increase the overall cost of litigation to the extent 
        that the Act encourages the filing of parallel 
        claims.\4\
---------------------------------------------------------------------------
    \4\ Grundfest, Joseph A. & Perino, Michael A., ``Securities 
Litigation Reform: The First Year's Experience: A Statistical and Legal 
Analysis of Class Action Securities Fraud Litigation under the Private 
Securities Litigation Reform Act of 1995,'' Stanford Law School 
(February 27, 1997).

    Prior to the passage of the Reform Act, there was 
essentially no significant securities class action litigation 
brought in State court.\5\ In its Report to the President and 
the Congress on the First Year of Practice Under the Private 
Securities Litigation Reform Act of 1995, the SEC called the 
shift of securities fraud cases from Federal to State court 
``potentially the most significant development in securities 
litigation'' since passage of the Reform Act.\6\
---------------------------------------------------------------------------
    \5\ Id. n.18.
    \6\ ``Report to the President and the Congress on the First Year of 
Practice Under the Private Securities Litigation Reform Act of 1995,'' 
U.S. Securities and Exchange Commission, Office of the General Counsel, 
April 1997 at 61.
---------------------------------------------------------------------------
     The Subcommittee also heard testimony during a legislative 
hearing on H.R. 1689, that, since passage of the Reform Act, 
plaintiffs' lawyers have sought to circumvent the Act's 
provisions by exploiting differences between Federal and State 
laws by filing frivolous and speculative lawsuits in State 
court, where essentially none of the Reform Act's procedural or 
substantive protections against abusive suits are available.\7\ 
In California, State securities class action filings in the 
first six months of 1996 went up roughly five-fold compared to 
the first six months of 1995, prior to passage of the Reform 
Act.\8\
---------------------------------------------------------------------------
    \7\ Testimony of Mr. Jack G. Levin before the Subcommittee on 
Finance and Hazardous Materials of the Committee on Commerce, Serial 
No. 105-85, at 41-45 (May 19, 1998).
    \8\ Id. at 4.
---------------------------------------------------------------------------
     The solution to this problem is to make Federal court the 
exclusive venue for securities fraud class action litigation.
    The Subcommittee heard testimony that the migration to 
State court was fueled by a desire to circumvent the more 
stringent requirements of the heightened pleading standard 
adopted under the Reform Act.\9\ The Committee addresses this 
problem in two ways. First, it preempts securities fraud class 
actions brought under State law. Second, it grants power to 
Federal judges to quash discovery in State actions if that 
discovery conflicts with an order of the Federal court. The 
purpose of this grant of authority is to give Federal judges 
tools to combat abuse of discovery proceedings in individual 
actions that may be brought in State court.
---------------------------------------------------------------------------
    \9\ Testimony of Mr. David L. Anderson before the Subcommittee on 
Finance and Hazardous Materials of the Committee on Commerce, Serial 
No. 105-85, at 46-50 (May 19, 1998). Additionally, one study, by Price 
Waterhouse LLP, found that the average number of parallel and ``federal 
equivalent'' securities class actions filed in state court 1996 grew 
355% over the 1991-1995 average. Although there was a drop in the 
number of these state court filings in 1997, the number of state cases 
that year nonetheless was 150% higher than the 1991-1995 average. 
Letter to The Honorable Michael G. Oxley and The Honorable Thomas J. 
Manton from Daniel V. Dooley, Partner, Price Waterhouse LLP, Regarding 
the Price Waterhouse LLP Securities Litigation Study and Addendum on 
State ``Parallel'' and State ``Federal-Equivalent'' Securities 
Litigation Cases at 6 (June 2, 1998).
---------------------------------------------------------------------------
    The Committee notes that since the passage of the Reform 
Act, a data base containing many of the complaints, responses 
and judicial decisions on securities class actions since 
enactment of the Reform Act has been established on the 
Internet. This data base, the Securities Class Action 
Clearinghouse, is an extremely useful source of information on 
securities class actions. It can be accessed on the world wide 
web at http://securities.stanford.edu. The Committee urges 
other Federal courts to adopt rules, similar to those in effect 
in the Northern District of California, to facilitate 
maintenance of this and similar data bases.
    The Committee heard testimony from opponents of the 
legislation, such as Ms. Mary Rouleau of the Consumer 
Federation of America (CFA), who testified that the bill was 
premature, unwarranted based on available evidence, harmful to 
investors, and overly broad in its proposed preemption of State 
law. The Committee believes that the overwhelming weight of the 
evidence available to it supports going forward with this bill 
at this time for the reasons previously noted. Moreover, the 
Committee adopted a number of changes to the introduced bill to 
address the substantive concerns raised in some of the 
dissenting testimony. These changes reflect and improve upon 
the companion Senate-passed bill that was approved by that body 
on May 13, 1998 by a vote of 79 yeas to 21 nays.

                                Hearings

    On October 21, 1997, the Subcommittee on Finance and 
Hazardous Material held an oversight hearing on the 
Implementation of the Private Securities Litigation Reform Act 
of 1995. The Committee received testimony from the following 
witnesses: the Honorable Arthur Levitt, Jr., Chairman, 
Securities and Exchange Commission, accompanied by Mr. Richard 
H. Walker, General Counsel, Securities and Exchange Commission; 
Mr. Michael A. Perino, Stanford University School of Law; Mr. 
Bruce G. Vanyo, Wilson, Sonsini, Goodrich, and Rosati; Mr. 
Robert V. Stout, Controller, City of Stamford, Connecticut, on 
behalf of the Government Finance Officers Association; and Mr. 
Leonard B. Simon, Milberg Weiss Bershad Hynes & Lerach, L.L.P.
    The Subcommittee held a legislative hearing on H.R. 1689, 
the Securities Litigation Uniform Standards Act, on May 19, 
1998. The Subcommittee received testimony from: the Honorable 
Tom Campbell, U.S. Representative, Fifteenth District, State of 
California; the Honorable Anna G. Eshoo, U.S. Representative, 
Fourteenth District, State of California; the Honorable Arthur 
Levitt, Jr., Chairman, Securities and Exchange Commission; Mr. 
Jack G. Levin, Director of Legal and Regulatory Affairs, 
NationsBanc Montgomery Securities; Mr. David L. Anderson, 
Senior Counsel, Pillsbury, Madison & Sutro; Mr. Jack Coffee, 
Professor, Columbia University Law School; Mr. Robert C. 
Hinkley, General Counsel, Xilinx, Inc.; Mr. Richard W. Painter, 
Professor, Cornell University Law School; Mr. John F. Olson, 
Gibson, Dunn & Crutcher, LLP; Mr. Blake Campbell, Assistant 
Commissioner, Securities Regulation Division, Department of 
Corporations, State of California accompanied by Mr. Peter 
Kezirian, General Counsel; and Ms. Mary Rouleau, Legislative 
Director, Consumer Federation of America.

                        Committee Consideration

    On June 10, 1998, the Subcommittee on Finance and Hazardous 
Materials met in open markup session and approved H.R. 1689, 
the Securities Litigation Uniform Standards Act of 1998, for 
Full Committee consideration, amended, by a rollcall vote of 21 
yeas to 4 nays. On June 24, 1998, the Committee on Commerce met 
in open markup session and ordered H.R. 1689 reported to the 
House, amended, by a voice vote, a quorum being present.

                             Rollcall Votes

    Clause 2(l)(2)(B) of Rule XI of the Rules of the House 
requires the Committee to list the recorded votes on the motion 
to report legislation and amendments thereto. There were no 
recorded votes taken in connection with ordering H.R. 1689 
reported. An Amendment in the Nature of a Substitute by Mr. 
Bliley was agreed to, amended, by a voice vote. An amendment to 
the Bliley Amendment in the Nature of a Substitute by Ms. 
DeGette to add a new section requiring the Securities and 
Exchange Commission to include an analysis of the impact and 
consequences of this legislation in each of its first three 
annual reports submitted after the date of enactment was agreed 
to by a voice vote. A motion by Mr. Bliley to order H.R. 1689 
reported to the House, amended, was agreed to by a voice vote, 
a quorum being present.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of Rule XI of the Rules of 
the House of Representatives, the Committee held legislative 
and oversight hearings and made findings that are reflected in 
this report.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of Rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 2(l)(3)(B) of Rule XI of the 
Rules of the House of Representatives, the Committee finds that 
H.R. 1689, the Securities Litigation Uniform Standards Act of 
1998, would result in no new or increased budget authority, 
entitlement authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of Rule XI of the Rules of 
the House of Representatives, the following is the cost 
estimate provided by the Congressional Budget Office pursuant 
to section 402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, July 6, 1998.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1689, the 
Securities Litigation Uniform Standards Act of 1998.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark Hadley.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).
    Enclosure.

H.R. 1689--Securities Litigation Uniform Standards Act of 1998

    Summary: H.R. 1689 would amend existing law related to 
class actions involving most types of securities fraud, 
reauthorize appropriations for the Securities and Exchange 
Commission (SEC), and require the SEC to study class actions 
involving securities fraud and state laws related to reciprocal 
enforcement of subpoenas. Under this bill, certain class 
actions could not be based on state law and could only be 
maintained in federal courts. H.R. 1689 would authorize the 
appropriation of $351 million for the Securities and Exchange 
Commission in fiscal year 1999. Assuming appropriation of the 
authorized amounts, CBO estimates that implementing H.R. 1689 
would result in additional SEC spending of $347 million over 
fiscal years 1999 and 2000, but that the agency would collect 
$375 million in fees in 1999 to more than offset that new 
spending.
    H.R. 1689 would not affect direct spending or receipts; 
therefore, pay-as-you go procedures would not apply. H.R. 1689 
contains an intergovernmental mandate as defined in the 
Unfunded Mandates Reform Act (UMRA), because it would preempt 
state securities laws in order to prohibit most securities-
related class-action suits from being adjudicated in state 
courts. The bill would allow state and local government pension 
plans to continue to sue at the state level, however. CBO 
estimates that the budgetary impact on states to comply with 
this mandate would not be significant. The bill would impose no 
new private-sector mandates as defined in UMRA.
    Estimated cost to the Federal Government: For the purposes 
of this estimate, CBO assumes that H.R. 1689 will be enacted by 
the end of fiscal year 1998, and that the authorized amount 
will be appropriated by the start of fiscal year 1999. The 
estimated budgetary impact of H.R. 1689 is shown in the 
following table. Outlays have been estimated on the basis of 
historical spending patterns for SEC. The costs of this 
legislation fall within budget function 370 (commerce and 
housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                By fiscal years, in millions of dollars--       
                                                        --------------------------------------------------------
                                                          1997    1998     1999    2000    2001    2002    2003 
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION                                       
                                                                                                                
Net SEC Spending Under Current Law:                                                                             
    Estimated Budget Authority \1\.....................     -62       4        0       0       0       0       0
    Estimated Outlays..................................     -20     -72       79       0       0       0       0
Proposed Changes:                                                                                               
    SEC Spending:                                                                                               
        Authorization Level............................       0       0      351       0       0       0       0
        Estimated Outlays..............................       0       0      270      77       0       0       0
    Offsetting Collections:                                                                                     
        Estimated Authorization Level..................       0       0     -375       0       0       0       0
        Estimated Outlays..............................       0       0     -375       0       0       0       0
Net SEC Spending Under H.R. 1689:                                                                               
    Estimated Authorization Level \1\..................     -62       4      -24       0       0       0       0
    Estimated Outlays..................................     -20     -72      -26      77       0       0       0
----------------------------------------------------------------------------------------------------------------
\1\ The 1997 and 1998 levels are the net amounts appropriated for those years (gross appropriations less        
  offsetting collections).                                                                                      

    Basis of estimate: Title I of H.R. 1689 would amend 
existing law so that class actions involving most types of 
securities fraud could not be based on state law and could only 
be maintained in federal courts. CBO estimates that 
implementing Title I would have no significant impact on the 
federal budget. Recent data on the number of securities-related 
class actions brought under state law suggest that fewer than 
100 cases per year might shift to federal courts as a result of 
this bill. Although class actions often involve complex and 
time-consuming issues, CBO estimates that the federal court 
system would not incur significant costs to process that number 
of new cases.
    Title II would authorize the appropriation of $351 million 
for the SEC to carry out its functions, powers, and duties in 
fiscal year 1999. Assuming appropriation of the authorized 
amount, CBO estimates that the SEC would spend an additional 
$347 million over the next two years. The agency's 
appropriations are offset by collections of fees on certain 
securities transactions. CBO estimates that the amount of fees 
to be credited to appropriations will total $375 million in 
1999. H.R. 1689 also would require the SEC to submit a report 
within two years after the date of enactment, describing its 
efforts to promote state laws related to reciprocal enforcement 
of subpoenas. Finally, the bill would require SEC to report 
annually the nature of the cases affected by H.R. 1689, the 
extent to which H.R. 1689 adversely affects the protection of 
investors or the public interest, and the alternatives to 
maintaining class actions involving most types of securities 
fraud only in federal courts. CBO assumes that the costs for 
both reports would be covered by the authorized funding level 
for 1999.
    Pay-as-you-go considerations: None.
    Estimated impact on State, local, and tribal governments: 
H.R. 1689 contains an intergovernmental mandate as defined in 
UMRA, because it would preempt state securities laws in order 
to prohibit most securities-related class-action suits from 
being adjudicated in state courts. The bill would allow state 
and local government pension plans to continue to sue at the 
state level, however. CBO estimates that the impact of this 
mandate on state budgets would not be significant.
    Estimated impact on the private sector: The bill would 
impose no new private-sector mandates as defined in UMRA.
    Previous CBO estimate: On May 1, 1998, CBO transmitted an 
estimate of S. 1260, the Securities Litigation Uniform 
Standards Act of 1998, as ordered reported by the Senate 
Committee on Banking, Housing, and Urban Affairs on April 29, 
1998. The Senate bill included neither the reauthorization for 
SEC nor the required reports, so CBO estimated that it would 
have no significant impact on the federal budget.
    Estimate prepared by: Federal Costs: Mark Hadley. Impact on 
State, Local, and Tribal Governments: Pepper Santalucia.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 2(l)(4) of Rule XI of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation

Section 1. Short title

    Section 1 states that the short title of the bill is the 
Securities Litigation Uniform Standards Act of 1998.

            TITLE I--SECURITIES LITIGATION UNIFORM STANDARDS

Section 101. Limitation on remedies

    Subsection 101(a)(1) amends Section 16 of the Securities 
Act of 1933 as follows:
    Subsection 16(a) is a savings clause, providing that except 
as provided in subsection (b), the rights and remedies provided 
by this title are in addition to other rights and remedies 
existing at law or equity.
    Subsection 16(b) provides that no class action based on 
State law alleging fraud in connection with the purchase or 
sale of covered securities may be maintained in State or 
Federal court.
    Subsection 16(c) provides that any class action described 
in subsection (b) that is brought in a State court shall be 
removable to a Federal district court, and may be dismissed 
pursuant to the provisions of subsection (b). This provision is 
designed to prevent a State court from inadvertently, 
improperly, or otherwise maintaining jurisdiction over an 
action that is preempted pursuant to subsection (b).
    Subsection 16(d) provides for the preservation of certain 
lawsuits brought under State law. Subparagraph (1) of 
subsection 16(d) preserves State court jurisdiction over suits 
affecting conduct of corporate officers with respect to certain 
corporate actions, including tender offers, exchange offers and 
the exercise of dissenter's or appraisal rights.
    Subparagraph (2) of subsection 16(d) preserves State court 
jurisdiction over suits brought by States, their political 
subdivisions, and State pension plans, so long as each such 
plaintiff is named and has authorized participation in the 
action. The requirement that each plaintiff be named and 
authorize participation in the action is designed to preserve 
the ability of municipalities and State pension plans to 
protect their investors and taxpayers by filing legitimate 
class actions, while preventing the provision from serving as a 
loophole through which abusive suits could be brought on behalf 
of pension funds and municipalities that have no interest in 
bringing suit, simply in order to extort a large settlement out 
of the defendant. The requirement that municipalities and these 
government-related pension plans affirmatively approve the 
litigation and be named plaintiffs is consistent with the 
fiduciary duty of these entities to their beneficiaries. The 
Committee has included these requirements so that these 
entities will become parties to a lawsuit only after 
deliberation and their affirmative consent. The Subparagraph 
includes a definition of the term ``State pension plan.''
    Subparagraph (3) of Subsection 16(d) preserves State court 
jurisdiction over certain contractual actions, providing that 
an action seeking to enforce a contractual agreement may be 
maintained in State or Federal court, but only by a party to 
the agreement (or a successor to such a party). This provision 
is designed to make it clear that the legislation does not 
affect contractual rights under bond indentures.
    Subparagraph (4) of subsection 16(d) mandates that a 
Federal court remand to State court an action that has been 
removed from State court if the Federal court determines that 
the action may be maintained in State court. This is intended 
as a savings clause, so that in the event of improper removal 
of the limited universe of cases over which State court 
jurisdiction has been preserved pursuant to this subsection, 
the Federal court would remand such action back to State court.
    Subsection 16(e) is a savings clause, clarifying that State 
securities commissions retain their jurisdiction to investigate 
and bring enforcement actions.
    Subsection 16(f) provides for definitions under the 
section, including definitions of ``affiliate of the issuer,'' 
``class action,'' and ``covered security.''
    Subsection 16(f) defines ``class action'' to include 
actions brought on behalf of more than 50 persons, 
representative actions brought on behalf of unnamed parties, 
and so-called ``mass actions,'' which are groups of lawsuits in 
which damages are sought on behalf of more than 50 persons and 
the suits are joined or consolidated.
    The definition of ``class action'' provides an exception to 
preserve State court jurisdiction over derivative actions. The 
definition also provides that for purposes of counting the 
number of members of a class, a corporation, investment 
company, pension plan, partnership, or other entity is treated 
as one person (provided that the entity was not established for 
the purpose of participating in the action). The definition 
also includes a savings clause that emphasizes that a State 
court retains full discretion to decide whether or not to join 
or consolidate actions filed in that court. For example, in the 
event a State court found that joinder of a case would cause an 
action to be extinguished because the case had been brought 
pursuant to a longer statute of limitations than exists under 
Federal law, the State court would retain full discretion to 
decide not to join that particular case to a group of other 
cases. The State court might find, however, that joinder of the 
action was appropriate, regardless of the fact that the case 
would not fall within the applicable Federal statute of 
limitations, and the legislation explicitly preserves the 
authority of the State court to make that determination. 
Separation or joinder should serve the needs of justice.
    Subsection 16(f) defines ``covered security'' to include a 
security that qualifies as a ``covered security'' under 
subsection 18(b)(1) of the Securities Act of 1933, except that 
the term does not include certain debt securities issued in 
private placements. The exclusion of privately placed debt 
securities is designed to prevent the legislation from 
inadvertently limiting contractual remedies for breach of 
express representations or covenants under the note purchase 
agreements pursuant to which such securities are issued.
    Subsection 101(a)(2) amends Section 27(b) of the Securities 
Act of 1933 to include a provision to prevent plaintiffs from 
circumventing the stay of discovery under the Reform Act by 
using State court discovery, which may not be subject to those 
limitations, in an action filed in State court. This provision 
expressly permits a Federal court to stay discovery proceedings 
in any private action in a State court as necessary in aid of 
its jurisdiction, or to protect or effectuate its judgments. 
This provision authorizes a court to stay such proceedings in 
State court, regardless of whether: (1) there exists a parallel 
action in Federal court; or (2) the State proceedings were 
brought prior to, subsequent to, or concurrently with, a 
Federal filing. Because circumvention of the stay of discovery 
of the Reform Act is a key abuse that thislegislation is 
designed to prevent, the Committee intends that courts use this 
provision liberally, so that the preservation of State court 
jurisdiction of limited individual securities fraud claims does not 
become a loophole through which the trial bar can engage in discovery 
not subject to the stay of the Reform Act.
    Subsection 101(a)(3) provides for conforming amendments to 
Section 22(a) of the Securities Act of 1933.
    Subsection 101(b) amends Section 28 of the Securities 
Exchange Act of 1934 so as to effect changes to that section 
that are substantially similar to, and consistent with, the 
amendments that subsection 101(a) makes to the Securities Act 
of 1933.

Section 102. Issuance of subpoenas in judicial actions

    Section 102 amends the Securities Act of 1933, the 
Securities Exchange Act of 1934, the Investment Company Act of 
1940, the Investment Advisers Act of 1940, and the Public 
Utility Holding Company Act of 1935 to permit subpoenas issued 
by any United States district court pursuant to a proceeding 
instituted by the Securities and Exchange Commission (SEC or 
Commission) under any of those Acts to be served to witnesses 
in any other district. This section thus provides the 
Commission, as well as defendants in enforcement actions 
brought by the Commission, with nationwide service of process 
to compel the attendance of witnesses. This express 
authorization of nationwide service of process excepts the SEC 
from Rule 45(b)(2) of the Federal Rules of Civil Procedure 
(FRCP).
    The other provisions of FRCP Rule 45 would remain 
applicable to actions by the Commission, including subparagraph 
(c) of the Rule, which directs a person responsible for the 
issuance of a subpoena to take steps to avoid imposing undue 
burden or expense on a person subject to the subpoena, and 
directs courts to enforce this obligation by imposing sanctions 
upon persons who breach this duty. The Committee expects that 
the SEC will use this authority with great care and will not 
impose costs on defendants or third parties on the basis of 
convenience to the Commission.

Section 103. Promotion of reciprocal subpoena enforcement

    Paragraph (a) of section 103 directs the SEC to consult 
with State securities commissions and encourage the adoption of 
State laws that provide for reciprocal enforcement of State-
issued subpoenas by States other than the issuing State. 
Paragraph (b) of section 103 directs the Commission to submit a 
report to the Congress regarding its actions pursuant to 
paragraph (a), the status of the extent to which States have 
adopted such reciprocal enforcement measures, and any 
recommendations regarding further actions to be taken to 
encourage further adoption of such measures.

Section 104. Analysis of consequences

    Section 104 directs the SEC to include in its first three 
annual reports following the date of enactment of the Act an 
analysis of the nature and extent of class actions that are 
preempted or removed pursuant to the Act's provisions, the 
beneficial or adverse effects of such preemption or removal, 
and, if adverse effects are found, alternatives that would 
avoid such adverse effects but would still substantially reduce 
the risk of abusive securities litigation and further promote 
the protection of investors and the public interest. The public 
interest should, consistent with NSMIA, be read to include 
efficiency, competition and capital formation.

  TITLE II--REAUTHORIZATION OF THE SECURITIES AND EXCHANGE COMMISSION

Section 201. Authorization of appropriations

    Section 201 amends Section 35 of the Securities Exchange 
Act of 1934 to authorize certain appropriations and 
expenditures. The section authorizes the appropriation to the 
Commission of $351,280,000 for Fiscal Year 1999. The section 
also authorizes the Commission to use funds so appropriated for 
certain miscellaneous expenses, subject to specified expense 
limitations. The increase in the amount authorized over H.R. 
1262 is intended to provide authorization for modernization of 
EDGAR consistent with the exchange of letters among Chairman 
Bliley, Chairman Rogers of the Subcommittee on Commerce, 
Justice, State, and Judiciary of the House Committee on 
Appropriations, and SEC Chairman Levitt, dated April 24, 1998, 
and June 5, 1998, respectively. This additional authorization 
should not be used for purposes other than EDGAR modernization.

              TITLE III--CLERICAL AND TECHNICAL AMENDMENTS

Section 301. Clerical and technical amendments

    Section 301 amends the Securities Act of 1933, the 
Securities Exchange Act of 1934, the Investment Company Act of 
1940, the Investment Advisers Act of 1940, and the Trust 
Indenture Act of 1939 to correct certain clerical and technical 
errors in those Acts.

Section 302. Exemption of securities issued in connection with certain 
        State hearings

    Section 302 restores the applicability of the exemption 
from Federal registration requirements under the Securities Act 
of 1933 for securities that have been subject to certain State 
hearings pursuant to paragraph (10) of Section 3 of that Act.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

SECURITIES ACT OF 1933

           *       *       *       *       *       *       *


                                TITLE I

                              short title

  Section 1. This title may be cited as the ``Securities Act of 
1933''.

                              definitions

  Sec. 2. (a) Definitions.--When used in this title, unless the 
context otherwise requires--
          (1) * * *

           *       *       *       *       *       *       *

          (15) The term ``accredited investor'' shall mean--
                  (i) a bank as defined in section 3(a)(2) of 
                the Act whether acting in its individual or 
                fiduciary capacity; an insurance company as 
                defined in [section 2(13) of the Act] paragraph 
                (13) of this subsection; an investment company 
                registered under the Investment Company Act of 
                1940 or a business development company as 
                defined in section 2(a)(48) of that Act; a 
                Small Business Investment Company licensed by 
                the Small Business Administration; or an 
                employee benefit plan, including an individual 
                retirement account, which is subject to the 
                provisions of the Employee Retirement Income 
                Security Act of 1974, if the investment 
                decision is made by a plan fiduciary, as 
                defined in section 3(21) of such Act, which is 
                either a bank, insurance company, or registered 
                investment adviser; or

           *       *       *       *       *       *       *


      civil liabilities on account of false registration statement

  Sec. 11. (a) * * *

           *       *       *       *       *       *       *

  (f)(1) * * *
  (2)(A) The liability of an outside director under subsection 
(e) shall be determined in accordance with [section 38] section 
21D(f) of the Securities Exchange Act of 1934.

           *       *       *       *       *       *       *


                         limitation of actions

  Sec. 13. No action shall be maintained to enforce any 
liability created under section 11 or section [12(2)] 12(a)(2) 
unless brought within one year after the discovery of the 
untrue statement or the omission, or after such discovery 
should have been made by the exercise of reasonable diligence, 
or, if the action is to enforce a liability created under 
section [12(1)] 12(a)(1), unless brought within one year after 
the violation upon which it is based. In no event shall any 
such action be brought to enforce a liability created under 
section 11 or section [12(1)] 12(a)(1) more than three years 
after the security was bona fide offered to the public, or 
under section [12(2)] 12(a)(2) more than three years after the 
sale.

           *       *       *       *       *       *       *


                          [additional remedies

  [Sec. 16. The rights and remedies provided by this title 
shall be in addition to any and all other rights and remedies 
that may exist at law or in equity.]

SEC. 16. ADDITIONAL REMEDIES; LIMITATION ON REMEDIES.

  (a) Remedies Additional.--Except as provided in subsection 
(b), the rights and remedies provided by this title shall be in 
addition to any and all other rights and remedies that may 
exist at law or in equity.
  (b) Class Action Limitations.--No class action based upon the 
statutory or common law of any State or subdivision thereof may 
be maintained in any State or Federal court by any private 
party alleging--
          (1) an untrue statement or omission of a material 
        fact in connection with the purchase or sale of a 
        covered security; or
          (2) that the defendant used or employed any 
        manipulative or deceptive device or contrivance in 
        connection with the purchase or sale of a covered 
        security.
  (c) Removal of Class Actions.--Any class action brought in 
any State court involving a covered security, as set forth in 
subsection (b), shall be removable to the Federal district 
court for the district in which the action is pending, and 
shall be subject to subsection (b).
  (d) Preservation of Certain Actions.--
          (1) Actions under state law of state of 
        incorporation.--
                  (A) Actions preserved.--Notwithstanding 
                subsection (b) or (c), a class action described 
                in subparagraph (B) of this paragraph that is 
                based upon the statutory or common law of the 
                State in which the issuer is incorporated (in 
                the case of a corporation) or organized (in the 
                case of any other entity) may be maintained in 
                a State or Federal court by a private party.
                  (B) Permissible actions.--A class action is 
                described in this subparagraph if it involves--
                          (i) the purchase or sale of 
                        securities by the issuer or an 
                        affiliate of the issuer exclusively 
                        from or to holders of equity securities 
                        of the issuer; or
                          (ii) any recommendation, position, or 
                        other communication with respect to the 
                        sale of securities of the issuer that--
                                  (I) is made by or on behalf 
                                of the issuer or an affiliate 
                                of the issuer to holders of 
                                equity securities of the 
                                issuer; and
                                  (II) concerns decisions of 
                                those equity holders with 
                                respect to voting their 
                                securities, acting in response 
                                to a tender or exchange offer, 
                                or exercising dissenters' or 
                                appraisal rights.
          (2) State actions.--
                  (A) In general.--Notwithstanding any other 
                provision of this section, nothing in this 
                section may be construed to preclude a State or 
                political subdivision thereof or a State 
                pension plan from bringing an action involving 
                a covered security on its own behalf, or as a 
                member of a class comprised solely of other 
                States, political subdivisions, or State 
                pension plans that are named plaintiffs, and 
                that have authorized participation, in such 
                action.
                  (B) State pension plan defined.--For purposes 
                of this paragraph, the term ``State pension 
                plan'' means a pension plan established and 
                maintained for its employees by the government 
                of the State or political subdivision thereof, 
                or by any agency or instrumentality thereof.
          (3) Actions under contractual agreements between 
        issuers and indenture trustees.--Notwithstanding 
        subsection (b) or (c), a class action that seeks to 
        enforce a contractual agreement between an issuer and 
        an indenture trustee may be maintained in a State or 
        Federal court by a party to the agreement or a 
        successor to such party.
          (4) Remand of removed actions.--In an action that has 
        been removed from a State court pursuant to subsection 
        (c), if the Federal court determines that the action 
        may be maintained in State court pursuant to this 
        subsection, the Federal court shall remand such action 
        to such State court.
  (e) Preservation of State Jurisdiction.--The securities 
commission (or any agency or office performing like functions) 
of any State shall retain jurisdiction under the laws of such 
State to investigate and bring enforcement actions.
  (f) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Affiliate of the issuer.--The term ``affiliate of 
        the issuer'' means a person that directly or 
        indirectly, through 1 or more intermediaries, controls 
        or is controlled by or is under common control with, 
        the issuer.
          (2) Class action.--
                  (A) In general.--The term ``class action'' 
                means--
                          (i) any single lawsuit in which--
                                  (I) damages are sought on 
                                behalf of more than 50 persons 
                                or prospective class members, 
                                and questions of law or fact 
                                common to those persons or 
                                members of the prospective 
                                class, without reference to 
                                issues of individualized 
                                reliance on an alleged 
                                misstatement or omission, 
                                predominate over any questions 
                                affecting only individual 
                                persons or members; or
                                  (II) 1 or more named parties 
                                seek to recover damages on a 
                                representative basis on behalf 
                                of themselves and other unnamed 
                                parties similarly situated, and 
                                questions of law or fact common 
                                to those persons or members of 
                                the prospective class 
                                predominate over any questions 
                                affecting only individual 
                                persons or members; or
                          (ii) any group of lawsuits filed in 
                        or pending in the same court and 
                        involving common questions of law or 
                        fact, in which--
                                  (I) damages are sought on 
                                behalf of more than 50 persons; 
                                and
                                  (II) the lawsuits are joined, 
                                consolidated, or otherwise 
                                proceed as a single action for 
                                any purpose.
                  (B) Exception for derivative actions.--
                Notwithstanding subparagraph (A), the term 
                ``class action'' does not include an 
                exclusively derivative action brought by 1 or 
                more shareholders on behalf of a corporation.
                  (C) Counting of certain class members.--For 
                purposes of this paragraph, a corporation, 
                investment company, pension plan, partnership, 
                or other entity, shall be treated as 1 person 
                or prospective class member, but only if the 
                entity is not established for the purpose of 
                participating in the action.
                  (D) Rule of construction.--Nothing in this 
                paragraph shall be construed to affect the 
                discretion of a State court in determining 
                whether actions filed in such court should be 
                joined, consolidated, or otherwise allowed to 
                proceed as a single action.
          (3) Covered security.--The term ``covered security'' 
        means a security that satisfies the standards for a 
        covered security specified in section 18(b)(1) at the 
        time during which it is alleged that the 
        misrepresentation, omission, or manipulative or 
        deceptive conduct occurred, except that such term shall 
        not include any debt security that is exempt from 
        registration under this title pursuant to rules issued 
        by the Commission under section 4(2) of this title.

           *       *       *       *       *       *       *


SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.

  (a) * * *
  (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 listed, or authorized for listing, 
                on the National Market Systemof the Nasdaq 
Stock Market (or any successor to such entities);

           *       *       *       *       *       *       *

          (4) Exemption in connection with certain exempt 
        offerings.--A security is a covered security with 
        respect to a transaction that is exempt from 
        registration under this title pursuant to--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) section 3(a), other than the offer or 
                sale of a security that is exempt from such 
                registration pursuant to [paragraph (4) or 
                (11)] paragraph (4), (10), 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

           *       *       *       *       *       *       *

  (c) Preservation of Authority.--
          (1) * * *
          (2) Preservation of filing requirements.--
                  (A) * * *
                  (B) Preservation of fees.--
                          (i) In general.--Until otherwise 
                        provided by law, rule, regulation, or 
                        order, or other administrative action 
                        of any State, or any political 
                        subdivision thereof, adopted after the 
                        date of enactment of the [Capital 
                        Markets Efficiency Act of 1996] 
                        National Securities Markets Improvement 
                        Act of 1996, filing or registration 
                        fees with respect to securities or 
                        securities transactions shall continue 
                        to be collected in amounts determined 
                        pursuant to State law as in effect on 
                        the day before such date.

           *       *       *       *       *       *       *

                  (C) Availability of preemption contingent on 
                payment of fees.--
                          (i) In general.--During the period 
                        beginning on the date of enactment of 
                        the National Securities [Market] 
                        Markets Improvement Act of 1996 and 
                        ending 3 years after that date of 
                        enactment, the securities commission 
                        (or any agency or office performing 
                        like functions) of any State may 
                        require the registration of securities 
                        issued by any issuer who refuses to pay 
                        the fees required by subparagraph (B).

           *       *       *       *       *       *       *

  (d) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Offering document.--The term ``offering 
        document''--
                  (A) has the meaning given the term 
                ``prospectus'' in section [2(10)] 2(a)(10), but 
                without regard to the provisions of 
                subparagraphs [(A) and (B)] (a) and (b) of that 
                section; and
          (2) Prepared by or on behalf of the issuer.--Not 
        later than 6 months after the date of enactment of the 
        [Securities Amendments Act of 1996] National Securities 
        Markets Improvement Act of 1996, the Commission shall, 
        by rule, define the term ``prepared by or on behalf of 
        the issuer'' for purposes of this section.

           *       *       *       *       *       *       *

          (4) Senior security.--[For purposes of this 
        paragraph, the] The term ``senior security'' means any 
        bond, debenture, note, or similar obligation or 
        instrument constituting a security and evidencing 
        indebtedness, and any stock of a class having priority 
        over any other class as to distribution of assets or 
        payment of dividends.

           *       *       *       *       *       *       *


                   jurisdiction of offenses and suits

  Sec. 22. (a) The district courts of the United States and 
United States courts of any Territory shall have jurisdiction 
of offenses and violations under this title and under the rules 
and regulations promulgated by the Commission in respect 
thereto, and, concurrent with State and Territorial courts, 
except as provided in section 16 with respect to class actions, 
of all suits in equity and actions at law brought to enforce 
any liability or duty created by this title. Any such suit or 
action may be brought in the district wherein the defendant is 
found or is an inhabitant or transacts business, or in the 
district where the offer or sale took place, if the defendant 
participated therein, and process in such cases may be served 
in any other district of which the defendant is an inhabitant 
or wherever the defendant may be found. In any action or 
proceeding instituted by the Commission under this title in the 
district court of the United States for any judicial district, 
subpoenas issued by such court to compel the attendance of 
witnesses may be served in any other district. Judgments and 
decrees so rendered shall be subject to review as provided in 
sections 1254, 1291, 1292, and 1294 of title 28, United States 
Code. [No case] Except as provided in section 16(c), no case 
arising under this title and brought in any State court of 
competent jurisdiction shall be removed to any court of the 
United States. No costs shall be assessed for or against the 
Commission in any proceeding under this title brought by or 
against it in the Supreme Court or such other courts.

           *       *       *       *       *       *       *


SEC. 27. PRIVATE SECURITIES LITIGATION.

  (a) * * *
  (b) Stay of Discovery; Preservation of Evidence.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Circumvention of stay of discovery.--Upon a 
        proper showing, a court may stay discovery proceedings 
        in any private action in a State court as necessary in 
        aid of its jurisdiction, or to protect or effectuate 
        its judgments, in an action subject to a stay of 
        discovery pursuant to this subsection.

           *       *       *       *       *       *       *


SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

  (a) Applicability.--This section shall apply only to a 
forward-looking statement made by--
          (1) an issuer that, at the time that the statement is 
        made, is subject to the reporting requirements of 
        section 13(a) or section 15(d) of the Securities 
        Exchange Act of 1934;

           *       *       *       *       *       *       *


SEC. 28. GENERAL EXEMPTIVE AUTHORITY.

  The Commission, by rule or regulation, 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 issued under this title, to the extent that such 
exemption is necessary or appropriate in the public interest, 
and is consistent with the protection of investors.

                               schedule a

  (1) * * *

           *       *       *       *       *       *       *

  (28) a copy of any agreement or agreements (or, if [identic] 
identical agreements are used, the forms thereof) made with any 
underwriter, including all contracts and agreements referred to 
in paragraph (17) of this schedule;

           *       *       *       *       *       *       *

                              ----------                              


                    SECURITIES EXCHANGE ACT OF 1934

              TITLE I--REGULATION OF SECURITIES EXCHANGES

                              short title

  Section 1. This Act may be cited as the ``Securities Exchange 
Act of 1934''.

           *       *       *       *       *       *       *


                  definitions and application of title

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1) * * *

           *       *       *       *       *       *       *

          (10) The term ``security'' means any note, stock, 
        treasury stock, bond, debenture, certificate of 
        interest or participation in any profit-sharing 
        agreement or in any oil, gas, or other mineral royalty 
        or lease, any collateral-trust certificate, 
        preorganization certificate or subscription, 
        transferable share,investment contract, voting-trust 
certificate, certificate of deposit[,] for a security, any put, call, 
straddle, option, or privilege on any security, certificate of deposit, 
or group or index of securities (including any interest therein or 
based on the value thereof), or any put, call, straddle, option, or 
privilege entered into on a national securities exchange relating to 
foreign currency, or in general, any instrument commonly known as a 
``security''; or any certificate of interest or participation in, 
temporary or interim certificate for, receipt for, or warrant or right 
to subscribe to or purchase, any of the foregoing; but shall not 
include currency or any note, draft, bill of exchange, or banker's 
acceptance which has a maturity at the time of issuance of not 
exceeding nine months, exclusive of days of grace, or any renewal 
thereof the maturity of which is likewise limited.

           *       *       *       *       *       *       *

          (12)(A) The term ``exempted security'' or ``exempted 
        securities'' includes--
                  (i) * * *

           *       *       *       *       *       *       *

                  (vi) solely for purposes of sections 12, 13, 
                14, and 16 of this title, any security issued 
                by or any interest or participation in any 
                church plan, company, or account that is 
                excluded from the definition of an investment 
                company under section 3(c)(14) of the 
                Investment Company Act of 1940; and

           *       *       *       *       *       *       *

          (22)(A) The term ``securities information processor'' 
        means any person engaged in the business of (i) 
        collecting, processing, or preparing for distribution 
        or publication, or assisting, participating in, or 
        coordinating the distribution or publication of, 
        information with respect to transactions in or 
        quotations for any security (other than an exempted 
        security) or (ii) distributing or publishing (whether 
        by means of a ticker tape, a communications network, a 
        terminal display device, or otherwise) on a current and 
        continuing basis, information with respect to such 
        transactions or quotations. The term ``securities 
        information processor'' does not include any bona fide 
        newspaper, news magazine, or business or financial 
        publication of general and regular circulation, any 
        self-regulatory organization, any bank, broker, dealer, 
        building and loan, savings and loan, or homestead 
        association, or cooperative bank, if such bank, broker, 
        dealer, association, or cooperative bank would be 
        deemed to be a securities information processor solely 
        by reason of functions performed by such institutions 
        as part of customary banking, brokerage, dealing, 
        association, or cooperative bank activities, or any 
        common carrier, as defined in section [3(h)] 3 of the 
        Communications Act of 1934, subject to the jurisdiction 
        of the Federal Communications Commission or a State 
        commission, as defined in [section 3(t)] such section 3 
        of that Act, unless the Commission determines that such 
        carrier is engaged in the business of collecting, 
        processing, or preparing for distribution or 
        publication, information with respect to transactions 
        in or quotations for any security.

           *       *       *       *       *       *       *

          (39) A person is subject to a ``statutory 
        disqualification'' with respect to membership or 
        participation in, or association with a member of, a 
        self-regulatory organization, if such person--
                  (A) * * *
          (B) is subject to--
                  (i) [an order to the Commission] an order of 
                the Commission, other appropriate regulatory 
                agency, or foreign financial regulatory 
                authority--
                          (I) * * *

           *       *       *       *       *       *       *


                          margin requirements

  Sec. 7. (a) For the purpose of preventing the excessive use 
of credit for the purchase or carrying of securities, the 
[Federal Reserve Board] Board of Governors of the Federal 
Reserve System shall, prior to the effective date of this 
section and from time to time thereafter, prescribe rules and 
regulations with respect to the amount of credit that may be 
initially extended and subsequently maintained on any security 
(other than an exempted security). For the initial extension of 
credit, such rules and regulations shall be based upon the 
following standard: An amount not greater than whichever is the 
higher of--
          (1) * * *

           *       *       *       *       *       *       *

  (b) Notwithstanding the provisions of subsection (a) of this 
section, the [Federal Reserve Board] Board of Governors of the 
Federal Reserve System, may, from time to time, with respect to 
all or specified securities or transactions, or classes of 
securities, or classes of transactions, by such rules and 
regulations (1) prescribe such lower margin requirements for 
the initial extension or maintenance of credit as it deems 
necessary or appropriate for the accommodation of commerce and 
industry, having due regard to the general credit situation of 
the country, and (2) prescribe such higher margin requirements 
for the initial extension or maintenance of credit as it may 
deem necessary or appropriate to prevent the excessive use of 
credit to finance transactions in securities.

           *       *       *       *       *       *       *

  (d) Unlawful Credit Extension in Violation of Rules and 
Regulations; [Exception] Exceptions to Application of Rules, 
Etc.--
          (1) * * *

           *       *       *       *       *       *       *


                                proxies

  Sec. 14. (a) * * *

           *       *       *       *       *       *       *

  (g)(1) * * *

           *       *       *       *       *       *       *

  (4) Notwithstanding any other provision of law, the 
Commission may impose fees, charges, or prices for matters not 
involving any acquisition, merger, [consolidation sale,] 
consolidation, sale, or other disposition of assets described 
in this subsection, as authorized by section 9701 of title 31, 
United States Code, or otherwise.

           *       *       *       *       *       *       *


           registration and regulation of brokers and dealers

  Sec. 15. (a) * * *

           *       *       *       *       *       *       *

  (c)(1) * * *

           *       *       *       *       *       *       *

  (8) Prohibition of referral fees.--No broker or dealer, or 
person associated with a broker or dealer, may solicit or 
accept, directly or indirectly, remuneration for assisting an 
attorney in obtaining the representation of any person in any 
private action arising under this title or under the Securities 
Act of 1933.

           *       *       *       *       *       *       *

  (h) Limitations on State Law.--
          (1) * * *
          (2) De minimis transactions by associated persons.--
        No law, rule, regulation, or order, or other 
        administrative action of any State or political 
        subdivision thereof may prohibit an associated person 
        of a broker or dealer from [affecting] effecting a 
        transaction described in paragraph (3) for a customer 
        in such State if--
                  (A) * * *

           *       *       *       *       *       *       *

          (3) Described transactions.--
                  (A) In general.--A transaction is described 
                in this paragraph if--
                          (i) such transaction is effected--
                                  (I) on behalf of a customer 
                                that, for 30 days prior to the 
                                day of the transaction, 
                                maintained an account with the 
                                broker or dealer; and
                                  (II) by an associated person 
                                of the broker or dealer--
                                          (aa) to which the 
                                        customer was assigned 
                                        for 14 days prior to 
                                        the day of the 
                                        transaction; and
                                          (bb) who is 
                                        registered with a State 
                                        in which the customer 
                                        was a resident or was 
                                        present for at least 30 
                                        consecutive days during 
                                        the 1-year period prior 
                                        to the day of the 
                                        transaction; or
                          (ii) the transaction is effected--
                                  (I) on behalf of a customer 
                                that, for 30 days prior to the 
                                day of the transaction, 
                                [maintains] maintained an 
                                account with the broker or 
                                dealer; and

           *       *       *       *       *       *       *

                  (B) Rules of construction.--For purposes of 
                subparagraph (A)(i)(II)--
                          (i) * * *
                          (ii) 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, a transaction is not described 
                        in this paragraph, unless the 
                        [association] associated person of the 
                        broker or dealer files an application 
                        for registration with such State not 
                        later than 10 business days after the 
                        later of the date of the transaction, 
                        or the date of the discovery of the 
                        presence of the customer in the other 
                        State for 30 or more consecutive days 
                        or the change in the customer's 
                        residence.

           *       *       *       *       *       *       *


                          municipal securities

  Sec. 15B. (a) * * *

           *       *       *       *       *       *       *

  (c)(1) * * *

           *       *       *       *       *       *       *

  (4) The Commission, by order, shall censure or place 
limitations on the activities or functions of any person 
associated, seeking to become associated, or, at the time of 
the alleged misconduct, associated or seeking to become 
associated with a municipal securities dealer, or suspend for a 
period not exceeding twelve months or bar any such person from 
being associated with a municipal securities dealer, if the 
Commission finds, on the record after notice and opportunity 
for hearing, that such censure, placing of limitations, 
suspension, or bar is in the public interest and that such 
person has committed any act or omission enumerated in 
subparagraph (A), (D), (E), or (G) of paragraph (4) of section 
15(b) of this title, has been [convicted by any offense] 
convicted of any offense specified in subparagraph (B) of such 
paragraph (4) within 10 years of the commencement of the 
proceedings under this paragraph, or is enjoined from any 
action, conduct, or practice specified in subparagraph (C) of 
such paragraph (4). It shall be unlawful for any person as to 
whom an order entered pursuant to this paragraph or paragraph 
(5) of this subsection suspending or barring him from being 
associated with a municipal securities dealer is in effect 
willfully to become, or to be, associated with a municipal 
securities dealer without the consent of the Commission, and it 
shall be unlawful for any municipal securities dealer to permit 
such a person to become, or remain, a person associated with 
him without the consent of the Commission, if such municipal 
securities dealer knew, or, in the exercise of reasonable care 
should have known, of such order.

           *       *       *       *       *       *       *


               government securities brokers and dealers

    Sec. 15C. (a) * * *

           *       *       *       *       *       *       *

  (f) Large Position Reporting.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Exemptions.--Consistent with the public interest 
        and the protection of investors, the Secretary by rule 
        or order may exempt in whole or in part, conditionally 
        or unconditionally, [any person or class or persons] 
        any person or class of persons, or any transaction or 
        class of transactions, from the requirements of this 
        subsection.

           *       *       *       *       *       *       *


  accounts and records, examinations of exchanges, members, and others

  Sec. 17. (a) * * *

           *       *       *       *       *       *       *

  (g) Any broker, dealer, or other person extending credit who 
is subject to the rules and regulations prescribed by the Board 
of Governors of the [Federal Reserve Board] Board of Governors 
of the Federal Reserve System pursuant to this title shall make 
such reports to the Board as it may require as necessary or 
appropriate to enable it to perform the functions conferred 
upon it by this title. If any such broker, dealer, or other 
person shall fail to make any such report or fail to furnish 
full information therein, or, if in the judgment of the Board 
it is otherwise necessary, such broker, dealer, or other person 
shall permit such inspections to be made by the Board with 
respect to the business operations of such broker, dealer, or 
other person as the Board may deem necessary to enable it to 
obtain the required information.

           *       *       *       *       *       *       *


   registration, responsibilities, and oversight of self-regulatory 
                             organizations

  Sec. 19. (a) * * *

           *       *       *       *       *       *       *

  (c) The Commission, by rule, may abrogate, add to, and delete 
from (hereinafter in this subsection collectively referred to 
as ``amend'') the rules of a self-regulatory organization 
(other than a registered clearing agency) as the Commission 
deems necessary or appropriate to insure the fair 
administration of the self-regulatory organization, to conform 
its rules to requirements of this title and the rules and 
regulations thereunder applicable to such organization, or 
otherwise in furtherance of the purposes of this title, in the 
following manner:
          (1) * * *

           *       *       *       *       *       *       *

          (5) With respect to rules described in subsection 
        (b)(5), the Commission shall consult with and consider 
        the views of the Secretary of the Treasury before 
        abrogating, adding to, and deleting from such rules, 
        except where the Commission determines that an 
        emergency exists requiring expeditious or summary 
        action and publishes its reasons therefor.

           *       *       *       *       *       *       *


     liability of controlling persons and persons who aid and abet 
                               violations

  Sec. 20. (a) * * *

           *       *       *       *       *       *       *

  [(f)] (e) Prosecution of Persons Who Aid and Abet 
Violations.--For purposes of any action brought by the 
Commission under paragraph (1) or (3) of section 21(d), any 
person that knowingly provides substantial assistance to 
another person in violation of a provision of this title, or of 
any rule or regulation issued under this title, shall be deemed 
to be in violation of such provision to the same extent as the 
person to whom such assistance is provided.

           *       *       *       *       *       *       *


SEC. 21D. PRIVATE SECURITIES LITIGATION.

  (a) * * *
  (b) Requirements for Securities Fraud Actions.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Motion to dismiss; stay of discovery.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Circumvention of stay of discovery.--Upon 
                a proper showing, a court may stay discovery 
                proceedings in any private action in a State 
                court as necessary in aid of its jurisdiction, 
                or to protect or effectuate its judgments, in 
                an action subject to a stay of discovery 
                pursuant to this paragraph.

           *       *       *       *       *       *       *

  [(g)] (f) Proportionate Liability.--
          (1) Applicability.--Nothing in this subsection shall 
        be construed to create, affect, or in any manner 
        modify, the standard for liability associated with any 
        action arising under the securities laws.
          (2) Liability for damages.--
                  (A) Joint and several liability.--Any covered 
                person against whom a final judgment is entered 
                in a private action shall be liable for damages 
                jointly and severally only if the trier of fact 
                specifically determines that such covered 
                person knowingly committed a violation of the 
                securities laws.
                  (B) Proportionate liability.--
                          (i) In general.--Except as provided 
                        in [paragraph (1)] subparagraph (A), a 
                        covered person againstwhom a final 
judgment is entered in a private action shall be liable solely for the 
portion of the judgment that corresponds to the percentage of 
responsibility of that covered person, as determined under paragraph 
(3).

           *       *       *       *       *       *       *


                        unlawful representations

  Sec. 26. No action or failure to act by the Commission or the 
[Federal Reserve Board] Board of Governors of the Federal 
Reserve System, in the administration of this title shall be 
construed to mean that the particular authority has in any way 
passed upon the merits of, or given approval to, any security 
or any transaction or transactions therein, nor shall such 
action or failure to act with regard to any statement or report 
filed with or examined by such authority pursuant to this title 
or rules and regulations thereunder, be deemed a finding by 
such authority that such statement or report is true and 
accurate on its face or that it is not false or misleading. It 
shall be unlawful to make, or cause to be made, to any 
prospective purchaser or seller of a security any 
representation that any such action or failure to act by any 
such authority is to be so construed or has such effect.

                   jurisdiction of offenses and suits

  Sec. 27. The district courts of the United States and the 
United States courts of any Territory or other place subject to 
the jurisdiction of the United States shall have exclusive 
jurisdiction of violations of this title or the rules and 
regulations thereunder, and of all suits in equity and actions 
at law brought to enforce any liability or duty created by this 
title or the rules and regulations thereunder. Any criminal 
proceeding may be brought in the district wherein any act or 
transaction constituting the violation occurred. Any suit or 
action to enforce any liability or duty created by this title 
or rules and regulations thereunder, or to enjoin any violation 
of such title or rules and regulations, may be brought in any 
such district or in the district wherein the defendant is found 
or is an inhabitant or transacts business, and process in such 
cases may be served in any other district of which the 
defendant is an inhabitant or wherever the defendant may be 
found. In any action or proceeding instituted by the Commission 
under this title in the district court of the United States for 
any judicial district, subpoenas issued by such court to compel 
the attendance of witnesses may be served in any other 
district. Judgments and decrees so rendered shall be subject to 
review as provided in sections 1254, 1291, 1292, and 1294 of 
title 28, United States Code. No costs shall be assessed for or 
against the Commission in any proceeding under this title 
brought by or against it in the Supreme Court or such other 
courts.

                         effect on existing law

  Sec. 28. (a) [The rights and remedies] Except as provided in 
subsection (f), the rights and remedies provided by this title 
shall be in addition to any and all other rights and remedies 
that may exist at law or in equity; but no person permitted to 
maintain a suit for damages under the provisions of this title 
shall recover, through satisfaction of judgment in one or more 
actions, a total amount in excess of his actual damages on 
account of the act complained of. Except as otherwise 
specifically provided in this title, nothing in this title 
shall affect the jurisdiction of the securities commission (or 
any agency or officer performing like functions) of any State 
over any security or any person insofar as it does not conflict 
with the provisions of this title or the rules and regulations 
thereunder. No State law which prohibits or regulates the 
making or promoting of wagering or gaming contracts, or the 
operation of `bucket shops' or other similar or related 
activities, shall invalidate any put, call, straddle, option, 
privilege, or other security, or apply to any activity which is 
incidental or related to the offer, purchase, sale, exercise, 
settlement, or closeout of any such instrument, if such 
instrument is traded pursuant to rules and regulations of a 
self-regulatory organization that are filed with the Commission 
pursuant to section 19(b) of this Act.

           *       *       *       *       *       *       *

  (f) Limitations on Remedies.--
          (1) Class action limitations.--No class action based 
        upon the statutory or common law of any State or 
        subdivision thereof may be maintained in any State or 
        Federal court by any private party alleging--
                  (A) a misrepresentation or omission of a 
                material fact in connection with the purchase 
                or sale of a covered security; or
                  (B) that the defendant used or employed any 
                manipulative or deceptive device or contrivance 
                in connection with the purchase or sale of a 
                covered security.
          (2) Removal of class actions.--Any class action 
        brought in any State court involving a covered 
        security, as set forth in paragraph (1), shall be 
        removable to the Federal district court for the 
        district in which the action is pending, and shall be 
        subject to paragraph (1).
          (3) Preservation of certain actions.--
                  (A) Actions under state law of state of 
                incorporation.--
                          (i) Actions preserved.--
                        Notwithstanding paragraph (1) or (2), a 
                        class action described in clause (ii) 
                        of this subparagraph that is based upon 
                        the statutory or common law of the 
                        State in which the issuer is 
                        incorporated (in the case of a 
                        corporation) or organized (in the case 
                        of any other entity) may be maintained 
                        in a State or Federal court by a 
                        private party.
                          (ii) Permissible actions.--A class 
                        action is described in this clause if 
                        it involves--
                                  (I) the purchase or sale of 
                                securities by the issuer or an 
                                affiliate of the issuer 
                                exclusively from or to holders 
                                of equity securities of the 
                                issuer; or
                                  (II) any recommendation, 
                                position, or other 
                                communication with respect to 
                                the sale of securities of an 
                                issuer that--
                                          (aa) is made by or on 
                                        behalf of the issuer or 
                                        an affiliate of the 
                                        issuer to holders of 
                                        equity securities of 
                                        the issuer; and
                                          (bb) concerns 
                                        decisions of such 
                                        equity holders with 
                                        respect to voting their 
                                        securities, acting in 
                                        response to a tender or 
                                        exchange offer, or 
                                        exercising dissenters' 
                                        or appraisal rights.
                  (B) State actions.--
                          (i) In general.--Notwithstanding any 
                        other provision of this subsection, 
                        nothing in this subsection may be 
                        construed to preclude a State or 
                        political subdivision thereof or a 
                        State pension plan from bringing an 
                        action involving a covered security on 
                        its own behalf, or as a member of a 
                        class comprised solely of other States, 
                        political subdivisions, or State 
                        pension plans that are named 
                        plaintiffs, and that have authorized 
                        participation, in such action.
                          (ii) State pension plan defined.--For 
                        purposes of this subparagraph, the term 
                        ``State pension plan'' means a pension 
                        plan established and maintained for its 
                        employees by the government of a State 
                        or political subdivision thereof, or by 
                        any agency or instrumentality thereof.
                  (C) Actions under contractual agreements 
                between issuers and indenture trustees.--
                Notwithstanding paragraph (1) or (2), a class 
                action that seeks to enforce a contractual 
                agreement between an issuer and an indenture 
                trustee may be maintained in a State or Federal 
                court by a party to the agreement or a 
                successor to such party.
                  (D) Remand of removed actions.--In an action 
                that has been removed from a State court 
                pursuant to paragraph (2), if the Federal court 
                determines that the action may be maintained in 
                State court pursuant to this subsection, the 
                Federal court shall remand such action to such 
                State court.
          (4) Preservation of state jurisdiction.--The 
        securities commission (or any agency or office 
        performing like functions) of any State shall retain 
        jurisdiction under the laws of such State to 
        investigate and bring enforcement actions.
          (5) Definitions.--For purposes of this subsection, 
        the following definitions shall apply:
                  (A) Affiliate of the issuer.--The term 
                ``affiliate of the issuer'' means a person that 
                directly or indirectly, through 1 or more 
                intermediaries, controls or is controlled by or 
                is under common control with, the issuer.
                  (B) Class action.--The term ``class action'' 
                means--
                          (i) any single lawsuit in which--
                                  (I) damages are sought on 
                                behalf of more than 50 persons 
                                or prospective class members, 
                                and questions of law or fact 
                                common to those persons or 
                                members of the prospective 
                                class, without reference to 
                                issues of individualized 
                                reliance on an alleged 
                                misstatement or omission, 
                                predominate over any questions 
                                affecting only individual 
                                persons or members; or
                                  (II) 1 or more named parties 
                                seek to recover damages on a 
                                representative basis on behalf 
                                of themselves and other unnamed 
                                parties similarly situated, and 
                                questions of law or fact common 
                                to those persons or members of 
                                the prospective class 
                                predominate over any questions 
                                affecting only individual 
                                persons or members; or
                          (ii) any group of lawsuits filed in 
                        or pending in the same court and 
                        involving common questions of law or 
                        fact, in which--
                                  (I) damages are sought on 
                                behalf of more than 50 persons; 
                                and
                                  (II) the lawsuits are joined, 
                                consolidated, or otherwise 
                                proceed as a single action for 
                                any purpose.
                  (C) Exception for derivative actions.--
                Notwithstanding subparagraph (B), the term 
                ``class action'' does not include an 
                exclusively derivative action brought by 1 or 
                more shareholders on behalf of a corporation.
                  (D) Counting of certain class members.--For 
                purposes of this paragraph, a corporation, 
                investment company, pension plan, partnership, 
                or other entity, shall be treated as 1 person 
                or prospective class member, but only if the 
                entity is not established for the purpose of 
                participating in the action.
                  (E) Covered security.--The term ``covered 
                security'' means a security that satisfies the 
                standards for a covered security specified in 
                section 18(b)(1) of the Securities Act of 1933, 
                at the time during which it is alleged that the 
                misrepresentation, omission, or manipulative or 
                deceptive conduct occurred, except that such 
                term shall not include any debt security that 
                is exempt from registration under the 
                Securities Act of 1933 pursuant to rules issued 
                by the Commission under section 4(2) of such 
                Act.
                  (F) Rule of construction.--Nothing in this 
                paragraph shall be construed to affect the 
                discretion of a State court in determining 
                whether actions filed in such court should be 
                joined, consolidated, or otherwise allowed to 
                proceed as a single action.

           *       *       *       *       *       *       *


SEC. 31. TRANSACTION FEES.

  (a) Recovery of Cost of Services.--The Commission shall, in 
accordance with this [subsection] section, 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.

           *       *       *       *       *       *       *


[SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

  [There are authorized to be appropriated to carry out the 
functions, powers, and duties of the Commission $300,000,000 
for fiscal year 1997, in addition to any other funds authorized 
to be appropriated to the Commission.]

SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

  (a) In General.--In addition to any other funds authorized to 
be appropriated to the Commission, there are authorized to be 
appropriated to carry out the functions, powers, and duties of 
the Commission $351,280,000 for fiscal year 1999.
  (b) Miscellaneous Expenses.--Funds appropriated pursuant to 
this section are authorized to be expended--
          (1) not to exceed $3,000 per fiscal year, for 
        official reception and representation expenses;
          (2) not to exceed $10,000 per fiscal year, for 
        funding a permanent secretariat for the International 
        Organization of Securities Commissions; and
          (3) not to exceed $100,000 per fiscal year, for 
        expenses for consultations and meetings hosted by the 
        Commission with foreign governmental and other 
        regulatory officials, members of their delegations, 
        appropriate representatives, and staff to exchange 
        views concerning developments relating to securities 
        matters, for development and implementation of 
        cooperation agreements concerning securities matters 
        and provision of technical assistance for the 
        development of foreign securities markets, such 
        expenses to include necessary logistic and 
        administrative expenses and the expenses of Commission 
        staff and foreign invitees in attendance at such 
        consultations and meetings, including--
                  (A) such incidental expenses as meals taken 
                in the course of such attendance;
                  (B) any travel or transportation to or from 
                such meetings; and
                  (C) any other related lodging or subsistence.

           *       *       *       *       *       *       *

                              ----------                              


                     INVESTMENT COMPANY ACT OF 1940

TITLE I--INVESTMENT COMPANIES

           *       *       *       *       *       *       *


                          general definitions

  Sec. 2. (a) When used in this title, unless the context 
otherwise requires--
          (1) * * *

           *       *       *       *       *       *       *

          (8) ``Company'' means a corporation, a partnership, 
        an association, a joint-stock company, a trust, a fund, 
        or any organized group of persons whether incorporated 
        or not; or any receiver, trustee in a case under title 
        11 of the [Unitde] United States Code or similar 
        official or any liquidating agent for any of the 
        foregoing, in his capacity as such.

           *       *       *       *       *       *       *


                    definition of investment company

  Sec. 3. (a) * * *
  (b) Notwithstanding [paragraph (3) of subsection (a)] 
paragraph (1)(C) of subsection (a), none of the following 
persons is an investment company within the meaning of this 
title:
          (1) * * *

           *       *       *       *       *       *       *


            functions and activities of investment companies

  Sec. 12. (a) * * *

           *       *       *       *       *       *       *

  (d)(1)(A) * * *

           *       *       *       *       *       *       *

  (G)(i) This paragraph does not apply to securities of a 
registered open-end investment company or a registered unit 
investment trust (hereafter in this subparagraph referred to as 
the ``acquired company'') purchased or otherwise acquired by a 
registered open-end investment company or a registered unit 
investment trust (hereafter in this subparagraph referred to as 
the ``acquiring company'') if--
          (I) * * *

           *       *       *       *       *       *       *

          (III) with respect to--
                  (aa) * * *
                  (bb) securities of the acquiring company, any 
                sales loads and other distribution-related fees 
                charged, when aggregated with any sales load 
                and distribution-related fees paid by the 
                acquiring company with respect to securities of 
                the acquired [fund] company, are not excessive 
                under rules adopted pursuant to section 22(b) 
                or section 22(c) by a securities association 
                registered under section 15A of the Securities 
                Exchange Act of 1934, or the Commission;

           *       *       *       *       *       *       *


                           capital structure

  Sec. 18. (a) * * *

           *       *       *       *       *       *       *

  (e) The provisions of this section 18 shall not apply to any 
senior securities issued or sold by any registered closed-end 
company--
          (1) * * *
          (2) pursuant to any plan of reorganization (other 
        than for refunding as referred to in [subsection 
        (e)(2)] paragraph (1) of this subsection), provided--
                  (A) * * *

           *       *       *       *       *       *       *


       periodic and other reports; reports of affiliated persons

  Sec. 30. (a) * * *
  (b) Every registered investment company shall file with the 
Commission--
          (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

           *       *       *       *       *       *       *

  (e) Every registered investment company shall transmit to its 
stockholders, at least [semi-annually] semiannually, reports 
containing such of the following information and financial 
statements or their equivalent, as of a reasonably current 
date, as the Commission may prescribe by rules and regulations 
for the protection of investors, which reports shall not be 
misleading in any material respect in the light of the reports 
required to be filed pursuant to subsections (a) and (b):
          (1) * * *

           *       *       *       *       *       *       *

  [(g)] (i) Disclosure to Church Plan Participants.--A person 
that maintains a church plan that is excluded from the 
definition of an investment company solely by reason of section 
3(c)(14) shall provide disclosure to plan participants, in 
writing, and not less frequently than annually, and for new 
participants joining such a plan after May 31, 1996, as soon as 
is practicable after joining such plan, that--
          (1) the plan, or any company or account maintained to 
        manage or hold plan assets and interests in such plan, 
        company, or account, are not subject to registration, 
        regulation, or reporting under this title, the 
        Securities Act of 1933, the Securities Exchange Act of 
        1934, or State securities laws; and
          (2) plan participants and beneficiaries therefore 
        will not be afforded the protections of those 
        provisions.
  [(h)] (j) Notice to Commission.--The Commission may issue 
rules and regulations to require any person that maintains a 
church plan that is excluded from the definition of an 
investment company solely by reason of section 3(c)(14) to file 
a notice with the Commission containing such information and in 
such form as the Commission may prescribe as necessary or 
appropriate in the public interest or consistent with the 
protection of investors.

                          accounts and records

  Sec. 31. (a) * * *

           *       *       *       *       *       *       *

  (f) Exemption Authority.--The Commission, upon application 
made by any registered investment company, may by order exempt 
a specific transaction or transactions from the provisions of 
any rule or regulation made pursuant to subsection [(c)] (e), 
if the Commission finds that such rule or regulation should not 
reasonably be applied to such transaction.

           *       *       *       *       *       *       *


                   jurisdiction of offenses and suits

  Sec. 44. The district courts of the United States and the 
United States courts of any Territory or other place subject to 
the jurisdiction of the United States shall have jurisdiction 
of violations of this title or the rules, regulations, or 
orders thereunder, and, concurrently with State and Territorial 
courts, of all suits in equity and actions at law brought to 
enforce any liability or duty created by, or to enjoin any 
violation of, this title or the rules, regulations, or orders 
thereunder. Any criminal proceeding may be brought in the 
district wherein any act or transaction constituting the 
violation occurred. A criminal proceeding based upon a 
violation of section 34, or upon a failure to file a report or 
other document required to be filed under this title, may be 
brought in the district wherein the defendant is an inhabitant 
or maintains his principal office or place of business. Any 
suit or action to enforce any liability or duty created by, or 
to enjoin any violation of, this title or rules, regulations, 
or orders thereunder, may be brought in any such district or in 
the district wherein the defendant is an inhabitant or 
transacts business, and process in such cases may be served in 
any district of which the defendant is an inhabitant or 
transacts business or wherever the defendant may be found. In 
any action or proceeding instituted by the Commission under 
this title in the district court of the United States for any 
judicial district, subpoenas issued by such court to compel the 
attendance of witnesses may be served in any other district. 
Judgments and decrees so rendered shall be subject to review as 
provided in sections 1254, 1291, 1292, and 1294 of title 28, 
United States Code. No costs shall be assesssed for or against 
the Commission in any proceeding under this title brought by or 
against the Commission in any court. The Commission may 
intervene as a party in any action or suit to enforce any 
liability or duty created by, or to enjoin any noncompliance 
with, section 36(b) of this title at any stage of such action 
or suit prior to final judgment therein.

           *       *       *       *       *       *       *

                              ----------                              


INVESTMENT ADVISORS ACT OF 1940

           *       *       *       *       *       *       *


TITLE II--INVESTMENT ADVISERS

           *       *       *       *       *       *       *


                  registration of investment advisers

  Sec. 203. (a) * * *

           *       *       *       *       *       *       *

  (e) The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, 
suspend for a period not exceeding twelve months, or revoke the 
registration of any investment adviser if it finds, on the 
record after notice and opportunity for hearing, that such 
censure, placing of limitations, suspension, or revocation is 
in the public interest and that such investment adviser, or any 
person associated with such investment adviser, whether prior 
to or subsequent to becoming so associated--
          (1) * * *

           *       *       *       *       *       *       *

          (8) has been found by a foreign financial regulatory 
        authority to have--
                  (A) * * *
                  (B) violated any foreign statute or 
                regulation regarding transactions in securities 
                or contracts of sale of a commodity for future 
                delivery traded on or subject to the rules of a 
                contract market or any board of trade; or

           *       *       *       *       *       *       *


                   jurisdiction of offenses and suits

  Sec. 214. The district courts of the United States and the 
United States courts of any Territory or other place subject to 
the jurisdiction of the United States shall have jurisdiction 
of violations of this title or the rules, regulations, or 
orders thereunder, and, concurrently with State and Territorial 
courts, of all suits in equity and actions at law brought to 
enforce any liability or duty created by, or to enjoin any 
violation of this title or the rules, regulations, or orders 
thereunder. Any criminal proceeding may be brought in the 
district wherein any act or transaction constituting the 
violation occurred. Any suit or action to enforce any liability 
or duty created by, or to enjoin any violation of this title or 
rules, regulations, or orders thereunder, may be brought in any 
such district or in the district wherein the defendant is an 
inhabitant or transacts business, and process in such cases may 
be served in any district of which the defendant is an 
inhabitant or transacts business or wherever the defendant may 
be found. In any action or proceeding instituted by the 
Commission under this title in the district court of the United 
States for any judicial district, subpoenas issued by such 
court to compel the attendance of witnesses may be served in 
any other district. Judgments and decrees so rendered shall be 
subject to review as provided in sections 1254, 1291, 1292, and 
1294 of title 28, United States Code. No costs shall be 
assessed for or against the Commission in any proceeding under 
this title brought by or against the Commission in any court.

           *       *       *       *       *       *       *


SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.

  (a) * * *
  (b) Dual Compliance Purposes.--No State may enforce any law 
or regulation that would require an investment adviser to 
maintain any books or records in addition to those required 
under the laws of the State in which it maintains its principal 
place of business, if the investment adviser--
          (1) is registered or licensed as such in the State in 
        which it maintains its principal place of business; and
          (2) is in compliance with the applicable books and 
        records requirements of the State in which it maintains 
        its [principle] principal place of business.

           *       *       *       *       *       *       *

                              ----------                              


      SECTION 25 OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

                   jurisdiction of offenses and suits

  Sec. 25. The District Courts of the United States and the 
United States courts of any Territory or other place subject to 
the jurisdiction of the United States shall have jurisdiction 
of violations of this title or the rules, regulations, or 
orders thereunder, and, concurrently with State and Territorial 
courts, of all suits in equity and actions at law brought to 
enforce any liability or duty created by, or to enjoin any 
violation of, this title or the rules, regulations, or orders 
thereunder. Any criminal proceeding may be brought in the 
district wherein any act or transaction constituting the 
violation occurred. Any suit or action to enforce any liability 
or duty created by, or to enjoin any violation of, this title 
or rules, regulations, or orders thereunder, may be brought in 
any such district or in the district wherein the defendant is 
an inhabitant or transacts business, and process in such cases 
may be served in any district of which the defendant is an 
inhabitant or transacts business or wherever the defendant may 
be found. In any action or proceeding instituted by the 
Commission under this title in the district court of the United 
States for any judicial district, subpoenas issued by such 
court to compel the attendance of witnesses may be served in 
any other district. Judgments and decrees so rendered shall be 
subject to review as provided in sections 1254, 1291, 1292, and 
1294 of title 28, United States Code. No costs shall be 
assessed for or against the Commission in any proceeding under 
this title brought by or against the Commission in any court.
                              ----------                              


                      TRUST INDENTURE ACT OF 1939

                               TITLE III

                              short title

  Sec. 301. This title, divided into sections as follows, may 
be cited as the ``Trust Indenture Act of 1939'':

           *       *       *       *       *       *       *


                              definitions

  Sec. 303. When used in this title, unless the context 
otherwise requires--
          (1) Any term defined in section 2 of the Securities 
        Act of 1933, and not otherwise defined in this section, 
        shall have the meaning assigned to such term in such 
        section 2.
          (2) The terms ``sale'', ``sell'', ``offer to sell'', 
        ``offer for sale'', and ``offer'' shall include all 
        transactions included in such terms as provided in 
        paragraph (3) of section 2(a) of the Securities Act of 
        1933, except that an offer or sale of a certificate of 
        interest or participation shall be deemed an offer or 
        sale of the security or securities in which such 
        certificate evidences an interest or participation if 
        and only if such certificate gives the holder thereof 
        the right to convert the same into such security or 
        securities.
          (3) The term ``prospectus'' shall have the meaning 
        assigned to such term in paragraph (10) of section 2(a) 
        of the Securities Act of 1933, except that in the case 
        of securities which are not registered under the 
        Securities Act of 1933, such term shall not include any 
        communication (A) if it is proved that prior to or at 
        the same time with such communication a written 
        statement if any required by section 306 was sent or 
        given to the persons to whom the communication was 
        made, or (B) if such communication states from whom 
        such statement may be obtained (if such statement is 
        required by rules or regulations under paragraphs (1) 
        or (2) of subsection (b) of section 306) and, in 
        addition, does no more than identify the security, 
        state the price thereof, state by whom orders will be 
        executed and contain such other information as the 
        Commission, by rules or regulations deemed necessary or 
        appropriate in the public interest or for the 
        protection of investors, and subject to such terms and 
        conditions as may be prescribed therein, may permit.

           *       *       *       *       *       *       *


                  exempted securities and transactions

  Sec. 304. (a) The provisions of this title shall not apply to 
any of the following securities:
          (1) * * *

           *       *       *       *       *       *       *

          (4)(A) any security exempted from the provisions of 
        the Securities Act of 1933 by paragraph (2), (3), (4), 
        (5), (6), (7), (8), (11), or [(14) of subsection] (13) 
        of section 3(a) thereof;

           *       *       *       *       *       *       *


reports by indenture trustee

           *       *       *       *       *       *       *


  Sec. 313. (a) The indenture trustee shall transmit to the 
indenture security holders as hereinafter provided, at stated 
intervals of not more than 12 months, a brief report with 
respect to any of the following events which may have occurred 
within the previous 12 months (but if no such event has 
occurred within such period no report need be transmitted):--
          (1) * * *

           *       *       *       *       *       *       *

          (4) any change to the amount, interest rate, and 
        maturity date of all other indebtedness owing to it in 
        its individual capacity, on the date of such report, by 
        the obligor upon the indenture securities, with a brief 
        description of any property held as collateral security 
        therefor, except an indebtedness based upon a creditor 
        relationship arising in any manner described in 
        paragraphs (2), (3), (4), or (6) of subsection 311;
          (5) any change to the property and funds physically 
        in its possession as indenture trustee on the date of 
        such report;
          (6) [any change to] any release, or release and 
        substitution, of property subject to the lien of the 
        indenture (and the consideration therefor, if any) 
        which it has not previously reported;

           *       *       *       *       *       *       *


                     rules, regulations, and orders

  Sec. 319. (a) * * *
  (b) Subject to the provisions of [the Federal Register Act] 
chapter 15 of title 44, United States Code, and regulations 
prescribed under the authority thereof, the rules and 
regulations of the Commission under this title shall be 
effective upon publication in the manner which the Commission 
shall prescribe, or upon such later date as may be provided in 
such rules and regulations.

           *       *       *       *       *       *       *


                            DISSENTING VIEWS

    We abhor strike suits and frivolous litigation of any 
stripe. We would enthusiastically support responsible and 
balanced legislation narrowly targeted at ameliorating those 
abuses. H.R. 1689 does not meet that standard. We dissent from 
this bill.
    As introduced, H.R. 1689 was an industry wish list devoid 
of proper safeguards to protect the essential rights of injured 
investors to pursue meritorious claims. The sponsors and 
proponents of H.R. 1689 adopted several amendments during 
Subcommittee and Full Committee markup to temper some of the 
bill's harshest elements. We commend our colleagues. The bill, 
nonetheless, is still flawed.
    H.R. 1689 creates a national standard governing securities 
fraud class actions involving ``covered securities'' which are 
nationally traded securities and some that are not. The bill 
requires these class actions to be brought in federal court 
pursuant to federal law, where they would be subject to the 
more stringent terms of the Private Securities Litigation 
Reform Act of 1995. These terms include the double whammy of 
heightened pleading standards along with a stay of discovery 
pending a motion to dismiss, blocking the ability of defrauded 
investors to gain the special facts needed to meet the 
heightened pleading standards.
    First, the bill is premature. The Securities and Exchange 
Commission (SEC) concluded in its April 1997 report to the 
President and Congress that: ``it is too early to assess with 
confidence many important effects of the Reform Act and 
therefore, on this basis, it is premature to propose 
legislative changes. The one-year time frame has not allowed 
for sufficient practical experience with the Reform Act's key 
provisions, or for many court decisions (particularly appellate 
court decisions) interpreting those provisions.'' The Chairman 
of the SEC testified before our finance subcommittee on October 
21, 1997, that his agency had ``not had enough practical 
experience with the Act to produce the data necessary for us to 
measure its success.'' That is still the case.
    Second, there is no national problem in need of a national 
solution. Data compiled by unbiased sources shows that the 
number of state securities class actions has declined during 
the last year to pre-Reform Act levels. In 1997, there were a 
total of 44 state class action securities cases, out of a total 
of 15 million civil filings. By comparison, 67 state class 
actions were filed in 1994, the year before the Reform Act 
became law, and 66 cases were filed in 1996, the year after the 
Reform Act was enacted. We note in passing that we have been 
shown no convincing proof that any of these lawsuits was 
without merit and was allowed to proceed notwithstanding its 
lack of merit. Moreover, as the attached map shows, the 
overwhelming majority of those cases were filed in California, 
with most states having zero filings. That being the case, 
shouldn't this ``problem'' be solved in the California 
legislature? We believe that state legislatures should be given 
time to consider laws of their own to address the issues raised 
in this debate.
    We find it curious indeed that the Republican-led Congress 
that campaigns on returning power to the states and protecting 
individual choice, would champion a federal mandate abolishing 
important state prerogatives along with protections and rights. 
Forty-nine states, as well as the District of Columbia, allow 
for some form of aiding-and-abetting liability. There is no 
aiding-and-abetting liability in private actions for most 
federal securities fraud claims. In addition, private actions 
under the federal securities laws are subject to a short 
statute of limitations. Specifically, private actions under 
Section 10(b) of the Exchange Act must be brought within one 
year after discovery of the alleged violation, and no more than 
three years after the violation occurred. In contrast, 33 
states allow for longer limitation periods. These investor 
protection laws available at the state level, as the attached 
list shows, will no longer be available to class action 
plaintiffs upon passage of H.R. 1689. The public should clearly 
understand the investor protections being wiped out by the 
elected representatives who vote yes on this bill.
    Moreover, under H.R. 1689's unusual ``grouping'' provision, 
any time more than 50 individuals file state court complaints 
``in the same court and involving common questions of law or 
fact,'' they will be deemed to be part of a ``class action'' 
subject to this bill, if ``the lawsuits are joined, 
consolidated, or otherwise proceed as a single action for any 
purpose.'' Individuals who bring suits in state court in their 
own name may find, if others have brought similar suits, that 
their claims are preempted. For instance, if an investment 
adviser churns the accounts of or recommends unsuitable 
securities to clients in a single state and more than 50 of 
them seek to recover in the same court, each filing their own 
individual action, they may be forced to constitute a class 
action and have to pursue their claims--if possible--in federal 
court. These investors may be left without a remedy. This is 
broader preemption than we believe is necessary or appropriate. 
There has been no showing that these kinds of suits, either 
individually or in the aggregate, present the kinds of 
potential abuses that have been attributed to traditional class 
actions and strike suites.
    The debate on this legislation has been polar. It has 
tarred all private securities fraud litigation as meritless 
strike suites, and all defendant companies, accountants, and 
broker-dealers as innocent victims of large-sum-settlement 
hijackings. Through this lens, unintended harm to legitimate 
lawsuits is viewed as a reasonable tradeoff. We disagree on 
both counts.
    The record shows that securities fraud is up. Many of those 
cases involve accounting frauds. The SEC has always taken the 
view that private lawsuits are a crucial adjunct to the SEC's 
own enforcement program. They are the principle means by which 
investors have recovered losses caused by fraud. Proponents of 
H.R. 1689 argue that investors recover only ``10 cents on the 
dollar'' in these cases. We agree that we need to put investors 
first. But nothing in this bill addresses the recovery issue in 
any way.
    For these reasons, we oppose this bill and urge the House 
to do the same.

                                   John D. Dingell.
                                   Edward J. Markey.
                                   Bart Stupak.
                                   Diana DeGette.





          ADDITIONAL DISSENTING VIEWS OF CONGRESSMAN RON KLINK

    H.R. 1689 is a solution in search of a problem.
    In 1995, the Commerce Committee developed and Congress 
approved, over a presidential veto, the Private Securities 
Litigation Reform Act, which put strict limits on federal 
investor class action lawsuits. I opposed that legislation 
because I was concerned about preventing defrauded investors 
from being made whole again. But my side lost, and we all moved 
on.
    One of the arguments when we debated the 1995 Act was that 
truly victimized investors could still seek redress in state 
court. So there was some comfort in that; retirees who lost 
their life savings to securities fraud could still pursue legal 
action.
    Now, however, I fear that the Committee is moving to cut 
off the state avenue for class action securities suits. That 
could mean that investors would have no ability to seek relief 
from securities wrongdoers, and that is unacceptable to me.
    There appears to be no explosion of state securities class 
actions, so I see no real need for this bill. Last year there 
were only 44 throughout the entire country, the lowest number 
in five years.
    Furthermore, at a time when there are more investors than 
at any time in history, many of them unsophisticated investors, 
we should not be making it easier to get away with securities 
fraud. We owe that to our investor constituents and we owe that 
to the capital markets in this country, which remain the 
strongest in the world.
    Additionally, though the bill contains a provision similar 
to the Sarbanes amendment in the Senate bill, which provides 
for an exemption from the bill for state and local entities, 
this provision goes beyond Sarbanes to require those entities 
to be named plaintiffs in and authorize participation in state 
securities class actions. This assumes a level of 
sophistication that may be lacking in these investors.
    I will provide an example. Last year, the SEC alleged that 
Devon Capital Management had defrauded 100 municipal clients in 
Pennsylvania and elsewhere. Those clients included 75 school 
districts, mostly in Western and Central Pennsylvania. Devon 
and the SEC reached a settlement, and those school districts 
are expected to recover a little over half of the $71 million 
that Devon lost.
    Now, how can we say that these same school districts and 
local governments that were unsophisticated enough to have 
invested with Devon in the first place and lost all this money, 
are, at the same time, sophisticated enough to recognize the 
steps they need to take to preserve their rights to bring a 
state securities class action under this bill?
    I would prefer that, at the very least, the Sarbanes 
amendment exempting state and local governments and pension 
plans be maintained as it passed the Senate.
    Finally, I am disturbed by the trend I am seeing in the 
Committee and Congress as a whole in our attitude toward 
investors, especially the mom and pop investors we all 
represent. As I said, I opposed the 1995 Securities Litigation 
Reform Act. That was followed closely by the Fields Securities 
Reform bill, which threatened to severely limit the ability of 
state securities regulators, the local cops on the beat in the 
securities world, to protect investors. In Committee and in 
conference, we were able to temper this legislation so that 
investors would not be left vulnerable.
    We are at a point in time when Members of Congress and 
others are talking about privatizing Social Security. That will 
lead to even more unsophisticated investors and hundreds of 
billions of dollars going into the marketplace. And yet we 
continue to talk about reducing investor protections.
    Another question I have is, are we now saying to the states 
that we in Washington, DC, know better than the states what 
cases should go through state courts and which should not? Are 
we next going to tell the states that they can't hear real 
estate cases? Are we going to tell them they can't hear tobacco 
cases? What comes next?
    I never thought I would see the day when my Republican 
colleagues would want to dictate from on high in Washington, 
DC, what state law should be.

                                                         Ron Klink.

                                
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